20th May – Energy Security – Electricity Amendment Act

A jolt to national energy security

Finance Minister Nirmala Sitharaman’s proposal for reform of power tariff policy – announced as part of the stimulus package following the pandemic – is a piece with the recent comprehensive proposal to amend the Electricity Act 2003; put together, they erode the concurrent status accorded to electricity in the Constitution.

What is the issue?

If implemented, they will not weaken the control of States over an industry supplying a basic human necessity such as electricity but also arm the Centre with a pincer-like weapon which could choke the distribution utilities/companies (DISCOM) and jeopardise the country’s energy security.

Background –

  • These proposals have to be seen in the context of a continuing centralisation of control over the sector whose main impact in the last 25 years has been to drive up the cost of power purchase to 80% of the total costs of State DISCOMs.
  • At the core of DISCOM woes is the two-part tariff policy, mandated by the Ministry of Power in the 1990s at the behest of the World Bank.
  • As more private developers came forward to invest in generation, DISCOMs were required to sign long-term power purchase agreements (PPA), committing to pay a fixed cost to the power generator, irrespective of whether the State draws the power or not, and a variable charge for fuel when it does.

What are the issues with amendments?

  • First, the amendment proposes sub-franchisees, presumably private, in an attempt to usher in markets through the back door. Going by past privatisation experiments, private sub-franchisees are likely to cherry-pick the more profitable segments of the DISCOM’s jurisdiction. The Electricity Bill 2020 containing the proposed amendments is silent on whether a private sub-franchisee would be required to buy the expensive power (averaging out the idle fixed costs) from the DISCOM or procure cheaper power directly from power exchanges.
  • Second, the amendment proposes even greater concessions to renewable power developers, with its cascading impact on idling fixed charges, impacting the viability of DISCOMs even more.
  • Third, and the most controversial amendment proposed, seeks to eliminate in one stroke, the cross-subsidies in retail power tariff. This means each consumer category would be charged what it costs to service that category. However, the proposed amendments envisage that State governments will directly subsidise whichever category they want to, through direct benefit transfers. By eliminating cross-subsidies in one stroke when State governments are already struggling with direct power subsidies is bound to be ruinous to their finances.
  • Fourth, State regulators will henceforth be appointed by a central selection committee, the composition of which inspires little confidence in its objectivity, jeopardising not only regulatory autonomy and independence but also the concurrent status of the electricity sector.
  • Finally, the last claw in this multi-pronged pincer is the establishment of a centralised Electricity Contract Enforcement Authority whose members and chairman will again be selected by the same selection committee referred to above. The power to adjudicate upon disputes relating to contracts will be taken away from State Electricity Regulatory Commissions and vested in this new authority.

Conclusion –

When the country is reeling under the economic impact of the novel coronavirus crisis, the Electricity Bill 2020 is indeed a disingenuous document drafted to shift the burden imposed by the short-sighted policies of the Centre onto hapless States, with serious consequences for the nation’s energy security.

SourceThe Hindu

QUESTION – Discuss the criticisms involved with the proposed Electricity Amendment Act. Why it is regarded as a jolt to energy security of India?

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