Electricity is one of the most critical components which is essential for the growth of the economy and social development of a nation. All the laws relating to electricity in India are dealt primarily with by the Electricity Act, 2003. On the date of April 17, 2020, the Ministry of Power (MoP) introduced the Electricity (Amendment) Bill, 2020 with some policy modifications to The Electricity Act of 2003. The other amendments that were previously proposed to be made in the year 2014 & 2018, but neither of them was passed in the parliament and thus, failed to become the law.
Recently, the central government has proposed a new bill in the house that seeks to promote green power and takes a step further in promoting ease of doing business and enhancing the sustainability of the power sector. In addition to that, this amendment bill will change various provisions of the Electricity Act, 2003 and further address critical issues on the same line.
The Act had been the statutory standards which administer the laws regarding the generation, distribution, and trading of the produced electricity. This Act also aimed to license the distribution of electricity distribution in rural areas and bring in a licensing regime for urban areas. In order to address some recurring issues, and to promote further commercial incentive for private players to enter the market in the generation, distribution and transmission of electricity, with some policy modifications, this Bill is introduced.
The bill is termed as progressive in nature as it aims to touch on the issue of the environment by better electricity production and filling the various gaps in the mechanism.
A detailed analysis of this bill will require us to go through each and every aspect of the key features and the same is done in this article.
Understanding the rationale behind the Electricity (Amendment) Bill, 2020
First, there were certain ambiguities in the Electricity Act, 2003 that needed attention. Secondly, the rationale behind the amendment stands on two pillars that are: a) the Issues relating to the weakening commercial and investment activities in relation to the electricity sector, b) Transparency and accountability in respect to the interest of consumers. In respect to the commercial and investment activities, there are major structural issues like the inefficiencies both financial and operational in relation to the generation of power, political intervention and low customer participation. The amendment seeks to rectify all problems under one umbrella.
Analysing the key features of the Bill
An interesting development that the new bill has brought is the proposal to set up a National Selection Committee. Although, the central government may be looking in another direction with the old Selection committee that is constituted for each state. The change they are looking to bring is to reorganize these state selection committees into national selection committees. In addition to that, with the new change, it would be presided over by the new CJI of the High Court of the specific state.
Direct Benefit Transfer
Direct benefit transfer is a mechanism that will ensure a change in subsidy mechanism where the subsidy is provided to those who are in need directly. The records for the same are maintained by the state government. This will benefit in a two-fold way wherein the state government has the transparency in the direct benefit transfer and the distribution companies by ensuring the amount received as to the beneficiaries.
Cost Reflective Tariff
The main reason that this is added is because of the sheer futile attempts of the commissions in establishing the tariffs that were determined. This further resulted in the problem of cost escalation. By the virtue of this new amendment, this problem is solved. Under this amendment, a 60 day period is adopted in order for the determination of tariff. In case this deadline is exceeded, such failure would lead to automatic acceptance of tariff.
National Renewable Energy Policy
As of 2016 India has ratified the Paris Agreement and is actively working towards the benefit of the environment. The same effort is taken under this new amendment as a means to the promotion of electricity through renewable sources. This amendment specifies a bar which needs to be followed to generate electricity from renewable sources especially hydropower. This initiative signifies the progressive nature of the amendment and a visionary view that is going to prosper the environmental sphere and also contribute towards the Nationally Determined Contributions(NDCs).
Establishment of Electricity Contract Enforcement Authority (ECEA)
Under the new amendment, an establishment of a new authority can be observed which would be headed by a retired judge of the High Court. The main purpose of this authority is to deal with the very specific performance of contracts that are related to sale or purchase of power. The need for this authority was because the other two authorities namely the: Central Electricity Regulatory Commission and Electricity Regulatory Commissions, cannot enforce decrees. For the establishment of the Electricity Contract Enforcement Authority a new Chapter – XA containing Sections 109 A to 109 N was inserted.
Security Mechanism for Payment
The 2003 Act doesn’t have any security instrument for dispatch of power which has been a critical issue as it has generated a ton of unpaid dues causing an atmosphere of insecurity in the industry. For this very purpose, the new amendment has taken it upon itself to deal with the security mechanism by providing an adequate framework. This provides a secure nexus between the generation and transmission stage in the electric sector. A reference to this can be found in the text of the bill as: ‘no electricity shall be scheduled or dispatched under such contract unless adequate security of payment as agreed upon by the parties to the contract, has been provided’.
