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Historical Background of Legislative Initiatives

The Indian Electricity Act, 1910

Provided basic framework for electric supply

industry in India.

Growth of the sector through licensees.

License by State Govt.

Provision for license for supply of electricity in

a specified area.

Legal framework for laying down of wires and

other works.

Provisions laying down relationship between

licensee and consumer

The Electricity (Supply) Act, 1948

Mandated creation of SEBs.

Need for the State to step in (through SEBs)

to extend electrification (so far limited to

cities) across the country.

Main amendments to the Indian Electricity

Supply Act

Amendment in 1975 to enable generation in

Central sector.

.

Amendment to bring in commercial viability

in the functioning SEBs – Section 59

amended to make the earning of a minimum

return of 3% on fixed assets a statutory

requirement (w.e.f 1.4.1985) .

Amendment in 1991 to open generation

to private sector a establishment of RLDCs.

Amendment in 1998 to provide for private

sector participation transmission, and also

provision relating to Transmission Utilities

The Electricity Regulatory Commission Act,

1998

Provision for setting up of Central / State

Electricity Regulatory Commission with

powers to determine tariffs.

Constitution of SERC optional for States.

Distancing of Government from tariff

determination.

The Electricity Act, 2003

The Electricity Bill, 2001 was introduced in

Lok Sabha on 30th August, 2001 and was

subsequently referred to the Standing

Committee on Energy for examination and

report. The Standing Committee submitted its

report on 19th December, 2002

.

. Based on the recommendations of the

Standing Committee on Energy, the

Government of India moved certain

amendments. The Electricity Bill, 2001 along

with these amendments, was passed by Lok

Sabha on 9th April, 2003.

The Bill as passed by Lok Sabha was

considered and passed by Rajya Sabha on

5th May, 2003. The Electricity Bill, 2003 as

passed by both Houses of the Parliament

received President’s assent on 26th May,

2003 and was notified in the Gazette of

India on 2nd June, 2003.The provisions of

the Act except section 121 were brought

into force with effect from 10th June 2003

Background and salient features of the Act :

Power is today a basic human need. It is

the critical infrastructure on which modern

economic activity is fully dependent. Only

55% households in India have access to

electricity. Most of those who have access

do not get uninterrupted reliable supply. The

industry in India has among the highest

tariffs in the world and is not assured of the

quality of supply.

In this era of globalisation, it is essential that

electricity of good quality is provided at

reasonable rates for economic activity so that

competitiveness increases.Being

internationally competitive is now essential

for achieving the vision of 8% GDP growth

per annum, employment generation and

poverty alleviation.

In recent years the financial health of SEBs

has been deteriorating. There is a big gap

between unit cost of supply and revenue and

the annual losses of SEBs have been

increasing and have reached unsustainable

levels (over Rs. 33,000 crores

In the last two Plan periods, barely half

of the capacity addition planned was

achieved. The optimistic expectations

from the IPPs have not been fulfilled and

in retrospect it appears that the approach

of inviting investments on the basis of

government guarantees was perhaps not the

best way.

The energy as well as peaking shortages

across the country is a matter of concern

and the situation would have been worse but

for the slowdown in manufacturing sector.

The Hon’ble Prime Minister and Chief

Ministers have set before the nation the

goal of electrifying all our villages by 2007

and all our households by 2012. Access is yet

to be provided to about 80,000 villages.

Uninterrupted and reliable supply of

electricity for 24 hours a day needs to

become a reality for the whole country

including rural areas.

The sector should be able to attract funds

from the capital markets without

government support. The consumer is

paramount and he should be served well with

good quality electricity at reasonable rates.

. Enough generating capacity need to be

created to outgrow the situation of energy

and peaking shortages and make the country

free of power cuts with some spare

generating capacity so that the system is also

reliable. The sector is to be made financially

healthy so that the state government

finances are not burdened by the losses of

this sector

It is in this context that the Electricity Act,

2003 seeks to bring about a qualitative

transformation of the electricity sector

through a new paradigm. The Act seeks to

create liberal framework of development for

the power sector by distancing Government

from regulation

. It replaces the three existing legislations,

namely, Indian Electricity Act, 1910, the

Electricity (Supply) Act, 1948 and the

Electricity Regulatory Commissions Act, 1998

The objectives of the Act are “to

consolidate the laws relating to

generation, transmission, distribution,

trading and use of electricity and

generally for taking measures conducive to

development of electricity industry, The Act

strikes a balance which takes into account

the complex ground realities of the power

sector in India with its intractable problems.

promoting competition therein, protecting

interest of consumers and supply of

electricity to all areas, rationalization of

electricity tariff, ensuring transparent

policies regarding subsidies, promotion of

efficient and environmentally benign

policies, constitution of Central Electricity

Authority, Regulatory Commissions and

establishment of Appellate Tribunal and for

matters connected therewith or incidental

thereto.”

