Amended Electricity Act 2022 sparks debate: States feel 'powerless'

In the last session of Parliament (monsoon  session), the Ministry of Power introduced in the Lok Sabha the Electricity (Amendment) Bill, 2022, with the stated objective of transforming the power sector, with special focus on augmenting the power distribution network in the country.

The amendments met with so much pushback, especially from state governments, that it had to be referred to a standing committee, which is thrashing it out behind closed doors. The last time so much political energy was expended in power sector reform was in 2000 when Andhra Pradesh under Chandrababu Naidu launched a programme of unbundling utilities and revising tariffs which led police firing in Hyderabad.

State governments – specifically those run by Opposition parties - claim that the amendments will curtail their powers, especially relating to subsidies given to the farm sector.

Nothing can be further than the truth, explains union Power Minister R K Singh. 

“There is no provision to stop subsidies to any section of consumers in the Electricity (Amendment) Bill, 2022. It was provided by the Electricity Act, 2003, that there can be more than one distribution utility in an area. But other distribution companies (discoms) would have to supply power through their own network. Now we have provided for sharing the distribution network (common carrier). It (common carrier) would charge for wheeling power of other discoms,” the minister said at a public engagement in Delhi, earlier this month.

But state governments are not so sanguine about the benign nature of amendments.

Tamil Nadu Chief Minister (CM) M K Stalin told Home Minister Amit Shah bluntly that centralisation, disguised as spurring competition, would not wash. Speaking at the 30th Southern Zonal Council meeting in Thiruvananthapuram earlier this month, the CM asked the Centre to withdraw the Bill and allow state-owned distribution licensees to continue the supply of quality power at affordable rates. Reiterating the age-old call of the Dravida Munnetra Kazhagam, ‘Federalism at the Centre; Autonomy for States’, he said: “When we proposed this 50 years ago, we were a minority. But today all state governments and regional parties have embraced our motto.”

Kerala Power Minister K Krishnan Kutty said last month the state government was preparing a lengthy letter to the Union government on the centralisation of powers.

West Bengal CM Mamata Banerjee has already locked horns with the Centre on the amendments and has directed party Members of Parliament to be as vocal as possible in their criticism of the new provisions.

But what is the fuss about?

Thirty-five amendments are proposed in the Bill. Of them, half would come under the purview of ‘as prescribed by the Centre’. This includes provisions related to inviting private investment in power distribution, which is a state subject. States and their electricity regulators say this shackles their autonomy. 

In the power sector supply chain, generation and transmission are under the Centre, while distribution is a state subject.

There are other gripes.

The amended Bill gives the Central Electricity Regulatory Commission (CERC) the authority to approve applications for a power distribution licence in an area. Under Section 79 of the Act, (which pertains to the functions of the CERC) a new provision has been inserted saying it has a new function “to grant licence for distributing electricity in more than one State”. This is likely to cover players such as Tata Power, Adani Electricity, Torrent Power, Calcutta Electric Supply Corporation (CERC), etc which are already operating power distribution in some states. 

 State electricity regulators say this will shroud in confusion the approval process for new distribution licensees.

“CERC can approve any application and state electricity regulatory commissions (SERCs) can reject it. According to the text of the Bill, the Centre will draft the eligibility criteria for new licence applicants. However, it is the SERCs who will decide the tariff caps for these new licensees. The responsibility and accountability are lopsided and faultily constructed,” said a member of a SERC.

 A sector expert says it is not clear how the SERCs will decide the tariff as the operational area of a licensee would not be evident during the application process.

“The Bill lacks details and states will use this in their contentions to the standing committee which is examining it,” he said.

The Bill comes at a time when discoms are facing a financial crisis. The financial health of the discoms, which witnessed some improvement in recent years, has slipped into the red, again.

The annual rating of discoms by financing agency Power Finance Corporation revealed the financial deficit in the sector is ‘larger than previously recorded’ and is widening because of declining profitability of discoms.

But there is another side to it.

While states are unhappy about the ‘over-centralisation’ of several clauses of the Bill, states for years have failed to revive their discoms and power supply operations.

“In the past 15 years, there have been several revival schemes and restructuring packages for discoms, but to no avail. So if states are now going forward to contest the Centre on the Bill, they should have a plan in place,” said a sector expert, adding the new Revamped Distribution Sector Scheme is one such opportunity.

But state governments are unimpressed. As are trade unions of power engineers in state-run discoms who see privatisation as a threat to government-run discoms and their own existence.

As political parties put forth their reservations about the Bill in the standing committee, state governments are getting ready to register their apprehensions. The government has promised the amended Electricity Act will be debated in the winter session, beginning sometime in November.

If it reaches that stage, given the Bharatiya Janata Party-led National Democratic Alliance government’s majority in the Lower House, it is sure to be passed. But it will likely leave a trail of political bitterness.