SC directions to benefit electricity consumers

Source: The post is based on the article “SC directions to benefit electricity consumers” published in Business Standard on 12^th May 2023.

Syllabus: GS 3 – Infrastructure

Relevance: concerns with discoms

News: Discoms suffer loss and are mostly involved in litigations. Despite various compliance requirements, discoms continue to be a drag on the economy. SC has recently given judgment through its own observations in one of the litigations.

What has been the judgment of the Supreme Court regarding discoms?

Following observation have been made by SC in GMR Warora Energy Ltd versus Central Electricity Regulatory Commission and Others:

First, the court has said that the power purchase agreement itself provides a mechanism for payment of compensation on the grounds of change in law. In such a case, unwarranted litigation should be avoided.

The Court further emphasised that “change in law” events must begin to take place on the day on which regulations, orders, and notices are issued by state agencies.

Second, according to the SC, appeals under Section 125 of the Electricity Act of 2003 are only permitted on any of the grounds listed in Section 100 of the Code of Civil Procedure, 1908. This means that appeal to the SC can only be made on substantial questions of law.

As per SC, discoms shouldn’t appeal in matters when the Electricity Regulatory Commissions and the Appellate Tribunal for Electricity (APTEL) had issued appropriate rulings. This, however, undermines the purpose of The Electricity Act of 2003.

Third, the SC directed the Ministry of Power to 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. This will prevent the burden of carrying cost on the end consumers.

The court said that discoms can exercise their right to appeal against the order after making payments to generating companies.

However, discoms usually get involved into litigation which delays the payments and they also end up paying a late payment surcharge (LPS).

SC said that in such a scenario, concerned discoms shall not be allowed to pass on LPS /carrying cost to the end consumers.

Fourth, the court ruled that discoms are the root cause of massive financial stress across the power chain, thereby impacting the orderly growth of the economy.

There are clear directions from the Central Electricity Regulatory Commission, Ministry of Power and even various Parliamentary Committees to make timely payments to generating companies.

Despite this, discoms get involved into multiple litigations which results in LPS. This burden is ultimately passed on to the end consumers.

Fifth, the court raised concerns about claims made by the discoms’ counsel that the cost of buying electricity from independent power producers is significantly less than buying it from state-owned power plants.

Must Read: DISCOM sector in India: Challenges & solutions – Explained

What can be summarized from the above rulings?

The judgments may be summarized that the SC insisted the Union of India, through the Ministry of Power, to evolve a mechanism to avoid unnecessary and unwarranted litigation, the cost of which is also passed on to the end consumer.