Electricity Act

Electricity Act

An act to consolidate the laws relating to Generation, Transmission, Distribution, Trading and use of electricity and generally for taking measures condusive to development of electricity industry, promoting competition therein, protecting interest of consumers and supply of electricity to all areas, rationalisation of electricity tariff, ensuring transparent policies regarding subsidies, promotion of efficient and environmentally benign policies constitution of Central Electricity Authority, Regulatory Commissions and establishment of Appellate Tribunal and for matters connected therewith or incidental thereto.

Historical Background of Legislative Initiatives

The Indian Electricity Act, 1910

  • Provided basic framework for electric supply industry in India.
  • Growth of the sector through licensees. Licence by State Govt.
  • Provision for licence for supply of electricity in a specified area.
  • Legal framework for laying down of wires and other works.
  • Provisions laying down relationship between licensee and consumer.

The Electricity (Supply) Act, 1948

  • Mandated creation of SEBs.
  •  Need for the State to step in (through SEBs) to extend electrification (so far limited to cities) across the country.

Main amendments to the Indian Electricity Supply Act

  • Amendment in 1975 to enable generation in Central sector.
  • Amendment to bring in commercial viability in the functioning of SEBs – Section 59 amended to make the earning of a minimum return of 3% on fixed assets a statutory requirement (w.e.f 1.4.1985) .
  • Amendment in 1991 to open generation to private sector and establishment of RLDCs.
  • Amendment in 1998 to provide for private sector participation in transmission, and also provision relating to Transmission Utilities.

The Electricity Regulatory Commission Act, 1998

  • Provision for setting up of Central / State Electricity Regulatory Commission with powers to determine tariffs.
  • Constitution of SERC optional for States.
  • Distancing of Government from tariff determination.

Electricity Act 2003

This Act has repealed above three Acts namely:

  1. The Indian Electricity Act, 1910
  2. The Electricity (Supply) Act, 1948
  3. The Electricity Regulatory Commission Act , 1998

Salient features of Electricity Act 2003

Sr No. Category Key Features of Indian Electricity Act 2003
1 Objectives
  • Encouraging autonomous regulation with the separation off policy regulation and operational aspects.
  • Rationalizing tariff and lowering the cross-subsidization levels
  • Creating competition in the industry
  • Ensuring supply of electricity to all areas
  • Protecting consumer interests
2 Policy
  • A National electricity plan shall be prepared in accordance with National Electricity Policy every 5 years National policy on stands alone systems for rural areas and Nonconventional energy systems National policy on electrification and local distribution in rural areas.
3 Restructuring
  • Vertical integration instead of horizontal unbundling of State Electricity Boards (SEBs) to make them financially strong
  • State governments will have the freedom to decide the sequence and phases of restructuring, and also retain the integrated structure of the SEB for a limited period
  • Introduction of the concept of power trading as a distinct activity, and the introduction of a spot market for bulk electricity
4 Generation
  • Removal of captive power plants from the ambit of licensing and other permissions
  • Generators can contract directly with DISCOMs
  • DISCOMs can have embedded generation
  • Captive generation allowed freely—can supply to associates
  • Elimination of Licensing requirement and techno-economic clearances for generation projects except hydel projects
5 T & D
  • Provision for Private participation in distribution
  • Surcharge for open access to meet current cross-subsidy burden (except for CPP's)
  • Dedicated transmission lines allowed (not regulated)
  • Central and State transmission Utilities ( CTU and STUs) not permitted to trade
  • Transmission licensees allowed
  • Multi Year Tariff (MYT) recommended
  • Bidding allowed

Source: Gujarat SLDC

Advantages for power market

  • Generation de-licensed. Multiple dist. Licenses.
  • Transmission utility at central level to continue with responsibility of coordinated planning of trans network.
  • Private companies can take up transmission
  • Open access: Any Genco/Discom/Consumer can access transmission system without discrimination, subject to transmission availability. Pay regulated transmission charges to Transco (wheeling charge and surcharge).
  • Open access to distribution in phases.
  • Power trading recognized as activity.
  • Transco cannot undertake trading.
  • Captive generation encouraged. No regulated charge except wheeling and surcharge.

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