The Ministry of Power (MOP) has published the Electricity (Second Amendment) Rules, 2023. These Rules come into force from 26th July, 2023.
These Amendment Rules aim at bringing improvements in the management of subsidies and ensuring the financial sustainability of the electricity distribution sector. These new rules seek to streamline subsidy accounting, establish a framework for financial sustainability, and set guidelines for prudent cost management.
Rule 15 of the Electricity Rules, 2005, has been replaced with a new provision to govern “Subsidy accounting and payment.” Under this rule, the distribution licensees will be responsible for accounting the subsidy payable. To ensure transparency and accuracy, the Central Government will issue Standard Operating Procedures for subsidy accounting. Additionally, State Commissions will be required to issue quarterly reports for each distribution licensee, evaluating the subsidy demands raised by the licensee, the actual payment of subsidies, and any discrepancies in subsidy payments. This move is aimed at ensuring that subsidies reach the intended beneficiaries promptly and efficiently.
The new rule also clarifies that the term “Unit” shall refer to Kilo Watt Hour (kWh) or Kilo Watt (kW) or Horse Power (HP) or Kilo Volt Ampere (kVA) in accordance with the relevant Regulations or Tariff Orders issued by the Appropriate Commission.
Furthermore, the amendment introduces Rule 20 titled “Framework for Financial Sustainability.” This rule outlines the guidelines to be followed for financial management by distribution licensees. It mandates that the Aggregate Technical and Commercial (AT&C) loss reduction trajectory to be approved by the State Commissions for tariff determination should align with the trajectory agreed upon by the respective State Governments and approved by the Central Government under any national scheme or program. This move is expected to improve overall efficiency and reduce losses in the distribution sector.
Additionally, the rule emphasizes that all prudent costs of power procurement incurred by the distribution licensees for ensuring 24×7 electricity supply to consumers, and in accordance with the Resource Adequacy plan prepared under the Electricity (Amendment) Rules, 2022, shall be considered. However, this will be subject to the procurement being done transparently and approved by the Appropriate Commission.
The amendment also introduces mechanisms for passthrough of costs incurred by distribution licensees for developing and maintaining distribution assets. To qualify for passthrough, the assets must align with the licensee’s approved capex roll-out plan, be procured competitively and transparently, and be properly recorded in the Fixed Asset Register.
Regarding gains or losses due to deviation from the AT&C loss reduction trajectory, the rule proposes that they be quantified based on the Average Power Purchase Cost and shared between the distribution licensee and consumers. This measure aims to incentivize distribution companies to maintain and improve their operational efficiency.
To ensure a reasonable return on investment, the State Commissions will be permitted to assess overall risks and the prevalent cost of capital and align the Return on Equity with the Central Commission’s specified rate for generation and transmission.