Introduction :-

The three segments of the electricity sector in India (generation, transmission, and distribution) were initially bundled together with the state owned electricity boards. In the 90s, the generation segment was opened up to the private sector and later a few states restructured the system by segregating the three segments. The Electricity Act, 2003 was the next big reform attempt at the electricity sector regulation.  However, competition in the transmission and distribution segments has been limited in India with very little participation from the private sector. The Electricity (Amendment) Bill, 2014 was introduced to:

• increase competition in the sector by segregating the distribution segment into distribution and supply,
• rationalise tariff determination, and
•  promote renewable energy.

Ministry of Power has sought comments on a revised draft of the Electricity Amendment Bill after incorporating suggestions from the Standing Committee on Energy and other stakeholders.

Features of the Bill :

• Segregation of distribution network and retail supply of electricity: The bill provides for separate licences for maintaining the distribution network (distribution licence) and for the supply of electricity (supply licence).
• Purchase and sale of power: Power Purchase Agreements (PPAs) is a legal contract between the power plant (generation company) and the power distribution company (discoms). The amendments provide that all purchase or sale of power will be done through long/medium/short term PPAs.
• Tariff ceiling by CERC/SERC: For the retail sale of electricity, the Central Electricity Regulatory Commission and State Electricity Regulatory Commissions will determine only the ceiling tariff, and the supply licensee may charge any tariff below this ceiling. However the Commissions will not determine the tariff if the electricity has been procured through competitive bidding
•  Reforms w.r.t Subsidy Regime: Move toward direct subsidy: Typically electricity subsidy is transferred to the state discoms that incorporate these into the tariffs. The bill says that now subsidy can be provided only through direct benefit transfer to the beneficiary. Elimination of cross subsidy: The draft amendments provide that the cross subsidisation of tariff within a distribution area will not exceed 20%. Further, such cross-subsidies will be progressively reduced and eliminated within three years
• Renewable energy: Renewable energy Definition: Currently the Act does not define renewable sources of energy. The draft bill defines renewable energy sources to include hydro (limit notified by the central government), wind, solar, bio-mass, bio-fuel, waste including municipal and solid waste, geo-thermal, tidal, co-generation from these sources, and other sources as notified by the central government. Renewable Purchase and Generation Obligation (RPO, RGO): The amendments define RPO and RGO which will be notified by the central government.
• Smart grid and metering: The draft amendments define smart grid and suggest that smart meters should be installed at each stage, for proper measurement of consumption.
• Composition of the SERC selection committee: The draft amendments change the composition of the SERC selection committee to: (i) have more central government members, and (ii) be chaired by a serving Supreme Court judge.

Benefits of the proposed amendments :-

• Choice to consumers: Separation between the infrastructure builder (for power distribution) and the licensee to supply would entail more than one electricity supplier in an area and consumer will have options to of changing their power supplying company or utility based on the efficiency of their services.
• End Sectoral Bias due to cross subsidy: Differential pricing and subsequent cross subsidising raises the input costs for manufacturing and service sectors.
• Breaking the cycle of subsidy and losses: The DBT feature introduced has potential to eliminate losses incurred by the DISCOMS and is also beneficial to the end consumer as subsidy shall be directly transferred to the beneficiary.
• 24*7 Power supply: The draft amendments propose that 24X7 power supply is an obligation and the state electricity regulatory commission can penalise the power distribution company (discoms), if it fails to do so.
• Violation of PPA to be penalised: This feature provides a major relief for power generators which lately have been facing brunt of states cancelling PPA citing high cost or lack of funds.
• Boost for Renewable Sector: The bill’s features for renewable energy will help India to achieve its targets wr.t clean energy.

Issues with the Amendment :

• Ability of consumers to switch between suppliers: Consumers should have the facility to easily switch from one supply licensee to another and the supply of power to the consumer should not be interrupted during such transition. The amendments do not explicitly provide for how such switching will work, and what will happen during the transition from one supplier to the other. The 2003 Act provides for multiple licensees to set up their own distribution network in the same area, thus allowing for competition. However, the electricity distribution segment has not seen much competition. Setting up a new network requires significant capital investment and hence acts as an entry barrier for new participants.
• Procurement exclusively via PPA: Supply companies may face unanticipated demand at times and thus the question is why they are not allowed to procure any power through ways other than PPAs.
• Composition of Selection Committee for SERCs: The proposed SERC selection committee has only one representative from the state, and five from the centre. Additionally, the rationale for having a serving judge of the Supreme Court on the selection committee of all SERCs in the country is unclear.
• Issues with removing cross subsidies may increase subsidy burden on exchequer: Increased tariffs for low paying consumer: It could increase the tariffs for the currently low paying consumers (agricultural and residential) who are being subsidised. Subsidy burden on the exchequer: The state or central government may choose to alleviate any increase in their tariffs by giving them explicit subsidies through DBT. This could increase the subsidy burden on the exchequer.