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The Power Bill~I

Proponents of reforms assert that if tariff of domestic and small consumers is to be kept low, responsibility of subsidization lies with the government and not on the industries for an indefinite period, because in many developed countries power tariff for industrial sector is always lower than that of domestic sector just to make industries more competitive in the global market

DURGADAS GOSWAMI | New Delhi |

Recent media reports indicate major unions of power sector in the country are likely to strike work on the apprehension that the Union government might table the ‘Electricity (Amendment) Bill 2022’ in the ongoing session of Parliament and get it through in the Lok Sabha by majority vote. Lest the bill should become a law, the employees’ unions have raised this alarm suspecting the move as an approach to ‘selective privatisation’ by carving out the cash-cow of the existing government distribution companies (DISCOM) and punching another blow to the federal structure of the country.

Although electricity is a Concurrent List subject in the Constitution the present bill may shift the balance of power in favour of the Union government and its entities. They further apprehend it might hike power tariff and exacerbate the imbalance in inter-regional development. On the contrary, the major changes that this sector was awaiting, for example, proper redressal of consumers’ grievances, quality power at affordable prices etc. will continue to remain a far cry. In other words, some of the important objectives that brought about the Electricity Act, 2003 will be frustrated.

But the proponents of the bill consider this amendment bill is bold enough to accelerate the pace of industrial growth to make the Indian manufacturing sector more competitive in the globalized markets. A brief analysis of the major issues of the bill will, hopefully, shed some light.

Amendment of Sections 14 (b) and 15 enables more than one utility to distribute power in the same area. Existing provisions also allow more than one DISCOM to distribute power in the same area but only after the new entrant puts its own grid and network in place. This option was seldom exercised because of its prohibitive cost. In Mumbai, however, multiple licensees in the same area are operating in a different context. The present bill allows the new licensee to utilize the existing network just by paying ‘Wheeling charges’ thereby implying that the risk of investment is borne by the existing licensee while the new entrant reaps benefits out of it.

Historically, private companies distribute power in a few cities like Kolkata, Mumbai, Delhi etc. where Transmission & Distribution (T&D) loss is lower than 10 per cent while in other parts of the country, government DISCOMs distribute power to all consumers be it rural or urban, small or big, industrial or domestic, where such T&D loss together with loss arising out of unscrupulous use of power termed as ‘Aggregated Technical & Commercial (AT&C)’ loss is as high as 20- 30 per cent or even more. T&D loss is higher in respect of rural and domestic consumers because consumers get connected at lower voltage levels and power supply lines are drawn miles after miles resulting in excessive mechanical loss. But wherever private companies operate, they are not required to distribute power in rural areas where AT&C loss is very high. The lone experiment of a private licensee distributing power to all types of consumers over a long period in Odisha could not finally sustain and failed miserably. That could be the reason to prompt private entrepreneurs to seek distribution licenses in urban and industrial areas only. Therefore, the apprehension of ‘selective privatization’ through this amendment bill is not unfounded.

There are reasons to believe that operation of many DISCOMs in the same area might increase competition; reduce power-tariff and improve quality of power. But it is not a service similar to what a mobile network provider renders and operates without any grid; because power is to be supplied through a dedicated grid only and that too is different for different consumers according to the voltage level at which such consumers get connected. In a single area, the network remaining the same, different quality of service for different sets of consumers catered by different licensees can be maintained, at best, by installing consumer specific instruments and only when it is operated through smart meters. These smart meters and instruments are not only very expensive but also most difficult to operate for differentiating services through the same grid. Moreover, for this system to succeed, introduction of another independent entity to control the grid is sine qua non.

Most of the government licensees can ill afford such additional expenses. But when a private player selectively does it for high-end consumers, it may become profitable with much less investment because the whole lot of consumers will not be required to be catered. Hence, a private utility would be eager to distribute power to those selected few industrial and big consumers at lower tariff by tacitly undercutting the price of the existing licensee by taking advantage of the provision of ‘ceiling tariff’. It is possible that industrial consumers get cheaper and quality power through this process, and they become more competitive.

For this kind of ‘cherry-picking’ of big and industrial consumers by a new licensee, the existing DISCOM will be left with only rural and domestic consumers that involves higher percentage of AT&C loss. At present, government licensees can compensate some amount of loss arising out of rural and domestic consumers from the gain attributable to big and industrial consumers, As a result, the industrial consumer remains deprived of utilizing its own power technically called crosssubsidy. But in the new situation such kind of cross-subsidization will cease to exist and that will leave them with few choices but to hike their tariff or get subsidy from the government which they do not always receive even after such amounts get budgeted. Therefore, the bill not only paves the path for ‘selective privatization’ but also has the potential to hike power-tariff.

But the proponents of reforms assert that if tariff of domestic and small consumers is to be kept low, responsibility of subsidization lies with the government and not on the industries for an indefinite period, because in many developed countries power tariff for industrial sector is always lower than that of domestic sector just to make their industries more competitive in the global market.

Currently, the state electricity regulatory commission (SERC), after factoring state-level issues, grants a distribution license to a new company. The present bill empowers the Union government to frame guidelines for granting multiple licenses in the same area. It is to be seen how the Union government frames the criteria. If a new licensee, by such policy decision is perforce required to cater to both rural and urban consumers without having the option of ‘cherry-picking’, only then it can be a level-playing-field for both government and private licensees, otherwise not.

By amending Sections 40 and 42, the bill makes transmission of power through ‘Open Access (OA)’ easier and unobstructed. When any industrial house intends to draw power from its captive power plant for its industrial unit from other locations outside the command area of the DISCOM from which it currently draws its power, it must obtain clearance from the State Load Despatch Centre (SLDC). Many SLDCs, before issuing such clearance now seek technical clearance from the concerned licensee and on the apprehension of losing big consumers, existing licensee tries to keep such clearance on hold for some reason or the other.

, even if it is cheaper. This bill removes many such hurdles in accessing power through OA and prescribes penalty for any obstruction, if posed unreasonably by any entity. Although the existing licensee imbibes the risk of losing the cross-subsidizing bracket of industrial consumers and suffering loss of revenue for that reason, it cannot be denied that such reform lends more strength to the industries to set more competitive price of their products in the global market. (To be Concluded)