Balance of power: Draft Electricity (Amendment) Bill, 2020 fails to consider fundamental changes in distribution segment

Published: May 14, 2020 1:15:47 AM

The proposal is to make it mandatory for discoms to procure the specified percentage of hydro power, as is being done for solar, wind, etc, with non-fulfillment inviting penalty.

A proposed amendment to Section 63 of the Act says that if a commission fails to adopt the tariff within 60 days, it will be deemed to have been adopted.A proposed amendment to Section 63 of the Act says that if a commission fails to adopt the tariff within 60 days, it will be deemed to have been adopted.

By SK Agarwal

The Union power Ministry (MoP) has sought comments on a draft of the Electricity (Amendment) Bill 2020 from various stakeholders. In 2018 too, MoP had brought an Electricity Amendment Bill, which reached the Standing Committee on Power. But, due to resistance by employee unions of power utilities and lack of unanimity among other stakeholders on segregation of carrier and content business, that Bill lapsed.

This time, MoP aims to set right the regulatory mechanism, the constitution of commissions and appointment of chairman and members, provide for necessary purchase of hydro and other renewable energy sources, and ensure that no power is scheduled unless the payment security mechanism is in place. Electricity is a concurrent subject as per the Seventh Schedule of our Constitution. But, the present draft may create a feeling amongst states that the Centre is trying to usurp their powers.

MoP appears not to have consulted the states while drafting the proposed amendments, some of which are likely to create a major financial problem for state discoms. For instance, the proposal that the retail tariff determination for discoms under Section 62 shall be done without taking into account the amount of subsidy a state provides for certain class of consumers means all consumers are to be billed at cost of service, with the subsidy being transferred to the beneficiary’s account through DBT. At present, in a large state like Uttar Pradesh, with a sizeable rural and agricultural consumers, the discoms get around Rs 10,000 crore as subsidy from the state government to help them meet payment obligations. Despite the subsidy to rural consumers, collection efficiency in rural areas is low, and likely to fall even further if the full rate is charged. Further, if consumers get the subsidy as cash transfers, they could utilise it for purposes other than payment of electricity bills. The discom’s monthly revenue, therefore, is likely to fall, making the situation worse for already ailing discoms. Before framing any such legislation, consent of states is a must.

The draft Bill also proposes to formalise the June 2019 MoP order that SLDCs and NLDCs will not schedule any power of generators whose payment security mechanism is not in place. Presently, a number of generators have not been provided with the contracted payment security mechanism since discoms lack the monthly revenue to open LCs and escrows in favour of all generators. And, generators will now be estopped from seeking legal remedy in case of non-payment of dues. The proposed amendment, thus, won’t fructify unless discoms can breakeven at least on cash basis.

A new section, 109A, has been proposed to constitute an Electricity Contract Enforcement Authority (ECEA), which shall have exclusive power and jurisdiction to adjudicate on performance of obligations under a contract related to sale, purchase, or transmission of electricity, except matters related to regulation or determination of tariff, or any dispute involving tariff. This will significantly take away the right of the SERCs and CERC to adjudicate on disputes under Section 86(1)(f) and 79(1)(f) of the Electricity Act 2003. This new provision, if intended to establish an instrumentality for quick resolution of disputes, should allow ECEA to resolve even tariff-related disputes. Else, it is more worthwhile to induct a legal member in the state commissions.

A proposed amendment to Section 63 of the Act says that if a commission fails to adopt the tariff within 60 days, it will be deemed to have been adopted. In fact, if transparency and compliance with the government’s bidding guidelines is established, the commissions virtually have no role to play in adoption of tariff under Section 63. The 60 days’ period may further curb the efforts of the commissions in interfering with stray cases of cartelisation. It would have been better to propose that SERCs, in appropriate situation, may extend the time for adoption of tariff under Section 63. If the adoption of tariff is only a formality, the purchase of power through bidding route may be left to the generator and the licencee.

Procurement of hydro power is being prioritised through amendment in Section 86(1). The proposal is to make it mandatory for discoms to procure the specified percentage of hydro power, as is being done for solar, wind, etc, with non-fulfillment inviting penalty. With discoms paying stranded capacity charges to coal-based power plants, this will cause a double jeopardy. Addition of renewable power to the kitty has impacted the schedule of thermal power plants, especially during winters and monsoon. Procuring hydro power in the earmarked quantum would increase discoms’ financial burden.

If we wanted hydro power to meet a specified percentage of demand, we should have planned cautiously. After the passing of Electricity Act 2003, we delicensed generation, and the private and public sectors joined the bandwagon for capacity addition, particularly coal-based. Today, there is large un-requisitioned capacity and many projects without PPAs. Demand has not been increasing as expected, and many power projects have become NPAs. This is not the right time to ask the distribution sector to procure a specified share of power from hydro projects at the cost of surplus thermal capacity.

Many changes have been proposed in the regulatory regime, but little has been said of making the distribution segment financially sustainable. While the 2018 draft amendments spoke of multiple licencees to make distribution competitive, there is now talk of sub-licencee and franchisee. The distribution sector, the most important part of the value chain, is under severe financial stress—we need a National Electricity Distribution Plan (NEDP), like the National Electricity Plan, to find a holistic solution for its problems. In UP, after the SAUBHAGYA scheme, the number of rural consumers has surged, and discoms’ present logistics cannot ensure efficient metering, billing, and collection. Responsibility of states in meeting the universal service obligation of electricity supply must be shared. We have to plan for decentralised generation and distribution. PSUs like NTPC and PGCIL, along with other large private sector generators, need to participate in distribution to do this. The NEDP, if ever conceived, can lay down the modalities in this regard.

The author is Former director (Finance), UPPCL. Views are personal

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