India: Electricity (Amendment) Bill, 2020 – Shot In The Arm To The Ailing Industry?

And God said, 'Let there be light' and there was light, but the Electricity Board said He would have to wait until Thursday to be connected.

- Spike Milligan

Introduction

The above quote by Spike Milligan¹ humorously but appropriately describes the present state of production, transmission and distribution of electricity in India. Electricity has been perhaps one of the greatest inventions to have transformed our lives. For a long number of years production, transmission and distribution of electricity was virtually the exclusive domain of the state. The Electricity Act, 2003 ('the Act') was enacted not just to consolidate and streamline the then prevailing laws governing electricity viz. the Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948 and the Electricity Regulatory Commissions Act, 1998, but also to encourage Public Private Partnership. The Act is a comprehensive piece of legislation which provides for detailed provisions for the generation, distribution, transmission, trading and use of electricity, development and promotion of electricity along with protection of consumer interests, policies and establishment of Central Electricity Authority, Regulatory Commissions and an Appellate Tribunal.

Although the Act was intended to be reformative it has not been free from criticism. Some of the areas where the Act lacked are -

With the passage of time, the Government rightly felt and accepted that the electricity sector was witnessing few critical difficulties which it was neither equipped to handle nor able to address them satisfactorily, thus floating for the fourth time since 2014, a draft bill amending the Act. The Ministry of Power, Government of India, has circulated the draft Electricity (Amendment) Bill, 2020 ('the Bill'), on 17.04.2020, for comments.

This article highlights and discusses certain key amendments proposed by the Bill, which have been proposed keeping in mind the issues and challenges faced by the Act and with the aim of making it adept for future commercial needs/requirements.

1. Setting up of Electricity Contract Enforcement Authority

Although the Act sought to regulate production, sale and supply of electricity, one of the key criticism of the Act was that the Central Electricity Regulatory Commission ('Central Commission') and State Electricity Regulatory Commission ('State Commission') (together 'Appropriate Commission') were entrusted with dual and to an extent conflicting powers to regulate on one hand (powers to fix tariff, regulate purchase of electricity, issuance of transmission and distribution license, etc.) and to adjudicate disputes on the other hand. Some of the adjudicatory functions came head-on with the regulatory functions. Further, it was not mandatory for the Chairperson of the Appropriate Commission to be a retired Judicial officer hence its impartial functioning was a big question mark.

The draft Bill proposes to insert a new chapter i.e. Part XA to the Act, titled "Electricity Contract Enforcement Authority" which deals with establishment of Electricity Contract Enforcement Authority ('ECEA')². The ECEA will have only adjudicatory powers and will have jurisdiction to adjudicate upon matters regarding performance of obligations under a contract related to sale, purchase or transmission of electricity, provided that it shall not have any jurisdiction over any matter related to regulation or determination of tariff or any dispute involving tariff³. This will shift the reigns of adjudication of disputes between the generating company and the licensee, emerging out of PPAs, from the Appropriate Commissions to the ECEA and will to an extent segregate adjudicator functions from regulatory functions.

Certain important aspects of ECEA are listed below -

The most pertinent point with respect to ECEA is enshrined in the proposed Section 109D of the Bill. The said section provides for the Qualification for appointment of Chairperson and Members of ECEA. It mandates for a Chairperson to be a sitting or a retired High Court Judge. Similarly, qualification for being a judicial member, mandates being a sitting or a retired District Court Judge.

The establishment and setting up of ECEA would ensure appropriate adjudication of contractual disputes pertaining to performance of contract and clear the lumbering clouds of uncertainty affecting investment decisions and ease of doing business.

2. Revamping the appointment process for Chairperson and Members of APTEL/Appropriate Commissions and ECEA

Section 78 of the Act provides for a mechanism for selection and appointment of the Chairperson and Members of the APTEL and the Central Commission. Similarly, Section 85 of the Act provides for the selection and appointment of the Chairperson and Member of the State Commissions. The Act has demarcated the process for APTEL & Central Commission from that of the State Commissions giving the State Government the prerogative of selecting and appointing the members of its respective State Commission.

