Electricity Act

30th April – Electricity Act

Electricity Act

The government has announced that it proposes to make certain amendments to the Electricity Act 2003. The previous amendment Bill was initiated in 2014, though no headway was made after consultation with the states.

Amendments proposed –

The changes being proposed now include the constitution of the Electricity Contracts Enforcement Authority (henceforth the Authority), appointment of distribution sub-franchisees, introduction of a national renewable energy policy, promotion of renewables, functioning of the National Load Despatch Centre, and rationalisation of tariffs, among others.

Carriage and content proposal –

  • The bill proposes a “carriage and content” regime under which, while there is only one owner of the distribution wires, several retailers can use the same set of wires for distributing electricity. The argument in favour of introducing “carriage and content” was to usher in an element of competition wherein the consumer would be able to choose the retailer. The argument seems illogical since more than 80 per cent of the cost of distribution consists of the power purchase cost and only 20 per cent (or less) is the distribution cost.
  • Further, more than 90 per cent of the power generated today is based on long-term power purchase agreements (PPAS) and, therefore, all retailers would be facing the same cost when it comes to power purchase and consequently, there would be no scope for competition at least as far as price is concerned.

Electricity Contracts Enforcement Authority –

  • To come to the amendments, the first major amendment being proposed is the setting up of the Electricity Contracts Enforcement Authority. It is mentioned that this entity will have the sole authority and jurisdiction to adjudicate upon matters regarding performance of obligations under a contract related to sale, purchase or transmission of electricity. Matters relating to tariff and regulation will still lie in the domain of the electricity regulatory commissions. This is bound to create confrontations between the Authority and the regulatory commissions since matters relating to contracts (ie. PPAS) cannot be dealt in isolation and are closely intertwined with those relating to tariff and regulations.
  • It would be pertinent to add that under the existing Act, section 86(f ), the regulatory commissions already have the mandate to adjudicate in disputes between the licensees and generators and therefore, the creation of the Authority is questionable.

Renewable energy component –

  • The Act is also proposed to be amended to facilitate the introduction of a national renewable energy policy. This is strange because electricity is expected to flow seamlessly and it is not possible to have two separate policies, one for conventional electricity and another for electricity from renewables, to be dealt in two separate silos.
  • India is planning to install a renewable capacity of 450 GW (within the next 10 years or so) and this will have huge repercussions on the functioning of the conventional electricity generators. In such a scenario, having two separate policies belies logic.

Regulatory commissions –

  • The selection process of chairman and members of regulatory commissions has been a major issue since long as it is widely felt that the regulatory commissions are not performing objectively and that they succumb to pressure from the state governments, especially on matters of retail tariff.
  • It is now proposed that selection of chairman and members of regulatory commissions, be it at the Centre or the states, and the appellate body and the Authority will be done by a common committee chaired by a sitting/ former judge of the apex court.
  • While this may be a welcome step, it certainly has ramifications on the federal structure and it is unclear whether the states are going to accept this.

Way forward –

  • With the government’s drive on introduction of e-vehicles, there is a need to set up charging stations all over the country and such charging stations need to be treated as deemed distribution licensees that do not require a licence. Treating this activity to be a service rather than distribution, it would have been better to clarify this in the Act itself.
  • Another surprising omission is the absence of a reference to the railways and special economic zones as deemed licensees. Though the railways has already been conferred the status of a deemed licensee through an executive order in 2014, it does not have the necessary statutory backing. Now was the time to make it legitimate by including this in the Act.

SourceBusiness Standard

QUESTION – The government has proposed amendments to the Electricity Act, 2003. Examine the amendments to the Act and suggest a way forward.

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