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New Electricity Bill 2020 proposes to bring reforms for discoms, tariff

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New Electricity Bill 2020 proposes to bring reforms for discoms, tariff

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The ministry of power has made Draft Electricity Bill, 2020 public on Friday, which pitches for privatisation of distribution companies and cost-reflective electricity tariff without subsidy.

The ministry of power has made Draft Electricity Bill, 2020 public on Friday, which pitches for privatisation of distribution companies, cost-reflective electricity tariff without subsidy, strengthening of payment security mechanism and Electricity Contract Enforcement Authority to bring in investment and ease of doing business in the power sector.

In India, most electricity distribution companies are run by states and many are under financial stress despite many reforms brought in by the central government. The draft proposes to privatise discoms by way of sub-licensing and franchisee models. The sub-licensing will allow states to choose a private company for the distribution of electricity supply of a particular area to help it bring down losses of both electricity and finances.
As of now under discom license, public-private partnership models like in Mumbai and Delhi are run by private companies like Adani and BSES. There is a franchisee model where a private company works on bringing down electricity supply loss and improve billing collections on behalf of discoms.
The bill also proposes to restrict deferment of revenue recovery and reduction in cross-subsidy to bring in a cost-reflective tariff, simplified tariff. The state regulators adjust many costs for future recovery which includes subsidy commitment which eventually increases electricity tariff, resulting in weakening of discoms financial health.
Now, the amendment will allow states to grant subsidy but without provisioning it in the tariff determined by the state regulators. The states will have to grant subsidy through a Direct Benefit Transfer (DBT) for the consumers it plans to give relief.
"Section 65 mandates the state government to grant a subsidy to any consumer or class of consumers, but there are no corresponding provisions about the treatment of subsidies in the tariff determined by the state commissions. It is proposed that state commissions to determine tariff for the retail sale of electricity without any subsidy under section 65 of the Act" mentioned in the draft Electricity Bill, 2020.
It also proposes to bring in an Electricity Contract Enforcement Authority (ECEA) to deal with the issues of non-performance of contracts leading to uncertainty and upsetting of investment decisions and ease of doing business in the power sector. The ECEA will adjudicate the issues of performance of obligations under a contract related to sale, purchase or transmission of electricity but it will not regulate or determine the tariff.
"The proposed amendments are progressive, transformative and formulated with the objective to remove the regulatory impediments/shortcomings that were being experienced in sectoral functioning. Creation of Electricity Contract Enforcement Authority with power of civil court, including arrest, attachment of property, enforcement of decree etc. will help to instil discipline amongst the contracting parties to adhere to their contractual obligations which was amiss in current environment. However, to avoid any jurisdictional issues between CERC and this newly formed body, the bifurcation of functions should be spelt our clearly , to avoid jurisdictional space contests,” says Ashok Khurana, director general, Association of Power Producers.
The ministry of power in August reiterated the strict payment mechanism by electricity distributions companies as payment delay led to operational and financial issues for the generating companies. Now in the amendment, it intends to give more power to the National Despatch Load Center to oversee the payment mechanism before scheduling dispatch of electricity to the states.
For the renewable sector, the draft bill proposes to bring National Renewable Energy Policy and may bring in a minimum percentage of the purchase for the states from renewable sources.
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