TaxTMI 
TaxTMI 
2025 (7) TMI 1331
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....issions 16 V. Issue 29 Analysis 29 VII. Regulation of Electricity Generation Under the Electricity Act 33 VIII. Legal Effect of Note 3 of Regulation 55 36 i) Interpretation of the CERC Regulations, 2019 36 ii) CERC's Order dated 17.03.2022 41 IX. Maintainability of the Writ Petition: 44 i) CERC as an Expert and Specialised Regulator, and Extent of Judicial Interference 44 ii) Grant of Relief by the High Court 50 X. Conclusion 53 I. Introduction: 1. Respondent no. 1, a generating company, installed and commissioned a 1045MW hydroelectric power project pursuant to a grant followed by an Implementation Agreement with the appellant-State of Himachal Pradesh. Under this Agreement, respondent no. 1 undertook to supply as consideration 18% of net generation free of cost^1 to the appellant-State. At the commencement of the obligation to supply 18% free power, respondent no. 1 approached the High Court by way of a writ petition to align the Implementation Agreement with the CERC (Terms and Conditions of Tariff) Regulations, 2019^2, which provide for a maximum of 13% free power to the State Government, on the ground that co....
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...., or statutory authority in India. ii. Further, the Effective Date of the Agreement is defined as the date of signing, and the Scheduled Commercial Operation Date^7 is defined as 120 months from the Effective Date. iii. Article 3.2 stipulates that the Implementation Agreement shall remain in force for a period of 40 years from the Commercial Operation Date^8 of the Project (Agreement Period), unless terminated earlier as per its provisions. It reads: "3.2 Agreement Period a) This Agreement shall remain in force up to a period of forty (40) years from the Commercial Operation Date of the Project (Agreement Period), unless terminated earlier in accordance with the provisions of the Agreement." iv. Article 4 delineates the obligations of the appellant-State under the Agreement, which include the grant of various consents and permissions to JIL to establish, operate, and maintain the Project; to acquire land and prepare a rehabilitation and resettlement plan for local residents; to enter into leases for government land required for the works; to upgrade roads and bridges for the Project; and to provide necessary assistance to JIL as per the ....
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....s unamended. 3.3 Subsequently, by a tripartite agreement dated 30.12.2002 between the appellant, JIL, and one Jaypee Karcham Hydro Corporation Limited^10 that was incorporated by JIL as per Clause 8 of the MoU, the rights and liabilities of the Project were transferred from JIL to JKHCL. 3.4 JKHCL entered into a PPA dated 21.03.2006 with respondent no. 4, i.e., PTC India Limited, which is an inter-state trading licensee, for sale of 704 MW of power. PTC then entered into Power Sale Agreements^11 with respondent nos. 5 to 10, which are distribution companies in the States of Punjab, Haryana, Uttar Pradesh and Rajasthan, to sell the power which it purchased from JKHCL. In the PPA as well as the PSAs, "free power" is defined in the same manner as Article 5.1 of the Implementation Agreement. 3.5 The appellant and JKHCL entered into a Second Supplementary Implementation Agreement on 20.12.2007 to extend the SCOD to 144 months from the Effective Date, i.e. 18.11.2011. 3.6 The Project achieved commercial operation on 12.09.2011, i.e., within the extended SCOD. It is relevant to note that this is the date from which JKHCL's obligation to supply free power to the appellant-State....
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....ation 44: "44. Computation and Payment of Capacity Charge and Energy Charge for Hydro Generating Stations: (1) The fixed cost of a hydro generating station shall be computed on annual basis, based on norms specified under these regulations, and shall be recovered on monthly basis under capacity charge (inclusive of incentive) and energy charge, which shall be payable by the beneficiaries in proportion to their respective allocation in the saleable capacity of the generating station, i.e., in the capacity excluding the free power to the home State:... *** (4) The energy charge shall be payable by every beneficiary for the total energy scheduled to be supplied to the beneficiary, excluding free energy, if any, during the calendar month, on ex-bus basis, at the computed energy charge rate. Total energy charge payable to the generating company for a month shall be: Energy Charges = (Energy charge rate in Rs. / kWh) x {Scheduled energy (ex-bus) for the month in kWh} x (100 - FEHS) / 100 (5) Energy charge rate (ECR) in Rupees per kWh on ex-power plant basis, for a hydro generating station, shall be determined up to three decimal places based o....
