This article is written by Tarun Dogne, from SVKM’s Narsee Monjee Institute of Management Studies School of Law, Bangalore. This article deals with the key reforms which are suggested in the new draft of Electricity (Amendment) Bill, 2020.

Introduction

Power is a very critical and important sector for any country in the world. India’s hunger for power increases as the Indian population and economy grow with time. It is a crucial component of the economic growth and welfare of nations. The Indian power sector boasts after the economic reform of 1991. The private sector also comes in the power sector, currently, the private sector generates more than 45 percent of power in the country.

The power sector is responsible for three percent of the total FDI inflow in India. With time, sources of energy are also changing. India is gradually shifting its focus towards renewable energy like wind, solar, and hydro rather than more conventional sources of energy such as coal, lignite, oil, natural gas, etc. the power sector has the potential to grow in the future. 

In order to facilitate the power sector to grow India needs robust rules and regulations with a long vision in mind. Indian parliament enacted the Electricity Act, 2003 replacing old provisions such as Electricity Act 1910, Electricity Supply Act 1948, and Electricity Regulatory Commission Act, 1998. This Act deals with the different elements of the power sector such as licensing, distribution, power trading, etc.

The main objective of this Act is to streamline the power sector and provide the sound structure of rules and regulations for commercial growth. Electricity Act, 2003 amended a few times and it is required because, with the time, nature, and requirement of the power sector also changes. In 2020, the draft of the Electricity (Amendment) Bill has been introduced in order to address some of the long-pending issues in the sector. This draft introduced some key reforms in order to further development of the sector, promote and provide a commercial incentive in the power sector.

Proposed key amendments 

• Policy and functional amendment

In the principle Act, Section 49 only deals with the agreement with respect to the supply or purchase of electricity. As per the new amendment bill, agreement with respect to the transmission of electricity is also included. For the purpose of supply, purchase, or transmission of electricity a generating company or a licensee may enter into an agreement with a licensee.

Under Section 28 of the principal Act, there is no restriction on despatching and scheduling of electricity. In the principle Act, there is no monitoring or watch on the payment security mechanism. Because of this, there may be a huge accumulation of revenues which is unrealized. New amendment bill proposes prerequisite conditions before dispatching or scheduling of electricity and that is adequate security of payment, as agreed upon by the parties.

This amendment bill also focuses on the trading part of electricity. The bill laid down the definition of cross border trade of electricity. It means a transaction involving imports and exports of electricity between India and any other country. Under the new bill. In order to facilitate cross border trade, the central government may make rules and regulations with the help of central commissions.

In the principle Act, there are multiple selection committees for the selection of members for multiple authority. For every vacancy, it is required assembling multiple committees but in the proposed amendment there will be the only single committee for the selections of chairman and member of the appellate tribunal and all regulation commission. This structure for selection may bring uniformity in the process.

• Improvement in contract enforcement

Electricity (amendment) Bill, 2020, inserted a new Chapter XA after Part X of the Electricity Act, 2003. Under Section 109A of the current draft of the Electricity (Amendment) Bill, 2020 empowers the central government to establish the electricity contract enforcement authority.

In the principle Act, the only contact for supply and purchase of electricity is recognized.  This Act is not addressing the issue regarding the performance of the contract. enforcement of the contract is very important because it may create fear in the minds of investors regarding honoring the contract. Improvement in the enforcement of contracts may create a sound environment for investment and may reduce uncertainty is the power sector.

Electricity regulatory commissions deal with regulatory function, tariff issues, licensing, etc; but have very limited and unclear power for adjudication of the dispute. In order to solve long-standing issues, the electricity contract enforcement authority was established. It has exclusive authority and original jurisdiction to adjudicate matters relating to the performance of the contract with respect to the purchase or selling of power, the transmission of electricity between concerned companies or licensees.

• Promotion of renewable energy and hydro power sector

In the new amendment bill, it is proposed that the central government prepare and notify a national renewable policy after consultation with the state government. In the time of climate change countries all over the world are shifting their power sector towards renewable energy. This amendment also promotes renewable sources of energy for the generation of electricity, the bill prescribes a minimum percentage of purchase of electricity from hydro sources and renewable energy. 

• Tariff and cross subsidy

Under Section 61 of the Electricity Act, 2003, empowers the appropriate commission for the determination of tariff but regarding the fixation tariff with fair cost, there is no provision in the principle Act. The regulatory committees acknowledge cost but deferred their recovery future duration and the factoring of pledged subsidies and also the determination of tariff does not cost-reflective and this leads in reducing the strength of financial soundness of distribution companies due to less recovery of the prudent cost than accepted. It resulted in less transparency in the cost-reflective tariff as mentioned under the principle Act.

In the view of above, it is felt that tariff determination law should be expanded by enforcing such restrictions the cost of electricity supplied and the reduction of cross-subsidies. And also under this new amendment bill, it is mandatory that the benefit of subsidy should be transferred directly to any consumer or class of consumers.

• Open access

Section 38 of the principle Act deals with central transmission and Under Section 38 of the Electricity Act, 2003, when open access is provided by the state commission under Section 42 of the principle Act, in that case, both transmission charges and a surcharge is decided by the only central commission, not state commission, but as per the new amendment bill, central commission may be specified the payment of the transaction charges and state commission may be specified surcharges.

