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Status of Electricity Act, 2003: A systematic review of literature

Article  in  Energy Policy · March 2017

DOI: 10.1016/j.enpol.2016.12.001

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 Energy Policy 102 (2017) 237–248

Contents lists available at ScienceDirect

Energy Policy
journal homepage: www.elsevier.com/locate/enpol

Status of Electricity Act, 2003: A systematic review of literature MARK

a b,⁎ c
Shilpi Mukherjee , Tarun Dhingra , Anirban Sengupta
a
Department of Power Management CoMES, UPES, Dehradun, Uttarakhand, India
b
Department of Strategic Management CoMES, UPES, Dehradun, Uttarakhand, India
c
Dean, CoMES, UPES, Dehradun, Uttarakhand, India

A R T I C L E I N F O A BS T RAC T

Keywords: The Electricity Act 2003 was a landmark Act which promised to remove the maladies which afflict the Indian
Electricity Act 2003 Power Sector and that too at a time when the sector was ridden with problems. With concepts such as open
Indian Power Sector access, multiple distribution licensees, wheeling of electricity etc, the said Act intended to encourage
Systematic Literature Review competition which in turn was meant bring a paradigm shift in the sector. The paper undertakes a systematic
Reform
literature review to find the status of review of the promising Act. More than a decade has passed since its
Restructuring
enactment and amendments are due with the legislative body of India but none of the literature reviewed gives a
comprehensive view encompassing all the objectives of the Act. Moreover, these documents study either the
probable impact or the impact on a particular segment only. It has important implications for the Power sector
which highlights a significant gap in literature and provides a basis on which future research can be built upon.

1. Introduction
“One of the great mistakes is to judge policies and programmes by
their intentions rather than their results.”
- Milton Friedman
The Electricity Act 2003 (EA 2003 or the Act) was the ray of hope
for the ailing electricity sector of India. It intended to change the
fundamentals of the sector, bringing in competition and making it
viable. There were huge expectations from the Act, whose number and
reach was unprecedented in the history of Indian power sector
development (Ranganathan and Rao, 2004; Singh, 2006). The Act
aimed at restructuring the complete industry, making it technically and
financially viable. However, reforms did not yield successful results
every time (Sioshansi, 2006). The intention of the Act was welcomed
but with a concern (Singh, 2010).
Availability of electrical energy is one of the accelerating factors for
improving the quality of life & the economic growth of the country. But
the operational and financial inefficiencies of the State Electricity
Boards (SEBs), which were constituted for the development of the
electricity industry, had plagued the economic growth of the country.
These vertically integrated monopolies, which were responsible for
providing electricity to the people, were in a precarious financial
condition with payment dues exceeding Rs 41,000 crores (Ministry of
Power, 2003). This is in spite of the substantial share of 13–18% of the
national plan outlay (Sharma et al., 2005). With energy deficit of 8.8%
and peak deficit of 12.2%, the power supply position in the country was
no better than 1991 when the reform and restructuring started. The
lack of investment was further deteriorating the operational inefficien-
cies and hindered capacity addition. Initiatives like delicensing of
generation and IPP (Independent Power Producers) amendment, to
encourage private investment, had done little to improve the scenario.
The foreign investors were apprehensive after the Enron debacle. But a
massive 1,00,000 MW was required within a decade to meet the
demand which amounted to doubling the installed capacity added in
the last half century, requiring an investment of Rs 8,00,000 crores
(Reineberg, 2006).
It was against the backdrop of such dire conditions that the EA
2003 was enacted. Many like Bhattacharyya (2005) questioned its
capacity to transform the Indian Power Sector while others like
Godbole (2003) questioned the wisdom and highlighted a number of
issues that were likely to pose problems. Reineberg (2006) quoted it as
“The most important piece of legislation to become law…. to meet the
challenges of 21st century”. He explicitly says that the Act is aimed at
rectifying the financial conditions of the SEBs which were hindering the
growth of the electricity sector.
But even after a decade of its enactment, the energy deficit is 2.1%
with peak deficit at 3.2% and AT & C (Aggregate Technical &
Commercial) losses of 25.38% every year (CEA, 2015, 2013; CERC,
2016). With blackouts and brownouts a common occurrence in many
parts of India, quality power a distant dream and 75 million house-

⁎
Corresponding author.
E-mail addresses: shilpi.mjee@gmail.com (S. Mukherjee), replytarun@gmail.com (T. Dhingra), asengupta@ddn.upes.ac.in (A. Sengupta).

