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Determination of Tariffs under the Electricity Act, 2003

The Electricity Act, 2003 (“Electricity Act”) was enacted by the Parliament to consolidate all the laws on transmission, generation, distribution, trading, determination, and rationalization of tariffs, protection of the environment, and use of electricity and development of the electricity sector. Under the Electricity Act, there has been a constitution of the Central Electricity Authority, Regulatory Commissions and establishment of the Appellate Tribunal to deal with the matters connected therewith.


WHETHER THE TARIFFS ARE DETERMINED BY THE COMMISSION IN COMPETITIVE BIDS?

Part VII (Tariffs) of the Electricity Act has laid down the procedures for the determination of tariffs, subsidies, tariff orders, and development of the market. Restricting the tariff determination in Competitive Bids, the Electricity Act provides for Section 63 which specifies that, “the Appropriate Commission shall adopt the tariff if such tariff has been determined through a transparent process of bidding per the guidelines issued by the Central Government.


Further, under Section 63, the Ministry of Power had issued guidelines for the determination of tariff by the Bidding Process for Procurement of Power by Distribution Licensees, 2017 (Guidelines). These guidelines have been issued with an objective of promotion of competitive procurement of licenses, facilitate transparent and fair bidding process, protect the consumers’ interests and enhance standardization, and reduce ambiguity in projects. The guidelines provide for the procedure to be followed for bidding, documents required, bid evaluation, dispute settlement, and a timetable for the bidding process.


Reading Section 63 and the Guidelines together, the Commission can only adopt the tariff as per the bidding procedure. Further, in the matter of Energy Watchdog[i], the Supreme Court clarified that the Commission only adopts the tariff that has been determined through a transparent bidding process and the Commission is bound by the guidelines and should perform their regulatory functions as per the guidelines, instead of Section 79.

Thus, the Commission can only adopt the determined tariff through the transparent bidding process and cannot determine it as per Section 63 and the guidelines.


WHETHER THE TARIFFS CAN BE REDETERMINED BY THE COMMISSION?

There are several precedents which have laid down that in certain circumstances, the Commission can redetermine the tariffs after determination through a transparent and fair bidding process. Also, as per Clause 5.17 (Arbitration) of the guidelines, the Commission has the power to adjudicate on matters related to tariffs. The three major heads under which the Commission can redetermine the tariffs are:

1. Change in Law

Whenever there is a change in the law prevailing in the country/state, the Commission can redetermine the tariffs to meet the said changes.

In the case of Energy Watchdog, the Gujarat Urja Vikas Nigam Limited (“GUVNL”) invited three competitive bids for a long-term supply of power. Adani Power was declared as the successful bidder and a Power Purchase Agreement (“PPA”) was signed between GUVNL and Adani Power for the supply of power in three states. There was a change in the Indonesian laws due to which the prices of coal increased. However, the Supreme Court held that the Commission can redetermine the prices only when there is a change in the Indian law which is the governing law of the land.


Further, in the case of GMR Kamalanga Energy Ltd.[ii], the Petitioners had signed a PPA with the Respondents for a long-term supply of power. The Ministry of Environment, Forests & Climate Change (“MOEFCC”), Government of India (“GOI”), has notified the Environment (Protection) Amendment Rules, 2015 on 07.12.2015 (“the MOEFCC Notification”) that mandatorily require all the Thermal Power Projects commissioned till December 2016 including the Project of the Petitioner, to comply with the new emission norms within a period of two years from the date of the MOEFCC Notification. Under this, the Petitioners are required to install various Emission Control Systems/Flue Gas De-sulfurization systems (ECS/FGD) at the Project. The Commission held that it had the powers, under Section 79 of the Electricity Act, to adjudicate on the matter and further redetermine the tariffs.


2. Force Majeure

Force Majeure means the unforeseeable circumstances that prevent someone from fulfilling a contract. In the case of M/s Siwana Solar Power Project (P) Ltd.[iii], after a successful bid, a PPA was signed between the parties for a long-term supply of power. The Regulatory Commission had redetermined the tariffs as the power plant was not established due to the non-laying of electricity lines. The Appellate Tribunal held that this falls under force majeure and the Regulatory Commission has the right to do so under the ambit of Section 86 of the Electricity Act. Also, in Energy Watchdog and GMR Kamalanga, the Courts held that the Commission has powers to redetermine the tariffs under the force majeure clause.


