‘Forward market in power to create artificial crunch’

Expressing reservations over development of futures market for trading of power, a Parliamentary panel on Thursday said it will result in an artificial shortage of electricity which would push prices upwards. “Allowing forward future trading at this juncture in the power sector will result into manipulations/artificial shortages which will push the prices upwards causing net loss to common customers,” a Parliamentary Standing Committee on Energy said in its report on Electricity (Amendment) Bill 2014. 

The panel headed by BJP MP Kirit Somaiya explained, “..it won’t be feasible to have forward and future contracts/market at this juncture. More than 95 to 98 per cent distribution of power is with discoms/PSUs. Where is question of forward and future trading.” Under the bill, government want to amend Section 66 for developing futures market for trading of power. After the amendment, the electricity commissions would have to follow directions issued by central government for the purpose. At present under Section 66, the commission’s action for the purpose is guided by National Electricity policy. The committee suggested that upcoming lignite or coal based power plants shall establish renewable energy generation capacity which shall not be less than five per cent of their installed capacity.

However, the bill provides that the renewable energy generation capacity to be set up by these plants shall not be less than 10 per cent of their installed capacity as per the amendment to Section 7 of the Act. The committee also observed that certain discoms are charging commercial rate of power from educational institutions. It said, “state like Maharashtra for past several years Rs 10 to Rs 12 per unit commercial rate are being charged even on government aided/charitable schools. Such heavy commercial electricity charges are also collected even from schools which are in slum....(it should) be stopped.”

The panel further said that the universal supply obligation should be mandatory for all supply licensees in his area of licence and also in the area which may be assigned to such licensees from time to time with a view to ensure that all such supply licensees are provided a level playing field. 

Observing grid security cannot be termed as foolproof, the committee recommended that the role of Central Electricity Regulatory Commission and various Load Dispatch Centres in this regard need to be thoroughly reviewed and wherever it is found not up to the mark, it should be duly strengthened and also accountability should be fixed for any lapses. Noting that the bill tend to provide extraordinary power to regulatory commission to regulate sector, they should be mandated in such a way that they act in a transparent manner for the purpose of implementing the various provisions of the Electricity Act and they should be made accountable for the functions which they are assigned to. One of the proposed amendments provides initiation of suo moto proceedings (by electricity commissions) for the purpose of tariff determination. This has been proposed due to non-filing of petitions by the state Discoms.

The panel recommended that in addition to initiation of suo moto proceedings by the commissions, it would be essential to define a timeline and is adherence for disposal of tariff petition by the Commission. It also recommended that the tariff policy should be framed in such a manner that it is in consonance with the provisions of the Electricity Act and also provide due and desired autonomy to the states within its ambit. It further said that the benefit of improvement on return of investment, equity norms, depreciation, cost of debt should be passed on to customers. Under the bill a new provision is inserted to Section 14 which provides that discoms can engage a franchisee for supply or distribution of electricity to specified area under their area of operation. 

These franchisee would not be required to obtain any separate licences from electricity commissions. The dicoms engaging franchisee shall be responsible for their supply or distribution of electrify by that franchisee. The committee recommended that such franchisees should be made accountable in same manner to the customers so that they do not flee after complaints of their unsatisfactory and unhealthy practices which they tend to adopt during the course of their franchisee.

The panel also said, “the intention (of the bill) is to segregate the entire distribution network from the supply business. However, clarity is required as to the level and manner at which it will be put into action.”