http://dx.doi.org/10.1016/j.enpol.2016.12.001
Received 13 April 2016; Received in revised form 17 October 2016; Accepted 1 December 2016
0301-4215/ © 2016 Elsevier Ltd. All rights reserved.
S. Mukherjee et al.
holds without access to electricity, per capita consumption far below
the world average, we need to assess whether EA 2003 has been
successful in its endeavour or not. The progress of the Act, if any, also
needs to be ascertained before planning further.
We, thus, need to know the present status of the landmark Act and
the milestones achieved in order to plan further improvements for the
sector because planned reforms may not produce their intended results
in developing countries (Zhang and Parker, 2006).
This paper, thus, proposes the following research questions:
RQ: What is the status of review of the Electricity Act 2003?
‘Status’ can be defined as 'the situation at a particular time during a
process'. The authors investigate the reviews of the EA 2003 carried out
by other researchers and any other authority or agency in order to
ascertain the progress made in attaining the objectives of the Act, i.e,
the “Status” of the Act through all published documents inclusive of
research papers and grey literature. A systematic review of literature
will help us to synthesize the existing knowledge on review of the EA
2003.
Section 2 describes the evolution of Indian Power Sector. Section 3
elaborates the methodology followed in this paper while Section 4
discusses the results obtained. The authors discuss the Research
Question in Section 5, in view of the results obtained. Section 6 gives
a glimpse of the present scenario of the sector. The authors present the
concluding remarks in Section 7.
2. Evolution of Indian Power Sector
India has come a long way since its first commercial hydro power
station in 1897. The journey has been shown in Fig 1.
Pre- independence, i.e., before 1947, electricity generation and
supply was concentrated in the hands of private electricity suppliers
and largely in urban areas. In order to regulate the generation, supply
and use of electricity, the first legislation enacted was the Electricity Act
of 1887, which was subsequently replaced by Indian Electricity Act
1903 (IEA 1903). The IEA 1903 was clearly recognized to be a
somewhat tentative measure and many practical, electro-technical &
commercial difficulties were realized during the period 1903–1909.
The IEA 1903 was repealed & re-enacted with necessary modifications
as the Indian Electricity Act, 1910 (IEA 1910) (Indian Electricity Act,
1910) (IEA 1910 (with Short Notes), 1910).
The IEA 1910 provided the basic framework for supply and use of
electrical energy. The sector, being at a nascent stage, required huge
investments which were envisaged to be fulfilled by private licensees.
Generating plants were built near metropolitan cities like Calcutta
(renamed Kolkata) and Bombay (renamed Mumbai).
With Independence, the priorities changed and electrification was
planned to be extended across the length and breadth of the country.
The Electricity Supply Act 1948, based on the UK Electricity Supply Act
1926, mandated the creation of SEBs in every state and Central
Electricity Authority (CEA) at the central level (Regultory and Policy
Environment, n.d.).
There was substantial growth in the power sector, in terms of
Fig. 1. Evolution of Indian Power Sector (not to scale).
238
Energy Policy 102 (2017) 237–248
installed capacity, transmission network and distribution to various
areas across the length & breadth of the country. But over a period
time, a number of problems surfaced. The SEBs became financially sick
and ridden with huge debts. The cumulative amount due to the various
agencies, from SEBs, exceeded Rs 41,000 crores, seriously impacting
the borrowing capacities of these SEBs (Ministry of Power, 2014;
Ministry of Power, 2003). The demand supply gap was huge. The
quality as well as quantity of power was poor. The vote bank politics
compelled the tariff to be kept artificially low for the agricultural sector
which prevented the rationalisation of tariff (Joseph, 2010). The power
sector of India was crying for reforms. Reforms and restructuring
became the need of the hour.
The foundation for reforms was created in the 1990s with Private
Sector Participation being encouraged in Generation (Historical
Background, n.d.), PTC (Power Trading Corporation) being created
for Power Trading and various other initiatives. The last foundation
stone was the Electricity Regulatory Commission Act 1998 (ERC Act
1998), the sole purpose of which was to distance the Government from
Tariff Determination. According to the ERC Act, Central Electricity
Regulatory Commission (CERC) was set up at the central level and
State Electricity Regulatory Commission (SERC) at the state level to
determine the tariff and formulate regulations for the power sector.
The first attempt for a comprehensive Act was made in the year
2000. But it was only in the year 2003, after lots of discussions, debates
and modifications, that the Electricity Act received President’s ascent
on May 26, 2003, published in the official gazette on 2nd June 2003
and became effective from 10th June 2003, i.e., (Electricity Act, 2003;
Chatterjee, 2012; Bhattacharyya, 2005; Thakur et al., 2005).
All previous Acts, i.e., IEA 1910, ESA 1948 and ERC Act 1998 were
repealed. The EA 2003 was a consolidated Act – it consolidates the
Laws relating to generation, transmission, distribution, trading and use
of electricity. The preamble of EA 2003 explicitly says:
“An Act to consolidate the laws relating to generation, transmission,
distribution, trading and use of electricity and generally for taking
measures conducive to development of electricity industry, promot-
ing 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 estab-
lishment of Appellate Tribunal and for matters connected therewith
or incidental thereto.”
The objectives of the EA 2003 may, thus, be segregated as follows:
i. To consolidate the laws relating to generation, transmission,
distribution, trading and use of electricity
ii. For taking measures conducive to development of electricity
industry,
iii. For promoting competition
iv. Protecting interest of consumers
v. Supply of electricity to all areas,
vi. Rationalisation of electricity tariff
vii. Ensuring transparent policies regarding subsidies
viii. Promotion of efficient and environmentally benign policies
ix. Constitution of Central Electricity Authority, Regulatory
Commissions and establishment of Appellate Tribunal
The EA 2003 resulted in a complete overhaul of the power sector of
India. The results expected were revolutionary. With unbundling of
SEBs, privatisation of generation & distribution companies, corpor-
atisation, open access, multiple licensees etc., there was a complete
restructuring of the Indian power sector. There was a provision of
choice of suppliers for consumers. The Act attempted to create a multi
buyer, multi seller model. Power trading was given a distinct identity
and power exchanges were established. Appellate Tribunal was set up
S. Mukherjee et al.
to hear appeals against the decisions of CERC and SERCs.
3. Methodology
3.1. Systematic review of literature
Systematic review of literature has been undertaken in this paper,
with a thoroughgoing study of the EA 2003 and the power sector of
India. In a systematic review, all articles pertaining to a particular
research question are collected and analysed. It helps to keep the
review unbiased and transparent. It’s exhaustive and not as haphazard
as traditional review (Bryman, 2012; Choong, 2013; Shephard, et al.,
2006).
The scope and purpose of this review are defined with the help of
research question which helps to seek out the relevant studies. Further
appraisal of the studies is conducted by applying inclusion and
exclusion criteria. The resultant studies are reviewed and analysed
which leads to the synthesis of the results (Bryman, 2012).
3.2. Question formulation
The research questions are formulated based on the researcher’s
intent to know the status of review of the EA 2003 a decade after its
enactment.
RQ: What is the status of review of the Electricity Act 2003?
The RQ requires us to review the studies on EA 2003 in totality
including an in depth study of the various objectives outlined in the
Act. All articles and other published documents need to be reviewed
pertaining to the research question following the steps of systematic
review outlined above.
3.3. Article search procedure
Articles were searched from the electronic databases of EBSCO,
Science Direct, Jstor and Emerald with the procedure of systematic
review (Matthews and Marzec, 2012; Choong, 2013; Pino et al., 2007).
A detailed study was also undertaken for the regulatory framework of
India, encompassing the EA 2003, CERC Regulations and other policy
documents (reports) pertaining to the power sector of India. Apart
from that, ‘grey literature’ such as reports, conference proceedings etc.
was also explored as its importance was emphasised by Bryman (2012)
and Petticrew and Roberts (2006).
The search was conducted across the selected databases with the
following terms: ‘electricity act 2003’, ‘electricity act India’, ‘power
sector India’, ‘power sector reforms’ and ‘restructuring power sector’.
The terms power and electricity were interchanged so as to obtain an
exhaustive list of articles as shown in Table 1. Articles were searched
from 2003–2015 as the said Act, whose progress and impact needed to
be studied, was enacted in June 2003. The articles where the search
terms coincided with the keywords or the title were considered as
otherwise any paper even briefly mentioning about the power sector of
India would include the above mentioned search term(s) and that
would increase the total number of articles to an enormous 32178 out
of which very few would be actually focusing on the progress and/or
Table 1
Summary of systematic review process (adapted from Choong 2013).
Stage 1 Stage 2 Stage 3
Identify databases Identify search terms Exclusion analysis
Key Results Key Results Key Results
• Databases (4) • All articles found (824) • Total articles removed • Websites (18)
• Journals (16) • Non Duplicate Articles (91)
found (176) • Total number of relevant
articles becomes 85
Energy Policy 102 (2017) 237–248
impact of EA 2003. The initial search revealed 824 scholarly and peer
reviewed articles but after removing duplicity, the number of articles
reduced to 176 in Stage 2. Most of these were from Energy Policy
enlisted in Science Direct. The other two prominent journals were The
Electricity and EPW which are a part of Science Direct and Jstor
respectively.
In stage 3, all the articles which had just a passing mention of EA
2003 were excluded. As the Act brought a paradigm shift the power
sector structure and functioning, most of the papers about the power
sector of India referred to it. 91 such articles were found and removed
further pruning the number of articles to 85.
In order to have a complete picture, a web search was conducted for
non-peer reviewed journals, reports and other grey literature. 18 such
documents were found to be relevant and were, thus, included in the
list. Thus, in stage 4, the total number of relevant articles increased to
103.
In stage 5, the articles were further filtered based upon the content.
91 articles which did not discuss about EA 2003 in detail were
excluded. Although no document explicitly tells us the impact of EA
2003 on the power sector of India, articles which mention even a part
of it have been retained.
Finally, after all the inclusions and exclusions, 19 articles were
found to be of substantial value for the research. The researchers
believes that a vast majority of articles and relevant documents,
although it might not be an exhaustive one, were reviewed which
would ascertain the present status of EA 2003 and its impact on the
power sector of India.
In the sixth stage, the articles are categorized based on the theme as
it would be the most appropriate method for this paper. Each selected
article was thoroughly read and analysed by the author for its relevance
to the topic. Although no document discusses the progress in attaining
the objectives or the impact of EA 2003 explicitly, the researcher makes
a thoroughgoing study of the selected documents. The articles were
classified, by the author, into relevant categories, i.e.
A. Review/Analysis of the Act with/without suggestions
This includes the papers where the author/s have reviewed and/
or analysed any part or the complete Act with/ without suggestions.
B. Impact of the Act
This category of papers includes those which discuss the actual
impact of any part or the complete Act. None of these papers review the
Act as a whole; hence, partial analysis of the impact of the Act on any
segment of the Indian Power Sector has been included.
These selected articles would help the author to arrive at a
conclusion so as to the present status of EA 2003 and its impact on
the power sector of India.
4. Results and Discussion
The selected articles exhibit the present status of EA 2003 to
varying degrees and in a non-comprehensive manner. Hence, the
author discusses the articles and other documents, as shown in
Table 2, systematically based on these two categories.
Stage 4 Stage 5 Stage 6
Internet search Identify Relevant articles Categorize articles
Key Results Key Results Key Results
• Total articles removed (91) • Categorize relevant
• Total number of relevant • Total number of relevant articles into themes
articles increases to 103 articles reduced to (19)
239
 Table 2
Categorization of the selected papers.

Sl No Title Author/s Central Argument A B

1 Electricity Act, 2003: Questionable Wisdom Godbole (2003) The paper highlights a number of issues in the EA 2003 which deserved closer attention & might pose
S. Mukherjee et al.

