Whereas the provisions of the Amendment are of a permanent nature, with long term planning and large-scale impact, it will be interesting to see the strategy of the Ministry of Power in terms of implementation of the new regime.
By Deepak Kumar Thakur and Puspak Chamariya
New Delhi: The Electricity Act, 2003 (hereinafter “Act”) has been the statutory paradigm which has governed the laws regarding the generation, distribution, transmission, trading and use of electricity, keeping in mind the interests of the state and central departments, producers and consumers of electricity, setting rules and regulations and regulatory authorities to govern a major component of the power sector. Experts around the country have opined that some of the provisions of the Act have become dated and archaic, needing an update.
In order to address some recurring issues, and to promote further commercial incentive for private players to enter the market in the generation, distribution and transmission of electricity, with some policy modifications, the Electricity (Amendment) Bill, 2020 has been introduced by the Ministry of Power on April 17, 2020 (“Amendment”).
Following are major changes that this Amendment proposes to introduce in the Electricity Act, 2003:
(a) Renewable Energy: This Amendment seeks to promote a legal and administrative eco-system which harbours special attention to renewable energy. The Amendment, via an insertion, delegates the Central Government with the power to prepare and notify a National Renewable Energy Policy “for promotion of generation of electricity from renewable sources”, in consultation with State Governments. The said policy may also prescribe minimum percentage of purchase of electricity from renewable sources of production. There is a surety that comes with a minimum percentage in the form of assurance and incentive for power generators. It must be noted that the Amendment seeks to give special attention to hydro power.
(b) Cross Border Trade: In addition to the focus on renewable energy, a substantial makeover in the market of the electricity sector revolves around cross border trade of electricity. The Central Government has been delegated with the power to prescribe rules and guidelines to allow and facilitate cross border trade of electricity. With limited information on this front, the apprehension of the market could be the off-chance that instead of the sale of electricity, the purchase (in-take) of electricity from cross-border entities increases.
(c) Electricity Contract Enforcement Authority: The Amendment has inserted a new chapter in the Act which prescribes the creation and functioning of the Electricity Contract Enforcement Authority (“Authority”). This Authority is possibly sought to be created to avoid the situation that was created in the State of Andhra Pradesh with the change in the Government. The existing authorities, i.e. APTEL, CERC and SERCs constituted under the Electricity Act, 2003 do not have the jurisdiction to deal with the matters pertaining to the enforcement of contract, unless such issue pertaining to enforcement is anywhere related to determination of tariffs, licensing, metering and related matters. Considering the importance of robust and supervised contractual
obligations vis-à-vis one another, and the constant fear of implementing agencies not honouring contracts, this new authority keeping a close watch on such issues is reassuring for all stakeholders. This Electricity Contract Enforcement Authority has been proposed to be given sole jurisdiction to adjudicate upon matters on performance of obligations under a contract regarding sale, purchase and transmission of electricity, which exclusion of this specialized authority’s jurisdiction on determination of tariff or any other dispute regarding tariff.
2. Functional Amendments
(a) Payment Security: There has been a lack of monitoring system in place vide the Act, which created a void of a check and balance mechanism for the any form of payment security. Lack of payment security mechanism has created a large pool of unpaid dues. To disrupt any future trickle down of such unrealized revenues, this Amendment proposes a mechanism wherein “no electricity shall be scheduled or despatched under such contract unless adequate security of payment as agreed upon by the parties to the contract, has been provided”. This prerequisite would be a welcome safeguard for all project developers and power generators. The codification of such a requirement resonates the thought of the CERC where LCs have been made compulsory for offtakers.
(b) Constitution of selection committee to recommend members for commissions/ authorities: There is a slew of provisions for the constitution of a Selection Committee for making recommendations of members to the Appellate Tribunal and the Chairperson and Members of Central Commission, Electricity Contract Enforcement Authority, State Commissions and Joint Commissions. Streamlining of selection process for all commissions and authorities is a step in the right direction, bringing in uniformity and higher accountability. For the purposes of uniformity, the definition of ‘member’ under the Act has also been uniformized in the Amendment.
(c) Grant of Subsidy mandated: The benefit of subsidy to be granted directly to the consumer and the licensee shall charge the consumers as per the tariff determined by the Appropriate Commission. The determination of tariffs shall be fixed by the commission without accounting for subsidies. Further, basis the tariff policies, surcharges and cross subsidies shall be progressively reduced.
(d) Time limit for adoption of tariff so determined: There had been the issue of lazy attempts from the commissions in adopting the tariffs determined, causing issues of cost escalation. To address this problem, the Amendment has prescribed a period of 60 days to adopt the determined tariffs. Failing such timeline of 60 days, the tariff would be deemed to be accepted. Such deemed acceptance is a good method to not allow red-tapism to impact the functioning of the sector.
(e) Inclusion of Distribution Sub-licensee and Franchisee: To ease the burden of distribution licensees and in order to promote some form of demographic specialization, the distribution licensees, can appoint another entity for distribution of electricity on its behalf, within its area of supply. This entity can be either a distribution sub-license appointed with prior permission of the State Commission or it may be a franchisee appointed by merely informing the State Commission. This move could possibly give more leeway to power generators and licensed distributors sub-contract the obligations and allot risk to specific parties, where they belong. However, there is no addition of further clauses which specifically govern either of these newly introduced entities, wherein the extent of statutory obligation of each of the entities is co-extensive with one another.
(f) Codification of responsibility of the National Load Despatch Centre: By inserting fresh provisions, the Amendment has enumerated some responsibilities of the National Load Despatch Centre. Including overall authority for carrying out real time operations and monitoring of national grid, supervision and control of the inter-regional and inter-state transmission of network and grid security, and optimum scheduling and despatch of electricity.
(g) Enhancement of the powers of the Appellate Tribunal of Electricity: APTEL is proposed to have the powers of a High Court to deal with wilful disobedience of persons and entities under the Contempt of Courts Act, 1971. Additionally, any person can appeal the decisions of the Authority which is introduced by this Amendment in front of the APTEL. The numbers of members at the APTEL have also been proposed to be increased by the Amendment.
(h) Applicable to the whole of India: It is needless to mention, that in addition to the above mentioned broad themes that the Amendment seeks to cover, the Act shall now be applicable to the territory which was erstwhile exempted from the State of Jammu and Kashmir.
Whereas the provisions of the Amendment are of a permanent nature, with long term planning and large-scale impact, it will be interesting to see the strategy of the Ministry of Power in terms of implementation of the new regime. Tariff and subsidy related measures are aimed at easing the financial crunch of the Discoms. In light of other relief measures and interim announcements to mitigate the hardship caused by the Covid-19 situation, the Ministry already has a lot of recovery process to contemplate. In the middle of these impending reforms, the ease of implementation of the new regime will be a challenge.
[Deepak Kumar Thakur is Partner and Puspak Chamariya is an Associate at law firm L&L Partners (formerly Luthra & Luthra Partners)]