Abstract
India bagsthe third rank among the largest producers of electricity in the world. Since the enactment ofthe Electricity Act in 2003 (“The Act”), foreign investments and involvement of private parties along with the pre-existing government players have increased substantially. However, the present modalities of dispute resolution in the Electricity sector, consisting of adjudication through Regulatory Commissions or reference to arbitration, suffer frominadequacy in expeditiously and effectively addressing the disputes, resulting in a delay in the completion of power sector projects. The existing mechanism of dispute resolution often takes considerable time, which leads to sub-optimal cash flow for the contractors and time and cost over-run of the projects. This article covers the kinds of disputes found in the Electricity sector in India, the types of alternative dispute resolution (“ADR”) mechanisms available to the parties, and the role of ADR in resolving these disputes. It explains how the existing Electricity Act fails to take into consideration the possibilities of resorting to alternate options apart from referring the disputes to the Commission or to arbitration. The authors conclude this article with a discussion on the suggestions on the existing framework governing electricity disputes by taking examples from jurisdictions where it is already in practice.
Introduction
The Ministry of Power is India’s leading federal government agency that oversees the country’s electrical energy sector. India’s Ministry of Power is the country’s top federal government body in charge of the country’s electrical power sector. It is also in charge ofsupervising India’s Electricity Act of 2003, as well as making revisions to the Act when needed to satisfy the government’s policy goals. Through this legal instrument, it seeks to regulate power generation, transmission, and distribution along with its corresponding planning, policy formation, project processing and monitoring, training and manpower development, and adjudication of disputes between the participants of this sector. The Act empowers regulatory commissions at the federal and state levels to adjudicate or refer disputes between licensees and generating corporations to arbitration. However, The Regulatory Commissions are sometimes called ‘toothless tigers’ due to their orders which are hardly executed or arbitrarily executed. Therefore, through this article, the authors would like to shed some light on the advantages offered by ADR mechanisms in settling matters with efficiency and effectiveness, which the Act fails to take into consideration.
Disputes generally observed in the Electricity Sector
The Indian power sector faces a plethora ofissues including, but not limited to, insufficient electricity generation, poor management, improper transmission of electricity, wrong pricing, lack of investments, poor infrastructure and shortage of raw material. In order to address them and bring investments, the government has opened the doors for private players in the transmission and distribution sector, so that the responsibility of supply can be shared and consumers can avail benefits of low cost. Though privatization provides operational and financial benefits, it also leads to conflicts between licensees and generating companies. Disputes pertaining to the following issues commonly arise in the electricity sector-
1. Captive generation– A person isauthorised to operate a captive generating plant to produce electricity for his or her own use under the Act, which includes a power plant established by any co-operative society or association for the use of their members. The right to open access is granted to captive generation plant consumers to transport electricity from captive generation facilities to the point of use. But this open access is contingent on the availability of adequate transmission facilities, as decided by the Central or State Transmission Utility, as applicable. This power of determination of transmission facilities often leads to disputes between the utilities and users of captive generation plants.
2. Inter-State, regional and inter-regional transmission– The Central Government operatesLoad Despatch Centres at the national, regional, and state levels to ensure optimal allocation and dispatch of electricity. The National Load Despatch Centre, which is the supreme body in charge of ensuring unified operation between licensees and generating companies in the relevant region, levying charges, exercising supervision and control, and giving instructions to carry out its functions, distributes electricity among the regional centres. Disputes occur between the Regional Centres and licensees and generating companies over the quality of energy, the safe, secure, and integrated operation of the regional grid, or over the direction given by them.
3. Intra-State transmission– State governments also set upState Load Despatch Centers to allocate and dispatch electricity across the state. It performs functions analogous to those of a regional centre and follows its instructions. If a disagreement arises over the quality of electricity or the State Grid’s safe, secure, and coordinated operation, or any instruction provided by it to generating companies and licensees, it would be sent to the State Commission for adjudication.
