THE INDIAN ELECTRICITY ACT, 2003 - a Summary
Whether Electricity Act 2003 will save
Indian power sector?
- Government of India initiated reform process due to the following reasons: (i) the ever-widening gap between the demand and availability of electricity, (ii) the poor technical and financial performance of the State Electricity Boards and (iii) inability of the Central and State Governments to finance and mobilize resources for generation capacity expansion projects, making third party investment in power sector imperative.
- The initial step in this direction has been the amendment of legislation governing the electricity sector in 1991. The Indian Electricity Act, 1910 and the Electricity (Supply) Act, 1948 were amended to attract private investment in power generation. The first policy statement of October 1991, titled the Government of India Resolution – Policy on Private Participation in Power Sector, through various initiatives like it allowed the private sector to ‘‘set up thermal projects, hydroelectric projects, and wind/solar energy projects of any size’’.
- Orissa was the first state to enact, comprehensive power sector reform act involving (1) an independent regulatory commission, (2) unbundling of the State Electricity Board (SEB) into separate generation, transmission and distribution entities, and (3) eventual privatization, particularly of distribution.
- Recognizing the need for the Reform process covering the entire facets of the electricity sector comprising generation, transmission and distribution to the consumers, a comprehensive Electricity Bill was drafted in 2000 following a wide consultative process. After a number of amendments, the bill finally sailed through the legislative process and was enacted on 10th June, 2003.
- It replaces the three existing legislations governing the power sector, namely Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948 and the Electricity Regulatory Commissions Act, 1998.
- The Electricity Act, 2003 mandates that Regulatory Commissions shall regulate tariff and issue of licenses and that State Electricity Boards (SEBs) will no longer exist in the existing form and will be restructured into separate generation, transmission and distribution entities. Regulatory function has been taken away from the purview of the government.
- The Electricity Act, 2003 mandates licensee-free thermal generation, non-discriminatory open access of the transmission system and gradual implementation of open access in the distribution system which will pave way for creation of power market in India.
- The main provisions of the Electricity Act, 2003 are:
- De-licensing of thermal generation and captive generation (to generate electricity primarily for his own use and includes any co-operative society or association of persons for generating electricity primarily for use of members of such cooperative society or association),
- Open access in distribution to be introduced in phases,
- Provision for license-free generation and distribution in rural areas
- provision for management of rural distribution by Panchayats, Cooperative Societies, non-government organizations, franchisees, etc,
- Non-discriminatory open access in transmission,
- Multiple licensing in distribution,
- Mandatory metering of all electricity supplies,
- Adoption of multi-year tariff principles,
- Provision for cross-subsidy surcharge on direct sale to consumers,
- Power Trading recognized as a distinct activity with ceilings on trading margins to be fixed by the Regulatory Commissions,
- Upfront payment of subsidies by the States and,
- Setting up of an Appellate Tribunal to hear appeals against the decisions of the CERC and the SERCs.
- The Act is aimed at providing an investor friendly environment for potential developers in the power sector by removing administrative hurdles in the development of power projects and shall provide impetus to distribution reform to be undertaken in India.
- Provisions like de-licensing of thermal generation, open access and multiple licensing; no surcharge for captive generation shall be the basis for a competitive environment in the Indian power sector. Provisions of open access would be instrumental in the development of competitive power markets, and multiyear tariffs shall bring in necessary incentives for performance improvement and to reduce regulatory risk.
- Introduction of competition is the main feature of the new legislation – nondiscriminatory open access in transmission has introduced competition amongst the generators at the outset. This entails that the generators can choose any distributors and distributors their suppliers with the transmission wires providers obliged to give non-discriminatory open access for transmission of electricity from generator to supplier on payment of transmission charges which would lead to the emergence of the Multi Buyer Model (MBM) markets in the near future.
- Competition on the distribution end had also been introduced by providing for open access in distribution and by allowing more than one licensee in the same area of the supply. Open access in distribution shall pave way for the consumer to have choice of supplier. The concept of have more than one licensee in same area shall also give the consumers choice to choose their supplier.