Govt may drop proposal on discom delicensing after some states protest

One of the most contentious proposals in the draft amendments to the Electricity Act, 2003, is likely to be dropped. This comes as the Union ministry of power prepares to table a Bill in the upcoming monsoon session of Parliament.

The amendment pertains to delicensing of power distribution that would have paved the way for any company to supply electricity in an area, after necessary regulatory approval.

In a recent presentation to stakeholders, the ministry has said it is considering to drop the proposal, according to sources.

Other proposed amendments, which could be dropped, are cross-border trade of electricity, changes to Section 63 for tariff adoption and a high court judge selecting members of the state electricity regulatory commissions (SERCs).

The amendments — introduced in February last year — were circulated for comments from key stakeholders, including the states.

Several states — mainly the non-BJP-ruled ones — clamoured against the proposed amendments and had said they were an attack on federalism. In its representation, West Bengal said the amendments to the Act are an “infringement on the sovereignty of the state.” 

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

The draft Bill, however, has brought back proposal to have multiple electricity suppliers in a single area. The recent set of amendments proposed that choice to consumers through multiple distribution licensees would remain. Under this, several licensees can operate on the same network.

Through this, the Centre has retained the first set of amendments introduced in 2016, allowing “content and carriage separation.” However, the network ownership remains with the state utility and there are multiple electricity suppliers, said senior executives. The decision to allow another supplier would remain with the state and the SERC. The amendment just paves the way for an overarching regulation. The idea to get multiple electricity sellers has come at a time when the Centre has floated a Rs 3-trillion scheme to revive the power distribution sector.

State-owned discoms across the country are grappling financially and operationally despite four reform schemes in the last 15 years.

The earlier discom reform scheme UDAY concluded in FY20 with most states failing to meet their stipulated targets and are still in the red.

Provisions, which have been retained, have a penalty for those defaulting on renewable purchase obligation (RPO).

Other proposals include several improvements in the functioning of SERCs and payment security mechanism for generating companies (gencos) to get timely payment from distribution companies (discoms).

The Electricity Bill, 2022, has also proposed to empower the grid operator National Load Despatch Centre (NLDC). It gives it the right to stop dispatch of power to states that do not provide payment security against their contracted supply.

In Section 28 of the Bill — which pertains to NLDC’s operations — a new provision has been added.

It states, “No electricity shall be scheduled or dispatched under such contract unless adequate security of payment, as agreed upon by the parties to the contract, has been provided.”

The amendment is in the wake of rising dues of discoms to generating companies. The dues of discoms stand at Rs 1.11 trillion as on June-end. This is a record high.

The Proposals

Delicensing of power distribution removed from the proposed amendments to the Electricity Act, 2003

Centre to retain proposal to have multiple electricity suppliers in an area, bring back content-carriage separation method of private investment

The Electricity Bill, 2022, is likely to be placed in the upcoming monsoon session of Parliament

Penalty for renewable purchase obligation default to remain

Cross-border power trading omitted from latest amendments