January 19, 2022

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Laws and regulations of the Indian power sector : an overview

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This article is written by Rishika Rathore, from the school of law, Jagran Lakecity University. It briefly discusses the laws and regulations surrounding the power sector of India. 

Table of Contents

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India is the third-largest producer as well as consumer of electricity. The national electric grid in India has an installed capacity of 383.37 GW as of 31 May 2021. But today, we are witnessing a contrasting situation due to several stressed assets and payable loans. The primary reasons for such a situation are the scarcity in supply of coal, lack of long-term power purchase agreements, the inability of promoters to pervade the equity, and unreasonable retards in regulatory orders from dispersal companies, which added to the setbacks of the power market in the country. The positive side of this situation is that India is growing and glowing in the power sector throughout the world especially because of its effective and efficient regulation of laws in the power sector. This article is going to discuss such laws and regulatory bodies that govern the power sector in India along with other aspects that surround the subject. 

The Seventh Schedule of the Indian Constitution lays out the subjects, on which the Parliament and the state legislatures are authorized to frame legislations, and relevantly put such subjects in three lists, namely Union List, State List, and the Concurrent List. The subjects of the Union List and State List come within the ambit of the Parliament and state legislatures respectively, but when it comes to subjects of Concurrent List, both the legislatures are allowed to make legislations. However, in case of a conflict between the laws made by the state legislatures and the Parliament, on the same subject matter under the Concurrent List, the legislations made by the Parliament are put on priority over the laws made by the state legislature. The subject of electricity comes under the Concurrent List. 

Throughout the legal history of the Indian power sector, there have always been relevant laws to govern the sector. The primary Act on electricity was initiated in 1910 and then came the Electricity Act, 2003, which became the backbone of energy sector laws (other than for nuclear energy, which is governed by the Atomic Energy Act, 1962). The Electricity Act of 2003 replaced all the ancient laws and introduced fresh legislation to address the needs of the advancing times. There have been various attempts to amend the Electricity Act, 2003, such as the Electricity (Amendment) Bill, 2014 and the Draft Electricity Bill, 2018, and the most recent, Electricity (Amendment) Bill 2020, which is yet (as of 10/08/2021) to get approval from the Parliament. The briefing of past and present laws of the power sector has been done below: 

The Indian Electricity Act, 1910

The foremost regulation to govern the supply, generation, and distribution of electricity was the Indian Electricity Act, 1910. This Act dealt with granting a license to any person for the supply of energy in a particular area. Also, in certain cases, non-licensees were also allowed to supply energy with the sanctions of the government. Moreover, the Indian Electricity Rules of 1956 were framed under Section 37 of the Indian Electricity Act, 1910 to regulate the supply, transmission, generation, and use of electricity. These rules were significant measures that supported the installation, construction, transmission maintenance, generation, distribution, and consumption of electricity along with precautions to avoid any certainty of any electrical accident.

The Electricity (Supply) Act, 1948

The Electricity (Supply) Act, 1948 was implemented specifically to rationalize the production and supply of electricity and establish valuable electrical developments. The most significant provision of this Act was the establishment of the Central Electricity Authority (CEA) as an apex authority for technical planning and development. Moreover, State Electricity Boards (SEBs) were initiated and given the responsibility of supply of electricity within the respective state. The power and functions of statutes like Central Electricity Authority, State Electricity Boards, and generating companies were also laid down in the 1948 Act. 

The Electricity Regulatory Commissions Act, 1998

The Electricity Regulatory Commission Act, 1998 is the reason behind the establishment of the Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions (SERCs). This Act was provided to rationalize the electricity tariff, generate transparent policies regarding subsidies, promote efficient and environmentally sound policies, and ultimately for matters surrounding the regulation of electricity.

The Electricity Act, 2003

With the passing of time, the need for advanced electricity laws was felt due to emerging power sector reforms in various states of India. The consistent mediocre performances of State Electricity Boards (SEBs) (formed under the Indian Electricity Act, 1910 and the Electricity (Supply) Act, 1948) was crying out the requirement of single legislation that addresses all the key areas of electricity in the country and provides a road map for the overall and uniform development of the electricity sector. In order to fulfill such needs, the Central Government enacted the Electricity Act, 2003. The prominent features of the 2003 Act are:

  1. The State Electricity Boards were redesigned into discrete entities that were authorized to solely govern the generation, transmission, and distribution activities.
  2. The trading of power and de-licensing of generation activities was recognized as separate activities and promoted captive electricity generation.
  3. The requirement for furnishing non-discriminatory open access was introduced in this Act. The literal meaning of open access is availing the distribution system or transmission lines to various players in the power sector.
  4. Along with establishing regulatory commissions at central and state levels, this Act established the Appellate Tribunal for Electricity, a supreme tribunal that hears appeals against the adjudications of the State Electricity Regulatory Commissions (SERCs) and the Central Electricity Regulatory Commission (CERC).
  5. Furthermore, the Central Electricity Authority (CEA) was recognized as the technical advisory body to the Government of India and electricity regulatory commissions.
  6. This Act also deals in promoting renewable energy projects.

