THE HONOURABLE SRI JUSTICE GODA RAGHURAM WRIT PETITION NO. 13123 of 2006 Date: -06-2007 Between: M/s Venkataraya Fibres Pvt. Ltd. Rep. by its Executive Director, Himayatnagar, Hyderabad. … Petitioner And: The State of Andhra Pradesh, Rep. by its Secretary, Energy Department, Hyderabad and others … Respondents THE HON’BLE SRI JUSTICE GODA RAGHURAM WRIT PETITION NO. 13123 OF 2006 ORDER: The petitioner is a private limited company incorporated under the provisions of the Companies Act 1956, in 1983. Its objects include generation of power using biomass. The petitioner is aggrieved by the respondents’ insistence that the petitioner agree to a renegotiation of the price at which it would supply power to the 2nd respondent and by the refusal to supply “back power” till then. The petitioner seeks a direction to the respondents to forthwith supply back power and thereafter to purchase the power to be supplied by the petitioner “at uniform rates that are being paid to other similarly situated companies in the State of Andhra Pradesh generating power using combustible bio-mass.” Since the advent of the industrial revolution, the consumption of energy has been increasing exponentially. The mainstay of the consumable energy has been coal and fossil fuels. These are fast depleting and non-renewable resources of the planet. This mismatch between the accelerating global consumptive need and the availability and potential of conventional resources engendered global concerns and led to a concerted search for alternate, non-conventional energy resources to supplement and perhaps supplant eventually the conventional resources for energy generation. India in harmony with global concerns and initiatives, introduced measures to encourage recourse to non-conventional resources for energy generation and consumption. At the initiative of the Union of India, the 1st respondent promoted the Non-Conventional Energy Development Corporation of A.P (NEDCAP). NEDCAP identified power generation employing biomass as an effective non-conventional measure. According to the petitioner :- A) NEDCAP conducted a survey in the State to identify potential areas in several districts within the State where non-conventional power generating plants could be set up. For this purpose NEDCAP took into account several factors like raw material availability, local power requirement, proximity of the location to the State or the National Grid, availability of water and the like. B) During its survey NEDCAP identified Mahabubnagar District as a potential location for establishment of two 6 MW power plants which could generate power employing biomass. Applications were invited from private entrepreneurs like the petitioner “for expression of interest” to set up such plants. In response the petitioner Company applied on 18.02.2002 to NEDCAP to set up one 6 MW capacity biomass power plant to be located at Beechpalli, Itkyal Mandal, Mahabubnagar District. NEDCAP by its letter dated 05.03.2002 accorded permission to the petitioner to set up the power plant. An agreement was thereafter entered into between the petitioner and NEDCAP on 07.03.2002 incorporating a term (Clause.7) that a Power Purchase Agreement (PPA) shall be entered into between the petitioner and the concerned licensee. C) At this point in time the concerned licensee was the Transmission Corporation of Andhra Pradesh – the APTRANSCO. The 2nd respondent is the successor of APTRANSCO. On 22.09.2003 a Power Purchase Agreement (PPA) was entered into between the petitioner and the APTRANSCO under which out of the total 6 MW of power to be generated by the petitioner, about 0.48 MW could be used by the petitioner for its internal consumption and the balance 5.52 MW would be purchased by the APTRANSCO through the Grid. D) On the basis of the above PPA the petitioner raised equity and also obtained credit from a nationalized bank, to an extent of Rs.2.56 crores. It established a power generating plant in accordance with the rules and guidelines by the Union of India and the State of A.P. The plant is now ready to be commissioned. E) By its letter dated 20.03.2006 the petitioner requested the 2nd respondent to provide the necessary electrical energy “back power” required to charge its plant, as per Cl.3.6, Art.3 of the PPA so as to commence its operations. F) However the 3rd respondent by a letter dated 03.03.2006 (but signed on 01.04.2006), called upon the petitioner to communicate its willingness for “tariff negotiations” and “signing of modifications to the PPA as approved by COMMISSION”. The 3rd respondent’s letter was silent and unresponsive to the petitioner’s request for supply of back power. G) According to the provisions of Art.2, Cl.2.2 the petitioner was entitled to be paid (for the power supplied to the 2nd respondent) the tariff for the energy so delivered at the inter-connection point for sale as applicable on the date of commercial operation subject to review of the