The government has introduced the Electricity (Amendment) Bill, 2022 (new bill) to amend the Electricity Act, 2003 (act). A similar attempt in 2020 (2020 bill) was shelved following the farmers’ protests. The new bill retains many features from its earlier form but drops many others. Provisions relating to the security of payments, strengthening the National Load Dispatch Centre (NLDC), the composition of the Appellate Tribunal for Electricity (APTEL) and imposing penalties for not fulfilling renewable purchase obligations (RPO) have been retained from the 2020 bill.
The new bill establishes procedures for the Central, and State Electricity Regulatory Commissions (CERC and SERC) to regulate between and within states respectively, enhances the powers of the NLDC and empowers it to trade in electricity. The government may prescribe a payment security mechanism for the sale and purchase of electricity, which, in the 2020 bill, was to be determined by the buyer and seller. The Forum of Regulators, which operated as an association of electricity regulators is given recognition under the new bill. As a voluntary association, the Forum played a significant role, but its official status may raise eyebrows. Opposition parties and states may view these provisions as encroaching on the autonomy that states enjoyed in administering electricity generation, transmission, and distribution.
Changes in the new bill will facilitate the introduction of multiple distribution licensees in the same supply area. The government will have the power to grant distribution licences, which before were matters of state commissions. The new bill introduces mandatory non-discriminatory open access for distribution systems and proposes minimum tariffs for the retail sale of electricity. After issuing licences to one or more distribution companies (discom) in a supply area, all discoms are required from the date of issue to share the power and associated costs from the existing power purchase agreements.
A cross-subsidy balancing fund is proposed comprising surpluses from cross-subsidy surcharges and an additional surcharge on discoms to compensate for cross-subsidy deficits of other discoms. This is likely to be a fund similar to the universal service obligation fund set up in the telecom sector. Many discoms have previously faced opposition from state governments and state-owned discoms. Implementation will depend on the government managing the political fallout.
To comply with India’s international commitments to increase its proportion of renewable energy, the 2020 bill introduced penalties for not fulfiling RPOs. The penalties were, however, seen as too high; the new bill reduces them to a range between INR25 paise and INR50 paise (USD0.003 to USD0.006) per kilowatt-hour.
The new bill addresses the issues plaguing tariff determination. The amendment to section 86(1)(a) of the act makes it mandatory for the SERCs to determine tariffs so that licensees recover all prudent costs together with reasonable returns on investment to ensure their financial viability. Tariff applications must be filed in time to be effective from the beginning of the financial year, and should be determined within 90 days of filing. In case of delay in disposing of the tariff application, an interim tariff will be set.
To improve contract enforcement, the 2020 bill established an electricity contract enforcement authority. The new bill instead vests the power of adjudication in the SERCs, with an additional condition that in cases involving reneging on power purchase agreements by a generating company or licensee, the dispute, including compensation, shall be settled within 90 days. The power of the SERCs under section 86(1)(f) of the act to refer a dispute to arbitration is removed. The government could have allowed arbitration in disputes between licensees and generators under the Arbitration and Conciliation Act, 1996. A 90-day period may not be sufficient to settle complex disputes under power purchase agreements. On the positive side, the orders of the SERCs are to have the force of court orders, which will greatly help enforcement.
The new bill, as with its many predecessors, is facing hurdles and political opposition. The government should win over its detractors and build consensus on some of the less contentious aspects of the new bill.
Abhishek Tripathi is the managing partner and Shivika Agarwal is an associate at Sarthak Advocates & Solicitors.