A Research Assignment on

A STUDY ON ELECTRICITY ACT

​Submitted by
K. ROHITH KUMAR
131402023

SUBJECT: REGULATORY LAW

Submitted to
Ms. Nivetha
Assistant Professor of Law

SAVEETHA INSTITUTE OF MEDICAL AND TECHNICAL SCIENCES

JUNE 2018
 A STUDY ON ELECTRICITY ACT
Rohith kumar. K​*[1]
Nivetha ​**[2]

ABSTRACT
The Electricity Act promised to remove the maladies which afflict the Indian Power Sector and
that too at a time when the sector was ridden with problems. With concepts such as open access,
multiple distribution licensees, wheeling of electricity etc, the act intended to encourage healthy
competition which in turn was meant bring a paradigm shift in the sector. The paper undertakes a
systematic literature review to find the status of review of the promising Act. More than a decade
has passed since its enactment and amendments are due with the legislative body of India but
none of the literature reviewed gives a comprehensive view encompassing all the objectives of
the Act. Moreover, these documents study either the probable impact or the impact on a
particular segment. It has important implications for the Power sector which highlights a
significant gap in literature and provides a basis on which future research can be built upon.
This paper analyzes the likely impacts of the major policy reforms unveiled by the Government
of India for revamping the country's power sector. The provisions of the electricity act which is
the new enactment have recently come into force and seek a paradigm policy shift in the form of
the Electricity Act. The paper details out the key features of the Act and the likely power
industry changes being brought about in the new regime. These changes comprises of the
structural transformations in the power industry as well as the policy issues related to generation,
transmission and distribution of power. Also discussed are the other major areas where
transformation is sought and impacts are expected: power trading, role of regulator in the new
regime, issue of open access, empowerment of the consumers and the environmental issues.
Keywords :- ​electricity, regulation, power sector, distribution licenses.

INTRODUCTION
The Act is a significant one in recreating and balancing by creating a market-based regime in the
Indian power sector and consolidates the laws relating to generation, transmission, distribution,
trading, supply of electricity and use of electricity. It generally takes measures conducive to
development of electricity industry, thereby promoting competition, protecting interests of
consumers and supply of electricity to all areas. This dissection of assertion made on the
promotion and creation of rationalization in the electricity tariff ensuring transparent policies
regarding subsidies, promotion of efficient environmentally benign policies, constitution of a
Central Electricity Authority and Regulatory Commissions, establishment of Appellate Tribunals
the act shall entail impacts on every segment of the power sector be it generation, transmission or
distribution and shall introduce large scale changes in the current Power industry Structure.
The paper is organised as follows. In next section a brief description of institutional framework is
provided. The regulatory governance and criteria to measure it are discussed. This is followed
with description of the institutional endowments at national and state level in Indian context
setting the scene for discussion of electricity regulatory system in following section. Discussion
and concluding remarks are provided in the last section.

AIM OF THE STUDY

● To conceptualise and contextualise legal framework of the institutional endowments at
national and state level in Indian context.
● To analyse the promotion and creation of rationalization in the electricity tariff ensuring
transparent policies.

HYPOTHESIS
Regulatory law in India requires capabilities and stability in the process of electricity reforms.