prices by the Andhra Pradesh Electricity Regulatory Commission (The Commission) from time to time. The 2nd respondent is thus obligated to purchase the power generated by the petitioner at the rate prevalent as on the date of commercial operation. Commercial operations could have occurred in April 2006 if the 2nd respondent had supplied back power as per the request and requisition of the petitioner. H) The Commission did suggest a few modifications to the PPA and the petitioner conveyed its acceptance in principle of these modifications. However, the petitioner company, at no point of time, had ever objected to a discussion or agreeing to the modification to the said agreement. I) The conduct of the respondents in failing to supply electrical energy to the petitioner is arbitrary. As time was of the essence, in response to the 3rd respondent’s communication dated 03.03.2006 the petitioner conveyed its willingness to discuss the issues pertaining to modifications in the PPA and requested the 2nd respondent to intimate a suitable date for the purpose. The 3rd respondent by its letter dated 06.05.2006 scheduled 08.05.2006 as the date for negotiation. At the meeting held in the 3rd respondent’s office on 08.05.2006 the 3rd respondent stated that the 2nd respondent would not be interested in purchasing power from the petitioner unless the petitioner agreed to a price of Rs.2.60 ps per unit. The petitioner’s efforts to reason out with the respondents 2 and 3 were of no avail. The petitioner also pointed out at the meeting that the other 38 companies generating power through biomass were being paid a much higher rate at Rs.3.30 ps per unit and the petitioner cannot be discriminated. The 2nd respondent continued to avoid supplying back power. J) The PPA between the petitioner and the APTRANSCO is binding on the 2nd respondent as the successor-in- interest of the APTRANSCO (vide G.O.Ms.No. 58 dated 7.6.2005) and the terms of such agreement also obligate the 2nd respondent to purchase the power to be delivered by the petitioner in accordance with the terms of the agreement. K) Under Art.2.1 of the PPA the energy that is delivered at the inter connection point for sale to the APTRANSCO, will be purchased at the tariff provided in Art. 2.2 from and after the date of commercial operations of the Company. Art.2.2 of the PPA provided that the Company shall be paid tariff for the energy delivered, at rates as are applicable on the date of commercial production. Art.3.6 enjoins supply of energy to the company for any purpose at tariff rates as are applicable from time to time to the category of consumers to which the petitioner belongs, prior to the date of commercial production. Art.6.2(i) contains an undertaking by the APTRANSCO to make all efforts for evacuation of power. L) The petitioner’s request for back power ought to have been complied with by the 2nd respondent both in terms of the PPA as well as Sec.43 of the 2003 Act. However, the 2nd respondent invited the petitioner for negotiations contrary to the PPA and without any basis. In any event there was no occasion or justification for refusing supply of ‘back power’. Without prejudice to the above, the respondents and in particular the 2nd respondent, is obligated to pay the petitioner a price for the power supplied by the petitioner which is equal to what is paid to similarly situated Companies i.e., those generating power using Bio-mass as the combustible fuel. M) Even if the revised tariff plan fixed by the Commission in 2004 (currently under challenge elsewhere and by those effected thereby) is made applicable to the petitioner, the 2nd respondent is required to purchase power at the rate of Rs.3.01 ps per unit (para-29 of the writ petition). N) The conduct of the respondents in withholding supply of back power and insisting that the petitioner negotiate the price, constitutes coercion to wriggle out of the PPA. Respondents case in brief :- 1st Respondent’s counter dated 17.10.2006: A) It is admitted that the State and Central Governments are anxious to promote non-conventional energy (NCE) projects. For this purpose G.O.Ms. Nos. 93 and 112 dated 18.11.1997 and 22.12.1998 were issued. In G.O.Ms. No. 93 the Central Government issued guidelines for promotional and fiscal incentives to be given by the State for power generation from NCE sources. The incentives were revised from time to time. In G.O.Ms.No.93 uniform incentives to all projects based on renewable sources of energy such as wind, biomass, cogeneration, municipal waste and mini Hydal were stipulated. B) Subsequently, in G.O.Ms. No.112 amendments to the incentives provided in G.O.Ms.No.93 were issued. C) Thereafter under the A.P Electricity Reform Act 1998 (‘the 1998 Act’) the Commission was constituted, commenced functioning from 3.4.1999 and was vested the power (including u/Sec.86 of the Electricity Act 2003 (‘the 2003 Act’)] to promote generation of electricity from renewable