Industry cheers, states clamour over Electricity Bill amendments

The amendments to the Electricity Act, 2003, introduced in Parliament recently, have given overarching power to the Centre and central government agencies in areas that were either a state subject or followed a federal model.

While this has irked electricity regulators in a few states, the industry is cheering the paradigm shift since it will push reforms and private investment in the power distribution sector.

The Bill has in total 35 proposed amendments. Of those, half would be within the purview of what is being termed as ‘prescribed by the Centre’. This includes provisions related to inviting private investment in power distribution, which is a state subject. 

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

The Bill has given the Central Electricity Regulatory Commission (CERC) the authority to approve anyone who applies for a power distribution licence in an area. 

Under Section 79 of the Act, which pertains to the functions of the CERC, a new provision has been inserted, citing it has a new function – ‘to grant licence for distributing electricity in more than one state’. This is likely to cover players such as Tata Power, Adani Electricity, Torrent Power, and CESC, which are already operating power distribution in some states. 

Sector executives said this amendment gives absolute power to CERC to approve any request without the need to consult the state. “The Bill, however, does allow a state electricity regulatory commission (SERC) to reject the application. This could create on-ground confusion for investors,” said an SERC member.

The erstwhile Act always had the provision for a SERC to allow more than one licensee in an area, but was not clear on network access and tariff regulations. An amendment to Sections 14 and 42 of the Act has provided new licensees access to the existing power network in a state. The new licensees need not build a new network and may use the existing network by paying state-owned power distribution companies (discoms).

The capital adequacy, creditworthiness, code of conduct, and criteria for new distribution licensees would also be provided by the Centre. SERCs would decide the minimum and maximum tariff for power supply in an area, which some state officials said is a ‘flawed responsibility’.

“A tariff cap can be decided if there is clarity on the business of the discom. A new applicant would want a licence under the existing system. In what business case will the tariff be built?” asked an official.

The most stringent steps the Centre has taken through this Bill are with regards to the payment discipline of discoms. The grid operator – National Load Despatch Centre (NLDC) - has been empowered to curtail electricity supply to a state/discom if either defaults on its payment to power generating companies (gencos) and transmission service providers.

NLDC can now issue directives to state and regional load despatch centres and they would have to comply. The payment security mechanism, however, would be ‘prescribed by the Centre’.

“We can no longer have the option of supplying power without getting paid. No sector can be viable if it is not paid for output,” said A K Khurana, director general, Association of Power Producers - a representative body for private gencos.

He said competition in the distribution sector will help to provide better customer service as was witnessed in the telecommunications sector.

An executive with a private genco said even after five bailout schemes and a loan scheme of close to Rs 1 trillion, the power distribution sector hasn’t improved.

“Except for a few, all discoms are defaulting on their payments. On the operational front, there has not been much improvement. At this point, gencos are subsidising discoms. Those who are protesting are the biggest defaulters,” he said, adding the provisions would induce fiscal discipline in the sector.

State-owned lender Power Finance Corporation, in a recent audit report of discoms, said the financial deficit in the sector is ‘larger than previously recorded’ and is widening because of declining profitability of discoms.