- The Central Government has proposed amendments to the Electricity Act, 2003 with the objective of making the power distribution sector more competitive, economical, and efficient. According to these amendments, distribution licensees will be allowed to share a common network, which will reduce the need for building redundant infrastructure and ensure better services to consumers.
Main Objectives of the Proposed Amendments
- The main objective of the proposal is to provide a statutory right to all distribution licensees to share networks, so that the need to develop parallel infrastructure can be eliminated.
- The purpose of the amendment is to ensure that when distribution companies use a shared network, the applicable wheeling charges remain regulated and transparent under the rules.
- Through this amendment, the government aims to promote competition within the distribution sector so that service quality and operational efficiency can improve.
- Under this proposal, consumers will be given the option to select their power supplier, allowing them to benefit from better service and pricing.
Impact on Consumers and States
- After the implementation of the amendment, consumers will obtain the right to choose their supplier, which will enable them to benefit from improved service quality and potentially lower tariffs.
- The creation of a competitive environment will put greater pressure on distribution companies to increase efficiency, transparency, and service quality, thereby providing direct benefit to consumers.
- The objective of the amendment is to ensure that states continue to have full freedom to provide subsidies to sensitive categories such as domestic and agricultural consumers.
- In this model, competitive reforms and social protection have been balanced in a way that no negative impact falls on vulnerable sections.
Existing Legal Framework and Practical Experience
- The Electricity Act, 2003 already provides that more than one distribution licensee can operate within the same area, so that efficiency and competition may be ensured.
- Despite this provision, due to the compulsion of creating parallel networks, the model has not been successfully implemented across the country.
- At present, Mumbai is the major example where two or more distribution companies are operational and consumers are able to choose their supplier according to their preference.
- The experience of Mumbai demonstrates that a competitive electricity distribution model can be practically implemented and may provide benefits to consumers.
Funding Under the Revamped Distribution Sector Scheme (RDSS)
- The Central Government has released approximately ₹37,000 crore to states for the period 2023 to 2026, with the objective of improving the reliability and financial condition of the distribution system.
- Under this scheme, it is mandatory for states and distribution companies to meet prescribed performance parameters, financial reforms, and technology-upgradation based targets.
- Further installments will be released only to those states or distribution companies that demonstrate performance in accordance with the prescribed evaluation criteria and achievement of targets.
- The objective of RDSS is to ensure that practical improvements are implemented across the distribution mechanism and that states are able to become financially sustainable in the long term.
