MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY LIMITED versus ADANI POWER MAHARASHTRA LIMITED & ORS.
[2023] 8 S.C.R. 85, Supreme Court of India, 2023
Outcome: Dismissed (Dismissed)
Segment: Facts
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   [2023] 8 S.C.R. 85
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MAHARASHTRA STATE ELECTRICITY DISTRIBUTION
COMPANY LIMITED
v.
ADANI POWER MAHARASHTRA LIMITED & ORS.
(Civil Appeal No. 684 of 2021)
MARCH 03, 2023
[B. R. GAVAI AND VIKRAM NATH, JJ.]
Power – Long-term Power Purchase Agreements (PPAs) –
Supply of coal to power producers – Change of New Coal
Distributional Policy, 2007 (NCDP, 2007) by New Coal
Distributional Policy, 2013 (NCDP 2013) – Claim for ‘Change in
Law’ relief compensation – Operating parameters – Held: In the
Energy Watchdog case as well as in Adani Rajasthan case, the
Supreme Court held that on account of the Change in Law, the
generating companies were entitled to compensation so as to restore
the party to the same economic position as if such Change in Law
had not occurred – Had the Change in Law not occurred, the
generating companies would have been entitled to the supply as
assured by the Coal India Ltd. (CIL)/Coal Companies under the
Fuel Supply Agreement (FSA) – The submission that when the bidders
submitted their bids, this was a risk they knowingly took, is without
substance – The generators are not claiming compensation on the
basis of rise in price of coal or on the ground of force majeure –
Their claims, in fact, are on the basis of the Change in Law, which
this Court, in the case of Energy Watchdog as well as in Adani
Rajasthan case, has upheld on the ground of Change in Law – The
contention of the Distribution companies (DISCOMS) that the Adani
Rajasthan case is
not applicable to the facts of the present case
inasmuch as in Adani Rajasthan case, the State of Rajasthan had
assured 100% coal supply and that it was not a case of FSA, is
without substance – In the present case also, the NCDP 2007 had
assured 100% fuel/coal supply of the normative value – The
restitutionary principle has been stated by this Court in the case of
Uttar Haryana Bijli Vitran Nigam Limited (UHBVNL) – Undisputedly,
the claim of respondent no.1-APML stands on the basis of the Change
in Law – The DISCOMS, which are instrumentalities of the State,
cannot be expected to argue contrary to the stand of the Government,
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which clearly provides that the generators would be entitled to pass-
through for the coal required to be imported or purchased from the
open market on the ground of Change in Law – The stand taken by
the DISCOMS that, since the loss being sustained by the generating
companies is on account of non-fulfillment of obligation by CIL/
Coal Companies, they should be relegated to the remedy available
to them in law against the CIL/Coal Companies, is totally
unreasonable – The claim is based on change of NCDP 2007 by
NCDP 2013, which, undisputedly, is covered by the term ‘Change
in Law’ – Compensation – ‘Change in law’ compensation.
Judicial Review – Of decision taken by expert bodies – Central
Electricity Authority (CEA), Central Electricity Regulatory
Commission (CERC) and Appellate Tribunal for Electricity (APTEL)
–Held: – These bodies are bodies consisting of experts in the field
– Courts should be slow in interfering with the decisions taken by
the experts in the field and unless it is found that the expert bodies
have failed to take into consideration the mandatory statutory
provisions or the decisions taken are based on extraneous
considerations or they are ex facie arbitrary and illegal, it will not
be appropriate for the Court to substitute its views with that of the
expert bodies.
Electricity Act, 2003 – Purpose and Object – One of the major
reasons for the enactment of the Electricity Act was the deterioration
in
performance of the State Electricity Boards – It is seen that in a
number of matters, concurrent orders passed by the Regulatory Body
and the Appellate Forum are assailed – Such litigation would, in
fact, efface the purpose of the Electricity Act.
Vivek Narayan Sharma v. Union of India 2023 SCC
OnLine SC 1 – followed.
Energy Watchdog v. Central Electricity Regulatory
Commission and others (2017) 14 SCC 80 and Jaipur
Vidyut Vitaran Nigam Ltd. and others v. Adani Power
Rajasthan Limited and another 2020 SCC Online SC
697 – relied on.
Uttar Haryana Bijli Vitran Nigam Limited (UHBVNL)
and another v. Adani Power Limited and others (2019)
5 SCC 325 : [2019] 4 SCR 487; Reliance Infrastructure
Limited v. State of Maharashtra and others (2019) 3
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SCC 352: [2019] 1 SCR 886; Central Warehousing
Corporation v. Adani Ports Special Economic Zone
Limited (APSEZL) and others 2022 SCC OnLine SC
1398;Maharashtra State Electricity Distribution
Company Limited v. Maharashtra Electricity Regulatory
Commission and others (2022) 4 SCC 657; Tamil Nadu
Generation & Distribution Corporation Limited v. PPN
Power Generating Company Private Limited (2014) 11
SCC 53 : [2014] 4 SCR 667 and Nabha Power Limited
(NPL) v. Punjab State Power Corporation Limited
(PSPCL) and another (2018) 11 SCC 508: [2017] 14
SCR 301 – referred to.
Case Law Reference
(2017) 14 SCC 80
relied on
Para 22
[2017] 14 SCR 301 
referred to
Para 43 (xxvi)
[2019] 4 SCR 487
referred to
Para 44 (xviii)
(2022) 4 SCC 657
referred to
Para 45 (ix)
[2014] 4 SCR 667
referred to
Para 45 (ix)
[2019] 1 SCR 886 
referred to
Para 121
CIVIL APPELLATE JURISDICTION : Civil Appeal No.684 of
2021.
From the Judgment and Order dated 14.09.2020 of the Appellate
Tribunal for Electricity in Appeal No.182 of 2019.
With
Civil Appeal No.6927 of 2021.
Balbir Singh, A.S.G., Gopal Jain, G. Umapathy, M. G.
Ramachandran, Dr. A. M. Singhvi, Darius Khambata, Sajan Poovayya,
Siddhartha Dave, S. B. Upadhyay, Sr. Advs., Anup Jain, Udit Gupta for
M/s. Udit Kishan and Associates, G. Sai Kumar, Samir Malik, Ms. Ekssha
for M/s. D.S.K. Legal, Anand K. Ganesan, Nikunj Dayal, Ms. Poorva
Saigal, Amal Nair, Shubham Arya, Ms. Kriti Soni, Ms. Ritu Apurva, Ms.
Pallavi Saigal, Ms. Ritu Apurv, Ravi
Nair, Ms. Shikha Sood, Ms. Reeha
Singh, Ms. Anumeha Smiti, Aneesh Bajaj, Navin Prakash, Ms. Anushree
Bardhan, Ms. Srishti Khindaria, Vishrov Mukherjee, Pukhrambam
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. LTD. v.
ADANI POWER MAHARASHTRA LTD.
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Ramesh Kumar, Girik Bhalla, Yasashwi Kant, Mrs. Priyanka Vyas,
Mahesh Agarwal, Amit Kapur, Ms. Geetika Sharma, Ms. Poonam
Sengupta, Ms. Sakshi Kapoor, Avishkar Singhvi, Arshit Anand, Saunak
Rajguru, Aman Sharma, Ms. Deepsika Mishra, Ankitesh Ojha, Karan
Rukhana, E. C. Agrawala, Ms. Pallavi Sharma, Vaibhav Kalra,  Nishant
Kumar, Ms. Anisha Upadhyay, Advs. for the appearing parties.
The Judgment of the Court was delivered by
B. R. GAVAI, J.
INDEX*
I.
INTRODUCTION………………………..Paras 1 and 2
II.
FACTS IN CIVIL APPEAL NO.684 OF
2021……..................................................Paras 3 to 29
III.
FACTS IN CIVIL APPEAL NO.6927 OF
2021………….........................................Paras 30 to 39
IV.
SUBMISSIONS ON BEHALF OF THE
DISCOMS ……….......................................... Paras 43
V.
SUBMISSIONS ON BEHALF OF THE
GENERATING COMPANIES ……......Paras 44 and 45
V.
RELEVANT DOCUMENTS………….... Paras 46 to 83
VI.
JUDGMENTS CITED…………………...Paras 84 to 93
VII.
STATUTORY PROVISIONS WITH REGARD TO
REGULATORY MECHANISM………..Paras 94 to 104
VIII. CONSIDERATIONS…………………Para 105 onwards
List of abbreviations:
1.
ACQ
-
Annual Contracted Quantity
2.
APML
-
Adani Power Maharashtra
Limited
3.
APTEL
-
Appellate Tribunal for
Electricity
4.
C&AG
-
Comptroller and Auditor
General of  India
*Ed Note : Pagination in the Index is as per the original judgment.
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5.
CCEA
-
Cabinet Committee on
Economic Affairs
6.
CERC
-
Central Electricity Regulatory
Commission
7.
CIL
-
Coal India Limited
8.
CPP
-
Captive Power Plants
9.
DISCOMS
-
Distribution Companies
10.
FSA
-
Fuel Supply Agreement
11.
GCV
-
Gross Calorific Value
12.
GMR
-
GMR Warora Energy Ltd.
13.
GMRETL-
GMR Energy Trading Limited
14.
IPPs
-
Independent Power Producers
15.
LoA
-
Letter of Assurance
16.
MERC
-
Maharashtra Electricity
Regulatory  Commission
17.
MoC
-
Ministry of Coal
18.
MoP
-
Ministry of Power
19.
MSEDCL
-
Maharashtra State Electricity
Distribution Company Limited
20.
NCDP
-
New Coal Distributional Policy
21.
PLF
-
Plant Load Factor
22.
PPAs
-
Power Purchase Agreements
23.
PSA
-
Power Sale Agreement
24.
RFP
-
Request for Proposal
25.
SECL
-
South Eastern Coal Limited
26.
SHR
-
Station Heat Rate
27.
TPPs
-
Thermal Power Stations
28.
UHBVNL
-
Uttar Haryana Bijli Vitran
Nigam  Limited
29.
WCL
-
Western Coal Limited
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. LTD. v.
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INTRODUCTION
1. The questions involved in both these appeals, as in several other
appeals, are common.
2. Three of the issues involved in the present appeals are also
involved in the other appeals which were listed along with these two
appeals. However, the other appeals also involve some other ancillary
and incidental issues. As such, at the request of the learned counsel for
the parties, we have heard the present appeals. We have also heard the
learned counsel appearing in the other appeals on the three questions
which are common.
FACTS IN CIVIL APPEAL NO. 684 OF 2021
3. The facts, in brief, which arise in Civil Appeal No.684 of 2021
are thus:
4. The appellant-Maharashtra State Electricity Distribution
Company Limited (hereinafter referred to as “MSEDCL”) has entered
into a long-term Power Purchase Agreements (“PPAs” for short) with
Adani Power Maharashtra Limited (hereinafter referred to as “APML”).
The first of the PPAs is dated 8th September 2008 for 1320 MW (“1320
MW PPA” for short); the second one is dated 31st March 2010 for 1200
MW (“1200 MW PPA” for short); the third one is dated 9th August 2010
for 125 MW (“125 MW PPA” for short); and the fourth one is dated
16th February 2013 for 440 MW (“440 MW PPA” for short). These
PPAs were entered into in pursuance of the competitive bidding
processes conducted by the appellant-MSEDCL under Section 63 of
the Electricity Act, 2003 (hereinafter referred to as “the
Electricity Act”)
read with the Standard Bidding Guidelines issued by the Ministry of
Power (“MoP” for short).
5. Article 10 of the 1200 MW PPA dated 31st March 2010 entered
into between the appellant-MSEDCL and respondent No.1-APML deals
with “Change in Law”.
6. Article 10.1.2 defines the term “Change in Law”.
7. Article 10.2 deals with the application and principles for
computing the impact of Change in Law. Article 10.2.1 provides that
while determining the consequence of a Change in Law under Article
10, due regard has to be given to the principle, that to compensate the
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Party affected by such Change in Law is to restore through monthly
Tariff Payment, to the extent contemplated in Article 10, the affected
Party to the same economic position as if such Change in Law has not
occurred.
8. Article 10.3 deals with “Relief for Change in Law”. Article
10.3.1 provides relief for Change in Law during the Construction Period,
whereas Article 10.3.2 provides for compensation to be paid on account
of Change in Law during Operating Period. For claiming relief on account
of a Change in Law, the Party is required to approach the Appropriate
Commission along with documentary proof of such increase/decrease
in the cost of the Power Station or revenue/expense for establishing the
impact of such Change in Law. Article 10.3.4 provides finality to the
decision of the Appropriate Commission with regard to compensation
determined under Articles 10.3.1 and 10.3.2.
9. On 18th October 2007, the Government of India, through the
Ministry of Coal (“MoC” for short), issued the New Coal Distributional
Policy, 2007 (hereinafter referred to as “the NCDP, 2007”). As per the
NCDP 2007, 100% of the quantity as per the normative requirement of
the consumers was to be considered for the supply of coal, through Fuel
Supply Agreement (“FSA” for short) by Coal India Limited (“CIL” for
short) at fixed prices to be declared/notified by CIL. The NCDP, 2007
also provided that to meet the domestic requirement of coal, CIL may
have to import coal as may be required
from time to time, if feasible.
CIL was to adjust its overall price accordingly. It further provided that it
was the responsibility of CIL/Coal Companies to meet the full
requirement of coal under FSAs even by resorting to imports, if necessary.
10. It is not in dispute that in accordance with the NCDP, 2007,
APML had applied for coal linkage to MoC. It is also not in dispute that
Western Coal Limited (“WCL” for short) and South Eastern Coal Limited
(“SECL” for short) issued two Letters of Assurance (LoAs) in favour
of APML and assured supply of coal.
11. Undisputedly, FSA was executed between APML and WCL
for domestic coal linkage. Subsequently, the FSA was amended and the
quantum of coal assured by WCL was transferred to SECL.
12. It is also not in dispute that subsequently, on 21st June 2013,
the Cabinet Committee on Economic Affairs (“CCEA” for short), in
view of the persistent shortage of domestic coal, approved a revised
mechanism for coal supply to power producers.
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13. Thereafter, the Government of India, through the Ministry of
Coal, issued Office Memorandum dated 26th July 2013 (hereinafter
referred to as “NCDP 2013”), thereby approving a revised arrangement
for the supply of coal to the identified Thermal Power Stations (“TPPs”
for short). The said Office Memorandum provided that FSAs will be
signed for the domestic coal quantity of 65%, 65%, 67%, and 75% of
Annual Contracted Quantity (“ACQ” for short) for the remaining four
years of the 12th Plan for the power plants having normal coal linkages.
It further provided that to meet the balance FSA obligations towards the
requirement of the said 78,000 MW TPPs, CIL may import coal and
supply the same to the willing power plants on a cost-plus basis. It further
provided that the power plants may also directly import coal themselves,
if they so opt, in which case, the FSA obligations on the part of CIL to
the extent of import component would be deemed to have been
discharged.
14. On 31st July 2013, the MoP issued a letter to the Central
Electricity Regulatory Commission (“CERC” for short) and State
Electricity Regulatory Commissions to consider as pass-through in tariff
the cost of alternate coal (procured to meet the shortfall in supply of
domestic linkage coal) on a case to case basis.
15. Contending that on account of the Change in Law, APML
was entitled to compensation, APML filed a Petition bearing Case No.189
of 2013 on 17th
December 2013 before the Maharashtra Electricity
Regulatory Commission (“MERC” for short).
16. MERC, vide order dated 15th July 2014, disposed the said
Petition (i.e. Case No. 189 of 2013) by approving a framework for
determination of compensatory fuel charge, in view of the CCEA decision
of 21st June 2013 and the MoP’s advice dated 31st July 2013.
