Case: Tata Power Company Ltd Vs. Maharashtra Electricity Regulatory Commission and Ors

The following factual matrix relevant for proper appreciation of the legal issues arising in the present case may beTPC has been generating and supplying electricity to distribution licensees like RInfra and BEST for over a century. On or about 5th March, 1907 ; 3rd April, 1919 ; 15th November, 1921 and 19th November, 1953, the Bombay (Hydro-Electric) Licence ; the Andhra Valley (Hydro- Electric) Licence, the Nila Mula Valley (Hydro-Electric) Licence and Trombay Thermal Power Electric Licence respectively were granted to TPC to generate and supply power in terms1907 consumers of electricity in Mumbai were served by distribution lisensee, BEST (for the island city of Mumbai) and since 1926 onwards by RInfra (for suburban Mumbai). Indisputably demand of electricity earlier was relatively low as compared to the demand post 1990s. Nevertheless TPC progressively increased its capacity to meet the demand of both RInfra and BEST. Issues of wrongful inter se allocation between the various distribution licensee never really arose prior to the presentor about 1st October, 1916 TPC and BEST (both Appellants herein) entered into an agreement in terms whereof the former agreed to supply and later agreed to buy power in bulk. This agreement was renewed from time toa distribution licence was also issued to BSES, predecessor in interest of respondent RInfra to supply power to the consumers in the suburbs of Mumbai. Under the said license RInfra was authorized to purchase electricity from the bulk Licensees. Accordingly it began procuring bulk power from TPC generating stations according to its requirements from time to time, based on its consumer load (TPC had been the only bulk licensee for Mumbai). Indisputably, however, no agreement in writing had ever been entered into by and between TPC and RInfra. It must be noted in this regard that since its inception and till a very long time RInfra continued to buy its entire requirement of power fromin 1978 RInfras distribution license was amended to permit it to put up a generation station to supply power only to its ownor about 1995, RInfra commissioned its 500MW generating plant at Dahanu, pursuant whereto the quantum of power purchased by it from TPC was reduced by about 54%. Even then RInfra had been buying nearly 42% of the energy generated by TPC. It had continued to purchase its remaining requirements of power fromor about 1998 a Committee on Review of Power demand in Mumbai area commonly known as the `Kukde Committee was constituted by the Government of Maharasthtra for the purpose of studying the techno commercial feasibility of new power generation projects at Bhivpuri (500 MW) and Palghar (495 MW) proposed to be set up by TPC and RInfrais accepted that before the said Committee, RInfra took the stand that it wanted to supply to its existing consumers with the power generation from its own proposed project instead of providing power from TPC. The committee submitted its report on or about 26th May, 1998. In its report it recommended for grant of approval for both the said projects. It was furthermore recommended that the additional power generated from RInfras project be used only to meet the future growth in demand arising from the consumers of Mumbai. The Kukde Committee also recommended that first the then existing generation facility of TPC be fully utilized to meet the requirements of the current consumers of RInfra so as not to disturb the existing technical and commercial arrangement between TPC andthereto a `Principles of Agreement (POA) was executed between TPC and RInfra on or about 31st January, 1998 inter alia providing that there be a minimum power purchase (`off-take) on the basis of `pay or take in each financial year by RInfra on the basis of its consumer demand forecast. The POA also envisaged execution of a detailed Power Purchase Agreement by the parties. However, no such agreement everin 2000 the Maharashtra State Electricity Board [MSEB] gave consent to the Saphale power project of RInfra. Approval however was not granted to the Bhivpur project of TPC. Against the said order granting approval in favour of RInfra, TPC filed a writ petition being No.916 of 2001 before the Bombay High Court on the premise that it had not approved TPCs proposal for the Bhivpuri power project despite it having been submitted at an earlier point of time. It was alleged in the said petition that the impugned decision of the MSEB was illegal and contrary to the 1948 Act, which forbade it from granting sanction to any other person to generate electricity if the existing bulk licensee was able and willing to supply power. A prayer inter alia was made therein that the recommendations of the Kukde Committee should not beresponse to the said petition MSEB withdrew its approval to RInfras Power project on the ground that TPC being the bulk licensee was able and willing to supply power to it. On the withdrawal of the approval TPC too withdrew its petition filed before the High Court Thereafter