New Delhi: A legal battle has broken out between the state governments of Andhra Pradesh and Telangana over who will adjudicate commercial disputes between power companies and discoms (distribution companies) that were once part of the unified state but have now been transferred to the newly-created state as per the 2014 bifurcation plan.
It has fallen upon the Hyderabad high court, which has jurisdiction over both Andhra Pradesh and Telangana, to decide who has the authority to adjudicate in Telangana discoms’ disputes. Out of the four discoms that united Andhra Pradesh had at the time of bifurcation, two have been transferred to Telangana and accordingly, the Telangana State Electricity Regulatory Commission (TSERC) has claimed jurisdiction over them.
But the Andhra Pradesh Electricity Regulatory Commission (APERC) too has claimed jurisdiction over Telangana’s discoms as they were once part of united Andhra Pradesh.
Accordingly, it has issued orders in commercial disputes relating to the two discoms. In parallel, the TSERC too has passed orders in the same disputes. Baffled by parallel orders of the APERC and the TSERC, power producers have petitioned the Hyderabad high court to clear the jurisdictional confusion.
These disputes pertain to fixed charges for power supplied by private companies such as GMR, GVK, Lanco Power, Spectrum Power, Reliance Infrastructure and Konaseema Power from their gas-fired plants located in Andhra Pradesh. Discoms, or power distribution companies, are liable to pay fixed charges even when they do not avail of the power supply – provided plants declare their readiness to generate a day before. In other words, plants must show fuel availability to claim fixed charges.
Some of these disputes were brought before the electricity watchdog of the unified Andhra Pradesh by power producers as far back as 2008-09. Disputed financial claims put forth by power producers aggregate to roughly Rs 2,500 crore.
The TSERC was set up in 2014 following creation of Telangana as a separate state after bifurcation of the erstwhile Andhra Pradesh. Most of these plants were built on hope of fuel availability from RIL’s D6 block in the Krishna-Godavari basin, which was supposed to produce 80 million metric standard cubic meter (MMSCD) of gas but later reported precipitous drops in output, throwing a wrench into the calculations of power producers on fuel availability.
To mitigate domestic gas shortages, power plants fell back on use of liquefied natural gas (LNG), naphtha and diesel as alternative fuel in keeping with their respective power purchase agreements (PPAs). However, electricity generated from these secondary fuels was costlier. Consequently, Transmission Corporation of Andhra Pradesh (AP Transco), the utility with whom generators had signed PPAs, became reluctant about buying electricity from these plants.
At the time, discoms in the state were incurring huge operational losses due to non-recovery of power supply costs.
That made AP Transco hesitant about buying electricity from these generating stations. But even when it did not buy electricity, the state utility was still liable to pay fixed charges as per provisions of the PPAs as power companies were showing their readiness to run plants on secondary fuel.
However, not all PPAs specified what secondary fuel power company could use to fire generation capacity in case of domestic gas shortage. All these commercial disputes stem from the lack of clarity in PPAs about alternative fuel.
The utility started disputing power supply bills of generators, making use of lack of contractual clarity about alternative fuel, say industry sources.
What is more, the discom later petitioned the regulatory commission for deletion of provisions relating to secondary fuel.
Power companies knocked at the doors of the Hyderabad high court in 2016. The court decided to look into the matter of jurisdiction as the resolution of commercial issues fell under the purview of regulatory commissions.
However, annoyed by the perceived delay in the Hyderabad high court taking up the matter for hearing, GMR and GVK in March this year moved the Supreme Court. The apex court in April ordered the high court to dispose of the case within six months. This case will have national implications, as India’s entire 25,000 MW gas-fired generation capacity remains grossly under-utilised due to domestic gas shortages. Discoms are not keen to buy electricity generated from costlier alternative fuels like LNG, naphtha and diesel.
Production from the D6 block has fallen to 3-4 mmscmd (million standard cubic feet per day) from 54 mmscmd in March 2009.
RIL, along with its partner BP Plc, has submitted a revised field development plant for the block. They have promised to invest an additional $5-5.5 billion dollars to restore output from the block.
The Modi government had started a subsidy scheme for stranded gas-based power plants in 2015. The auction process involved reverse bid of the subsidy amount that the government provides through the Power System Development Fund.
Gas-based power generators including GMR, GVK, Lanco, Dabhol power plants secured LNG supplies in two rounds of auction held by the government in 2015 and 2016. However, these plants have again become stranded after the scheme lapsed at the end of March this year.
About 57% of gas-fired power plants in India are lying idle due to non-availability of domestic gas, Piyush Goyal said as power minister in July this year. “Domestic natural gas supply to power sector can improve only in case production levels increase in future,” Goyal added.