Case: RELIANCE INFRASTRUCTURE LIMITED Vs. STATE OF MAHARASHTRA

Gross station heat rate(a) Gross station heat rate for coal-based generating1: In respect of 500 MW and above units where the boiler feed pumps are electrically operated, the gross station heat rate shall be 40 kCal/kWh lower than the station heat rate indicated above. Note 2:For generating stations having combination of 200/210/250 MW seats and 500 MW and above sets, the normative gross station heat rate shall be the weighted average station heatthe above regulations, uniform norms were fixed for all coal based thermal generating stations, without any distinction between individual generating stations. The norm applicable to the Dahanu Thermal Power Station of the appellant was 2500 kCal/kWh. This norm also applied to other generating stations in the State of Maharashtra.5. On 6 January 2006 the Union of India in the Ministry of Power notified the National Tariff Policy under Section 3 of the Electricity Act 2003. The policy, inter alia, spelt out the general approach to be followed for the purpose of determining tariffs including operating norms for generating stations. Clause 4 of the policy laid out its objectives in the followingEnsure availability of electricity to consumers at reasonable and competitive rates;(b) Ensure financial viability of the sector and attract investments;(c) Promote transparency, consistency and predictability in regulatory approaches across jurisdictions and minimise perceptions of regulatory risks;(d) Promote competition, efficiency in operation and improvement in quality of5.0 spells out theClause 5(f) stipulates operating( f ) Operating Norms Suitable performance norms of operations together with incentives and dis-incentives would need be evolved along with appropriate arrangement for sharing the gains of efficient operations with the consumers. Except for the cases referred to in para 5.3 (h) (2), the operating parameters in tariffs should be atly and not atf normative andThis is essential to encourage better operating performance. The norms should be efficient, relatable to past performance, capable of achievement and progressively reflecting increased efficiencies and may also take into consideration the latest technological advancements, fuel, vintage of equipments, nature of operations, level of service to be provided to consumers etc. Continued and proven inefficiency must be controlled and penalized. The Central Commission would, in consultation with the Central Electricity Authority, notify operating norms from time to time for generation and transmission. The SERC would adopt these norms. In case where operations have been much below the norms for many previous years, the SERCs may fix relaxed norms suitably and draw a transition path over the time for achieving the norms notified by the Central Commission.Operating norms for distribution networks would be notified by the concerned SERCs. For uniformity of approach in determining such norms for distribution, the Forum of Regulators should evolve the approach including the guidelines for treatment of state specific distinctive5 (h) adverts to the Multi Year(h) Multi Year Tariff(1) Section 61 of the Act states that the Appropriate Commission, for determining the terms and conditions for the determination of tariff, shall be guided inter-alia, by multi-year tariff principles. The MYT framework is to be adopted for any tariffs to be determined from April 1, 2006. The framework should feature a five-year control period. The initial control period may however be of 3 year duration for transmission and distribution if deemed necessary by the Regulatory Commission on account of data uncertainties and other practical considerations. In cases of lack of reliable data, the Appropriate Commission may state assumptions in MYT for first control period and a fresh control period may be started as and when more reliable data becomes available.(2) In cases where operations have been much below the norms for many previous years, the initial starting point in determining the revenue requirement and the improvement trajectories should be recognised atlevels and not thelevels. Suitable benchmarking studies may be conducted to establish theperformance standards. Separate studies may be required for each utility to assess the capital expenditure necessary to meet the minimum serviceIn August 2009, MERC published a ‘draft approachfor the purpose of enacting multi year tariff regulations for financial years 2010-11 to 2014-15. On 23 October 2009, the appellant furnished its suggestions. In 2010, MERC commissioned a report from the Central Power Research Institute (CPRI) for ascertaining achievable performance parameters for thermal power plants in Maharashtra and to suggest improvements. CPRI carried out an independent assessment in respect of the plant of the appellant (DTPS), Tata Power (Generation) – TPCG, and Maharashtra State Power Generation Company Limited (MSPGCL). According to the appellant, no recommendation was made in respect of their plant since it was performing better than the prescribed SHR.7. In July 2010, MERC published another draft approach paper in regard to the proposed multi year tariff regulations for financial years 2011-12 to 2015-16 together with draft regulations. On 26 October 2010, the appellant made submissions on the draft approach paper. On 4 February 2011, the MERC (Multi Year Tariff) Regulations, 2011 3 were notified. Regulation 2(32) defines the Gross Station Heat Rates Station Heatmeans the heat energy input in kcal