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....ant- State on the enhanced 45MW capacity. 3.14 In 2022, the present dispute arose between the parties as respondent no. 1 issued various letters to the appellant that Note 3 of Regulation 55 of the CERC Regulations, 2019 caps the free power supplied to the State at 13%. Further, that the CERC's order dated 17.03.2022 requires inconsistent contractual provisions to be aligned with the Regulations. Relying on these, respondent no. 1 requested the appellant to align the Implementation Agreement with the CERC Regulations, 2019 and the order dated 17.03.2022 such that its free power supply obligation is confined to 13%. On the other hand, the appellant-State replied that the quantum of free power must be determined as per the Implementation Agreement and the Supplementary Implementation Agreements, which comes to 18.46% commencing from 13.09.2023. The appellant also issued a notice to respondent no. 1 dated 13.09.2023 to adhere to the contractual terms, failing which consequential action would be initiated against it. It also issued a notice dated 16.09.2023 to the Northern Regional Load Dispatch Centre to schedule 18.46% free power to the appellant. 3.15 This led respondent no. 1....
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....antum of supply of free electricity. Hence, the corollary of the CERC's order that the PPA and PSAs stand overridden is that the Implementation Agreement becomes unworkable and must be aligned with the CERC Regulations, 2019. 4.4 Further, since the appellant-State accepted the CERC's order, respondent no. 1 was within its right to seek alignment of the Implementation Agreement with the CERC Regulations, 2019 and the CERC's order. 4.5 The High Court also relied on this Court's decision in PTC India Ltd. v. Central Electricity Regulatory Commission^13 where it was held that statutory regulations under the Electricity Act will override existing contracts between regulated entities. On this basis, the High Court concluded that the CERC Regulations, 2019 will have supremacy over contractual undertakings and the provisions of the Implementation Agreement must be aligned accordingly. IV. Submissions: 5. We have heard Mr. Kapil Sibal and Mr. Parag Tripathi, learned senior counsel for the appellant, and Mr. P. Chidambaram and Dr. A.M. Singhvi, learned senior counsel for respondent nos. 1 and 2. We also heard Mr. Nikhil Nayyar, learned senior counsel for respondent no. 11 (CERC),....
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....king amendment of the Implementation Agreement. v. Coming to the impugned order of the High Court, they submit that the High Court has proceeded on the basis that the appellant-State is a regulated entity under the Electricity Act, and thereby relied on PTC (supra) where this Court held that contracts between regulated entities stand overridden by statutory regulations under the Electricity Act. They submitted that this is incorrect as the State Government is not a deemed licensee under the third proviso of Section 14 as it is not engaging in transmission, distribution, or trading of electricity. vi. They also submitted that contractual terms could not have been amended in exercise of writ jurisdiction, and the only remedy available to respondent no. 1 was to challenge the validity of the Regulation itself, which it had not done. Regarding the exercise of writ jurisdiction to align the contractual terms with the Regulations, it is further contended in the written submissions that the High Court has rewritten the Implementation Agreement by relying on the PPA and PSAs being overridden as per the CERC's order dated 17.03.2022. However, the High Court ignored that th....
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....icensees only. On this basis, he submitted that respondent no. 1 is supplying electricity to the appellant-State as a licensee, albeit free of cost. iii. Relying on the decisions of this Court in PTC (supra) as well as Transmission Corporation of A.P. Ltd. v. Rain Calcining Ltd.^15, he submitted that even concluded contracts between regulated entities are overridden by regulations. Since the State Government is a licensee, the Implementation Agreement stands overridden by the Regulations. Further, he submitted that performance of a contract must be in conformity with the law in force at the time.^16 iv. He then referred us to Regulation 30 of the CERC Regulations, 2019 that provides for Return on Equity^17 to hydro-electric generating companies @ 16.5%, which the generating company earns through tariff on saleable power. The tariff is calculated by considering the free power cap @ 13% as per Note 3 of Regulation 55. However, if the actual free power supply is 18% as per the Agreement, this will negatively impact the RoE. Further, to ensure that RoE is maintained, respondent no. 1 will be required to sell the remaining 82% of power at a higher rate to PTC and the d....