4. Intervening transmission facilities– A transmission licensee can apply to the Commission underSection 35 of the Act to use the intervening transmission facilities owned or managed by another licensee for the transmission of energy. By order, the Appropriate Commission may require any other licensee owning or running intervening transmission infrastructure to provide use of those facilities to the extent that such licensee has extra capacity available. The disagreement here may be over the amount of extra capacity available to the licensee.
5. Non-redressal of grievances by distribution licensee– Even though every distribution licensee is required bySection 42 of the Act to establish a forum for the redressal of consumer grievances in line with the regulatory commission’s instructions, customers frequently feel dissatisfied by non-redressal of their grievances. due to which they make a representation to an Ombudsman designated by the State Commission.
6. Control of transmission and use of electricity– As perSection 52, in any street or place where 100 or more people are anticipated to gather, no one other than the Central or a State Transmission Utility, or a licensee, can transmit or utilize electricity at a rate exceeding 250 watts and 150 volts. A disagreement usually emerges over whether a location is or is not the one where one hundred or more people are likely to gather.
7. Works of licensees- UnderSection 67, a licensee is empowered to exercise certain powers within his area of supply or transmission, but if he causes any damage or inconvenience then he will have to make compensation. The powers conferred to him often lead to disagreements regarding damages and the amount of compensation payable by him.
Understanding ADR, modes and its benefits
UnderSection 86 (f) of the Act, Central and State Electricity Regulatory Commission plays the function of adjudicating disputes between generating companies, licensees and governments or referring them to arbitration. However, the said provision fails to take into account the possibility of resolving disputes through methods other than adjudication by Commission and arbitration. A range of Alternative Dispute Resolution (ADR) mechanisms are available through which conflicts can be resolved without actually resorting to conventional adversarial system of dispute resolution. ADR is typically less formal, less expensive, and faster than the traditional adversarial adjudicatory process of courts.
Many types of ADR haveevolved as a result of the need to find faster and less expensive ways to resolve conflicts. Apart from arbitration, the most popular methods of ADR are mediation, conciliation, negotiation, and judicial settlements. Such methods are immensely beneficial because of their non-adversarial nature. Usage of ADR techniques enables the parties to maintain cordial business relations which may otherwise get strained if they choose to resolve their conflict through courts.
Negotiation
Contracts between licensees and generating companies, or Power Purchase Agreements (“PPAs”), could include a dispute resolution clause that requires the parties to try to reach an agreement before resorting to arbitration. These negotiations can beframed in a variety of ways. Negotiable disputes can be referred to an advisory council or a review board whereby chief officials could be allowed to negotiate a settlement in the context of their company policies and objectives and maintain their business relationships, instead of a specific focus on the matter in hand.
Mediation
Mediation is a form of facilitated negotiation. In mediation, a neutral third-party known as a ‘mediator’ helps the parties in seeking to reach a mutually satisfactory solution to the conflict. The mediator does not address the issue; rather, he or she facilitates communication between the parties so that they can work to fix it on their own. In mediation, the parties have influence over the result, thereby making the process more inclusive and collaborative. A qualified mediator facilitates the process by listening to all perspectives and assisting the parties in communicating in a positive and constructive fashion. Themediator’s job is to encourage each party to concentrate on their true interests rather than what they consider is their legal or contractual claim. The mediator’s job may involve creating and proposing settlement terms by separating positions from interests.
There are a number of international mediation rules like theUNCITRAL Mediation Rules,International Chamber of Commerce ADR regulations, etc. that can be included in an agreement or applied when a disagreement arises. There are also several international specialised institutions which provide mediation and other forms of ADR methods. For instance, in London, the Centre for Effective Dispute Resolution (CEDR) and in the United States, the CPR Institute for Dispute Resolution have time and again made the stakeholders realize the important role played by them in helping parties resolve disputes amicably. Their operating modalities can be learned and applied in India by submitting disputes to similar institutions.