required to generate one kWh of electrical energy at generatorn 44 provides norms for the operation of thermal generating stations. Regulation 44.2 stipulates gross station heat rates for existing generating stations in the followings Station HeatRate - For existing Generating Stations:a) Existing Coal-based Thermal Generating Stations, other than those covered under clauses (b), (c) and (d),1 In respect of 500 MW and above Units, where the boiler feed pumps are electrically operated, theStation Heat Rateshall be 40 kcal/kWh lower than theStation Heat Rateindicated above.Note 2 For Generating Stations having combination of 200/210/250 MW sets and 500 MW and above sets, the normativeStation Heat Rateshall be the weighted average station heat rate.b) Thermal Generating Stations of Maharashtra State Power Generation Company Ltd.that the Commission may revise the norms for heat rate for the above mentioned Generating Stations in case of Renovation & Modernisation undertaken for the Generating Station.c) Thermal Generating Units of the Tata Power Company Ltd. Generation Businesscase variation in Oil and Gas mix is more than +/- 5%, the Heat Rate for Unit 6 shall be approved considering the actual Oil and Gas Mix.d) Thermal Generating Station of Reliance Infrastructure Ltd.- Generation BusinessThe above regulation indicates that save and except for the excluded categories set out in clauses (b), (c) and (d), the SHR for existing coal based thermal generating stations is pegged at a uniform level of 2450 kCal/kWh (for 200/210/250 MW sets) and 2425 kCal/kWh (for 500 MW sets and above). The excluded categories are the generating stations of (i) MSPGCL; (ii) TPC – G; and (iii) RInfra-G. As the table in clause (b) of Regulation 44.2 indicates, a relaxed standard for the SHR has been prescribed for the units of MSPGCL. However, there is an exclusion within the exclusion for Unit 3 at Paras and Unit 6 at Parli, since these units are governed by the uniform criterion prescribed in clause (a). The dispensation for Units 4, 5 and 6 of TPC-G is prescribed in clause (c). For Unit 8 of TPC-G, the applicable SHR is in terms of the uniform rate of 2450 kCal/kWh, since this unit is not specified in clause (c).9. The grievance of the appellant arises from the fact that a tighter standard or norm has been prescribed for its Dahanu TPS. As opposed to the uniform criterion of 2450 kCal/kWh in Regulation 44.2(a), the SHR for the Dahanu TPS varies between 2350 in financial year 2011-12 to 2370 in financial year 2015-16. Essentially, it is this prescription of a more stringent SHR in the case ofDahanu TPS which forms the focus of dispute in the present case.10. In order to buttress its grievance of discrimination, the appellant has relied upon the Multi Year Tariff regulations notified by MERC for the previous period (2005-10) and for the subsequent period (2016-21). The MERC (Multi Year Tariff) Regulations 2015 4 which govern the period 1 April 2016 to 31 March 2020 place the Dahanu TPS of RInfra-G at par with other coal-based thermal generating stations. Regulation 44.4 is in the followings Station HeatRate for existing coal-based thermal Generating Stations, other than those covered under Regulation 44.5 and 44.6 shallNote 1 In respect of 500 MW Units, where the boiler feed pumps are electrically operated, theStation Heat Rateshall be 40 kcal/kWh lower than theStation Heat Ratespecified above.Note 2 For Generating Stations having combination of 200/210/250 MW sets and 300 MW and 500 MW sets, the normativeStation Heat Rateshall be weighted averageRegulation 44.5 contains the SHR for the coal based thermal generating stations of MSPGCL. Regulation 44.6 specifies the SHR for TPC-G. Regulations 44.5 and 44.6 are extracteds Station HeatRate for existing coal-based thermal Generating Stations of Maharashtra State Power Generation Company Ltd. (MSPGCL) shallthat the Commission may revise theStation Heat Ratenorms for these Generating Stations in case any Renovation & Modernization is undertaken.44.6Station Heat Ratefor existing thermal Generating Stations of The Tata Power Company Ltd- Generation Business (TPC-G) shallcase variation in Oil and Gas mix is more than +/- 5%, theStation Heat Ratefor Unit 6 shall be approved considering the actual Oil and Gas Mix.Regulation 44.5, Units 4 and 5 at Bhusawal and Units 6 and 7 at Parli have been excluded. Similarly, Unit 8 for TPC-G is excluded from the SHR in Regulation 44.6.11. In order to complete the narration, it may be noted that on 2 September 2011, MERC passed an order on a petition filed by the appellant for deferring the implementation of the MYT regulations. On 5 May 2012, the appellant submitted a petition for approval of its business plan for financial years 2010-11 to 2015-16. The appellant requested that the norm should be relaxed and brought in line with the normative SHR. On 25 October 2012, MERC passed an order on the MYT Business Plan for RInfra-G stating that it had considered the norms for SHR based on the MYT regulations. MERC heldStation heat rate4.5.2 RInfra-G submitted that MYT Regulations, 2011 framed the norms for DTPS based on thehistorical performance. RInfra-G submitted that it believes that all operating parameters,including the secondary oil consumption, auxiliary energy consumption, station heat rate and transit loss should be specified to create a level playing field and bring discipline for regulated entities for the benefit of beneficiaries of the state. RInfra-G submitted that the essence of the norms should be to create benchmarks based