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....under Regulation 30(2), which is arrived at after considering commercial principles and consumer interest, as per Section 61(b) and (d) of the Electricity Act. Referring to Regulations 14(4), 15, and 18 of the CERC Regulations, 2019, he submitted that the RoE is part of the Annual Fixed Cost, which is used to derive capacity charges that is in turn used to determine the tariff. Hence, RoE forms a part of the tariff itself and the tariff is structured on this basis. RoE is not the same as the net profit of respondent no. 1. In its written submissions, the CERC further submitted that RoE is calculated on the equity component of the Project, which has been granted in full to respondent no. 1 for the 2014-19 and 2019-24 periods. iv. The CERC's order dated 17.03.2022 only directs that the PPA and PSAs must be aligned with the Regulations. It does not deal with or decide on the Implementation Agreement. This order was not challenged by respondent no. 1 before the APTEL, and they instead relied on the same to file a writ petition before the High Court to seek the relief of aligning the Implementation Agreement. The filing of the writ petition is a way to avoid the CERC order date....
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....itted that this issue was raised by respondent no. 1 in its tariff petition and the prayer for relaxation of the cap on free power supply was rejected by the CERC, which was not subsequently challenged. 5.9 Regarding the status of the State Government as a deemed licensee, respondent no. 1 has submitted the following in its written submissions: First, although power is supplied free of monetary cost, there is purchase as there is non-monetary consideration for the power under the Implementation Agreement. Second, the State Government undertakes trading of such electricity through respondent no. 3, the Himachal Pradesh State Electricity Board, which is its agent/instrumentality. Considering these factors, the State Government is a regulated entity and is governed by the CERC Regulations, 2019. As per PTC (supra) as well as Article 9 of the Implementation Agreement, the contractual rights and obligations relating to free power are subject to the CERC Regulations, 2019. 5.10 Further, in its written submissions, respondent no. 1 has also contended that the policies relied on by the appellant, including the Hydro Power Policy 2008, do not apply to it as the Project was awarded thr....
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.... it has been recognised as a part of the right to shelter and right to life^29. In this light, the Act covers the entire process of production, transfer, and sale of electricity and also deals with the utilisation of electricity. These are covered under generation, transmission, distribution, trading and use of electricity. 9.3 The Act is also concerned with the development of the electricity sector so as to ensure that there is sufficient amount of electricity available to all. In furtherance of this goal of enhancing the availability of electricity, the Act envisages private sector participation and promotion of competition. 9.4 These measures are ultimately intended to protect and subserve consumer interests by making electricity supply accessible at cheaper rates for those who cannot afford it, as well as making supply accessible in all areas and regions. In this vein, the Act provides for the need for transparent subsidy policies. 9.5 Taking the ecological impact of the electricity sector's activities, the Act provides for promotion of efficient and environmentally benign policies. 9.6 Finally, the Act provides for the constitution of permanent expert bodies, i.e.,....
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.... (b) co-ordinate with the Central Transmission Utility or the State Transmission Utility, as the case may be, for transmission of the electricity generated by it." 13. While the Electricity Act has done away with the licensing requirement for generating companies, it continues to regulate electricity generation as the tariff at which the generating company supplies electricity to a distribution licensee is determined by the Central or State Commission, as is appropriate, as per Section 62(1)(a) read with Section 79 and Section 86 of the Act.^32 We will further deal with the tariff determination function of the CERC at a later stage. 14. At this juncture, it is also relevant to note this Court's decision in Tata Power Co. Ltd. v. Reliance Energy Ltd.^33. It was observed that delicensing of generation under the Electricity Act, 2003 marks a shift from the position under the 1910 Act, the 1948 Act, and the 1998 Act.^34 The Court held that delicensing electricity generation is intended to encourage the setting up of generating stations and to promote competition among generating companies. Hence, courts must ensure that while interpreting the Electricity Act and the regul....
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.... in favour of respondent no. 1 to enable it to set up its hydropower generating station. In return, respondent no. 1 undertook various obligations provided in Article 5 of the Implementation Agreement, including supplying free power at a certain percentage. Therefore, it is clear that the free power supply is a part of the consideration by respondent no. 1 under the Implementation Agreement. 17. Now the question is whether such a consideration is impermissible or prohibited by virtue of the CERC Regulations, 2019. To answer the same, it is necessary to appreciate the context in which Note 3 of Regulation 55, which stipulates that FEHS shall be taken as 13% or actual, whichever is less, has been made. Regulation 55 deals with billing and payment of charges to generating companies. While sub-clause (1) deals with raising bills for capacity and energy charges and payment, sub-clause (2) is relevant for our purpose. It provides that payment of capacity and energy charges for a hydro-generating station shall be shared by its beneficiaries^40 in proportion to their shares in saleable capacity, which is to be determined after deducting the capacity corresponding to FEHS as per Note 3. ....