the 2003 Act came into force with effect from 26th May, 2003. Under the new Act the `Generating Companies have been given freedom of choice to sell power to any person or licensee. The Act also introduced the concept of `open access which allows the distribution licensee to source its power from any generating company. The distributors accordingly under the changed law do not have to depend upon state based generators to meet theirfra applied to Maharashtra Electricity Regulatory Commission [MERC] for grant of `open access to bring in power from sources, outside Mumbai, to supply electricity to itsor about 11th June, 2004 TPC through its executive summary for Annual Revenue Requirement (ARRA) filed before the MERC for the year 2003-04 insisted on having a PPA with RInfra as a condition for supply of power to RInfra in the future. It, however, rejected the said demand on the ground that there was no `legal justification or `tenable reason for entering into such anor about 23rd August, 2005 the Commission made Regulations known as MERC (Terms and Conditions of Tariff) Regulations, 2005, Part-D whereof required all power purchase agreements/arrangements entered into by the Distribution Licensees to be approved by MERC. The regulation also provided that any amendment to such an agreement or arrangement would require prior permission of the MERC irrespective of whether such an agreement or arrangement was approved by the commission oron an application, filed by RInfra for direction to TPC to provide additional outlets, agreed to the position that distribution licensees, such as RInfra, can procure their power from any generating company in India and because of the said flexibility in the 2003 Act also directed it to enter into a PPA withor about 18th January, 2006, BEST executed a PPA with TPC for purchase of 800 MW of power for a period of 10 years which was subsequently revised in terms of the MERCs order dated 7th July, 2006. The said PPA was submitted for approval of MERC on 27th December, 2006 which was registered as Petition No.87 ofor about 12th July, 2006 a Minutes of the Meeting (MoM) was signed between TPC (G) and TPC (D) for allocation of power to TPC (D). TPC (D) indicated requirement of 500 MW power from TPC (G) in the said MoM. A minor modification in the MoM was directed by MERC, pursuant whereto, on or about 16th March, 2006, TPC (D) entered into a PPA with TPC (G) for 477 MW power which was submitted for approval of MERC on 27th December, 2006 being Petition No.87 offiled an application for intervention before the commission in both the applications for approval of both the PPAs It subsequently also filed its objections in the saidappears from the record that in the meanwhile TPC proposed to enter into PPA with RInfra for its balance quantity after meeting the contractual requirement of BEST for 800 MW and of TPC (D) for 477 MW of electricity . The offer was made by TPC to RInfra for supply of 600 MW which was not accepted. The later instead insisted on obtaining a much higher quantum of power based on its consumer demand. TPC rejected the said demand keeping in view its continuing obligation to its own consumers and also those of BEST. No consensus was therefore reached with respect to the said PPA between TPC-G andor about 2nd April, 2007 MERC passed generation tariff order for TPC (G) for the period 2006-2007. Commission, however, took the view that since PPAs had not been approved, by way of an interim arrangement, it would allocate available energy from TPC (G) on the basis of coincident peak demand of the distributionby and dissatisfied therewith BEST preferred an appeal before the Electricity Appellate Tribunal on 26th April, 2007 which was marked as Appeal No.41 of 2007. Similar appeal was filed by TPC against the tariff order dated 2nd April, 2007 providing for allocation of TPC (G) capacity on the basis of coincidence peak demand on 4th May, 2007, which was marked as Appeal No.51 ofan order dated 17th May, 2007 the Appellate Tribunal in Appeal No.51 of 2007 filed by TPC directed MERC to decide BESTs and TPCs petitions for approval of PPA and recorded the undertaking of all parties that they would not claim equities on the basis of order of MERC dated 2nd April,in the meantime initiated a proceeding under Section 86 of 2003 Act before MERC seeking direction against TPC (G) to allocate 762 MW to it and to enter into a PPA with RInfra on the said basis, which was marked as Case No. 30 ofreason of a judgment and order dated 6th November, 2007 the Commission approved PPA between TPC (G) and BEST and the arrangement between TPC (G) and TPC (D) for supply of 800 MW and 477 MW of power respectively with effect from 1st April, 2008. In relation to its own jurisdiction it was, however, opined that it can issue direction upon the generating companies in terms of Section 23 of 2003preferred an appeal thereagainst which was marked as Appeal No.143 ofseparate appeals were preferred by BEST and TPC questioning the interpretation of Section 23 of 2003 Act by the Commission which were marked as Appeal No.159 