The salient features of the Act are:

1. Generation has been delicensed and

captive generation freely permitted.i.e. Any

generating company may establish, operate

and maintain a generating station without

obtaining a licence under this Act with only

exception that it should comply with the

technical standards relating to connectivity

with the grid referred to in clause (b) of

section 73.

Note: Hydro-projects would however need

concurrence from Central Electricity Authority

No person shall

(a)transmit electricity; or

(b)distribute electricity; or

(c)undertake trading in electricity,

unless he is authorised to do so by a licence

issued, exceptions informed by authorised

commissions through notifications

3. No license required for generation and

distribution in rural India

Central Government may, make region- wise

demarcation of the country, and, from time to

time, make such modifications therein as it

may consider necessary for the efficient,

economical and integrated transmission and

supply of electricity, and in particular to

facilitate voluntary inter-connections and co-

ordination of facilities for the inter-State,

regional and inter-regional generation and

transmission of electricity.

Transmission utility at the central and state

level to be a government company-with

responsibility of planned and coordinated

development of transmission network

5. Open access in transmission with

provision for surcharge for taking care of

current level of cross subsidy, with the

surcharge being gradually phased out.

The state government required to unbuldle

State Electricity boards. However they may

continue with them as distribution licensees

and state transmisison utilities

7. Setting up state electricity regulatory

commission (SERC) made mandatory

8. An appellate tribunal to hear appeals

against the decision of (CERC’s) and SERC’s

9. Metering of electricity supplied made

mandatory

10. Provisions related to thefts of electricity

made more stringent

11. Trading as, a distinct activity recognised

with the safeguard of Regulatory

commissions being authorised to fix ceiling

on trading margins

12. For rural and remote areas stand alone

system for generation and distribution

permitted

.

The Electricity (Amendment) Bill, 2005

The Electricity (Amendment) Bill, 2005 was

introduced in the Lok Sabha on December

23,2005 to amend the Electricity Act, 2003.

The Bill was referred to the Parliamentary

Standing Committee on Energy (Chairperson:

Shri Gurudas Kamat), which was scheduled

to submit its report on March 23, 2006.

The Bill proposes to amend the Act by

deleting the provision for ‘elimination’ of

cross subsidies. It , however, retains the

provision for reduction of cross subsidies.

The provision was deleted taking into

concern the fact that it might not be possible

to eliminate cross subsidies in the near

future.

The Bill seeks to provide that both the Central

Government and State Government would

jointly attempt to supply electricity to all

areas including villages and hamlets through

rural electricity infrastructure and

electrification of households. In the Act, the

onus of rural electrification was solely on the

State Government.

13. Thrust to complete rural electrification

and provide for management of rural

distribution by panchayat, cooporative

societies, NGOs, franchises etc.

14. Central government to prepare National

Electricity Policy and tariff Policy

15. Central electricity authority to prepare

National electricity plan

The offences relating to theft of electricity,

electric lines, and interference with meters

are cognizable offences. There was concern

that the Act stood as a barrier to investigation

of these offences by the police. The Bill

seeks to amend the section in the following

manner:

It emphasizes that a person cannot be

prosecuted for any offence punishable under

the Act without the permission of the Central

Government or Appropriate Commission or a

Chief Electrical Inspector or an Electrical

Inspector or licensee or the generating

company. An Appropriate Commission could

be the Central Regulatory Commission or

State Regulatory Commission or Joint

Commission.

t clarifies that the police have the power to

investigate cognizable offences under the

Act.

In order to facilitate speedy trials, it provides

that a Special Court (the state government

can constitute any number of Special Courts

for such areas as may be specified, to

facilitate speedy trials of offences) shall be

competent to take cognizance of an offence

without the accused being committed to it for

trial.

Finances

The Financial Memorandum of the Bill

estimates that the Rajiv Gandhi Grameen

Vidyutikaran Yojana (with an outlay of Rs

16,225 crore) would have a subsidy

component of Rs 14,750 crore to be funded

from the Consolidated Fund of India in two

phases. Phase 1 of the scheme has begun

from the financial year 2005-2006 with a

sanction of Rs 5,000 crore of subsidy from

the Consolidated Fund of India. No other

expenditure, recurring and non recurring,

from Consolidated Fund of India would be

involved.