Conciliation
Conciliation is an ADR mechanism similar to mediation, whereby a neutral conciliator guides and assists parties in conflict resolution.However, the role of the ‘conciliator’ is pro-active and interventionist as against the role of the ‘mediator’ which is restricted to that of a ‘facilitator’. It involves a conciliator who meets the parties individually or jointly to discuss their conflict in order to reach an agreement. Conciliators help them de-stress, improve communication, and interpret problems so that a mutually acceptable solution can be reached. Prior consent is not required, and it cannot be forced upon a party who refuses to join in conciliation. It’s a spur-of-the-moment kind of an agreement reached after a conflict has arisen, but not before. Even if the arbitral proceedings are going on, parties are allowed to participate in the conciliation process.
Expert Determination
Another type of dispute resolution mechanism is through determination by expert, which is frequently used in association with arbitration or litigation. This is a novel dispute resolution mechanism that essentially allows a specialist to address each and every difficulty that occurs during the contract’s execution and propose a legally enforceable solution. The parties can decide whether or not the expert’s decision can be contested later by mutual agreement (either through arbitration or litigation).
Whenever a dispute involves a technical issue, the parties may desire to submit it to an expert or panel of experts for advice or a conclusion. There is a vast choice of methods to choose from. For example, the parties may agree to establish a dispute review board (DRB), which will examine disagreements and provide a suggestion that the parties can decide whether to accept. Similarly, a dispute adjudication board (DAB) could be constituted to assess conflicts and make conclusions that are legally enforceable unless they are challenged in arbitration within a certain time frame. The parties may form the DRB or DAB before the commencement of their project so that its members can remain familiar with the circumstances of the project and are open to hearing conflicts even on an urgent basis.
Electricity sector being a specialized field presents disputes which can be best understood through technical know-how and detailed knowledge of the laws affecting this industry. In such a case, it is pertinent to appreciate the sector-specific and technical viewpoint that the Expert will bring to the table while resolving disputes through this mode of ADR.
Recent Trends in the interplay of ADR and disputes in Electricity Sector
Mediation as a mode of settlement has started gaining the attention of the adjudicatory authorities of the Electricity Sector. The Appellate Tribunal for Electricity (APTEL) in the case ofM/S Sukhbir Agro Energy Ltd v. Uttar Pradesh Electricity Regulatory Commission discussedSection 89 of Code of Civil Procedure, 1908 (“CPC”) and held that though APTEL is not bound to follow all provisions of CPC in letter and spirit, but it is well settled that this Tribunal can take guidance from the same while adopting its own procedure. Therefore, it can be said that since the case in hand relates to determination of tariff and has elements of settlement, it is a fit one for mediation. Subsequently, the case was settled by the mediators appointed by the tribunal.
Similarly, Lok Adalat, which is known as the ‘People’s Court’, has also been brought into practice by some of the States while resolving disputes related to electricity. Lok Adalats are held on a regular basis by the National and State Legal Service Authorities. In contrast to ordinary courts, parties have direct contact with the judge. A case that has been pending in ordinary court for a long time can be transferred to Lok Adalat if all parties agree. The people who decide the cases are sitting or retired judges acting as statutory conciliators to convince the parties to reach some sort of settlement outside of the regular court. For example, in December, 2021Maharashtra State Distribution Company Limited appealed consumers through a notice to join Lok Adalat to settle their outstanding dues matters, wherein around 167 matters got settled. In the case ofExecutive Engineer Electricity v. Chairman Permanent Lok Adalat, the power and jurisdiction associated with Lok Adalat was discussed in detail. It was held that they derive their power and authority from theLegal Services Authorities Act, 1987. In order to overcome the delay in delivery of justice in cases where the parties do not arrive at a compromise or settlement in Lok Adalat, it was felt necessary by the Parliament to provide for a mechanism for adjudication of the dispute which could not be settled by compromise or conciliation by providing for establishment of Permanent Lok Adalats to be invested with the power to decide the dispute on merits. Accordingly, the Act was amended in the year 2002 and Chapter VI-A was inserted.
Thereunder,Section 22-A (a) defines Permanent Lok Adalat and Section 22-A (b)defines public utility service which includes, inter alia, services related to power, light or water for the use of public. A dispute raising a claim for compensation alleging negligence on part of the distribution company in maintenance of the electricity lines meant for supply of power, among other related matters, is treated as a dispute coming under the scope of the Permanent Lok Adalat.
