Authored by Abhishek Tripathi and Narayan Gupta

Published at India Business Law Journal

In the fourth segment of the Atma Nirbhar Bharat (Self-reliant India Mission) economic package, the finance minister announced several measures affecting the power sector. Many policy reforms are contained in the proposed Electricity (Amendment) Bill, 2020 (bill). The provisions in the bill include progressive reductions in cross subsidies, time bound grants of open access, direct transfers of subsidies (DBT) to the consumer, the introduction of a distinct national renewable energy policy, and the concept of distribution sub-licensees together with modifications to the franchise model. The bill proposes that the electricity regulatory commissions (ERC) shall determine tariffs without taking subsidies into account, while subsidies will be given directly to consumers through the DBT mechanism.

Many experts have argued that it may be more useful for the DBT amounts to go directly to the distribution companies (discoms) on behalf of consumers instead of directly to the people themselves. This would prevent the possibility of a consumer receiving the subsidy, but not paying the discom. Instead of leaving the decision to the ERCs, the bill proposes to bring down the surcharges and cross-subsidies through the tariff policy. This would make state governments and ERCs comply with a road map for the reduction of surcharges and cross-subsidies in accordance with the centralized tariff policy determined by the central government.

The payment security mechanism introduced in June 2019 to ensure timely payments to generators is to be formalized by adding a statutory mechanism to the Electricity Act, 2003. Given the stress financial generators are facing, they will welcome this measure, although discoms with good payment histories may find themselves being treated in the same way as defaulting discoms.

The bill overhauls the selection process for various ERCs, the Appellate Tribunal for Electricity (Aptel) and the newly proposed Electricity Contract Enforcement Authority (ECEA), by creating a centralized selection committee. The committee, consisting predominantly of serving bureaucrats, will select members of these bodies. This is likely to be contentious particularly in view of the likely adverse impact on centre-state relations. In any event, the move does not appear to have been well thought through. The task of selecting those to fill over 100 positions will fall to senior bureaucrats who already have departmental responsibilities to discharge. The problem of the backlog of vacancies in existing authorities, which has already been highlighted in the 74th parliamentary report on the Tribunals, Appellate Tribunals and Other Authorities (Conditions of Service) Bill, 2014, will only be exacerbated. The quality of selection may suffer particularly if the selection committee is entrusted with the task of selecting members for an ERC of a state which is not represented on it. The selection committee may well not be able to foresee and understand the unique requirements of each state in the process of making selections. Finally, the proposed composition of the selection committee in the bill may not pass the test of constitutionality set out by the Supreme Court in Rojer Mathew v South Indian Bank Limited and in many other judgments. The court has several times reiterated that there must be an equal proportion of executive and judicial members in the selection committee when it comes to the appointment of members to tribunals and commissions.

The proposal to establish the ECEA for resolving disputes over the performance of obligations under contracts related to the sale, purchase or transmission of electricity also appears to be an unnecessary move. The move to set up the ECEA follows the unsatisfactory performances of the ERCs in adjudicating contractual disputes. Many ERCs have been perceived as biased towards state-owned discoms, and many others have been unable to function due to vacancies, which have been left unfilled for a long time. The ECEA is intended to overcome these difficulties by providing consistent and unbiased adjudication of contractual disputes. However, a centralized body for adjudicating nationwide disputes may introduce newer challenges of access to the adjudication process and case backlogs. A simpler solution, such as making arbitration mandatory in contractual disputes would address existing concerns, particularly those of neutrality and bias, without the need to set up a new body.

The bill introduces many progressive measures, but in many areas it goes too far. The provision of electricity supply is properly regarded as a public good, but the success of reform in the sector is contingent on the management of political interests. It is hoped that the bill itself does not become the prisoner of politics like its predecessors.

Abhishek Tripathi is the managing partner and Narayan Gupta is an associate at Sarthak Advocates & Solicitors.