Electricity Act 2003

Some Important Features

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Table of Contents 1. Background ................................................................................................................. 2

1.1 The Indian Electricity Act, 1910 ............................................................................. 2

1.2 The Electricity (Supply) Act, 1948 .......................................................................... 2

1.3 The Electricity Regulatory Commissions Act, 1998 ............................................... 3

2. Electricity Act 2003 ...................................................................................................... 3

2.1 Need for EA 2003 .................................................................................................. 3

3. Role of Government .................................................................................................... 4

4. Rural Electrification ..................................................................................................... 4

5. Generation .................................................................................................................. 4

6. Transmission ............................................................................................................... 5

7. Distribution .................................................................................................................. 6

8. Consumer Protection ................................................................................................... 6

9. Trading / Market Development .................................................................................... 7

10. Regulatory Commission / Appellate Tribunal ............................................................ 8

11. Tariff Principles.......................................................................................................... 8

12. CEA (Central Electricity Authority) ............................................................................. 9

13. Measures against Theft of Electricity ......................................................................... 9

14. Restructuring of SEBs ............................................................................................. 10

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The Electricity Act 2003 came into force on 10 June, 2003. It consists of 185 sections.

On 30 December, 2003, the Act was amended. The Electricity (Amendment) Act 2003

came into force on 27 January, 2004. The Act was again amended on 28 May, 2007

and came into force on 15 June, 2007.

1. Background Before Electricity Act, 2003 came into force; there were three main erstwhile Acts that

regulated the electricity sector in India.

1. The Indian Electricity Act, 1910

2. The Electricity (Supply) Act, 1948

3. The Electricity Regulatory Commissions Act, 1998

1.1 The Indian Electricity Act, 1910

The Indian Electricity Act of 1910 provided basic framework for electric supply industry

in India. It emphasized on the growth of the sector through private licensees. Licenses

were issued by the State Governments. The provision for license was for supply of

electricity in a specified area. The act also laid legal framework for lying down of wires

and other works. Additionally, there were provisions laying down relationship between

licensee and consumer.

1.2 The Electricity (Supply) Act, 1948

The Electricity (Supply) Act of 1948 mandated creation of State Electricity Boards. At

that time, there was need for the States to step in (through SEBs) to extend

electrification all across the country.

Main amendments to the existing Acts were:

- Amendment in 1975 to enable generation in the Central sector

- Amendment to bring in commercial viability in the functioning of SEBs

- Section 59 was amended to make the earning of a minimum return of 3% on

fixed assets a statutory requirement (with effect from 1 April, 1985)

- Amendment in 1991 to open generation to private sector and establishment of

RLDCs

- Amendment in 1998 to provide for private sector participation in transmission,

and also provision relating to the Transmission Utilities.

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1.3 The Electricity Regulatory Commissions Act, 1998

The Electricity Regulatory Commissions Act of 1988 provided provision for setting up of

Central and State Electricity Regulatory Commissions with powers to determine tariffs.

Constitution of SERC was optional for the States. The government distanced itself from

tariff determination.

2. Electricity Act 2003 Electricity Act 2003 is 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, promoting competition

therein, protecting interest of consumers and supply of electricity to all areas,

rationalization of electricity tariff, ensuring transparent policies regarding subsidies,

promotion of efficient and environmentally benign policies constitution of Central

Electricity Authority, Regulatory Commissions and establishment of Appellate Tribunal.

2.1 Need for EA 2003

The Electricity Act 2003 was required to harmonize and rationalize the provisions in the

existing laws to

- Create competitive environment for benchmark competition which will result in

enhancing quality and reliability of service to consumer.

- Distance regulatory responsibilities of the Government.

- Reform legislation by several States separately.

- Obviate the need for individual States to enact their own reform laws.

- Introduce newer concepts like power trading, open access, and Appellate

Tribunal.

- Provide special provision for the rural areas.

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3. Role of Government Section 3

Central Government has to prepare National Electricity Policy and Tariff Policy.

Section 4

Central Government has to notify a National Policy for rural areas permitting stand-

alone systems based on renewable and non-conventional energy sources in

consultation with States.

Section 5

Central Government has to formulate a National Policy in consultation with the

concerned State Governments for bulk purchase of power and management of local

distribution through Users’ Association, Cooperatives, Franchisees and Panchayat

Institutions.

4. Rural Electrification Section 6

Appropriate Government has to endeavor to extend supply of electricity to all villages, or

hamlets.

Section 14

No requirement of license if a person intends to generate and distribute power in rural

area.

5. Generation Section 7

Generation of electricity has been freed from licensing. Also, requirement of TEC for

non-hydro generation has been done away with.

Section 9

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Captive Generation is free from controls. Open access to captive generating plants is

subject to the availability of transmission facility.

Section 8

Clearance of CEA for hydro projects is required. It is necessary due to concern of dam

safety and inter-State issues.

Section 61

Generation from Non-Conventional Sources and Co-generation has to be promoted.

Regulatory Commissions may prescribe minimum percentage of purchase of power

from renewables.

