Electricity Employees Federation of India

Voice of Electricity Workers April-June 2002 Index

SOME STUDIES ON ELECTRICITY BILL-2002 – PART II.

1. SALIENT FEATURE OF THE PROPOSED ELECTRICITY BILL’ 2001

1) The Bill seeks to replace the Indian Electricity Act’1910, the electricity Supply Act’1948 and the Electricity Regulatory Commission Act’ 1998.

2) Not applicable for Generating stations upto 3MW.

3) Power trading is allowed i.e. purchase of electricity for resale thereof and includes any form of trade or intermediation in the supply of electricity.

4) Wheeling is allowed i.e. the operation whereby the Transmission or Distribution system and associated facilities of a transmission Provider or Area Distributor as the case may be, are used by another person for the conveyance of electricity on payment of tariff or charges to be determined in accordance with this Act.

5) No person shall, at any time after the second anniversary of the appointed date supply electricity except through a Meter (i.e. Unmeter supply is discouraged).

6) A Generating company/ Transmission Provider/ Area Distributor or Electricity Supplier will act as a licence holder under the Central/State Regulatory Commission.

7) No Transmission Provider or a Share Holder thereof (other than the Government or a Shareholder owning less than 1 percent of the paid-up capital of such Transmission provider) shall have any financial interest in any Generating Company, Area Distributor or Electricity Supplier, as the case may be operating or intending to operate in the authorized area of such Transmission Provider.

Provided that where a Transmission Provider does not exercise any control over the operation of Transmission lines owned by him, the competent (i.e. central/State) Regulatory Commission may be written order exempt the Transmission Provider from the restriction imposed for the period during which he does not exercise such control.

8) A Transmission Provider may engage in any business that maximizes utilization of its assets. Provided that a proportion of the revenues derived from such business shall, as specially by the competent Commission, be utilized for reducing its transmission and wheeling charges Provided further that Transmission Provider shall maintain separate account for each such business undertaking to ensure that the transmission business neither subsidies in any way such business undertaking nor encumbers its transmission assets in any to support such business.

9) i) A Tariff fixed by an Area Distributor may include:

a) A fixed charge in addition to the charge for the actual electricity supplied

b) A charge in respect of the availability of a supply of a electricity, and

c) A rent or other charge in respect of any electricity meter of electrical plant provided by the Area Distributor

ii) An Area Distributor shall not show undue preference to any person or class

of persons, and shall not exercise any undue discrimination against any person or class of persons.

iii) Protection of consumer’s interest and at the same time, recovery of the cost of electricity in a reasonable manner.

iv) For ascertaining tariff commercial principles will be implied for the Generation, Transmission, Distribution and supply of electricity.

v) That the tariff progressively reflects the cost of supply of electricity at an adequate and improving level of efficiency and does not exceed the cap specified by the central/State Regulatory Commission for the recoverable rate of system losses determined after taking into account all relevant considerations, including the efficiency or inefficiency of licence holders, load density, sales mix, cost of service, delivery voltage and other technical factors.

vi) That cross subsidization among different classes of consumers is reduced progressively and that no consumer or class of consumers it required to pay a tariff that is greater than the “maximum cost of supplying electricity”. “Maximum cost of electricity” means that cost, which is equal to the tariff payable by a consumer to an Area Distributor as if the electricity has been procured from a conventional Generating Station that has the highest tariff within the State.

vii)

viii) That rural areas receive an equitable supply of electricity.

ix) That economically weaker persons receive an equitable supply of electricity

10) An Area Distributor may engage in any business that maximizes utilization of its assets Provided that a proportion of the revenues derived from such business shall, as specified by the state Regulatory Commission, be utilized for reducing its distribution and wheeling charges.

Provided further that the Area Distributor shall maintain separate accounts for each such business undertaking to ensure that the Distribution business neither subsidizes in any way such business undertaking nor encumbers its distribution assets in any way to support such business.

11) Defaulters connection can be disconnected giving 7 days prior notice. Provided that the supply of electricity shall not be cut off, if such person, deposits an amount equal to the sum claimed from him, under protest or as security pending disposal of any dispute between him and the licence holder (who will be reference, not clearly depicted).

12) No licence holder shall, without the previous consent in writing of the competent regulatory Commission acquire, by purchase or otherwise, the licence or the Utility of any other licence holder or associate himself, so far as the business of generation, Transmission, Distribution or supply of electricity are concerned.

13) No licence holder, being a Transmission Provider or Area Distributor shall at any time assign his licence or transfer his utility or any part thereof, by sale, mortgage, lease, exchange or otherwise without the previous consent in writing of the competent Regulatory Commission.

14) Cess on electricity from fossil fuel sources:

Every Generating Company engaged in the generation of electricity from fossil fuel sources including coal, lignite, natural gas, crude liquid petroleum products, shall pay to the Union Government a levy of 2 paise on each Kilowatt hour of electricity generated by him. The Union Government may prescribe the time, manner and other matters relating to the payment and collection of the cess. The proceeds of the levy shall be utilized by the Union Government for promoting and augmenting the generation of electricity from non-fossil fuel sources.

