SC directions to benefit electricity consumers

The strictures passed by the highest court for preventing needless litigation should end up making electricity more affordable

All discussions on the power sector inevitably end up chastising distribution companies (discoms) for their errant behaviour — both with their suppliers and with their customers. This “discom-bashing” has been going on for well over three decades and ranges from commentaries on unacceptable transmission and distribution losses, irrational tariffs, corruption at various levels, poor customer service, suspicious accounting, to generally holding the power sector to ransom.

It has to be recognised that some discoms (both private and state-owned) have managed to emerge out of the sectoral morass and delivered outstanding improvements. But they are more the exception than the norm. Overall, in spite of many schemes, the distribution sector still continues to be a drag on the economy.

It is also common knowledge that much of the ills attributed to discoms are the result of misguided and populist policies of political parties across the spectrum. Various “reform initiatives” proposed by the Union power ministry over the decades have been stymied due to resistance from state governments and the unhelpful attitude of the discom unions. So, the power ministry keeps chipping away and tightening the noose with stricter compliance requirements. Some of these have helped, as is evident in the decreasing outstanding dues of discoms, some improvement in distribution efficiencies and the like.

Into this complicated environment, the Supreme Court has now stepped in with its own set of strictures and observations. In a landmark judgment delivered on April 20 in the case of GMR Warora Energy Ltd versus Central Electricity Regulatory Commission and Others, the Court has made some hard-hitting remarks.

Broadly, they fall into five categories. The first is the issue of “change in law” that impacts tariffs. The order takes pains to point out that when the power purchase agreement itself provides a mechanism for payment of compensation on the grounds of “change in law”, unwarranted litigation, which wastes the time of the Court, should be avoided. Ultimately, the huge cost of litigation on the part of discoms as well as the generators adds to the cost of electricity that is supplied to the end consumers. The Court also points out that the “change in law” events will have to accrue from the date on which rules, orders, notifications are issued by the instrumentalities of the state. In spite of this, discoms tend to pursue litigation after litigation.

The second point relates to jurisdiction. The judgment noted that appeals to the Supreme Court under Section 125 of the Electricity Act, 2003, are only permissible on any of the grounds specified in Section 100 of the Code of Civil Procedure, 1908. As such, the appeal to the Supreme Court would be permissible only on substantial questions of law. However, as already observed, even in cases where well-reasoned concurrent orders are passed by the Electricity Regulatory Commissions and the Appellate Tribunal for Electricity (APTEL), the same are challenged by the discoms as well as the generators. The order states that once there are concurrent findings by expert bodies like the Electricity Regulatory Commissions and APTEL, there is no need for discoms to further indulge in prolonged litigation. This defeats the very purpose of The Electricity Act, 2003. On account of pendency of litigation, once again, it is the end consumer who suffers. The Supreme Court is of the opinion that such unnecessary and unwarranted litigation needs to be curbed.

Third, as directed by the apex court, the Ministry of Power should evolve a mechanism such that once the first order is received from a state or Central Regulatory Commission, discoms should first make the payment to generating companies so that the burden of “carrying cost” on the end consumers can be avoided. Discoms can exercise their right to appeal against the order after making payments duly reserving their right for refund if they succeed. Discoms, however, continue to resort to multiple litigations, thereby delaying due payments to the generating companies, and, in fact, end up paying a late payment surcharge (LPS) for their payment defaults. If such LPS arise, concerned discoms shall not be allowed to pass on such LPS / carrying cost to the end consumers.

Fourth, the judgment rues the fact that discoms are the root cause of massive financial stress across the power chain, thereby impacting the orderly growth of the economy. The Court observed that there are clear directions from the Central Electricity Regulatory Commission, Ministry of Power and even various Parliamentary Committees enjoining discoms to make timely payments to generating companies. The effect of withholding the payment in view of multiple litigations results in an increase in carrying costs/LPS, which then reflect in the aggregate revenue requirement of discoms and is ultimately passed on to the end consumers as a tariff shock.

The fifth point is an interesting revelation during the proceedings. To a pointed query, the learned counsel for the discoms conceded the position that the prices at which the electricity is purchased from independent power producers is substantially lower than the power purchased from state generating companies. The Court noted this with a degree of concern.

The key summary of most of the observations ultimately boils down to the Supreme Court insisting that the Union of India, through the Ministry of Power, “may evolve a mechanism to avoid unnecessary and unwarranted litigation, the cost of which is also passed on to the ultimate consumer.”

This needs strict implementation; and to be more specific — the officials concerned need to be held accountable henceforth.

The writer is an infrastructure sector expert. He is also the founder and managing trustee of The Infravision Foundation