ANTI-COMPETITIVE HURDLES IN THE INDIAN OPEN ACCESS REGIME AND THE WAY AHEAD
[Varun Pandey & Neelam Kumari are final year student at School of Law, UPES]
The twenty-first century ushered in a new era for Electricity Laws as well as Antitrust Law in India with the objective of unbundling the power sector regulators. Further, The Electricity Act, 2003, was designed to infuse competition and trading of electricity in a smooth and non-discriminatory manner.
In an effort to ease the onus on Distribution Companies (Discoms) of providing consistent power at reasonable prices, Open Access was introduced in the transmission and distribution domain to enable consumers to buy electricity from a large number of competing power companies. Open Access is defined under Section 2(47) of Electricity Act that was introduced to ensure multiplicity of electricity providers apart from the regional power Discoms, thus encouraging competitive practices between state-backed and private power distributors. Notably, the impetus on open access in electricity is laid down under Clause 5.3.3 and Clause 5.7 of The National Electricity Policy, 2005, Section 4(d) of National Tariff Policy, 2016 and Clause 1.3.1 of National Electricity Plan, 2018 as promulgated by the CERC.
However, regardless of the enabling provisions, open access has not been adopted with the true spirit as intended by the legislators. A significant number of PSU’s (Public Sector Undertakings) owing to their dominant position and benefiting off the innate monopoly in the relevant market of power supply, curtail the right of other competitors to avail open access. As witnessed in the case of HMPL v. Gujarat Energy Transmission Corporation Limited and Ors. wherein CCI addressed the issue of abuse of dominant position exercised by state-backed PSU’s in approving open access applications of private Discoms. The genesis of the dispute was the incessant denial of open access to HMPL for a total of twelve times from September 2014 to September 2016 even after HPML had procured the necessary infrastructure to qualify under the GERC Regulations 2011. Despite of meeting all the requirements, GETCO kept denying their applications citing to upstream network constraint. HPML claimed that continuous denial of open access on the ground of 'upstream network constraints' is erroneous since HPML was using the same transmission lines as approved by SLDC to get the contractually committed demand of 6.03 MW of power. Further it was also highlighted that other industrial consumers, including Adani Wilmar and HPCL, had faced the same prejudice.
Notably the CCI held that the act of limiting and restricting the production of electricity and denial of supply of open access to HPML by OP's amounts to the contravention of Section 4(2)(b)(i), 4(2)(c) of the Act. The CCI further ascertained that GETCO had leveraged its dominant position in the relevant market to adversely affect the competition in the downstream market, where it is present through its group entity Paschim Gujarat Vij Company Limited (PGVCL) resulting in consequent violation of Section 4(2)(e).
This article aims to highlight the anti-competitive conduct of dominant players in the power sector and suggest necessary reforms to curb the existing conflict between statutory provisions of the Electricity Act, 2003 and the Competition Act, 2002.
Apparent Monopolization by PSU's
There is a unanimous agreement in the Indian Energy sector regarding the colossal presence of state-backed PSUs and their influence in the respective markets, which transcends within the Indian energy industry, as initially observed in the case of Maharashtra State Power Generation Co. vs. Mahandai Coalfields where allegations were levelled against Coal India Limited (CIL) for imposing arbitrary requirements in Fuel Supply Agreements (FSA) and the CCI held that “CIL operates independently of market forces through its subsidiaries” and that the unilateral conduct of CIL and its subsidiaries was in violation of Section 4(2)(a)(i) of the Act.
Furthermore, an identical landscape is observed within the generation, transmission and distribution ventures of the beleaguered power sector and a similar protective outlook by state governments has halted the emergence of open access in the Indian Power Sector and partly defeated the objectives of the Electricity Act. The state-run Discoms often indulge in guerrilla tactics to keep out eligible private entities from permeating the market of power distribution, as evident by instances such as unreasonable denial of open access requests without due cause leading to an abuse of their monopoly position, which is inconsistent with the objectives of Electricity Act and Section 19 of Competition Act, 2002. This has further resulted in the problem of consumers switching between the available avenues of open access providers.