sources of energy, to determine tariff for power supply, transmission and wheeling of electricity, wholesale, bulk or retail, as the case may be, within the State and to regulate electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured from generating companies, licensees or from other sources through agreements for purchase for power for distribution and supply within the State. Since the matter is now under the purview of the Commission under the provisions of the 1998 Act and as the Government orders in G.O.Ms. Nos. 93 and 112 have lapsed on account of passage of time, the Government did not issue any order of tariff fixation. D) The Commission by its order dated 6.3.2000 and a subsequent order dated 20.6.2001 in OP No. 1075/00 considered and reviewed the earlier orders of the State Government and continued the incentives given to NCE projects, till March subject to review thereafter. In its tariff order dated 20.03.2004 in RP No. 84/03 in OP No.1075/00, the Commission rationalized the tariff for NCE projects. According to this rationalization incentives except 3rd party sale for some developers, were continued for this year thus enabling NCE projects already established to sustain in the State. E) Though u/Sec.108 of the 2003 Act the State Government is authorized to issue policy directives to the Commission, the State has not issued any directives. F) NEDCAP has no power to fix the tariff nor issue any directives. It is not a statutory authority. It is merely an agency set up by the State to deal with initial and start up matters like drawing up memoranda of understanding. G) U/Sec.21 of the 1998 Act an agreement relating to any transaction of the nature described in sub-sections (1) to (4) unless made with or subject to the consent of the Commission, shall be void. There is no absolute freedom to contract. H) The Government issued orders in G.O.Ms.No.5 dated 11.1.2001 appointing the Superintending Engineer/TL&SS and Divisional Engineer/TL&SS working in the APTRANSCO to function as Electrical Inspectors in the specified operation areas under their notified jurisdiction and to exercise powers and perform the functions of Electrical Inspectors with respect to captive generating plants or generating stations being established by independent power purchasers and power projects based on NCE sources. Under Rule 47A of the Indian Electricity Rules 1956 (‘the Rules’) an independent power purchaser is required to issue a 30 days notice of the intention to commission the plant, to the supplier as well as the Inspector. I) For extending back up power to a generating plant the provisions of Rules 47A and 63(1) of the Rules will have to be complied with. A contract for power purchase will have to be negotiated and an agreement entered into with the concerned DISCOM. The petitioner has therefore no legal basis for the reliefs claimed. There are several other counter affidavits. On behalf of the respondents 2 and 3 the Chief General Manager, APCPDCL has field a counter on 17.7.2006. Again on 30.08.2006 another officer describing himself as the Chief General Manager, APCPDCL, filed a counter affidavit in WPMP Nos. 22584 and 23137 of 2006. Yet another counter was filed by another officer also describing himself as the Chief General Manager, APCPDCL, on 26.10.2006. A memo of written submissions was filed on 16.10.2006 on behalf of the respondents 2,3 and 5 and was urged to be a compendium of the case of the respondents. In this document the broad contours of the defence to the writ petition are set out. The critical components of the submissions are : (A) The 1998 Act was enacted pursuant to the Central Legislation – The Electricity Regulatory Commissions’ Act 1998. The Central Act provided for the setting up of a Central Electricity Regulatory Commission and the various State Regulatory Commissions. The AP State Electricity Board (‘APSEB’) constituted u/Sec. 5 of the Electricity (Supply) Act 1948 entrusted with the functions of generating and supplying electricity to the consumers in the State, was divested of its functions. Other agencies were created for this purpose. U/Sec.13 of the 1998 Act the APTRANSCO was constituted. Under the first transfer scheme all assets of the APSEB were transferred to the State Government, which in turn transferred the assets relating to generation to a wholly owned Government Company – the APGENCO. The assets relating to distribution of electricity were transferred to another Government Company – the APTRANSCO. Some assets were retained with the State. (B) Neither the APTRANSCO nor the APGENCO are the successors-in-interest to the APSEB. (C) With the coming into force of the 2003 Act, the Electricity (Supply) Act 1948 and the Indian Electricity Act 1910 were repealed. However, in view of the provisions of Sec. 185(3) of the Electricity Act 2003, the provisions of the 1998 Act not inconsistent with the provisions of the 2003 Act, would apply to the State