15) If an Area Distributor fails to meet a specified standard, he shall make to any person who is affected by the failure and is of a specified description such compensation as may be determined by or under the Regulations.

16) Determination of Tariff:

The Regulatory Commission shall not determine any tariff for supply of electricity by

i) A Generating Company to an Electricity Supplier

ii) By an Electricity Supply to any licence holder

iii) A Licence holder in the bulk electricity spot market

iv) A person who requires a supply of electricity may enter into a special agreement with a Generating Company, Area Distributor or Electric Supplier

The commission shall not, while determining the tariff under this Act, show undue preference to any consumer of electricity but may differentiate according to the consumer’s load factor, power factor, total consumption of electricity during any specified period or the time at which the supply is required or the geographical position of any area, the nature of supply and the purpose for which the supply is required. The commission shall endeavor to determine tariff in such a manner that, as far as possible. Similarly placed consumers in different areas of a State pay similar tariff. No tariff may ordinarily be amended more frequently than once in any financial year, except in respect of any changes expressly permitted under the terms of any fuel surcharge formula as may be specified. The Commission may require a licence holder to observe the methodologies and procedures as may be specified for calculating the expected revenues from the tariff and charges which he is permitted to recover. If any licenece holder recovers a price or charge exceeding the tariff determined under this section, the amount of the excess shall be recoverable by the person who has paid such price or charge, without prejudice to any other liability incurred by the licence holder.

17) Provision of subsidy by State Government:

Where the State Government directs the state regulatory Commission to provide for any subsidy in the tariff payable by any consumer or class of consumers, the state government shall bear the subsidy in such a manner as the State Regulatory Commission may determine and the payment thereof shall be deemed to be, and payable as a debt of the state government. Provided that no such direction of the state government shall be operative and binding if it is made without a financial appropriation by the state legislature and any payment arising thereof is in arrears of more than thirty days.

NB: The proposal given in section (14), (17) are very much welcome. All of those can be incorporated in the existing I.E.Acts.

SOME MORE OBSERVATIONS

1. The draft Electricity Bill-2001 first released on 21^st February’2000. Within a span of 4 months 5 revisions of the Bill is already made. For such an important Bill, why such undue haste and for whose interest?

1. The Bill has been drafted by National Council of Applied Economic Research which not at all conversant with the complex technical and social aspect of the vital power sector (also confessed by them in the introductory letter of the draft bill). So due to its expertise on economics field and not on the electricity and it tends to avoid the technical aspects of electricity in the draft bill.

2. The Bill eliminates ceiling on the profits and coverage of the Industrial Dispute Act, Labour Act, Techno Economic scrutiny by the CEA.

3. Power will not reach unremunerative areas of the country, which was provided by the SEBs as a social commitment.

4. Dismemberment of SEBs and in consequence multiplicity of organisations would create its own co-ordinating difficulties and there would be tendency in increase of the cost of electricity for the consumers.

5. Many important technical aspects like safety regulation, voltage stipulation, frequency standards, conditions at supply along with necessary obligations do not find any place in the draft bill. Definition of important parameters like MW, MVAR, MVA PF, Harmonics etc have been totally omitted.

6. The vital analysis like energy audit conservation, harnessing renewable energy sources, energy management has not been expressed in the bill.

7. CEA’s power of arbitration on technical matter and scrutinization of new power projects have been withdrawn and the same has been vested on Regulatory Commission. How such a respected and time independent regulator whose functions are mostly quasi-judicial and not of technical nature?

8. Moreover, there is no mention whether the Regulatory Commission can reopen the PPA’s already executed with Independent Power Producers, resulting no control over tariff or power production from those plants.

9. While it is claimed that CEA has been strengthened by giving the responsibility for drawing up National plans, there seems to be no provision that implementation should be strictly according to National Plans drawn up by CEA. Besides, many technical and operational regulatory functions such as Safety Aspects, Grid Operation, Techno-economic Clearance (TEC) are proposed to be detached from CEA. If this, is the role left out for CEA, it is obvious that it will become redundant after some time. Besides, the whole activities of the power sector would be shattered without check and balance leading to chaotic situation and law and order problems among the adjoining states, especially in case of Hydro Projects. It may be highlighted that in the process of Techno-economic clearance. CEA has now saved thousands of crores of rupees to the power sector. Even in 1998-99 alone, this saving was about Rs. 2500 crores out of appraisal of 22 projects submitted by IPPs. At present 56 private sector projects with an aggregate installed capacity of about 29,000 MW stand cleared by CEA for implementation. However, in spite of such a large and advance clearance from CEA not many schemes have taken off due to one or the other reason not attributable of CEA.

10. Provision for a National Transmission Centre has been in section-53 without the details of its contribution, functions and obligations. Such open ended provision in the Act should lead to future complications.

