Historical Background and Evolution of Electricity Laws

Historical Background and Evolution of Electricity Laws

The first legislation in the electricity sector insofar as India is concerned was brought about by way of the Indian Electricity Act of 1887. This Act provided for the protection of person and property from injury and risks, attendant to the supply and user of electricity for lighting and other purposes.

This Act was repealed and replaced by the Indian Electricity Act 1903. The Act of 1903 was the first attempt made to deal with the subject on broad and general lines applicable to the country as a whole. The need for such an Act was impressed upon by the commercial community.

The Act was already crippled due to some specific reasons since it did not recognize bulk sale of electricity and further, there was a problem of dual control where the local Government and the Government of India could both have a say in the matter. Things carried on in the same fashion and by 1907, it was realized that the difficulties being faced had to be resolved and the Government therefore, appointed a committee to look into the matter. This culminated in the drafting of the Indian Electricity Bill 1909 which finally led to the enactment of the Indian Electricity Act 1910.

In this legislation, the power of licensing was left to the local government, thus getting rid of the problem of dual control and further, the concept of issuing license for bulk supply was introduced. Bulk supply meant that a company could generate and sell to other distributors in large quantities who would, in turn, retail it under a different license to small consumers.

In 1948, the Government enacted the Electricity Supply Act (ESA) 1948 to pave the way for the formation of the SEBs. The Electricity Supply Act, 1948 was enacted by the Government since it was felt that the pace of electrification was much below the desired pace and that electricity was only available in major towns and cities.

The Electricity Supply Act, 1948 paved the way for setting up of State Electricity Boards (SEBs) and also envisaged constitution of the Central Electricity Authority (CEA). The following were the general duties of the State Electricity Boards:

• To arrange in coordination of the generating company or companies operating in the State for the supply of electricity that may be required within the State and for the transmission and distribution of the same.
• To supply electricity as soon as practicable to a licensee or other person requiring such supply.
• To collect data on the demand for and use of electricity and to formulate perspective balance in coordination with the generating company.

The Electricity Supply Act 1948 also laid down the principles for calculating the returns which the Electricity Boards were to earn. A three percent return on net capital at the beginning of each year was the overall guiding principle for tariffs charged by the SEBs. In the initial years, these provisions ensured that the SEBs were financially healthy. Thereafter however, the financial position of the SEBs deteriorated.

Though the Electric Supply Act 1948 mandated the setting up of the State Electricity Boards, it took a long time for all the states to set them up. It is said that some of the states deliberately delayed the setting up of the SEBs since the State Government was unwilling to part with the power and privileges that go when administering a key infrastructure sector directly. The delay in the constitution of the SEBs has adversely affected the progress of the village electrification program.

During the period 1948 to 1956, the SEBs took over most private licensees upon expiry of their license agreements. While the growth of the Indian power sector primarily began in the private sector, the Industrial Policy Resolution of 1956 reserved generation and distribution of electricity exclusively for the public sector while allowing existing private utilities to continue. However, no new private licenses were granted.

The electricity sector is a concurrent subject under Article 246 of the Constitution where the Federal Government is responsible for policies and statutory and organizational field work and it is the States’ duty to provide for power generation and supply to consumers.

Electricity Act, 2003

The act covers major issues involving generation, distribution, transmission and trading in power. While some of the sections have already been enacted and are yielding benefits, there are a few other sections that are yet to be fully enforced till date.

The Act delicenses power generation completely (except for all nuclear and hydro-power projects over a certain size). As per the Act, 10 percent of the power supplied by suppliers and distributors to the consumers has to be generated using renewable and non-conventional sources of energy so that the energy is reliable.

Electricity generation has been made a non-licensed activity and the techno-economic clearance from the Central Electricity Authority (CEA) has been done away with for any power plant, except for hydro-electric power stations above a certain amount of capital investment. This has been provided in section 7 and 8 of the Electricity Act 2003. The generators can sell electricity to any licensees or where allowed by the state regulatory commissions, to consumers directly. The provision of direct sale of electricity by the generators, when and where allowed, would promote more IPP participation in the power generation, as these consumers are more creditworthy and bankable compared to many SEB’s. However the act provides for imposition of a surcharge by the regulatory body to compensate for some loss in cross-subsidy revenue to the SEB’s due to this direct sale of electricity by generators to the consumers.

The Act delicenses distribution in rural areas and brings in a licensing regime for distribution in urban areas.Recently, Electricity (Amendment) Bill, 2022 mentioned that now Electricity Private Company will also be able to distribute.

The Central Government shall, from time to time, prepare & publish the national electricity policy and tariff policy plan, in consultation with the State Governments and the Authority for development of the power system based on optimal utilisation of resources such as coal, natural gas, nuclear substances or materials, hydro and renewable sources of energy

Transmit, Distribution,Under take trading in Electricity

Any person is allowed to transmit or distribute or undertake trading in electricity provided he has authorised licence issued under section-14 or is exempted under section-13.