OVERALL STATUS OF POWER

SECTOR REFORMS IN INDIA

The over dependence on private sector for

the reforms in power sector is not good for

the country and the country needs a

balanced approach.

After more than two decades

of power sector reforms in

India it has failed to ensure

adequate supply of electricity

in the country, bring down

AT&C losses.

.

Make the power sector

vibrant, viable and profitable,

bring in the benefits of

competition in power

generation and distribution

by way of reduced tariff and

better consumer services

The very purpose of Electricity Act 2003

was to reduce the losses in Power sector,

improve the financial health of the sector &

reduce the subsidy burden of Government.

But due to faulty execution of policies the

contrary has happened.

The financial health of power sector has

further deteriorated & Government is now

even subsidizing private DISCOMS. What

is more serious is that due to continued

wrong energy policies banking sector may

collapse under the burden of non-

performing assets being generated by

Power Sector.

Electricity Act 2003 envisaged that with the

setting up of independent regulators and

distancing of government from tariff

matters, the state distribution utilities would

be able to achieve financial viability and

there by restore the financial health of the

power sector.

.

While state Discoms resorted to loans from

the banks and financial institutions to meet

operational deficits, it has now resulted in a

position of debt trap for many of the state

power utilities

While financial restructuring plan (FRP) is

being imposed on states which is forcing

the states for introducing privatisation for

the reduction of AT&C losses through

introduction of input based distribution

franchise.

The government has overlooked the cases

of state sector Discoms of Andhra, Tamil

Nadu, Karnataka and Punjab where the

AT&C losses were reduced under public

sector ownership.

Their reduction of AT&C losses could be

considered and adopted by the other

states having higher level of AT&C losses

as an alternative to the proposal of input

based distribution franchise or any other

model of privatisation

New government should review power

sector reforms and make necessary

amendments wherever needed. The

practical model adopted by Andhra

Pradesh Eastern Discoms and Punjab

have actually achieved remarkable results.

The concept of achieving low tariffs

through competitive bidding in Ultra Mega

Power Projects (UMPP) has been

completely defeated by the changes made

in terms of reference after award of

contract by giving various concessions to

successful bidders.

Private sector companies have been

successful in getting the tariff revised from

CERC despite signing of MOU’s with state

utilities for long term supply contracts on

one pretext or other.

While the tariff policy of Government of

India stressed for setting up of new

projects under competitive bidding, several

state governments have gone in for MOU

route of cost plus tariff for new projects

which will result in higher tariff and costlier

power to the consumers.

The new government must clearly lay

down the policy guidelines.

Government must ensure that no further

amendments are made in Electricity Act

without the completion of review of power

sector reforms

Power Ministry has proposed anew

segment named ‘supply license’ in addition

to existing generation, transmission,

distribution and trading licenses. The main

aim of this is to further develop power

market rather than improving the

performance of the sector.

Autonomy & independence of Regulators

has been completely eroded as it has been

captured by vested interests due to

interference by state governments even in

tariff matters under the clause of public

interest.

Most of regulatory commissions are

headed by retired bureaucrats who are

enjoying all powers without any

responsibility.

The crisis being faced by Indian Power

Sector threatening to undermine the

economic survival of the nation & oppose

those who are advocating the retrogressive

energy policies which are plunging the

country into darkness.

.

There is over 20000 MW of stranded

generating capacity due to coal shortage.

Coal India is not supplying full quantity of

coal to the thermal plants which have

already been completed.

These plants are being asked to go for

imported coal which will increase

generating cost for which there may be few

buyers

With the thrust on capacity addition in

private sector, several States are now in a

condition of surplus power during part or

most of the year.

This is resulting in a situation whereby

these thermal power stations are ordered

to be backed down or shut down so as to

enable these private sector thermal

stations to operate at optimum or full load

Gas power stations are lying idle due to

costly natural gas. Priority of allocation of

gas to NTPC stations and state gas power

stations should be ensured at economical

rates as a measure to safeguard CPSU/

State Utility finances.

Central electricity Authority which played a

major role in power development of country

has been completely sidelined. Now there

is no central agency to look after the

coming of need based generating station

across the country. Now thermal plants are

being constructed without looking in to

geographical needs of country.

There is an urgent need to place an

alternate agenda for the reforms in power

sector by the new Government for power

sector development in the country to meet

the national aspiration of electricity for all at

affordable cost.