on industry-wide performance and let the market to reward or penalize the performance of the utilities vis-à-vis those benchmarks. RInfra- G further submitted that such mechanism will not only force underperforming utilities to perform but also bring the competitive price of power in the market in overall benefit of consumers.4.5.3 In its Petition under Case No.45 of 2011, RInfra-G had raised the issue of specifying separate norms for SHR of DTPS in the MYT Regulations, 2011 and argued that any norm for generating stations should be made based on performance of the industry as a whole and should not be specific to a plant based on its historical performance.4.5.4 RInfra-G submitted that specific relaxations from the norms can, however, be provided considering the specific issues of any given plant. In the said Petition, RInfra-G also highlighted the SHR norms adopted by other Regulatory Commissions to bring out its point that the SHR norms should be linked with unit size and ageing and not driven by the performance of the generating company. RInfra-G further added that the tightening of the norms for efficient generating plant is against the principle of equality and rewarding efficiency.4.5.5 Accordingly, RInfra-G has requested the Commission not to tighten the norms for DTPS and retain it at industrial normative level of 2450 kCal/kWh. RInfra-G submitted that the Commission, in its Order in Case No.45 of 2011 dated 2 September, 2011 on the said Petition did not provide any specific ruling on the said contention of RInfra-G; however stated that the Commission could invoke its powers alter the MYT norms for SHR and OEM cost, if required.4.5.6 The Commission is of the view that norms can be fixed station wise based on the historical performance of the plant. The SHR of the plant is dependent on the age of the plant, the technology used, the capital expenditure incurred overhauling the plant, regular repair and maintenance expenditure incurred and various other factors. Hence, there could be wide variations on SHR across plants. Further, if the Commission derives the benchmark considering only the industry-wide performance capital and operating expenditures incurred, the generating company may not have sufficient motivation to continue to operate as efficiently as it had been in the past. Therefore, a balanced approach is to provide a target which will adequately motivate the generating plant to perform at existing levels or better and still have room for earning incentives. Moreover, the MYT Regulations, 2011 have been finalised after following appropriate regulatory process after considering and deliberating on the views of all stakeholders on various issue. Considering all the facts discussed above, the Commission does not find any merit in altering the MYT norms for SHR. Therefore, though RInfra-G has proposed a SHR of 2,450 kCal/kWh, the Commission has considered the SHR as per the MYT Regulations, 2011.4.5.7 For FY 2011-12, the Commission has considered the SHR as approved in the ARR Order in Case No.163 of 2011. The SHR approved by the Commission for RInfra-G for the second control period is as below:Table 5: Approved station heat rate for the second controlOn 7 December 2012, the appellant filed an appeal under Section 111 of the Electricity Act 2003 before the Appellate Tribunal for Electricity (APTEL) against the order dated 25 October 2012. The appellant submitted that the MERC ought to have exercised its power under Regulations 99 and 100 of the Tariff Regulations 2011 to amend and remove difficulties since the SHR which was prescribed for Dahanu TPS was not the same as for similarly situated generating units.13. On 3 October 2013, the appellant instituted a writ petition under Article 226 of the Constitution before the Bombay High Court for the purpose of challenging Regulation 44.2(d) which specifies a separate SHR for the Dahanu TPS as compared to other generating stations in the State of Maharashtra. The appellant disclosed the pendency of the appeal before the Tribunal againstorder dated 25 October 2012 disallowing the prayer for relaxing the norms.14. MERC opposed the writ petition. MERC submitted that the appellant had filed a substantive petition seeking approval of its business plan for the financial years 2010-11 to 2015-16 and an SHR of 2450 kCal/kWh for 2012-13 to 2015-16. MERC in the course of its adjudication on the business plan had adopted the same SHR as under the tariff regulations. MERC contended that since the appeal before the Tribunal was pending, the appellant was not entitled to pursue a remedy under Article 226 of the Constitution.15. The Appellate Tribunal for Electricity disposed of the appeal on 8 April 2015, recording that it did not survive in view of the institution of the writ proceedings before the Bombay High Court. The appellant asserts that it drew the attention of the High Court, when the writ petition was being heard, to the fact that the appeal before the Tribunal was not pending and had been disposed of.16 The High Court by its judgment dated 18 April 2016 dismissed the writ petition. In coming to the conclusion that the petition was lacking in merit, the High Court came to the followingMERC in framing statutory regulations in exercise of the power conferred by Section 181 had followed the procedure by granting an opportunity to stake holders including the appellant to make their suggestions on the draft approach paper which was published on the basis of the CPRI report;(ii) CPRI was commissioned to undertake a study in order to