The process and modalities of selection and appointment of the members under the Act have been cumbersome and resulted into long delays in appointments due to the fact that the Act provides for multiple Committees for selection of Chairpersons and members of APTEL, the Central Commission and State Commission respectively and that for each vacancy a selection committee has to be constituted which takes considerable amount of time. The Bill proposes to amend the Section 78 of the Act. The proposed amendment provides for a single Selection Committee for selection for the posts of Chairperson and Members of the Appellate Tribunal, all Regulatory Commissions¹² and ECEA, aimed at creating uniformity in selection process. The proposed Selection Committee will be headed by a retired Supreme Court Judge and the criteria for members of the Selection Committee have been perfectly outlined. As per the amended Section, both Central and State Governments are mandated to make a reference to the Selection Committee for filling up of a vacancy, and that too in a time bound manner.¹³ Another important aspect is that the qualifications of members of the State Commission have made similar to that of the Central Commission by way of amendment in Section 84 of the Act.

3. National Renewable Energy Policy

In addition to the National Electricity Policy enshrined in Section 3 of the Act, the Bill proposes to empower the Central Government to institute a National Renewable Energy Policy.¹⁴ The attention to and the promotion of renewable energy in the form of formulating a separate policy by the Central Government, in consultation with the State Governments, is a step towards the goal of increasing focus towards non-conventional type of energy and reducing India's dependence on fossil fuel generated energy.

The Bill also proposes to make it mandatory for the Central Government to prescribe a minimum percentage of purchase of electricity from renewable and hydro sources of energy. Amendments in Section 79 and 86 of the Act, are also proposed by the Bill to mandate the Central and State Commissions respectively to be guided by the National Renewable Energy Policy. Also, Section 61 of the Act which provides for Appropriate Commissions to specify the terms and conditions for the determination of tariff, is also proposed to be amended accordingly¹⁵, so as to mandate the Appropriate Commissions to be guided by the National Renewable Energy Policy along with the National Electricity Policy and tariff policy.

The formalization of a policy on Renewable Energy can give the much-required push and boost to the companies involved in the renewable energy sector and also result in attracting further investing in the sector.

4. Payment Security Mechanism

It is known that the despatch of electricity is being undertaken by a Load Despatch Centre through scheduling, however there being an absence of a monitoring mechanism to check the despatch of electricity through a load centre has resulted in a mountain of unrealized revenues. Addressing the issue, the Bill proposes to bring in a payment security mechanism as per which both the Regional¹⁶ and State Load Despatch Centres¹⁷ will have the power to not schedule or despatch electricity under a contract unless adequate security of payment, as agreed upon by the parties to the contract, has been provided. It is pertinent to note here that party autonomy has been given due importance and an option has been given to the parties to waive the said payment security mechanism. unrealized payments have always been a big issue to the economic viability of power projects and definingly an impediment to the economy, which by this proposed amendment would hopefully be corrected.

5. Cost reflective Tariff & Subsidies

As per the Act, the Appropriate Commissions in order to determine tariff have to take into consideration the subsidies but the Act does not provide for tariff fixation with the fair cost. Due to this, the Commissions in spite of recognizing costs were not able to provide for actual recovery because of the subsidy commitments resulting in degrading financials of the distribution companies as they were not able to realize their actual costs. This is also against the spirit of transparency in cost reflective tariff as mandated by the Act. The Bill provides for determination of tariff without taking into account the subsidy and proposes an amendment to Section 62 of the Act by inserting the following - "Provided that the Appropriate Commission shall fix tariff for retail sale of electricity without accounting for subsidy, which, if any, under section 65 of the Act, shall be provided by the government directly to the consumer;". The idea of the Bill is that the tariff should reflect the cost of supply of electricity and cross-subsidies ought to be reduced.

In addition to that, an amendment to Section 65 of the Act is also proposed by the Bill. Section 65 mandates the state government to grant subsidy to any consumer or class of consumers. The Bill proposes that the amount of subsidy would be directly paid by the State Government and that State Commissions are to determine tariff for retail sale of electricity without any subsidy. A major lacuna of this system is that the consumers would not be getting electricity on subsidized rates in the first place and have to wait to get the subsidy directly from the Government. The Direct Benefit Transfer mechanism has not been very smooth as far as India is concerned and the apprehensions/concerns linked to it are genuine.