REVIEW OF LITERATURE
1. “ ​Regulatory law and practice” by Paul Salember explains the impact of the major policy
reforms unveiling by the Government of Indian for revamping Country’s power sector.
2. “Regulatory law and policy” by Sidney A. Shapiro and Joseph. P. Tormain says that the
creation of a market based regime in the Indian power section consolidating laws relating
to use, transmission and distribution of electricity.
3. “Administrative law and Regulatory policies” by Breyer and Stephen. G. explains about
the impact on the utilities operations due to the new transmission system.
4. “Financial Regulation Law and policy” by Micheal says about the implication of the act
of power distribution under the Electricity act in India.
5. “The legal and regulatory environment of business” by Marisa Anne Pagnattaro explains
about the role of Regulators shall be through the period of transition in case of testing.
6. “Regulatory law and policy cases and materials” by Sidney explains about the
determination and Regulation of tariffs for Central and interstate generating stations.
7. “Business regulatory frameworks” by Rupali Sheth explains about the entire Indian
power sector has been cultivated in subsidy regimes.
8. “Product Regulation and liability review” by law review says about the protection to
consumers with reference to standards of performance.
9. “Regulatory bargaining and public law” by Jim Rossi talks about the establishment of a
forum by the distribution licenses to protect consumers.
10. “Legal and regulatory aspects of commerce” by Kenna says about the Environmental
impact of the reforms in an area of vital concerns that has to be established.
11. “ Regulatory law” by Anne Marie Mooney Cotter says about the environmental concerns
have to be addressed with reference to new platform.
12. “Comparitive law and Regulation” by Bignami and David zaring talks about the
measures for the market to send appropriate price signal or security for new generation
capacity.
13. “Regulatory rights” by Larry Yackle says the timeframe and adherence to a strict
timetable for implementation of various provisions of the act.
 14. “ law relating to electricity in India” by S. Krishna Murthy Aiyar sats about the electricity
act is totally concerned with the promotion of efficient and environmental policies.
15. “The electricity laws of India” by S. K. Chatterjee says about the act provides protection
to consumers with reference to standards of performance.
16. “Laws relating to electricity in India” by Stephen Herman says about the amendments to
guidelines and laws relating to generation.
17. “Regulating public utility performance” by Scott Hempling says about the basic
framework for electric supply in India.
18. “Handbook of electricity la bu P. L. Malik says that a person cannot be prosecuted for
any offence without permission of appropriate government.
19. “Law relating to electricity” by Justicd. G. C. Mathur sats about special court and
Governmeht can constitute and facilitate speedy trials of offences.
20. “Law relating to electricity in India” published by universal law publisher says about the
financial memorandums of Bill estimating schemes and components under the act.

MATERIALS AND METHODS

The researcher has referred the government archival documents, government orders and etc. The
researcher has referred secondary sources namely books, journals, research articles, unpublished
theses, newspapers and e-sources at the time of writing this article.

INSTITUTIONAL FRAMEWORK ANALYSING REGULATORY STRUCTURE

The privatisation and regulation experiment in the UK and many other countries is much studied
phenomenon. In most of the studies on economic regulation, the focus has been on instruments
of regulatory policies such as price controls or rate of return. Earlier literature on regulation of
US electricity, telecommunications and other regulated industries also show similar trends. As
Levy and Spiller (1994) note that much of the literature on regulatory challenges concentrates on
regulatory instruments such as incentive regulation[3]. Attempts by several economies in since
1980s to find market based solutions to supply of infrastructure services have not been uniformly
effective. Levy and Spiller (1994) argued that a nation’s institutional endowments influence the
country’s regulatory design and order. Following North (1990) and others a nation’s institutional
endowment is argued to comprises of many elements. [4]

