Summary of Draft Electricity Amendment Act – 2020

electricity amendment act

Ministry of Power has issued a draft for the amendment of Electricity Act 2003 and advised stakeholders to submit their comments, suggestions and objections till the deadline June 5, 2020.

The highlights of the amendments proposed to include in the Electricity Act, 2003 are as follows,

  1. This Act may be called the Electricity (Amendment) Act, 2020.
  2. As per sub-section (2) of section 1 Act shall be extended to whole India, removing earlier special status given to J&K (In line with removing of article 370 in August 2019)
  3. In section 2, clause (15a) is added mentioning Cross border trade. It will now cover
    • Import or Export of electricity from India and any other country
    • Transaction related to electricity passage through India in transit between two other countries

In the earlier act, there was no mention of cross border trade and it was driven by policy guidelines rather than the statutory status. This will now open new avenues as the statutory amendment will add more sanctity to transactions related to cross border trade.

  1. In section 2, clause (17a) is added mentioning the introduction of Distribution Sub-Licensee, which will include the following:
    • A person recognized and authorized by Distribution Licensee
    • Shall require permission from State Electricity Regulatory Commission
    • No requirement of a separate license from State Electricity Regulatory Commission

As a new category of licensee has been defined under distribution licensee, which has similar operational characteristics of Distribution Franchisee. This may be beneficial to outsourced agencies that DISCOMs employed for various roles like meter reading, billing, revenue collection, etc. and adding them under the distribution sub-licensee ambit which would make them more accountable towards their work.

  1. After section 3, the following section is included (3A) which states the formulation of National Renewable Energy Policy by the Central government in consultation with State governments. Its objective would be to:
    • Promote the generation of electricity from renewable sources of energy, and
    • Prescribe minimum % of the purchase of electricity from renewable and hydro sources

This will provide special attention to Renewable Energy Development in the country and reducing ambiguity in the RE implementation plan by Centre and different states. Since States would also be part of such a consultative framework, it would be difficult for them to breach their policy commitment.

This also pays special emphasis considering hydro under renewable and specifying a minimum percentage as Hydro Purchase Obligations and would help in the promotion of hydropower.

  1. In section 14 for the seventh proviso, the following proviso shall be substituted,
    • Franchisee shall not be required to obtain any separate license

Under Electricity Act 2003, there is no requirement of license for a franchisee, however, there has been question on the legal status of a franchisee and this amendment may help to remove such regulatory uncertainty for they can work as distribution licensee and distribution sub-licensee.

  1. In section 26 of the principal Act, after sub-section (3A) additional roles to NLDC as follows
    • Responsible for optimum scheduling and dispatch in the country across different regions
    • Scheduling and despatch in accordance with the contracts
    • Monitor grid operations
    • Authority for carrying out real-time operations of the national grid
    • The NLDC may give such directions and exercise such supervision and control as may be required for the safety and security of the national grid and for ensuring the stability of grid operation throughout the country.
    • Every Regional Load Despatch Centre, State Load Despatch Centre, licensee, generating company, generating station, sub-station and any other person connected with the operation of the power system shall comply with the directions issued by the National Load Despatch Centre

The proposed amendment helps in defining the role of NLDC with more precision and thus empowers them to issue instructions with respect to grid-related matters, across national geography for grid safety and stability.

  1. In section 28, clause (a) of sub-section (3) and in section 32 of clause (a) of sub-section (2), is added –
    • No schedule or dispatch of electricity unless adequate security of payment is provided as per the contract

This is in line with the guidelines issued by MNRE earlier, thereby instructing Discoms to open LC for the power procured from the generators. Mentioning the same in Electricity Act would help in greater enforcement of contracts and helps such enforcement by way of creating payment security mechanisms. This will also help in managing the payment risk at present looming large on Gencos and IPPs.

