New Electricity Bill: End to subsidised power, distribution overhauled

The Bill has also noted that cross-subsidy and surcharges levied on industrial consumers should be reduced
In a bid to initiate reforms in the power sector, the government on Friday made public the draft Electricity Bill, 2020, which seeks to remove subsidised electricity rates, cross-subsidy, complex tariff structure and strengthening regulators, among other things.

The Bill proposes an overhaul of the power distribution sector, which is currently the weak link in the supply chain. It also proposes a franchisee model in private power distribution.

Stakeholders have been asked to give comments on the draft within three weeks.

Regarding subsidised power rates, the provision of power tariff determination has been revised in the Bill and it asks all state electricity regulatory commissions (SERCs) “to determine tariff for retail sale of electricity without any subsidy under section 65 of the Act”.

It also asks for cross-subsidy and surcharges levied on industrial consumers to be reduced.

These charges are levied on industrial consumers of a state to cross-subsidise the free or subsidised power given to other consumers.

Recognising that power tariff did not reflect cost and had several subsidy components, the new Bill has introduced provisions on tariff determination. It imposes restrictions on deferring revenue recovery or regulatory assets.

Regulatory assets are expenses of power distribution companies (discoms) that are recoverable in future power tariff hikes, but the SERCs do not take them into consideration while calculating current electricity tariffs.

According to an estimate by the ministry of power, discoms lose Rs 22,000 crore in revenue annually because of the creation of new regulatory assets.

The Centre has also strengthened the regulatory environment in the sector. Apart from the existing central and state electricity regulatory commissions, the Bill moots a new regulatory body, the Electricity Contract Enforcement Authority, which will be formed to resolve disputes relating to contracts for sale and purchase of power. Along with it, the existing Appellate Tribunal of Electricity has been given powers similar to a civil court.

To improve the payment mechanism of states, the Bill has proposed that load dispatch centres be empowered to oversee these mechanisms before power is dispatched. The mechanism makes it mandatory for discoms to pay for electricity in advance through letters of credit.

As India gears up for an energy transition with an increasing share of renewables in the energy mix, the Bill has proposed a National Renewable Energy Policy.

This would be prepared in consultation with states “for the promotion of generation of electricity from renewable sources of energy and prescribe a minimum percentage of purchase of electricity from renewable and hydro sources of energy.”

As hydropower has now been recognised as renewable power, the Bill has also proposed that all SERC specify trajectory for renewable and hydro purchase obligation.
Amendments introduced in the Electricity Act/New Draft Electricity Bill, 2020
  • Power tariff to be determined with no subsidy component
  • Cross-subsidy on industry to be reduced over time
  • Opens power distribution to franchisee and sub-licensee business
  • Appellate Tribunal of Electricity to have powers similar to that to a Civil Court
  • New contract dispute resolution authority to be formed
  • Cost-reflective tariff, simpler power tariff structure to become law
  • Load despatch centres to also monitor payment by states before electricity supply.
  • New Renewable Energy Policy to be drafted

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