Open Access
Under the old act, the fundamental problem was open access. It was granted to the consumers however two charges namely charges for intra-state transmission and interstate transmission of power were not accounted under it. The new amendment act aims to change that, additionally, a reference can be made to the point that this amendment also reduces open access surcharge and cross-subsidies.
Cross-Border Trade
A new and dynamic change in the policy is introduced by the amendment as the power to facilitate and allow cross border trade of electricity is now provided to the hands of the central government. The government’s attitude towards a trade surplus or deficit is unknown as a clear stand is not provided on this. However, predictions are made that there would be more purchases of electricity from the cross border in the coming years.
National Load Despatch Centre (NLDC)
The Electricity Act, 2003 provides for the load dispatch centres at central, state and regional level. Their function is of optimum scheduling and dispatch of electricity in their areas or jurisdictions. Under the same, the Central Government is responsible for prescribing the functions of NLDC. Through this amendment bill, the centre includes few new functions in the list which are: (1) Monitoring of Grid Operations, (2) exercising the supervision and control over the inter-regional and interstate transmission network, (3) carrying out real-time operations of the national grid.
This Bill also gives the power to the NLDC to issue directions for ensuring the stability of grid operations and the security of the National Grid. These directions so made by the NLDC will be binding on the entities involved in it which are, generators, regional & state dispatch centres.
Penalties
In order to ensure strict compliance of the provisions of the Electricity Act and orders of the Commissions, section 142 and section 146 of the Electricity Act are proposed to be amended to provide for higher penalties.
Previously, under Section 142, Penalty for non-compliance with the directions of the Appropriate Commission was upto Rs. 1,00,00 which was to be increased under this bill to Rs. 1,00,00,000 and for Additional per day penalty in case of continuing non-compliance was to be increased from Rs. 6000 to Rs. 1,00,000. Similarly, under Section 146 the penalty for non-compliance of orders or directions under the Electricity Act was increased from upto Rs. 1,00,000 to upto Rs. 1,00,00,000 and Additional per day penalty in case of continuing non-compliance was increased from Rs. 5000 to Rs. 1,00,000.
Distribution of sub-licence and franchise
The Amendment Bill proposes that distribution licensees, with the permission of the relevant State Commission, can recognise and authorise a person as “distribution sub-licensee” which is different from the “franchisee” model already available under the Electricity Act to distribute electricity on its behalf in a particular area within its area. However, the original distribution licensee will remain the licensee and will ultimately be held responsible for ensuring the quality of the distribution of electricity in its area of supply. It is also proposed that such distribution of sub-licensee is not required to obtain a separate license under Section 14 of the Act.
The enabling provisions also have been made under the bill to address the situations to deal with the issues in sections 126, 135, and 164 under the Electricity Act, 2003, when a distribution licensee proposes to undertake distribution of electricity for a specific area within his area of supply through another person. By the amendment of this system, the distribution companies will give the franchise to private companies to sell electricity to consumers as a way to increase private participation.
Penalty for failure to comply with the Renewable Purchase Obligation
Under the Amendment, the penalty for failure to comply with the RPO is increased. The Bill proposes a penalty of Rs. 0.50/kWh for the shortfall in purchase in the first year of default, and if such default continues for the second successive year, then the penalty is proposed to be increased to Rs. 1 /kWh and consecutively thereafter Rs. 2/kWh.
Enhancement of Powers of the Appellate Tribunals for Electricity
Appellate Tribunals for Electricity (herein referred as APTEL) is proposed in the amendment to have the powers similar to that of the High Court to deal with the willful disobedience of persons and entities under the Contempt of Courts Act, 1971. The numbers of the members at the APTEL have also been proposed to be increased by the Amendment. It is proposed that the Appeal against the orders of Electricity Contract Enforcement Authority shall be appealable before the APTEL.
Critique
Here, we must analyse article 109 A(2) as follows:
‘109 A (2): Notwithstanding anything contained in this Act or any other law in force, the Electricity Contract Enforcement Authority shall 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, provided that it shall not have any jurisdiction over any matter related to regulation or determination of tariff or any dispute involving tariff.’