Existing dispute resolution framework in the Act
The Supreme Court of India inGujarat Urja Vikas Nigam v. Essar Power Limited hasheld that in all matters of dispute between distribution licensees and power generators, the electricity regulatory commissions have exclusive jurisdiction to either decide the dispute or refer it to arbitration by nominating an arbitrator.Sections 345 and346 of the CPC consider the Commission as a civil court. Any individual who is dissatisfied with the decision taken by an adjudicating officer of the Appropriate Commission under this Act may appeal to the Appellate Tribunal for Electricity. In the event of discontent, the case would be appealed to the Supreme Court. Additionally, the State Government can establish as many Special Courts as are required for a fast adjudication of charges in a particular area or areas.
Lessons to be learnt from other Jurisdictions
Lessons can be taken from countries like Ireland where disputes related to public utilities like water, electricity, etc. are included within the scope of ADR mechanisms. Under Section 9 of the Electricity Regulation Act, 1999, theCommission for Regulation of Utilities (“CRU”) is established as an authorized Dispute Resolution organization that offers a free, quick, and independent conflict resolution facility to all electricity, gas, or Irish water customers who have an unsettled conflict with their utility provider. Their goal is to offer customers a free and easy to use complaint resolution service. Their complaint mechanism includes two-step process wherein firstly, one needs to log a complaint with their supplier or network operator and complete their complaint handling process. The website provides information on how to log a complaint and what rights consumers have. If the consumer is not satisfied with the complaints handling process of a supplier or network operator, then the second step can be taken by logging a formal complaint with the CRU. CRU is recognised as a notified Alternative Dispute Resolution entity in Ireland and this function is delivered by its Customer Care Team (“CRT”). The CRU is amember of the National Energy Ombudsman Network (“NEON”) and the CCT has the responsibility to engage with NEON. In addition, the CCT has an important role of engaging with customer representative organisations and NGOs on behalf of the CRU. The dispute resolution bodieslisted on the CRU website offer out-of-court settlement procedures which are approved by the EU for quality standards relating to fairness, efficiency and accessibility. Each dispute resolution body has its own rules and procedures. They’re usually quicker and cheaper than going to the court.
In UK, the choice of dispute resolution method depends on the subject matter of the contract and the surrounding circumstances. It iscommon for disputes relating to power to settle. The provision of power supplies is usually crucial for at least one of the parties, and often the parties are big names in the industry, possibly a regulated body. Consequently, it is in both parties’ interests to resolve the dispute quickly and cheaply, avoiding bad publicity and ensuring continuity of supply by pursuing any of the ADR methods. Dispute Adjudication Boards and Adjudications are increasinglyused because they allow disputes to be decided by adjudicators who are well acquainted with the project and its issues; and the latter because it is a very quick and cheap method when compared to other formal procedures. Technical and pricing disputes suit expert determination, which provides a speedy and relatively cheap alternative to litigating a dispute which will ultimately turn on expert evidence. In March and June 2015, the Parliament of UK laid two sets of regulations to implement the European Directive on alternative dispute resolution which are Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015 and Alternative Dispute Resolution for Consumer Disputes (Amendment) Regulations 2015. The regulations place an information requirement on businesses selling to consumers and establish competent authorities to certify ADR schemes and set the standards that ADR scheme applicants must meet in order to achieve certification. TheOffice of Gas and Electricity Markets (“Ofgem”) is the regulator in the gas and electricity sector. It resolves matters through compliance engagement and mandates existence of ombudsman. Ombudsman Services are approved by Ofgem to handle disputes between energy companies and their customers.
Further, the World Intellectual Property Organisation (WIPO) has recentlyrecognised that since the development of new energy technologies is rapid, the value of IP assets would be long lasting. A considered choice of dispute prevention and resolution mechanisms is key to securing such value in research, licensing and other business transactions and to maintain business partnerships. Therefore, as a part of theWIPO ADR Services for Specific Sectors, the WIPO Centre provides dispute resolution advice and case administration services to help parties resolve disputes arising in the area of energy, without the need for court litigation. The WIPOMediation, (Expedited)Arbitration andExpert Determination Rules are applied in energy disputes and are very flexible. In itsrole as administering institution, the WIPO Centre maintains strict neutrality and independence.
