Further precipitating Punjab’s power crisis?
Punjab elections: Power bills cut down, unilateral renegotiation of tariff leading to Punjab’s power woes.
In March 2022, the results of the state elections in Punjab would be declared. In the run up to the elections, the Government cut down power bills by INR 3 per unit for domestic consumers with a load of up to 7 KW. Previously, in July 2021, the Punjab Government had instructed the Punjab State Power Corporation Limited (PSPCL), the state distribution company (DISCOM), to cancel or ‘revisit’ all ‘one-sided’ power purchase agreements (PPAs) that PSPCL had entered into with Independent Private Producers (IPPs). Consequently, In November 2021, the Punjab State Legislative Assembly passed two electricity bills (Bills) which give statutory recognition to the renegotiation of power tariff by the Punjab State Electricity Regulatory Commission (PSERC). This attempt at unilateral renegotiation of tariff can further precipitate Punjab’s power woes.
The Punjab Energy Security, Reform, Termination and Re-determination of Power Tariff Bill, 2021 proposes the termination of all clauses, directly or indirectly, impacting tariff in two PPAs that PSPCL had executed with the thermal power plants Nabha Power Limited (NPL) and Talwandi Sabo Power Limited (TSPL). The Punjab Renewable Energy Security, Reform, Termination and Re-determination of Power Tariff Bill, 2021, on the other hand, intends to terminate all tariff clauses in over 80 PPAs that the PSPCL had executed with various renewable energy IPPs.
Both the Bills stipulate that the relevant PPAs, including the implementation agreements executed by the Punjab Energy Development Authority would be referred to the PSERC for re-determination of tariff along with all matters that, directly or indirectly, impact tariffs. A temporary tariff would be determined by the PSERC to ensure continuity in the electricity supply and energy security of the State, until the final determination of tariff by the PSERC.
The regulation of electricity tariffs is a matter prescribed under the Electricity Act, 2003 (Electricity Act). Under Section 86(1)(b) of the Electricity Act independent regulatory authorities in the form of State Electricity Regulatory Commissions (SERCs) have been set up by each state government. A SERC is, inter alia, authorized to determine electricity tariff and regulate electricity purchase and procurement costs within the state. The Electricity Act contemplates two mechanisms under which PPAs are signed between a DISCOM and an IPP. First, the MoU Route under Section 62 of the Electricity Act, and second, the Bidding Route under Section 63 of the Electricity Act. Under the MoU Route, the state DISCOM signs a PPA with a power generator and the tariff is determined by the SERC factoring in the project cost and the expected returns of the project. Under the Bidding Route, the state DISCOM enters into a PPA based on reverse auctions. As the Bidding Route leads to the discovery of lower tariffs, it is preferred by a number of DISCOMS.
Under the MoU Route, the SERC determines the tariff for supply of electricity. Section 62 requires that the tariff be determined in accordance with the provisions of the Electricity Act. One principle prescribed under the Electricity Act is balancing consumer interest while at the same time ensuring that the cost of electricity tariff progressively reflects the cost of electricity supply. This tariff determined by the SERC cannot be amended more than once in a financial year.
Under the Bidding Route, the role of the SERC is limited to adopting the tariff that has been determined after following a transparent bidding process. The tariff in these cases is arrived at on the basis of competitive bids invited by state DISCOMS. The SERC’s role is limited to being satisfied that the bidding process has followed the appropriate Tariff Based Competitive Bidding Guidelines issued by the Central Government. There is no express provision or mechanism providing for the amendment of such tariff.
In Energy Watchdog and Others vs. Central Electricity Regulatory Commission and Others, the Supreme Court had clarified that the power to adopt a tariff under Section 63 of the Electricity Act, stems from the power of the Central Electricity Regulatory Commission (CERC) to regulate tariff rate under Section 79(1)(b) of the Electricity Act. While the Supreme Court’s observations were in relation to the CERC’s power under Section 79(1)(b), the principle would also apply to the SERC’s powers under Section 86(1)(b). The Court observed that in deciding petitions under Section 63 of the Electricity Act, the appropriate commission does not determine tariff but only adopts tariff that has already been determined. Thus, where PPAs are entered into via the Bidding Route, the SERC would not have the power to renegotiate tariff. In Gujarat Urja Vikas Nigam Limited vs. Tarini Infrastructure, too, the Supreme Court observed that tariffs adopted by the SERC via competitive bidding under Section 63 of the Electricity Act, would be one of the exceptions to the SERC’s power to determine and fix tariff.
The PPAs that are intended to be renegotiated under the Bills, were entered into on the basis of competitive bids conducted by the PSPCL in accordance with the relevant guidelines of the Ministry of Power. The Bills fail to distinguish between PPAs entered into via the MoU Route and the Bidding Route. Further, the Bills grant powers to the SERC that contradict the provisions of the Electricity Act.
Electricity is an entry in the Concurrent List of the Indian Constitution.
Thus, both the Parliament and State Legislatures have the power enact laws on this subject. Article 254 of the Constitution states that if any law made by a State Legislature is repugnant to a law made by Parliament with respect to a matter in the Concurrent List, then, the law made by Parliament, would prevail and the law made by the state Legislature would to the extent of the repugnancy, be void. However, where the State Legislature has sought the President’s asset for the law made by it, such a law would prevail in that State. Unsurprisingly, the Bills have been referred to the President by the Governor of Punjab as per the provisions of Article 200 and Article 254(2) of the Indian Constitution.
Regardless of whether the Bills become law, or are held to be constitutionally valid when they become law, they will certainly dampen the investor sentiment in the power sector. Sanctity of PPAs has been a pain point for India ever since the Andhra Pradesh Government sought to re-negotiate PPAs. In February 2022, in the case of Southern Power Distribution Power Company Limited of Andhra Pradesh (APSPDCL) vs. M/s Hinduja National Power Corporation Limited (HNPCL), the Supreme Court depreciated the conduct of the APSPDCL which threatened to jeopardize the investment made by HNPCL in setting up a power plant. In this case, the Supreme Court reiterated that every action of the State is required to be guided by the touchstone of non-arbitrariness, reasonableness and rationality. If the Punjab electricity Bills were to become law, it would be unlikely that they would meet this touchstone.
Disclaimer: The authors opinions are personal and do not necessarily reflect those of the firm