of 2007 and Appeal No. 14 of 2008while dealing with the application filed by RInfra for continuing the tariff for financial year 2007-2008 even beyond 31st March, 2008 till the tariff year 2008-2009, by an order dated 1 st April, 2008 clearly indicated that for the purpose of fixing the distribution tariff of all the three distribution licensees namely, BEST, TPC (D) and RInfra, based on the share of generation capacity of TPC (G), it will be proceeding in the manner as directed by the Commission in its order dated 6th November, 2007 approving the PPA entered into by and between TPC (G) and BEST and TPC (G) and TPCTribunal thereafter passed the impugned judgment on 7th April, 2008 in Appeal No.51 of 2007 filed by TPC against the tariff order dated 2nd April, 2007 on the submission of appellant-TPC that it was not pressing for the adjustment of any amount that may be payable by RInfra to TPC for the period 2007-2008 in terms of the interim order of the Appelalte Tribunal dated 17th May,filed petition marked as Case No.6 of 2008 before MERC on 17th April, 2008 seeking equitable allocation of power generation from TPC (G)s generation facility under Section 23 of 2003The Commission passed a fairly detailed order. It took into consideration the factual matrix ; the nature of agreements ; submissions of BEST; its earlier orders ; contentions raised by BEST in its original application as also revised petitions ; firm capacity and othernoticed that a Technical Validation Session in case No. 87 of 2006 was held on 18th April, 2007 including justification for entering into a long term contract for ten years taking into account the demand forecast during peak and off-peak hours and analysis of other sources of power and availability of transmission capacity in future. It also took into account the basis for arriving at 10 paise/kwh surcharge payable by TPC (G) to BEST in case the availability of generating stations of TPC (G) falls below 85% alongwith supporting computations. It also noticed the mechanism for assessing the amount of compensation payable in case of termination due to events of default may be incorporated in the PPA. It furthermore noticed that before it a public hearing was held on 17th July, 2007 wherein points were raised by the participants and BESTs responsemay also place on record that that RInfra did not make submissions in the technical session but did so only at the publicCommission took up Case No.88 of 2007 and noticed the details of Technical Validation Session in regard to internal capacity allocation from the generation division of TPC to its own distribution division including RInfras intervention application. It also noticed the details in regard to the public hearing in the aforementioned case which was held on 29th August, 2007. Similarly the application filed by RInfra which was marked as Case No.30 of 2007 was considered in greatof learned counsel appearing for the parties were noticed. Part IV of its judgment contains `the decision with reasons. It took into consideration the relevant provisions of law. It noticed its functions under Section 86 of the 2003 Act as also various Regulations framed thereunder. It placed on record that it had issued certain directives to the distribution licensees from time to time. It opined that submission of Power Purchase Agreements (PPA) for approval are imperative as the objective thereof is to remove any uncertainty that may be faced by the consumers of a distribution licensee who does not have any written terms and conditions. It opined that RInfras recalcitrant attitude in seeking approval of the terms and conditions of its power procurement deserved to be deprecated, whereupon a warning wasof BEST before the Commission wereAmbit of approval process under Section 81 (1)(b) of 2003 Act was required to be restricted to the price and the Commission had no power to reduce the quantum agreed by distribution licensee and the generating company under the PPA submitted forInsertion of the word "including" before the words "the price" makes the intention of the legislature clear that the scope of the power to regulate isPower of a Regulatory Body is extensive under Section 86(1)(b) of the 2003 Act. Even the generator can be subject toSection 86(1)(b) is required to be harmoniously read. For invoking the provisions of Section 60 of the Act, the following three situations must conclusively be shown to existany agreement has been entered into which is likely to cause or causes an adverse effect on competition in electricity industry;dominant position has been abused which is likely to cause or causes an adverse effect on competition in electricity industry;a combination has entered into which is likely to cause or causes an adverse effect on competition in electricityThe Commission discussed clause by clause of the PPAs entered into by and between TPC-D and BEST and TPC (G) and TPC (D) in terms of the MERC Regulations. It took into consideration each of the factors enumerated in those PPAs to hold that they were justified for meeting the requirements of BEST