This piece was originally published on Mondaq at: https://www.mondaq.com/india/oil-gas-electricity/1642932/the-jurisdiction-litmus-test-composite-scheme-conundrum

In India, the generation, transmission, distribution and sale of electricity fall under the ambit of public services and are highly regulated. The Electricity Act, 2003 (“Electricity Act”), lays down the legal framework within which the generators, transmission and distribution companies operate with Central and State Electricity Regulatory Commissions regulating their conduct.

The Electricity Act conceptualizes Central and State Commissions as distinct forums which function in parallel, having well-defined jurisdiction over the specific matters identified by the Electricity Act. However, despite legislative attempts to draw clear lines between the matters over which the Central and the concerned State Commissions have jurisdiction, there continues to be uncertainty regarding their jurisdictional boundaries.

In this article, we discuss the concept of a ‘composite scheme’ which is an important factor to determining the jurisdiction of the two forums.

Framework under the Electricity Act

As indicated above, the Electricity Act sets out jurisdictional boundaries within which the Central and State Electricity Regulatory Commissions function. One of the distinguishing factors devised by the legislature to bestow jurisdiction over a matter is the existence of a ‘composite scheme’.

Section 79 (1)(b) of the Electricity Act prescribes that it is the Central Commission and not the respective State Commission which would regulate tariff of generating companies that “if such generating companies enter into or otherwise have a composite scheme for generation and sale of electricity in more than one State”.

Section 86(1)(b), on the other hand, empowers State Commissions to “regulate electricity   purchase and procurement process of distribution licensees including the price at which electricity shall be procured from the generating companies or licensees or from other sources through agreements for purchase of power for distribution and supply within the State”.

A bare perusal of the two provisions shows that the anchoring factor for determining jurisdiction of a commission appears to be state boundaries. While the language of Section 86 is quite clear, conferring jurisdiction on the commission of the State within whose boundaries, both the distribution and supply of electricity takes place, the construct of Section 79 of the Electricity Act creates certain ambiguity.

The Supreme Court in Energy Watchdog vs. Central Electricity Regulatory Commission and Ors., (“Energy Watchdog”) had the opportunity to consider this issue, particularly the question of what would be considered the question of what would constitute a ‘composite scheme’. After considering the construct of Section 79 as well as Section 86, the Supreme Court clarified that the “State Commission’s jurisdiction is only where generation and supply takes place within the State. On the other hand, the moment generation and sale takes place in more than one State, the Central Commission becomes the appropriate Commission under the Act” (Para 22). The Supreme Court premised this finding in the reasoning that “The scheme that emerges from these sections is that whenever there is inter-State generation or supply of electricity, it is the Central Government that is involved, and whenever there is intra-State generation or supply of a electricity, the State Government or the State Commission is involved.” (¶ 22)

Is the requirement of more than one State limited to only sale of electricity or covers generation as well?

The Supreme Court in Energy Watchdog clarified that where a scheme for generation and sale of electricity is in more than one State it would constitute a composite scheme. The question which then arises is whether the requirement of ‘more than one State’ under Section 79 is satisfied if electricity is generated in one state and sold in another, or whether it is necessary for only the sale to occur in more than one State, regardless of where the generation takes place.

In this regard, it may be pertinent to highlight that in Energy Watchdog, the power in question, was to be supplied to two states by one generator and to five states by the other generator. Thus, in Energy Watchdog, the Supreme Court did not get an opportunity to consider the specific question of whether a composite scheme would exist if the entire power was being supplied to only one State and generation of that power was happening in another State.

An answer to this question may lie in drawing a parallel with Section 86 of the Electricity which sets out when a State Commission has jurisdiction. The plain language of Section 86 shows that the place of generation of power has no bearing in determining the jurisdiction of a State Commission. Instead, it is premised only on ‘distribution’ and ‘supply’ of power which is required to be ‘within the State’.

The Appellate Tribunal for Electricity (“APTEL”) considered this issue in Pune Power Development Private Ltd. v. Karnataka Electricity Regulatory Commission (¶16-18, 22-24, 32). It concluded that only a State Commission would be empowered to adjudicate disputes relating to distribution licensee where the entire power generated is going to be consumed within the State. It further clarified that the jurisdiction of the State Commission would be unaffected by the place of procurement of power.