2 Electricity Act 2003: Moving to a Competitive Environment
3 Electricity Act, 2003: Agenda for Review
4 Power Sector Reforms in India
✓
problems in future. Unbundling of SEBs as promoted by World Bank should be a selective approach rather
than a mantra and no final date has been set for the abolition of SEBs. The Act gives an impression that the
subject of electricity is in the Central List instead of the Concurrent List. The financial implications of captive
generation, Open Access and other provisions need to be reconsidered so that the burden on state budget is
sustainable. Multiple Distribution Licences would be necessary in the long run but introducing it at this stage
might slow down the pace of privatisation. Most importantly, the Act should not remain on paper only.
Ranganathan (2004) The author discusses the major aspects of EA 2003- its aim to introduce competition in generation and ✓
privatize distribution. But the Act leaves many issues unattended in the journey of the power sector towards a
competitive environment. Discussion of issues such as impact of surcharge, definition of cross subsidy,
exactness of transmission loss and cost figures, regulatory risk in case of year to year tariff and metering of
agricultural consumers has been undertaken by the author as the areas of concern.
Rejikumar (2004) This article brings forth a few issues that need to be addressed during the review of EA 2003. It questions the ✓
universal approach of unbundling & privatisation stating examples where the reverse was true. It discusses
the emerging trends in reform of utilities in other countries and lays emphasis on the Ivorian model in west
Africa. It specifies the sections of the Act that needs to be amended. Eg: Section 19 & 20 can lead to litigation
and JERC (Joint Electricity Regulatory Commission) should be made mandatory for smaller states according
to section 83.
Ranganathan and Rao (2004) This Round Table proceeding, consisting of excerpts from the papers and presentations at the workshop, takes ✓
stock of the reform efforts leading up to the Electricity Act and raises many salient concerns that merit
attention in the next phase of reforms. The participants highlighted the importance of public sector
investment, the steps taken by Ministry of Power as correctives, Delhi privatisation experience, Karnataka
distribution privatisation, requirement for accountability of regulator, agricultural tariff, trading and open
access.

240
5 Power Sector Reforms in
India: Regulatory Issues
6 Electricity Act 2003: dark Shadows over a bright vision
7 What's new in India's Energy sector?
8 Impact assessment of the Electricity Act 2003 on the Indian power sector
9 The Electricity Act 2003: Will it transform the Indian power sector?
Bajaj (2004) This Round Table proceeding brings forth various areas of lacunae that have not been addressed by the EA ✓
2003 and the various steps that need to be taken for proper functioning of the ERCs. Eg: Cross subsidy should
be defined, Regulators should be made accountable and judicial functioning of regulation should be
consultative.
Sankar (2004) EA 2003 presents a bold and beautiful picture for the future of Indian Power Sector but certain controversial ✓
provisions regarding open access, cross subsidy & surcharge need to be clarified or modified or removed in
order to prevent legal tangles and uphold the spirit of the Act. The term surcharge needs to be defined in
quantifiable terms. The author opines that multiple distribution licensee would lead to cherry-picking by the
second licensee and can be mitigated by an informal ‘surcharge equalization procedure’ adjusted at the end of
the year. Moreover, the MYT (Multi Year Tariff) can reduce the ‘regulatory risk’ or ‘regulatory uncertainty’ and
encourage investments.
Joshi (2004) The two major developments in India’s Energy Sector have been discussed, one of which is the enactment and ✓
enforcement of EA 2003. But for the impact to actualize, transmission grids need to be expanded, suitable
mechanism formulated for agricultural subsidy to be politically acceptable and economically supportable,
political will for reduction of distribution loss (theft) and proper formulation and enforcement of regulations
at central and state level will have to be taken into consideration.
Thakur et al., (2005) Various provisions of the Electricity Act 2003 and its likely impacts on different segments of the country’s ✓
power sector have been discussed. The Act leaves certain policy issues unresolved like network pricing
complexities, mechanism of pricing till open access is allowed, settlement complexities in case of cash
shortage, transmission bottlenecks negating open access, environmental concerns and restructuring policies.
The Act has partially addressed issues such as market dominance of few dominant generators and mechanism
for preventing sharp trading prices. The deregulated regime and liberalization will benefit consumers in the
long run. It might increase the cost for the low tension consumers in the short term because of cross subsidy. It
will take time for liberalization and open access to reap benefits but a strict time table should be maintained
for implementation.
Bhattacharyya (2005) This paper reviews the Electricity Act 2003 and analyses its ability to transform the Indian Power Sector. The ✓
Act makes entry into generation and captive generation relatively easier and seeks to create a multi buyer,
multi seller system. Gencos and Discoms might reintegrate. Open Access would facilitate IPPs in generation.
The regulatory framework envisaged in the Act is termed credible by the author. The flexibility in tariff
(continued on next page)
Energy Policy 102 (2017) 237–248
 Table 2 (continued)

Sl No Title Author/s Central Argument A B

determination and MYT Regime have been provided by the Act but the tariff making process would still be a
challenging one because of cross subsidies. The author predicts that the discoms would suffer due to unviable
S. Mukherjee et al.

tariff as increasing the tariff of “residential and other low voltage consumers would remain a politically
sensitive issue.” The Act does not require the selection of regulators to be transparent which might give rise to
political manipulations. The Govt’s say in the use of funds might also be used to hinder the regulatory
independence.
10 Power sector reform in India: Current issues and prospects Singh (2006) The steps taken for Indian Power Sector Reforms from 1991 to 2004 have been discussed in this paper. ✓
Regulatory reforms gave rise to tariff rationalisation, transparency and consumer participation. Multiple
Licensees and open access holds promise for increasing competition in the sector but the transition has to be
managed very carefully, balancing between social obligations and commercial goals.
11 India’s Electricity Sector in Transition: Can Its Giant Goals Be Met? Reineberg (2006) This paper discusses the political, regulatory and economic scenario of India w.r.t. power sector and the giant ✓
goals it has set for itself. The doubts of the author are aggravated because to reform the power sector of India,
huge investments are required but global investors are apprehensive after the Enron debacle. The EA
2003attempts to introduce competition in the sector. Being the eighth most indebted nation, financing such
massive improvements might be difficult but the World Bank providing a loan of $9 billion might instil
confidence of the investors.
12 Sustainability of power sector reform in India: what does recent Bhattacharyya (2007) This paper presents a systematic approach to analyse the sustainability of the reform model and the ✓ ✓
experience suggest? experience in implementing it. It argues that the reforms to date have not produced desirable political,
economic, financial, social or environmental outcomes. Private investment is elusive and demand supply gap
is yet to be bridged. Reformed utilities have also not performed well. The “imported ideas” have not yielded
expected results and “locally accepted solutions” might provide us with a sustainable reform. Moreover,
political stability is required to instil confidence of private investors.
13 Jurisdictional Limits of Electricity Regulatory Commissions Shah (2007) The author studies almost 36 case laws of appeals before the Appellate Tribunal under Section 110 of the ✓ ✓
Electricity Act which helps to determine the jurisdictional limit of the Regulatory Commissions. E.g.: It cannot
interfere in the internal management of the licensees; it is of the same statute as the commissions and thus has
no authority to examine the validity of the regulations framed by the commissions and many other limits of the