and TPC (D), statingon the above analysis, the Commission is satisfied with the data and information submitted by BEST and TPC substantiating the requirements of Regulation 24 of the MERC (Terms and Conditions of Tariff) Regulations,conclusion the Commission held that Section 86 (1) (b) of the 2003 Act would be applicable only when the PPA is produced before it for its approval and notalso noted that it has the jurisdiction to go into the question with regard to the quantity of supply of electrical energy in terms of the PPAs. However, as the PPA took into consideration the demand of the licensee for the next 10 years, the stipulations contained therein were held to be fair andwas opined that the language of Section 60 of the Act being restrictive, no cause had been made out for issuance of any directionfurthermore noted that Section 23 of the 2003 Act brought within its fold a generating company but no case had been made for issuance of any direction thereunder while considering the question of grant of approval of a long termthe aforementioned findings the Commission approved the PPA of BEST and TPC (D). It was directedREL-D is directed to file long-term Power Purchase Agreements for procurement of power from generating Companies and other sources at the earliest. Also, REL-D should submit Power Purchase Arrangement for procurement of power from its own generating unit REL-G, for the Commissions approval, within one month of the issue of thisIn the past, in view of the prevailing supply shortage situation, the Commission has invoked its powers under Section 23 of the EA 2003, and has directed the distribution licensees to share the available generation capacity in a particular ratio, based on the share of non-coincident peak demand for FY 2006-07, and subsequently based on the share of the coincident peak demand for FY 2007- 08, since the coincident peak demand data was available by then. The situation in the previous years was compounded by the fact that there were no approved PPAs between the parties, and an important aspect like power procurement cannot operate in a vacuum. However, the Commissions powers to issue directions under Section 23 of the EA 2003 are wide and if necessary and found expedient, the Commission may issue such directions in future also, despite the existence of any or all the approved PPAs, in case of any shortfall in contracted capacity, in order to protect interests of consumers. During the transition period, in case of shortage of supply of electricity in the city of Mumbai, the Commission will assess the situation at the time of conduct by the Commission of Annual Performance Review in terms of Regulation 17 of the MERC (Terms and Conditions of Tariff) Regulations, 2005 and assess whether any specific direction to the distribution licensees is required to be issued, to ensure that the consumers of all three distribution licensees in Mumbai city are treated equitably and for equitable distribution of electricity. It is clarified that the supply in the form of generation capacity does not necessarily have to be located within Mumbai or even within Maharashtra, and the supply availability referred to here is in the context of firm long-term power purchase agreements between the distribution licensees and power suppliers. With the above observations, the Commission disposes of Case No. 87 of 2006, Case No. 88 of 2006 and Case No. 30 ofr appeals were preferred by RInfra theregainst. Appellants also preferred appeals in regard to the interpretation of Section 23 of 2003Tribunal by reason of its impugned judgment dated 6th May, 2008 disposed of the saidapart from the factual matrix involved in each case, statutory provisions and the submissions made by learned counsel for the parties were duly noticed. The tribunal also extracted in details the averments made by TPC in its writ petition before the High Court, which as noticed hereinbefore, had ultimately beenTribunal in paragraph 93 of the judgment formulated the questions for its consideration which read as underThe main question in the set of these appeals revolves around the approval of PPA between TPC(G) and BEST and arrangement between TPC(G) and TPC(D). These appeals raise the question whether the Commission has the power to disapprove the PPA and allocate the power of a generating company amongst the distribution licensees by regulating the supply in terms of Section 23 of theAppellate Tribunal did not disturb the findings of the Commission in regard to its interpretation of Section 60 as also Section 23 of the 2003however, held that having regard to the purpose and object of the Act, the Commission should have taken into consideration the need of the first respondent in regard to the allocation of quantity of supply Upon considering the provisions of the Act and the Regulations, the Tribunal heldWe note from the above regulations that the Commission itself recognizes an agreement or an arrangement for long-term power procurement by a Distribution Licensee. Regulations require prior approval of the Commission for any change to an