NATIONAL INSTITUTIONAL ENDOWMENTS IN INDIA

As a sovereign parliamentary system Indian government is characterised by two houses of
parliament with a written constitution clearly separating the functions of legislative, executive
and judiciary. [5]Indian judicial system is similar to one in the UK as it evolved during the
British rule of India and has retained much of the character in post independence period also.
Constitution of India provides high level of independence and security to judges[6]. Indian
judiciary, particularly High Courts and Supreme Court enjoy high level of credibility. Except
during a short period between 1975-77 when emergency was declared by the then government,
the judiciary and legislature have enjoyed the independence from the executive.
Although India is a parliamentary democracy a multi party electoral competition for power has
emerged only recently. [7]There were attempts between 1950 and 1985 by other political parties
to compete with Congress party, it remained effectively one party system till the Bharatiya Janta
Party (BJP) really challenged the stronghold of Congress party at the national level.
Subsequently however, many regional political parties and various leftist political parties have
become significant enough to thwart emergence of bipolar political system at the Central level.
[8]Indeed since 1991, there have been minority governments supported by smaller parties or
coalition government at the Central level. It is rather ironic fact about recent Indian polity that
major economic reforms were launched by a minority Congress government supported by few
regional parties. The executive has substantial control over legislative agenda and legislature
when one of the main national political parties has clear electoral mandate[9]. However, the
recent general elections to Indian parliament in the years 1991, 1996, 2002 have shown that
coalitions may impose severe restrictions on the legislative and executive powers of the
government. A pertinent example is ‘disinvestment policy’ which is potentially a cornerstone in
turning around most of the public sector enterprises. Although ‘disinvestment’. NDA (National
Democratic Alliance) coalition government led by main political party BJP keen on
implementing the disinvestment policy, which it essentially inherited from previous Congress led
minority government, set up a separate ministry at federal level with a Cabinet Minister in charge
of the programme. However, the UPA (United Progress Alliance) coalition government led by
main political party Indian National Congress that took over power from NDA, decided not to
have disinvestment ministry and reduced emphasise on disinvestment policy[10]. This has
practically halted privatisation programme. The reason for this major shift in the policy
implementation is the fact that UPA government is supported in parliament by various
communist parties who have significant presence in a parliament where neither mainstream party
could secure the clear mandate from people.[11]
After becoming a sovereign republic Indian various national governments with effectively one
dominant party (Indian National Congress) broadly followed a ‘command and control economy’
model leaning more towards erstwhile Soviet Union style planned economy. Excessive
regulation of private sector and substantial segment of industrial economy (steel, electricity, gas,
petroleum, heavy engineering, tele-communications among other sectors) was dominated by
public sector enterprises. The legacy of public ownership of utilities still continues. Public
ownership of utilities has lent itself to interference by the executives which has affected the
economic performance of the PSUs. Political interference is most visible in form of distributive
politics in electricity industry.[12] Publicly owned electric utilities have been used to provide
power to certain segment of customers, particularly farmers, at a highly subsidised rates or even
free of costs in some states. In petroleum and gas supply industry the kerosene, cooking gas
(Liquified Petroleum Gas) are highly subsidised resulting in huge cross subsidies or losses.[13]

ELECTRICITY REGULATION IN INDIA

Indian constitution lists electricity in Concurrent List, meaning both the federal and state level
governments are authorised to frame policies regarding electricity supply industry except for
nuclear power which is in domain of only federal government[14]. This national level
institutional endowment meant that the public sector only could supply power in the country[15].
Hence the industry structure remained monopolistic till the reforms were undertaken in 1991.
[16]After 1991 not only the public sector monopoly removed from the industry but regulation of
the industry was delegated to regulatory commissions and also in some cases assets of public
enterprises were privatised. These developments have changed the institutional landscape and
market structure that now guide the development of the industry.
Since 1991 reform of electricity industry has witnessed slow and inconsistent policy response.
The electricity sector was opened up and private investment was invited in generation. In early
1990s a large private investment project in electricity generation in the state of Maharashtra was
implemented by Enron (jointly with GE and other companies) and ended in a disastrous
situation. The project was negotiated between the state government of the day and the
consortium of companies.
Recent legislation that has guided the creation of reform, restructuring and regulation of
electricity industry in India is Electricity Regulatory Commissions Act, 1998 which was later
repealed and replaced with Electricity Act, 2003. Central Electricity Regulatory Commission
(CERC) created in 1998 to oversee the development of electricity markets at national level and
also to lead in providing regulatory framework for the states to follow. Subsequently 18 major
states have set up state electricity regulatory commissions (SERCs). These SERCs are created
after each state legislature has passed a relevant legislation[17]. The structure and functions of
SERCs are similar in all states. The central government still guides the overall development of
the industry and its regulation through National Electricity Policy. Therefore, institutional
analysis of regulatory governance in India requires mention of the national electricity policies.
The description of electricity reforms envisaged by the National Electricity Policy and the
Electricity Act require substantial autonomy, capabilities and stability in the regulatory process.
[18]

