The Electricity (Amendment) Act, 2018 ('Draft Amendments') proposed by Ministry of Power for amending the Electricity Act, 2003 ('the Act'), aims to keep at pace with the changing market dynamics, increasing renewable capacity and challenge of providing quality power supply. Below we explain the major changes introduced in the 2018 avatar of the torch-bearing Act for the power sector and its impact. The Draft Amendments would need comment from the industry and stakeholders before being placed on the floor of the Parliament.
Cheer for Consumers
A key change in this regard is that the Draft Amendments have proposed that in case of power cuts, other than due to force majeure conditions or technical faults, an appropriate penalty will be levied on the distribution company and credited to the account of the respective consumers. In another major change, the draft amendments have proposed that the benefit of reduced tariffs after assets have fully depreciated should be mandatorily passed on to the consumers. Typically, these benefits are retained by the generating companies, and do not result in a lowering of tariff, and therefore, it will be interesting to see what approach the power industry takes with respect to this proposed change.
Direct Benefit Transfer of Subsidy
Breaking the cycle of subsidy and losses incurred by the Distribution Companies ('DISCOMS'), the Draft Amendments have introduced DBT in electricity as well. The Act says: if the State Government or Central Government desires the grant of any subsidy to any consumer or class of consumers, such subsidy shall be directly transferred to the beneficiary by direct benefit transfer into the bank account of the beneficiary." The same will apply if subsidy is given through any government scheme as well.
Separation of content & carriage
The long-pending demand to separate the infrastructure builder for power distribution to consumers and the licensee to supply has been introduced in the Draft Amendments. This would entail more than one electricity supplier in an area and consumer will have options to choose their preferred electricity supplier. Allied to it is introduction of time of the day tariff – power rate as per the energy source, season, time and demand.
For the first time, Draft Amendments have mentioned Smart Meter and Prepaid Meters and regulations related to the same, making it mandatory to install smart meter. This would help proper accounting of power consumption and wastage.
Obligation to supply power 24x7
The Draft Amendments propose that 24x7 power supply is an obligation on DISCOMS and the State Electricity Regulatory Commission can penalise the DISCOMS, if it fails to do so. The Commission can suspend or revoke the license of the DISCOMS as well, which has been mandated for the first time.
Violation of PPA to be penalised
The Draft Amendments states that, "Violation of PPA will lead to penalties which may be as determined by the Appropriate Commission which may be fines which may extend to Rupees One crore per day, and, in case of licensees may also extend to suspension and cancellation of licence." This comes as a major relief for power generators which lately have been facing brunt of states cancelling PPA citing high cost or lack of funds.
Big Boost for Renewable Sector
Several amendments are favourable to the Renewable Energy ('RE') sector. Some of these are:
- Definition of Renewable Purchase Obligation ('RPO') and Renewable Generation Obligation ('RGO') introduced.
- Introducing policies in order to support RE sector like National Renewable Energy Policy to promote smart grid, ancillary support, and decentralized distributed generation in accordance with the provisions of the Act;
- A penalty of maximum Rs. Fifty lakhs for non-compliance of RGO. (Reduced from 1 Cr. to 50 Lakh for RE, the earlier penalty was on 1 lakh.)
- For non-compliance of RPO, an additional penalty is proposed, which shall be minimum of Rs 1 per unit with a maximum of Rs 5 per unit depending on the extent of the shortfall.
- Generation and supply of renewable energy will not require any license for such generation and supply.
The Draft Amendments proposes (a) time-bound reduction in cross-subsidies (CSS), and (b) CSS to be not more than 20% of the wheeling charge. These provisions are nothing new. The prevailing Act also included provisions for reduction of CSS. But these were watered down later.
The proposal that CSS be 20% of wheeling charges is significant, and if implemented, it will reduce CSS significantly. Also, the provision for charging "additional surcharge" is proposed to be deleted – this will also have a significant impact as in recent years states have used high additional surcharge as a tool to discourage open access.
We believe that the proposed changes will have a wide and deep impact on the electricity sector. The promotion of RE and removal of roadblocks for development of RE in the country is a welcome step and one that was long overdue.
The separation of distribution and supply function also signifies a fundamental shift in the way electricity is distributed in the country. However, by watering down the provisions for the same and giving states the choice to implement is a pragmatic way the government has adopted to allow the passage of Draft Amendments. In any case, this change is likely to take a long time to start showing on the ground.
Another radical change proposed is of paying subsidies through "Direct Benefit Transfer" only. This can be a potential game-changer for the sector and can pave the way for genuine DISCOM reforms on commercial principles.
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