Omissions and commissions in 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. 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. While several comments can be offered on the proposed amendments, due to paucity of space only a few of the amendments will be taken up here. While some of the proposed amendments are indeed laudable, there are some which are intriguing.

Before discussing the proposed amendments, what needs to be mentioned is that the government now intends to drop the “carriage and content” proposal, which was a major plank of the previous amendment Bill of 2014. In a “carriage and content” regime, 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. This, to my mind, was 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. “Content and carriage” may have some benefits in the long run when the majority of the power purchase is competitively bid. What we need today is an immediate fix to improve the financial position of the discoms. Their accumulated dues  are in excess of Rs  4 trillion and introduction of “carriage and content” does not address this problem. In countries where “carriage and content” has been implemented, such as the UK, it has offered little benefit to small consumers, and they generally do not change their retailer. So doing away with the “carriage and content” proposal is a welcome step.

To come to the amendments, the first major amendment being proposed is the setting up of the 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. To illustrate, the discoms are not paying the generators regularly (thus violating the contract to be examined by the Authority) simply because they have a cash flow problem, which stems from the low tariffs awarded by the regulatory commissions. This brings to the fore the interdependent nature of each of the issues.

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. If the intention is to provide more teeth to the Authority by giving it the power of decree (as has been proposed in the amendment), something which the regulatory commissions do not enjoy, then this needs further legal scrutiny. Whether power of decree can be awarded to the Authority is debatable.

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.

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.

Finally, a word on some surprising omissions. 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. Though the government had issued some guidelines on this in April 2018, 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.

What shape the Act will finally take is still unclear. The process is long and can be acrimonious, especially when there is an attempt towards centralisation, which certainly seems to be the case here.

 

The writer is a former member (economic and commercial) of Central Electricity Authority