The Ministry of Power (MOP), Government of India, on April 17, 2020, published the draft Electricity (Amendment) Bill, 2020 for comments.1 As the statement of objects and reasons for the amendment highlights, electricity is one of the most critical components of infrastructure which is essential for sustained growth of the economy of the country and its welfare. The draft amendment bill broadly seeks to deal with the following:
- Enforceability of performance of contracts related to purchase, sale or transmission of power between a generating company and a licensee;
- Uniformity of selection process for posts of tribunals and regulatory commissions under the Electricity Act, 2003 (the Act);
- Promotion of renewable energy generation & inclusion of hydro sources under renewable power purchase obligations;
- Payment security mechanisms for load dispatch centers;
- Simplification of tariff structures;
- Provide a framework for cross border trade of electricity;
- Timely adoption of tariff discovered under competitive bidding;
- Strengthening of penalties; and
- Improving the distribution model by introduction of Distribution Sub-licensees.
This article outlines the possible commercial impact on dispute resolution that the sector may face post the establishment of the proposed Electricity Contract Enforcement Authority (ECEA).
1. THE ELECTRICITY CONTRACT ENFORCEMENT AUTHORITY
A new chapter, Part XA, is proposed to be inserted in ... for the purposes of establishing an ECEA which shall have the sole authority and jurisdiction to adjudicate upon matters regarding performance of obligations under a contract related to sale, purchase or transmission of electricity. The draft provision expressly excludes jurisdiction of the ECEA over any other matter related to regulation or determination of tariff or any dispute involving tariff.2
1.1 DISPUTE RESOLUTION
The draft amendment bill proposes that a person aggrieved with matters regarding performance of obligations under a contract related to sale, purchase or transmission of electricity may prefer an application to the ECEA, within a period of 6 months from the nonperformance of the obligation under the relevant contract.3
Currently, as per the Act, the power to adjudicate disputes involving the licensees and generating companies or the power to refer them to arbitration lies with the regulatory commissions at the central and state level.4 The proposed amendment to Section 79(1) (f ) & Section 86(1)(f ) of the Act seeks to exclude matters covered by the novel Section 109A from the ambit of this current provision. This effectively means that the jurisdiction to adjudicate disputes relating to tariff or its determination/regulation will still vest with the commissions set up under the Act while a new forum, i.e., the ECEA will deal with matters regarding performance of obligations under Power Purchase Agreements (PPAs)/contracts.
Although, post this amendment, the power to refer disputes to arbitration under Section 79(1)(f ) & Section 86(1)(f ) of the Act appears to be intact but it is unlikely that the commissions will be willing to do the same citing issues of public interest. It is pertinent to mention that the Act is a special and comprehensive legislation which regulates generation, transmission and distribution of electricity5 and has an overriding effect on other laws6 and thus, this amendment also will have precedence over other available dispute resolution mechanisms.
It is proposed that any party aggrieved by the decision of the ECEA may file an appeal to the Appellate Tribunal within 60 days.7
2. IMPACT ON DISPUTE RESOLUTION
2.1 TIME FRAMES
The draft amendment bill proposes an optimistic timeline of 120 days to dispose an application filed before it.8 It further provides that in case the ECEA is not able to dispose the application within 120 days, it will record its reasons in writing for not doing so. It appears that the complex issue of interpretation of PPAs/contracts to determine their validity and subsequently enforcing obligations of parties penned down therein after a breach has been established, is to be conducted in a constricted timeline. This may help in expediting the whole process but would also lead to a lot of stress on the ECEA machinery.
2.2 LOGISTICAL CHALLENGES
Considering scenarios like nationwide lockdowns and social distancing due to the current pandemic situation that the country is dealing with, it is imperative to factor in logistical challenge of hearings before adjudicatory bodies in person. The draft amendment bill proposes that the ECEA benches will ordinarily sit in Delhi9 which might pose as a hindrance to a sector which operates pan-India, unless, provisions for hearings through video conferencing are prescribed later in time.
2.3 RELIEF TO GENERATING COMPANIES
The strongly worded provision of the draft amendment bill proposes that the ECEA will have original and sole jurisdiction to adjudicate upon matters regarding performance of obligations under PPAs/contracts relating to electricity. This may bring some relief to generating companies and developers who have been facing the problem of outstanding dues.
2.4 IMPACT ON DISTRIBUTION COMPANIES
In the current framework of the amendment bill, no ostensible support is provided to distribution companies in lowering the outstanding regulatory assets, a problem which has been hemorrhaging the DISCOMs. The jurisdiction to deal with tariff disputes still lies with the commissions under the Act. It appears that the establishment of ECEA will only act as another burden to these entities while recovering from the economic impact of COVID-19.
2.4 COMPOSITION OF BENCHES
The upside here is that the amendment provides that the composition of an ECEA bench shall be such that it shall have at least one Judicial Member and one Technical Member10 (Qualification for a Technical Member has been laid down as "a person who has been an officer with a Ministry or Department of the Central Government dealing with power or any other sector of infrastructure; or a person having adequate knowledge and experience in dealing with matters relating to electricity".11 This will ensure proceedings involving complex PPAs and contracts are conducted with the required technical sanctity.
2.5 PENDING DISPUTES
It is imperative to discuss what will be the fate of ongoing proceedings if this amendment is enacted. The MOP will have to issue clarifications on this issue to clear ambiguities relating to transfer of proceedings or enforcement of orders pronounced before the enactment of this amendment bill.
The sector stands on a structured scaffold based on calculated demand and supply of energy. While the sector battles with issues of outstanding dues of state power utilities and DISCOMS, in times of uncertainty brought in by the ongoing COVID-19 pandemic, the sector will be vulnerable to and overburdened by a flood of disputes and litigation. It appears that the proposed amendment provides no specific respite to this bleeding sector in managing this problem. While the intention of the amendment is also to bring about a change in the tariff structures and foster inclusion of renewable energy sources, further clarification from the MOP will help address the ambiguities in the existing draft.
1 Vide letter bearing Ref. No. 42/6/2011-R&R (Vol-III) dated 17.04.2020.
2 Section 190A, as per section 28 of the draft of The Electricity (Amendment) Bill, 2020.
3 Section 109B, as per section 28 of the draft of The Electricity (Amendment) Bill, 2020.
4 Section 79(1)(f) & Section 86(1)(f) of the Electricity Act, 2003.
5 Chhattisgarh State Electricity Board vs. Central Electricity Regulatory Commission & ors, (2010) 5 SCC 23.
6 Section 174 of the Electricity Act, 2003.
7 Section 109N, as per section 28 of the draft of The Electricity (Amendment) Bill, 2020.
8 Section 109B(7), as per section 28 of the draft of The Electricity (Amendment) Bill, 2020.
9 Section 109C(2)(c), as per section 28 of the draft of The Electricity (Amendment) Bill, 2020.
10 Section 190C(2)(b), as per section 28 of the draft of The Electricity (Amendment) Bill, 2020.
11 Section 109D(1)(c), as per section 28 of the draft of The Electricity (Amendment) Bill, 2020.
Originally published April 2020
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