Why is Kerala opposing the New Electricity Rules of the Central Government?

New Electricity Rules UPSC Relevance

Electricity (Amendment) Rules, 2022 has been recently notified by the central government. Electricity (Amendment) Rules, 2022 is also important for UPSC Prelims 2023 and UPSC Mains Exam (GS Paper 2- Issues related to federalism in India).

New Electricity Rules in News

• The gazette notification on the Electricity (Amendment) Rules, 2022, came out on December 29, 2022.
• Electricity Minister K. Krishnankutty declared that his department would seek legal advice on how best to enforce the rules without burdening the consumers of the state-run Kerala State Electricity Board.

Objections of Kerala Government against Electricity (Amendment) Rules, 2022

• Kerala government is fiercely objecting to Rule 14 of the Electricity (Amendment) Rules, 2022 notified by central government.
• Rule 14 permits distribution companies (Discoms) to automatically recover from consumers, on a monthly basis, the expenses arising out of variations in fuel price and power purchase costs.
• The State government has argued that giving Discoms the freedom to automatically pass on the aforementioned costs through the electricity bill endangers consumer interests.
  • The amendment spawns an “unstable pricing situation’’ in the power sector, akin to that of petrol and diesel prices.
  • Consumers would be subjected, quite unfairly, to frequent price fluctuations, it said. It further observed that the crucial role played by the State Electricity Commission in fixing the surcharge would get diluted.
• Electricity Minister K. Krishnankutty declared that his department would seek legal advice on how best to enforce the rules without burdening the consumers of the state-run Kerala State Electricity Board (KSEB).

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What are the new Electricity (Amendment) Rules?

• The Centre introduced the Electricity (Amendment) Rules, 2022, to amend the Electricity Rules, 2005.
• Rule 14 of the Rules requires the State electricity regulatory commission to specify a price adjustment formula for automatically passing on the costs through the consumer tariff on a monthly basis.
• “Fuel and power purchase adjustment surcharges shall be calculated and billed to consumers, automatically, without going through the regulatory approval process, on a monthly basis, according to the formula, prescribed by the respective State Commission,’’.

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What is the Role of Electricity Regulator?

• Until now, KSEB would file petitions for collecting the thermal fuel surcharge before the Kerala State Electricity Regulatory Commission on a quarterly basis.
• Since Kerala produces only 30% of its electricity demand within its borders, the power purchase expenditure, especially during the summer months when demand soars, is quite substantial.
• In the normal course of things, the Commission finalises a decision on the KSEB plea after holding a public hearing. According to the State government, doing away with this prudence check would put the general public at the receiving end.

Way Forward

• Krishnankutty directed the State Power department to examine whether potential tariff fluctuations arising out of the new arrangement can be balanced through reduced tariffs during the State’s extended monsoon months when power purchases and consumption levels are on the lower side.
• During rainy seasons, hydropower generation is high, meeting over 50% of the demand.
  • The Minister has also suggested that, in the remaining months, power purchase costs should be kept to a minimum to avoid burdening the consumers.
  • But experts argue that such safeguards would only work in a situation where a State-run entity like the KSEB is at the helm of things.
• They state the real concern lies in the future when they could get dumped in a scenario where private players enter electricity distribution in Kerala.

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