The time has come for the Modi Government to decisively untangle the sector from entrenched political interference, empower regulators, and open the door to private competition. Without bold, top-level reforms, India’s power ambitions may remain stuck in the dark
The Government think-tank NITI Aayog has initiated a study on the working of the Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions (SERCs) with particular emphasis on critical aspects such as ‘autonomy’, ‘role clarity’, ‘capacity’ and ‘accountability’. The intent is to undertake systemic changes in their approach and functioning to address the impending challenges of (i) maintaining the viability of power systems; (ii) attracting private investment and (iii) protecting public interest.
The CERC is the central commission for purposes of the Electricity Act, of 2003. Its role is to regulate tariff of power generating companies (gencos) owned and controlled by the centre; regulate and determine tariff for the inter-State transmission of electricity and issue licences to entities to function as transmission licensee and electricity trader with respect to their inter-State operations and act as repository of information/data.
It is also responsible for promoting competition, efficiency and economy in activities of the sector besides supporting investments.
The SERCs job is to regulate and determine tariff on sale of electricity by power distribution companies (discoms) to consumers; give licensees for the purchase and procurement of electricity by the discoms; help signing of power purchase agreements (PPAs) by them with gencos and allocation of power from different sources. They also facilitate transmission of electricity between different states. India’s peak power demand will surge from 243 GW (giga watt) currently to 370 GW by 2030. NITI Aayog argues, rightly so, this will require massive expansion and strengthening of the electricity generation, transmission and distribution infrastructure in the country. This in turn, will necessitate strengthening and capacity augmentation of both the CERC and the SERCs to meet the impending challenges.
The discoms stand at the core of the power supply and distribution network in the country. Mostly owned and controlled by State Governments, they buy an overwhelming share of power generated by public sector undertakings (PSUs) such as the National Thermal Power Corporation (NTPC), etc., and independent power producers (IPPs), besides generating stations of State Electricity Boards (SEBs) under PPAs — mostly long-term contracts up to 25 years — and supply it to the consumers. Yet, invariably, the financial health of the majority of the discoms has been a matter of serious concern.
According to a report by the Lok Sabha’s Standing Committee, the accumulated losses of discoms increased from `545,000 Crores in financial year (FY) 2020-21 to `584,000 Crores in 2021-22, `647,000 Crores in 2022-23 to `692,000 Crores in 2023-24. If they remain in dire straits, apart from not being able to deliver on their core function of ‘maintaining a supply of electricity to the consumers’, there is a real risk to all other stakeholders in the supply chain viz. the gencos, transmission companies, fuel suppliers and so on getting afflicted as they won’t get paid for their dues.
The system won’t be able to support even the current power demand, forgetting to meet the increased requirement by 2030.
The answer is a categorical ‘no’ as these regulators simply don’t have the ‘power’ and ‘autonomy’ to deal with crucial issues such as tariff setting, grant of licenses, signing PPAs, sourcing power etc. Let us look at the tariff setting.
Under instruction from the top political brass in the State establishment, discoms sell a major slice of electricity to some preferred consumers, viz., poor households (PHHs) and farmers, either at a fraction of the cost of purchase and distribution, or even free. Although the States promise to compensate discoms for the shortfall, this rarely happens. So, on the units supplied to these target groups, they incur huge under-recovery. This is aggravated by aggregate technical and commercial (AT&C) losses — most of it is plain theft.
In a bid to offset the above under-recoveries, discoms charge high tariffs on supplies to industries/businesses besides non-poor HHs (NPHHs). The former are the sole suppliers of electricity; hence, the latter have no option but to pay. Despite this cross-subsidisation, overall discoms continue to incur huge losses.
The Electricity Act (2003) and the Guidelines issued by the Ministry of Power (MoP) require the discoms to fix the electricity tariff supplied to consumers in a manner such that the average revenue realised (ARR) from its sale is equal to the average cost of purchase, transmission and distribution of electricity (ACS).
But, the SERCs don’t enforce it. The poor households and farmers are ‘holy cows’; the regulator can’t dare touch them. And, industries and businesses and NPHHs can’t be burdened beyond a point. So, the losses of discoms continue unabated and that too on a rising trajectory. A potent reason as to why it has been business as usual, the stakeholders (CERC/SERCs included) know that someday, the Government will come up with a scheme to condone the debt they pile up to fund their accumulated losses. Since the beginning of 2000, the Centre has come up with four financial restructuring packages (FRPs) namely in 2002, 2012, 2015 and 2021 to help discoms. FRP is a fancy nomenclature for condoning the debt.
The other issue is the grant of licenses which links up with the dire need to bring private entities, promote competition and give choices to consumers for accessing power at low prices. This can happen if the law is amended to provide for de-licensing of the electricity distribution. The Centre made necessary provisions in the draft Electricity (Amendment) Bill 2021 which also provided for giving subsidies directly to target consumers. The intent behind ‘direct subsidy’ was to unshackle discoms from State controls and thus, prevent losses resulting from delayed and partial reimbursement of subsidy dues by the latter.
However, in the Electricity (Amendment) Bill, 2022 (introduced in Lok Sabha on August 8, 2022, it is currently pending with a Standing Committee), even as the Government dropped the idea of giving state subsidy directly to the target consumers, it also diluted substantially the provision on de-licensing of distribution business to take away its soul namely inject competition, and give the consumer power to choose suppliers (or “open access”).
Under it, the Centre will prescribe the criteria for deciding who will get the license to supply in a given area. The licensees will have to share the power and associated costs as per the existing PPAs of the existing discom. To meet any additional requirements, a licensee may enter into additional PPAs but only after meeting the obligations of existing PPAs. Put simply, a private player will merely be roped in to complement the existing discom instead of giving an alternative.
Even in matters of signing PPAs, sourcing power, deciding on tariffs for transmission etc, the discoms face interference from the Government which loads them with high cost of power purchase. Juxtaposed with low ARR from the sale of electricity (courtesy, supply at fraction of the cost or even free and theft) puts discoms in a perpetual loss-making situation. The political class at whose behest all this happens doesn’t also let private players come in.
To enable power sector deliver, the Government will need to unshackle discoms from all forms of controls and make way for private entities in electricity distribution business. This will require major decisions by Team Modi. Post these reforms, the regulators too will be able to do their assigned jobs ‘efficiently’ and ‘effectively’.
(The writer is a policy analyst. Views are personal)
https://www.dailypioneer.com/2025/columnists/crack-the-whip-to-rescue-discoms-and-energise-reform.html
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