While DISCOMs procure power primarily through ‘power purchase agreements’ (PPA) from power generators and traders, real time procurement is regulated by the SLDC (State Load Despatch Centre) and ALDC (Area Load Despatch Centre) after ascertaining that such power qualifies as the cheapest for the DISCOM, known as ‘merit order despatch (MoD)’
. Amendment to Section 26 of the Act would not only transfer a part of this regulatory power to NLDC but also empower it to trade in power. Currently traders and DISCOMs have the trading license but none of the load despatch centres enjoys this power, as it would create ‘conflict of interest’ with distribution licensees. A distribution licensee uses this authority very prudently while handling regular fluctuations in power-demand due to unforeseen weather conditions and seasonal variation in agricultural demand.
Grant of trading license to NLDC not only reduces the prospect and profitability of the distribution licensee through such trade but may also compel them to buy power through NLDC and keep its contracted suppliers, particularly coal-based thermal power generators, on hold on the apparent ground that cheaper power from other sources at national level is available.
Power at cheaper variable cost may be available elsewhere for various reasons, such as power generating companies may be located on the minehead involving minimum transportation cost; some states including Rajasthan, Gujarat, Karnataka, Tamil Nadu, Maharashtra etc. enjoy geographically locational advantage for generating plenty of solar and wind power at cheaper cost merely because of natural phenomena.
On the other hand, power stations located in states like West Bengal, Uttar Pradesh, Bihar, Jharkhand etc. dependent more on coal-fired technology will have to either shut down their plants for short or long duration just to accommodate cheaper renewable power monitored through NLDC.
Now, coal has become costlier mainly because the Union government enhanced coal-cess from Rs 50 to Rs 400 (eight times) per ton of coal in the last decade and the coal-producing centralsector companies increased their practice of selling coal through auction at a much higher rate even without satisfying 100 per cent requirement of the ‘Annual Contracted Quantity’ of the generating companies. In such a situation, just because of locational advantage, all power generated through renewable sources in some states will be sold out, and the consumers of those states will get power at a lower tariff as transmission cost will be much lower. But thermal units of some other states will have to remain either shut or operate at higher cost forcing consumers to buy dearer power. So, the apprehension of transfer of power from SLDCs to NLDC and resultant uneven growth of different regions of the country is not unfounded.
This apprehension is further corroborated by the fact that amendment to Section 86(e) of the Act enables the Union government to set a yardstick as to what percentage of its power requirements would have to be met by a DISCOM from renewable sources (technically called ‘Renewable purchase obligation’ or RPO).
It is widely known that not only is the intensity of sunlight lower in the states located in the Eastern and Northeastern regions but also because of the long monsoon season, the number of sunny days is much less compared to states located in the Western part of the country. Despite this well-known phenomenon the Union government sets a uniform yardstick for all states in the country.
This amendment bill by adding Section 142 (3) proposes to introduce the provision for slapping severe penalties for failing to comply with the RPO compliance. Thus, the apprehension of some quarters that NLDC may push renewable power in an aggressive way by destabilizing the operation of coal-fired thermal plants is not unfounded. The counterargument is that it will pave the path for maximum use of cheaper renewable power which is not only conducive for protecting the environment but is also compatible with the country’s commitment to the international community for reducing carbon emissions. This aggressive use of renewable energies might ultimately reduce power-tariff as a whole and the benefit will be reaped by all.
Section 42 of the Electricity Act mandates setting up of a ‘Grievance Redressal Forum’ for consumers. Sometimes consumers lodge complaints in different forums alleging that no connection is given for a long time even after depositing funds against the quotation served by the DISCOM, or the entire responsibility for a meter getting damaged is unreasonably thrust upon the consumer and a huge bill is slapped on him, etc.
These complaints are required to be redressed by the grievance redressal officers (GRO). As a matter of fact, the GROs are generally officers of the DISCOM itself and aggrieved consumers allege that more often than not, the grievances remain un-addressed. The appellate forum is the Ombudsman.
But cryptic description of two subsections of section 42 of the Act enshrining the power, functions and authority of Ombudsman to enforce his orders keep the entire mechanism in such a pitiable condition that redressal of grievance of a consumer depends more on chance rather than on the provisions of law. This bill did not even spend a single word to streamline the provisions for redressal of consumer grievances.
Power is a regulated sector, and its tariff is determined by an independent commission based on a cost-plus mechanism. Power utilities get ‘return on equity’ (RoE) over and above reimbursement of costs to a reasonable extent as per Section 61(d) of the Act.
If the power tariff is, say, Rs 8 per unit, the cost of procurement and supply is around Rs 5 (appx. 60 per cent). Around 55 per cent of the power generated in the country comes from coal-fired power stations.
But till now the coal-sector remains unregulated. This amendment bill does not promise to bring the coal-sector under any independent regulatory mechanism to do away with the practice of setting the price and delivery mechanism of coal unilaterally. Obviously, it leaves no promise to keep power-tariff affordable.
The RoE was first set at 14 per cent for generating and transmission companies by the Central Electricity Regulatory Commission (CERC) by its notification dated 26 March 2004.
It was subsequently revised to 15.50 per cent and kept unaltered in its notifications of 2014 and 2019. DISCOMs get 16.5 per cent RoE. During the last two decades interest rates offered by banks against deposits have continuously gone south but this RoE remains unaltered when hardly any sector in India can be found to get a guaranteed return of 15/16 percent.
This amendment bill does not make any indication to draw parity of RoE with bank’s interest rate. So, a common citizen suffers twice; receives low bank interest but foots the bill for high returns in the power-tariff.
It can thus be concluded that the amendment bill is likely to fulfil the desired objectives if the object is industrial rejuvenation. But how far it will take care of the issues of common consumers, time only can tell. The chances are that if this bill is not tabled in the ongoing session, it might be shelved in the next year too, because the general election to the Lok Sabha is scheduled in 2024.