Electricity Act,2003

We begin by setting the historical context of the Act. This will help you appreciate its provisions and the desired impact.

Evolution of the Institutional Framework

We present the chronological description of the evolution of various legislations related to the electricity sector. Of course, we mention only the milestones.

• 1910, Electricity Act: This was the first comprehensive legislation on the subject of electricity in India. It provided the basic legal framework for the power supply industry in India. It provided for grant of licenses by the State Governments for supply of electricity in specified geographical areas.

• 1948, Electricity Supply Act: The development of the sector was carried out through Five Year Plans. The first two Plans laid emphasis on hydro-power. Electricity was enlisted in the concurrent list of the Constitution of India, i.e., both the Centre and the State had the right to legislate on the subject. This Act aimed to ensure coordinated development of electricity in India on regional basis and provided for creation of State Electricity Boards (SEBs) with overall responsibility of generation, transmission and distribution within the state.

• 1966-67: Regional Electricity Boards were formed to take care of interstate imbalances.

• 1975: National Thermal Power Corporation (NTPC) and National Hydro Power Corporation (NHPC) were set up in the Central Sector.

• 1991: Regional Load Despatch Centres (RLDCs) were formed to operate the Power Systems in the region . With the l iberalization of the economy,private participation in the form of independent generating companies was permitted in the power sector. (Note that private participation in generation was already permitted under the 1910 Act.)

• 1992: Power Grid Corporation was formed to facilitate the formation of the National Grid.

• 1998, Electricity Regulatory Commission Act: Central Electricity Regulatory Commission (CERC) and State Electricity RegulatoryCommissions (SERCs) were formed for regulating the electricity sector.Prior to the setting up of Regulatory Commissions, the Electricity Boards and the State Governments were directly concerned with fixation of tariff.Very often this was a populist exercise where those in power were more concerned with the impact on voters while fixing the tariff. Such populist decisions year after year proved suicidal for the financial health of the Electricity Boards. With the setting up of the State Regulatory Commissions, the situation has undergone a dramatic change. Tariff fixation is now with the State Regulatory Commissions and it is beyond the jurisdiction of the State Governments.

The Regulatory Commissions have a wide mandate to improve the Power Sector in a variety of ways. They are supposed to monitor and curb T&D losses;lay down the standards of performance for distribution licensees;adjudicate disputes between the stakeholders;gradually reduce the cross-subsidies and advise the State Governments from time to time on Power Sector issues; grant licenses as well as for fix tariffs; and develop the power market.

The Commissions are free to fix their own procedure for transactions of business and in doing so are guided by the provisions laid down under Section 61 of the Electricity Act, 2003 as well as the National Electricity Policy and the National Tariff Policy. All proceedings before the Commissions are deemed to be judicial proceedings within the meaning of Section 193 and 228 of IPC and the Commissions are deemed to be a Civil Court for the purpose of Sections 345 and 346 of the Criminal Procedure Code.

•2003, Electricity Act: The primary objective of this Act is to introduce genuine competition between various generating companies, so as to reduce the cost of generated power, increase efficiencies and pass on the benefit to the consumer in the long run. It encompasses many considerations (Fig.).

Considerations Encompassed by the Electricity Act, 2003

We now describe the salient features of the Act.

Salient Features of the Electricity Act, 2003

The enactment of the Electricity Act (EA), 2003 on 10th June, 2003 may be regarded as one of the most important events in the Indian power sector. This Act was brought into force to reform the power sector and infuse dynamism into it. The situation prior to the enactment of the Act was that SEBs could not mobilize the requisite resources and private investors could invest only through the SEBs. The earlier legal framework was amended to facilitate private participation. SEB monopoly restricted competition and efficiency and there was inadequate concern for the consumer. This Act has changed the situation radically as you will now learn.

This Act has declared Electricity as an Industry and all streams of the electricity sector as individual profit centres. It provides freedom to generate, freedom to sell and freedom to procure. Under this Act, power sourcing is no more a single buyer model. The Act stipulates a greater role for the private sector. There could be multiple licensees in distribution and also a parallel network by different distribution licensees servicing the same area. Trading is permitted as a distinct activity. Tariff has to be rationalized and cross-subsidies have to be reduced over a period of time. A multi-year tariff framework has been introduced. SERC has been made mandatory and it has the power for granting licenses as well as for tariff fixation.