The Electricity (Amendment) Bill, 2014

On 19 December 2014, the Ministry of Power introduced the Electricity (Amendment) Bill, 2014 in the Lok Sabha. This Bill aimed to amend some provisions of the Electricity Act 2003. Some of the prominent amendments that were proposed in this Bill are as follows:

  1. An increment in the momentum for renewable energy was demanded to promote the generation of renewable energy in India to boost the thermal power stations based on renewable energy to establish an energy generation capacity of not less than 10% of the thermal power installed capacity.
  2. The 2014 Bill further demanded to enable open access. At that time, the distribution company used to provide the services to only last-mile connectives through their distribution system, as well as supply of power. The Bill proposed that this activity should be terminated by giving the choice to the consumer while enabling him to choose his supplier. Also, more than one supplier should be authorized to operate in a distribution area.
  3. The retail tariff that gets finalized by the State Electricity Regulation Commission should be the maximum tariff while allowing numerous suppliers to offer a tariff lower than the prescribed one. This step was demanded to increase competition in the retail supply business but consequently got opposed, saying that it will be a step towards loss in distribution companies.
  4. Most importantly, the 2014 Bill proposed an alteration in the penalty clause. The original penalty for non-compliance with any provision of the Electricity Act 1910 was Rs. 1 lakh. It was proposed to raise this penalty to Rs. 1 crore. In the case of renewable energy operators, this penalty was proposed to be set up at Rs. 10 lakhs.
  5. Also, several recommendations regarding the 2014 Bill amendment were made by the Standing Committee on Energy, like multiple supply licensees should separate their consumers on the basis of consumers’ status, subsidies, and commercial or technical losses. The committee also recommended that the percentage of responsibility upon thermal generating companies for generating renewable resources should be kept at 5% of the installed thermal generating capacity merchandise, along with imposing a duty upon generating companies to establish coal and lignite.

The Draft Electricity (Amendment) Bill, 2018

The Ministry of Power introduced a Draft Electricity Bill, 2018 in September, following the recommendations of the Standing Committee on Energy. Some of the important features of the 2018 Bill are as follows:

  1. The idea of separating distribution from supply (carriage and content) business was highlighted in the 2014 Bill, and methods to implement this idea were proposed in the 2018 Bill. Standing with the aim of ensuring that the customer has the option of purchasing electricity from more than one supply licensee, the 2018 Bill stated that the state governments should be obligated to determine a scheme of separation of content and carriage in their respective states.
  2. Moreover, the 2018 Bill was aimed to amend the provisions regarding renewable energy by promoting it as a means of generation. The concept of both a Renewable Purchase Obligation (RPO) and a Renewable Generation Obligation (RGO) was introduced in the 2018 Bill. It demanded a penalty clause for generators as well as suppliers who fail to comply with the RPOs. In terms of RGOs, thermal generating stations based on coal or lignite are mandated to produce or sell the specified unit of power, and the quantum of the RGO would be notified by the Government.
  3. The proposal was simply to reduce the tariff and ensure its termination within 3 years. The Appropriate Commission was obligated to ensure that the cross-subsidization of tariff to the consumers within the distribution area, does not exceed 20%, along with determining the trajectory for reduction of the cross-subsidization of tariff and the category of consumers. The 2018 Bill demanded a minimum reduction of 6% in one year in cross-subsidy.
  4. The 2018 Bill made it compulsory that all the sale and purchase of power, whether long-term, medium-term or short-term, must be performed through Power Purchase Agreements, in the format prescribed by the Central Electricity Authority. Disobeying of obligations provided under the power purchase agreement would amount to a maximum penalty of INR 1 crore, as proposed in the 2018 Bill. Consumers having a connected load of 1 MW or more are permitted to sell or purchase electricity. Such consumers are also entitled to obtain electricity from open access under contractual agreements. 
  5. The 2018 Bill also made demands to the Central Commission and State Commissions to raise relevant steps for promoting and developing smart grids. A smart grid is nothing but an electricity network, which uses information and communication technology to gather information and perform in an intelligent automated way to improve the economics, efficiency, reliability, and sustainability of the generation, transmission, and distribution of electricity. 

