Bifurcation of state raises issues for electricity sector

By Neeraj Menon and Rashi Ahooja, Trilegal
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The Andhra Pradesh Reorganisation Act, 2014, received the assent of India’s president on 1 March and on 2 June the successor states of Andhra Pradesh and Telangana came into exist- ence. The act provides a roadmap for the creation of the new states and sets out the manner in which assets and liabili- ties of the old state will be apportioned between the successor states.

Impact on power sector

In addressing issues impacting the power sector, the act sets out various principles, guidelines and directions on matters related to power genera- tion, transmission and distribution. For instance, schedule 12 of the act provides that existing power purchase agreements (PPAs) with distribution companies in the old state of Andhra Pradesh will continue and that the existing Andhra Pradesh Electricity Regulatory Commission (APERC) will function as a joint regula- tory body for a period not exceeding six months, within which time separate state electricity regulatory commissions will be formed in the successor states.

Neeraj Menon
Neeraj Menon

The above provisions and others affecting the electricity sector are poten- tially litigious and are subject to differ- ent interpretations. For instance, while the act provides that units of Andhra Pradesh Power Generation Corporation will be divided based on geographical location of power, in the same breath, the act provides that the existing PPAs will continue (i.e. regardless of any impact of the geographical bifurcation). Further, owing to the reorganization, each suc- cessor state is trying to secure its energy needs, which is evidenced by Andhra Pradesh trying to unilaterally cancel existing PPAs.

The lack of clarity and detail in the act’s provisions in relation to the electricity sector are a cause for growing concern among stakeholders which are required to implement such provisions.

For instance, for a generating sta- tion which has a PPA with distribution companies from both successor states, while the act provides that existing PPAs will continue for both ongoing projects and projects under construction, it is anybody’s guess how such PPAs will continue as is without any modifications to take into account ramifications of the bifurcation.

One of the key issues that begs to be addressed concerns the nature of the generating station and the appropriate commission. Generating stations that supply electricity to more than one state will be classified as inter-state gener- ating stations and attract the jurisdic- tion of the Central Electricity Regulatory Commission, as opposed to being within the purview of the APERC.

Another key issue involves the revision in delivery points and additional charges in relation to inter-state transmission. With the delivery points of the distribu- tion utilities and the transmission lines being converted to inter-state, separate regimes regulating such inter-state trans- mission (i.e. sharing of point of connec- tion charges) would have to be adopted.

In light of the teething problems, the central government had constituted a committee under the chairmanship of the Central Electricity Authority to resolve various matters raised by the successor states in relation to inter-state transmis- sion system, formation of separate regu- latory authorities for each state, recogni- tion of PPAs, etc. While the committee’s draft recommendations condemned cancellation of existing PPAs by Andhra Pradesh to deny electricity to Telangana, it is believed that Andhra Pradesh is chal- lenging the jurisdiction of the committee to determine any issues pertaining to sharing of power between the two states, including cancellation of existing PPAs.

The road ahead

The Andhra Pradesh reorganiza- tion being the first of its kind since the Electricity Act was enacted in 2003, one would have expected a little more direction and clarity vis-à-vis electricity treat- ment and sharing. It is also unfortunate that the central government did not con- sult APERC when the Reorganisation Act was in a draft bill stage and consequently APERC has had to express its concerns by issuing various advisories to the gov- ernment. Further, orders being issued by APERC rejecting unilateral cancellation of PPAs are now being targeted by the Andhra Pradesh government on the grounds that APERC lacks the necessary jurisdiction.

Rashi Ahooja
Rashi Ahooja

While this bifurcation provides many lessons for any such reorganization in the future, in order to resolve the power crisis in the successor states of Andhra Pradesh and Telangana, consensus will have to be reached between the two states and suitable clarifications and amendments to the Reorganisation Act (and other laws regulating the electricity industry), and consequential amendments to the individual PPAs will be necessary to ensure seamless partition and regula- tion of the electricity sector of the two states.The recent meeting of the two chief ministers on issues related to bifurcation of employees of govern- ment institutions and authorities under the Reorganisation Act was a step in the right direction. One can hope that issues pertaining to the electricity sec- tor may be next in line for discussion and a consensus is reached soon.

Neeraj Menon is a partner at Trilegal and Rashi Ahooja is an associate. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Banga- lore and Hyderabad.

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