  1. In section 38 of the principal Act, for sub-clause (ii) of clause (d) of subsection and in section 39 of the principal Act, for sub-clause (ii) of clause (d) of subsection (2) added
    • Transmission Charges under open access may be specified by Central Commission and a surcharge may be specified by State Commission. if required by the Appropriate Commission to be collected by it.” (Earlier both functions were with Central Commission)

It withdraws powers of levying of any surcharge by DISCOMs or transmission utilities unless the same is required by Commission. This may bring some control over Discoms, who have earlier demanded to levy several charges against the open access consumers.

  1. In section 42 of the principal Act, Open Access shall be allowed on payment of a surcharge and wheeling charges.
    • In addition to the Intra-state transmission charges determined by SERCs and,
    • Inter-state transmission charges determined by CERC

It specifies allowing open access upon payment of an explicit surcharge, wheeling charges, and transmission charges. This point needs more clarification, as it does not specify whether Discoms can allow/deny open access if these charges are paid.

  1. In section 42 of the principal Act for the third proviso to sub-section (2),
    • Reduction in surcharges and cross-subsidies by SERCs in the manner as may be provided in the Tariff Policy (earlier it was as specified by State Commission).

The proposed amendment withdraws the powers of state electricity regulatory commission to progressively reduce CSS and mandates them to abide by the National Tariff Policy to reduce the CSS. This is a positive step towards further strengthening the Open Access framework.

  1. In section 42 of the principal Act for the third proviso to sub-section (2),
    • Manner of payment and utilization of surcharge shall also be specified by SERCs

The addition of the new provision will help in removing ambiguity with respect to the modalities and recovery of open access charges by DISCOMs, which sometimes was not an appropriate way and now it will need regulatory approval.

  1. In section 49 of the principal Act, the following section is included: –
    • Agreement with respect to supply or purchase or transmission of electricity by Generating company an agreement with a licensee for supply, purchase or transmission of electricity on terms and conditions, including tariff and adequate security of payment

The proposed amendment expands the scope of existing provisions to include not only the open access agreements but also the contracts with respect to supply, purchase, and also for transmission of electricity. Also, the proposed provisions enforce the contractual obligations of the payment security mechanism in all such kind of transactions not only in open access but also in contracts of the generator with licensees.

  1. After section 49 of the principal Act, section 49A shall be inserted, namely: –
    • The central government may prescribe rules and guidelines for facilitating cross border trade of electricity. The central commission may require to make regulations for such trade.

As discussed in previous provisions, the mention of the cross border is as per the statutory status rather than guided by policy guidelines. Now, this amendment provides statutory status to cross-border regulations of CERC which was issued to as per MOP guidelines.

  1. In section 61 of the principal Act
    • in clause (g), the word “progressively” shall be omitted and for the words “specified by the Appropriate Commission” the words “as provided in the Tariff Policy” shall be substituted;
    • in clause (h), after the words “from renewable” and before the words “sources of energy”, the words “and hydro” shall be inserted.
    • In clause (i), after the words “ tariff policy”, the words “and National Renewable Energy Policy” shall be inserted.

The proposed amendment necessary provision in respect to the reduction of CSS, that has been the grey area in the past several years and it reduces the discretionary power of SERCs as they are not able to reduce the CSS in the previous years.

Inclusion of hydropower under renewable energy and also under the National Renewable Energy Policy, details the importance of hydropower in coming years, as India is on the path of reduction of CO2 emissions in line with the COP-21 framework.

  1. In section 62 in sub-section (1) after clause (d), the following proviso shall be included before the existing provisions, namely:-
    • “Provided that the Appropriate Commission shall fix tariff for retail sale of electricity without accounting for subsidy, which, if any, under section 65 of the Act, shall be provided by the government directly to the consumer;”

This amendment states that fixation of tariffs for the retail sale of electricity without accounting for subsidy and the subsidy disbursement will be made through DBT mechanism directly in consumers’ account. This is replication to the model that provided subsidies directly to consumers’ account for the LPG cylinders.

Payment of subsidy directly to the consumer by the state government and licensee shall charge the consumers as per the tariff determined by the Commission.

Through this provision, tariff setting will be more rational and now DISCOMs would not be able to manipulate the data under the ambit of subsidies provided to the consumers and hide their inefficiencies.