241
Appellate Tribunal.

14 The Politics of Power: Electricity Reform in India Joseph (2010) The paper discusses the role of Politics in changing the electricity scenario of India and how political parties ✓ ✓
are unable to push through the reform process successfully.
But a dual track economy where the industrial customers are being lured with captive generation and open
access and adopting reforms that have little or no impact on the rural and agricultural consumers ensure the
support of both the constituencies. The industrial consumer’s decision to exit is in direct response to the
poor quality of power rather than the price. The author anticipates that this partial reform might further
cripple the rural power sector. The author questions the effectiveness of this strategy in improving the
conditions of Indian power sector and in realizing the goal of ‘Power for all by 2012′.
15 Current status and analysis of renewable promotional policies in Indian Singh and Sood (2011) The current policies are reviewed for its effect on renewable energy in the country. Although RE programmes ✓ ✓
restructured power sector—A review have been in existence more than three decades, the commercial demand is still low. Consumer desired
features in design and sales package, usage in distributed generation, being a part of regulatory framework,
incorporation into development programmes, encouraging private participation and industry collaboration in
R & D, integration with liberalization of energy markets and other measures have been suggested by the author
based on the analysis of various policies in order to develop the RE Technologies at a faster rate.
16 Towards a competitive market for electricity and consumer choice in the Singh (2010) The provisions of the EA 2003 are necessary but not sufficient condition for competition. Short term ✓ ✓
Indian power sector challenges in the Indian power market are technological efficiency and financial performance while in the long
term, efficient price discovery and cost effective choice to consumers should be accomplished. Competition in
wholesale market would improve the efficiency and reduce the cost of generation while in retail market, it may
offer greater array of products. It would be beneficial for the Regulatory institutions to prepare a roadmap for
increasing competition in the long term. Transitionary issues like open access will remain.
17 Analysis of competition and market power in the wholesale electricity Shukla and Thampy (2011) This paper analyses the market structure and competitiveness in Wholesale Electricity Market in India and ✓ ✓
market in India found that Indian Electricity Market in India is not concentrated except in eastern and north eastern regions.
Divestiture of generating facilities, adequate transmission capacity, fixing the maximum price cap, reducing
the demand supply gap would increase the competition in the wholesale power market of India.
18 More Power to India Pargal and Banerjee (2014) This report reviews the Indian Power Sector since EA 2003 with a focus on distribution. It analyses the ✓
multiple sources of weakness in distribution and shows that multiple stakeholders need to play their role to
improve the scenario. The Central Government needs to fine tune their strategies, lenders have to show due
(continued on next page)
Energy Policy 102 (2017) 237–248
S. Mukherjee et al. Energy Policy 102 (2017) 237–248

✓
B
A 4.1. Category A: Review/Analysis of the Act

Most of these papers, reviews the EA 2003, focusing on the gaps not

This report published by Central Electricity Authority provides the progress of the reform measures state wise
in accordance with EA 2003. It includes Regulatory Measures, Protection of Consumer interests and quality
monitoring and proper data collection are also crucial for the improvement of the power sector. Corporate
addressed by the Act along with suggestions for improving the Act.
diligence and regulators need to fulfil their mandates in a transparent and accountable manner. Timely

Some authors have reviewed the Electricity Act 2003 emphasizing

the ambitious nature of the Act while some term it as too ambitious
(Reineberg, 2006; Godbole, 2003; Bhattacharyya, 2005). Some of the
articles give a critical analysis of the Act along with the objectives,
features, how it plans to change the power sector of India and the
issues that it has left unattended (Thakur et al., 2005). It encourages
competition by attempting to create a multi buyer multi seller model
and promotes competition through de-licensing of generation, open
access in transmission, recognizing ‘trading’ as a distinct activity and
multiple licensing in distribution (Electricity Act, 2003). Bajaj (2004)
remarks that some lacunae or confusion still exist in the Act.

4.1.1. Consolidation of Laws

The EA 2003 repealed all the previous Acts, i. e., IEA 1910, ESA
1948 and ERC Act 1998. The ERC Act 1998 started the process of
distancing the Government from regulations which finally culminated
in the EA 2003. It has a holistic approach in restructuring and
Governance would also help state utilities.

reforming the power sector of India (Chatterjee, 2012). While genera-

tion has been dealt in Section 7–11, the provisions for transmission
have been consolidated in Section 25–41 of the Act. Similarly, Section
42–60 details out the provisions related to distribution. The laws,
related to trading and use of electricity, have also been explicitly
mentioned in the Act (Electricity Act, 2003). Hence, the EA 2003 has
Central Argument

successfully consolidated the laws relating to all the concerned

sections, i.e., generation, transmission, distribution, trading and use
of electricity.
standards.

4.1.2. Unbundling/ Restructuring and Privatisation of SEBs

Most of the authors are apprehensive of unbundling/ restructuring
and privatisation of SEBs but would prefer a selective approach rather
Central Electricity Authority

than a mantra for reforms. They suggest that some of the best run
electricity utilities in the world are still vertically integrated and the
private sector does not have the capability to take over the entire
electricity business from the SEBs even in the next two decades as there
are very few private organisations which are resourceful enough to take
Author/s

over and manage distribution business efficiently. Moreover, private

(2014)

entities can participate in generation as well as distribution but that

would mean denying a level playing field to SEBs as they would
compulsorily have to be unbundled (Rejikumar, 2004; Godbole, 2003).
Bhattacharyya (2005) was apprehensive that some states that have
Status of implementation of progress of reforms under Electricity Act

good centre state relationship might delay the restructuring procedure.

4.1.3. Reform measures

Some of the authors are sceptical of India fulfilling its power sector
goals. Reineberg (2006) highlights the investment that would be
required for the “Giant Goals” which might be difficult after the
Enron debacle while Bhattacharyya (2005) questions the ability of
the Act to transform the Indian Power Sector. Thakur et al (2005)
suggests fixing up a timeframe and adhering to a strict timetable for the
success of policy initiatives.
The authors agree that the EA 2003 has the potential for bringing
about sweeping reforms in the electricity sector of India (Godbole,
2003) leading to “deepening of reforms” (Singh, 2010) and a “phase
shift in the reform process”. They feel that the Act would provide the
essential impetus to the distribution sector (Singh, 2006).
Some of the authors emphasise the need for political stability for
Table 2 (continued)

reform characterised by privatisation as well as locally acceptable

Title

2003

solutions rather than the imported ones (Bhattacharyya, 2007). They

also bring forth the fact that it was the allurement of external sources of
finance like World Bank, Asian Development Bank etc. that were
Sl No

19

causing the reforms rather than the conviction that reforming would
improve the sector (Godbole, 2003).

