New Bill set to amend the Electricity Act, end licence raj in power supply

The Centre is ready with a Bill to amend the Electricity Act, 2003 to set the ball rolling on abolition of power “distribution licence” and allow any company to supply electricity to an area, after necessary regulatory approval. The move will also end the monopoly of existing power distribution companies (discoms), which are mostly  state-owned entities. It also implies that all areas will be thrown open to private discoms.

The amended terms as part of the Electricity Bill, 2021, will be tabled in the ongoing session of Parliament. Introducing a new section 24 (A), the draft Bill states: “Any company which fulfils prescribed qualifications and has registered itself with the appropriate commission may supply electricity to consumers in its area of supply, either using its own distribution system or using the distribution system of another distribution company, provided that it complies with the provisions of the Act.”

The Bill, which has been reviewed by Business Standard, has replaced the term “distribution licensee” with “distribution company”. It also seeks to allow two or more discoms to register and distribute electricity in the same areas. The existing power purchase agreements will be shared by all discoms in an area; they will also be allowed to sign additional power purchase agreements.

The proposed amendments follow the announcement made by Union Finance Minister Nirmala Sitharaman in her Union Budget speech. Addressing the existing discoms as monopolies, she said: “There is a need to provide choice to the consumers by promoting competition. A framework will be put in place to give consumers alternatives to choose from among more than one distribution company.”

State-owned discoms across the country are financially and operationally beleaguered despite four reform schemes in the past 15 years. The latest discom reform scheme UDAY (Ujwal DISCOM Assurance Yojana) concluded in FY20, with most state discoms failing to meet their stipulated targets and were still in the red.

The aggregate technical & commercial (AT&C) losses or power supply losses due to inefficient systems were supposed to come down to 15 per cent and the average cost-revenue (ACS-ARR) gap of discoms down to zero by FY20. However, AT&C losses currently stand at 23.9 per cent and the cost-revenue gap at 0.53 paisa, according to the UDAY portal. The numbers are the national average of last available data of all discoms of FY20 and the indicative data of six states during Q1FY21.

The Electricity Bill, 2021, has also proposed to empower the grid operator National Load Despatch Centre (NLDC), giving it the right to stop dispatch of power to states which do not provide payment security against their contracted supply.

In Section 28 of the Bill — which pertains to NLDC’s operations — a new provision has been added stating, “No electricity shall be scheduled or despatched under such contract unless adequate security of payment, as agreed upon by the parties to the contract, has been provided.”

 The proposed amendment comes even as there are rising dues of discoms to generating companies. As of December 2020, the dues of discoms stood at record Rs 1.27 trillion. This was after the Centre floated special loan scheme to bail out discoms’ payments to gencos.

In June 2020, the finance minister in the ‘Aatmnirbhar Bharat’ package to boost the economy, announced a special loan scheme for the discoms at an estimated outlay of Rs 90,000 crore.

It also puts down the principles for ‘cross border trade of electricity’ for the first time. The Central Electricity Regulatory Commission will make regulations for sale and purchase of power with neighbouring countries.