17. In compliance with the MERC’s order dated 15th July 2014,
APML filed another Petition before the MERC bearing Case No. 140
of 2014 on 23rd July 2014, inter alia, for approving a mechanism for the
determination of compensatory tariff.
18. The MERC, vide its order dated 20th August 2014, formulated
a mechanism for the pass-through in tariff of the compensatory fuel
charge that had been allowed in Case No.189 of 2013.
19. Subsequently, APML filed a Review Petition before the MERC
bearing Case No.159 of 2014. The same was disallowed by the MERC
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as being devoid of merits except on the issue of the effectiveness of the
compensatory fuel charge.
20. On 28th January 2016, the MoP issued the revised Tariff Policy.
As per clause 6.1 of the revised Tariff Policy, the Appropriate Commission
was required to consider the cost of imported/market-based e-auction
coal procured for making up the shortfall in the domestic coal for pass-
through in tariff of competitively bid projects.
21. Thereafter, on 9th March 2016, APML filed appeals before
the Appellate Tribunal for Electricity (hereinafter referred to as
“APTEL”), being Appeal Nos. 129 of 2016 and 130 of 2016, challenging
the orders passed by the MERC in Case Nos.189 of 2013 and 140 of
2014. MSEDCL too filed cross-appeals against the MERC orders being
Appeal Nos. 187 and 188 of 2016.
22. On 4th May 2017, the learned APTEL remanded the issues
raised in the cross-appeals filed by APML and MSEDCL for fresh
consideration by the MERC in the light of the judgment of this Court in
the case of Energy Watchdog v. Central Electricity Regulatory
Commission and others1 which was decided on 11th April 2017.
23. By order dated 7th March 2018, the MERC decided Case
No.189 of 2013 and 140 of 2014, wherein, while allowing the claims of
APML for relief on account of a Change in Law for 1180 MW capacity,
it restricted it to the extent of the minimum supply obligations specified
for the CIL subsidiaries for the last four years of the 12th Five Year Plan
period i.e. Financial
Year 2013-14 to Financial Year 2016-17 as per the
NCDP, 2013. It further held that the alternate coal quantity for meeting
the domestic coal shortfall shall be computed based on the Station Heat
Rate (“SHR” for short) mentioned by APML in the bid documents and
the middle value of the Gross Calorific Value (“GCV” for short) range
of assured coal grade for domestic coal as per the FSA/LoA/MoU.
24. Being aggrieved thereby, APML preferred appeals before the
learned APTEL. The learned APTEL framed the following three issues:
“Issue No. 1:
Whether the MERC was correct in holding
that the net SHR submitted by the Appellant
in its bid or SHR and Auxiliary Consumption
norms specified for new generating stations
1 (2017) 14 SCC 80
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under the MYT Regulations, 2011, whichever
is superior shall form the basis for computing
Change in Law compensation under the
PPAs?
Issue No. 2:
Whether the MERC was correct in holding
that the reference GCV of domestic coal
supplied by CIL shall be the middle value of
GCV range of assured coal grade in LoA/FSA/
MoU and not the GCV as received?
Issue No. 3:
Whether the MERC was correct in holding
that for the purpose of Change in Law
compensation for 1180 MW capacity, shortfall
in domestic linkage coal shall be assessed by
considering the coal supply as the maximum
of (1) actual quantum of coal offered for
offtake by CIL under the LoA/FSA and (2)
the minimum assured quantum in NCDP 2013
for the respective year?”
25. On Issue No.1, the learned APTEL held that APML was
entitled to compensation on the ground of Change in Law based on the
SHR specified in the MERC MYT Regulations 2011 or the actual SHR
achieved by APML, whichever is lower.
26. On Issue No.2, the learned APTEL held that the compensation
for the Change in Law approved by the MERC shall be computed based
on the actual GCV of coal received.
27. On Issue No.3, the learned APTEL held that under the NCDP,
2007, there was an assurance of 100% coal supply and as such, while
granting compensation on the ground of Change in Law, it was not justified
to restrict it to the maximum of 35% to 25% for the respective four
years of the 12th Plan.
28. The learned APTEL held
that the restitution principle has to
be applied. It further held that to protect the interests of consumers, the
Generators had itself indicated that the parameters which are more
beneficial to the consumers i.e. the lower amongst the actual or as per
the Regulations would protect the interests of the consumers.
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29. Being aggrieved thereby, the MSEDCL has approached this
Court by way of Civil Appeal No.684 of 2021.
FACTS IN CIVIL APPEAL NO.6927 OF 2021
30. In Civil Appeal No.6927 of 2021, the MSEDCL challenges
the concurrent orders passed by the CERC dated 15th November 2018
and the order passed by the learned APTEL dated 16th July 2021.
31. MSEDCL issued a Request for Proposal (RFP) on 15th May
2009 and initiated the competitive bidding process for procurement of
power on long-term basis. GMR Warora Energy Ltd. (“GMR” for short)
submitted its bid on 7th August 2009 and emerged as one of the successful
bidders with a levelized tariff of Rs. 2.879/kWh. Accordingly, the PPA
was executed for the procurement of 200 MW of power on 17th March
2010 by MSEDCL on long-term basis. Similarly in March 2012,
Respondent No. 2-Union Territory of Dadra & Nagar Haveli (“DNH”
for short) issued an RFP for the procurement of power through
competitive bidding and GMR emerged as one of the successful bidders.
32. Consequently, respondent No. 1 in Civil Appeal No.6927 of
2021 i.e. GMR entered into the following long-term PPAs for the supply
of power from the Project:
(a)  Supply and sale of 200 MW of power on a long-term basis to
MSEDCL in terms of PPA dated 17th March 2010. The cut-off
date for this PPA is 31st July 2009. Supply of power in terms of
the PPA commenced from 17th March 2014.
(b) Supply and sale of 200 MW of power on long term basis to
Electricity Department, DNH in terms
of PPA dated 21st March
2013. The cut-off date of this PPA is 1st June 2012. Supply of
power in terms of the PPA commenced from 1st April 2013.
(c) Supply and sale of 150 MW of power on long term basis to
TANGEDCO through back-to-back arrangements as follows:
(i) Power Sale Agreement (PSA) dated 1st March 2013
between GMR Energy Trading Limited (GMRETL) and GMR,
based on which a bid was submitted to TANGEDCO;
(ii) PPA dated 27th November 2013 between GMRETL
and TANGEDCO for the supply of power from GMR to
TANGEDCO. The cut-off date of this PPA is 27th February
2013.
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(iii) PPA dated 3rd May 2014 between GMR and
GMRETL recording the terms and conditions in accordance
with PPA between GMRETL and TANGEDCO. The supply
of power under the PPA commenced on 22nd October 2015.
33. Petition No. 8/MP/2014 was filed by GMR claiming
compensation on account of the impact of the Change in Law events
during the Operation period and Construction period under MSEDCL
and DNH PPAs. The Commission, by order dated 1st February 2017,
had allowed some of the claims of GMR on the ground of Change in
law. Vide the said order, it has also disallowed some of the claims.
Aggrieved by the said order, GMR filed Appeal No. 111 of 2017 before
the learned APTEL in respect of the compensation claims disallowed by
the Commission. Similarly, Appeal No. 290/2017 was filed by DNH Power
Distribution Company Ltd against the said order dated 1st February 2017
disputing the compensation claims allowed to GMR under some Change
in Law events.
34. During the pendency of the above said appeals, GMR has
filed Petition (i.e. Petition No.88/MP/2018) seeking the following reliefs:
“(a) Confirms that the following operational parameters which
are imperative of calculation of compensation due to the Petitioner
on account of change in law events, are to be considered on actuals:
(i) Auxiliary Power Consumption
(ii) Station Heat Rate
(iii) Gross calorific Value
(b) Confirm that levy of Service Tax & Swachh Bharat Cess on
coal
transportation is on all components as per rail invoice;
(c) Release of amounts due to the Petitioner from Respondent
No. 1, MSEDCL in light of the Commission’s order dated 1.2.2017
in Petition No. 8/MP/2014.”
35. Two of the issues involved in the present appeals with regard
to SHR and GCV also fell for consideration before the CERC.
36. The CERC found that the CERC norms applicable for the
period 2009-14 and 2014-19 do not provide the norms for 300 MW units.
It further found that the CERC norms provide for a degradation factor
of 6.5% and 4.5% respectively towards Heat Rate over and above the
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Design Heat Rate. It found that since the Design Heat Rate is 2211
kcal/kWh, the gross Heat Rate works out to 2355 kcal/kWh and 2310
kcal/kWh for the period 2009-14 and 2014-19 respectively. It directed
that the SHR of 2355 kcal/kWh during the period 2009-14 and 2310
kcal/kWh during the period 2014-19 or the actual SHR, whichever was
lower, shall be considered for calculating the coal consumption for
compensation under the Change in Law.
37. Insofar as the GCV is concerned, the CERC found that in the
2014 Tariff Regulations of the Commission, the measurement of GCV
has been specified on “as received” basis. It, therefore, found that it
would be appropriate if the GCV on “as received” basis is considered
for computation of compensation for Change in Law.
38. Being aggrieved by the order passed by the CERC dated 15th
November 2018, the MSEDCL preferred an appeal being Appeal No.342
of 2019 before the learned APTEL. The learned APTEL did not find
merit in the submission of the MSEDCL and as such, dismissed the
appeal by judgment and order dated 16th July 2021.
39. Being aggrieved thereby, MSEDCL has approached this Court
by way of Civil Appeal No.6927 of 2021.
40. The arguments on behalf of the appellant-MSEDCL in Civil
Appeal No.684 of 2021 were advanced by Shri Gopal Jain, learned Senior
Counsel, whereas arguments in Civil Appeal No.6927 of 2021 were
advanced by Shri G. Sai Kumar, learned counsel.
41. We have also heard Shri Balbir Singh, learned Additional
Solicitor General and Shri M.G. Ramachandran, learned Senior Counsel
appearing for some of the State Electricity Distribution Companies, whose
matters are not being decided by this judgment, but wherein the aforesaid
three questions/issues are common.
42. On behalf of the respondent-APML as well as the respondent-
GMR, Dr. Abhishek Manu Singhvi, learned Senior Counsel advanced
the arguments. His arguments were supplemented by Shri Vishrov
Mukherjee, learned Counsel.
SUBMISSIONS ON BEHALF OF THE DISCOMS
43. The main arguments that were advanced on behalf of the
Distribution Companies (hereinafter referred to “DISCOMS”) are as
under:
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(i)
The SHR and GCV value are declared in the bid document
and it is not permissible for the Generating Companies to
claim advantage on the basis of SHR value which is different
than the one quoted i.e. the SHR value as provided in the
Tariff Regulations or the actual. It is their submission that
the declaration of operational parameters i.e. SHR and GCV
were the mandate of the bid in case of Case-1 competitive
bidding process. It is submitted that if deviation from such
declared bid parameters for compensating the bidder/
Generating Companies/ Generators under the PPA on the
ground of Change in Law is permitted, it will take away the
very sanctity of the bid.
(ii)
It is submitted that to ensure serious participation in the bid
process and for timely completion of commencement of
supply of power, the Competitive Bidding Guidelines 2005
itself mandates the bidder/generator/Generating Companies
to have a ‘firm’ fuel arrangement. It is their submission
that it is mandatory for the bidder/generator to declare the
‘quantity’ of fuel required to generate power for the entire
term of the PPA. The DISCOMS argued that the quantity
of fuel can only be ascertained by applying the SHR and
GCV components as declared in the bid.
(iii)
It is submitted that the RFP itself mandated the participating
bidders/generators to submit documentary evidence with
regard to the ‘quantity’ of fuel required to generate power
for the entire term of
25 years of the PPA.
(iv)
It is submitted that for ascertaining the ‘quantity’, it was
also necessary for the bidder/generator to provide
‘supporting computation’ by declaring the SHR and GCV
value applicable for the entire term of the PPA.
(v)
It is the contention on behalf of the DISCOMS that the
bidder/generator, while submitting his/its bids, is required to
submit the bids by taking into consideration all factors,
including risks regarding fluctuations, availability of fuel/
coal, etc. It is submitted that if there is any change with
regard to the availability of fuel or the rate at which a bidder/
generator is required to procure the coal, then the bidder/
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generator has to suffer the consequences thereof as he/it
has submitted his/its bid with eyes open.
(vi)
The thrust of the argument of the DISCOMS is that in a
competitive bid based PPA under Section 63 of the
Electricity Act, the quoted tariff is sacrosanct and it is not
open for the respondent/generator to seek higher tariff or
extra compensation under the PPA, except as per Article
13 of the PPA dealing with impact of Change in Law. It is
submitted that the reliance placed by the learned APTEL
on the judgment of this Court in the Case of Energy
Watchdog (supra) is totally misconceived.
(vii)
It is, therefore, submitted that the relief for the impact of
NCDP 2013 is admissible only to the extent of the changes
brought about by the NCDP 2013 and not in excess thereof.
It is submitted that the Change in Law made by the Central
Government on 31st July 2013 was vis-à-vis the NCDP 2007
which was in force as on the cut-off date provided in Article
13.1 of the PPA i.e. 7 days before the bid submission date.
It is submitted that the very purpose of compensating the
party affected by Change in Law is to restore, through
monthly tariff payments, the affected party to the same
economic position as if the Change in Law had not occurred.
(viii) It is submitted that as per para 2.2 of the NCDP 2007 read
with para 5.2, CIL was entitled to meet the shortfall in the
availability of domestic coal by importing coal. In such event,
the Generators were required to pay the
higher cost of
imported coal to CIL. It is submitted that while submitting
the bids, the bidders/generators, therefore, had submitted
their bids for supply of electricity to the DISCOMS knowing
the position that they will not be compensated for higher
cost of imported coal separately, over and above the quoted
tariff /quoted energy charges, in the event of supply of
imported coal by CIL.
(ix)
It is contended that, if in the event the Generator could
have procured the fuel/coal at a lesser price, then the benefit
which would have occurred to him/it on account of such
saving in procurement would have gone to him/it. On the
same analogy, if the Generator is required to obtain the fuel/
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coal at a higher price then he/it cannot be heard to say that
he/it should be compensated for the same.
(x)
It is submitted that, as a matter of fact, till 31st July 2013 i.e.
when the NCDP 2013 was brought into effect, there could
have been no claims from the Generators for increase in
tariff to be allowed for higher coal cost on account of
imported coal supply. It is submitted that if the NCDP 2013
had not brought about a Change in Law, the position as
prevalent before would have continued. It is submitted that
this Court has consistently held that an unprecedented
increase in input cost cannot be a ground for a supplier not
to perform the obligations under a binding contract or seek
higher price or compensation for such performance.
(xi)
It is the submission of the DISCOMS that the benefit on
account of the Change in Law brought into effect by the
NCDP 2013 has to be restricted only to the extent of shortfall
as provided by the said policy. It is submitted that if it was
the intention of the NCDP 2013 to provide for relief through
the Change in Law/policy decision for the shortfall even
below the specified percentages i.e. for entire shortfall on
actual basis, then there was no rationale in specifying the
percentages in the NCDP 2013.
(xii)
It is further contended by the DISCOMS that the contention
of the Generating Companies that Shakti Policy 2017 was
a continuation of NCDP 2013 is incorrect. It is submitted
that
the first part under (A) of the Shakti Policy 2017 deals
with the old regime of LoA/FSA which is the NCDP aspect.