242
S. Mukherjee et al.
Apart from a few loopholes and challenges, they agree that the EA
2003 has the potential to reform the Indian Power Sector.
4.1.4. Renewable energy
The authors review that the Act lays special emphasis on promotion
of renewable sources of energy and assigns the responsibility to the
respective SERCs (Singh and Sood, 2011). They also highlight the fact
that the Act envisages a National Policy with distributed generation for
rural electrification and no license would be required for generation
and distribution in rural areas which would give a boost to Renewable
Energy (Thakur et al., 2005).
4.1.5. Generation
The authors remark that delicensing of generation (except hydro-
electric projects) would reduce the administrative hurdles for the
potential investors (Sharma et al., 2013; Singh, 2006; Thakur et al.,
2005) which would in turn be beneficial for the generation segment.
The authors find that the Act has eased the entry barriers for
Captive Power Plants (Thakur et al., 2005) and has been defined quite
liberally (Ranganathan, 2004). Even the industries have responded
quite positively to it (Ranganathan, 2004). They also find that it might
reduce the energy shortage and create a bulk market thereby increasing
competition (Joshi, 2004; Joseph, 2010; Bhattacharyya, 2005).
But these advantages are accompanied by some challenges and
loopholes. The author (Bhattacharyya, 2005) anticipates that the bias
of the Act towards captive power generation over IPPs might have
adverse repercussions on the stability of the grid. Suitable regulations
by the SERCs would be required for supporting captive power plants
(Joshi, 2004). Moreover, states like Karnataka have levied taxes on it
neutralizing the advantage for the industries (Ranganathan, 2004). The
author (Godbole, 2003) states that 16 states levied State Electricity
Duty (SED) but is apprehensive of more states charging the same or
increasing the rates in the prevalent states for captive or other private
power generators which would hinder the very purpose of liberalizing
captive power plants.
The Act, thus, promotes Captive Power Plants but needs to fill up a
few loopholes to achieve the goal. Delicensing has also been a welcome
step in generation.
4.1.6. Transmission
The Act, according to the reviews, brought clarity into the operation
and management as the transmission activities have been separated
from trading activities. The author appreciates the measure that a
separate Government company would act as the system operator
(Bhattacharyya, 2005).
The challenges and loopholes in the transmission segment have
been highlighted by few of the authors. The transmission grids need to
be expanded and upgraded to enable the concepts of open access,
power trading and wheeling (Joshi, 2004). One of the major objectives
of the Act was to introduce competition which is being hindered due to
transmission congestion, which in turn, can give rise to localized
market power by creating isolated geographic markets, distorting
competition. It might adversely affect the grid discipline also (Shukla
and Thampy, 2011; Singh, 2006; Singh, 2010). Bhattacharyya (2005)
and Thakur et al (2005) focuses on the need for capacity addition in the
transmission sector while one of the authors (Singh, 2010) suggest
tradable transmission rights in order to alleviate transmission conges-
tion.
The author warns of inefficient use of the transmission and
distribution infrastructure due to isolated networks of the captive
operators (Bhattacharyya, 2005). Also, the standard definitions of loss
percentages need to be defined by the Act to prevent its misuse or
manipulation. The figures of T & D loss reduction can be easily fudged
otherwise (Ranganathan, 2004). Singh (2010) suggests changing the
transmission pricing from regional postage stamp method to a pricing
regime based on nodal or zonal pricing scheme which would provide
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Energy Policy 102 (2017) 237–248
correct economic signals and help in developing the power market in
the country and relieve congestion.
The authors highlight loopholes like computation of loss percen-
tages and suggest steps to be taken to alleviate transmission bottle-
necks.
4.1.7. Open Access
Vadra (2012) opines that non-discriminatory open access would be
required for the creation of power market. Some of the authors have a
view that open access would help captive generators wherein the
generating stations can be built at substantial distances for the point
of intended use, even in another state (Joshi, 2004) and enable
optimum utilization of the under-utilized captive generation capacity
(Singh, 2010).
While Singh (2006) anticipates an increase in tariff, Thakur et al
(2005) foresees a reduction in the price of electricity, after an initial
upsurge, but more than a decade would be required for it.
The other reviewers predict that implementation of open access
would be tough and no time frame has been specified by the Act for
allowing the same (Thakur et al., 2005). Open access can be successful
only if transparency is ensured in trading of power (Rejikumar, 2004).
Moreover, introduction of open access might be politically postponed
being left to the SERCs (Ranganathan, 2004).
The biggest hurdle, according to the papers reviewed, in the
successful implementation of open access is the cross subsidy sur-
charge which hinders the very purpose of open access- promoting
competition (Sankar, 2004; Rejikumar, 2004; Ranganathan, 2004). HT
consumer desirous of availing open access will have to pay the cross
subsidy surcharge even if he is not using the state network (Sankar,
2004). Moreover, cross subsidy surcharge has to be paid by subsidizing
as well as subsidized consumers. This rationale that subsidized
consumers would not opt out cannot be warranted as they might do
so because of other factors like quality, etc (Ranganathan, 2004). The
nuances like the component of transmission charge, whether it should
be based on average cost, marginal cost or congestion cost should be
properly ruled out for successful implementation of open access as
changing these variables will significantly change the ‘surcharge’ but
the Act does not specify as to how the ‘surcharge’ would be determined
(Sankar, 2004) (Ranganathan, 2004).
Most of the authors agree that open access is crucial for competition
in the sector but there are numerous obstacles in its successful
implementation.
4.1.8. Distribution
The improvement in the distribution segment of the power sector is
crucial to the long term and sustained growth of the power sector
(Singh, 2006). The Act provides a positive environment to the
distribution sector which would increase competition in the medium
to long term and would reach a stage where discoms would have to
devise strategies to retain customers (Thakur et al., 2005).
One of the authors (Joseph, 2010) highlight the scenario that power
tariff remains unchanged, hardly any meters have been installed and
power theft continues to plague the sector.
The authors agree that multiple distribution licensees would be
necessary in the long run in order to promote competition but
implementing it in the current conditions might adversely affect the
privatisation initiatives (Godbole, 2003; Bhattacharyya, 2005). It could
give rise to the problem of ‘cherry-picking’ wherein the distribution
licensees would choose the high paying industrial customers over the
others adversely affecting the cross subsidy balance. It should be
resolved by the national tariff policy so that no licensee can take undue
advantage of the provision (Sankar, 2004).
Segregation of distribution and supply would be necessary although
the Act does not have provisions for the same (Bhattacharyya, 2005).
The possibility of relaxation in metering for specific areas or specific
class of consumers might defeat the purpose of mandatory metering.
S. Mukherjee et al.
The author suggests the use of pre-paid meters (Bhattacharyya, 2005).
Bhattacharya (2005) states that the procedure for supply discon-
nection (for default in payment) has been made simpler in the Act. This
would benefit the power utilities and prevent further revenue losses of
the discoms.
Distribution is the weakest link in the power sector and as per the
reviews lot of effort would be required to remove the maladies and
progress.
4.1.9. Consumer Protection
The Act lays special emphasis on protecting the consumers through
various provisions and the authors are positive in their reviews.
The authors (Thakur et al., 2005) expect improvement in customer
services due to the increase in competition. Shah (2007) highlights the
right of the consumer to approach other adjudicating authorities apart
from ERCs according to Section 42(8) of the Act.
4.1.10. Tariff
Resolution of the issues related to tariff is vital for the ailing power
sector of India. Bhattacharyya (2005) is sceptical because similar tariff
guidelines existed before the enactment of EA 2003 but were not
successful in increasing the financial viability of the sector while
Thakur et al (2005) is hopeful that cessation of SEBS would lead to
market determined tariff structure. Joshi (2004) suggests devising a
suitable mechanism which would be viable, both politically as well as
economically.
There are various schools of thought regarding cross subsidy. Some
authors such as Godbole (2003) highlight the fact that agricultural
subsidies are prevalent in USA and some other developed countries
while the World Bank insists on eliminating it in India. Sankar (2004)
also feels that the poor consumers can be spared from this ‘tariff-shock’
and suggests a mechanism for the same. Contrastingly, Bhattacharyya
(2007) opines that free electricity to farmers does more harm than
good. Hence, a solution should be provided for low ROI and risk
protection mechanisms devised for the farmers.
Rationalisation of electricity tariff is one of the core objectives of the
EA 2003. Reducing the level of cross subsidy would help in rationalisa-
tion of tariff. This would increase the tariff for the subsidized
consumers which in turn would keep the demand for electricity in
check. But it might also result in excess generation capacity in some
areas (Bhattacharyya, 2005).
The amount of cross subsidy has also been declining over the years,
from 41.7% in 1992-93 to 16.7% in 2000-01. The exodus of the
commercial and industrial consumers will put the burden of subsidy on
the state exchequer. It is also not clear how long would the state
government share the load of risks and subsidies as the Act does not lay
down a definite timeframe for abolition of cross subsidies (Godbole,
2003) (Thakur et al., 2005).
Some authors have suggested solution to the problem.
Ranganathan and Rao (2004) suggest cost-of-service based rates that
would help in eliminating subsidies and generation capacities allocated
by contract to consumer segments would improve the financial viability
of the SEBs. They found that power priced at average cost of provision
would not be viable for farmers. The cost-of-service based rates of
power supplied to the farmers wouldn’t be as high as the average
consumer because of the supply at off peak periods. Thus, uninter-
rupted power would ultimately reduce the cost of supply. Joshi (2004)
suggests small scale captive power plants in order to reduce the burden
of agricultural sector on the distribution entities.
The other loopholes and challenges, with regard to cross subsidy,
have been itemized by other authors. Cross subsidy, not being defined
in the Act, might create confusion in cross subsidy surcharge and thus,
should be defined in the national tariff policy (Bajaj, 2004; Singh,
2006). The promotion of rural electrification, liberalization of captive
power plants and the mission of electricity for all by 2012 would
