October 24, 2021
Electricity Act Amendment 2021 & The Physics of the Impossible:

Prabir Purkayastha

THE coal crisis in the country led to a significant shortfall of power generation, especially in the Northern region leading to hours of load shedding. However, certain private power producers like Adani Power made windfall profits. Facing blackouts, some state distribution utilities such as Andhra Pradesh, Punjab, Uttar Pradesh and Gujarat, were forced to buy power at exorbitant prices from the power trading platform Indian Energy Exchange (IEX). In these weeks of shortages, the spot price of electricity even rose to Rs 20 per unit, against the average price of electricity in the exchange of about Rs 2.75. Private power producers like Adani Power made windfall profits from the shortages.

In an earlier column, I had written about the abysmal failure of the coal and power ministries in creating this artificial shortage of coal for the power plants. A press release dated September 3 reports of a meeting of secretaries and senior officers of the ministry of power, ministry of coal, railways, coal companies, power utilities and central electricity authority (CEA). It makes clear how the power ministry was clueless about the impending crisis. It talked of setting up a "Core Management Team (CMT) ... to closely monitor the coal stocks at TPPs..." The power minister RK Singh, addressing the meeting said, "Coal subsidiaries of Coal India Limited (CIL) were advised to adhere to the targets given to them for September 2021 and make all-out efforts to ramp up coal production so as to gradually build up coal stocks at TPPs...The stock has to start building up from mid October so that during foggy season in December no difficulties are encountered" (italics mine). No mention of the extremely low stocks with the power plants and no understanding that the opening of the economy combined with the festival season would create an immediate crisis.

Condemning the inaction of the regulator and the profiteering by private power producers, the All India Power Engineers Federation (AIPEF) chairman Shailendra Dubey, demanded a meeting of the forum of regulators. This meeting should be held immediately to stop black marketing in energy exchange, primarily by private operators during the crisis. Earlier, the All India Power Engineers Federation had written to the union power minister that the generation and transmission companies were making profits after unbundling of the state electricity boards. In contrast, the distribution companies have suffered huge losses. Unfortunately, the distribution companies (distcoms) are the ones that directly face the consumers and cannot pass the burden of all the costs of power – rising coal, railway freight, generation and transmission costs – to the consumer. Today, they recover only about 75-80 per cent of the costs of power they supply to the consumer, the difference accumulating as the losses of the distcoms. 

The central government, which lectures the distcoms and the state governments on their losses, owns NTPC, a major power producer, the railways and Coal India. All these make significant profits at the expense of the distcoms. A large part of the profits of NTPC and Coal India are transferred as dividends to the central government’s coffers, while the high freight charges for coal subsidise passenger traffic of the railways! All of these are essentially the central government's "taxes" on the state distcoms. 

The power engineers and employees have also opposed the recent move of the central government to unbundle the distribution companies in the name of reforms. These reforms are in the Draft Electricity Amendment Bill 2021, which has been on the anvil for some time in various avatars. The key focus of these so-called reforms is to push private players to set up distribution companies that will own no electricity infrastructure but will only trade electricity. The existing state-owned distribution companies who own all the distribution assets – the distribution lines or wires through which electricity comes to our houses, the transformers and other associated equipment – will be forced to allow the traders to supply electricity to their consumers using their infrastructure. It also proposes to de-license the distribution companies, meaning no license will be required to be a distribution company. A trader or a distribution utility with all its huge infrastructure will have the same status and be regulated similarly. This is an unheard-of move in the electricity sector; globally, there is no major grid that has taken such a step. 

The scheme of allowing traders of electricity to supply to any consumer is to cherry-pick high-end consumers from the existing distribution utilities or distcoms. Once the high-end consumers are cherry-picked by electricity traders, the existing distcoms will suffer even bigger losses. This will cause even bigger problems to distcoms of maintaining their physical infrastructure, on which both the consumers and traders depend. If this infrastructure cannot be maintained, the crazy dream of a few market fundamentalists of separating electricity supply from the physical wires through which it travels will turn into a nightmare for the consumers. 

The other attempt is to directly extend the central government's powers into 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 takes away the ability of the state regulator to regulate distribution, as some of the major "suppliers", meaning electricity traders will not be under their jurisdiction. Again, the centre and its various agencies refuse to understand the basic reality that the electricity system is an integrated one and cannot be split up in regulatory terms to extend the powers of the centre over the states.

The key problem for privatising distribution is how to supply electricity to rural areas? And to farmers on whom rests our food security as a nation. This is where private capital does not want to enter. That is why the Orissa reforms failed, as the private distribution utilities did not want to serve their rural consumers. That is why Delhi's privatisation is a "success"; it has very few rural consumers. That is why Calcutta Electricity Supply Corporation and such urban utilities were successful; they dealt with only urban areas. 

This is not a peculiarly Indian problem. Even in the well-off United States and their relatively wealthy farmers, this was a problem as the utilities did not want to spend a lot of money connecting far-flung households in sparsely populated rural areas to the grid. Roosevelt's New Deal had as one of its key elements extending the grid to all the people even in such areas.

In all the earlier avatars of distribution reforms in India, experiments have been made to separate the urban areas using the franchise model. Most of these experiments have failed, and finally, the state had to step in and take back these franchisees' operations; just as it had to take back Orissa from Anil Ambani's Reliance Infrastructure.

This proposed distribution reform is even worse. Clearly, rural households will continue to be with the state distribution companies. By private traders taking away the high-end consumers, the state distribution utilities ability to serve rural consumers will deteriorate even further. Already, the farmers in the country are fighting for remunerative prices against the Modi government reforms that seek to hand them over to big capital and traders. If the power distribution companies are "unbundled" as envisaged, agriculture or rural industries will have little chance of survival.  

New schemes like Universal Service Obligation in electricity will further extend the centre's grip over the state's finances. Already, the central government controls the inputs like coal, railway freight charges for carrying coal and supplying electricity to state distribution companies. If these costs rise, the central government makes higher profits. The state governments take a double hit: face the people's anger and suffer even more significant losses. Not surprisingly, all opposition ruled states have opposed the proposed amendments; as have the engineers and workers in the electricity sector. 

Unfortunately, even with the evidence of market failures right before its eyes, the government is pushing policies that will further endanger the sector. Even in the homeland of Big Capital, failures earlier in California and recently in Texas have shown that markets do not work in the electricity sector. It damages not only the electricity sector but also the entire economy; which the Modi government, with its belief in market fundamentalism, refuses to learn.