The second part under (B) deals with the new transparent
coal allocation policy called SHAKTI. It is submitted that,
as a matter of fact, SHAKTI and allocation of coal
thereunder was admissible only to Entities which did not
have any LoA/FSA under the NCDP 2007 or the NCDP
2013. Reliance in this respect has been placed on the
judgment of this Court in the case of Jaipur Vidyut Vitaran
Nigam Ltd. and others v. Adani Power Rajasthan
Limited and another2 (hereinafter referred to as “Adani
Rajasthan case”)
2 2020 SCC Online SC 697
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(xiii) It is submitted that the law laid down by this Court in the
case of Energy Watchdog (supra) has been applied by the
learned APTEL in a patently erroneous and perverse
manner.
(xiv) It is submitted that the total quantum of coal required is to
be computed not in an abstract manner but is to be
necessarily based on the SHR of the power station. It is
submitted that the SHR has nothing to do with coal quality
or GCV of coal. It is submitted that the SHR is the boiler
and turbine characteristic of a thermal power station and,
therefore, indicative of the quality and efficiency of the
machine. It is submitted that the quantum of coal requirement
is less with lower SHR and increases with higher SHR,
inasmuch as it relates to the ability and efficiency of the
machines to extract heat energy from coal to produce per
unit of electricity.
(xv)
It is submitted that in Case 2 bidding, the net SHR is a
bidding parameter as coal linkage is arranged by the entity
inviting bids, and actual cost of coal is allowed as a pass-
through in the tariff as per the formula specified. It is their
submission that there are no quoted energy charges in Case
2 bidding but only quoted fixed charges. It is submitted that,
whereas, in Case 1 bidding, SHR may not, as such, be the
criteria for selection but is a necessary requirement/
condition to be given for identifying the quantum of coal
required to generate electricity over the length of the PPA.
While submitting his/its bid
and quoting energy charges, the
bidder/generator was required to take into consideration the
quantum of coal requirement which, in turn, is based on the
SHR and auxiliary consumption parameters to be given by
the bidder/generator. It is submitted that the coal Supply
Agreement for quantum of coal is signed by CIL only for
the quantum as determined above, based on the SHR and
operating parameters provided by the bidder/generator. It
is submitted that the view taken by the learned APTEL is
contrary to the view taken by it between the same parties
in its judgment dated 13th April 2018 in Appeal No. 210 of
2017.
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(xvi) It is submitted that if the SHR which is higher than the one
quoted by the bidder/generator is to be taken into
consideration, then it will amount to granting premium to
the Generator for its inefficiency. It is submitted that if the
coal consumption increases on account of highest SHR,
the excess expenditure on quantum of coal is to be borne
by the Generator.
(xvii) It is submitted that if the bid assumed SHR is 2200 kcal/kg
and actual SHR is 2300 kcal/kg, when the quoted tariff is
based on the SHR of 2200 kcal/kg, for Change in Law
impact, SHR of 2300 kcal/kg cannot be permitted to be
used for computation of compensation for Change in Law.
(xviii) It is submitted that the impugned judgment permitting the
actual SHR or the SHR given in Tariff Regulations,
whichever is lower, if upheld, would amount to converting
the scope of Section 63 tariff determination into a Section
62 cost plus tariff determination. It is submitted that this is
impermissible in a competitive bid based PPA.
(xix) It is further submitted that the MERC Tariff Regulations
expressly provides that the Tariff Regulations will have no
application to Section 63 tariff determination and the same
is governed by the guidelines of the Central Government
under Section 63 of the Electricity Act.
(xx)
It is submitted that perusal of Regulation 2(2)(a) of the
Central Electricity Regulatory Commission (Terms and
Conditions of Tariff) Regulations, 2019
would reveal that
they are not applicable where the tariff has been discovered
through tariff based competitive bidding in accordance with
the guidelines issued by the Central Government and adopted
by the Commission under Section 63 of the Electricity Act.
(xxi) It is submitted that when admittedly there is bid assumed
SHR as per bidding conditions, the learned APTEL cannot
ignore the same on the purported ground of equity and
provide for an alternate parameter for computational
purpose of actual SHR with the ceiling as under the Tariff
Regulations. It is submitted that this will result in changing
the bidding terms and conditions after the bid was accepted
and became final.
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(xxii) It is further submitted that the finding that the GCV
computation is to be made on ‘as received’ basis, is also
patently erroneous. It is submitted that the real purpose
behind relying on the said methodology of computation is to
recover the grade slippage in the coal grade actually supplied
as against the coal grade billed by the Coal Company and
all the losses in the heat value of the coal during the time
period when the coal is taken delivery from the coal mines
and transported to the Power Plant and unloading at the
Power Plant site.
(xxiii) It is submitted that the evaluation of GCV on air dried basis
by Coal Company was well known/existing even prior to
bidding and the Generators were very much aware of it.
Accordingly, the same has already been factored into while
the Generators submitted their bids. As such, if the
computation of GCV is permitted on ‘as received’ basis,
the Generators will be doubly compensated. In any case, it
is submitted that if the Generators had any issues with
regard to the grade of coal i.e. GCV range and quantum,
then that is an issue between the Generators and the
respective Coal Companies, which is required to be resolved
under the FSA between them. The DISCOMS cannot be
roped into for the resolution of such disputes between the
Generators/Generating Companies and the Coal Companies.
(xxiv) Lastly, it is submitted that since the letter of the MoP, which
has been considered as a Change in Law event, is dated
31st
July 2013, the learned APTEL could not have given
effect to the same from 1st April 2013. It is submitted that
this would permit giving the benefit of compensation with
retrospective effect.
(xxv) Insofar as the reliance placed by the Generating Companies
on the judgment of this Court in Adani Rajasthan case is
concerned, it is submitted that the said judgment would not
be applicable to the facts of the present case. It is submitted
that in the said case, there was no FSA and the State
Government had undertaken to supply the entire coal
quantum.
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(xxvi) It is further submitted that the judgment of this Court in the
case of Nabha Power Limited (NPL) v. Punjab State
Power Corporation Limited (PSPCL) and another3 would
also not be applicable to the facts of the present case
inasmuch as the said case was under Case-2.
(xxvii)It is submitted that the inability of a Generator to seek
sufficient relief from the Coal Companies cannot be a reason
to claim relief from the Distribution Licensees/DISCOMS
or the consumers. The DISCOMS cannot be penalized on
account of failure by the Coal Companies of supplying
sufficient coal.
(xxviii) An additional ground in Civil Appeal No.6927 of 2021 raised
is that CERC has erred in holding that the principle of late
payment surcharge envisaged in Articles 8.3.5 and 8.8.3 of
the PPA is applicable towards payment of the balance
amounts by MSEDCL in respect of the relief under Change
in Law.
SUBMISSIONS ON BEHALF OF THE GENERATING
COMPANIES
44. As against this, it is submitted on behalf of the Generating
Companies as under:
(i)
It is submitted that under the NCDP 2007, 100% normative
coal requirement of Generating Companies was assured to
be supplied by the CIL. However, by NCDP 2013, the
responsibility of CIL to supply coal was reduced to 65%,
65%, 67% and 75% of ACQ for the remaining years of the
12th Five Year Plan i.e. Financial Year 2013-14 to Financial
Year 2016-17.
(ii)
It is submitted that the NCDP has been held to be a law for
the purposes of the Electricity Act. It is, therefore, submitted
that the Generating Companies are entitled to compensation
for the shortfall of coal in terms of NCDP 2013 and the
same has to be paid on actuals, i.e. to the extent the shortfall
in coal supply actually exists.
(iii)
It is submitted that the said issue is no more res integra
and is covered by the judgment of this Court in the case of
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Energy Watchdog (supra) and in Adani Rajasthan case
(supra).
(iv)
It is submitted that, as per the guideless issued by the MoP,
for Case-1 bidding, SHR and GCV are not bid parameters.
The SHR and GCV mentioned in the bid is part of technical
information and is not relevant for computing Change in
Law compensation. It is submitted that there are substantial
distinctions between Case-1 and Case-2 bid. The first one
is that in Case-1 bid, SHR and GCV are not bid parameters,
whereas in Case-2, SHR and GCV are bid parameters.
Secondly, in Case-1 bidding, energy charge is not computed
since the energy charge forms part of quoted tariff, whereas
in Case-2 bidding, energy charge is computed based on the
net heat rate quoted in the financial bid. Thirdly, in Case-1
bidding, the PPA has no definition of quoted Net Heat Rate/
SHR, whereas in Case-2 bid, the PPA defines quoted Net
Heat Rate/SHR. It is, therefore, submitted that in Case-1
bid there is no consideration of SHR and GCV in the formula
of energy charge, whereas in Case-2 bid, these two
parameters provide the formula for computing energy
charge.
(v)
It is submitted that the learned APTEL in the case of
Wardha Power v. Reliance Infrastructure & Ors.4 has
held that if SHR and GCV as submitted in the bid are
considered for Change in Law compensation, it may result
in over or under recovery and should be considered only on
‘actuals’. It is submitted that the said judgment in Wardha
Power (supra) has not been
challenged/appealed against
and has thus attained finality.
(vi)
The Generators further rely on the judgment of this Court
in Adani Rajasthan case (supra). It is submitted that in
the said case, the learned APTEL had held that operational
parameters (like SHR and Auxiliary consumption) must be
considered as per ‘normative’ value, and this view has been
upheld by this Court.
(vii)
It is further submitted that the MERC in its order dated 7th
March 2018 in Case No.123 of 2017 (JSW v. MSEDCL)
4 Appeal No.288 of 2013
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has held that the lower of actual or normative parameter
for Auxiliary consumption (an operational parameter like
SHR) has to be considered for Change in Law
compensation. It is submitted that the MSEDCL has not
challenged the said judgment, which has thus attained finality.
(viii) It is submitted that the SHR is continuously being monitored
and its actual value, as certified by Energy Auditors, is
submitted to MSEDCL along with claims. As such, ‘actuals’
can be ascertained and verified for computation purposes.
(ix)
It is submitted that, equally, the GCV of coal is certified by
third party sampling agencies. A GCV certificate is
submitted to MSEDCL for each railway rake separately,
along with claim. Such ‘actuals’ on ‘as received’ basis can
be ascertained/verified for computational purposes.
(x)
It is further submitted that some of the DISCOMS in the
proceedings before the CERC have contended that the
SHR shall be considered after ascertaining actual design
heat rate and margin as per CERC Regulations from time
to time. They have further taken a stand that Auxiliary
Consumption shall be considered as per CERC Regulations.
On affidavit, it is also stated that GCV of alternate coal
shall be as certified by a Third Party Sampling Agency, for
which the Commission should provide appropriate guideline.
It is, however, submitted that now the DISCOMS are taking
a U-turn by contending that the SHR should be based on
bid
assumed parameters.
(xi)
It is submitted that, in any case, to maintain balance, APML
had itself offered for the benefit to be granted on the lower
of ‘actual’ or ‘normative’ SHR as per Regulations. The
same has been accepted by the learned APTEL. It is
submitted that this will ensure that no inefficiency is passed
on to consumers and, at the same time, the Generator is
restituted.
(xii)
It is submitted that had there been no occurrence of Change
in Law event, i.e. there was no shortfall in coal supply, the
tariff payment to the Generating Companies would have
been based on quoted energy charge. In such a situation,
SHR and GCV of coal would not have come into the picture.
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However, when there is an occurrence of Change in Law
event, the principle of ‘Restitution’ comes into play. It is
submitted that ‘restitution’ can take place only with
consideration of ‘actual’ parameters.
(xiii) It is submitted that taking this into consideration, expert
bodies like the CERC and APTEL have allowed the SHR
and GCV to be determined on ‘actual’ basis.
(xiv) It is submitted that the SHR indicated in the bid as part of
technical information does not conform to the mandate of
restitution as it cannot put the Generator back to the same
economic position had Change in Law event not occurred.
(xv)
It is submitted as per the NCDP 2007, 100% normative
requirement of coal was to be supplied by the CIL. However,
due to shortfall of coal in the country, the responsibility of
CIL to supply coal was reduced to 65%, 65%, 67% and
75% of the ACQ. The shortfall in coal was to be met either
by the CIL or by the Generating Companies/Generators by
importing coal. It is submitted that the higher cost of such
imported coal was allowed to be a pass-through.
(xvi) It is submitted that a conjoint reading of CERC statutory
advice dated 20th May 2013, CCEA decision dated 21st June
2013, MoP letter dated 31st July 2013, and clause 6.1 of the
Tariff Policy 2016 issued by the MoP would reveal that
pass-through of the higher cost of quantity of shortfall in
coal procured from alternate sources was to be allowed. It
is submitted that this position has been upheld by the
judgments of this Court in the case of Energy Watchdog
(supra) and Adani Rajasthan case (supra).
(xvii) It is submitted that this pass-through is by way of restitution
due to shortfall in 100% assured quantity of coal and it cannot
be limited to the percentages/trigger levels specified in the
NCDP 2013. It is submitted that the principle of restitution
would require the pass-through to the extent the supply from
CIL was cut down. It is submitted that an argument to the
contrary has already been rejected by this Court in the case
of Adani Rajasthan case (supra).
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(xviii) In addition to the judgments of this Court in the cases of
Energy Watchdog (supra) and Adani Rajasthan case
(supra), the Generating Companies also rely on the judgment
of this court in the case of Uttar Haryana Bijli Vitran
Nigam Limited (UHBVNL) and another v. Adani Power
Limited and others5.
(xix) It is also submitted that the contention on the part of the
DISCOMS that Adani Rajasthan case (supra) would not
be applicable to the facts of the present case, inasmuch as
there was no FSA scenario, is also factually incorrect.
45. In addition to the aforesaid submissions, the respondent in
Civil Appeal No.6927 of 2021 i.e. GMR, the following submissions have
been made.
(i)
That Schedule 10 of the PPA executed between GMR and
MSEDCL clearly mentions that the levelized tariff will be
as per CERC Regulations.
(ii)
It is submitted that the normative SHR as mentioned in the
bid is computed assuming power plant is operating at 85%
of the Plant Load Factor (“PLF” for short). It is, however,
submitted that the PLF is at the sole discretion of the
procurer-DISCOMS as they decide the quantum of power
to off-take.
(iii)
It is submitted that the SHR is a real-time operating
parameter which varies from time to time, and it is computed
by working out the total electricity generated from the
amount of coal consumed in heat value (kCal) terms.
(iv)
It is further submitted that the GCV of coal actually delivered
at site and fed to
the boiler varies from wagon to wagon. It
cannot be a homogeneous value.
(v)
It is further submitted that the details given in the bid with
regard to SHR and GCV were only indicative of the coal
linkage to show that GMR had the necessary means to
supply power on sustained basis and was a serious bidder,
and to further demonstrate its meeting of the eligibility
requirement prescribed under the RFP.
5 (2019) 5 SCC 325
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(vi)
It is submitted that the supporting documents/information
regarding fuel only provides the quantity of coal required
for the project at Normative PLF and SHR computed as
per CERC norms, which is 2355 kCal/kWh. It is submitted
that MSEDCL is now insisting on Design Gross Heat Rate
of 2211 kCal/kWh, which was not considered even for
computation of quantum of coal at the time of bid
submission.
(vii)
It is further submitted that the Central Electricity Authority,
vide Notifications dated 17th October 2017 and 18th October
2017, has even allowed for loss in GCV from ‘as received
basis’ to ‘as fired basis’ and as such, there is no reason as
to why GCV could not be computed on ‘as received basis’.
(viii) It is further submitted that the MSEDCL cannot be permitted
to equate GMR’s case with APML and Rattan India Power
Limited inasmuch as GMR falls under the jurisdiction of
CERC, whereas the other two fall under the jurisdiction of
MERC.