It is imperative to note that, in the case of XYZ vs. IOCL, the informants alleged contravention of Section 3 and Section 4 of Competition Act by IOCL; BPCL and HPCL. The three oil and gas conglomerates, floated identical tenders across different states for transportation of bulk LPG by road, allegedly without any commercial basis and offered freebies to the truck drivers under a loyalty fleet card as an instance of tying and bundling. The CCI outrightly rejected the contentions on the ground that collective dominance of entities is not covered under the provisions of the Act and does not constitute an instance of market abuse as there are multiple dominant entities. A perusal of relevant market under Section 2(t) within the power sector/natural gas distribution regime, as undertaken in the HPML and XYZ cases brings forth the widespread presence of PSU’s in the respective industries, therefore, to exclude them from the ambit of anti-competitive practices may not fulfil the commercial interests envisaged in the objective of either Electricity Act or Competition Act.
Furthermore, the HPML case has the visible element of barring entry of new entrants in the market by an apparent collusion between the designated DISCOM and its parent entity, that contravenes the preamble of Electricity Act concerned with unbundling of electricity sector in India. DISCOMS, in a bid to preserve their consumer base, often manipulate access to the sole transmission and distribution networks with aid from their parent technical entities, a practice that has severely daunted the growth of open access in India and has finally been held to be violative of Section 4 in the HPML case.
Ameliorating Conflict between Competition Act and Electricity Act
The HPML case has further brought to focus, the glaring disparities between CCI and other sectoral regulators, especially the State Electricity Regulatory Commission’s (SERC) entrusted with oversight on inter-state transmission of electricity and tariff determination for Discoms under their jurisdiction as provided under Section 181.
Notably, in order to demarcate the regulatory jurisdiction between both sectoral regulators, COMPAT ruled in an earlier case of Shri Anand Prakash Agarwal v. Dakshin Haryana Bijli Vitran Nigam that FSA charges (fuel cost surcharge adjustment ) will be exclusively regulated by the respective HERC (Haryana Electricity Regulatory Commission) since they were calculated and levied in accordance with the state regulations issued by the HERC and that the HERC, owing to its superior technical footing in terms of electricity laws is better suited to regulate on the said issue,
The CCI, here, reiterated its ruling from Open Access Users Association vs. Tata Power Delhi Distribution Limited & Ors. wherein it was of the view that charges relating to open access are to be decided by the state regulatory commissions and any dispute that may arise needs to be redressed to the APTEL under Section 110.
In HPML, the CCI has followed precedents and ruled that the GERC is the sole regulatory authority for governing issues associated with open access in the State of Gujarat. However, it has erred with its black-lettered interpretation of holding an outright denial of permission to the HPML rendering it to be beyond the purview of unfair/discriminatory conditions on sale of goods/services under Section 4(2)(a)(i) of Competition Act. Despite the fact that preventing several other entities along with HPML from accessing the distribution company’s transmission network is a blatant abuse of market dominance and implicitly contravenes Section 42(2) of Electricity Act.
Presently, Section 60 of the Electricity Act authorizes electricity regulatory commissions to prevent combinations that might lead to appreciable adverse effect in the power markets but the regulatory oversight is only confined to combinations of generation and distribution licensees, leaving the contentious issue of access to transmission network outside the purview of CCI.
Given the varied factual circumstances of every dispute, the possibility of ‘a one size fits all’ approach to limit jurisdictional conflicts between CCI and Electricity Regulators appears to be a bleak resolve even if the CCI relents on bridging the regulatory gaps by resorting to an amicable interpretation of both statutes as observed in the aforementioned cases. This is enabled by the doctrine of harmonious construction, that ensures conflicting provisions of law to be interpreted in accordance with each other, guaranteeing optimum statutory effect.
However, the non-obstante provisions in Section 174 and 175 of Electricity Act do not oust the jurisdiction of the CCI if there is an instance of abuse of dominant position by state-backed PSU’s, thus a reasonable measure would be to allow the CCI to regulate the polemic practices of denying market entry perpetuated by electricity Discoms.
In a nutshell, if the government aims to facilitate the ambitious vision of Aatmanirbharta in functioning of Discoms, statutory reforms within the provisions of Electricity Act that enable teething of regulatory commissions and segregating the sector to enable oversight of CCI are critical to curb the anti-competitive practices undertaken by PSU’s in the power sector.