Power tariff, in common parlance, has everything to do with public or retail consumers and anything impacting that will generally be construed as relating to public interest. But when the Delhi high court, on October 30, dismissed a public interest litigation (PIL) by resident welfare associations while upholding the petition of power distribution companies (discoms), against an audit by the Comptroller and Auditor General of India (CAG). It said such an audit "for determination of tariff (rate) is not expedient in public interest".
In 2014, the Supreme Court in Association of Unified Tele Services Providers versus Union of India case upheld a Delhi high court verdict allowing the CAG to audit private companies. The court established the CAG's right to audit private companies under Articles 148 and 149 of the Constitution and Section 16 of the Duties, Powers and Conditions of Service Act, 1971, that govern the CAG's functioning.
The October order of high court might appear to be not in line with the 2014 verdict, but the distinction lies more in the regulatory regime of the telecom and power sectors. In case of power, the Electricity Act 2003 and the rules under it provide an elaborate mechanism for rate fixing. So, while the Telecom Regulatory Authority of India (Trai) has only an advisory role in pricing of telecom services, power regulators are empowered to fix, approve and go into the fairness of rate fixation. What the two orders, however, do is to reaffirm that public-private partnerships are open to CAG scrutiny. "The Delhi high court judgment confirms that public-private partnership (PPP) projects can be audited by CAG, as long as such audit is conducted in accordance with the pre-requisites and principles outlined by the court in its judgment and subject to government making out a credible case on public interest," says Sakya Singha Chaudhuri, partner, HSA Advocates.
By granting an exception to discoms, the October decision of the high court has put power rates out of the purview of CAG, but in cases where they are government-controlled, they will continue to be audited by the statutory auditor. In Delhi, the state government holds only 49 per cent equity in the three companies and hence they are joint sector companies.
The relief to private discoms has come since the court held they can be audited only under the Companies Act and the regulatory mechanism under the Electricity Act. Chaudhuri says the high court appears to have proceeded on the basis that where there is a specialised sectoral regulator in place which can examine and analyse the books of a PPP, "no public interest would be served by duplicating the process by carrying out a further CAG audit".
As a state regulator, DERC is empowered to not only approve rates for sale of power within the state in accordance with the norms laid in the Electricity Act and the rules under, but also has investigative powers under Section 128 (1). If a power distribution licensee has failed to comply with any of the conditions of licence, or a generating company, or a licensee has failed to comply with any of the provisions of the Act, or rules or regulations, it can direct any person to investigate the affairs of any generating company or licensee. The investigating authority can employ any auditor or any other person for the purpose of assisting him in investigation under this section.
The Delhi government while asking CAG to audit the three distribution companies owned by Reliance Infrastructure and Tata Power, had however, used the provisions of Section 20 (1) of CAG (DPC) Act that allows the government to seek an audit of the accounts of a body or authority on such terms and conditions as may be agreed between CAG and government. For the purposes of such audit, CAG has the right of access to the books and accounts. Section 20 (3), however, says such an audit cannot be entrusted to CAG except when it is expedient so to do in the public interest, and after giving a reasonable opportunity to the party concerned to make representations.
The court held that such an audit for "determination of tariff is not expedient in public interest" as the determination of rates is within the sole domain of DERC. Besides, it held that actual public interest to be served by a CAG audit must be established. Though ensuring reasonability of rates comes under the realm of public interest, according to Pramod Deo, former chairman, Central Electricity Regulatory Commission (CERC), public interest also means balancing the interest of all stakeholders. "When tariff is determined, the regulator is expected to do scrutiny. If lot of capital expenditure has been incurred, for instance, regulator can put limits," says Deo. The decision of DERC can be challenged in the Appellate Tribunal for Electricity and thereafter in the Supreme Court. Section 110 of the Electricity Act provides for appeals against the orders of a state regulatory commissions and Section 125 provides for an appeal to the Supreme Court against the orders of the Appellate Tribunal.
The Delhi government might now be looking at appealing in the Supreme Court but the high court has clearly taken the domain of pricing of electricity outside the purview of CAG and in that sense has let sectoral and commercial process independent of other scrutiny.
Source- Business standard