existing arrangement or agreement for long term procurement. When an arrangement for power procurement between TPC and BEST as also between TPC and REL does exist, how the Commission failed to consider the claim of REL.We conclude from the aforementioned that the Commission has wide powers to regulate the quantity of energy that may be supplied by a generating company to a distribution licensee when both are under the jurisdiction of the same Commission.It is not in dispute that the claims of REL have not been considered by the Commission while approving the PPA between the TPC(G) and BEST and arrangement between TPC(G) and TPC(D). It is also not in dispute that the approval of PPA and the arrangement has affected the allocation of power to REL. The interests of REL have been adversely affected by the Commission in violation of the principle of natural justice. The Commission ought to have considered the claim of REL for allocation of power while considering the approval of PPAs between TPC(G) and BEST and arrangement between TPC(G) and TPC(D).In the circumstances, appeal No. 143 of 2007 is allowed and order dated November 06, 2007 of the MERC approving the PPA of TPC and BEST and arrangement between TPC and TPC(D) with reference to allocation of power to BEST and TPC(D) is set aside. The Commission is directed to consider the question of approval of PPA and the arrangement afresh after taking into consideration the claims of BEST, REL and TPC(D). While considering the case of the parties the Commission shall have regard to the fact that the consumers of respective areas have been bearing the Depreciation and Interest on Loan elements of the Fixed Cost of tariff and also consider all other submissions of the parties which are permissible in theTribunal set aside the approval of PPAs and remanded the matter to MERC for itsTribunal, furthermore, did not interfere with the tariff order dated 2nd April,2007 while disposing of Appeal No. 41 of 2007 filed by BEST, opining that the period for which allocation was made on the basis of consistence peak demand had alreadyTPC as also BEST are before us questioning the legality and/or validity of the final order passed by the Appellate Tribunal as also the orders disposing of the interim

Court's reasoning:
The Act is a consolidating statute. It brings within its purview generation, transmission, distribution, trade and use of electricity. Whereas generation of electricity has been brought outside the purview of the licensing regime, the transmission, distribution and trading are subject to grant of licence are kept within the regulatorystatute provides for measures to be taken which would be conducive to development of electricity industry. Measures are also required to be taken for promoting competition which would also mean the development of electricity industry. It, indisputably, provides for measures relating to the protection of interest of consumers and supply of electricity to all areas. The generating companies, however, despitedo not enjoy the monopoly status. They are subject to rationalization of electricity tariff. The preamble envisages ensuring transparent policies, policies regarding subsidies, promotion of efficient and environmentally benign policies, constitution of Central Electricity Authority Regulatory Commissions and establishment of Appellate Tribunal and for matters connected therewith or incidentalis not an essential commodity within the meaning of the provisions of the Essential Commodities Act, 1955 or any other statute. It is, however, in short supply. As the number of consumers as also the nature of consumption have increased many fold, the necessity of more and more generation of electrical energy must be given duepreamble of the 2003 Act, although speaks of development of electricity industry and promotion of competition, it does not speak of equitable distribution of electrical energy. The statutes governing essential and other commodities in respect whereof the State intends to exercise complete control, provide for equitable distribution thereof amongst thethe purpose of deciphering the object and purport of the Act, it is well known, the Court can look to the statement of objects and reasons thereof. One of the principal purposes which had been taken note of for enactment of 2003 Act by the Parliament is the poor performance of the State Electricity Boards. The Government intended to have an independent body for determining the tariff which was required to be carried on in a professional and independent manner. It was felt thathave reached to unsustainable levels. The enactment provides for establishment of the Electricity Regulatoryprivate sector participation, generation, transmission and the distribution of electricity became the statutory policy. The Parliament felt the need of harmonizing and rationalizing the provisions of the Act.of generation as also grant of free permission of captive generation is one of the main features of the 2003 Act. It is clearly provided that onlyprojects would need the approval of the State Commission