This was highly mandated as SERC won’t find the shelter of prospective subsidy assurance by state government, and also SERC do not now have to consider differentiating tariff setting for different consumers on basis of load factor, power factor, voltage, total consumption as per guidance under Tariff Policy and not as per their discretion.

However, the practical implementation of subsidy disbursement through DBT mechanism, will pose a challenge to Discoms in quantifying the significant numbers of unmetered consumers.

  1. In section 62 in sub-section (1) after clause (d), the following proviso shall be included before the existing provisions, namely:-
    • for the words “and in such manner as may be specified, the amount to compensate the person affected by the grant of subsidy in the manner the State Commission may direct, as a condition for the license or any other person concerned to implement the subsidy provided for by the State Government:”, the words “the amount of subsidy directly to the consumer and the licensee shall charge the consumers as per the tariff determined by the Commission.” shall be substituted;

The provision mandates subsidy released in advance by the respective state governments through a mechanism similar or otherwise to DBT directly to consumers and also removes any directions of future assurance or deferment of subsidy to be considered in tariff setting. Till date, this has been used as a tool for political gains by the state governments.

  1. Section 63 of the principal Act, the following sub-section shall be inserted, namely:-
    • The Appropriate Commission shall, after receipt of application complete in all respects, adopt the tariff so determined in a timely manner but not later than sixty days from the date of application:
    • Provided that on expiry of sixty days from the date of application, if it is not decided by the Appropriate Commission, the tariff shall be deemed to have been adopted by the Appropriate Commission”

The proposed amendment fixes the timeline for SERC to adopt tariff discovered under Section 63 (competitive bidding) within 60 day of application else it shall be deemed to have been adopted by the appropriate commission. This reinforces the commitment and timelines prescribed under the SBDs by MNRE, from time to time.

In several instances, it has been observed that the projects were commissioned but the scheduling of power was not done, due to the lack of tariff adoption by respective SERC. With new proviso in place, it will reduce such kind of ambiguity.

  1. Section 77 (i) sub-section and section 84 of the principal Act – (1) (Qualifications for appointment of Members of Central Commission): — (1) The Chairperson and the Members of the Central Commission shall be persons having adequate knowledge of, or experience in, or shown capacity in, dealing with, problems relating to engineering, law, economics, commerce, finance or, management and shall be appointed in the following manner, namely:
    • one person having qualifications and experience in the field of engineering with specialisation in generation, transmission or distribution of electricity;
    • one person having qualifications and experience in the field of finance law;
    • two persons having qualifications and experience in the field of finance, economics, commerce, public policy, law public policy or management:

Provided that not more than one Member shall be appointed under the same category under clause (c).

The proposed amendment removes the requirement of consultation with Chief Justice for appointment of legal member or chairman.

The proposed amendment is to include the directive of courts on mandatory inclusion of judicial member in regulatory bodies. The amendment further expands the scope for people having credentials in public policy for being eligible to be member of commission.

The proposed amendment mandates one member mandatorily from legal background.

  1. Section 78. (Constitution of Selection Committee to recommend Members) following shall be included—
  • The Central Government shall, for the purposes of selecting the Members of the Appellate Tribunal and the Chairperson and Members of the Central Commission, Electricity Contract Enforcement Authority, State Commissions, and Joint Commissions, constitute a Selection Committee consisting of –
    • Judge of Supreme Court as Chairperson
    • Secretary-in-charge of Ministry of the Central Government as Member
    • Chief Secretaries of two State Government as Member
    • Secretary-in-charge of Ministry of the Central Government dealing with power as Member

The proposed amendment empowers the central government over states for the purpose of the appointment of members and chairperson of Electricity Contract Enforcement Authority, SERC or JERC. The chief secretaries of two state governments has been considered, to avoid this being considered as breach of states power.

Members of Selection Committee will be on rotation basis with chief secretary of respective states in alphabetical manner starting from Andhra Pradesh, Arunachal Pradesh and so on.

