On April 17th of 2020, the Ministry of Power introduced the Electricity (Amendment) Bill, 2020 with the objective of bringing the outdated 2003 Act in tune with recent developments. Indeed, restructuring the statutory mechanism for the regulation of the energy industry is long overdue. After two failed attempts at amending the Electricity Act, the Bill failed to elaborate on matters that have been plaguing the power sector such as inefficiency of power generation and supply, lacunae in the structural framework of the power sector, the involvement of consumers and the interdependent sectors such as fuel markets, wholesale and retail electricity markets, generation companies as well as other entities involved in distribution and transmission of electricity. While the third time is supposed to be the charm, the Amendment Bill falls short of it.
On August 18th, 2020, employees of the power sector held nation-wide protests seeking the withdrawal of the Bill and opposing the privatization of distribution companies as well as the centralization of the regulatory mechanism. Apart from these provisions, several states opposed the proposals for the Direct Benefit Transfer scheme, renewable purchase obligation and cost-reflective tariffs. A total of 11 states and 2 Union Territories had opposed the Bill in a state energy minsters’ conference that was held on July 3rd, 2020.
Firstly, Part XA has been inserted to establish the Electricity Contract Enforcement Authority (ECEA). The issue revolving around the renewable energy contracts in Andhra Pradesh forms the backdrop of this chapter. The Authority is entrusted with the duty to ensure the sanctity of contracts in the power sector, considering the fact that no other authority has the power to enforce contracts and deal with matters related to metering, tariffs and licenses. The ECEA will be the sole authority for the enforcement of contractual obligations and protecting the interests of the stakeholders. While this may seem like the right measure in some aspects, the establishment of the authority, its jurisdiction, the appointment of the Chairperson, members, officers and employees and the resignation and removal are entirely handled by the Central Government. Electricity comes under the Concurrent List and is subjected to the purview of both the Centre and the States. Therefore, the establishment of a Central Authority undermines the decentralization of power and goes against the tenets of federalism.
Secondly, the Bill intends to substitute Section 78 with a Selection Committee constituted by the Central Government for selecting members for the Appellate Tribunal and the Chairperson and Members of Central Commission, Electricity Contract Enforcement Authority, State Commissions and Joint Commissions. Although uniformity in these procedures ensures transparency and accountability to some extent, it is at the expense of violating the basic principles of federalism. Eliminating state interference brings rigidity with respect to the paradigm set by each state for the regulation of the sector. Ideally, each state must have a say in the selection of the members in the State Commission. However, this Bill blatantly violates the decentralized structure of the power sector and infringes the constitutional mandate.
Thirdly, the Amendment has empowered the National Load Dispatch Centre to give directions to Regional Load Dispatch Centers, State Load Dispatch Centers, licensee, generating companies, generating stations, sub-stations and persons connected with the operation of the power system. This Centre is in charge of the safety and security of the national grid, apart from ensuring the stability of grid operation. In light of the accumulation of unrealized revenues, it has been proposed that the Load Dispatch Centre will oversee the payment security mechanism before scheduling the dispatch of electricity. This evidently points towards the efforts by the Ministry to centralize the power sector and water-down state involvement.
The main point of contention is the privatization of distribution companies. Under the Bill, a franchisee can be authorized by the distribution licensee to distribute electricity on its behalf in its area of supply. A distribution sub-licensee or a franchisee is not required to obtain a separate license from the State Commission. The rationale behind the inclusion of distribution sub-licensee and franchisee models is to ensure financial as well as operational efficiency in the sector through the flow of private investments. However, previous instances of privatization of the power sector have shown the failure of such a model in Greater Noida, Agra, Delhi, Aurangabad, Nagpur, Jalgaon, Ujjain, Gwalior, Bhagalpur, Gaya, Muzaffarpur and Orissa. Various states, including Tamil Nadu, Bihar and Kerala, are opposing this model. Privatization of distribution companies would have been the ideal solution, had there been a structural roadmap to follow.
The Bill proposes the implementation of the Direct Benefit Transfer scheme for the purpose of providing subsidy on power to farmers, thereby replacing the existing system of free power. The move was made to ensure clarity with respect to maintaining accounts of subsidy provided. The licensee will charge as per the tariff set by the Commission. Under the current system in Punjab, the State Government provides Rs. 6000 crore subsidy bill to the Punjab State Power Corporation Limited (PSPCL) annually to provide free power to the agricultural sector. With the new scheme, farmers will have to pay according to the quantum of power consumption in the meter installed, after which they can avail subsidy. Considering the financial status of most farmers, paying the bill first and subsequently getting the subsidy is not feasible. Employees of PSPCL stated that subsidies through cost-reflective tariffs is largely benefiting upstream players and increasing the cost of power for farmers. States and employees in the power sector are determined to fight for accessible and affordable electricity for all.
Although the Bill has received backlash for the aforementioned amendments, the introduction of the National Renewable Energy Policy for promoting the generation of electricity from renewable sources seems like a step in the right direction. Additionally, it seeks to enforce renewable purchase obligation to purchase electricity generated through green sources by prescribing a minimum percentage of purchase from renewable as well as hydro sources. Moreover, the Bill calls for the facilitation of cross border trade of electricity to accelerate India’s pace in renewable energy. However, shifting to renewable energy will remain a dream unless the technical, financial, operational and economic hindrances present in the power sector are mitigated. The legislative framework has to take into account distributed energy resources, the growth of energy storage, new advancements in the sector, changes in consumption patterns and the interplay between the upstream and downstream stakeholders. The proposed changes cannot be implemented while ignoring the cries of the consumers. With COVID-19 nearing its peak and the economy hanging on a thread, it is imperative that existing issues within the sector are dealt with systematically through a system involving all the stakeholders without overhauling the federalist structure.
ABOUT THE AUTHOR
Hamna Viriyam is a third-year law student at the National University of Advanced Legal Studies, Kochi. She has an avid interest in Corporate Law, Energy Law and Intellectual Property Rights Law. She views law as a sociological tool and has taken to legal research and writing to transform society in her own way. She can be reached at firstname.lastname@example.org.