Transmission

The transmission of electricity is handled by Central and State Transmission utilities (CTU and STU), which have 51% Government equity. CTU and STUs will only be carriers and not engage in trading.They will:48• plan, coordinate and develop transmission networks;

• provide non-discriminatory open access to Generation companies (Gencos), licensees and consumers on payment of wheeling and cross-subsidy surcharge;

• engage in right of way for convergence technologies for optimal utilization of assets, with prior permission of Regulatory Commissions.

Distribution

Open access in distribution is to be introduced in phases. There is no separate trading licence for distribution licensee. Distribution licensee has to provide non-discriminatory open access of its network to consumers where allowed by ERC. Cross subsidy surcharge has to be at the current level of subsidy and has to be phased out gradually. Licensees are permitted to conduct business through another entity within its own territory.

Such open access is being provided on payment of wheeling and cross subsidy charges to encourage multiplicity, competition and entry of market forces.

This means that the consumer has a choice to decide his/her supplier.However, this can be practically utilized only by the bulk consumers, as individual customer may not benefit from this. In case multiple distribution licensees operate in the same area, the consumer has the option to choose his/her distribution licensee. This is yet to happen, and depends on the Regulatory approvals.

Supply

The function of supply was earlier segregated between bulk and retail. It has now been integrated. There is no need for license for generation and supply within notified rural and remote areas. Stand alone systems have been allowed for generation and distribution of power (Fig.).

Trading allowed only between Distribution Licensees and Gencos

Decentralized management of supply and distribution has been permitted through panchayats, consumer associations, co-operatives and
franchisees.

Trading

Trading has been defined to mean the activity of purchase of electricity for resale thereof. It is being recognized as a distinct licensed activity with the safeguard that the Regulatory Commissions are being authorized to fix ceilings on trading margins, if necessary. ERCs may specify technical and capital adequacy and creditworthiness thresholds for traders. Important features of power trading are:

• distribution licensees and Gencos can engage in trading;

• CTU, STU, SLDC, RLDC and NLDC cannot engage in trading; and

• ERCs are authorized to fix caps/ceilings on trading margins.

The price is not regulated for direct commercial relationship between the consumer and the generator or trader, but trading margin is presently capped @ 4 Paise/kWh. However, the wheeling and subsidy surcharges are regulated.

Tariff Determination

The tariff is fixed under Chapter VII of the Act. Tariff determination has become transparent and is insulated from the political pressures. ERCs have been authorized to set terms and conditions for tariff. They are to be guided by factors that encourage competition, efficiency, economical use of resources, commercial principles, rewards in efficient performance,multi-year tariff (where tariff is set for a few years ahead), etc. Under the multi-year tariff regime, utilities are expected to plan sales and investment3 to 5 years ahead. Multi-year tariff regime should provide for tariff path,revenue stream and investment plans of the utilities.

Role of CERC and SERC in Tariff Setting

ERCs shall determine tariffs for supply by Gencos to Discoms, for transmission, for wheeling, and for retail sale. They are empowered to fix margins and caps (ceilings floors) for trading and can adopt mechanisms of determining tariff through bidding. Tariff will not be amended in a period of less than a year.

Guidelines for ERCs: The Regulatory Commission is concerned with the generation, transmission and distribution companies operating on
commercial lines. In fixing the tariff, the concerned Regulatory Commission is mandated to:

• encourage competition and efficiency;

• safeguard the interest of the consumers and at the same time ensure recovery of the cost of electricity in a reasonable manner;

• encourage generation and use of renewable source of energy;

• examine the factors that would encourage efficiency and economical use of resources; and

• ensure that the businesses of generation, transmission and distribution are conducted on commercial principles.

The Regulatory Commission after receiving petition for tariff should give wide publicity to the petition before the tariff fixation and invite public objections to the tariff proposals, if any. Under Section 65 of the Electricity Act, 2003, if the Government requires any additional subsidy beyond that provided by the Commission to any consumer or a class of consumers, it has to pay the amount in advance to compensate the power Company affected by the grant of subsidy. In other words, the Governments cannot make empty promises to please any category of consumers. It has to provide extra funds, in the form of subsidy to the power company, in case it wishes to be extra-generous, to that category of consumers.

Subsidy − Cross-Subsidy

The Act makes it mandatory for State Governments to provide subsidy in advance to the SERC, if it is to be given to the consumers on its direction.If subsidy is not provided in advance, the direction of the State Government is not operative. Phasing out cross-subsidies in tariff has to be undertaken in a progressive manner.

In a non-discriminatory open access of transmission and distribution systems, there will be a payment of surcharge till cross-subsidies are eliminated.

