In a letter to the Ministry of Power, the Andhra Pradesh Electricity Regulatory Commission (APERC) has expressed disagreement with the government’s proposed amendments to the Electricity Act.
In April, Mercom reported that the Ministry of Power issued a draft proposal for the amendment of the Electricity Act 2003 to address contract enforcement, among other vital issues. It invited for comments, suggestions, and objections from stakeholders. The last date for the submission of opinions was May 8, 2020.
Here are some of the APERC’s most important comments and suggestions:
Electricity Contract Enforcement Authority:
One of the significant proposals by the Ministry of Power in the amended Electricity Act was its plan to establish the Electricity Contract Enforcement Authority (ECEA) and to confer upon it the authority to decide on matters regarding the performance of contractual obligations on purchase or transmission of electricity.
The Ministry noted that the ECEA would not have any jurisdiction over regulation related matters, tariff determination, or any tariff-related disputes. It stated that the authority would comprise a chairperson, two or more judicial members, and three or more technical members as prescribed by the central government periodically.
The APERC argued that establishing a separate authority parallel to existing electricity regulatory commissions (ERCs) would dilute the responsibilities and the requirement for the ERCs. It explained that when ERCs remain vested with the power to approve power purchase agreements (PPAs) even after the establishment of the ECEA, authorizing the latter to enforce these PPAs would not make sense.
It added that the Ministry’s reason to establish this new authority because ERCs are already burdened with regulatory and other activities was inaccurate. The ERCs were created to help with tariff determination, approving PPAs, and adjudicating disputes. There was no reason to take away its role in adjudicating disputes between generating companies and licensees, and taking away this vital function would leave ERCs with no responsibility other than setting tariffs, according to the APERC.
“If the central government finds that the existing provisions are not adequate for proper and effective implementation of PPAs, it can as well insert appropriate provisions in that regard, instead of pruning the existing functions of ERCs,” the APERC stated.
The Commission urged the Ministry to drop this proposed amendment.
There is a good reason why this amendment has been proposed. Andhra Pradesh in July 2019, decided to review solar and wind PPAs signed between the state’s electricity distribution companies (DISCOMs) and power generators to renegotiate tariffs. Even after the Ministry of New and Renewable Energy and the Ministry of Power urged and warned the state against the drastic move, the state didn’t pay heed. The central ministry at that time realized its limitations when it comes to enforcing any state to honor a contract. They could, at best, only advise states with matters related to electricity. The adverse effects of this incident were felt throughout the renewable energy industry in the country, severely denting investor confidence. It is as a solution to such threats by the state that the ECEA has been proposed.
National Renewable Energy Policy:
The Ministry proposed to prepare and notify a ‘National Renewable Energy Policy’ to promote renewable energy generation and set a minimum percentage of electricity purchases from renewable and hydro-based power sources.
The APERC, in its response, said that this might be detrimental to the interests of state governments and distribution licensees by restricting their ability to set the renewable purchase obligation (RPO) targets based on state requirements and divest the responsibility to the central authority. It added that this would turn state agencies into mere executing agencies, and there was no need for this policy to be implemented.
National Load Despatch Center:
The Ministry proposed to make national load despatch centers (NLDCs) responsible for scheduling and dispatching power, monitoring grid operations, supervise the inter-regional and interstate transmission network, and have the authority to carry out real-time operations on the national grid.
It also proposed to make NLDCs in charge of the safety and security of the national grid to ensure grid stability and make it the overall supervising authority for regional and state load despatch centers, generating companies, and licensees.
The APERC argued that this would dilute the power of state load despatch centers (SLDCs) in making state transmission-related decisions and may result in conflicting directions from both the SLDC and the NLDC. It said that these decisions should be left to the discretion of SLDCs as under existing provisions.
Payment Security Mechanism:
The Ministry also proposed to give regional load despatch centers (RDLCs) the authority to make sure that adequate payment security measures are undertaken before scheduling or despatching electricity undersigned PPAs.
The Commission stated that this is already the responsibility of NDLCs and SDLCs and that asking RDLCs to monitor the payment security mechanism was unnecessary. Instead, it said strengthening the central and state bodies with legal mandates to enforce this would be a better idea.
The Ministry also planned to make Commissions determine tariff based on the provisions of a centralized tariff policy. They also proposed for Commissions to set tariffs without accounting for subsidies, if any, in which case, it will be directly provided to the consumer by the government.
The APERC rebutted this proposal by stating that direct benefit transfer (DBT) electricity to consumers eligible for subsidies would be premature and might not have the same intended effects as in the case of consumers receiving subsidies on liquified petroleum gas (LPG).
The Commission also said that implementing a centralized tariff policy would reduce state Commissions to mere implementing agencies, and this would be counter-productive.
Time Limit for Tariff Adoption:
The Ministry motioned for a 60-day window for Commissions to adopt a tariff discovered through a transparent bidding process, failing which, the tariff will be deemed to have been adopted by the Commission. This proposal is a reiteration of what was earlier amended in the guidelines of competitive bidding by the MNRE.
The APERC suggested extending the time limit from 60 days to 90 days to provide sufficient time for the Commission to conduct hearings, which take a long time. It added that 90 days should be counted from the date of admission of the petition.
The Ministry proposed to prescribe separate renewable purchase obligation (RPO) targets for renewable and hydropower-based sources of energy in the amended act.
The Commission advised against source-wise RPO targets and advocated a common target across different sources. It also added that prescribing these targets would be best left to the discretion of state Commissions.
The MoP inserted a new provision defining “Distribution sub-licensee” as a person recognized and authorized by the distribution licensee to distribute electricity on its behalf.
The APERC noted that this was no clarity of the role and responsibility of a distribution sub-licensee. It said that the term “Franchisee” already exists to serve the purpose of enabling a distribution licensee to distribute power “through another person.” It said that this was an unnecessary addition and would only serve to create unwarranted confusion.
The Ministry had also inserted a definition for the “Electricity Contract Enforcement Authority.” The Commission said that there was no need for such an authority. It said that setting up an exclusive authority at a central level would divest responsibility and leave the Commission with only tariff setting and license issue work.
Most of these proposed amendments have been a direct result of Andhra Pradesh setting a bad precedent by trying to renegotiate signed PPAs retroactively. The state has also delayed payment to solar and wind developers for months, and made a mockery of the sanctity of contracts, denting investor confidence in the sector, the state, and the country. The central government has been forced to make these amendments to prevent such damaging occurrences in the future.
Nithin is a staff reporter at Mercom India. Previously with Reuters News, he has covered oil, metals and agricultural commodity markets across global markets. He has also covered refinery and pipeline explosions, oil and gas leaks, Atlantic region hurricane developments, and other natural disasters. Nithin holds a Masters Degree in Applied Economics from Christ University, Bangalore and a Bachelor’s Degree in Commerce from Loyola College, Chennai.