and the Central Electricity Regulatory Authority. It recognized the need of prohibiting transmission licensees. It also for the first time provided for open access in transmission from the outset. It even provides where the distribution licensee proposes to undertake distribution of electricity for a specified area within the area of supply through another person, that person shall not be required to obtain separateterms of Section 7 of the 2003 Act, all persons are permitted to establish, operate and maintain a generating station. It can, in terms of Section 62(1)(a) of the 2003 Act, supply electricity to any licensee i.e. distribution licensee or trading licensee. The 2003 Act permits the generating company to supply the electricity directly to a trader or a consumer. In terms of Section 42(2) of the 2003 Act even for the said purpose no tariff is required to beprimary object, therefore, was to free the generating companies from the shackles of licensing regime. The 2003 Act encourages free generation and more and more competition amongst the generating companies and the other licensees so as to achieve customer satisfaction and equitable distribution ofgeneration company, thus, exercises freedom in respect of choice of site and investment of the generation unit; choice ofbuyer; freedom from tariff regulation when the generating company supplies to a trader or directly to theg of the generation is the prime object of the Act, the courts while interpreting the provisions of the statute must guard itself from doing so in such a manner which would defeat the purpose thereof. It must bear in mind that licensing provisions are not brought back through the side door ofhis brings us to the interpretation of Section 11 of the 2003 Act. In terms of 1910 Act the State Government was the licensing authority. It alone, therefore, in the said capacity was entitled to issue directions.(1) of Section 11 of 2003 Act empowers the Appropriate Government to issue directions but such direction can be issued only in extraordinary circumstances as stated in the explanation appended thereto i.e. arising out of threat to security of the State, public order or a natural calamity or such other circumstances arising in the publicclause contained in Section 2 of the Act prefixes the words "unless the context otherwise requires". The word "supply" has separately been used even for generation and distribution. Thus, although a broad meaning may be assigned to the said term but the same must be held to be `subject to the context. The word "supply" used in Section 23 of 2003 Act for bringing in efficient supply would mean regulate and consequentially licensing in respect of the generatingthe aforementioned purpose it cannot be given a general or popular meaning denoting supplier and receiver. Once it is held that by reason thereof the Parliament aimed at ensuring the supply, the purported object it sought to achieve by enacting Section 7 would lose its purpose. It, however, does not mean that Section 23 itself becomes unworkable as it would not be possible to secure equitable distribution and supply. The agreement of distribution (PPA) being subject to approval, indisputably the Commission would have the public interest in mind. It has power to approve a MOU which subserves the public interest. It, while granting such approval may also take into consideration the question as to whether the terms to be agreed are fair andheadings and the marginal note are parts of the statute. They have also been enacted by the Parliament. There cannot, thus, be any doubt that it can be used in aid of the construction. It is, however, well settled that if the wordings of the statutory provision are clear and unambiguous, construction of the statute with the aid of `chapter heading and `marginal note may not arise. It may be that heading and marginal note, however, are of a very limited use in interpretation because of its necessarily brief and inaccurate nature. They are, however, not irrelevant. They certainly cannot be taken into consideration if they differ from the material theymay notice some authorities on the subject at theheading, therefore, is a permitted tool of interpretation. It is considered to be a preamble of that section to which it pertains. It may be taken recourse to where an ambiguity exists. However, where there does not exist any ambiguity, it cannot be resorted to. Chapter heading and marginal note, however, can be resorted to for the purpose of resolving thewas submitted by the respondents that in any event the word `supply as used in Section 23 should be given the same meaning as is given to it in Section 2(70) of the Act i.e. the sale of electricity to a licensee or consumer. Accordingly by its very nature, supply would have a supplier and a receiver and any direction which is aimed at ensuring or regulating supply by its very nature would have to be directed to both the supplier and thewhen the question arises as to the meaning of a certain provision in a statute, it is not only legitimate but proper to read that provision in its