Good moves on Electricity Act, some big flaws left
Given how the losses in the electricity sector have piled up over the years and how, despite the Electricity Act of 2003 mandating it, there has been no competition, it is not surprising the government is planning to overhaul the Act based on the suggestions it has received. Since the provision of ‘open access’ was never implemented, the overhauled Act—likely to be brought before Cabinet soon—plans a more foolproof method. So, distribution licences will be given separately for the wire/carriage which connects consumer premises and for providing the electricity itself. In addition, there will also be a provider-of-last-resort provision (POLR) which ensures the supply licencee will have to provide electricity to a consumer in case her other supplier fails to do so—the lack of POLR was a big reason why consumers did not go in for open access since, if their open access supplier failed to supply electricity for whatever reason, they would be left without any back-up supply.
And since the biggest culprit in this, as well as in the piling up of losses and bad loans in the sector, are the state electricity regulatory commissions, some solutions have been proposed for this as well. The Forum of Regulators—an association of all state and central level regulators—is to constitute a committee to review the functioning of the SERCs and to report this to the central government.
The proposed Act, however, has some big flaws that need to be looked into before the matter is brought to the Cabinet. The biggest one pertains to Section 49, which mandates any consumer with a load of more than 1 MW must buy electricity through open access; right now, this is an option given to buyers after paying an open access surcharge. While a large consumer can still theoretically contract for power with the same distribution company, once open access is mandatory, the POLR obligation goes—this opens up big consumers to a lot of uncertainties. In any case, since there is a provision to separate carriage from content, it is not clear why this provision even needs to be there. In order to make the sector more competitive, the government has been in favour of moving away from tariffs regulated by SERCs (Section 62) towards competitively-bid tariffs (Section 63). Accordingly, the proposed Act seeks to limit the amount of Section 62 power. The problem with this is that, with NTPC already sitting on 38,000 MW of Section 62 MoUs, it creates a level playing field issue vis-a-vis private players as NTPC will be able to pass on higher costs to consumers while private firms won’t be able to do so. More important, given almost all power projects bid under Section 62 in recent years are in some form of litigation or the other, it is not clear that what is being proposed is a viable solution. At the end of the day, if appointed regulators don’t do their job—of enforcing higher efficiency levels and introducing competition while keeping tariffs at appropriate levels—there is nothing any Act can do to help.