(ix)
Insofar as late payment charges are concerned, it is
submitted that MSEDCL had unilaterally deducted the
amount, which is contrary to the provisions of the PPA and
as such, both CERC and learned APTEL have rightly held
that GMR was entitled to late payment surcharge in terms
of Article 8.3.5. Reliance in this respect is placed on the
judgment of this Court in the case of Maharashtra State
Electricity Distribution Company Limited v.
Maharashtra Electricity Regulatory Commission and
others6and Tamil Nadu Generation &
Distribution
Corporation Limited v. PPN Power Generating
Company Private Limited7
RELEVANT DOCUMENTS
46. For considering the rival submissions, it will be relevant to
refer to certain documents placed on record.
47. The MoP notified the Competitive Bidding Guidelines, 2005
(hereinafter referred to as “the said Guidelines”) on 19th January 2005.
The said Guidelines were framed under Section 63 of the Electricity
6 (2022) 4 SCC 657
7 (2014) 11 SCC 53
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Act. It will be relevant to refer to the following part of the preamble of
the said Guidelines.
“1.
Preamble
………..
These guidelines have been framed under the above provisions of
section 63 of the Act. The specific objectives of these guidelines
are as follows:
1. Promote competitive procurement of electricity by
distribution licensees;
2. Facilitate transparency and fairness in procurement
processes;
3. Facilitate reduction of information asymmetries for various
bidders;
4. Protect consumer interests by facilitating competitive
conditions in procurement of electricity;
5. Enhance standardization and reduce ambiguity and hence
time for materialization of projects;
6. Provide flexibility to suppliers on internal operations while
ensuring certainty on availability of power and tariffs for
buyers.”
48. Paragraph 2 of the said Guidelines deals with the scope of the
Guidelines. Para 2.2 of the said Guidelines reads thus:
“2.2. The guidelines shall apply for procurement of base-load,
peak-load and seasonal power requirements through competitive
bidding, through the following mechanisms:
(i)
Where the location, technology, or fuel is not specified by
the procurer (Case 1);
(ii)
For hydro-power projects, load center projects or other
location specific projects with specific fuel allocation such
as captive mines available, which the procurer intends to
set up under tariff based bidding process (Case 2).
However separate RFP
shall be used for procuring base load or
peak load or seasonal load requirements as the case may be.”
49. It can thus be seen that Para 2.2 distinguishes two types of
cases, viz., Case-1 and Case-2. Case-1 deals with the case where the
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location, technology, or fuel is not specified by the procurer. Case-2
deals with hydro-power projects, load center projects or other location
specific projects with specific fuel allocation such as captive mines
available, which the procurer intends to set up under tariff based bidding
process.
50. Paragraph 3 of the said Guidelines deals with preparation for
inviting bids. Clause (I) of Para 3.2 deals with Case-2, whereas clause
(II) of Para 3.2 deals with Case-1. Sub-clause (i) of clause (II) of Para
3.2 requires the bidder to undertake site identification and land acquisition.
The bidder is required to submit a copy of notification issued for the land
in question under Section 4 of the Land Acquisition Act, 1894. For the
part of land excluding that which is to be acquired under the Land
Acquisition Act, 1894, the bidder is required to furnish documentary
evidence to establish allotment/ lease/ ownership/ vesting of at least
one-third area of the said land. Under sub-clause (ii), the bidder is required
to submit environmental clearance for the power station. Under sub-
clause (iii), the bidder is required to supply forest clearance, if applicable,
for the land for the power station. Sub-clause (iv) is the most important
for the resolution of the present dispute, which reads thus:
“3.
Preparation for inviting bids
3.1
…………
3.2
(I)
……………
(II)
………………
(i)
………………
(ii)
………………
(iii)
………………
iv) Fuel Arrangements: (a) In the following cases fuel
arrangements
shall have to be made for the quantity of
fuel required to generate power from the phase of the
power station from which power is proposed to be
supplied at Normative Availability for the term of the
PPA.

In case of domestic coal, the Bidder shall have
made firm arrangements for fuel tie up either by
way of coal block allocation or fuel linkage
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In case of domestic gas, the Bidder shall have
made firm arrangements for fuel tie up by way of
long term fuel supply agreement for the term &
quantity as per Government of India gas allocation
policy
b) Fuel arrangements in the following cases shall have
to be made for the quantity of fuel required to generate
power from the power station for the total installed
capacity.

In case of imported coal, the Bidder shall have
either acquired mines having proven reserves for
at least 50% of the quantity of coal required OR
shall have a fuel supply agreement for at least
50% of the quantity of coal required for a term of
at least five (5) years or the term of the PPA,
whichever is less.

In case of RLNG, the Bidder shall have made
firm arrangements for fuel tie up by way of fuel
supply agreement for at least 50% of the quantity
of fuel required for a term of at least five (5)
years or the term of the PPA, whichever is less.
Blending of Imported and Domestic coal may be used
in which case, criteria for imported and domestic coal
shall be met separately in the ratio of blending.”
51. It can thus be seen that in case of domestic coal, the bidder is
required to make firm arrangements for fuel tie up either by way of coal
block allocation or fuel linkage.
52. Clause (b) of sub-clause (iv) of clause (II) of Para 3.2 deals
with imported coal, in which case the bidder shall have either acquired
mines having proven reserves for
at least 50% of the quantity of coal
required OR shall have a fuel supply agreement for at least 50% of the
quantity of coal required for a term of at least five years or the term of
the PPA, whichever is less.
53. Paragraph 4 of the said Guidelines deals with Tariff Structure.
It will be relevant to refer to Para 4.2, which reads thus:
“4. Tariff Structure
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4.1
……..
4.2. In case of long term procurement with specific fuel allocation
(Case 2), the procurer shall invite bids on the basis of capacity
charge and net quoted heat rate. The net heat rate shall be ex-bus
taking into account internal power consumption of the power
station. The energy charges shall be payable as per the following
formula:
Energy Charges = Net quoted heat rate X Scheduled
Generation X Monthly Weighted Average Price of Fuel/
Monthly Average Gross Calorific Value of Fuel
If the price of the fuel has not been determined by the Government
of India, government approved mechanism or the Fuel Regulator,
the same shall have to be approved by the appropriate Regulatory
Commission.
In case of coal/lignite fuel, the cost of secondary fuel oil shall be
factored in the capacity charges.”
54. It can thus be seen that insofar as Case-2 is concerned, the
procurer is required to invite bids on the basis of capacity charge and net
quoted heat rate. The net heat rate is required to be ex-bus taking into
account internal power consumption of the power station. It further
provides that if the price of the fuel is not determined by the Government
of India, government approved mechanism or the Fuel Regulator, the
same shall have to be approved by the appropriate Regulatory
Commission.
55. Para 4.4 provides that the capacity charge shall be paid based
on actual availability, as per charges quoted in Rs./kwh and shall be
limited to the normative availability.
It further provides that the normative
availability for Case-1 and thermal stations under Case-2 shall be a
maximum of 85%.
56. Para 4.7 is another important clause for the resolution of the
present dispute, which reads thus:
“4.7. Any change in law impacting cost or revenue from the
business of selling electricity to the procurer with respect to the
law applicable on the date which is 7 days before the last date for
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RFP bid submission shall be adjusted separately. In case of any
dispute regarding the impact of any change in law, the decision of
the Appropriate Commission shall apply.”
57. It can thus be seen that any Change in Law impacting cost or
revenue from the business of selling electricity to the procurer with respect
to the law applicable on the date which is 7 days before the last date for
RFP bid submission shall be adjusted separately. It provides that in case
of any dispute regarding the impact of any Change in Law, the decision
of the Appropriate Commission shall apply.
58. It will also be relevant to refer to Para 4.12, which reads thus:
“4.12 No adjustment shall be provided for heat rate degradation
of the generating stations. Even in case of bids based on net heat
rate, the bidder shall factor in site conditions, loading conditions,
frequency variations etc and no adjustment shall be allowed on
the quoted net heat rate for the duration of the contract.”
59. It can thus be seen that no adjustment is to be provided for
heat rate degradation of the generating stations. Even in case of bids
based on net heat rate, the bidder shall factor in site conditions, loading
conditions, frequency variations etc. and no adjustment shall be allowed
on the quoted net heat rate for the duration of the contract.
60. The NCDP 2007 would be of vital importance. Clause 2.2
thereof deals with Power Utilities including Independent Power
Producers
(IPPs)/Captive Power Plants (CPPs) and Fertilizer Sector. Clause 2.2
reads thus:
“2. Distribution and Pricing of coal to different consumers/
sector(s):
2.1.
………………
2.2 Power Utilities including Independent Power Producers
(IPPs)/Captive Power Plants(CPPs) and Fertilizer Sector
100% of the quantity as per the normative requirement of the
consumers would be considered for supply of coal, through Fuel
Supply Agreement (FSA) by Coal India Limited (CIL) at fixed
prices to be declared/notified by CIL. The units/power plants,
which are yet to be commissioned but whose coal requirements
has already been assessed and accepted by Ministry of Coal and
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linkage/Letter of Assurance (LoA) approved as well as future
commitments would also be covered accordingly.”
61. It can thus be seen that the NCDP 2007 assured 100% of the
quantity as per the normative requirement of the consumers for supply
of coal, through FSA by CIL at fixed prices to be declared/notified by
CIL. It further provided that the units/power plants, which are yet to be
commissioned but whose coal requirements has already been assessed
and accepted by MoC and linkage/Letter of Assurance (LoA) approved
as well as future commitments would also be covered in accordance
therewith.
62. It will also be relevant to note the following part of clause 5.2
of the NCDP 2007.
“5.
Policy for New Consumers
5.1.
……………
5.2.
……………In order to meet the domestic requirement
of coal, CIL may have to import coal as may be required from
time to time, if feasible. CIL may adjust its overall price accordingly.
Thus, it will be the responsibility of CIL/Coal companies to meet
full requirement of coal under FSAs even by resorting to imports,
if necessary.”
63. It can thus be seen that clause 5.2 of the NCDP 2007 provides
that in order to meet the domestic requirement of coal, CIL may have to
import coal as may be required from time to time, if feasible. It further
provided that CIL would adjust its overall price accordingly. The NCDP
2007 emphasizes the responsibility of CIL/Coal Companies to meet full
requirement of coal under FSAs even by resorting to imports, if
necessary.
64. It will also be relevant to refer to the communication addressed
by the MoP dated 9th May 2013 to the Secretary, CERC.
“Subject: Impact on tariff on the concluded PPAs due to domestic
coal availability.
Sir,
Coal linkages have been granted for power projects under
the New Coal Distribution Policy 2007 (NCDP), which mandates
that CIL will meet 100% of normative requirement of power sector.
Para 5.2 of NCDP provides that “In order to meet the domestic
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requirement of coal, CIL may have to import coal as may be
required from time to time, if feasible. CIL may adjust its overall
price accordingly. Thus, it will be the responsibility of CIL/
Coal companies to meet full requirement of coal under FSAs
even by resorting to imports, if necessary”. Post NCDP MoC
granted linkages between 2008-2010 with the assumption that it
would meet coal requirement at around 85% PLF. On this basis
LoAs were issued by coal companies, after getting commitment
guarantees in the form of Bank Guarantee from the developers
thereby undertaking an explicit obligation to supply coal to the
extent of the specified quantity to the power developer. Having
obtained the LOA the developers would have proceeded on the
assumption of getting the requisite quantity of domestic coal with
the disincentive trigger of 90% of LoA quantity prevailing under
the then Fuel Supply Agreement (FSA) with a provision for CIL
resorting to import of coal to bridge the gap, if any. It is assumed
that the power producers would have factored this assurance
regarding coal supply while submitting their bids in response to
Case 1 and Case 2 competitive bidding for long term power
purchase agreements. Thus, while the fuel price risk would have
been taken into account and factored in the escalable component
of energy charges, it is assumed that no fuel availability risk would
have been taken into consideration on account of the
LOAs given
by CIL.
2. It now transpires that on account of the limited availability of
coal Ministry of Col has indicated that CIL may not be in a position
to supply more than 60 to 65% of ACQ to those power producers
who had been earlier issued LOAs of normative quantities
corresponding to 85% PLF. Simultaneously, it has been proposed
that the disincentive trigger for coal supply would be brought down
from 90% to 60 to 65% by CIL in the new fuel supply agreements
to be signed with these power producers. This obviously would
create a situation where the power producers would have to arrange
fuel from open market including imports either through CIL or
directly. In view of this scenario, PPAs which are already
concluded between the developers and discoms as a result of
competitive bidding in the last few years based on domestic coal
linkage (LOA) may have to use imported coal to bridge the
shortage of domestic coal in order to fulfil that contractual
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obligations. The Association of Power Producers represented on
this issue of shortage of domestic coal and its consequential effect
on the concluded PPAs through competitive bidding route.
3. The Cabinet Committee on Economic Affairs (CCEA) has also
considered the situation arising out of the inadequate availability
of coal leading to this non-fulfilment of the LOA commitments on
the part of CIL. CCEA has decided the following guidelines in its
meeting held on 06.02.2013 in respect of generating plants
commissioned/to be commissioned during the period 1.4.09 to
31.03.15:
i)
CIL will provide imported coal on cost plus basis to all
producers willing to take such cost;
ii)
That the higher cost of imported coal will be allowed as a
pass through.
3. In view of the circumstances stated above CERC is requested
to advice the Government on the manner in which the issue of
fuel availability risk arising out of CIL’s inability to meet its LOA
commitments could be addressed with regard to power producers
who have already entered into long term PPAs with distribution
companies based on such commitments and the feasibility of passing
on the additional cost of procuring market fuel incurred by the
power developers on account of the circumstances stated in the
aforesaid paras. CERC is also requested to suggest appropriate
ways for issuing advisory to SERCs/State Governments which
may necessitated to be issued by MoP for the implementation of
the above.
4. CERC’s
considered advice is requested in this matter at the
earliest.
5. This issues with the approval of MOSP (I/C).”
65. Perusal of the communication dated 9th May 2013 would clearly
show that the NCDP 2007 mandates that CIL will meet 100% of
normative requirement of power sector. It states that, post NCDP 2007,
MoC has granted linkages between 2008-2010 with the assumption that
it would meet coal requirement at around 85% of the PLF. On that
basis, the LoAs were issued by Coal Companies, after getting
commitment guarantees in the form of Bank Guarantees from the
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developers, thereby undertaking an explicit obligation to supply coal to
the extent of the specified quantify to the power developer. It further
states that having obtained the LoA, the developers would have
proceeded on the assumption of getting the requisite quantity of domestic
coal with the disincentive trigger of 90% of LoA quantity prevailing under
the then FSA with a provision for CIL resorting to import of coal to
bridge the gap, if any. It specifically mentions that the power producers
would have factored in this assurance regarding coal supply while
submitting their bids in response to Case-1 and Case-2 competitive bidding
for long-term PPAs.
66. The said communication further records that it now transpires
that on account of the limited availability of coal, MoC has indicated that
CIL may not be in a position to supply more than 60 to 65% of ACQ to
those power producers who had been earlier issued LoAs of normative
quantities corresponding to 85% of the PLF. It was proposed that the
disincentive trigger for coal supply would be brought down from 90% to
60 to 65% by CIL in the new FSAs to be signed with these power
producers. It further states that in view of this scenario, PPAs which
are already concluded between the developers and the DISCOMS as a
result of competitive bidding in the last few years based on domestic
coal linkage (LoA) may have to use imported coal to bridge the shortage
of domestic coal in
order to fulfil their contractual obligations.