The Electricity (Amendment) Bill, 2021

The most recent Bill regarding electricity is the Electricity (Amendment) Bill, 2021 that has been introduced in the ongoing monsoon session. The Union Government’s aim to provide “power for all” has increased power generation speed, specifically renewable energy, which currently has an installed capacity of approximately 95 GW and is targeted to reach 175 GW by 2022 and 450 GW by 2030.

The prominent issues raised within this Bill are as follows:

  1. The distribution of electricity should be de-licensed to provide consumers with the choice to select a distribution company in their area. Moreover, the propositions include the initiation of Direct Benefit Transfer (DBT) of power subsidies to ensure larger transparency and accountability along with ensuring that entitled people get subsidies. The Bill is supposed to include rights and duties of power consumers, as per the schemes of government to ensure ongoing supply.
  2. Also, in order to boost the government’s Aatmanirbhar Bharat campaign, the Bill proposes to reduce power costs by way of indigenization, especially for manufacturers and industrial customers.
  3. Under the management of the government company, there should be the provision of a universal service obligation fund, which will be used to fulfill deficits in cross-subsidy. However, security deposits would not be required if the supply is through pre-paid meters.
  4. The members of the Appellate Tribunal for Electricity (APTEL) should be increased with such persons who have a legal background and there should be a decrement in the domains of chairpersons and members of Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions (SERCs) respectively.
  5. The responsibility of managing Renewable Power Obligations (RPO) should be shifted from state commissions to the central commission, to meet the National Climate Change Goals. Also, failure in implementing RPO would amount to penalties as per proposed amendments.
  6. In the penalty clause, the fine for neglecting the provisions of the Act should be 1 crore. 

Central Electricity Authority of India

This is the prime organization that advises the state governments on the matters of policies and regulative activities as well as formulates schemes for the development of the electricity sector. It was initially established under Section 3(1) of the Electricity Supply Act, 1948, but later on, it has been replaced by Section 70(1) of the Electricity Act, 2003. 

Appellate Tribunal for Electricity 

Appellate Tribunal for Electricity has its jurisdiction throughout India as provided under Section 110 of the Electricity Act, 2003. It was established to hear appeals or original petitions against the decisions of the adjudicating officer, the central or state regulatory commissions, and the joint commission. The APTEL has original jurisdiction to hear petitions under Section 121 of the Electricity Act, 2003 along with the authority to direct any appropriate commission to perform its statutory functions. But, APTEL has no authority to entertain problems in determining the validity of regulations issued by the CERC or SERCs.

Central Electricity Regulatory Commission

The Central Electricity Regulatory Commission is a statutory body, established under Section 76 of the Electricity Act, 2003. It was initially laid down under the Electricity Regulatory Commissions Act, 1998. It is authorized to promote competition, regulate the tariff of central government-owned generating companies, improve the standards of quality, continuity, and reliability of service by licensees, along with various other functions.

State Electricity Regulatory Commission

The State Electricity Regulatory Commission was established through the Electricity Regulatory Commissions Act, 1998 (later continued under the 2003 Act) to determine tariffs for generation and grant licenses at intra-state levels. Apart from tariffs and licensing, the main obligations of SERCs are to regulate supply, transmission, and wheeling of electricity, along with managing wholesale, bulk, or retail sales of electricity within their respective states. Moreover, SERCs are authorized to form regulations on all aspects within their jurisdiction and make judgments upon power-related disputes. The distribution, generation, and sale within the state and intra-state transmission come under the domain of the SERCs while being a principal commission, regulatory jurisdiction of the CERC applies upon inter-state generation and transmission. 

Central Transmission Utility

Central Transmission Utility is a statutory body that was established under Section 38 of the Electricity Act 2003 (earlier it was under Section 27A of the Indian Electricity Act, 1910). CTU was initiated to handle the transmission of energy by the way of an inter-state transmission system. It is obligated to perform all functions related to planning and coordination among inter-state transmission systems with State Transmission Utilities, central government, state governments, and generating companies. One of the Navratna Companies, Powergrid Corporation of India Limited (POWERGRID) has been provided with the responsibilities of the Central Transmission Utility in India.  

State Transmission Utility

The State Transmission Utilities are established under Section 39 of the Electricity Act, 2003 (earlier it was under Section 27B of the Indian Electricity Act, 1910), intending to regulate energy transmission through an intra-state transmission system, coordinating with Central Transmission Utility, State Governments, generating companies. The STUs are mainly obligated to grant connectivity and open access for intra-state generating stations and intra-state transmission commissions. 

