legal issues arising out of the electricity act, 2003

Legal issues Legal issues arising out of the arising out of the

Electricity Act, Electricity Act, 20032003

Presentation by Mohit Saraf, Partner

Luthra & Luthra Law Offices

Luthra & Luthra Law Offices 2

Legal issues arising out of Electricity Act 2003Legal issues arising out of Electricity Act 2003

The Power Market in India TodayThe Power Market in India Today

Impediments to trading Solutions offered by the Act

Demand-Supply Imbalance

Generation delicensedSurplus Capacity – IPP/CPP

Power Grid Underdeveloped

Increased investment in Transmission

Open Access To be introduced in phases

Single Buyer Model – Bankrupt Utilities

Multiple Buyer Model



The Power Market in India TodayThe Power Market in India Today

Utility Risk Market Risk

T & D Losses Unbundling will force reduction

Excessive Price Regulation

Increase in Supply may lead to less regulation

Cross subsidy surcharge To be phased out



Enabling Framework for TradingEnabling Framework for Trading

Open access– Principle: buy and sell by wheeling

power through the existing transmission lines

– “Definite” and “mandated” time frame not provided

– If no open access Limited private investment Limited trading Perpetuating monopolies High tariffs Consumer’s choice limited




Tariff barriers to open access (Article 301 prohibits

expropriatory tariffs)– Wheeling charges– Surcharge for cross subsidy– Additional surcharge for

distribution licensee (S.42)




Non-tariff barriers to open access – STU/CTU – no obligation to increase

capacity (Compare Gas Policy)– Excess capacity to be determined

by STU/CTU– Chicken & Egg Situation – Open

Access v making Transmission a Stand alone business.

Bundling v Unbundling



Trading: the Legal FrameworkTrading: the Legal Framework

Trading defined by S.2(71) as “purchase of electricity for resale thereof”

Trading licensed under S.12 Jurisdiction of the commission to regulate trading

provided under Ss.14 and 52 Intra-state trade regulated by state commission

under section 86(1)(d) Inter-state trade to be regulated by central

commission under section 79(1)(j)



Regulation of Trading Under the Regulation of Trading Under the Electricity Act, 2003Electricity Act, 2003

Key administrative law principle is vice of excessive delegation.(Independent Regulator)

Sufficient safeguards against excessive delegation in the Act– Regulations subject to condition of previous

publication (S.178(3) and S.181(3)).– Regulation to be laid down before Parliament (S.179)

or State Legislatures (S.182).– Regulations to be in line with National Electricity

Policy, National Electricity Plan and Tariff Policy published under S.3



Regulation of Trading Under the Regulation of Trading Under the Electricity Act, 2003 (contd.)Electricity Act, 2003 (contd.)

Three types of regulation– Laying down financial and technical

requirements (section 52(1))– Guiding the evolution of the market structure

(section 66)– Coordinating regulatory overlaps (section

52(2))



Regulation - Financial and Regulation - Financial and Technical RequirementsTechnical Requirements

“…The appropriate commission may specify the technical requirement, capital adequacy requirement and creditworthiness for being an electricity trader” (section 52(1))



Regulation - Financial and Regulation - Financial and Technical Requirements (contd.)Technical Requirements (contd.)

Suggestions of the CERC – Trader to prove technical qualification – no

standards specified– Capital adequacy norm linked to exposure

limit– Creditworthiness in form of bank

guarantee to act as interim supplement to capital adequacy where trading limit exceeded

– License fee (section 15)– Capital adequacy norms may be a barrier

to entry



Regulation - Evolution of the Regulation - Evolution of the Market StructureMarket Structure

Development of Power Exchange – Role and functions– Exclusive Forum for Buy and Sell– Settlement of imbalances – Ensuring network access – Arranging contracts – Information disclosure and

dissemination in relation to Spot contracts and prices Excess capacity available in networks



Regulation - Evolution of the Regulation - Evolution of the Market Structure (contd.)Market Structure (contd.)

ERC to Power Exchange as SEBI vis-à-vis Stock Exchange– Lay down disclosure norms– Ensure compliance– Balancing interests of stakeholders



Regulation - Jurisdictional Regulation - Jurisdictional OverlapsOverlaps

Financial derivatives in power similar to commodity futures

Commodity futures trading regulated by Forward Markets Commission– Is electricity a ‘good’?– If not, who regulates trading in electricity futures?

Regulation of electricity derivatives needs specialized knowledge – is the ERC the appropriate regulator?

Where legislation unclear, core functional role of each regulator should determine jurisdiction– “Pith and substance” and “harmonious construction” relevant



The Electricity Act, 2003 (contd.)The Electricity Act, 2003 (contd.)

Ensures a level playing field:– Load Dispatch Centres prohibited from trading

because of quasi regulatory nature (Ss. 26, 27 and 31)

– Transmission Utilities prohibited from trading because of conflict of interest (Ss. 38 and 39)

– Transmission licensees also prohibited from trading (S. 41)



The Electricity Act, 2003 – At a The Electricity Act, 2003 – At a GlanceGlance

Generation – Delicense Competition and choice Multiple buyer model Freedom to set up captive power plants First time Recognition of Non-discriminatory

Open Access Compulsory Metering Independent Regulatory Body Commission has power, both for granting license

and tariff fixation.



The Electricity Act, 2003 – At a The Electricity Act, 2003 – At a Glance………..(Cont’d.)Glance………..(Cont’d.)

Transco cannot engage in TradingExcessive Tariff Regulation Reorganize Electricity Industry on modern

principlesSetting up of Standards of performanceConsumer ProtectionCEA Role Streamline



Captive generating plantCaptive generating plant

Captive generating plant – means a power plant set up by any person to generate electricity primarily for his own use and includes a power plant set up by any co-operative society or association of persons for generating electricity primarily for use of members of such co-operative society or association

non-discriminatory open access No surcharge

legal issues arising out of the electricity act, 2003

Documents