New Bill: Easy access to power distribution business proposed

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February 8, 2021 4:20 AM

The amendment proposes that incumbent discoms will have to share their existing power purchase arrangement with all discoms entering their supply areas.

New and incumbent discoms can tie up their incremental power requirements on their own if needed.New and incumbent discoms can tie up their incremental power requirements on their own if needed.

A new Bill to amend the Electricity Act tabled in Parliament proposes to usher in the long-elusive competition in power distribution business. To provide more choices to consumers and bring higher efficiency in the sector, the Bill seeks to de-license the power distribution business and allow any entity to run distribution companies (discoms) anywhere in the country. The incumbent state-run discoms will have to “provide non-discriminatory access to their distribution system to all discoms registered within the same area of supply”, in return for wheeling charges to be determined by state power regulators.

Of course, the new operator can set up its own parallel distribution network, but with a condition that it can’t be for exclusive use, and needs to be shared if other parties demand access to it.

To deter new players from cherry-picking lucrative supply circles in urban, commercial and industrial areas (as these consumers cross subsidise lower paying rural and agricultural users through higher tariffs), the Bill proposes states to create a ‘universal service obligation fund’ where “any surplus with a discom on account of cross subsidy or cross subsidy surcharge or additional surcharge shall be deposited”. However, the new structure is seen to trigger numerous teething issues in the sector which needs to be addressed going forward. “Cross subsidies are inherent part of tariffs and realising the exact amount is going to be very difficult and questionable,” a senior official from a major discom told FE.

The amendment proposes that incumbent discoms will have to share their existing power purchase arrangement with all discoms entering their supply areas. New and incumbent discoms can tie up their incremental power requirements on their own if needed.

The reform could effectively allow end-consumers to choose who they want to buy electricity from, similar to the way telecom and direct-to-home television operators work. Noting that merely through privatisation of discoms “a public sector monopoly will be replaced by a private sector monopoly”, the government said the amendments have been framed “to further enable the accelerated and sustainable growth of the power sector”.

The financial losses of state-run discoms in the country jumped 83% to `61,360 crore in FY19. A `3.1-lakh-crore scheme was announced for discoms in the FY22 Union Budget to address the core issues of billing-collection inefficiencies and pilferage. To help discoms clear the dues of power generators, the Centre had already announced the `1.2-lakh-crore liquidity infusion scheme under the Atmanirbhar Bharat package.

The proposal intends to include enabling provisions to mandate every state electricity regulatory commission to constitute a separate legal bench to address matters related to payments and contractual conflicts. To accommodate the increasing penetration of renewable energy, the government wants state regulators to prescribe a minimum percentage of electricity that states should procure from renewable and hydro sources. It also wants to empower load dispatch centres to oversee the payment security mechanism so that defaulting discoms do not get power.

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