67. The communication further records that the CCEA has also
considered the situation arising out of the inadequate availability of coal
leading to the non-fulfilment of its LOA commitments on the part of the
CIL. The CCEA, therefore, in its meeting held on 6th February 2013 has
decided the following guidelines in respect of generating plants
commissioned/to be commissioned during the period 1st April 2009 to
31st March 2015:
ii)
That CIL will provide imported coal on cost plus basis to all
producers willing to take such cost;
iii)
That the higher cost of imported coal will be allowed as a
pass-through.
68. The communication therefore requested the CERC to advise
the Government on the manner in which the issue of fuel availability
risk, arising out of CIL’s inability to meet its LOA commitments, could
be addressed. The CERC was also requested to suggest appropriate
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ways for issuing advisories to SERCs/State Governments by the MoP,
which may be necessitated for the implementation of the above.
69. In pursuance of the aforesaid Communication dated 9th May
2013, the CERC issued Statutory Advice on 20th May 2013 under Section
79(2) of the Electricity Act regarding impact on tariff of the concluded
PPAs due to domestic coal availability. It will be relevant to refer to the
following part of the said statutory advice.
“2. The matter was considered in the Commission. The
Commission appreciates the need for securing fuel supply for
various projects in order to ensure optimum generation from the
power plants in the country. Non-availability of adequate quantum
of coal has posed serious challenge to power generation as
reflected in the data compiled by the Central Electricity Authority
(CEA): the Plant Load Factor (PLF) of the generating stations
across the country has been severely affected for want of
adequate coal supply by CIL/Coal Companies.
3. The proposal to make CIL supply imported coal on cost plus
basis to all power projects commissioned or to be commissioned
during the period 1.4.2009 to 31.3.2015 and willing to take such
coal would require appropriate change in the NCDP, as at present
it is the full responsibility of CIL to meet full requirement of coal
under FSAs even by resorting to import; if necessary. As a follow
up, the FSAs between the CIL/its subsidiaries and the power
producers will have to be modified
through Supplementary
Agreements.”
70. It can thus clearly be seen that the CERC has noted that the
non-availability of adequate quantum of coal has posed serious challenge
to power generation as reflected in the data compiled by the Central
Electricity Authority (CEA). It further noted that the PLF of the generating
stations across the country has been severely affected for want of
adequate coal supply by CIL/Coal Companies. It further records that to
give effect to the proposal to make CIL supply imported coal on cost
plus basis to all power projects commissioned or to be commissioned
during the period from 1st April 2009 to 31st March 2015 and willing to
take such coal, would require appropriate change in the NCDP, as at
present it is the full responsibility of CIL to meet full requirement of coal
under FSAs even by resorting to import, if necessary. It further states
that as a follow up, the FSAs between the CIL/its subsidiaries and the
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power producers will have to be modified through Supplementary
Agreements.
71. After referring to clause 10.1.1 of the Standard PPA for
Procurement of Power under Case-1 Bidding Procedure, which deals
with ‘Change in Law’, the statutory advice states thus:
“For claiming any benefits under change in law, the Project
Developer would have to move the appropriate Commission and
the decision of that Commission in this regard would be final, in
terms of the provisions of Articles 10.3.3 and 10.3.4 of the Standard
PPA. The appropriate Commissions are expected to take decisions
on the merits of each case including the claims of the Project
Developers for compensation on account of imported coal after
consultation with the stakeholders.”
72. It can thus be seen that the CERC states that for claiming any
benefits under the Change in Law, the Project Developer would have to
move the appropriate Commission. It further records that the appropriate
Commissions are expected to take decisions on the merits of each case
including the claims of the Project Developers for compensation on
account of imported coal after consultation with the stakeholders.
73. Subsequent to the aforesaid communication, the MoC issued
a Press Release on 21st June 2013. It will be relevant to refer to the
following part of the said Press Release.
“The Cabinet Committee on Economic Affairs (CCEA) today
approved the following mechanism for supply of coal to
power
producers:
(i) Coal India Ltd. (CIL) to sign Fuel Supply Agreements (FSA)
for a total capacity of 78000 MW including cases of tapering
linkage, which are likely to be commissioned by 31.03.2015. Actual
coal supplies would however commence when long term Power
Purchase Agreements (PPAs) are tied up.
(ii) Taking into account the overall domestic availability and actual
requirements, FSAs to be signed for domestic coal quantity of 65
percent, 65 percent, 67 percent and 75 percent of Annual
Contracted Quantity (ACQ) for the running four years of the
12th Five Year Plan.
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(iii) To meet its balance FSA obligations, CIL may import coal and
supply the same to the willing Thermal Power Plants (TPSs) on
cost plus basis. TPPs may also import coal themselves. MoC to
issue suitable instructions.
(iv) Higher cost of imported coal to be considered for pass through
as per modalities suggested by CERC. MoC to issue suitable orders
supplementing the New Coal Distribution Policy (NCDP). MoP
to issue appropriate advisory to CERC/SERCs including
modifications if any in the bidding guidelines to enable the
appropriate Commissions to decide the pass through of higher
cost of imported coal on case to case basis.”
74. It is thus clear that taking into account the overall domestic
availability and actual requirements, FSAs were to be signed for domestic
coal quantity of 65%, 65%, 67% and 75% of ACQ for the running/
remaining four years of the 12th Five Year Plan. It can further be seen
that the CCEA has also taken a decision that CIL may import coal to
meet its balance FSA obligations and supply the same to the willing
TPPs on cost plus basis. TPPs may also be permitted to import coal
themselves. It further provided that the higher cost of imported coal was
to be considered for pass-through as per the modalities suggested by the
CERC.
75. In pursuance thereof, the Government of India, through MoC,
issued Office Memorandum dated 26th July 2013. The said Office
Memorandum reads thus:
“Sub:
New Coal Distribution Policy - further instructions
regarding implementation thereof.
The New Coal Distribution Policy (NCDP) was issued vide
this Ministry’s Office Memorandum NO. 23011/4/2007-CPD
dated 18.10.2007, laying down the guidelines for distribution and
pricing of coal to various sectors. As per para 2.2 of the said
policy, Power Utilities including Independent Power Producer were
to be supplied 100 per cent of the quantity as per their normative
requirement through Fuel Supply Agreement(s) (FSAs) by Coal
India Limited (CIL) at fixed prices to be declared/notified by CIL.
As per para 5.2, in order to meet the domestic requirement, CIL
was to import coal as required from time to time, if feasible and
adjust the overall price accordingly.
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2. Government has now approved a revised arrangement for
supply of coal to the identified Thermal Power Stations (TPPs) of
78,000 MW capacity commissioned or likely to be commissioned
during the period from 01.04.2009 to 31.03.2015. Taking into
account the overall domestic availability and the likely actual
requirements of these TPPs, it has been decided that FSAs will
be signed for the domestic coal quantity of 65%, 65%, 67% and
75% of ACQ for the remaining four years of the 12th Plan for the
power plants having normal coal linkages. Cases of tapering
linkage would get coal supplies as per the Tapering Linkage Police.
To meet its balance FSA obligations towards the requirement of
the said 78,000 MW TPPs, CIL may import coal and supply the
same to the willing power plants on cost plus basis. Power plants
may also directly import coal themselves, if they so opt, in which
case, the FSA obligations on the part of CIL to the extent of import
component would be deemed to have been discharged.
3. Para 2.2 and 5.2 of the New Coal Distribution Policy issued
vide OM No. 23011/4/2007-CPD dated 18.10.2007 stand modified
to the above extent.
4.  The above guidelines will also be applicable to the distribution
of coal from Singreni Collieries Company Limited (SCCL).
5.  CIL and its subsidiaries and SCCL are advised to take further
action accordingly.”
76. It can thus be seen that the NCDP 2013 also specifically
states that, as per
NCDP 2007 and specifically paragraph 2.2 thereof,
Power Utilities, including IPPs, were to be supplied 100% of the quantity
as per their normative requirement through FSAs by CIL at fixed prices
to be declared/notified by CIL. It further reiterates that, as per para 5.2,
in order to meet the domestic requirement, CIL was to import coal as
required from time to time, if feasible, and adjust the overall price
accordingly.
77. Para 2 of the NCDP 2013 states that the Government has
now approved a revised arrangement for supply of coal to the identified
TPPs of 78,000 MW capacity commissioned or likely to be commissioned
during the period from 1st April 2009 to 31st March 2015. It states that,
taking into account the overall domestic availability and the likely actual
requirements of these TPPs, it was decided that FSAs will be signed for
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the domestic coal quantity of 65%, 65%, 67% and 75% of ACQ for the
remaining four years of the 12th Plan for the power plants having normal
coal linkages. It further states that to meet the balance FSA obligations
towards the requirement of the said 78,000 MW TPPs, CIL may import
coal and supply the same to the willing power plants on cost plus basis.
It further states that the power plants may also directly import coal
themselves, if they so opt, in which case, the FSA obligations on the part
of CIL to the extent of import component would be deemed to have
been discharged.
78. Immediately thereafter, on 31st July 2013, the MoP addressed
a communication to the Secretary, CERC. It will be relevant to refer to
Para 2 of the said communication, which reads thus:
“2.  After considering all aspects and the advice of CERC in this
regard, Government has decided the following in June, 2013:
i)
taking into account the overall domestic availability and
actual requirements, FSAs to be signed for domestic
coal component for the levy of disincentive at the
quantity of 65%, 65%, 67% and 75% of Annual
Contracted Quantity (ACQ) for the remaining four years
of the 12th Plan.
ii)
to meet its balance FSA obligations, CIL may import
coal and supply the same to the willing TPPs on cost
plus basis. TPPs may also import coal themselves if
they so opt.
iii)
higher cost of imported coal to be considered for pass
through as per modalities suggested by CERC.”
79. It can thus
clearly be seen that the Government, after
considering all aspects and the advice of CERC in this regard, decided
that the higher cost of imported coal was to be considered for pass-
through as per modalities suggested by the CERC.
80. It will also be relevant to refer to Para 4 of the said
communication, which reads thus:
“4. As per decision of the Government, the higher cost of import/
market based e-auction coal be considered for being made a pass
through on a case to case basis by CERC/SERC to the extent of
shortfall in the quantity indicated in the LoA/FSA and the CIL
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supply of domestic coal which would be minimum of 65%, 65%,
67% and 75% of LoA for the remaining four years of the 12th
Plan for the already concluded PPAs based on tariff based
competitive bidding.”
81. Perusal of para 4 would clearly reveal that the higher cost of
import/market based e-auction coal was to be considered for being made
a pass-through on a case to case basis by CERC/SERC to the extent of
shortfall in the quantity indicated in the LoA/FSA. It further reiterates
that CIL may supply domestic coal which would be minimum of 65%,
65%, 67% and 75% of LoA for the remaining four years of the 12th
Plan for the already concluded PPAs based on tariff based competitive
bidding.
82. The MoP thereafter vide Resolution dated 28th January 2016
notified the ‘Tariff Policy’. It will be relevant to refer to clause 6.1 of
the said Policy, which reads thus:
“6.0 GENERATION
………………
6.1 Procurement of power
As stipulated in para 5.1, power procurement for future
requirements should be through a transparent competitive bidding
mechanism using the guidelines issued by the Central Government
from time to time. These guidelines provide for procurement of
electricity separately for base load requirements and for peak
load requirements. This would facilitate setting up of generation
capacities specifically for meeting such requirements.
However, some of the competitively bid projects as per the
guidelines dated 19th January, 2005
have experienced difficulties
in getting the required quantity of coal from Coal India Limited
(CIL). In case of reduced quantity of domestic coal supplied by
CIL, vis-a-vis the assured quantity or quantity indicated in Letter
of Assurance/FSA the cost of imported/market based e-auction
coal procured for making up the shortfall, shall be considered for
being made a pass through by Appropriate Commission on a case
to case basis, as per advisory issued by Ministry of Power vide
OM No. FU-12/2011-IPC (Voi-IJI) dated 31.7.2013.”
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83. It is thus clear that the Tariff Policy dated 28th January 2016
provided that the power procurement for future requirements should be
through a transparent competitive bidding mechanism using the guidelines
issued by the Central Government from time to time. It further provides
the guidelines for procurement of electricity separately for base load
requirements and for peak load requirements. It further notes that some
of the competitively bid projects as per the guidelines dated 19th January,
2005 have experienced difficulties in getting the required quantity of
coal from CIL. It further provides that in case of reduced quantity of
domestic coal supplied by CIL vis-à-vis the assured quantity or quantity
indicated in LoA/FSA, the cost of imported/market based e-auction coal
procured for making up the shortfall shall be considered for being made
a pass-through by Appropriate Commission on a case to case basis.
This is in pursuance of the advisory issued by Ministry of Power dated
31st July 2013.
JUDGMENTS CITED
84. Having considered these documents, we will now consider
the judgments which are relied on by both the parties.
85. In the case of Energy Watchdog (supra), after several rounds
of litigation, the learned APTEL held that generation and sale of power
by Adani Power to GUVNL and Haryana Utilities was a composite
scheme within the meaning of Section 79(1)(b) of the Electricity Act
and, therefore, the CERC would have jurisdiction to proceed further
in
the matter. It further held that force majeure was made out on the facts
of the said cases and reversed the CERC’s/Commission’s order on that
score. It also held that the Change in Law provisions do not apply to
foreign law and, therefore, changes in Indonesian law did not come within
the scope of the provisions. Insofar as changes in Indian law were
concerned, it held that the government policies that were relied upon did
not constitute “law”. The said decision of the learned APTEL was assailed
before this Court. This Court while rejecting the argument on the ground
of force majeure observed thus:
“42. It is clear from the above that the doctrine of frustration
cannot apply to these cases as the fundamental basis of the PPAs
remains unaltered. Nowhere do the PPAs state that coal is to be
procured only from Indonesia at a particular price. In fact, it is
clear on a reading of the PPA as a whole that the price payable
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for the supply of coal is entirely for the person who sets up the
power plant to bear. The fact that the fuel supply agreement has
to be appended to the PPA is only to indicate that the raw material
for the working of the plant is there and is in order. It is clear that
an unexpected rise in the price of coal will not absolve the
generating companies from performing their part of the contract
for the very good reason that when they submitted their bids, this
was a risk they knowingly took. We are of the view that the mere
fact that the bid may be non-escalable does not mean that the
respondents are precluded from raising the plea of frustration, if
otherwise it is available in law and can be pleaded by them. But
the fact that a non-escalable tariff has been paid for, for example,
in the Adani case, is a factor which may be taken into account
only to show that the risk of supplying electricity at the tariff
indicated was upon the generating company.”
86. This Court, thereafter, considered as to whether any Change
in Law could be stretched to mean “all laws”. This Court held that Clause
4.7 read with Clause 5.17 of the Guidelines would reveal that it would
not include changes in Indonesian law, being foreign and not Indian law.
87. In Energy Watchdog (supra), this Court also had an occasion
to consider the MoP communication dated 31st July 2013, the relevant
part of which has already been reproduced by us herein above.
This
Court observed thus:
“56. However, insofar as the applicability of Clause 13 to a change
in Indian law is concerned, the respondents are on firm ground. It
will be seen that under Clause 13.1.1 if there is a change in any
consent, approval or licence available or obtained for the project,
otherwise than for the default of the seller, which results in any
change in any cost of the business of selling electricity, then the
said seller will be governed under Clause 13.1.1. It is clear from a
reading of the Resolution dated 21-6-2013, which resulted in the
letter of 31-7-2013, issued by the Ministry of Power, that the earlier
coal distribution policy contained in the letter dated 18-3-2007
stands modified as the Government has now approved a revised
arrangement for supply of coal. It has been decided that, seeing
the overall domestic availability and the likely requirement of power
projects, the power projects will only be entitled to a certain
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percentage of what was earlier allowable. This being the case, on
31-7-2013…..”