REGULATORY PROCESS AND GOVERNANCE

Most of the discussion to six parameters of clarity of objectives, autonomy, participation,
accountability, transparency and accountability is applicable in case of Gujarat Electricity
Regulatory Commission (GERC) through state legislation passed in 2003.Referring back to the
case of MERC and jurisdiction issues raised by the case requiring the distribution licensees to
create Consumer Grievance Redressal Forums prescribes in its guidelines that 1/3 of the
members of the CGRFs should be consumer representatives. [19]While there is clarity of
objectives and there are many functions of the commission mentioned in the Act, it seemed from
the interviews that SERCs view their main functions as licensing for distribution and fixing the
tariffs.[20] The participation and consultation process though is there in principle, it still appears
low with few people interested in the regulatory process. [21]This is less of an institutional
weakness but more of a reflection on the society who still sees state entities as main suppliers of
the power. Regulatory capabilities critically depend on human and financial resources of an
agency. [22]

CONCLUSION
The institutional framework that is used to conceptualise the regulatory governance in India has
provided an opportunity to examine the regulatory process objectively. An important finding
from this study has been that despite having clear legislative mandate, the regulatory governance
is still vulnerable to state interference. The multi-party political system, institutional framework
that has evolved during ‘command and control’ approach to economy, public ownership of
electricity industry (with embedded distributive politics) have created an institutional and
political legacy that is likely to delay the emergence of effective and efficient regulatory regimes
in India. Stern and Holder (1999) and some other scholars have mentioned relative success of the
Telecom Regulatory Authority in India in ensuring development of competitive markets and as a
result the telecom prices have gone down in real terms as well as access has improved. The key
difference is that the telecoms services before liberalisation were not accessible to the poor and
lower middle income consumers in India therefore, the state level political fall out of
privatisation and reform were less important. In case of electricity the situation is quite reverse.
The farmers and household consumers are important political constituency at state level and
electricity is a state subject unlike telecommunications. The reality is likely to view the
electricity regulations in India moving slowly from its dormant state now to youth and maturity
with success. Going back to the five elements of institutional endowment listed by Douglas
North, we agree with Stern and Holder (1999) in emphasising the importance of the subject for
understanding the regulatory governance in India. Given that Indian government is likely to
organise gas, roads, ports and airports around market principles. Some of these industries will be
regulated and this will imply that final point in North’s list about administrative capabilities also
assumes importance in Indian context.

REFERENCES
1. Government of India,"The Electricity Act, 2003", The Gazette of India, Extraordinary, 2003,
Part II Section 3 Sub-section (ii), New Delhi, Ministry of Power, June 10, 2003

2. Das, A., Parikh, J. and Parikh, K. S., "Power the critical Infrastructure" in India Development
Report (ed Parikh KS), 1999-2000, Oxford University Press, 1999

3. Ministry of Power, "Blue print For Power Sector", Government of India, 2001

4. Ghosh S.,"Electricity consumption and economic growth in India", Energy Policy, vol. 30,pp.
125-129, 2002

5. Information Technology Task Force,. "I T Task Force Report for Power Sector", The
Ministry of Power, Government of India, 2003

6. Infraline.com (2003), Electricity Act 2003:Impact on Captive Power [Online]. Available:

http://www.infraline.com/power/

7. Infraline.com (2003), The Electricity Bill and Rural Electrification [Online]. Available: 2003.
http://www.infraline.com/power/

8. Chaitiara, P., Shekhar, R. and Kalra, P. K., "The Electricity Sector: Missing Interconnections
in the Power Systems" in India Infrastructure Report 2001, Oxford University Press, 2001
9. Planning Commission, " The Working of State Electricity Boards & Electricity Departments",
Annual Report 2001-02, Power & Energy Division, Government of India, 2002

10. Chattopadhyay, P.,"Cross-subsidy in electricity tariffs: evidence from India", Energy Policy

11. http://powermin.nic.in/sites/default/files/uploads/523.pdf

12. “The Electricity Act, 2003" (PDF).

13. “The electricity bill, 2014" (PDF).

14. “Daily nation wise Power Supply Position". Archived from the original on 24 June 2013.

15. Kulshreshtha, M., 2000. Demand investment productivity and bene- ficiation issues in the
Indian coal sector. Ph.D. Thesis, Indira Gandhi Institute for Development Research (IGIDR),
Mumbai, India.

16. Sharma, D., 2003. The multidimensionality of electricity reform—an Australian perspective.
Energy Policy 31, 1093-1102.