6. Transmission Section 38 & 39

There would be transmission utility at the Centre and in the States to undertake

planning & development of the transmission system.

Sections 26, 27, 31, 38 & 39

Load despatch is to be in the hands of a government company or organization. Load

despatch function is critical for grid stability and neutrality vis-à-vis generators and

distributors.

Sections 15 (5) (b)

Transmission companies has to be licensed by the Appropriate Commission after giving

due consideration to the views of the Transmission Utility.

Sections 27, 31, 38, 39 & 41

The Load Despatch Centre, Transmission Utility and Transmission Licensee are not

allowed to trade in power.

Sections 38 & 40

Open access to the transmission lines is to be provided to distribution licensees,

generating companies. This would generate competitive pressures and lead to gradual

cost reduction.

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7. Distribution Sections 7 & 12

Distribution has to be licensed by SERCs. Distribution licensees are free to take up

generation and generating companies are free to take up distribution license. This

would facilitate private sector participation without government guarantee.

Section 62

Retail tariff is to be determined by the Regulatory Commission.

Section 55

Metering has been made mandatory.

Sections 19 & 24

There is provision for suspension/revocation of license by Regulatory Commission as it

is an essential service which cannot be allowed to collapse.

Section 42

Open access in distribution is to be allowed by SERC in phases.

In addition to the wheeling charges, there is provision for surcharge if open access is

allowed before elimination of cross subsidies. This is to take care of current level of

cross subsidy and licensee’s obligation to supply.

8. Consumer Protection Section 43

Consumer has to be given electricity connection within stipulated time. There is penalty

in the event of failure to give connection.

Section 47

The distribution licensee has to pay interest on security deposit.

Section 50

Regulatory commission has to specify Electricity supply code to be followed by the

licensees.

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Section 56 (2)

No sum due from consumers recoverable after a period of two years unless the same

was shown recoverable continuously.

Section 42

Distribution licensee has to establish redressal forum for redressal of grievances of

consumers, to be appointed by every distribution licensee within six months.

Standards of performance

Licensees are required to meet standards of performance specified by the Regulatory

Commission.

Section 57

Licensee has to furnish to the Commission periodical information on standards of

performance.

Section 166 (5)

Appropriate government has to constitute a district level committee to coordinate &

review extension of electrification in each district and to review quality of power supply

and consumer satisfaction.

9. Trading / Market Development Section 12

Power trading has been considered as distinct activity permitted with licensing.

Sections 79 (2) (b) & 86 (2) (b)

Regulatory Commission may fix ceiling on trading margin to avoid artificial price

volatility.

Section 66

The Regulatory Commission are to promote development of market including trading.

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10. Regulatory Commission /

Appellate Tribunal Section 82

State Electricity Regulatory Commission (SERC) has to be constituted within six

months.

Section 83

There is provision for Joint Commission by more than one State/UT.

Section 110, 111 & 112

There is provision for constitution of Appellate Tribunal consisting of Chairman and

three Members. The functions of Appellate Tribunal are to hear appeals against the

orders of CERC/SERC, and also to exercise general supervision and control over the

Central/State Commissions.

Section 125

Appeal against the orders of Appellate Tribunal lies before the Supreme Court.

Appellate Tribunal is considered necessary to reduce litigation and delay in decisions

through High Court and provide technical expertise in decision on appeals.

11. Tariff Principles Section 62

Regulatory Commission has to determine tariff for supply of electricity by generating

companies on long or medium term contracts.

However, if tariff is determined through competitive bidding or where consumers, on

being allowed open access enter into agreement with generators/traders, no tariff

fixation by regulatory commission.

Section 61 (g), (h)

Consumer tariff should progressively reduce cross subsidies and move towards actual

cost of supply.

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Section 65

State Government may provide subsidy in advance through the budget for specified

target groups if it requires the tariff to be lower than that determined by the Regulatory

Commission.

Section 61 (e), (f)

Regulatory Commissions may undertake regulation including determination of multi-

year tariff principles, which rewards efficiency and is based on commercial principles.

Section 62 (2)

Regulatory Commissions are required to look at the costs of generation, transmission

and distribution separately.

12. CEA (Central Electricity

Authority) Section 70

CEA will continue as the main technical Advisor of the Government of India and State

Government with the responsibility of overall planning.

Section 73

CEA has to specify the technical standards for electrical plants and electrical lines. It is

the technical adviser to CERC as well as SERCs.

Section 53

CEA has to specify the safety standards.

13. Measures against Theft of

Electricity Sections 126 & 135

The focus should be on revenue realization rather than criminal proceedings.

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Section 135

Penalties are linked to the connected load and quantum of energy and financial gain

involved in theft.

Section 152

There are provisions for compounding of offences.

Section 126

Assessment of electricity charges for unauthorized use of electricity by the assessing

officer designated by the State Government.

14. Restructuring of SEBs Section 131

This section provides provision for transfer scheme to create one or more companies

from SEB.

Section 172

This section provides provision for continuance of State Electricity Boards. States are

given flexibility to adopt reform model, or path.

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