Maharashtra DISCOM Highlights Issues with Proposed Amendments to the Electricity Act

The Ministry of Power had issued the draft amendments in April 2020

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The Maharashtra State Electricity Distribution Company Limited (MSEDCL) has written a letter to the Ministry of Power (MoP), highlighting its comments and suggestions on the Ministry’s proposed amendments to the Electricity Act, 2003.

In April, Mercom reported that the Ministry of Power issued a draft proposal for the amendment of the Electricity Act 2003 to address contract enforcement, renewable purchase obligation, among other vital issues. It invited comments, suggestions, and objections from stakeholders.

Mercom has previously written about some of the most significant amendments the Ministry of Power has proposed that will directly impact the renewable sector.

Here are some key recommendations made by the state distribution company (DISCOM) in its letter:

Renewable Purchase Obligations: 

The Ministry proposed to issue a National Renewable Energy Policy periodically to promote renewable power generation in the country and to prescribe renewable purchase obligation (RPO) targets.

MSEDCL contested this, stating that current RPO targets are set by state Commission after considering individual state needs. If they are set at a central level, it could result in an additional financial burden to DISCOMs and asked the Ministry to keep their financial position in mind.

The Ministry had also proposed enhanced penalties for RPO target shortfalls, which the MSEDCL strongly opposed stating that the proposed penalties were too high and would only increase the financial burden on DISCOMs. It asked the Ministry to leave both –setting RPO targets and penalties – to the discretion of state electricity regulatory commissions (SERCs).

Further, the draft amendments noted that all hydropower projects over 25 MW would be considered as a renewable energy source. The MSEDCL sought the Ministry to shed more light on the rationale behind this change and the hydropower targets. It wanted to know if these changes would apply to existing projects as well or only new ones and whether existing ones without long term PPAs will be considered.

Electricity Contract Enforcement Authority:

The Ministry of Power also proposed to establish the Electricity Contract Enforcement Authority (ECEA) to decide on matters regarding the enforcement of contractual obligations on purchase or transmission of electricity. It noted that the ECEA would not have any jurisdiction over regulation related matters, tariff determination, or any tariff-related disputes.

MSEDCL stated that SERCs already play a similar role and that there might be an overlap of functions of the Ministry does not provide a “clear-cut differentiation” in their respective functions. It strongly opposed the establishment of the ECEA, adding that role of SERCs needs to remain unchanged.

Distribution Sub-Licensee:

The proposed amendments have set aside provisions for a distribution sub-licensee as a party that obtain authorization from the distribution licensee to distribute electricity on its behalf in a particular area, with the permission of the state Commission.

MSEDCL has said that more clarity was required regarding their role, function, eligibility criteria, responsibilities, contractual position, and what regulatory act they will be governed by. It also sought more clarity on remedies for non-compliance by sub-licensees.

The DISCOM also asked for the Ministry to consider clarifying who will be buying power from these parties, noting that if they are allowed to purchase power from the market, DISCOMs might be forced to spend on expensive power purchase options from long-term power purchase agreements (PPAs) they have already signed.

Subsidies and Direct Benefit Transfer: 

In its proposed amendments, the MoP intends to make Commissions determine tariff based on the provisions of a centralized tariff policy. The amendments aim to provide for tariffs to reflect the cost of supply of electricity and that cross-subsidies may be reduced by state Commissions based on the tariff policy. Additionally, the amendments proposed for Commissions to set tariffs without accounting for subsidies, if any, in which case, it will be directly provided to the consumer by the government through direct benefit transfer (DBT).

MSEDCL argued that the decision to reduce cross-subsidies progressively must be left to the discretion of the respective state Commissions instead of relying on a centralized policy as they can tailor it to their state’s needs more effectively.

Regarding DBT, the state DISCOM said that before going forward with its proposed amendments, the Ministry needs to consider certain “ground realities” regarding residential and agricultural consumers. It explained that identifying the beneficiary will be a challenge as electricity meters may be under different names, and it would be hard to keep track of this. It suggested for DBT to get provided based on the premises of consumption and not the actual user of electricity.

It also noted that the manner of disbursement of DBT was not clear in the proposed amendments. The draft says that DBT will be provided “in advance,”but it expects benefits to be done post bill payment. In light of this, the reference of “in advance” needs to be removed.

Early June, the Andhra Pradesh Electricity Regulatory Commission also expressed its disagreement with the government’s proposed amendments to the Electricity Act.

Following this, Tamil Nadu Chief Minister also expressed his dissatisfaction with several clauses of the proposal in a recent letter.

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