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Electricity Bill to smoothen out rough edges

G. Srinivasan

NEW DELHI, Aug. 15

THAT the country's power sector reforms remained bogged down in controversies ever since the issue of counter-guarantee for private sector participation began in the 1990s is by now familiar to all, both domestic and foreign investors and analysts.

So, the decision by the Group of Ministers (GoMs) headed by the Deputy Chairman, Planning Commission, Mr K.C. Pant, on Friday to approve the Electricity Bill, 2001 for placement before the Union Cabinet at its meeting on Thursday, for its eventual introd uction in Parliament in the current session itself, is a step in the right direction.

The Electricity Bill, 2001, in its extant form, lays the requisite foundation for ironing out the rough edges in the implementation of a plethora of legislations on the power sector. The Electricity Bill, 2001 would replace the existing laws such as the Indian Electricity Act, 1910, Electricity (Supply) Act, 1948 and the Electricity Regulatory Commission Act, 1998.

In essence the proposed legislation precludes the need for each State to enact its own reform law and in facilitating reforms accords States adequate flexibility to chart their own reform path by instituting a suitable enabling framework.

The Bill is significant in that it makes the power sector reform more market-oriented as two of the proposals merit amplification. One pertains to the GoMs recommendation regarding setting up of captive generation plants together with dedicated transmiss ion lines which would be free.

Official sources told Business Line that the permission for setting up of captive power plants assumes significance even from the standpoint of public utilities such as the Railways, while their gains to other power users would be equally enormous in ter ms of assured supply and reasonable pricing as a fallout of larger players in the market.

They said at the GoMs meeting, the Railways argued fervently that it had been compelled to buy electricity at high price from hydel power generating units with the result that its power arrears have piled up. Given a choice to generate power on its own t hrough captive plants, the Railways would minimise the cost of power, it was pointed out.

Open access option: In fact, the Plan panel is of the view that open access option through captive generation might also be extended to other power stations to facilitate power development in the country.

A second significant decision is a proposal to levy an additional surcharge on thermal power generation in view of the hefty pollution such units cause. However, sources said, Mr Pant and Mr Arun Shourie argued that the cess collected through such a levy should be utilised for popularising the non-conventional sources of energy for efficient energy management. This was accepted by the GoM and might find a reflection in the Bill.

On the crucial issue of trading in power, the GoM felt that supply and trading in power might be permitted as a distinct activity which would entail licensing from the regulatory commissions. In the existing climate of shortages trading might be modest, though with the success of reforms the emergence of a market with competition and the downward pressure on prices which competition engenders should be expected.

The regulatory commissions (both Central and States) might also allow open access to the transmission and distribution lines in phases to promote competition and efficiency. However, the Ministry of Power contends that in view of the experience of Califo rnia, the promotion of spot market in the law may be deleted from the Bill. Besides, it argues that the regulatory commission might prescribe an upper ceiling on the trading margin. This is deemed necessary to ensure that in a climate of shortages, trade s do not corner supplies and drive up prices to unacceptable levels.

Besides, often access in distribution for bulk consumers might be permitted in stages by the SERC (State Electricity Regulatory Commission), subject to cross-subsidies are done away with on payment of surcharge over and above the wheeling charges. The Pl an panel has endorsed the views of the MoP.

Main feature: Yet another salient feature of the Bill as cleared by GoM pertains to the fact that States need not unbundle generation, distribution and transmission as distinct activity to be hived off by different agency as part of the overall restructu ring and power sector reform. Thus, States would have the leeway to foster two or more companies from their Electricity Boards.

Smaller North-Eastern States and Union Territories might choose to have only one power company. However, the creation of a State Regulatory Commission which was optional under the Electricity Regulatory Commission Act 1998 would now be mandatory. The pro posed Bill retains the role of the Central Electricity Authority (CEA) as the principal technical adviser of the Government of India with remit for overall power planning.

There are thus several positive features for promoting private sector entry in a big way in the power sector bolstered by legislative guarantee in the Electricity Bill.