17. Paddon, M., Small, R. (Eds.), 1999. Competition: in whose interest? The Socio-Economic
Impacts of National Competition Policy. Public Sector Research Centre & Public Interest
Advocacy Centre, Sydney.

18. The Gazette of India, Extraordinary, 2003. The Electricity Act, 2003. Part II Section 3
Sub-section (ii) June 10, 2003. Ministry of Power, Government of India, New Delhi.
19. Ghosh, S., 2002. Electricity consumption and economic growth in India. Energy Policy 30,
125-129.

20. ABARE (Australian Bureau of Agricultural and Resource Econom- ics), 2000. Trends in
Australian Energy Intensity: 1973-74 to 1998- 99. Draft Report, ABARE, Canberra, In: Sharma,
D., 2003. The multidimensionality of electricity reform—an Australian perspec- tive. Energy
Policy 31,1093-1102.

[1] * ​4TH
​ YEAR, BBA LLB (HONS), Saveetha School of Law, Saveetha University, email
id:maidakumar@gmail.com

**[2] ​Assistant Professor of Law, Saveetha School of Law, Saveetha University, email id:
nivethav.ssl@saveetha.com
[3] ​Paddon, M., Small, R. (Eds.), 1999. Competition: in whose interest? The Socio-Economic Impacts of
National Competition Policy. Public Sector Research Centre & Public Interest Advocacy Centre, Sydney.
[4] ​Ministry of Power, "Blue print For Power Sector", Government of India, 2001

[5] ​Infraline.com (2003), The Electricity Bill and Rural Electrification [Online]. Available: 2003.
http://www.infraline.com/power/
[6] Kulshreshtha, M., 2000. Demand investment productivity and bene- ficiation issues in the Indian coal
sector. Ph.D. Thesis, Indira Gandhi Institute for Development Research (IGIDR), Mumbai, India.
[7] ABARE (Australian Bureau of Agricultural and Resource Econom- ics), 2000. Trends in Australian
Energy Intensity: 1973-74 to 1998- 99. Draft Report, ABARE, Canberra, In: Sharma, D., 2003. The
multidimensionality of electricity reform—an Australian perspec- tive. Energy Policy 31,1093-1102.
[8] ​Information Technology Task Force,. "I T Task Force Report for Power Sector", The
Ministry of Power, Government of India, 2003
[9] ​Planning Commission, " The Working of State Electricity Boards & Electricity Departments", Annual
Report 2001-02, Power & Energy Division, Government of India, 2002

[10] ​Chaitiara, P., Shekhar, R. and Kalra, P. K., "The Electricity Sector: Missing Interconnections in the
Power Systems" in India Infrastructure Report 2001, Oxford University Press, 2001
[11] Ghosh S.,"Electricity consumption and economic growth in India", Energy Policy, vol. 30,pp.
125-129, 2002
[12] Daily nation wise Power Supply Position".
[13] Das, A., Parikh, J. and Parikh, K. S., "Power the critical Infrastructure" in India Development Report
(ed Parikh KS), 1999-2000, Oxford University Press, 1999
[14] Ghosh, S., 2002. Electricity consumption and economic growth in India. Energy Policy 30, 125-129.
[15] ​Infraline.com (2003), Electricity Act 2003:Impact on Captive Power [Online]. Available:
http://www.infraline.com/power/
[16] ​ “The Electricity Act, 2003" (PDF).
[17] ​The Gazette of India, Extraordinary, 2003. The Electricity Act, 2003. Part II Section 3 Sub-section
(ii) June 10, 2003. Ministry of Power, Government of India, New Delhi.
[18] ​Chattopadhyay, P.,"Cross-subsidy in electricity tariffs: evidence from India", Energy Policy
[19] ​ http://powermin.nic.in/sites/default/files/uploads/523.pdf
[20] ​The electricity bill, 2014" (PDF).
[21] ​Sharma, D., 2003. The multidimensionality of electricity reform—an Australian perspective. Energy
Policy 31, 1093-1102.
[22] ​Government of India,"The Electricity Act, 2003", The Gazette of India, Extraordinary, 2003, Part II
Section 3 Sub-section (ii), New Delhi, Ministry of Power, June 10, 2003