20/05/2020 - Government Policies | Mainstorming

IAS Parliament 5 years

KEY POINTS

Viability of Electricity Distribution companies (Discoms)

Cost reflective Tariff: The Commissions shall determine tariffs that are reflective of cost so as to enable Discoms to recover their costs.
Direct Benefit Transfer: It is proposed that tariff be determined by Commissions without taking into account the subsidy, which will be given directly by the government to the consumers.

Sanctity of Contracts

Establishment of Electricity Contract Enforcement Authority: A Central Enforcement Authority headed by a retired Judge of the High Court is proposed to be set-up with powers of the Civil Court to enforce performance of contracts related to purchase or sale or transmission of power between a generating, distribution or transmission companies.
Establishment of adequate Payment Security Mechanism for scheduling of electricity - Load Dispatch Centres to oversee the establishment of adequate payment security mechanism before scheduling dispatch of electricity, as per contracts.
Doing away with multiple Selection Committees: It is proposed to have one Selection Committee for selection of Chairpersons and Members of the Central and State Commissions and uniform qualifications for appointments of Chairperson and Members of Central and State Electricity Regulatory Commissions.

Criticism

· The Electricity Bill 2020 containing the proposed amendments is silent on whether a private sub-franchisee would be required to buy the expensive power (averaging out the idle fixed costs) from the DISCOM or procure cheaper power directly from power exchanges.

· The amendment proposes even greater concessions to renewable power developers, with its cascading impact on idling fixed charges, impacting the viability of DISCOMs even more.

· State regulators will henceforth be appointed by a central selection committee, the composition of which inspires little confidence in its objectivity, jeopardising not only regulatory autonomy and independence but also the concurrent status of the electricity sector.

· The establishment of a centralised Electricity Contract Enforcement Authority whose members and chairman will again be selected by the same selection committee referred to above.

· The power to adjudicate upon disputes relating to contracts will be taken away from State Electricity Regulatory Commissions and vested in this new authority, ostensibly to protect and foster the sanctity of contracts.

Aradhana Tiwari 5 years

Seventh Schedule to the Constitution of India listed "power" in concurrent list -

considered by both the union and state government.

Following the COVID-19 pandemic, as a part of stimulus package under 'Atmanirbhar Bharat Abhiyan', govt has announced amendments to the Electricity Act, 2003 . But, this has raised concerns that "reform of power tariff policy" will burden States and erode the concurrent status given to electricity.

>>> Concerns :

The Electricity Bill 2020 containing the proposed amendments;

- is silent on whether a private sub-franchisee would be required to buy the expensive power from the DISCOM or procure cheaper power directly from power exchanges.

- proposes even "greater concessions to renewable power developers", impacting the viability of DISCOMs even more.

- seeks to "eliminate the cross-subsidies" in retail power tariff. Eliminating cross subsidy in one stroke when State governments are already struggling with direct power subsidies is bound to be ruinous to their finances.

- envisage that "State governments will directly subsidise through direct benefit transfers".

- proposes that the "Central selection committee will appoint the state regulators".

- seeks to take away the power to adjudicate upon disputes relating to contracts from State Electricity Regulatory Commissions and vest it on to a "centralised Electricity Contract Enforcement Authority" .

>>> Consequences :

- will make the costs of power purchase almost 80% of the total costs of Discoms

- will shift the burden onto hapless States, with serious consequences for the nation’s energy security.

- will weaken the control of States over an industry supplying a basic human necessity such as electricity

- arm the Centre with a pincer-like weapon which could choke the distribution utilities/companies (DISCOM) and jeopardise the country’s energy security.

>>> Conclusion :

The twin challenges that we always face are enforcement and coordination. If central government policymakers believe states have been slow in improving performance, then, instead of taking away their flexibility or even some powers, strengthening their institutions may be more sustainable in the long run.