National Load Despatch Centre

The National Load Despatch Centre is established under Section 26 of the Electricity Act, 2003 to ensure integrated operation of power systems for smooth transferring of electricity within the regions and to facilitate the trans-national exchange of power across different regions. The main aim of NLDC is to ease out competency and efficiency within the wholesale market of electricity. It also ensures the ideal delivery of electricity among the Regional Load Despatch Centres. 

Regional Load Despatch Centre

The central government has demarcated the country into regions, under Section 25, for the efficient, cost-effective, non-segregated transmission and supply of electricity. The Regional Load Despatch Centres also assist inter-connection and coordination of facilities for the inter-state, regional, or inter-regional generation and transmission of electricity. Apart from this RLDCs are responsible for monitoring grid operations, delivering electricity within the regions, and monitoring grid operations.

State Load Dispatch Centre

Just as RLDC operates at the regional level, the State Load Despatch Centres (SLDCs) operate, under Section 41 of the 2003 Act, at state levels to ensure integrated operations of the power system in their respective states.  As per Section 42 of the Electricity Act, 2003, each distribution licensee is required to establish a forum to address the complaints of consumers and SLDC serves as that redressal body and ombudsman. Ombudsman is an authoritative post designated by the state commission, to hear and settle the cases of non-redressal of complaints.

Bureau of Energy Efficiency

On March 1, 2002, the government of India established the Bureau of Energy Efficiency under Section 3 of the Energy Conservation Act, 2001. The BEE has obligations to lead the development of efficient and economic energy through regulatory and promotional tools. The ultimate motive of BEE is to invent self-regulated strategies and policies within the principles of the market while ensuring the energy-saving measures which in turn, will reduce the energy intensity of India. 

Appropriate Commission

The Appropriate Commission was established under Section 62 of the 2003 Act, which lays down provisions for tariff determination. This commission considers various factors and components to determine tariffs for prescribed control periods. According to the provisions stated under Part VII, it works from Section 61 to Section 66 of the Electricity Act, 2003. 

Hindustan Zinc Ltd. v. Rajasthan Electricity Regulatory (2012)

Case background

As per the Section 51, Section 66, Section 86(1)(e), and Section 181 of the Electricity Act, 2003, the Rajasthan Electricity Regulatory Commission (RERC) initiated two RPO notifications that were Renewable Energy Obligations, 2007 and Renewable Energy Certificate and Renewable Purchase Obligation Compliance Framework, 2010. According to these notifications, all captive generation power plants and open access consumers were obligated to purchase minimum energy from renewable sources and if they failed to follow such obligations then they had to pay a penalty (surcharge). Hindustan Zinc Ltd., Ambuja Cements Ltd., Grasim Industries Ltd., and 14 other companies filed an appeal questioning  RPO regulations enacted by the Rajasthan Electricity Regulatory Commission (RERC).

Issues raised

The disputed issues raised in the petition were:

  1. Firstly, whether RERC is authorized or not, to permit the order of RPO as well as to impose penalty due to the reason that Captive Power Plants (CPP) and Open Access (OA) were completely de-licensed activities under the Electricity Act 2003 and are contrary to Article 14 and Article 19(1)(g) of the Constitution of India.
  2. Secondly, the 2003 Act permits RPO only on the “total consumption in the area of the distribution licensee” and so whether the said provision applies RPO only on distribution licensees. 

Court’s observations

The High Court of Rajasthan, in August 2012, repudiated the appeal, filed by Hindustan Zinc Ltd., Ambuja Cements Ltd., Grasim Industries Ltd., and 14 other companies. The rejection of the petition was due to the following reasons:

  1. The word ‘total consumption in the 2003 Act, should be taken as total consumption in the area of distribution licensee in all matters. Total consumption cannot be inferred by the mention of area of distribution licensee that only consumers of the distribution licensee are included, rather it has to be seen by consumers of distribution licensee, captive power plants, and on supply through distribution licensee.
  2. The main purpose of imposing RPOs is to create a great initiative in the public interest. The constitution has laid down the responsibility of protecting and improving the natural environment on the Regulatory Commission, and duty as obligated on CPP and OA as well.

The above order of the Rajasthan High Court was challenged in the Supreme Court.