The proposed amendment ensures the appointment process to start much before retirement of member, chairperson for agencies specified in act, and no position is left vacant and hampering the functions of the respective committees.

  1. In section 82 of the principal Act “(7)
  • If there is no chairperson and member in a State Commission to perform its functions, the Central Government may, in consultation with the state government concerned, entrust its functions to any other State Commission or Joint Commission, as it deems proper.”.

This empowers the central government to appoint other state commission to work for other states in addition to host state. In past, there have been instances that the quorums of the members in State Commission was incomplete hence hampering the functioning of the commission and delaying the decision-making process.

  1. Section 109 is added for formation about ELECTRICITY CONTRACT ENFORCEMENT AUTHORITY (ECEA). Summary of Section 109 is as below:
    • The proposed amendment provides statutory status and delineates the key roles, responsibilities of the Electricity Contract Enforcement Authority (ECEA).
    • ECEA shall be appointed by Central Govt.
    • ECEA shall have sole authority and jurisdiction to adjudicate upon matters regarding performance of obligations under a contract related to sale, purchase or transmission of electricity, provided that it shall not have any jurisdiction over any matter related to regulation or determination of tariff or any dispute involving tariff
    • For contracts to be part of jurisdiction of ECEA, the same need to be filed with respective commissions within 30 days of contract conclusion.
    • There will be atleast 6 member ECEA with 2 or more from judiciary and 3 as technical members. With chairman of ECEA always as High Court Judge.
    • ECEA will operate through benches across country with each bench having atleast one judicial member and technical member
    • Term of Members shall be upto 67 years of age at maximum
    • ECEA shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908but shall be guided by the principles of natural justice and, subject to the other provisions of this Act,
    • The ECEA shall have powers to regulate its own procedure jurisdiction to adjudicate upon matters regarding performance of obligations under a contract related to sale, purchase, or transmission of electricity.
    • Every contract between a generation company and a licensee shall be filed with the Appropriate Commission within 30 days of the said contract having been concluded.
    • An order made by the ECEA under this Act shall be executable by it as a decree of civil court
    • Any person aggrieved by any decision or order of the Electricity Contract Enforcement Authority, may, file an appeal to the Appellate Tribunal within sixty days
    • Grievance against ECEA can be dealt by APTEL
    • CERC and SERCs shall not adjudicate upon matters referred under Electricity Contract Enforcement Authority
  1. Section 142 is introduced
  • Penalty to be imposed to the tune of fifty paise per kilowatt-hour for the shortfall in purchase of renewable and hydro power in the first year of default, INR 1/ kWh for the shortfall in purchase in the second successive year of default and at the rate of two rupees per unit for the shortfall in purchase continuing after the second year” as specified by central agency.

The proposed amendment goes long way in enforcing RPO compliance. Giving administrative rights to Commissions for levying penalty on DISCOMs who fail to comply with the RPO and HPO obligation. The penalty trajectory would as follows:

    • 0.50 Rs/kWh for the shortfall in the first year of default
    • 1 Rs/kWh for the shortfall in the second year of default
    • 2 Rs/kWh after second year of default
  1. In section 146 fines for non-compliance of the order or directions given by SERC, ECEA, APTEL within the stipulated timelines
  • It states that Whoever, fails to comply with any order or direction given under this Act, shall be punishable with imprisonment for a term which may extend to three months or with fine, which may extend to INR 1 Crore rupees (earlier it was INR 1 lakh), or with both in respect of each offense and in the case of a continuing failure, with an additional fine which of 1 lakh par day (earlier it was five thousand per day)

The proposed amendment increases the amount of penalty for non-compliance of orders and directions of electricity forums.

  1. As per this act, under various sections additional powers are given to Central Government:
    • Minimum %age of purchase of electricity from renewable and hydro sources of energy,
    • Allowing and facilitating cross border trade of electricity and any matter related to it,
    • Laying down the modalities of bundling of renewable energy (including hydro) with thermal
    • Renewable Generation Obligation
    • Payment security mechanism