States oppose Electricity Bill as Centre pushes reforms in power sector

As the Centre pushes reforms in the power sector, especially for the beleaguered electricity distribution segment, several states, mostly the opposition-ruled ones, are opposing it. Maharashtra, West Bengal, Tamil Nadu, Kerala have voiced their reservations against the amendments made to the Electricity Act, 2003.

The proposed new Bill is slated to be placed on the floor of the Parliament in the current session. Ahead of that, it will also be sent for Cabinet’s approval.

The Centre in April unveiled the first set of draft amendments to the Electricity Bill, 2003 and has asked the states to

submit their comments. Major amendments included an end to subsidised power rates replacing it with ‘direct benefit transfer’ of subsidy, reduction of cross-subsidy burden on industrial consumers, new contract enforcement authority and new selection process for existing state electricity regulatory commissions (SERCs).

In February, the Centre further amended the existing Electricity Act, 2003 to abolish power “distribution licence” and allowed any company to supply electricity in an area, after necessary regulatory approval. With this, the Centre has ended the monopoly of existing power distribution companies (discoms), which are mostly state-owned entities, and any and every area has been thrown open to be offered to private discoms.

New Bill set to amend the Electricity Act, end licence raj in power supply

The following change has become a major bone of contention between the Centre and states. The challenge comes at a time when the BJP-ruled central government has unveiled a second power distribution reform worth Rs 3 trillion. The scheme aims at improving the finances and operations of the power distribution companies (discoms), which are mostly state-owned and a majority of them in a dire state.

The last discoms reform scheme UDAY launched in 2014 concluded in 2020 with most states failing to meet their stipulated targets. Till yet, there have been in total four reform or financial restructuring schemes in the last decade for the state-owned discoms.

With the changes suggested in the Electricity Act, several states have now started attacking the Centre citing the federal structure of the electricity sector, wherein generation and transmission comes under Centre and distribution is state subject.

In a recent letter, West Bengal Chief Minister Mamta Banerjee wrote to the prime minister that states were not consulted during the process of the amendments.

“Power is too important a sector for such unilateral interferences, especially when ‘electricity’ as a subject is in the Concurrent List of the Constitution of India and any legislation on a subject in such a list needs serious prior consultation with the states. In the present case, there has been some tokenism of consultations, but no real exchange of views, which is antithetical to the federal structure of our polity,” she said in her letter.

She also further said, the approach suggested in the proposed Bill would result in concentration of private profit-focused utility players in the “lucrative urban-industrial segments, while poor and rural consumers would be left to be tended by public sector discoms.” West Bengal has a private power discom CESC (promoted by R P Goenka group) in some parts of capital city Kolkata.

The Union power minister was reported questioning the statement of West Bengal CM. The minister told news agency PTI on Monday, “Why she wants to protect monopolies is not clear, especially the private company in Kolkata, which has one of the highest tariffs in the country.” He further said the Bill would end government and private monopolies in power distribution.

“There must be competition in this sector so that people can choose a distribution company which gives more efficient service at lower prices,” Singh said.

Shiv Sena MP Sanjay Raut also said on Monday, states were not consulted on the provisions of the Electricity (Amendment) Bill and it is not in the interest of the country. “The provisions ring a danger bell for state electricity companies. Our party is holding consultations in this regard,” he said.

In Maharashtra, Mumbai has two private discoms – Tata Power and Adani Electricity. It also has private power distribution franchisees in some areas such as Bhiwandi which was the first to have this model when Torrent Power took over the franchisee business in 2007.

Last year in July, during the Power Ministers’ conference, Bihar, which is a BJP ally state, opposed the proposal for privatisation of power distribution as it feared there will be an increase in the power rates. Tamil Nadu, Odisha, Kerela protested against several provisions of the Bill, then.

Oppn-ruled states oppose Electricity Bill changes, fear increase in rates

Odisha however has recently awarded all the power distribution zones for privatised power supply. Tata Power has won all the zones.

There were several states which also have condemned the move to end subsidised power rates. The provision of power tariff determination has been revised in the Bill and it asks all state electricity regulatory commissions (SERCs) “to determine tariff for retail sale of electricity without any subsidy under section 65 of the Act”. It proposes to give subsidies directly to the consumer.

States have opposed this on the ground that it would be difficult to enforce DBT in electricity, sources said.