Similarly, the APTEL in Lanco Power Limited v. Haryana Electricity Regulatory Commission (¶16-17, 88),  reiterated that only the Commission of the State where the entire allocated power is being supplied would have jurisdiction to consider the matter.

Therefore, as can be seen, the place of generation of power is not a relevant factor for determining the jurisdiction under Section 86. A State Commission will have jurisdiction even if power is procured from multiple states, as long as the entire power is supplied to only one state. The underlying rationale of this approach is that when entire power is being supplied exclusively to one state, then only consumers within that state are being impacted.  Consequently, the concerned State Commission is best positioned to decide such matters, as it can consider the interests of the state’s consumers. Conversely, when power is supplied to more than one state, then the impact extends beyond a single State. In these instances, the Central Commission is better suited, ensuring a balanced approach that accounts for the interests of consumers across states.

The above would lend support to the argument that the cross-border requirement to constitute a composite scheme under Section 79 would only be fulfilled in the supply of the electricity is in more than one State irrespective of the location of the generator.

This argument is also supported by the deliberate omission by the legislature to use the words ‘inter-state transmission of electricity’ in Section 79(1)(b). A perusal of Section 79(1) shows that while sub-clauses (c)-(d) explicitly mention ‘inter-state transmission of electricity’, sub-clause (b) only refers to ‘more than one state’. This deliberate legislative choice indicates a clear intention to exclude mere inter-state supply of electricity from the ambit of a ‘composite scheme’. Thus, the construct confines the jurisdictional trigger to situations where the sale or supply is made to more than one state, rather than simply involving the movement of electricity across state boundaries.

It is settled principle of interpretation of a statute that effort should be made to give effect to each and every word used by the legislature (Nathi Devi v. Radha Devi Gupta). Courts must presume that the legislature inserted every part for a purpose and that it has not used any superfluous words. Hence, real intention must be gathered from the language used in the statute.

Inter-state supply of power applies to all situations where electricity is transmitted from one state to another state/states. However, there may be a situation where despite inter-state supply of power, electricity is sold to only a single state. When considered from this lens, the deliberate construct of Section 79 opted by the legislature, lends credence to the argument it is only when the sale of electricity is in more than one State, that there emerges a composite scheme. The deliberate choice of words used by the legislature appears to be a conscious choice so as to prevent any jurisdictional overlap between the Central and State Commission.

The use of the term ‘Generating Company’ instead of ‘Generating Stations’ in Section 79 (1)(b) of the Electricity Act also supports the argument that the existence of a composite scheme is agnostic to the location of the place of generation of power.

The Electricity Act defines a ‘Generating Company’ as an entity which owns or operates or maintains a generating station while a ‘Generating Station’ simply refers to the physical location where electricity is produced. If the place of generation of electricity was a determining factor to constitute a composite scheme, then the same could have been clarified by including the reference to a generating station. However, no such reference to the place of generation has been expressly made. This clearly shows that the actual place where electricity is generated is not important for determining whether a composite scheme exists. What is essential is where the electricity is sold or supplied, not where it is produced.

Conclusion

It is settled law that a case is only an authority on the facts of the case and cannot be read like a statute. As indicated above, in Energy Watchdog the transactions which were considered by the Supreme Court involved the supply of electricity in two or more States. In the said case, the Supreme Court clearly did not have the opportunity or even the requirement to consider a transaction where the distribution and supply of the power was limited to one state. Therefore, the findings in Energy Watchdog which are made in the limited context, cannot be extrapolated to scenarios where the generation is in one State and the entire power is supplied to only one State.

In the absence of any express finding by the Supreme Court on this issue, the authors argue that reliance may be placed on APTEL’s finding in Pune Power and Lanco which clarify that it is the State Commission which would have the jurisdiction to consider such matters.

Basis the above, it may be concluded that the test of determining whether a composite scheme exists is agnostic towards the location of generation of power. Instead, it is solely concerned with the state in which the power is to be sold/ supplied.

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