of Andhra Pradesh. (D) Four distribution companies wholly State owned were constituted for four different regions in the State, hereinafter referred to as the ‘DISCOMS’. The DISCOMS were entrusted with the distribution of electricity in the respective territories in the State. After 10.06.2005 the APTRANSCO became a mere transmission licensee. (E) The contracts entered into with the APTRANSCO and in force when the DISCOMS came into existence are not binding on the DISCOMS. This is so since the concerned DISCOMS may not need the entire power agreed to be purchased from any generating company. The 3rd transfer scheme vide G.O.Ms.No. 58 dated 7.6.2005 provided for allocation and sharing of the PPA’s. This arrangement requires fresh contracts between different DISCOMS and the generating companies; different quantities of energy may be required to be purchased at the tariff fixed by the Commission which is the agency exclusively authorised to determine the tariff in accordance with the principles enacted in Sec.62 of the Electricity Act 2003. The PPAs already entered into by the generating company with the APTRANSCO are not therefore conclusive and operative. The PPA is valid only if it is approved by the Commission and would come into existence only after a draft agreement is placed before it; is duly approved by it; and thereafter a contract is entered into. (F) The writ petitioner entered into a PPA dated 22.9.2003 with the APTRANSCO agreeing for a particular tariff and for a particular period. This PPA was not approved by the Commission in toto. The Commission suggested modifications and instructed the parties to incorporate specified amendments. Under the 1998 Act or the 2003 Act there is no scope for a partial or conditional consent by the Commission. (G) After instituting the writ petition, the petitioner forwarded an agreement purporting to be amendments to the agreement entered into with the APTRANSCO. This agreement was signed only by the petitioner but not by the APTRANSCO or the APCPDCL. As the APTRANSCO ceased to be in existence, the agreement was returned to the petitioner. The petitioner failed to address the Commission requesting for approval. The petitioner thus had an incomplete agreement with the APTRANSCO, not wholly approved by the Commission. The consent of the Commission as required u/Sec. 21(4) of the 1998 Act cannot be assumed to have been given to the PPA, in the circumstances. (H) Thus, there is no effective or operative PPA. The generating companies which were already supplying energy were being paid tariff under the contract approved by the Commission. Since that stage was not reached in so far as the petitioner is concerned and the petitioner is yet to generate and supply power to the concerned DISCOM, the question of making payment on par with other existing generating companies does not arise. (I) In the above circumstances the petitioner was addressed to communicate willingness for negotiation of tariff and for modifications to the PPA. There was no lawful agreement in place with the APTRANSCO by the time the third transfer scheme was issued (in GOMS No.58, dt 7.6.2005) and therefore the petitioner has no right against the 2nd respondent. (J) Regarding the petitioner’s claim for supply of back power, Art. 3.6 of the PPA deals with supply of power during the period of construction of the power plant. Under Art.3.6 there is no obligation to supply back power for testing and trial run of the plant. Supply of power for construction of power plant and other activities was already made at the request of the petitioner. Supply of back power for testing and trial run would arise only after the inspection of all electrical installations by the Electrical Inspector appointed and authorised by the State Government. Rule 63 of the Indian Electricity Rules 1956 (‘the 1956 Rules’) enjoins that all electrical installations should be charged with supply only after due inspection by the Electrical Inspector. In any event there is no valid PPA approved by the Commission which enjoins an obligation to supply power by the 2nd respondent to the petitioner. (K) The principles of estoppel are not attracted. No representation or promise has been made by the 2nd respondent to justify the plea of estoppel. (L) Under the 2003 Act the petitioner can always opt for open access. The petitioner was never offered the price of Rs.2.60 ps per unit. While the 2nd respondent is prepared to offer a price which would ensure a reasonable profit, the petitioner is insisting on payment of Rs.3.30 per unit. There is no question of discrimination either. Recently the EPDCL, another DISCOM entered into a PPA with Nav Bharat Ferro Allies Ltd, (a Bagasse Power Plant) to purchase power at Rs.2.70 ps per unit. The DISCOMs are required to agree to a tariff that would not unduly burden the consumers. The interests of the public are paramount. (M) The petitioner must pursue the available alternative