fix norms for SHR for different power stations in the State of Maharashtra and it was only after the technical material collated by CPRI was considered and reviewed that the tariff regulations were notified prescribing SHR norms for various power stations;(iii) MERC has applied the principles evolved in the tariff policy which stipulates that the operating norms should berelatable to past performance, capable of achievement and progressively reflect increased. The past performance of the Dahanu TPS of the appellant was also taken into consideration;(iv) The submissions urged by the appellant was not accepted for two reasons which were formulated by the High Court asif this submission is accepted then the whole exercise of undertaking an expert analysis, the working of each of the thermal power station to determine the SHR by studying various factors including the past performance would be rendered nugatory. Secondly the tariff standards are required to be fixed on realistic data and its consideration, as public interest is directly involved in fixation of the electricity tariff. The contention of the petitioner if accepted it would also result in a situation that the realistic standards are deviated to fix unrealistic or a camouflage norms. This is surely not permissible and is fundamentally against public interest being against the interest of the consumers of electricity. The submission of the petitioner is only from the sole consideration of profits of the petitioner, while disregarding the norms and standards required to be followed by the 2 nd Respondent in determination of the electricityIn the exercise of its jurisdiction under Article 226 of the Constitution, the High Court cannot decide on technical parameters or come to the conclusion that the norms fixed by MERC are inappropriate;(vi) The power to frame tariff regulations under Section 181 of the Electricity Act 2003 is of a legislative character. The regulations constitute subordinate legislation. Once MERC has followed appropriate procedures mandated by the Electricity Act, the Court will not interfere with the regulations merely on the ground that the SHR prescribed for the power station of the appellant was fixed at a rate below its peers;(vii) Profitability of the producer is not the only consideration in determining the SHR. The regulations are also framed in the interest of the consumers of electricity; and(viii) Having approached the Appellate Tribunal for Electricity, the appellant was not justified in moving the High Court under Article 226when the Tribunal was in a position to provide adequate relief. Entertaining a writ petition of this nature, when an alternate remedy is provided by the statute would render the statutory machinery under the Electricity Act nugatory. The petition under Article 226 was held to be an abuse of process. While dismissing the petition, the High Court imposed costs of Rs 1 lakh on the appellant.

Reasoning: 18. On the maintainability of the petition under Article 226, the High Court, in our view, has overlooked the position in law established by the judgment of a Constitution Bench of this Court in PTC India Limited v Central Electricity Regulatory Commission (2010) 4 SCC 603 . The Constitution Bench considered whether the Appellate Tribunal for Electricity has jurisdiction to decide upon the validity of the regulations framed by the Central Electricity Regulatory Commission. CERC has been entrusted with the power to frame regulations under Section 178 of the Electricity Act 2003. The Constitution Bench held that the validity of a regulation framed under Section 178 can be tested only before the court exercising judicial review. While the Tribunal may decide upon a dispute involving the interpretation of a regulation, for which an appeal under Section 111 would be maintainable, no appeal can lie before the Tribunal on the validity of a regulation.the above principles emerge in the context of regulations framed under Section 178 by the CERC, the logic of the judgment extends to the regulations framed under Section 181 by the State Electricity Regulatory Commissions. In view of the legal position settled by the Constitution Bench, we are of the clear view that the High Court was not justified in disparaging the appellant for taking recourse to a constitutional remedy under Article 226. Indeed, a challenge to the validity of the regulations framed by the MERC could only lie before the High Court. Hence, the imposition of costs for having adopted the remedy under Article 226 was unjustified. There was no suppression of fact on the part of the appellant which had indicated the recourse it had taken in the appeal before the Tribunal, arising from its prayer for relaxation of the SHR norms before MERC. The plea before the Appellate Tribunal was for relaxation of the SHR norms. The plea before the High Court was that the SHR fixed was discriminatory and ultra vires. Undoubtedly, if the appellant were to succeed before the Tribunal, it would perhaps obviate the challenge in the High Court. The appellant, as learned Senior Counsel informed the court, did not press ahead with its plea before the Tribunal. Hence, the writ petition could not have been held not to be maintainable.19. The High Court has dealt with the merits of the challenge to the validity of the regulations. The constitutional validity of Regulation 44.2(d) of the Tariff Regulations 2011 is the subject of the challenge in these proceedings. The basic challenge which has been addressed before the Court is founded on a plea of