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What Works and What Does Not in the Proposed Electricity Act Amendments
This blog is Part 2 of the series 'Accelerating India's Energy Transition through Electricity Act'

Karthik Ganesan
01 June 2020

In this third attempt to amend the Electricity Act of 2003, several of the headline-grabbers of the past like the separation of carriage and content have been abandoned. The focus is now on new institutional arrangements, enshrining support for renewable energy into law, and providing a layered governance framework for enhanced efficiency. While these are worthy intentions, the proposed amendments fall short on details which could signal any real transformational impact.

Did the amendments need more deliberation?

Let’s examine the timing of these amendments. Like with a few other proposals - EIA Notification 2020, or the notification ending the need for coal-washing, one wonders why important amendment proposals and notifications are being made during a raging pandemic? As much as these amendments are integral to the process of a sustainable recovery, they need more deliberations than the pandemic is currently allowing for. Specifically in the case of the power sector, we see many emerging challenges that have been exacerbated by the pandemic. INR 90,000 crore has been earmarked for the sector for immediate relief. This puts state finances beholden to a loan from a central government agency. Coal-fired generation is struggling to cope with the drop in demand, but expensive payments for assets - regardless of age and efficiency, still continue. There are some serious reform steps required in the power sector, but do the state governments, given their eroded financial base, retain the ability to drive reform or are they likely to persist with status quo for want of capacity and resources?

Proposed amendments: The good, the bold and the problematic

Despite the timing, some of the amendments proposed are much needed, some are bold, some tentative, some contentious and some, perhaps, will prove ineffective. We analyse the amendments and see if they cater to the short-term and long-term needs of the sector.

The most contentious aspect of the amendments proposed is the evident centralisation of powers in the Electricity Act (EA). Former Minister of Power, Shri Suresh Prabhu, under whose leadership the Electricity Act (2003) was passed, said at a recent public interaction that one of the reasons it became a defining document for the sector, was the support it enjoyed from stakeholders across the board. This was a result of long and extensive consultations, almost to the point where the most senior bureaucrat in the ministry advised Mr Prabhu to close the deliberations as they had had several. The EA (2003)’s deliberative process ensured all stakeholders were on board. This certainly does not seem to be the spirit behind the current set of amendments proposed. Right from unifying the process of appointing members of the CERC and SERCs, to the proposed electricity contracts enforcement authority (ECEA), to the blanket powers given to the NLDC and the (proposed new) National Tariff Policy to determine the cross-subsidy phase-out plan for states, the role of states as partners seem to have been overlooked in favour of central decision-making. Electricity is a concurrent subject and states need enough autonomy to manage their power sectors.

The amendments are creating new processes and institutions. But why the existing ones failed, and how the new ones are bridging those gaps is not clear. For example, ensuring that the SERCs have competent members needs capacity building much more than just having them being chosen by an independent ‘central’ hand. Then there is the separation of regulatory and judicial functions in the ECEA. While the separation is desirable and will provide an opportunity to strengthen its core regulatory capacity, there is little clarity on how it can carry out the judicial functions of all SERCs and be based in Delhi.

In a scenario with generation assets becoming stressed across the board, there are likely to be disputes from the get go and the ECEAs ability to handle these is questionable. A clearer specification of the ECEAs mandate on adjudication and sharing the power on appointment with states are key asks from the polity. These are all well-intended amendments but discount the reality of the state administration and the time-frames for implementing these in the face of their constraints. After three expensive bail-outs, it is understandable that there is an urgency to turn things around with further delay, but the process of turning around discoms is an uphill one that needs more collaboration and commensurate capacity amongst all stakeholders.

The ambition on a few amendments is commendable. This administration is known for its ability to deliver key projects in a mission mode. The direct benefit transfer (DBT) scheme for LPG in FY15 and the subsequent enrollment of nearly eight crore new consumers for LPG in a three-year time frame, suggests that the administrative capacity exists for such initiatives that overhaul existing product and subsidy delivery schemes. A similar DBT is envisaged for the delivery of the subsidy that is enjoyed by consumers of electricity - especially households and agricultural consumers. The only challenge is, the subsidy is to be paid out by state governments, whose finances are more precarious than ever before and they have traditionally always delayed paying the subsidies that were due to the discoms for providing power at lower tariffs.

The learnings from the LPG DBT scheme suggest that there will be consumers who will face delays in receiving the subsidy despite advances in fin-tech. There are likely challenges in linking the necessary accounts (bank account with electricity account), which will ultimately result in some distress for many consumers. However, these will be ironed out over time and DBT for subsidies is indeed a worthy pursuit. Our recommendation is to opt for a means-tested direct income transfer of subsidies to deserving electricity consumers and not link it to the consumption of electricity itself.

Identifying deserving beneficiaries is a key hurdle that states must overcome. An implementation phase that extends over a few years is key and the recent announcement that states must demonstrate implementation in at least one district by the end of 2020, to qualify for some of the stimulus package, acknowledges that this will not be an immediate exercise.

The RE definition needs clarity

Recognising the increasing role of renewable energy, the amendment calls for the notification of a national renewable energy policy. This is a welcome move, and one that has been in the works for years. There is, however, a need to clearly specify what constitutes renewable energy. There is undue focus on hydropower in proposed amendments, despite the recognition in official proceedings that new hydro (large) is not cost competitive and faces stiff opposition from local populations in affected areas as it poses a genuine environmental threat. It is likely that the exuberance around hydro is related to the commendable contribution of hydro resources in helping manage the nine minute ‘lights-off’ event that took place on April 5, 2020.

Market mechanisms, and not minimum purchase obligations must be used to deliver such services. Equally, the merit of combining renewable and dispatchable resources to have round-the-clock power does not seem well developed, and a clearer exposition of the reasons for this proposal would be beneficial.

A broad, shared vision needed

The amendments proposed this time around seem to be more a response to some pressing challenges arising from the bottlenecks in the governance of the sector, than a reimagined, full-fledged vision. They seek to address a range of legacy issues emanating from weakened institutions at the state level. The solution though, cannot be to manage these from the centre.

There is little clarity on the path to market transformation of the power sector. This has long-term implications too. Power purchase accounts for nearly 80 per cent of the cost of supply for discoms. Not having any guidance on reducing power purchase costs by adopting market-based reforms, and the role of specific technologies, leaves a significant gap in the Act.

The proposal to cultivate distribution sub-licensees to achieve operational efficiency seems to be a workaround of the discom privatisation proposal of the past. The concept is hurriedly explained and does not clearly propose how it might be different from the existing franchisees, who themselves have not seen many takers, other than in some key consumption circles.

Articulating a vision for where we want the power sector to be, is as important as the specifics of any amendment. This vision (by way of an updated national electricity policy) for the sector should have been spelt out before proposing and deliberating new ideas for the amendment. A theory of change that then supports some of these amendments in pursuit of these goals, would indeed be a welcome addition to the information provided by the ministry in this regard. While the path is clear for pushing through these amendments, it is unclear how effective some of these will be, in the absence of shared vision and a clear buy-in on it from the states.

Karthik Ganesan is a Research Fellow at the Council on Energy, Environment and Water. Send your comments to [email protected].

Read Part 1: Separating Regulation and Adjudication Through a Proposed New Judicial Arm

Read Part 3: Can the Amended Electricity Act Unlock More Private Capital for Renewables?

Read Part 4: Centre-State Alignment is Key to Accelerating Renewable Energy Deployment in India

Read Part 5: Rethinking the Role of Institutions for Effective Policy Implementation in Power Sector

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