further aggravate the problem (Bhattacharyya, 2007).
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Energy Policy 102 (2017) 237–248
4.1.11. Competition
It was the EA 2003 that brought competition to the forefront and
“ushered in a competitive era” through open access, multiple licensees
and various other provisions (Shukla and Thampy, 2011; Singh, 2010,
2006). CERC, constituted by the EA 2003, provided the regulatory
framework for Open Access, Indian Electricity Grid Code, Availability
Based Tariff and Power Exchanges which are essential for imbibing
competition (Shukla and Thampy, 2011). The single buyer model has
been done away with, providing the generators with an option to sell
their power to multiple buyers. It also set the stage for opening up of a
power exchange increasing competition further (Singh, 2010).
The author warns of the pitfalls in the competitive bidding process
which might make it counterproductive resulting in a scenario worse
than cost plus regime. The cross subsidy surcharge and additional
surcharge would keep distorting competition until they are eliminated
(Singh, 2010).
The authors bring to light the loopholes in the Act. They say that the
Act provides for retail competition but does not provide any timeline
for the same (Bhattacharyya, 2005). Also, it does not provide for the
creation a liquid spot market for power although it does not prevent the
creation of the same (Bhattacharyya, 2005; Ranganathan, 2004).
4.1.12. Financial aspects
Most of the authors are quite hopeful on the positive impact of the
Act on the financial aspects. Thakur et al (2005) expects huge
investments and Singh (2006) expects the financial condition of the
power sector to improve with gradual reduction in the cross-subsidy
and increase in the operational and commercial efficiency. Sankar
(2004) says that investment in the generation and distribution sector
are likely. Joshi (2004) suggests tailor-made financial instruments for
financing the electricity sector along with suitable financial and
commodities regulator. Sankar (2004) assures that delicensing of
generation will not hinder future investments in the generation sector
but provide a strong basis for new investments.
The reviewer also states that a balance between commercial goals
and social obligations would be difficult but essential (Singh, 2006).
4.1.13. CEA
The highly controversial Enron power project raised a question on
the independence of CEA, which is still an advisor to the Government,
CERC and SERCs. The author is suspicious of the decisions pro-
nounced by the Authority (Godbole, 2003).
4.1.14. Electricity Regulatory Commissions (ERCs)
The ERCs have been said to be the pillars for the power sector
reform as envisaged by the EA 2003 (Shah, 2007). The manner, in
which the Act would be implemented, according to Joshi (2004), will
depend on the regulations framed by CERC and SERCs.
The ERCs were formed to distance the Government from regulatory
functions but the facts, as stated by the authors, say otherwise. The
authors say that the selection process is highly bureaucratic and non-
transparent, being prone to political influences. Moreover, the policies
and regulations need to align with the directives of the Government
which might prove as a hindrance to the main purpose of distancing the
two entities (Bhattacharyya, 2005; Sankar, 2004). Thakur et al (2005)
states “the Act makes electricity regulators subservient to the govern-
ments that appoints, renews their term, making them vulnerable to
political pressures” and hopes that they would be regulated by an
independent forum. Bhattacharyya (2005) opines that fund mechanism
should not hinder the financial independence of the state commissions.
The issues between the Govt and ERCs are unresolved even after
the Act (Bajaj, 2004; Ranganathan and Rao, 2004; Shah, 2007). The
Act surprisingly says that the Govt. can give policy directives to the
Commissions in matters of tariff determination that might jeopardize
the very purpose of it (Ranganathan, 2004). Moreover, no time frame
has been specified for the transfer of functions from the Government to
S. Mukherjee et al.
the regulators (Thakur et al., 2005).
Shah (2007) states that the commission needs specific guidelines.
The jurisdiction of ERCs are not clear in the Act. The SERCs are
required to follow some guidelines made by CERC which could restrict
the autonomy of the former.
Godbole (2003) states that political approvals have more risk of
being disowned than regulatory contracts. Regulatory Contract ap-
proach may have serious consequences and thus, should be adapted to
Indian conditions (Godbole, 2003).
Bajaj (2004) suggests a consumer body to balance the forces
between utilities and consumers in the regulatory arena and conduct
a Regulatory Impact Analysis (RIA) to filter out regulations that have
more cost than benefits. Moreover, rather than pronouncing judge-
ments as in adversarial position as in courts, a consultative process
would be better.
4.1.15. Rural Electrification and Rural markets
Electrifying the rural areas has been one of the prime considera-
tions of the EA 2003. The authors foresee that the rural electrification
programme would be expedited as the Appropriate Government would
be obliged to do so by the Act (Thakur et al., 2005).
The Act says that one does not require license to generate and
supply power in specific rural areas but market structure is not
specified for the same. It would probably benefit the rural population,
encourage innovative arrangements and promote decentralized gen-
eration but some issues like consumer protection against monopoly of
suppliers and poor quality of power remain unanswered in such
context (Bhattacharyya, 2007, 2005).
4.1.16. Electricity Theft
Theft of electricity has been a major concern causing revenue losses.
Joshi (2004) says that political will would be required to enforce the
penal provisions in the Act. Another author reviews that the provisions
regarding electricity theft are stricter than the previous Acts but does
not provide protection to the consumer in case of its misuse by
suppliers or licensees. Moreover, the transaction cost of appealing in
the Appellate Tribunal is too high (Bhattacharyya, 2005).
Some of the authors also highlight the fact that the two categories
‘dishonest use’ and ‘unauthorized use’ have not been distinguished
clearly and are left at the discretion of the assessing officer
(Bhattacharyya, 2005) (Rejikumar, 2004).
4.1.17. Power Market
Power market is a necessary component for increasing competition.
Some authors opine that delicensing of generation, non-discriminatory
open access, giving trading a distinct identity, constituting ERCs and
multiple licensees would help in developing the power market and
create a competitive environment in the sector (Singh, 2006; Shukla
and Thampy, 2011; Thakur et al., 2005) while some say that open
access and pricing rules for the state transmission systems are the
actual enablers for open trading environment (Ranganathan and Rao,
2004). Consumers would have choice of supplier and reliable supply at
a competitive tariff. It would change the present single-buyer model to
multi-buyer model (Thakur et al., 2005), promoting bulk power market
and allowing large consumers to choose their suppliers (Singh, 2010).
Bhattacharyya (2005) states that recognizing trading as a separate
activity is a step in the right direction but functions of traders have not
been described explicitly. The author expects minimum licensing
requirements, for traders, being a potentially competitive activity and
anticipates that PTC would remain a dominant player adversely
affecting competition in the segment.
The papers also highlight that spot markets can lead to price
increases and volatility due to scarcity of supply (Ranganathan and
Rao, 2004). The Act does not address these issues or have mechanisms
to prevent the same (Thakur et al., 2005). It would hinder competition
(Shukla and Thampy, 2011). So, according to Ranganathan and Rao
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Energy Policy 102 (2017) 237–248
(2004) bilateral trade with open access would be a better option. They
expect low liquidity in the market till the migration of prevailing
contracts to the market which would help in generating negawatts. The
authors suggest increasing the transmission capacity, divestiture of
generating facilities, fixing the maximum price and reducing the
shortage of electricity generation (Shukla and Thampy, 2011).
Reducing the license period of 25 years for inducing flexibility and
liquidity of the power trading market and promoting long term
contracts is also suggested (Rejikumar, 2004; Bhattacharyya, 2005).
Singh (2006) says that liquidity and efficiency along with a complete set
of products would be necessary for a competitive power market in
India.
4.1.18. Environmental concerns
The Act recognizes environmental concerns as one of its objectives
but does not specify the policy directives for it. The authors are afraid
that it might take a backseat and be dependent on individual regulators
for taking appropriate steps (Thakur et al., 2005).
4.2. Category B: Impact of the Act
The number of papers, in this category, is extremely few which
show that very few authors have studied the actual impact of the Act.
Even amongst them, only prominent topics such as renewable energy,
competition and the likes have been researched upon (Shukla and
Thampy, 2011; Singh, 2010). Although none of the papers study the
complete impact of the Act, a World Bank Report and a CEA Report
presents the information to some extent (Central Electricity Authority,
2014; Pargal and Banerjee, 2014).
4.2.1. Renewable sources of generation
The authors bring to light that SERCs have devised various schemes
and policies in order to promote renewable energy. One of them is
Renewable Portfolio Standards (RPS/RPO) mandating each state to
generate/ procure a percentage of its electricity from renewable
sources. The author highlights that more than 17 states have an-
nounced the policies for attracting private sector investment for
renewable sources. The policies for wind power development have
been declared by the ERCs of Andhra Pradesh, Madhya Pradesh,
Karnataka and Maharashtra (Singh and Sood, 2011).
Although, the initial set up of manufacturing base alongwith
infrastructure has been created, commercial demand for these tech-
nologies is still low (Singh and Sood, 2011).
According to these reviews, steps are being taken to promote
renewable energy but not at a great pace.
4.2.2. Subsidy issues
The EA 2003, according to Bhattacharyya (2007), tightened the
provision for subsidies but the re-introduction of free power for
agriculture in some states like Andhra Pradesh, Maharashtra, Tamil
Nadu and Haryana deteriorated the situation 2004 onwards. Singh
(2010) says that Cross Subsidy Surcharge and Additional Surcharge
distort competition. Therefore, subsidy issues are still prevalent after
the implementation of the Act.
4.2.3. Distribution
The author states that distribution reforms would not yield proper
results, even with increase in tariff, unless strict actions are taken to
curb theft and all categories of consumers are metered. He posits that
theft of power is also disguised as subsidized power which cannot be
verified in the absence of meters (Joseph, 2010). A World Bank Report
specifies the need for improvement in the distribution sector with
regard to finances, rising gap between cost and revenue, issue of
subsidies etc. It also says that Government’s role should be limited
while regulator’s role should be increased. It suggests increasing
competition that would in turn, increase the efficiencies of the utilities
S. Mukherjee et al. Energy Policy 102 (2017) 237–248