The Supreme Court of India also dismissed the appeal of the petitioners and upheld the RPO regulations made by RERC. The judgment of the Apex Court included the followings points:

  1. RPO applicability on captive and open access consumers comes under the ambit of the Electricity Act 2003.
  2. Moreover, the cost of carrying out the Renewable Energy Obligations is not comparable to the interest of the public at large.

Energy Watchdog v. Central Electricity Regulatory Commission (2012)

Case background

On February 1, 2006, Gujarat Urja Vikas Nigam Limited (GUVNL), issued a notice inviting bidders for a long-term supply of power. The bidders were allowed to choose escalable, non-escalable, or partly non-escalable tariffs so that they can cover their respective future risks.

  1. On May 25, 2006, Haryana Utilities also issued an invitation notice to bidders intending to make a long-term supply of 2000 MW of power. The bid documents and the process of working were accepted by both the Gujarat Electricity Regulatory Commission (GERC) and the Haryana State Regulatory Commission (HSRC), which were incorporated in those documents by GUVNL and the Haryana Utilities.  
  2. In January 2007, Adani Enterprises Consortium submitted its bid for the supply of 1000 MW of power to GUVNL. Accordingly, a PPA was entered between GUVNL and Adani Power. On November 24, 2007, Adani Power submitted its bid for supply of 1425 MW of power to Haryana Utilities and entered into two PPAs with Haryana Utilities. In 2010 and 2011, there was a change of law in Indonesia, which revised the export cost of coal from Indonesia. 
  3. So, Adani Power filed a petition before the CERC, under Section 79 of the Electricity Act, 2003, with the motive of backing out from the Power Purchase Agreement (PPA) or to alter the PPA to restore the same financial conditions. The order of CERC was later overruled by the APTEL and APTEL’s order was then overturned by the Supreme Court. 

Issues raised

  1. Firstly, whether there is a change in laws and so that PPAs can be revised.
  2. Secondly, whether force majeure should apply or not, to the matter as the price change is making it impossible to follow the agreement.
  3. Thirdly, whether a change in foreign law is pari materia in India.

Courts observations

Decision of CERC

The Commission levied the entire liability of fuel price variation on to the consumers, and allowed compensatory tariff to Tata Power and Adani Power, to the tune of Rs. 2,300 crore and Rs. 3,600 crore respectively till March 2016. Following this order, regulatory commissions of several other states such as Maharashtra, Uttar Pradesh, and Rajasthan walked on the same approach of modifying competitively set tariffs by granting compensatory tariffs.

Decision of APTEL

The unsatisfactory order of CERC was challenged before the Appellate Tribunal for Electricity (APTEL), which rejected the use of regulatory power to grant relief to the projects. It held that altering the domestic coal distribution policy and declaration of the Indonesian regulation cannot be viewed as a “change in law” under the PPA. Furthermore, it stated that the change in the price of imported coal falls under the ambit of “force majeure“. Therefore, it administered the commission to decide the reasonable relief that should be granted to such projects. But, due to lack of satisfaction from this order, again the appeals by several companies and NGOs were made to the Supreme Court of India.

The decision by the Supreme Court

On April 11, 2017, the case was heard before a division bench of the Supreme Court and the judgment was delivered by Justice R.F. Nariman. This judgment overruled the decision of both the CERC and the APTEL, by stating that no compensatory relief should be given to the sellers. Further, it stated that no person or company is allowed to back out from the agreement based on the frustration of the subject matter, as the Power Purchase Agreements had not made it mandatory that the coal has to be imported only from Indonesia. Also, the change in the law in Indonesia has nothing to do with laws in India and therefore cannot be taken into account for giving relief in India. Moreover, the words “any change in law” in the PPA are restricted to the change in electricity laws in India and not foreign laws.

The Constitution of India has placed the subject of electricity on the Concurrent list with the intention to make this crucial subject of power under the authorization of both centers as well as state legislatures. Once, Mr. Piyush Goyal, the Minister of Commerce & Industry, Consumer Affairs & Food & Public Distribution and Textiles, said – “Electricity can transform people’s lives, not just economically but also socially.” Indeed, besides being an economic factor, electricity is the social factor whose presence makes a lot of change in one’s life. Therefore, the government of India has provided the Electricity Act, 2003 along with certain commissions, which make sure to regulate the Act. From generation and distribution to transmission and trading of power, everything in-between is regulated by the Electricity Act, 2003. Moreover, certain amendments have been proposed in different Bills, to facilitate and advance the provisions of the 2003 Act. In a nutshell, electricity is provided in India within the laws and regulations of the Electricity Act, 2003 and the responsibility to synchronize such laws with regulations is on the regulatory commissions of India. 

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