One important observation must be made here that the amendment proposed does not distance itself from the Electricity Regulatory Commissions that are currently working in lieu of the act. Even now we can see that there is no relevant shift in the power of these ERCs (Electricity Regulatory Commissions) as the matters relating to tariff, adjudication of disputes still fall in their ambit. A plain and simple reference to this was made above which is the premise of the argument. This can in turn lead to the overlap of jurisdiction cause confusion and havoc which should be prevented at all costs.
The Principle Act has primacy over the state action and the Act cannot infringe on institutional and policy making decisions of any of the state government. The institutional structure which is prevailing should not be rearranged as the initiatives made by the state to ensure the growth of the local and regional development of electricity will be obstructed. With the central government banking on making use of a pool of central generating stations and electricity resources, the development which is done at the state level will take a backseat as the state will not be able to take initiatives to promote renewable energy resources.
The Organisation ECEA as per us does not fit into the governance structure as it goes against the Concurrent jurisdiction. Secondly, it will render the SERC useless and disempower them.
As this Amendment defines two entities, that is, (i) Distribution sub-licensee and (ii) franchisee. The Amendment Bill does not provide for any distinction between the roles of these two and its area of operation. It appears that this provision is left open for interpretation. As the Rules between these two are not defined, the proposed model may result in failure.
The determination of the Tariff should meet the social policy objectives and should not result in tariff shock. Further, the Proposed Amendment delinks (State Electricity Regulatory Commissions) SERCs discretion to change the Tariff setting for customers on the basis of load, consumption, voltage etc. The State governments should be mandated under the Bill to transfer the subsidy amount directly to the DISCOMs so that the consumers would be able to receive their bills post deduction of the subsidy amount. A monitoring and enforcement mechanism should be in place to ensure timely transfer of subsidy into the accounts of the consumers. The Implementation of the Direct Benefit Transfer (DBTs) can be highly challenging for the government as the electricity unlike LPG is not always consumed by the consumer under whom the connection is registered.
The role of the states’ in the consultative framework of the Act should be strengthened to ensure that RPO (Renewable Purchase Obligation) for every state is determined based on its energy portfolio and ability to add Renewable Energy capacity. Given the limitations of hydro as an energy source, policy measures and guidelines should be outlined for Hydro Purchase Obligations instead of giving them only the statutory status.
Opposition to the bill
Many of the prominent stakeholders are raising their voice in opposition to this bill and it is quintessential to understand why this is happening. At the front are the farmer unions and the consumer groups followed by employees and engineers. We can see a wave of opposition from various states like Tamil Nadu, Andhra Pradesh, Bihar etc. The reason for this opposition is quite simple, they view it as an attempt to move towards privatization. The state governments are against it as they are losing their long retained autonomy. Employee unions are not satisfied due to the privatisation of DISCOMs and the gaping holes in the payment-security mechanisms.
The long argument that has been running for years is that it seeks to empower the ‘haves’ and take away from the ‘have nots’ This has caused a huge discomfort to the consumers and the farmers as public monopolies are replaced. Moreover, due to COVID-19, it has also been argued that this is the worst time that this bill could have come into light as there is no time for a proper scrutiny of the same. This agenda cannot and must not be pushed in a time of crisis without proper debate.
One other major issue that must be highlighted here is that nature and the spirit of the subject matter which should not be ignored at any cost. Electricity is a concurrent subject and this amendment can cause a series of tussles between the union and the state. In addition to that, it goes against the spirit of what the constitution makers have laid down for us. There is a fundamental reason that we must understand why electricity needs to be in the concurrent list. We must consider that each state has its specific resources and to categorise it as one nation would hinder the whole process.
Conclusion
The amendment bill brings the needed changes and adapts to the ongoing time. The whole outlook of electricity laws will be relooked and the gaping whole will be filled in. Now, it is for the union to pass the bill and embark upon the new and ravishing journey of implementing the changes proposed. The amendments that are proposed hold a concrete long term nature which are destined to have a good impact on both the economy and the environment as the tariff and subsidies will help support the financial crunch and the green power will benefit the environment.
The view taken by the legislators has indeed moved in a direction to fulfill the current needs. However, the critiques mentioned in this article should also be taken into account to further avoid any jurisdictional problems at the most. The confusion of jurisdiction is one that would cause huge problems in implementation and make the process tedious. However, the bill shows a progressive nature and further moves in a positive direction.
Under the new amendment, an establishment of a new authority can be observed which would be headed by a retired judge of the High Court. The main purpose of this authority is to deal with the very specific performance of contracts that are related to sale or purchase of power.