(Pargal and Banerjee, 2014). Mukherjee et al. (2016) reviews the Act based on the Core
In essence, the Act has not been able to improve the distribution Indicators for electricity sector reform in developing countries but
sector to an extent it was expected to. comprises of “Sector Endowments and Characteristics” and “Key
Reform Steps” only.
4.2.4. Trading
Trading has received special emphasis with the EA 2003. Quite a 4.2.8. Competition
few players have entered the traders market and according to Singh One of the prime agenda of the Act has been to introduce
(2010), CERC had issued 19 inter-state trading licences and fixed the competition in the sector. Singh (2010) says that competitive bidding
margin for trading power. In spite of such huge efforts, between Aug of inter-state generation projects and short term competitive procure-
2008 and Oct 2009, a meagre 7.8% of the total power generated was ment of power is being carried out but the absence of foreign investors
traded out of which 0.7% was through power exchanges garnering 8.5% from these bidding processes (except as equipment manufacturers) is a
of the power market (51.5% Bilateral Transactions and 40% UI). The matter of concern. The author further illustrates that only states like
growth of power trading is being hindered by lack of generation margin Gujarat have been able to choose their suppliers through open access
and number of operational and regulatory concerns like shortage of while states like Tamil Nadu, West Bengal and Orissa, have kept the
transmission capacity, open access regulations and liquidity concerns open access charges unreasonably high which proves to be a major
(Singh, 2010). obstacle.
According to Shukla and Thampy (2011), the power exchanges
could neither decrease the price of electricity nor its volatility. The
5. RQ: What is the status of review of the Electricity Act
weighted average price of electricity increased more than three times
2003?
between 2004‐05 to 2008‐09 and the upper ceiling of UI (Unscheduled
Interchange) by more than two times between 2001 and 2009.
A systematic review and thorough study of the selected papers show
Singh (2010) animadverts that regulatory framework did not favour
that none of these give a complete review of the actual impact of the
the short term transactions of electricity. Priority of transmission rights
Act. In spite of extensive search and review, the researcher does not
follows the order- existing long-term contracts, long-term open access
find the status of the landmark Act. Some of them give the likely impact
contracts and then the short-term open access contracts according to
on various segments of the power sector while some review a certain
the orders issued by ERCs. Congestion charge of Rs 3/kWh had to be
segment only, such as competition or renewable generation. Most of
paid because of the congestion in the inter-regional transmission links
the papers had to be grouped in category A which comprises of the
of Northern and Eastern region as imposed by CERC.
papers reviewing the probable impact of the Act on the Power Sector.
The papers in Category B review the actual impact but do not give a
4.2.5. Open Access
comprehensive review. The review comprises of a part only, such as,
Open access is an essential component of the EA 2003. The SERCs
renewable policies or competition. Few of them like Pargal and
have issued regulations for phased open access in the distribution
Banerjee (2014) and CEA (2014) gives the status to some extent but
network in their respective states depending on the size of the load. But
none of them give a comprehensive one, encompassing all the
quite a few states have kept the cross subsidy surcharge very high
objectives of the Act. The former review is with respect to the initial
which adversely affects open access (Singh, 2010).
reforms commencing 1991 and focuses on distribution while the latter
covers a part of the objectives of the Act.
4.2.6. Electricity Regulatory Commissions
Therefore, we can say that the literature is insufficient to answer
Bajaj (2004) says that the two positive effects of regulatory
this question and needs further studies.
commissions has been transparency and consumer awareness while
Joseph (2010) opines that most of the regulatory agencies are
ineffective. Measures have to be undertaken in order to achieve the 6. Glimpse of present scenario of power sector
goal for which these commissions were established.
The author brings forth various cases where the ERCs, as estab- Table 3 gives a glimpse of the present scenario of the power sector
lished by the Act, have pronounced decisions beyond its jurisdictional
boundaries (Shah, 2007). So, the jurisdictional boundary of the ERCs Table 3
Technical and financial parameters for indian power sector.
needs to be explicitly defined in order to prevent such cases in future. Sources: (Ministry of Power, 2016; Power Finance Corporation Ltd, 2015; Power Finance
Corporation Ltd, 2016).
4.2.7. Reform measures
The reform has been termed as ‘‘Partial Reform” by Joseph (2010), Parameters Present Status
creating a competitive electricity market along with a state run Installed Capacity 288664.97 MW (as on 29th Feb 2016)
segment. State utilities could not finance the necessary infrastructural Generation 1102 BU (2015–16)
improvements adversely affecting the quality of power which is of a Energy Deficit 2.1% (2015–16)
prime concern for the industrial consumers. These consumers are Peak Deficit 3.2% (2015–16)
Per Capita Consumption 1010a (2014–15)
compelled to set up captive power plants because of inconsistent and
T & D Losses 21.46% (2013–14)
unreliable power supply, rather than the price of electricity. It could be AT & C Losses 22.58% (2013–14)
termed as a dual track economy which protected the interests of the PLF of Thermal Power Stations 64.5% (2014–15)
industrial as well as the agricultural consumers. It created a competi- Rural Electrification 579012 (96.91%) (as on 1st Apr 2015)
tive market for power but did not jeopardize the vote bank of the Book Losses (Accrual Basis) Rs 63,355 (2014–15)
Losses (Accrual Basis) as %age of 15.9% (2014–15)
politicians. Such partial reforms and subsidy issues prevail even after Revenue
the enactment of the Act preventing the improvement in quality of Outstanding Loans of Utilities Rs 6,73,057 crore (as on 31st Mar
power (Joseph, 2010). 2015)
CEA (2014) compiles the status of few of the steps as envisioned in Net Worth of Power Utilities Rs 2,43,023 crore (as on 31st Mar
2015)
the EA 2003 like unbundling of SEBs, setting up of Consumer
Average Cost of Supply (ACS) Rs 5.20/kWh (2014–15)
Grievance Redressal Forum, appointment of Ombudsman etc state Gap on Subsidy Received Basis Rs 0.60/ kWh (2014–15)
wise but it neither covers all the objectives of the Act nor does it give a
a
comprehensive picture. Provisional.