88. This Court, thereafter, referred to the Tariff Policy dated 28th
January 2016, the relevant part of which has already been reproduced
by us herein above. This Court observed thus:
“57. Both the letter dated 31-7-2013 and the revised Tariff Policy
are statutory documents being issued under Section 3 of the Act
and have the force of law. This being so, it is clear that so far as
the procurement of Indian coal is concerned, to the extent that
the supply from Coal India and other Indian sources is cut down,
the PPA read with these documents provides in Clause 13.2 that
while determining the consequences of change in law, parties shall
have due regard to the principle that the purpose of compensating
the party affected by such change in law is to restore, through
monthly tariff payments, the affected party to the economic position
as if such change in law has not occurred. Further, for the operation
period of the PPA, compensation for any increase/decrease in
cost to the seller shall be determined and be effective from such
date as decided by the Central Electricity Regulation Commission.
This being the case, we are of the view that though change in
Indonesian law would not qualify as a change in law under the
guidelines read with the PPA, change in Indian law certainly
would.”
89. It can thus clearly be seen that insofar as the arguments with
regard to effect of the Change in
Law being given on the basis of ACQ
is concerned, the same stands specifically rejected.
90. A bench of three learned Judges of this Court in Adani
Rajasthan case (supra) also had an occasion to consider a similar issue.
An argument which is sought to be advanced before us that the Change
in Law claim may be confined only to 35 to 40% was also advanced in
the said case. Rejecting the said contention, this Court observed thus:
“50. Shri C. Aryama Sundaram argued that the FSA related
approximately 61 per cent of the fuel requirement. Thus, the
change in law claim may be confined to 35 to 40 per cent. The
argument cannot be accepted as bidding was not based on dual
fuel, but was evaluated on domestic coal. There was no such
stipulation that evaluation of bidding was done on domestic basis;
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the tariff was to be worked out in the aforesaid ratio of 60 : 40 per
cent of imported coal and domestic coal respectively. Apart from
that, we find from the order of the APTEL, that change in law
provision would be limited to a shortfall in the supply of domestic
linkage coal......
51. It was clarified that APRL would be entitled to relief under
the change in law provision to the extent of shortage in supply in
domestic linkage coal. Thus, we find no merit in the submission
raised. We find the findings of the APTEL to be reasonable, proper,
and unexceptional.”
91. In the said case (i.e. Adani Rajasthan case) also, the provision
with regard to the Change in Law was similar to the one that falls for
consideration in the present case. This Court observed thus:
 “59. The change in policy and in the terms and conditions
prescribed for obtaining any consents, clearances and permits or
the inclusion of any new terms or conditions for obtaining such
consents, clearances, and permits are also included. The
submission raised on behalf of appellant that there is no question
seeking benefit due to change in foreign law is based on wrong
factual premise. The relief was not claimed on the basis of change
in foreign law. Apart from that, admission has been relied upon
change in law. The PPA was based on the domestic law and
there was a change in domestic law. Thus, consequences must
follow. The Government of Rajasthan entered into
a MoU with
APRL with respect to coal linkage in 2008 to provide coal linkage
or coal from other sources.
60. We find similarity in the present case as well as the Energy
Watchdog. The factual matrix was similar with the present case.
We find that the RERC and the APTEL have recorded the
concurrent finding on facts. We find no ground to interfere. No
substantial question of law is involved. It was held in Energy
Watchdog, that change in law was brought about in the NCDP of
2007 by the decision of 26.7.2013. It is provided in Article 10.2.1
how the change in law is to be applied to compensate for the
impact.”
92. In the case of Uttar Haryana Bijli Vitran Nigam Limited
(UHBVNL) (supra), this Court observed thus:
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“13. A reading of Article 13 as a whole, therefore, leads to the
position that subject to restitutionary principles contained in Article
13.2, the adjustment in monthly tariff payment, in the facts of the
present case, has to be from the date of the withdrawal of
exemption which was done by administrative orders dated 6-4-
2015 and 16-2-2016. The present case, therefore, falls within Article
13.4.1(i). This being the case, it is clear that the adjustment in
monthly tariff payment has to be effected from the date on which
the exemptions given were withdrawn. This being the case,
monthly invoices to be raised by the seller after such change in
tariff are to appropriately reflect the changed tariff. On the facts
of the present case, it is clear that the respondents were entitled
to adjustment in their monthly tariff payment from the date on
which the exemption notifications became effective. This being
the case, the restitutionary principle contained in Article 13.2 would
kick in for the simple reason that it is only after the order dated 4-
5-2017 [Adani Power Ltd. v. Uttar Haryana Bijli Vitran Nigam
Ltd., 2017 SCC OnLine CERC 66] that CERC held that the
respondents were entitled to claim added costs on account of
change in law w.e.f. 1-4-2015. This being the case, it would be
fallacious to say that the respondents would be claiming this
restitutionary amount on some general principle of equity outside
the PPA. Since it is clear that this amount of carrying
cost is only
relatable to Article 13 of the PPA, we find no reason to interfere
with the judgment of the Appellate Tribunal.
93. This Court specifically rejected the contention of the DISCOMS
that the Generator was claiming the restitutionary amount on some general
principle of equity outside the PPA. This Court held that the amount of
carrying cost was relatable to Article 13 of the PPA.
STATUTORY PROVISIONS WITH REGARD TO
REGULATORY MECHANISM
94. We will now consider the relevant provisions of the Electricity
Act.
95. Section 70 of the Electricity Act deals with constitution of the
Central Electricity Authority (“CEA”). The CEA shall consist of not
more than 14 Members (including its Chairperson) of whom not more
than 8 are required to be full-time Members to be appointed by the
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Central Government. It will be relevant to refer to sub-section (5) of
Section 70 of the Electricity Act, which reads thus:
“(5) The Members of the Authority shall be appointed from
amongst persons of ability, integrity and standing who have
knowledge of, and adequate experience and capacity in, dealing
with problems relating to engineering, finance, commerce,
economics or industrial matters, and at least one Member shall be
appointed from each of the following categories, namely:—
(a) engineering with specialisation in design, construction,
operation and maintenance of generating stations;
(b) engineering with specialisation in transmission and supply
of electricity;
(c) applied research in the field of electricity;
(d) applied economics, accounting, commerce or finance.”
96. It can thus clearly be seen that the Members of the CEA are
required to be persons who have adequate experience and capacity in
dealing with problems relating to engineering, finance, commerce,
economics or industrial matters. Four of the Members are required to be
from the categories as mentioned in clauses (a) to (d). One of them has
to be an engineer with specialization in design, construction, operation
and maintenance of generating stations. One of them has to be an engineer
with specialization in transmission and supply of electricity; one has to
be a person who is expert in applied research in the field of electricity;
one of them has to
be an expert in applied economics, accounting,
commerce or finance.
97. Section 73 of the Electricity Act deals with functions and duties
of the CEA. The CEA is required to advise the Central Government on
various matters with regard to generation, transmission, trading,
distribution and utilization of electricity. It is also required to advise the
Central Government on any matter on which its advice is sought or
make recommendation to that Government on any matter if, in the opinion
of the CEA, the recommendation would help in improving the generation,
transmission, trading, distribution and utilization of electricity.
98. Section 76 of the Electricity Act provides for constitution of
the CERC. The CERC is a five member body which consists of a
Chairperson and three other Members, and the Chairperson of the CEA
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who shall be the ex officio Member. A high-level Selection Committee
consisting of 6 high officials selects the Members of the CERC and the
learned APTEL.
99. Section 77 of the Electricity Act provides for qualifications for
appointment of Members of the CERC. Sub-section (1) of Section 77
provides that Chairperson and the Members of the CERC shall be persons
having adequate knowledge of, or experience in, or shown capacity in,
dealing with, problems relating to engineering, law, economics, commerce,
finance or management. It further requires that one person to be
appointed must be having qualifications and experience in the field of
engineering with specialization in generation, transmission or distribution
of electricity. One person to be appointed has the qualifications and
experience in the field of finance. Clause (c) of sub-section (1) of Section
77 of the Electricity Act requires that two persons are required to have
qualifications and experience in the field of economics, commerce, law
or management. The proviso to sub-section (1) of the Section 77 of the
Electricity Act provides that not more than one Member shall be appointed
under the same category under clause (c).
100. Sub-section (2) of Section 77 of the Electricity Act, which is
a non-obstante clause, empowers the Central Government to appoint
any person as the Chairperson from amongst persons who is, or has
been, a Judge of the Supreme Court or the Chief Justice of a High Court
notwithstanding anything contained in sub-section (1). However, such
appointment cannot be made except after consultation with the Chief
Justice of India.
101. Section 79 of the Electricity Act deals with the functions of
the CERC. One of the functions of the CERC under clause (a) of sub-
section (1) of Section 79 is to regulate the tariff of generating companies
owned or controlled by the Central Government. Clause (b) requires it
to regulate the tariff of generating companies other than those owned or
controlled by the Central Government specified in clause (a), if such
generating companies enter into or otherwise have a composite scheme
for generation and sale of electricity in more than one State.
102. Similarly, Section 82 of the Electricity Act deals with
constitution of a State Commission. Section 83 of the Electricity Act
permits a Joint Commission to be constituted by an agreement between
two or more Governments of States. It also permits the Central
Government to constitute a Joint Commission in respect of one or more
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Union Territories, and one or more Governments of States. Under Section
84, the persons to be appointed as the Chairperson and the Members of
the State Commission are required to have adequate knowledge of, and
have shown capacity in, dealing with problems relating to engineering,
finance, commerce, economics, law or management. Sub-section (2) of
Section 84 of the Electricity Act permits the State Government to appoint
any person as the Chairperson from amongst persons who is, or has
been, a Judge of a High Court. However, such an appointment can be
made only after consultation with the Chief Justice of that High Court. A
high-level Selection Committee under the Chairmanship of a person who
has been a Judge of the High Court, the Chief Secretary of the concerned
State and the Chairperson of the CEA or the Chairperson of the CERC
selects the Chairperson and the Members of the State Commission.
Analogous to Section 79, Section 86 of the Electricity Act defines the
functions of the State Commission. Clause (b) of sub-section (1) of
Section 86 of the Electricity Act requires the State Commission to regulate
electricity purchase and procurement process of distribution licensees
including the price at which electricity shall be procured from the
generating companies or licensees or from other sources through
agreements for purchase of power for distribution and supply within the
State.
103. Section 110 of the Electricity
Act provides for establishment
of the Appellate Tribunal. Section 111 of the Electricity Act provides for
appeal to Appellate Tribunal by any person aggrieved by an order made
by an adjudicating officer under the said Act (except under Section 127)
or an order made by the Appropriate Commission. Section 112 deals
with composition of the Appellate Tribunal. It provides that it shall consist
of a Chairperson and three other Members. Section 113 provides for
qualifications for appointment of Chairperson and Members of Appellate
Tribunal. Only a person who is, or has been a Judge of the Supreme
Court or the Chief Justice of a High Court is entitled to be the Chairperson
of the Appellate Tribunal. For being a Member of the Appellate Tribunal,
following three categories have been provided for:
(i)
A person is, or has been, or is qualified to be, a Judge of a
High Court; or
(ii)
A person is, or has been, a Secretary for at least one year
in the Ministry or Department of the Central Government
dealing with economic affairs or matters or infrastructure;
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or
(iii)
A person is, or has been, a person of ability and standing,
having adequate knowledge or experience in dealing with
the matters relating to electricity generation, transmission
and distribution and regulation or economics, commerce,
law or management.
104. It can thus be seen that the CEA, CERC and learned APTEL
are bodies consisting of experts in the field.
CONSIDERATIONS
105. The issues with regard to SHR and GCV have been
considered by the CERC in its order dated 15th November 2018 in the
case of GMR Warora Energy Limited v. Maharashtra State
Electricity Distribution Company Limited & Anr8. It will be relevant
to reproduce the relevant part of the CERC’s order dated 15th November
2018, which reads thus:
“29. The submissions regarding SHR and GCV have been
considered. The APTEL in its judgement dated 12.9.2014 in Appeal
No. 288 of 2013 (M/s Wardha Power Company Limited V
Reliance Infrastructure Limited & anr) has ruled that compensation
under Change in Law cannot be correlated with the price of coal
computed from the energy charge and the technical parameters
like the Heat Rate and gross GCV of coal given in the bid
documents for establishing the coal requirement. The relevant
observations of APTEL are extracted as under:
“26. The price bid given by the Seller for fixed and variable
charges both escalable and non-escalable is based on the
Appellant’s perception of risks and estimates of expenditure
at the time of submitting the bid. The energy
charge as
quoted in the bid may not match with the actual energy
charge corresponding to the actual landed price of fuel.
The seller in its bid has also not quoted the price of coal.
Therefore, it is not correct to co-relate the compensation
on account of Change in Law due to change in cess/excise
duty on coal, to the coal price computed from the quoted
energy charges in the Financial bid and the heat rate and
8 Petition No.88/MP/2018
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Gross Calorific value of Coal given in the bidding documents
by the bidder for the purpose of establishing the coal
requirement. The coal price so calculated will not be equal
to the actual price of coal and therefore, compensation for
Change in Law computed on such price of coal will not
restore the economic position of the Seller to the same level
as if such Change in Law has not occurred.”
30. In the light of the above observations, the technical parameters
such as Heat Rate and GCV of coal as per the bidding document
cannot be considered for deciding the coal requirement for the
purpose of calculating the relief under Change in law. Therefore,
the submissions of the Respondent, MSEDCL to consider the bid
parameters are not acceptable. The Respondent has also relied
on MERC order with regard to GCV. As regards SHR, it was
also suggested by MERC that net SHR as submitted in the bid or
SHR norms specified for new thermal stations as per MYT
Regulations, whichever is superior, shall be applicable. In our view,
the decision in the said order has been given in the facts of the
case and does not have any binding effect in case of the projects
regulated by this Commission. Moreover, the SHR given in the
bid are under test conditions and may vary from actual SHR. The
Commission after extensive stakeholders  consultation has
specified the SHR norms in the 2014 Tariff Regulations. Therefore,
it would be appropriate to take
SHR specified in the Regulations
as a reference point instead of other parameters as suggested by
MSEDCL.
31. In the present case, the Petitioner has considered SHR of
2355 kcal/Kwh whereas, the Respondent MSEDCL has
considered the Design Heat Rate of 2211 kcal/kWh as submitted
in the RFP. It is pertinent to mention that the CERC norms
applicable for the period 2009-14 and 2014-19 do not provide the
norms for 300 MW units, but provide for a degradation factor of
6.5% and 4.5% respectively towards Heat Rate over and above
the Design Heat Rate. As the Design Heat Rate is 2211 kcal/
kWh, the gross Heat Rate works out to 2355 kcal/kWh (2211 x
1.065)and 2310 kcal/kWh (2211 x 1.045) for the period 2009- 14
and 2014-19 respectively. Accordingly, we direct that the SHR of
2355 kcal/kWh during the period 2009-14 and 2310 kcal/kwh during
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the period 2014- 19 or the actual SHR whichever is lower, shall
be considered for calculating the coal consumption for the purpose
of compensation under change in law. The Petitioner and the
Respondent MSEDCL are directed to carry out reconciliation on
account of these claims annually.
32. In case of GCV, the Respondent has submitted that it should
be mid value of GCV band which should be applied on GCV
measured on ‘as billed’ basis. In our view, on account of the grade
slippage of the coal supplied by CIL, it would not be appropriate
to consider GCV on ‘as billed’ basis. In the 2014 Tariff Regulations
of the Commission, the measurement of GCV has been specified
as on ‘as received’ basis. Therefore, it will be appropriate if the
GCV on ‘as received’ basis is considered for computation of
compensation for Change in law.”