6. Cross Border Trade of Electricity

Keeping in view the ever-constricting globalized world and the vision of India to become a power surplus country, the Bill proposes the emerging requirement to regulate the cross-border transactions of electricity with other countries. The Central Commission have been entrusted to oversee the cross-border transactions¹⁸ with the Central Government prescribing rules and issuing guidelines for the same.¹⁹ As we have limited information on this front, it can be safely said that presently this step is more inclined towards purchase of electricity rather than sale.

7. Deemed adoption of Tariff discovered through competitive Bid

Determination of bids through transparent competitive bidding has done wonders in the electricity market. Although Section 63 of the Act provides for the adoption of tariff by the Appropriate Commission if the said tariff has been determined by a competitive bidding, the timely adoption of the same have always been a problem leading to cost escalations and overall implications on project sustainability. In order to address the same, the Bill proposes a timeline of 60 days for adoption of the tariff by the Commission. It also provides for a deemed adoption in case of expiry of the 60-day period.

8. Non-functional Commissions due to vacancies

This have been a major problem and is considered as a huge impediment to the effective working of the Regulatory mechanism. As the appointment process of members of Commissions have been laced with issues of approvals and setting-up of committees resulting in considerable delays due to non-functioning, the Bill acknowledging the problem and with the view of tackling it, proposes to empower the Central Government, after consultation with the respective State Government, to entrust the function of the said Commission to any other State Commission or a Joint Commissions to discharge functions of such State Commission.²⁰ although the Bill inserts this as subsection (7) of Sec 82, but there is no subsection (6) to Section 82, this might be an error!

9. Distribution sub-license and Franchise

Another interesting addition to the Act comes in the form of the Bill proposing for franchising of distribution of electricity by a Distribution licensee. As per the proposed amendment, a Distribution Licensee can recognize and authorize a person as "Distribution sublicensee" to distribute electricity on its behalf in a particular area within its area of supply, with the permission of the appropriate State Commission.²¹ The Bill also proposes for a franchise to distribute electricity on a licensee's behalf under its area of supply with due information to the respective State Commission.²² It is pertinent here to mention that the Bill also proposes to amend Section 14 of the Act as per which both a sub-licensee and a franchisee will not be required to obtain any separate license from the respective State Commission.

This move would definitely ease of some burden from the heads of Distribution Licensees, however certain checks and balances have to be envisioned for governing these new entities to make the working more cohesive.

10. Penalties

For ensuring a strict and better compliance of the provisions of the Act and the Orders of the Appropriate Commissions, the Bill proposes to substantially increase the penalties prescribed by Section 142 and 146 of the Act. A tabular representation highlighting the proposed increase in penalties is given below -

SECTION 142

SECTION 146

The Bill also proposes implication of a penalty in case the Renewable Purchase Obligation (RPO) (includes hydel energy) are not met. The penalty ranges from Rs. 0.50/KwH for the first year of not meeting the obligations and it increases to Re. 1/KwH for the second year and goes upto Rs. 2/KwH for the subsequent years.²³ This proposed amendment would harmonize the national level commitments for environment protection. Also, the State Commissions would be empowered to specify the RPO time to time as per the RPO trajectory prescribed by the Central Government.

11. Increased power of APTEL

The Bill proposes to provide the Appellate Tribunal for Electricity the powers to take action on willful disobedience to any of its judgment, decree, direction, order or other process or willful breach of an undertaking given to a it and punish for its contempt, similar to that of a High Court.²⁴ The Bill also proposes to increase the strength of APTEL from three members to a minimum of seven members.

Conclusion

The legislator has indeed taken some key measures to address the industry needs. But there are certain aspects which the Bill has missed out on. For instance, power of adjudicating disputes pertaining to tariff which is still retained with the Appropriate Commission can be seen as a dilution of the intent to create a separate and independent adjudicatory authority i.e. ECEA. Conflict between regulatory powers of the Appropriate Commission with adjudicatory cannot be ruled out, as even matters related to tariff arise out of Power Purchase Agreements which ultimately will have to be adjudicated by the Appropriate Commission itself. This confusion created by an overlapping jurisdiction can lead to further complications to an already tedious mechanism. The move towards Direct Benefit Transfer of subsidy, even though is a good step but the execution of the same may become a challenge. Even the idea of sub-licensees demands greater checks and balances, which the Bill is silent on. Be that as it may, the Bill proposes forward looking changes with an aim to resolve the issues faced by the Act and it can be safely said that it is certainly more of a hit than a miss.

Footnotes