9th OCTOBER 2018
Answer questions in NOT MORE than 200 words each. Content of the answer is more important than its length.
Links are provided for reference. You can also use the Internet fruitfully to further enhance and strengthen your answers
GS III- INFRASTRUCTURE
Q1. Discuss the major proposed amendments to the Electricity Act 2003.
- The Central government has proposed a set of changes to the Electricity Act 2003. The amendments seek to enable a market transformation in electricity. The following are the major proposed amendments.
- Bringing in competition and choice in supply for the final consumer has long been an aim of electricity reform and remains central to these amendments. The idea is that while a single public utility will run the wires through which electricity flows, multiple supply licensees (both public and private) will be allowed to compete for consumers. The intent is that the discipline of competing for customers will lead to improved supply and lower bills.
- Cross-subsidy from wealthier customers, is also being changed under the amendments. This leaves the possibility of direct support from States. The cross-subsidy surcharge on open access customers – the fee that holds back customers from leaving the grid – would be eliminated within two years.
- The amendment (along with changes in the National Tariff Policy) aims to get the price right – a long-standing aspiration – by capping cross-subsidies at 20% immediately, and eliminating them within three years.
- There is a compelling rationale for these changes – India has among the highest electricity tariffs for industry, which bears the burden of low-performance and losses among other consumers, impacting their global competitiveness. Therefore, this shift could be highly beneficial since it increases competition.
- Subsidies will not be allowed across consumer categories like industry and agriculture, but will be allowed across consumption categories – big consumers can subsidise small ones.
- The more significant change is abolition of the cross-subsidy surcharge, which will open the flood gates for large consumers to migrate through ‘open access’ to cheaper sources.
- The amendment recognises the need to subsidise the poor and mandates this be done through direct benefit transfers. However, identifying and targeting beneficiaries remains a challenge. Moreover, with these changes, the mechanism of support for poorer customers will shift from the electricity customer to the taxpayer. Cross-subsidies are certainly distorting.
- The proposed legislation makes subsidy to the poor the collective responsibility of the States and the Centre, which has so far been only the responsibility of each State. Notably, the Centre may have access to enhanced tax revenues from electricity because it stands to gain from additional tax revenue from profitable new wires companies and private suppliers. Thus, the Centre could become a new fulcrum of redistribution from wealthy areas in wealthy States, to needy customers that are concentrated in a few States.
- The amendment proposes a re-formulation of the selection committee for State regulators, from a majority of State representatives to a majority of Central representatives.
- The Centre will also gain more oversight on capacity addition, through the requirement of detailed project report submission to the Central Electricity Authority
- The amendments include many other provisions, notably around making the Act more up to date with regard to renewable energy, which is a worthy objective. In terms of the big questions, it places its bets on more competition, subsidy reform, a steering role for the Centre and throwing a lifeline to generators.