Restructuring

Option is vested with State Governments to continue with SEBs which will then be treated as Distribution Licensees and the STU owning the generating assets. There is a provision for one-year transition to existing licensees. State Governments are empowered to defer application of the Act for a maximum period of six months.

Cross Holdings

Gencos are free to undertake Distribution Business and Distribution.Licensees are free to undertake Generation Business.

Theft and Other Offences

Electricity theft is the most problematic area in the power sector. The Electricity Act, 2003 lays stringent penalties for theft of electricity. It makes the offence culpable under Indian Penal Code. There can be imprisonment of up to a period of 3 years or fine or both. The penalties are for direct theft as well as for meter tampering and for fraudulent extraction of energy.

If the consumer is making unauthorized use of electricity, the inspecting officer can provisionally assess her/him under Section 126 of the Electricity Act. The provisional assessment order has to be served to the consumer so as to give an opportunity of hearing for filing objections, if any. If the assessed amount is deposited by the consumer s/he shall not be subjected to any liability or any action by any authority whatsoever.In case the inspecting officer detects unauthorized use of electricity, it will be presumed under Section 126(5) that such unauthorized use of electricity was continuing for a period of three months immediately preceding the date of inspection in case of domestic and agricultural service. For other category of services, the unauthorised use shall be deemed to be made for a period of six months preceding the date of inspection.

Unless this charge is rebutted by the consumer concerned, the assessment under this Section will be made at a rate equal to one and a-
half times the tariff rates applicable for relevant category of service.

Unauthorized use of electricity (Fig. 2.10) means the use of electricity by

• by any artificial means, or

• by means not authorized by a person or authority or licensee concerned, or

• through a tampered meter, or

• for the purpose other than for which the usage of electricity was authorized.

Thus as per section 126 of the Electricity Act, 2003 an appeal can be made within 30 days of the order of the Appellate Authority. The consumer has to deposit an amount equal to one-third of the assessed amount while filing the appeal. The Appellate Authority shall make a decision after hearing both the parties and this order will be final.

Disconnection of Supply

Under Section 56 of the Electricity Act, if any person neglects/fails to pay electricity dues, the Power Company after giving notice for not less than 15 days may cut off the supply of electricity besides filing a civil suit. The supply of electricity shall not be cut off if such person deposits under protest an amount equal to the sum claimed from her/him or the electricity charges due from her/him for each month calculated on the basis of average charge of electricity paid by her/him during the preceding six months, whichever is less. This will be applicable till such time as the dispute between her/him and the Power Company is disposed of. Under Section 56(2) it has been laid down that no amount shall be recoverable from a consumer after a period of two years from the date when the amount became first due unless such amount has been shown continuously to be recoverable as arrears.

The Act also provides speedy trial of offences under theft of electricity through constitution of Special Courts by the State Governments. The single judge of such special courts will be appointed with the concurrence of the High Courts. These courts have the powers of Court of Session. The states of West Bengal and Andhra Pradesh have passed Anti-theft Laws for such offences.

An Appellate Tribunal has been created over the Commissions for speedy dispute resolution. It is supposed to adjudicate appeals against orders of the adjudicating authority and ERCs in a time bound manner.Appeals regarding the orders of the Tribunal can be taken to the Supreme Court.

Appellate Tribunal

Any person aggrieved by the decision of the Central Regulatory Commission or State Regulatory Commission may file an appeal before the Appellate Tribunal within 45 days of the passing of the concerned order. Before filing an appeal, the aggrieved party must deposit the penalty amount imposed by the Regulatory Commission concerned. The objective of providing this appellate mechanism first at the level of the Appellate Tribunal and then at the level of Supreme Court, is that the disputes are not unnecessarily dragged in the Courts, through civil litigation or writs. Under Section 145, disputes cannot be raised before Civil Courts.

In appropriate cases, the Appellate Tribunal can waive this provision if the deposit of penalty is likely to cause undue hardship to any person. Under Section 120 of the Electricity Act, 2003, the Appellate Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure but shall be guided by principles of natural justice and it can regulate its own procedure.

Any person aggrieved by a decision of the Tribunal may file an appeal before the Supreme Court within 60 days from the date of the order Constitution of Central Electricity Authority CEA continues to remain the main technical advisor of the Central /State Government and Regulatory Commissions. The CEA also has to specify the technical standards as well as the safety standards for connectivity with the grid, which a person intending to setup a generating station has to comply with.