3. Public Interest

The guidelines are also issued for the welfare of the consumers’ interest and, thus, the public interest. In Energy Watchdog, the Court held that the tariffs can be redetermined according to the public interest.


WHETHER THE ORDERS, OF THE APPELLATE TRIBUNAL FOR ELECTRICITY, FOR THE RE-DETERMINATION OF TARIFFS, WHICH ARE DETERMINED THROUGH COMPETITIVE BIDDING, VALID?

In the Petition No. 1110 of 2016 before the Uttar Pradesh Electricity Regulatory Commission (“UPERC”), Lucknow, the petitioners were the Managing Director, U.P. Power Corporation Ltd. and the Uttar Pradesh New and Renewable Energy Development Agency whereas M/s Lohia Developers (India) Pvt. Ltd, M/s Adani Green Energy Ltd., and M/s Sukhbir Agro Energy Ltd. were among the 13 respondents. In this matter, the Commission had examined the power of the Commission while adopting the tariffs under Section 63 of the Electricity Act. The UPERC passed a detailed order on 22.02.2017 in which it referred to an Appellate Tribunal for Electricity (“APTEL”) judgment of M.P. Power Transmission Co. Ltd., Jabalpur v. Madhya Pradesh Electricity Regulatory Commission in which it relied upon the judgment of Food Corporation of India v. Messrs Kamdhenu Cattle Feed[iv],and made the following observations:


38. The above principle has been laid down by the Supreme Court in a case of sale of food grains where a higher price was beneficial for the public good. The present case relates to the purchase of electricity by the procurer for consumers for the lower price in the public interest. The ratio decided by the above decision taking note of public interest squarely applies to the present case as well.”

The Commission, after hearing the concerned parties, stated that in the view of safeguarding the interest of the consumers and in the public interest, it adopted the tariff of Rs. 7.02/- per unit for the bidders whose projects have been commissioned.


Aggrieved by this, the respondents M/s Lohia Developers (India) Pvt. Ltd, M/s Adani Green Energy Ltd., and M/s Sukhbir Agro Energy Ltd. filed an appeal before the APTEL. In the matters of M/s Lohia Developers (India) Pvt. Ltd.[v], M/s Sukhbir Agro Energy Ltd.[vi], and Adani Green Energy (Uttar Pradesh) Ltd.[vii], the APTEL had referred to the decision in Afcons Infrastructure Ltd.[viii] and Section 89 of Civil Procedure Code, 1908 (“CPC”), and stated that the tribunal had the required power under the Electricity Act to adopt its procedure in consonance with the CPC, and also because there is an element of settlement existing in the matter and APTEL had referred the parties to mediation.


CONCLUSION

Considering the above-mentioned cases and the reasons provided above in the article, the author is of the view that the tariff can be re-determined by the Commission based on the interest of the consumers and in view of the betterment of the public interest. Furthermore, the decision of APTEL for directing the parties to settle the issues through mediation is valid in the eyes of the law.


ENDNOTES [i] Energy Watchdog v. Central Electricity Regulatory Commission (CERC), (2017) 14 SCC 80 (India). [ii] GMR Kamalanga Energy Ltd. v. Bihar State Power (Holding) Company Ltd. and Ors., Petition No. 300/MP/2018 (GMR Kamalanga) (India). [iii] M/s Siwana Solar Power Project (P) Ltd. v. Haryana Electricity Regulatory Commission and Ors., Appeal No. 150 of 2016 (India). [iv] Food Corporation of India v. Messrs Kamdhenu Cattle Feed, (1993) 1 SCC 71 (India). [v] M/s Lohia Developers (India) Pvt. Ltd. v. Uttar Pradesh Electricity Regulatory Commission & Ors., Appeal No. 302 of 2018 & IA No. 1120 Of 2018 (India). [vi] M/s Sukhbir Agro Energy Ltd. v. Uttar Pradesh Electricity Regulatory Commission & Ors., Appeal No. 88 of 2018 & IA No. 300 Of 2018 (India). [vii] Adani Green Energy (Uttar Pradesh) Ltd. v. Uttar Pradesh Electricity Regulatory Commission & Ors., Appeal No. 307 of 2018 (India). [viii] Afcons Infrastructure Ltd. & Anr. v. Cherian Varkey Construction Co. (P) Ltd. & Ors., (2010) 8 SCC 24 (India).


ABOUT THE AUTHOR

This blog has been authored by Manaswi Kosuri, who is a Final Year B.A., LL.B. (Hons.) student at Damodaram Sanjivayya National Law University, Visakhapatnam.


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