Power Sector Reforms- New Electricity Amendment Bill

Problems on Old Electricity Amendments Bill

All assets in Power Sector get monetised at the end of Discoms and with poor managerial operations and huge political influence, this is where the problem lies. Discoms are unable to bill the true cost of electricity to the consumers. On a national average basis, billing efficiency for discoms is at 84% with a collection efficiency of 92%, with some states even being below 80%. This is due to the huge AT&C losses (22%) faced by Discoms which leads to Discoms being unable to pay to the Transcos and Gencos.

As of March 2020, these payables were ~90,000 Cr and now stand at ~1.42L Cr. Additionally, there is a gap between the Average Cost of Service (ACS) and Average Revenue Realisation (ARR) for discoms.

Many schemes such as UDAY have been launched in the past as well to reduce Discoms debts and the AT&C loss. However, it has not been able to address the challenges. The UDAY scheme aimed to reduce the AT&C loss to 15%, bringing down the ACS-ARR gap to 0. But, the UDAY was not a huge success as it was only able to bring down the AT&C losses from 23.96% in FY16 to 22.03% in FY19. The ACS–ARR gap, which was Rs 0.54/kWh in FY16, rose to Rs 0.72/kWh in FY19.

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The new Electricity Amendment Bill aims to resolve these issues with the following key proposals:

1. Entry of private players

The amendments will de-license power distribution, allowing private sector players to enter the sector and compete with state-owned monopolies.

Currently, private players are only 9% of the total market (Mumbai, Ahmedabad, Delhi, Kolkata, etc). The AT&C losses in Delhi have declined from 55% in 2002 to 9% in 2020 after power distribution was taken over by 3 private licensees. The entry of private players would lead to a decrease in losses in areas such as J&K which recorded 60% loss, Nagaland with 53%, Arunachal Pradesh with 46%, Bihar with 40% and Tripura with 38%.

Additionally, private players can also just help State-owned discoms to resolve operational issues like revenue collection & billing either as a Franchisee (Torrent Power) or License model (Tata Power)

2. Choice of Consumer

The Bill would let consumers choose a distributor of their choice just like Telecom

3. Budget Allocation

The last budget has proposed to allocate ~3 lakh Cr in the next 5 years for bringing down AT&C loss to 15%. The government would introduce more schemes such as UDAY with the aim to revive the power sector but this time, the focus is not just to infuse capital for a temporary bailout but on the actual transformation of the way discoms operate.

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4. Smart Meters

By December 2023, the government aims to replace all existing meters in government buildings and also places where power loss is more than 15%, with prepaid smart meters which will help discoms increase their billing and collection efficiency to ~95% from the current ~70%

5. Easy Resolution to Disputes & Penalties

The Bill provides for the constitution of the Electricity Contract Enforcement Authority (ECEA). The ECEA will have the sole authority to adjudicate upon contract-related disputes in the electricity sector.

The Bill also provides for certain penalties for non-compliance by licensees in meeting Renewable Purchase Obligation (RPO). It also proposes that a selection committee will be constituted to select the chairperson and members of the Appellate Tribunal (APTEL), the central and state regulatory commissions (CERC, SERCs) and the ECEA

6. Shift to Renewable

It mandates that all electricity distribution licensees should purchase or produce a minimum specified quantity from renewable energy sources as a percentage of their total electricity consumption