106. The CERC has referred to the judgment of the learned
APTEL dated 12th September 2014 in Appeal No. 288 of 2013 in the
case of M/s Wardha Power Company Limited v. Reliance
Infrastructure Limited & anr. wherein the learned APTEL has held
that it is not correct to co-relate the compensation on account of Change
in Law due to change in cess/excise duty on coal to the coal price
computed from the quoted energy charges in the financial bid and the
heat rate and GCV of coal given in the bidding documents by the bidder
for the purpose of establishing the coal requirement. The learned APTEL
has held that the coal price so calculated will not
be equal to the actual
price of coal and therefore, compensation for Change in Law computed
on such price of coal will not restore the economic position of the seller
to the same level as if such Change in Law had not occurred.
107. The CERC has further found that the SHR given in the bid
are under test conditions and may vary from actual SHR. The CERC
has specifically observed that after extensive stakeholders’ consultation,
the CERC has specified the SHR norms in the 2014 Tariff Regulations.
It, therefore, found that it will be appropriate to take SHR specified in
the Regulations as a reference point instead of other parameters as
suggested by MSEDCL.
108. The CERC further found that the CERC norms applicable to
the period 2009-14 and 2014-19 do not provide the norms for 300 MW
units, but provide for a degradation factor of 6.5% and 4.5% respectively
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towards Heat Rate over and above the Design Heat Rate. The CERC
found that since the Design Heat Rate was 2211 kcal/kWh, the gross
Heat Rate worked out to 2355 kcal/kWh (2211 x 1.065) and 2310 kcal/
kWh (2211 x 1.045) for the period 2009-14 and 2014-19 respectively.
The CERC, therefore, directed that the SHR of 2355 kcal/kWh during
the period 2009-14 and 2310 kcal/kwh during the period 2014-19 or the
actual SHR, whichever is lower, shall be considered for calculating the
coal consumption for the purpose of compensation under the Change in
Law.
109. These findings of the CERC are affirmed by the learned
APTEL in its Judgment dated 16th July 2021. The learned APTEL
observed thus:
“8.8 We are in agreement with the observations made by
the CERC. Relegating the Appellant to the contractual
remedy under the FSA when the genesis of the Appellant’s
claim is Change in Law under the PPA would not be
appropriate. It is, however, made clear that if the Appellant
were to receive any disincentive or compensation from the
coal company on account of short supply or grade slippage,
such compensation will be adjusted/credited against the
Change in Law compensation payable by the Respondent,
MSEDCL.”
110. The learned APTEL in its judgment dated 14th September
2020 in Appeal No.182 of 2019 in the case of Adani Power Maharashtra
Limited (APML) v. Maharashtra State Electricity Distribution
Company Ltd. (impugned in Civil Appeal No. 684 of
2021) has referred
to the order of MERC dated 7th March 2018 in Case No.123 of 2017
(JSW Energy Ltd. v. MSEDCL), wherein it held that Auxiliary
Consumption has to be considered as lower of actual or MYT norms for
the purpose of the Change in Law compensation. The learned APTEL
held that in view of its earlier order, the State Commission, being MERC,
ought to have followed the same approach for SHR in the present case
also. It has been found that there is no reason for the MERC to apply
two different principles for Auxiliary Consumption and SHR, when both
are operational parameters and the Commission was dealing with the
same PPA in both cases.
111. The learned APTEL has also referred to the following
observations of the CERC in its order dated 16th May 2019 in the case
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of GMR Warora Energy Limited v. MSEDCL and Anr. (Petition
No.284/MP/2018):
“52.
It is pertinent to mention that similar submissions of the
Respondent, MSEDCL were considered by the
Commission in Petition No.88/MP/2018 and it was
observed by order dated 15.11.2018 that SHR given in
the bid is under test conditions and may vary from actual
SHR. Therefore, it would only be correct to take SHR
specified in the tariff Regulations as a reference
point instead of other parameters suggested by
MSEDCL. It was also held that SHR as a bidding
document cannot be considered for deciding the coal
requirement for the purpose of calculating relief under
change in law…”
[emphasis supplied]
112. The learned APTEL thereafter held that the SHR submitted
in the bid was not a bid parameter as per the bidding guidelines. It
concurred with the findings of the CERC that the SHR specified in the
Tariff Regulations was as a reference point. It held that it cannot be
used as the basis for computing the coal shortfall requirement and,
thereby, for computation of Change in Law compensation to be awarded
to the generating company. It held that such linking of Change in Law
compensation to the SHR mentioned in the bid documents would not
restitute the affected party to the same economic position as if the
approved Change in Law event had not occurred.
113. Insofar as the GCV is concerned, the CERC in the case of
GMR Warora Energy Limited (supra) has specifically rejected the
contention
of the MSEDCL that the GCV should be taken at the mid
value of GCV band which should be applied on GCV measured on ‘as
billed’ basis. The CERC held that, on account of the grade slippage of
the coal supplied by CIL, it would not be appropriate to consider GCV
on ‘as billed’ basis. It has been held that in the 2014 Tariff Regulations
of the Commission, the measurement of GCV has been specified as on
‘as received’ basis. Therefore, it will be appropriate if the GCV on ‘as
received’ basis is considered for computation of compensation for the
Change in Law. This finding of the CERC is affirmed by the learned
APTEL.
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114. The learned APTEL in the case of Adani Power
Maharashtra Limited (APML) (supra) has also considered the issue
as to whether the reference GCV of domestic coal supplied by CIL for
computing the Change in Law compensation should be “the middle value
of GCV range of assured coal grade in LoA/FSA/MoU”. The learned
APTEL observed that it was a fact that there is no guidance in the
PPAs or in the bidding Guidelines as to the reference GCV that should
be applied in case of the Change in Law claims in Case 1 bid projects
where SHR or GCV is not a bid parameter. It, however, held that the
overarching principle for Change in Law compensation was that the
generating company should not be left with in a worse economic position.
It held that the GCV ‘as received’ should be the appropriate basis to
assess the quantum of shortfall in domestic coal and calculate the Change
in Law compensation accordingly.
115. It is also relevant to note that the Comptroller and Auditor
General of India (“C&AG” for short), in its Performance Audit Report
on “Fuel Management of Coal Based Power Stations of NTPC Limited”
submitted to MoP, had observed that the ‘quality assessment of coal has
inherent as well as manmade infirmities due to heterogeneous nature of
coal and sampling errors’. The C&AG, therefore, recommended to the
MoP that there was a need to appropriately review the methods for
energy pricing and had requested the MoP to coordinate
with CERC in
light of the audit findings. The MoP, therefore, addressed a communication
dated 28th June 2017 to the CEA. In the said communication, the MoP
had stated that the NTPC has highlighted the issues of sampling error on
account of change of point of sampling for measurement of GCV from
“as fired” to “as received” basis as per the 2014 Tariff Regulations,
non-homogeneous nature of samples taken from the wagons, loss of
GCV from point of “as received” to the point of “as fired”, and difficulty
with coal sampling through ‘Augurs’. It further states that the MoP had
also sought views of the CERC on the said issue. The CERC had,
therefore, requested the MoP for consulting CEA in this regard and
accordingly the matter was referred to CEA.
116. The CEA in its communication dated 17th October 2017 stated
thus:
“The issue has been examined in CEA. After preliminary
discussions with NTPC on the issue on 05.09.2017, CEA has also
taken views of other specialist agencies in the field of coal such
as CIMFR and CPRI in the meeting held on 21.09.2017.
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It is acknowledged that there is a loss of GCV from point of “as
received” to the point of “as fired” inside a power plant mainly
due to following factors:
(i)
Effect of Moisture in GCV of coal sample taken from
Wagon Top
As stated by C&AG, there are sampling errors on account
of heterogeneous nature of coal. This issue was deliberated
in detail with CIMFR and CPRI. Both CIMFR and CPRI
acknowledged the difference in wagon top-bottom GCV
due to heterogeneous nature of coal, tendency of moisture
to settle at the bottom and exposure of top layer to
atmosphere.
CEA is of the view that GCV measurement of wagon top
coal will give comparatively higher GCV value due to
steeling of moisture at the bottom of the wagon and loss of
moisture from wagon top during transportation of coal,
however, loss in GCV will vary as per seasonal variations.
(ii)
Loss in GCV during coal storage inside power plant
CEA is of the view and also substantiated by many national
and international papers that there is a loss of GCV in the
coal stock where coal is stored inside the power plant, mainly
due to oxidation and weathering effect. Further, most of
the losses in GCV during long storage of coal takes place
in the initial period of storage, mostly due to loss in volatile
content.
(iii)
Reduction in GCV during handling inside power plant
C&AG in its Performance Audit Report has observed that
GCV of coal progressively decreased from ‘as billed’ stage
to ‘as fired’ stage.
It is
acknowledged that there are minor unavoidable losses
inside the power plant in handling the coal starting from
unloading point to the point of bunkering. Loss in GCV may
occur mainly due to dust suppression measures used around
coal conveyors and transfer points, loss in volatile matter
during crushing of the coal etc.
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CEA has also examined the views taken by various state regulators
for considering such loss for the purpose of tariff allowed to
generators. However, as the margin would vary from plant to
plant, season to season and varying coal characteristics, CEA is
of the opinion that a margin of 85-100 kcal/kg for a non-pit head
station may be considered as a loss of GCV measured at wagon
top till the point of firing of coal in boiler.”
117. Vide Corrigendum dated 18th October 2017, in the last
sentence, after the words wagon top, the words “at unloading point”
were added.
118. The aforesaid advice was given by the CEA after holding
meeting on 21st September 2017 with specialist agencies in the field of
coal such as CIMFR and CPRI. It has also examined the views taken
by various state regulators for considering such loss for the purpose of
tariff allowed to generators. While considering at what point of time the
margin may be considered as a loss of GCV, the CEA considered the
views of all the stakeholders. It, thereafter, opined that the loss of GCV
should be measured at wagon top till the point of firing of coal in boiler.
119. As already discussed herein above, the CEA is an independent
body having Members who are experts in various fields related to
electricity generation, transmission, finance, etc.
120. It could thus be seen that two expert bodies i.e. the CERC
and the learned APTEL have concurrently held, after examining
the
material on record, that the factors of SHR and GCV should be considered
as per the Regulations or actuals, whichever is lower. The CERC as
well as the State Regulatory bodies, after extensive consultation with
the stakeholders, had specified the SHR norms in respective Tariff
Regulations. In addition, insofar as GCV is concerned, the CEA has
opined that the margin of 85-100 kcal/kg for a non-pit head station may
be considered as a loss of GCV measured at wagon top till the point of
firing of coal in boiler.
121. In this respect, we may refer to the following observations
of this Court in the case of Reliance Infrastructure Limited v. State of
Maharashtra and others9.
“38. MERC is an expert body which is entrusted with the duty
and function to frame regulations, including the terms and conditions
9 (2019) 3 SCC 352
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for the determination of tariff. The Court, while exercising its
power of judicial review, can step in where a case of manifest
unreasonableness or arbitrariness is made out. Similarly, where
the delegate of the legislature has failed to follow statutory
procedures or to take into account factors which it is mandated
by the statute to consider or has founded its determination of tariffs
on extraneous considerations, the Court in the exercise of its power
of judicial review will ensure that the statute is not breached.
However, it is no part of the function of the Court to substitute its
own determination for a determination which was made by an
expert body after due consideration of material circumstances.
39. In Assn. of Industrial Electricity Users v. State of
A.P. [Assn. of Industrial Electricity Users v. State of A.P., (2002)
3 SCC 711] a three-Judge Bench of this Court dealt with the
fixation of tariffs and held thus : (SCC p. 717, para 11)
“11. We also agree with the High Court [S. Bharat
Kumar v. State of A.P., 2000 SCC OnLine AP 565 : (2000) 6
ALD 217] that the judicial review in a matter with regard to
fixation of tariff has not to be as that of an appellate authority
in exercise of its jurisdiction under Article 226 of the
Constitution. All that the High Court has to be satisfied with is
that the Commission has followed the proper procedure and
unless it can be demonstrated that its decision is on the face of
it arbitrary or illegal or contrary
to the Act, the court will not
interfere. Fixing a tariff and providing for cross-subsidy is
essentially a matter of policy and normally a court would refrain
from interfering with a policy decision unless the power
exercised is arbitrary or ex facie bad in law.”
122. As already discussed herein above, various expert bodies
including the CERC and the learned APTEL, after taking into
consideration various relevant factors, have decided the issue with regard
to SHR and GCV. Not only that, but another expert body i.e. CEA has
also advised that GCV value has to be taken not only on ‘as received’
but on ‘as fired’ basis.
123. Recently, the Constitution Bench of this Court in the case of
Vivek Narayan Sharma v. Union of India10 has held that the Courts
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should be slow in interfering with the decisions taken by the experts in
the field and unless it is found that the expert bodies have failed to take
into consideration the mandatory statutory provisions or the decisions
taken are based on extraneous considerations or they are ex facie
arbitrary and illegal, it will not be appropriate for this Court to substitute
its views with that of the expert bodies.
124. That leaves us with the third issue as to whether the MERC
was correct in holding that, for the purpose of Change in Law
compensation, shortfall in domestic linkage coal shall be assessed by
considering the coal supply as the maximum of (1) actual quantum of
coal offered for offtake by CIL under the LoA/FSA and (2) the minimum
assured quantum in NCDP 2013 for the respective year.
125. Undisputedly, vide the NCDP 2007, insofar as the power
utilities including IPPs/CPPs and Fertilizer Sector are concerned, the
MoC had assured 100% of the quantity as per the normative requirement
of the consumers for supply of coal, through FSA by CIL at fixed prices
to be declared/notified by CIL. The units/power plants, which were yet
to be commissioned but whose coal requirements has already been
assessed and accepted by the MoC and linkage/LoA approved as well
as future commitments, were also to be covered by the said Policy. Para
5.2 of the NCDP 2007 also provided that in order to meet the domestic
requirement of coal, CIL may
have to import coal as may be required
from time to time, if feasible. The CIL was to adjust its overall price
accordingly. There was an unequivocal assurance given that it will be
the responsibility of CIL/Coal Companies to meet full requirement of
coal under FSAs even by resorting to imports, if necessary.
126. However, in 2013, on account of the limited availability of
coal, the MoC had indicated that CIL may not be in a position to supply
more than 60 to 65% of ACQ. The Union of India, therefore, realised
that PPAs which are already concluded between the developers and the
DISCOMS as a result of competitive bidding in the last few years based
on domestic coal linkage (LoA) may have to use imported coal to bridge
the shortage of domestic coal in order to fulfill their contractual obligations.
127. The CCEA considered the issue and decided that the higher
cost of imported coal will be allowed as a pass-through. This is evident
from the communication dated 9th May 2013 addressed by the MoP to
the CERC.
128. The CERC also considered the issue. It noted that it was the
full responsibility of CIL to meet full requirement of coal under FSAs
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even by resorting to import, if necessary. After referring to the Change
in Law clause, the CERC, in its advice dated 20th May 2013, stated that
for claiming any benefit under Change in Law, the Project Developer
would have to move the appropriate Commission and the appropriate
Commissions are expected to take decisions on the merits of each case
including the claims of the Project Developers for compensation on
account of imported coal. Such decisions were required to be taken
after consultation with the stakeholders.
129. The Government of India through MoP, in its Press Note
dated 21st June 2013, published the decision of the CCEA which clearly
provided that the higher cost of imported coal was to be considered for
pass-through as per the modalities suggested by CERC.
130. The MoP, thereafter, addressed a communication dated 31st
July 2013 to the Secretary, CERC specifically pointing out the decision
of the CCEA to the effect that the higher cost of imported coal was to
be considered for pass-through as per the modalities suggested by CERC.
