Ministry of Power (MoP) published draft EElectricity (Amendment) Bill 2020 on April 17th and invited comments, suggestions, and objections from the public within 21 days. Since its release, it has become a hot potato among the industry stakeholders due to the introduction of new regulatory authority. Some are also concerned with the timings of its publication as it has come during the times when the whole country is going through unprecedented times due to the Chinese Coronavirus pandemic.
Unfortunately, the service which intersects every corner of the people’s lives has grabbed little attention from media that too when it proposes some of the courageous policy interventions like DBT (Direct Benefit Transfer). One might superficially think that the draft has introduced changes in administration only but the fact is that it is going to affect a larger section of society soon. Hence, it becomes imperative to dive deeper into the provisions mentioned in the draft bill and ensure minimum disturbance to social life while restructuring the power sector. This blog post is expected to do the same.
The draft Electricity (Amendment) Bill, 2020 proposes to establish Electricity Contract Enforcement authority (ECEA) In addition to the ECEA, the draft bill also proposes several other amendments. Let’s have a look at all of these proposals in detail;
Electricity Contract Enforcement Authority
The central idea of this draft is the creation of a new governing agency which is Electricity Contract Enforcement Authority (ECEA). A new part (Part XA) is proposed to be introduced in the principal act (Electricity Act, 2003) which includes details of establishment, composition, terms, and conditions, procedures and powers, the functioning of ECEA.
The new authority is expected to reduce growing disputes among generators and licensee over the deferred payment of contracted charges and expected to improve confidence among investors, especially foreign investors since India needs considerable infrastructure up-gradation for its growing energy consumption and future energy demands.
Existing State Electricity Regulatory Commissions (SERC) and Central Electricity Regulatory Commission (CERC) were looking after the intra and inter-state issues of the power sector but with limited legal support. The long pendency of cases is said to be another motive behind the creation of a new regulatory body.
The contracts signed among generator and licensee ensure guarantee to the generator for secured payment for their generation. However, it has been observed in the recent past that the obligated party has deferred the payments or even challenged the tariff agreed in it. A case of Andhra Pradesh is well-known for such a challenge. Read our blogpost- Andhra Challenges Solar PPA Tariffs for details.
As per the proposed draft, the new regulatory body (ECEA) will work in parallel with existing Electricity Regulatory Commissions (ERC’s) but with exclusive jurisdiction to adjudicate upon matters regarding the specific performance of contracts related to purchasing or sale of power between a generating company and a licensee or between licensees. ECEA’s orders can be challenged in Electricity Appellate Tribunal and further in Supreme Court.
The expertise needed to regulate the matters suggested for the ECEA is already available with existing regulatory bodies. Hence it is not clear as to what is the rationale behind introducing altogether new regulatory body? The existing regulatory bodies may have been empowered to handle the matters by providing legal legitimacy and other necessary support. Doing so would also avoid additional administrative expenses embodied with the new regulatory authority.
Additional Functions to NLDC and SLDC (Payment Security Mechanism)
The draft proposes additional functions and gives more power to National Load Dispatch Centre (NLDC) and State Load Dispatch Centre (SLDC) to stop scheduling and dispatch of electricity in the absence of adequate payment security by the obligated party.
One may see this provision as a master-stroke to solve the payments issue but in practice, it may give birth to new problems at the implementation level. Most of the obligated parties are the electricity distribution companies (Discoms) which are under severe financial burden due to several reasons like inefficient revenue collections, locked-in payments agreed in long-term power purchase agreements, delays in grants by governments, etc. It is well known that the financial problems that Discoms are facing are multifaceted hence the solution has to be multifaceted too, not like the one proposed in the draft.
If Discom fails to secure the payment and the area under it experiences load shedding due to power shortage, then this will not only fuel the financial loss cycle but also impact on the local economy. All this will happen despite the availability of electricity in the national grid! Considering the importance of electricity in a day to day life, this provision may be revised by factoring-in Discom’s financial conditions.
Direct Benefit Transfer (DBT) of Subsidy
The introduction of DBT is another major amendment in the proposed draft. The government of India is already rolling out DBT through its LPG subsidy scheme. The draft has proposed to extend the same for electricity consumers. The state government, being benevolent declares subsidies for vulnerable sections of society. In the case of the power sector, residential and agricultural consumers are provided subsidies by cross-subsidizing commercial and industrial consumers through tariff orders. The proposed draft recommended regulatory bodies to declare electricity tariffs without considering a portion of subsidy and asked state governments to directly transfer subsidy benefits to the consumer.
The DBT schemes are basically exclusionary in nature. They identify the whole set of beneficiaries as defaulters and then try to filter out based on certain identification criteria and link it with a benefits transfer mechanism. Since electricity has one of the largest and almost universal consumer base as compared to other energy sources, there is a high possibility of exclusion of the most vulnerable groups of society during its implementation. We have examples from the exclusion of people from the Public Distribution System (PDS) schemes because of failed authentication in Biometrics. Hence, implementation guidelines of DBT need to be scrutinized closely to avoid any unintended outcomes. In addition to this, amendments shall mandate governments to begin such DBT schemes promptly.
The alternative to the DBT scheme would be to embed the subsidy component in the tariff. This requires changes in tariff design and its judicious implementation to ensure its profound social impact.
Transfer of cases among benches within ECEA
Subsection (2) of the newly proposed section 109K empowers the chairperson of ECEA to transfer any pending case before one bench to any other bench for disposal. It can be understood that there might be situations when the cases need to be transferred, however, it is not clear as to how many times and for what reasons the transfer should be done? The delays in dispute resolution can be reduced if the number of transfers should be capped for each case. Adding proviso explaining the conditions under which transfer should be done (or not done) will strengthen the policy document and avoid any legal conflict that may arise in the future.
Penalty for not purchasing renewable sources as per central government notification
A newly proposed subsection (2) of section 142 introduces penalty to any person for not purchasing power from renewables or hydro sources as per the central government notifications. Right now, many obligated entities including Discoms fulfill such renewable obligation by purchasing Renewable Energy Certificates (REC). Clarification in respect of whether the purchase of REC by a person to fulfill shortfall of the target capacity is treated as capacity fulfillment under this subsection or not is required to be mentioned.
In addition to the above, the electricity industry was expecting provisions for the Electric Vehicles (EV) sector which is in the nuance stage in the country at present. We hope that another amendment might be brought soon to strengthen legal support to EV’s and charging stations. We have submitted the above-mentioned suggestions and objections to the concerned ministry for further actions and hope that it will think upon them before presenting the bill for the final nod in the Parliament. The Draft copy of Electricity (Amendment) Bill 2020 can be accessed by visiting the Ministry of Power website and is open for suggestions until 5th May 2020.
