An Act to Amend the Electricity Law: Government Experiments with the Physics of the Impossible
The coal crisis in the country has brought out the broader crisis in the electricity sector. In the name of reforms, the government has slowly dismantled the infrastructure in this sector. The responsibility for providing electricity to the population has been handed over to the distribution companies, which bear the entire burden of the sector. Henceforth, the reforms proposed in the Electricity Bill (Amendment) 2021 of the Modi government take market fundamentalism to absurd levels; the government thinks it can magically separate the electricity flowing through wires from wires through accounting.
The recent coal crisis has also highlighted the complete lack of coordination between electricity and the Ministry of Coal, which has resulted in a significant deficit in electricity production, especially in the northern region. The central government matched the supply of coal with the demand for electricity, resulting in hours of load shedding while some private power producers made windfall profits. Faced with power outages, some distribution utilities, such as those in Andhra Pradesh, Punjab, Uttar Pradesh and Gujarat, have been forced to purchase electricity at exorbitant prices from of the Indian Energy Exchange (IEX) electricity exchange platform. In these shortage weeks, the spot price of electricity has risen to Rs. 20 per unit against the average price of electricity of around Rs. 2.75 in the exchange. A little power producers made exceptional profits of these shortages.
In a previous column, I have wrote about dismal failure of the ministries of coal and electricity to create this artificial shortage of coal for power plants. A press release from September 4 records a meeting of secretaries and other senior officials from the ministries of electricity, coal, railways, coal companies, electric utilities and the Central Electricity Authority (CEA). It clearly shows that the Ministry of Power had no idea of the impending crisis. He spoke of setting up a “Core Management Team (CMT) … to closely monitor coal stocks in TPPs …” meet their targets for September 2021 and deploy all efforts to increase coal production in order to gradually build up coal stocks in TPP …The stock should start to build up from mid-October so that during the hazy December season no difficulty is encountered. ” (mine in italics). He didn’t even mention the extremely low power plant inventories for months and expressed no understanding that reopening the economy, combined with festival season, would immediately create a crisis. Instead, the coal industry and power plants were urged to start building up their stocks from mid-October for hazy conditions in December!
Condemning the regulator’s inaction and the profits of private power producers, All India Power Engineers Federation (AIPEF) President Shailendra Dubey demanded a meeting of the Regulators Forum to stop profits in the IEX using short-term caps on spot market prices. . Previously, the All India Power Engineers Federation wrote to the Union Minister of Energy that power generation and transmission companies were making a profit after the State Electricity Boards were disassociated. In contrast, distribution companies suffered huge losses. Unfortunately, distribution companies (“distcoms”) are the ones that deal directly with consumers. They cannot pass the full cost of electricity on to consumers – the rising costs of coal, rail freight, generation and transportation. Today, distcoms recover only about 75-80% of the cost of the electricity they supply to consumers, and the difference accumulates in losses.
The central government, which lectures distcoms and state governments about their losses, owns NTPC, a major power producer, Indian Railways and Coal India Limited. All of these make significant profits at the expense of distcoms. Much of the profits of NTPC and Coal India are transferred as dividends into central government coffers while the high cost of transporting coal subsidizes rail passenger traffic! These are essentially central government “taxes” on state distcoms.
Engineers and electricity workers have also opposed the recent central government decision to unbundle distribution companies in the name of reforms. These reforms feature in the Electricity Amendment Bill 2021, which has been on the anvil for some time in various avatars. The main objective of these so-called reforms is to push private actors to create distribution companies that will not have any electricity infrastructure but will only market electricity. The reforms will force public distribution companies that own all distribution assets – the lines or cables through which electricity reaches our homes, transformers and other associated equipment – to allow traders to provide electricity to their customers. consumers using their infrastructure. It also proposes to withdraw the licenses of distribution companies, which means that no license will be required to be a distribution company. A merchant or distribution service with its vast infrastructure will have the same status and will be regulated in the same way. This is an unprecedented gesture in the electricity sector. Overall, no major network has reached such a milestone. Even the Forum of Regulators has been extremely critical of the amendments, giving a set of comments which is 38 pages long!
The program allowing electricity traders to supply to any consumer amounts to selecting high-end consumers from existing distcoms. Once merchants select these consumers, existing distcoms will suffer even greater losses. This will create even more problems for distcoms in maintaining their physical infrastructure, on which both consumers and merchants depend. If this infrastructure cannot be maintained, the crazy dream of a few market fundamentalists of separating the electricity supply from the physical cables through which it runs will become a nightmare for consumers.
The other attempt through these amendments is to directly extend the powers of the central government in the domain of the states. Any electricity trader operating in more than one state will be registered with the Central Electricity Regulatory Commission and not with the State Electricity Regulatory Commission. This effectively removes the ability of the state regulator to regulate distribution, as some of the major “suppliers” – ie electricity traders – will not be under their jurisdiction. Once again, the Center and its various agencies refuse to understand the basic reality that the electricity system is integrated and cannot be split in regulatory terms to extend the powers of the Center over the states.
The critical issue in privatizing distribution is how to deliver electricity to the rural areas and to the farmers on whom our food security as a nation depends. These are areas where private capital does not want to enter. This is why Odisha’s reforms failed: private utilities did not want to serve their rural consumers. This is why the privatization of Delhi is a “success”; it has very few rural consumers. This is why the Calcutta Electricity Supply Corporation and these urban utilities have been successful; they only looked after urban areas.
It is not a typical Indian problem either. Even in the affluent United States and their relatively wealthy farmers, this was a problem. Utilities did not want to spend a lot of money connecting remote households in sparsely populated rural areas to the grid. Roosevelt’s New Deal had as one of its key elements extend the grid to all these places.
In all of its past avatars, distribution reforms in India have sought to experiment with the separation of urban areas using the franchise model. Most of these experiments failed, and ultimately the state had to step in and take over the operations of these franchisees, just as it had to. Odisha back from Reliance Infrastructure Ltd from Anil Ambani.
This proposed distribution reform is even worse. It is clear that rural households will continue to belong to the state distribution companies. Once private traders win over high-end consumers, the ability of public distribution services to serve rural consumers will deteriorate even further. Already, farmers are fighting for remunerative prices and against the reforms of the Modi government which seek to cede farms to Big Capital and traders. If the utilities are “unbundled”, as envisioned, then agriculture or rural industries will have little chance of survival.
New programs such as the universal service obligation in the electricity sector will further extend the Centre’s grip on state finances. Already, the central government controls inputs such as coal and railroad transportation costs to get coal and electricity supplies to state-owned distribution companies. If these costs increase, the central government makes higher profits. State governments take a double: they face people’s anger and suffer even greater losses. Unsurprisingly, opposition-led states have opposed to the proposed amendments, as do engineers and workers in the electricity sector.
Unfortunately, even with evidence of market failures in front of them, the government is pushing for policies that will further endanger the sector. Even in the homeland of Big Capital, previous failures in California and recent failures in Texas have shown that markets do not work in the electricity sector. Trying to make it work anyway hurts not only the electricity industry, but the economy as a whole. This is a lesson the Modi government, with its belief in market fundamentalism, refuses to learn.