The communication states that, as per the decision of the Government,
the higher cost of import/market based e-auction coal will have to be
considered for being made a pass-through on a case to case basis by
CERC/SERC to the extent of shortfall in the quantity indicated in the
LoA/FSA.
131. The Tariff Policy dated 28th January 2016 issued by the MoP
in paragraph 6.1 also specifically notes this position and states
that, in
case of reduced quantity of domestic coal supplied by CIL vis-à-vis the
assured quantity or quantity indicated in LoA/FSA, the cost of imported/
market based e-auction coal procured for making up the shortfall shall
be considered for being made a pass-through by the Appropriate
Commission.
132. Undisputedly, in the case of Energy Watchdog (supra) as
well as in Adani Rajasthan case (supra) this Court has held that on
account of the Change in Law, the generating companies were entitled
to compensation so as to restore the party to the same economic position
as if such Change in Law had not occurred. Had the Change in Law not
occurred, the generating companies would have been entitled to the supply
as assured by the CIL/Coal Companies under the FSA.
133. It is contended by the DISCOMS that in the case of Energy
Watchdog (supra), this Court has specifically held that the doctrine of
force majeure was not applicable if there was an unexpected rise in the
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price of coal and, as such, it will not absolve the generating companies
from performing their part of the contract. It is submitted that when the
bidders submitted their bids, this was a risk they knowingly took. We
find the said submission to be without substance. The generators are not
claiming compensation on the basis of rise in price of coal or on the
ground of force majeure. Their claims, in fact, are on the basis of the
Change in Law, which this Court, in the case of Energy Watchdog
(supra) as well as in Adani Rajasthan case (supra), has upheld on the
ground of Change in Law.
134. The contention of the DISCOMS that the Adani Rajasthan
case (supra) is not applicable to the facts of the present case inasmuch
as in Adani Rajasthan case (supra), the State of Rajasthan had assured
100% coal supply and that it was not a case of FSA, is, in our considered
view, without substance. In the present case also, the NCDP 2007 had
assured 100% fuel/coal supply of the normative value.
135. The restitutionary principle has been stated by this Court in
the case of Uttar Haryana Bijli Vitran Nigam Limited (UHBVNL)
(supra) thus:
“10. Article 13.2 is an in-built restitutionary principle which
compensates the party affected by such change in law and which
must restore, through monthly tariff payments, the affected party
to the same economic position as if such change in law has not
occurred. This would mean that by this clause a
fiction is created,
and the party has to be put in the same economic position as if
such change in law has not occurred i.e. the party must be given
the benefit of restitution as understood in civil law. ………….”
136. Undisputedly, the claim of APML stands on the basis of the
Change in Law. The DISCOMS, which are instrumentalities of the State,
cannot be expected to argue contrary to the stand of the Government,
which clearly provides that the generators would be entitled to pass-
through for the coal required to be imported or purchased from the open
market on the ground of Change in Law.
137. Shri M.G. Ramachandran, learned Senior Counsel has also
made a submission that though the Change in Law event is dated 31st
July 2013, the learned APTEL has erred in giving effect to the same
from 1st April 2013. In this respect, it is to be noted that the Change in
Law has been made applicable to the remaining four years of the 12th
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Plan for power plants. The MERC, in the case of APML, as well as the
CERC, in the case of GMR, has given effect to the Change in Law for
the last four financial years beginning from the Financial Year 2013-
2014. The financial year begins from 1st of April of every year. Apart
from that, from the perusal of the orders passed by the learned APTEL
in both the matters, it is clear that no such challenge was made before
the learned APTEL, and, even in the present appeals, there is ground to
this effect in the Memo of Appeals. Only oral submissions have been
sought to be made in that regard.
138. In view of the concurrent orders of the authorities with regard
to the date on which the Change in Law compensation is to be given, we
see no reason to entertain such a plea, which does not have a foundation
in the pleadings.
139. Another contention raised on behalf of the DISCOMS is that
if the generators are permitted to claim compensation on the basis of
actual SHR or the SHR as per the Regulations, whichever is lower, it
will permit them to take advantage of their inefficiency. It is submitted
that lesser the SHR, greater the efficiency of the machine and, therefore,
higher the generation of electricity. Per contra, when the machine is
inefficient, the SHR is higher and the electricity generation is lower. The
SHR is not only dependent on the efficiency of the machine but on
various other factors. One of the other factors is the PLF. In this respect,
it will be
relevant to refer to the statutory advice issued by the CERC on
20th May 2013, the relevant part of which has already been reproduced
hereinabove. It clearly states that for want of adequate coal supply by
CIL/Coal Companies, the PLF of the generating stations across the
country has been severely affected. As such, the contention in that regard,
in our considered view, is without substance.
140. Apart from that, it appears that various DISCOMS are taking
self-contradictory stands. In Petition No. 97 of 2017 between M/s Adani
Power Limited v. Uttar Haryana Bijli Vitran Nigam Ltd. & Anr., the
DISCOMS have filed an affidavit stating thus:
“a.
While deciding the relief on account of Change in Law under
Article 13 of the PPA may be pleased to consider improved
efficiency parameters in line with CERC Tariff Regulations
such that the impact on consumers of the Respondents in
minimal in nature.
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b.
Any relief (if granted), may be passed after considering
the following significant observations:
(i)
The actual impact of the said period should be
calculated on the basis of various factors namely the
quantum of requirement on normative procedures
such as the following:
i.
Station Heat Rate shall be considered after
ascertaining actual design heat rate and
margin as per CERC regulations from time
to time.
ii.
Similarly, Auxiliary Consumption shall be
considered as per CERC regulations.
iii.
GCV of alternate coal shall be as certified
by Third Party Sampling Agency for which
the Hon’ble Commission should provide
appropriate the guideline.
iv.
The targeted PLF;
v.
The accurate date of actual coal utilized by
the Petitioner on a monthly and yearly basis;
vi.
The quantity of coal offered by the MCL which
was rejected or not taken by the Petitioner;
vii.
The quantum of actual of electricity generated
by the Petitioner
Thus, it is submitted that the Petitioner’s claim
for relief in this regard requires to be computed
in a categorical and systematic manner taking
the above parameters into consideration. The
Petitioner’s computation as stated in its petition
is therefore liable to be rejected as it is general
and vague in nature.
(ii)
Further, the Petitioner has indicated the impact limited
to the past period only. However, the Respondents
humbly request the Hon’ble Commission to only
approve such claims for the past
period, after
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considering the above along with a formula for the
future period.”
[emphasis supplied]
141. It can thus be seen that the DISCOM-UHBVNL has itself
stated that improved efficiency parameters in line with CERC Tariff
Regulations should be considered for deciding the relief on account of
Change in Law, such that the impact on consumers of the respondents is
minimal in nature. It has also requested for any relief, if granted, to take
into consideration the SHR after ascertaining actual design heat rate
and margin as per CERC regulations from time to time. Similarly, it has
also requested that Auxiliary Consumption be considered as per the CERC
Regulations. Insofar as the GCV of alternate coal is concerned, it has
further stated that it has to be certified by Third Party Sampling Agency.
142. It is not in dispute that the SHR is required to be audited
continuously and the GCV has to be certified by a Third Party Sampling
Agency.
143. It is further pertinent to note that the MERC itself in its order
dated 7th March 2018 in Case No.123 of 2017 (JSW v. MSEDCL),has
taken a totally contradictory stand. It will be relevant to refer to paragraph
19.11 of the said order dated 7th March 2013, which reads thus:
“19.11
In view of the above, financial impact of Change in
Law on the auxiliary consumption to restore the
generator to the same economic position as if such
Change in Law has not occurred is allowed. The
Change in Law shall be applicable on auxiliary
consumption
of the Unit as per the Norms laid down
by the Commission or actual, whichever is less since
the tariff of the project is based on Competitive
Bidding the auxiliary power consumption
considered is not known. However this auxiliary
consumption should be at a normative value
corresponding to Scheduled generation only.
Moreover, this Change in Law with respect to
auxiliary consumption shall not include power
consumption for staff colonies of the generating
station.”
[emphasis supplied]
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144. It is, thus, difficult to appreciate as to how the MERC, in one
case, has taken a view that Change in Law on the Auxiliary Consumption
has to be as per the Norms laid down by the Commission or actual,
whichever is less, when it has rejected the same in the case of APML in
the order dated 7th March 201811.
145. We may gainfully refer to the stand taken by the Union of
India in the case of Energy Watchdog (supra), which reads thus:
“15. The learned Attorney General appearing on behalf of the
Union of India, submitted before us that he was not interested in
the ultimate outcome of the appeals before us. He was only
appearing in order to apprise us that the electricity sector,
having been privatised, has largely fulfilled the object sought
to be achieved by the 2003 Act, which is that electricity
generation, being delicensed, should result in production of
far greater electricity than was earlier produced. He urged
us not to disturb the delicate balance sought to be achieved by
the Act i.e. that producers or generators of electricity, in order
that they set up power plants, be entitled to a reasonable
margin of profit and a reasonable return on their capital, so
that they are induced to set up more and more power plants.
This must be consistent with competitiveness among them, which
then translates itself into reasonable tariffs that are payable by
consumers of electricity. For this purpose, he relied strongly upon
Section 3 of the Electricity Act, which states that the Central
Government, shall from time to time, prepare a National Electricity
Policy and a tariff policy in consultation with the State
Governments, and the authority for development of the power
system, based on optimal utilisation of natural resources.
According to him, the National Electricity Policy and Tariff
Policy that are issued from time to time, being statutory in
nature, are binding on all concerned. This is, in fact, further
recognised by Section 61(i) by which the appropriate Commission,
in specifying terms and conditions for determination of tariffs,
shall be guided by the National Electricity Policy and Tariff Policy.
The Central Government’s role can further be seen even in
Section 63, where guidelines that are binding on all are issued
by the Central Government in cases where there is a
transparent process of bidding.
11 Passed in Case Nos. 189 of 2013 and 140 of 2014
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16. Further, according to the learned Attorney General, Section
79(4) also points in the same direction, stating that, in discharge of
its functions, the Central Commission shall be guided by the National
Electricity Policy, National Electricity Plan, and tariff policy
published under Section 3. He also referred us to the Cabinet
Committee for Economic Affairs recognising the overall
shortfall in manufacture of domestic coal and the new coal
distribution policy issued in July 2013 pursuant to the Cabinet
Committee which, according to him, are in the nature of
binding directions making it clear that as generators of
electricity, who depend upon indigenous coal, have been given
less coal than was anticipated, should be allowed either to
import the coal themselves, or purchase imported coal from
Coal India Ltd., with the difference in price being passed
through to them. He further referred to and relied upon the revised
tariff policy of 28-1-2016 for the same purpose.”
[emphasis supplied]
146. The submissions made by the learned Attorney General have
to be construed in reference to the purpose for which the Electricity Act
came to be enacted. Prior to the Electricity Act coming into effect, matters
with regard to generation, transmission, distribution and supply of
electricity were governed by three enactments, viz., the Indian Electricity
Act, 1910, the Electricity (Supply) Act, 1948 and the Electricity Regulatory
Commission Act, 1998. The Electricity
(Supply) Act, 1948 mandated the
creation of a State Electricity Board. However, it was found that over a
period of time, the performance of the said Electricity Boards had
deteriorated on account of various factors. As such, it was found
necessary to enact a new legislation to meet various challenges. The
statement of objects and reasons would reveal that one of the main
features for enactment of the Electricity Act was delicensing of
generation and freely permitting captive generation. As such, the learned
Attorney General, in the case of Energy Watchdog (supra), stated that
the electricity sector, having been privatized, had largely fulfilled the
object sought to be achieved by the Electricity Act. After the enactment
of the Electricity Act, delicensed electricity generation resulted in
production of far greater electricity than was earlier produced. The
learned Attorney General had further urged the Court not to disturb the
delicate balance sought to be achieved by the Electricity Act, i.e. that
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producers or generators of electricity, in order that they set up power
plants, be entitled to a reasonable margin of profit and a reasonable
return on their capital, so that they are induced to set up more and more
power plants.
147. It is further to be noted that, though it was sought to be
contended in the case of Energy Watchdog (supra) that in a case under
Section 63 of the Electricity Act, the Commission was only to adopt a
tariff as determined through a transparent process of bidding, this Court
rejected the said contention. It held that, in fact, Sections 62 and 63 of
the Electricity Act deal with ‘determination’ of tariff, which is part of
‘regulating’ tariff. It further held in a situation where the guidelines issued
by the Central Government under Section 63 cover the situation, the
Central Commission is bound by those guidelines and must exercise its
regulatory functions.
148. It would be relevant to refer to clause 4.7 of the guidelines
issued by the Union of India, which have been held to be binding in the
case of Energy Watchdog (supra), which reads thus:
“Clause 4.7. (amended)
Any change in law impacting cost or revenue from the business
of selling electricity to the procurer with respect to the law
applicable on the date which is 7 days before the last date for
RFP bid submission shall be adjusted separately. In case of any
dispute regarding the impact of any change in law, the decision of
the
appropriate Commission shall apply.”
149. The judgment of this Court in the case of Energy Watchdog
(supra) has been approved by a three Judge Bench of this Court in
Adani Rajasthan case (supra).
150. In spite of this legal position and the stand taken by the Union
of India, the DISCOMS are taking a stand which is contrary to the stand
of the Union of India. In Energy Watchdog (supra), it was also sought
to be urged by DISCOMS that even on account of Change in Law,
adjustments would not be permissible, which contention was outrightly
rejected. We have come across a number of matters wherein concurrent
orders passed by the Regulatory Body and the Appellate Forum are
assailed. Such a litigation would, in fact, efface the purpose of the
Electricity Act. As already discussed herein above, one of the major
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reasons for the enactment of the Electricity Act was the deterioration in
performance of the State Electricity Boards.
151. In that view of the matter, we find that the stand taken by the
DISCOMS that, since the loss being sustained by the generating
companies is on account of non-fulfillment of obligation by CIL/Coal
Companies, they should be relegated to the remedy available to them in
law against the CIL/Coal Companies, is totally unreasonable. The claim
is based on change of NCDP 2007 by NCDP 2013, which, undisputedly,
is covered by the term ‘Change in Law’.
152. Recently, this Court, in the case of Central Warehousing
Corporation v. Adani Ports Special Economic Zone Limited
(APSEZL) and others12, has deprecated the practice of different
instrumentalities of the State taking contradictory/different positions/
stands on the same issue.
153. In the present case, the learned APTEL has also held that
SHR and GCV has to be taken into consideration as per the ‘actual’ or
the Tariff Regulations, whichever is lower and as such, balanced the
interests of generators as well as consumers.
154. That leaves us to deal with the additional point raised in the
case of GMR (i.e. Civil Appeal No.6927 of 2021).
155. The CERC, apart from its finding on SHR and GCV, has
also directed late payment surcharge to be paid. The same has been
affirmed by the learned APTEL. The CERC as well as the learned
APTEL, on the interpretation of Articles 8.3.5 and 8.8.3 of the PPA,
have
concurrently found that the procurer had delayed the payment by
not making the payment within the due date and, as such, GMR was
entitled to late payment surcharge. We find no reason to interfere with
the said concurrent findings of fact.
156. We, therefore, find no merit in the appeals. The appeals are
dismissed. There shall be no order as to costs. Pending application, if
any, shall stand disposed of.
Bibhuti Bhushan Bose
Appeals dismissed.
(Assisted by : Pranjal Singh and Rahul Rathi, LCRAs)
12 2022 SCC OnLine SC 1398
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. LTD. v.
ADANI POWER MAHARASHTRA LTD. [B. R. GAVAI, J.]