Section 39 deals with the state transmission and under Section 39(2) when open access provided by the state commission under Section 42 and in this case, both transmission charges and a surcharge are specified by the state commission. As per the new amendment bill transmission charges may be specified by the state commission, a surcharge may be decided by the state commission under Sub-Section 2 of Section 42.

In the principle Act, Section 40 deals with the duties of transmission licensees. Under the said Section both transmission charge and surcharge may be specified by the state commission but as per the new amendment bill, appropriate commission may specify payment of the transmission charge and a surcharge.

As per Section 42 of the principle Act, open access may be allowed after eliminating cross-subsidies from payment of a surcharge and charge for wheeling as may be determined by the state commission. But as per the new amendment bill, surcharge and charge for wheeling may be decided by the state commission in addition to the charges for intra-state transmission, if applicable. Central commission under Section 38 of the principle Act determined charges for inter-state transmission.

• Distribution sub-licensee and franchisee

Under the new amendment bill, sub-licensee is introduced, with the permission of the state commission, distribution licensee authorized a person to distribute electricity in a particular area on its behalf. And distribution sub-licensee is not required to separate licensees from the appropriate state commission. Before this, sell power to retail consumers is allowed to only distribution licensees. This means that the distribution company is ultimately responsible for the distribution of electricity in its area of supply. But till now there is not much clarity regarding the legal provision with respect to distribution sub-licensee.

Experts opinion on draft Electricity Bill

Experts around the country are appreciating this new Amendment Bill, the provision of the principle Act is outdated and it needs an update. Some were in the opinion that this amendment may have been made with the long vision, and also it’s having a long scale impact on the power sector. Amendment may have the objective to set up a new regime for regulation, the draft bill in a way promoting private participation in the sector especially by introducing “distribution sub-licensee”. 

This bill seeks for non-government investment in the power sector. Some experts have a question about the electricity contract enforcement authority, that it is really necessary to form another semi-judicial body when India has an old and long Indian contract Act to deal with the affairs of contract in India.

Renewable energy is the focus of this amendment bill, it laid down the national renewable energy policy, many people in the industry are appreciating that by this India may achieve the goals regarding renewable energy in the coming years. Some experts believe that the cross border trade may be beneficial for both the trading countries. India can export electricity to another country and may import electricity from other countries. Some of the remote areas which are close to the border of another country may be cost-effective and convenient to purchase electricity from them rather than build a huge power plant and infrastructure for the supply of electricity to remote areas.

Pros and cons of the Bill

The bill is addressing some of the crucial areas of concern that were missing in the previous bills. The present bill proposes many provisions with respect to recovery of revenue and brings a cost-reflective tariff. Since the principle Act enacted there is a grey area regarding the performance of the contract. In the current amendment bill, a new semi-judicial authority is set up to deal with the enforcement of the contract. This bill introduced a distribution sub-licensee and franchisee, this may help reduce the electricity loss and increase billing collection on behalf of the generating company or licensee. This bill also proposes to constitute a single selection committee for all regulatory authorities. It may bring uniformity in the process of selection of members. And bills also have some provision regarding cross border trade, under this bill both central and state commission includes in the process of trade.

There are few provisions in which more clarification is required, there is a lack of clarity on the sub-licensee and franchisee that how revenue compensation would work. The bill establishes an electricity contract enforcement authority for dealing in the area of enforcement of the contract, the jurisdiction has not been defined clearly. Enforcement authority’s main objective is to reduce the complexity of the but if it is noted make clear than the existing complex regulatory process becomes more complex and may create the grey area. Bill also proposed the direct transfer of subsidy directly to the personal bank account. This may lead to non-payment or delay in the payment of bills because authorities may lose the trust of consumers and also it is difficult to identify the beneficiaries on what grounds it may delay the whole process of the transferred benefit of the subsidy.

Conclusion

There is no doubt about electricity that it becomes a very essential part of modern life and for the economy as well. There are many requirements in the power sector to grow rapidly. The provision should always be intended to increase efficiency, improve the quality of supply, and prepare the sound environment for domestic investors as well as for international investors. The objective of the Act should always be to protect the interest of society and maintain transparency and fair treatment of all stakeholders. This amendment bill has provisions that may help in the streamline and reduce the complexity of the system. The promotion of private participation may help in the increase in the collection of revenues and ensure the quality supply of electricity to consumers. This bill is important in order to increase commercial activities and investment because prior to this bill in 2014, 2018 similar bill was proposed but is not able to make an Act. There are a few critical issues that weaken the power sector and sustainable growth of the country.

References

• https://www.brookings.edu/research/comments-on-the-draft-electricity-amendment-bill-2020/
• https://energy.economictimes.indiatimes.com/news/power/the-electricity-amendment-bill-2020-an-overview/75251244
• https://pib.gov.in/PressReleasePage.aspx?PRID=1634253#:~:text=As%20per%20th e %20 draft%20circulated,made%20by%20the%20State%20Governments.&text=The% 2 0proposed%20Selection%20Committee%20in,and%20State%20Governments%20as%20earlier.
• https://www.financialexpress.com/industry/draft-electricity-amendment-bill-2020-proposals-brighten-outlook-for-sector/1947156/

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