Changes to Electricity Act Proposed

The Ministry of Power (MOP) recently made public a document that proposes various changes to the Electricity Act, 2003 (EA). The below article provides a quick summary of the proposed changes:

• The current role of the Distribution Licensee has been broken up into system business (Distribution) and supply (supply licensee).
  • In the new system, the Distribution Licensee will be responsible for “operate and maintain a distribution system to enable supply of electricity”
  • The role of supplying electricity will be that of a the “supply licensee”
  • This segregation of system operation and supply is a major step, and down the road will allow multiple licensees to operate in a single area.
  • The state government will devise a scheme to effect such a segregation

• The supply licensee will have to take “Universal Service Obligation”. The proposed draft requires the licensee to be “supplier of last resort” and also that they will not resort to load shedding or power cuts.

• Efforts for development of forward markets have been emphasized

• The State Commission has been made responsible to specify a road-map for time bound reduction of cross-subsidies

• Proceedings before a Commission will be disposed of within 120 days. In the event of delay, the Commission will record the reason for such a delay

• Penalty under section 142 has been increased from Rs 1 lakh to Rs 50 lakh. Additional penalty for each continuing day of default increased from Rs 6,000/ day to Rs 50,000/ day

• Definition of Renewable Energy has been introduced.

“”renewable energy sources” means renewable sources such as small hydro, wind, solar including its integration with combined cycle, biomass, bio fuel co-generation, urban or municipal waste and other such sources as approved by the Central Government in consultation with MNRE from time to time prescribed.”

The proposed amendment leaves out some very important changes from the renewable energy perspective.

• The state RPO regulations have a weak penalty clause – penalty at the forbearance price of RECs needs to be set aside by the company and used for specified purposes and on the directions of the commission. However, incorporating this in Section 142 would have made it much stronger
• There has been ongoing confusion (and various petitions) on the issue of jointly promoting cogeneration and renewable energy. The issue stems from the reading and interpretation of the EA. However, the current draft does not attempt to clarify this issue.
• CERC, in Statutory Advise given to the Ministry of Power (dated 28 Dec 2011) had said that “we build in the Act itself the requirement for a long-term RPO trajectory and deterrent against non-compliance of RPO”. It further mentioned that a penalty for non-compliance of RPO can be in addition to that already under section 142.
• The Statutory Advise also incorporated points on specific market instruments like REC,  on definition of co-generation and specific provision on RPO applicability on open access consumers and captive power producers
• However, the draft does include a clause that makes the National Electricity Policy and Tariff Policy “binding on all including Appropriate Commissions, Appropriate Government, authorities, licensees, generating companies (and) consumers.”

At present RPO trajectory is defined in the National Action Plan for Climate Change. Solar RPO trajectory was also included in the National Tariff Policy by way of an amendment. If these policies indeed become ‘binding’ then it will pave the way for easier changes and implementation of RPO and development of REC markets. Nevertheless, in our opinion, a direct reference in the EA would have been stronger. And the need for the