discrimination.24. The national tariff policy has multi-faceted objectives. Significant among them is the need to ensure to consumers the availability of electricity at reasonable and competitive rates. The policy also seeks to ensure the financial viability of the sector and underlines the need to attract investments. A financially sustainable electricity sector is an important facet of the overall regulatory framework. The objectives of the policy emphasise the need to promote transparency, consistency and predictability in regulatory approaches across jurisdictions. The policy emphasises the need to minimise perceptions of regulatory risk. Finally, the policy recognises the need to promote competition, efficiency in operations and improvements in the quality of supply. In designing and formulating the regulatory framework for tariffs, the delegate of the legislature has to bring about a balance between the competing goals which the tariff policy incorporates.25. As part of the process, the delegate has to bear in mind the interests of diverse stake holders including consumers and producers. The process of framing tariffs is of equal significance, for it is through the procedural framework that norms of consistency, transparency and predictability can be enforced. Competition, efficiency and quality of supply are key components of the policy framework in designing tariffs. Clause 5.3(f) of the tariff policy speaks of the need to evolve performance norms which incorporate incentives and disincentives and provide an appropriate arrangement that fosters the sharing of gains of efficiency in operations with consumers. Operating parameters in tariffs are required to be pegged only on and not at thef normative andsave and except in those cases referred to in paragraph 5.3(h)(2). Paragraph 5.3(h)(2) deals with those cases where operations have been much below the norm for several previous years. In those cases, the initial starting point in determining the revenue requirement and the trajectories are fixed at a relaxed level and not at desired levels. Under clause 5.3(f), the operating norms must fulfil several parameters. They must be (i) efficient; (ii) relatable to past performance; (iii) capable of achievement; and must progressively reflect increased efficiencies. They may also take into consideration latest technological advances, fuel, vintage of equipment, nature of operations, level of service to be provided to consumers, among other factors. Continuous and proven inefficiency has to be controlled and penalised. The operating norms must be designed to promote efficiency and to ensure that the gains which accrue on account of efficient operations are shared with the consumers of electricity. The operating norms will, therefore, have due regard to the performance in the past as well as capacities for future achievement. These must be dovetailed with all relevant considerations, bearing on the requirements of the policy.26. The Tariff policy provides guidance to the appropriate commission when it frames regulations. The power to frame regulations is legislative in nature. It is conferred upon the appropriate commission. The commission weighs numerous factors. Its discretion in carrying out a complex exercise cannot be constrained. The delegate of the legislature is therefore under a mandate to bring about a fair and equitable balance between competing considerations. Standing at the forefront of those considerations is above all the need to ensure efficiency and to protect the interests of consumers. The submission which has been urged on behalf of the appellant would reduce tariff fixation to a rather simplistic process of bringing about equality between generating units which have the same design and manufacturing origin. Such an approach overlooks the complex factors which have to be borne in mind in the determination of tariffs. The submission which has been urged on behalf of the appellant is based on the hypothesis that the CPRI report underlined the similarity of Parli Unit 6, Paras Unit 3, Tata Trombay Unit 8 and the DTPS unit of the appellant. At the highest, the CPRI study would indicate a similarity of specifications but not a similarity of performance. Performance, as we have seen, is a critical element in designing an appropriate SHR. The SHR has an important co-relationship with efficiency.We commenced our discussion by emphasising, in our prefatory observations, that the power to frame regulations is of a legislative nature. The CPRI report was an input before the MERC in carrying out that exercise. MERC followed the statutory procedures laid down for the determination of tariffs. It took into account factors which it is mandated by the statute to consider. The national tariff policy, suggestions of stakeholders as well as the assessment carried out by the CPRI were duly considered. Hence, the present case does not fall in the paradigm of manifest unreasonableness or arbitrariness to warrant the interference of this Court. It would be rather formulaic for the Court to accept that merely because DTPS was placed at par in the immediately previous period (2006-07) and the period immediately succeeding (2016-20), that this must necessarily be extrapolated to the intervening period governed by the MYT Regulations 2011. A body which is entrusted with the task of framing subordinate legislation has a range of options including policy options. If on an appraisal of all the guiding principles, it has chosen a particular line of logic or rationale, this Court ought not to interfere.