Network Transmission of Electricity

• The Central Government may establish a centre at the national Level, tobe known as the National Load Dispatch Centre for optimum scheduling and dispatch of electricity among the Regional Load Dispatch Centres. The Central Government makes region-wise demarcation of the country, and, from time to time, makes such modifications therein as it may consider necessary for the efficient, economical and integrated transmission and supply of electricity.
•  The National Load Dispatch Centre shall be operated by a Government company or any authority or corporation established or constituted by or under any Central Act, as may be notified by the Central Government· 
• The Central Government shall establish a centre for each region to be known as the Regional Load Dispatch Centre having territorial jurisdiction as determined by the Central Government for the purposes of exercising the Powers, and discharging the functions under this Part. 
• All directions issued by the Regional Load Dispatch Centres to any transmission licensee of State transmission lines or any other licensee of the State or generating company (other than those connected to inter State Transmission system) or sub-station in the State shall be issued through the State Load Dispatch Centre.

The Energy Conservative Act, 2001:

The Energy Conservation Act, 2001 was enacted to provide for efficient use of energy and its conservation and for matters connected therewith. This act provides for the establishment and incorporation of the Bureau of Energy Efficiency (BEE). The act empowers the central government to grant energy savings certificates to designated consumers whose energy consumption is less than the prescribed norms and standards and consumers whose energy consumption is more than the prescribed norms and standards shall be entitled to purchase the energy savings certificate to comply with the prescribed norms and standards.

 This Act requires large energy consumers to adhere to energy consumption norms; new buildings to follow the Energy Conservation Building Code; and appliances to meet energy performance standards and to display energy consumption labels.

 The 2008 National Climate Action Plan builds on this legislation to achieve its energy efficiency target. Under the Act, large energy-consuming industries are required to undertake energy audits and an energy-labelling programme for appliances has been introduced.

 Bureau of Energy Efficiency (BEE)

• The Bureau of Energy Efficiency has been established with effect from 1st March 2002 under the provisions of the Energy Conservation Act, 2001. 
• It is responsible for the implementation of policies and programmes related to energy. 
• It also coordinates the implementation of energy conservation activities. 
• The mission of the Bureau is:
  • To institutionalise energy efficiency services, 
  • To enable delivery mechanisms in the country
  • To provide leadership to energy efficiency in all sectors of the economy
  • To assist in developing policies and strategies with a thrust on self-regulation and market principles, within the overall framework of the Energy Conservation Act, 2001 (Amendment Act, 2010).
• Its primary objective is to reduce energy intensity in the Indian economy.

Powers and functions of BEE

The Bureau may perform such functions and exercise such powers, which are as follows:

• To recommend to the Central Government the norms for processes and energy consumption standards required to be notified.
• To recommend to the Central Government for issuing of the energy savings certificate. 
• To prepare standards and labels of appliances and equipment. 
• To develop a list of designated consumers. 
• To undertake promotional activities in coordination with centre and state-level agencies.
• To develop Energy Service Companies (ESCOs). 
• To transform the market for energy efficiency. 
• To create awareness through a variety of measures including clearing houses.
• To promote innovative financing of energy efficiency projects. 

Penalty Guidelines for Non-Compliance with Sections 14 and 15

• Non-compliance with clauses (h), (i), (k), (l), (c), (h) of section 14 or 15 can result in a penalty of up to ten lakh rupees.

• For continuing failures, an additional penalty may be imposed up to ten thousand rupees per day.

• Non-compliance with clauses (c) and (d) of section 14 can result in additional penalties of up to five thousand rupees per appliance or equipment.

• Non-compliance with industrial units or vessels can result in additional penalties of up to twice the price of every metric ton of oil equivalent consumed in excess of prescribed norms.

• Vehicle manufacturers can face additional penalties for non-compliance with fuel consumption norms.

• Non-compliance with sub-section (1) of section 13A or failure to provide information under section 52 can result in penalties up to fifty thousand rupees on the first non-compliance or failure.

• Any unpaid amount can be recovered as an arrear of land revenue.

The Energy Conservative Bill, 2022

• Carbon credit trading aims to reduce carbon emissions, and hence, address climate change.  The question is whether the Ministry of Power is the appropriate Ministry to regulate this scheme.  A further question is whether the market regulator for carbon credit trading should be specified in the Act.
• Same activity may be eligible for renewable energy, energy savings, and carbon credit certificates.  The Bill does not specify whether these certificates will be interchangeable.
• Designated consumers must meet certain non-fossil energy use obligations.  Given the limited competition among discoms in any area, consumers may not have a choice in the energy mix.