246
S. Mukherjee et al.
expatiating Key Financial & Technical Parameters. While the installed
capacity, power supply scenario & Rural Electrification registers
significant growth, the technical parameters such as T & D
(Transmission & Distribution) losses & PLF (Plant Load Factor)
show little progress. The energy deficit and peak deficit respectively,
has reduced from 7.1% and 11.2% in 2003-04 to 2.1% and 3.2% in
2015–16 (Ministry of Power, 2004a, 2004b; Ministry of Power, 2016).
Per capita consumption has almost doubled but lags far behind the
world average necessitating further effort in this regard. The financial
parameters are also not very encouraging either. But electricity is one
of the three sectors which has contributed to the recovery of the
industrial sector in 2014-15 (April- Dec) (KPMG , 2015).
Competition has, undoubtedly, received a boost as intended by the
Act. Generation, which had increased from 1362 MW in 1947 to
126238.98 MW in 2003-04 increased significantly to 288664.97 in
2015-16 (Ministry of Power, 2016; Ministry of Power, 2015).
Delicensing of generation (except Hydro power plants) has removed
the barrier for entry of firms into generation which has yielded good
results. During the period from 2006‐07 to 2015‐16, share of state
sector in the total installed generation capacity declined from 56% to
34% and share of central sector has declined from 32–25%, while share
of private sector increased from 13% to 41%. However, the public
sector continues to be the largest owner, holding 59% share in 2015–
16 (CERC, 2016). Transmission Sector as on 31st Mar 2016 has 21
licensees (CERC, 2016) while the count of Discoms is 36 including 14
Private ones (Central Electricity Authority, Power for All Monitoring
Division, 2016). The Act has, thus, been able to attract private
investment considerably in generation and to some extent in distribu-
tion while transmission is mainly with the public sector. Tariff based
competitive bidding and automatic approval with 100% FDI in gen-
eration, transmission, distribution & trading has further enhanced
competition (Ministry of Power, 2016).
The growth in revenue from sale of energy in the state power sector
increased from Rs 1,38,508 cr in 2007-08 to Rs 3,29,278 crores in
2013-14 (Power Finance Corporation Ltd, 2015; Power Finance
Corporation Ltd, 2010). As of now, there are two power exchanges
(IEX and PXIL), 40 Inter-state Trading Licensees (as in March 2016),
short term power trading increased by 75% from 65.90 BU in 2009-10
to 115.23 BU in 2015-16, presently 10% of total electricity generated
which was 2.16% in 2004-05 is traded short term at competitive prices.
Giving a distinct identity to power trading has further increased
competition. The weighted average price of electricity transacted
through traders and power exchanges respectively declined from Rs
7.29/kWh and Rs 7.49/kWh in 2008-09 to Rs 4.11/kWh and Rs 2.72/
kWh respectively in 2015–16 (CERC, 2016).
CERC has formulated Indian Electricity Grid Code (IEGC) and
Deviation Settlement Regulations, amending it from time to time, in
order to maintain grid discipline. The permissible frequency range has
been tightened from 49.0 - 50.5 Hz in 2003 to 49.70 - 50.10 Hz in 2016
(as in July 2016) . The maximum & minimum frequency in 2015-16
was 50.32 and 49.64 Hz respectively with the average being 49.98 Hz.
POSOCO, the Central Transmission Utility of India, has deployed Wide
Area Measurement Systems (WAMS) through synchro phasor technol-
ogy since May 2010 to monitor the small signal oscillations in order to
further the cause of grid stability (Power System Operation Corporation
Ltd, 2016). One of the largest synchronous grids suffered blackouts in
2012 but natural disasters such as earthquake in Nepal region in April
2015, Hindu Kush region in October 2015 and North Eastern part of
India in January 2016 have not seen any such adverse effect on the
grid. National Power Committee (NPC) has also been established to
address issues related to security & reliability of the Grid (Ministry of
Power, 2013). We are yet to have a highly stable grid but the stability
has improved over the years and is expected to improve further with
the efforts being put in.
Consumer Protection has been emphasised in the EA 2003.
Accordingly, the Distribution Licensee would have to pay penalty or
247
Energy Policy 102 (2017) 237–248
face legal actions if it does not provide connection within a month of
application or fails to meet the required standards as prescribed by the
Act or ERCs. The Act formalizes the procedure for grievances redressal
mechanism of the consumer/s through Consumer Grievance Redressal
Forum constituted by the Distribution Licensee. In case of non-
redressal of the grievance/ dispute, the consumer may approach the
Ombudsman (appointed by SERCs). Other provisions such as payment
of interest on security deposit etc. have also been provided to safeguard
the interest of consumers (The Electricity Act, 2003). Appellate
Tribunal (Aptel) has been constituted, with circuit benches in Delhi,
Kolkata, Mumbai and Chennai, according to the Act, to hear appeals
against the orders of the CERC/ SERCs (Ministry of Power, 2004a,
2004b; Ministry of Power, 2012). As on 30th Nov 2015, Aptel has
disposed-off 6149 out of 7002 appeals/ petitions/ matters etc (Ministry
of Power, 2016). The initiatives, as well as the results, on consumer
protection front are thus significant.
The amount of cross subsidy given to domestic and agricultural
sector has increased from Rs 40,362 crore in 2001-02 (AP) to Rs
1,07,437 crore in 2013-14 (AP) while the cross subsidy received from
subsidizing sectors has increased from Rs 5743.55 crore in 2001-02
(AP) to Rs 27,427 crore in 2013–14 (AP). The ratio of Average Billing
Rate (ABR) to Average Cost of Supply (ACoS), as calculated by most
SERCs, increased from 67.79% in 2001-02(AP) to 80.26% in 2011-12
(Actual) and 88.43% in 2013-14 (AP) for Domestic and Agricultural
consumers (PricewaterhouseCoopers Private Ltd., 2015; Planning
Commission, Power and Energy Division, 2002; Planning
Commission, Power and Energy Division, 2014). The Act and the
Policies suggest it to lie within ± 20% of the ACoS, and gradually reflect
Cost of Supply (CoS) rather than ACoS. Thus, we find that, although the
amount of cross subsidy has increased, the percentage of ABR to ACoS
reflect that it is decreasing over the years moving towards a cost
reflective price and tariff rationalisation.
The new regime of governance has initiated some path-breaking
initiatives in power, coal and renewable energy segments. "Presently,
under 'one nation, one grid, one frequency', the Available Transfer
Capacity (ATC) of southern Indian states such as Andhra Pradesh,
Karnataka, Kerala, Tamil Nadu, Telangana and Puducherry has
increased by 71% to 5900 MW from 3450 MW in 2013–14. The price
of power in the southern region, which used to be as high as Rs 16-Rs
18 a unit, is not more than Rs 4–5 now. Usually, power is available
under Rs 3/kWh and with the launch of Vidyut Pravah, energy deficit
& peak deficit have touched the lowest level ever. The Financial
Restructuring Scheme for DISCOMs—UDAY (Ujwal DISCOM
Assurance Yojana) intends to turnaround the ailing distribution
companies for which bonds of Rs 1Lakh crore have already been
issued. State Specific Action Plans for “24×7 Power For All” states and
union territories is also being considered. Coal production has in-
creased by 7.4cr tonnes & all power plants had more than 25 days coal
stock (as on 26 April 2016) which had earlier reduced to 7 days or less
for as many as two third of the coal based thermal power plants. Apart
from conventional sources, largest ever wind capacity addition of
3,300 MW (2015-16) has been established while solar has increased
by 157% since 2014. 11, 209 MW of solar projects have been awarded
while 32 solar parks 19,400 MW have been sanctioned in 20 states. Rs
38000 cr Green Energy Corridor is being set up to evacuate renewable
energy. Rural Electrification is also being carried out in full swing,
electrifying 7108 villages in 2015-16 and a target to electrify the
remaining 18,452 by 2019 in order to achieve complete electrification
of all rural villages and hamlets (K, 2016; Airy, Energy Infra Post,
2016; Airy, Business Insider, 2016).
If we try to ascertain the success of the Act on the systemic
configuration, rather than the variables impacting the Act, we find
that the centre & state have come together on various aspects such as
UDAY (wherein 18 states and 1 union territory already signed
agreements or have agreed to join) and State Specific Action Plans
for 24×7 ‘Power For All’ schemes (already signed with 19 states and
S. Mukherjee et al.
union territories) (Airy, Energy Infra Post, 2016).
The Electricity Amendment Bill 2014 proposes to segregate the
‘carriage’ and ‘content’ of the distribution segment of power sector
which would eliminate the chances of inefficient use of T & D networks
as warned by some authors. At present, no such evidence of inefficient
use is available as there are only three cases of multiple licensees in
India (Mumbai, Noida & New Delhi) (Singh, 2016). Moreover,
wheeling of electricity, in practice, would also prevent such occur-
rences.
7. Conclusion
EA 2003 was a landmark Act affecting every segment of the power
sector. Each and every reviewed paper acknowledges this fact. In spite
of having such a massive scope and being an Act which promised a
paradigm shift in the Indian Power Sector, there are very few papers
which review it. An extensive search could only find 19 documents,
including research articles, reports and round table proceedings.
Even these documents were insufficient to comprehensively review
the Act as most of them discussed the probable impact and not the
actual one. The remaining ones, which empirically analysed the impact
of the Act, were on a specific segment such as competition or renewable
energy. Hence, we do not find the status of all the objectives of the Act.
Moreover, most of these have been published by 2006 and thus, do not
study the impact of the Act after a considerable period of time.
Amendments to the Act are due to be approved in the legislative
bodies but we do not have any comprehensive account as to the actual
status of the Act, i. e., to what extent the Act has been successful in its
endeavour, that is based on empirical data or some indicators for the
specific purpose. A comprehensive review, so as to know the status of
the landmark Act, needs further research and can be a further scope of
study.
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