Accordingly, laws and regulations can be included or amended in the Indian legal regime, especially in the Electricity Act, to provide clear procedures for alternate dispute resolution between project proponents and State agencies so that better investment opportunities and a secure market to investors can be assured.
Suggestions on the existing framework of Dispute Resolution
Notably, the Energy Act allows for involvement of private and foreign players in electricity generation, transmission, and distribution, and empowers state and central regulators to encourage private investment and competition. Within their statutory competence, the regulators also carry out the function of policy formation and implementation, along with dispute resolution of issues.
Contracts entered by parties of this sector often include a number of technically complex and dynamic challenges that are recurrent for electricity generators, distributors, and transmission organizations. Such challenges are often difficult to evaluate and overcome in absence of industry specific knowledge gained through professional courses and practical experience.
However, certain shortcomings of this Act surfaced in the Gujarat Urja Vikas Nigam v. Essar Power Limited case wherein the Apex Court reiterated that the regulators have the complete authority in deciding whether or not to adjudicate a dispute or refer it to arbitration under the Electricity Act. This essentially means that the freedom available to a licensee and generating company to contractually have arbitration as a dispute resolution mechanism has been subjected to the approval of concerned commission. It was also pointed out that there exist no guidelines to prescribe to the regulators while referring a matter to arbitration, making it a completely arbitrary decision.
Recently, in 2021 as well. the concept of party autonomy in arbitration was seen getting subjugated by the Regulatory Commissions under the Electricity Act in the matter ofChief General Manager, HIEF General Manager(IPC) MP, Power Trading Company & Anr v. Narmada Equipments Private Limited wherein the Supreme Court held that where conflict between Arbitration Act & Electricity Act arises, the latter will prevail by virtue of being a special legislation.
In light of the recent developments in the electricity sector in India, it should be noted that electricity disputes are distinct from other types of legal disputes because they entail sophisticated technical and legal challenges that require prompt and effective settlement in order to avoid jeopardizing the project’s timeline and causing further delays in completion. There can be occasions when a matter is very complex and requires a specialist, or when the regulator’s caseload is too full to decide a dispute promptly. The SC, too, in June 2021noticed the absence of a judicial forum under the Act for adjudication of disputes relating to supply, billing and penalties levied by distribution companies. In such cases, existing options will not provide a feasible or an effective remedy, but involvement of a third party in a less formal manner who can understand the intricacies of a matter could be fruitful. Therefore, it becomes all the more necessary to consider the advantages offered by ADR mechanisms where a neutral third person, who has expert knowledge in the domain, can be involved in solving the dispute.
Conclusion
Since the enactment of the Act, India has a goal of increasing its power generation, which will be enabled by the development of Ultra Mega Power Projects (UMPPs). The execution of the UMPP becomes challenging due to inadequate financing from government sources, thus calls for investments and involvement of private companies in distribution and transmission. Project development is often slowed or even stopped because of arbitrariness among the concerned bodies or incessant delays if a matter goes to the Commission. When it comes to the nature of electricity disputes, it’s reasonable to presume that ADR can play a symbolic role in settling them. Primary prevention of dispute, amicable solutions, engagement and use of ADR, and a predetermined agenda for how conflicts will be handled are the most feasible approaches for resolving these disputes.
About the Authors
Mr. Aryan Gupta is an Advocate (currently working as Law Clerk cum Research Assistant in the Supreme Court of India).
Editorial Team
Managing Editor: Naman Anand
Editors-in-Chief: Jhalak Srivastav and Aakaansha Arya
Senior Editor: Gaurang Mandavkar
Associate Editor: Vidhi Saxena
Junior Editor: Tisa Padhy
Preferred Method of Citation
Aryan Gupta, “Paving Way for Alternate Dispute Resolution Mechanisms in the Indian Electricity Sector” (IJPIEL, 1 June 2022)
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