remedy. The petitioner is a generating company as defined in Sec.2(28) of the Electricity Act 2003. The 2nd respondent is a licensee. U/Sec.86(1)(f), the Commission is empowered to adjudicate disputes between generating companies and licensees. The petitioner has thus an alternative remedy. Analyses of the case in the context of the competing positions: On 22-09-2003 a Power Purchase Agreement (herein after called as ‘PPA’) was entered into between the petitioner and the APTRANSCO. Clause.6 of this agreement stipulates that it is enforceable subject to obtaining the consent of the Commission as per Sec.21 of the 1998 Act. As per Article.2 of the PPA the petitioner shall be paid tariff for the energy delivered at the interconnection point for sale as applicable as on the date of the commercial operation subject to review of the prices by the Commission from time to time. However there will also be a special review of purchase price on completion of ten years from the date of commissioning of the project, at which point the purchase price will be reviewed on the basis of return on the equity-O&M expenses and the variable cost. Clause.3.6 in Article.3 of the PPA (dealing with interconnection facilities) stipulates that during the period prior to the commercial operation date, on the request of the petitioner the APTRANSCO will supply energy to the project for any purpose on the terms and conditions and at the tariff rates that are applicable from time to time to the category of consumers of the APTRANSCO to which the petitioner belongs. By its letter bearing reference No.APERC/Dir-Engg/DD- Trans/F-PPAs/D.No.2940/2003, dated.31-12-2003 the Commission accorded consent under Section.21 of the Reforms Act,1998 to the PPA between the petitioner and the APTRANSCO subject to the specified modifications. The modifications specified are: 1. The Explanation 2 in the Article 1.4 of the Agreement be amended in all agreements as per the Commission’s letter (2) cited above. 2. The Preamble and Schedule 1 of the agreement for the power projects having captive consumption provisions, be amended as per the standard PPA approved by the Commission by letter dated.03-04- 2003, wherein following provision exists “Proposed captive consumption can be reduced by the company and additional surplus power can be sold to the APTRANSCO in case of exigencies or otherwise”. The Commission also directed that the amended agreement be submitted to it for record. Issue A – Is there a consent to the PPA by the Commission: According to Sri T.Ananta Babu the learned Senior Counsel for respondents, the Commission’s letter dated.31-12- 2003 cannot be considered to be a consent by the Commission to the PPA, under Section.21(4)(b) of the Reforms Act,1998. It is a conditional consent. It is only a partial approval/consent. The above submission does not commend acceptance. Clearly the Commission communicated its consent under Sec.21(4) but subject to the amendments directed. According to these amendments explanation.2 in Article.1.4 of the PPA has been amended in all agreements as per the Commission’s letter dated.15-11-2003. Also the preamble and the first schedule of the PPA in the power projects having captive consumption provisions is amended as per the standard PPA approved by the Commission by its letter dated.05-04-2003 where under there is a provision that the proposed captive consumption can be reduced by the generating company and additional surplus power can be sold to the APTRANSCO in case of exigencies or otherwise. On a holistic, true and fair analysis of the Commission’s letter dated.31-12-2003 the conclusion is irresistible that the PPA was granted consent with the amendments ordered by the Commission itself. The only requirement was a procedural one namely that the amended agreement be submitted to the Commission for record. Thus the PPA between the petitioner and the APTRANSCO was accorded consent by the Commission with the amendments as directed by the Commission. The APTRANSCO did not challenge the consent accorded by the Commission. There is thus, in the considered view of this Court an operative power purchase agreement between the petitioner and the APTRANSCO which has been duly approved and accorded consent by the Commission in terms of Sec.21(4) of the 1998 Act. It is the factual position admitted by the respondents (vide written submissions at page-4) that the writ petitioner sent an agreement incorporating all the amendments to the PPA signed by itself. The respondents state that the agreement was signed only by the petitioner and not by the APTRANSCO or DISCOM. The respondents contend that as the APCPDCL is not the successor-in-interest to an “incomplete agreement”, no request was made to the Commission for its approval. The respondents contend that there is only an incomplete agreement with the APTRANSCO which has not been approved by the Commission and therefore the consent of the Commission as envisaged