11. The present role of Grid management is being played by CEA through REBs as facilitator in participatory mode for integrated operation of grids in close interaction and participation of State Govt. of the region. The REBs are playing dominant and impartial role in grid operation and all the constituents of the grid have acknowledged the crucial role being played by REBs. However, REBs need to be strengthened in over all interest of the power sector and RLDCs which were separated from its needs to be restored for real time implementation of its decisions. This will be a more preferred and acceptable way than handing over the charge of the regional grid to a player of the grid. Instead of appointment of the chairperson of the organisation it will be more equitable to the players if the chairperson is the Head of the constituent States/organisations or rotational basis for a specified period as per the prevailing practice.

12. In the section 55(5) it has been provided that the Regional Transmission Centre may levy and collect fee and charges from the licence holders engaged in the transmission of electricity as may be prescribed by the Union government. However, accountability of RTC to the licence hodlers who will pay such charges has not been specified.

13. It is against the federal spirit of our constitution. There may be enormous problems and litigations in respect of transfer of the assets. Some of the problems would be in the areas of :

a) Division of assets and liabilities.

b) Valuation of assets.

c) Privatisation.

d) Bulk purchase and sale tariffs as well as retail tariffs. Competition and its consequent benefits if any would remain illusory since there can not be competition under condition of shortage.

14. Private sector participation has resulted in an attitude of making the sector more remunerative to the participants than the consumers.

15. Profit Centres to improve efficiency are best suited for Indians conditions which should be adopted.

16. The Private Distribution Companies may not take much interest in electrification of rural areas as it will be expensive and there will not be proportionate returns due to scattered load. This will deprive the villagers and people of remote areas from electricity.

4. SOME IMPORTANT RELEVANT STATISTICS:

i) After the initiation of the reforms, 127 bids (95 projects aggregate capacity of 48,137 MW awarded through Memorandum of Understanding (MOU) route and 32 projects aggregate 20,697 MW warded by international competitive bidding) offering to set up 68,844MW were received, the actual completed project as on March 2000 were only 4,880M. The poor performance, even after setting up a very liberal environment conductive to private sector, were the prime reason for the miserable failure of the 8^th & 9^th Plan as far as power sector is concerned.

ii) Maharashtra State Electricity Board (MSEB) so far a profit making Board, is now expected to end up making a loss of over Rs. 17,000 Crore in the 1999-2000, consequence to the induction of IPPs like Enron.

iii) In Orissa the losses of GENCO (the generation part of the rest while State Electricity Board) were Rs.294.99 Crores in 1997-98 against Rs.230.65 Crores incurred by the parent OSEB in 1995-96. Supply to rural areas has been stopped. AES Chairman has stated that either tariffs should be enhanced three times or AES should be compensated to the tune of Rs.300 Crores since AES was in the process of arranging an insurance cover when the super cyclone hit Orissa.

1. CONCLUSION:

So, It can be conclude that, the Electricity Bill 2001 is placed with a aim to:

i) Create Institutions that have no accountability to the legislature, yet regulate and control a highly capital intensive industry (where in a single paisa increase in tariffs implies an additional annual revenue mobilization of Rs.70,000 per MW at 80% load factor)

ii) To create a `half slave and half free’ sector. While the regulators would control the tariffs of the public funded institution, the tariffs for private sector (particularly the foreign funded sector) would be dictated by power purchase agreements (PPAs), which would be outside the purview of the regulator.

iii) To ensure that the State is demolized and the entire fund requirement in this capital-intensive industry is based on and controlled by international finance capital.

iv) To maximize private profits by ensuring that any statutory ceiling on profits is eliminated.

v) To eliminate any form of meaningful and informed techno-economic scrutiny (from a national perspective) thus giving MNCs a free run (with the corruption ridden politicians and Governments).

vi) To remove the distinction between power equipment manufacturer, fuel supplier and consultants by making them all equity hodlers of Independent Power Producers (IPPs). For example, India Enron-GE-Bechtel together formed the Dhabol Power Company.

vii) To provide this essential public service only to those who can pay (there by threatening the power supply to rural areas and the farm sector which would in turn lead to loss of food production). Self-reliance in food grain supply may well become impossible in future.

viii) To enable Multinational Corporations to take over on their own terms the assets of the State Electricity Boards.

Any efforts to stream lime the electricity legislation should primarily aim at ensuring the accessibility of this essential item of life to the whole population without discrimination by objectively analyzing the existing Acts and including the time tested revisions of earlier regulations. Archaic irrelevant clauses and sections may how ever be replaced by updated versions. Unfortunately that has not been done in the initial draft bills (8^th draft). This draft bill does neither address the quality of power supply to the existing consumers nor does it address any problems to the requirement of 350 million of rural population who have not yet been supplied, with electricity. The draft bulk purposefully avoids objective analysis of the ground realities in order to impose a direction less and vague legislation which will open the flood gate of complex disputes.

So, Government should bring out a white paper outlining the advantages and disadvantages of the proposed reforms over the existing institutions and laws not only for the industry but also for the consumers and the employees. Such a white paper should be subjected to a national debate in various for a and the legislation needs to be re-drafted, taking view of all concerned, including a panel of Indian experts who spent their entire life in power sector. Also a status paper on the implementation of reforms in Orissa, Andhra Pradesh and Haryana, the problems that have risen and impact on tariffs, commercial losses, revenue collection and service to rural areas needs to be prepared and made public.


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