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....g pass-through to the extent of only a certain portion of free supply while balancing the commercial viability and financial position of the generating company. Public interest is also subserved since the State can utilise the free power for its own purposes. This interpretation balances the twin values of freedom of business choices and the social justice obligations of the State, which the Regulatory Commission channelises towards protecting consumer interests and maintaining the health of the sector. 22. CERC's Order dated 17.03.2022: The relief sought by respondent no. 1 in its tariff petition for 2019-2024 before the CERC is relevant as it shows that the initial position taken by it was not an attempt to wriggle out of the contract by seeking its modification. In contrast to claiming that the Implementation Agreement stands overridden and must be aligned with the 13% cap, as is the case before the High Court and in this appeal, respondent no. 1 sought relaxation of the cap itself. In other words, respondent no. 1 sought a pass-through for the full extent of 18% free power, rather than 13% as per the Regulations, in recognition of its contractual obligations under the Implem....
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....f the CERC's reasoning and decision that we must note: first, the CERC was made aware of the contractual obligation of respondent no. 1 under the Implementation Agreement, but it did not hold the same as being overridden by Note 3 of Regulation 55. This is in line with the interpretation of the cap that we have elaborated hereinabove, i.e., it does not prohibit or restrain respondent no. 1 from entering into or performing a contract for supplying a higher quantum of free power. Second, the CERC only held that the PPA and PSAs stand overridden to the extent that they are inconsistent with the Regulation. The effect of this is that only 13% of free power would be considered as a pass-through for tariff fixation and recovery of charges from the beneficiary distribution companies as per the Regulations. Since respondent no. 1 did not appeal this order before the APTEL under Section 111 of the Electricity Act, these findings are now final and binding on it. 25. We will now examine whether the High Court could have, in exercise of its writ jurisdiction, granted the relief of aligning the Implementation Agreement by relying on the CERC's order dated 17.03.2022. IX. Maintainability o....
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....ore than one State..." 29. "Tariff" has not been defined under the Electricity Act, but it has been interpreted by this Court on several occasions. This Court in PTC (supra) held that "tariff" does not only mean fixation of rates but also the rules and regulations relating to it^45. Further, in Transmission Corporation of Andhra Pradesh Ltd. v. Sai Renewable (supra), this Court relied on the meaning of the term in general law or common parlance, and held its meaning to be as follows: "62. Therefore, in the absence of any specific definition in any of these Acts we will have to depend upon the meaning attached to these expressions under the general law or in common parlance. The expression "tariff" has been explained in Law Lexicon With Legal Maxims, Latin Terms And Words & Phrases (2nd Edn., 1997) as "determination, ascertainment, a table of rates of export and import duties, in which sense the word has been adopted in English and other European languages and as defined by the law dictionaries the word 'tariff' is a cartel of commerce; a book of rates; a table or catalogue, drawn usually in alphabetical order, containing the names of several kind of merchandise....
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....ations): --- (1) The Central Commission may, by notification make regulations consistent with this Act and the rules generally to carry out the provisions of this Act. (2) In particular and without prejudice to the generality of the power contained in sub-section (1), such regulations may provide for all or any of following matters, namely:- *** (s) the terms and conditions for the determination of tariff under section 61;..." 32. This Court has time and again emphasised that since tariff determination, including the power to make regulations for this purpose, has been entrusted to a specialised and expert regulator constituted under the statute itself, it would not be proper for constitutional courts to interfere and assume these functions, or to examine tariff fixation on its merits and substitute its own determination for the one made by the expert body after duly considering all material circumstances.47 We are of the opinion that this is necessary not only to ensure that these specialised functions are performed by expert regulators but to also facilitate a systematic and consistent development of sectoral laws. 33. In this light, when a consti....
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.... the State Electricity Commission. 129. This Court in Reliance Infrastructure Ltd. v. State of Maharashtra has held that while exercising its power of judicial review, the Court can step in where a case of manifest unreasonableness or arbitrariness is made out. 130. In the present case, there is not even an allegation with regard to that effect. In such circumstances, recourse to a petition under Article 226 of the Constitution of India in the availability of efficacious alternate remedy under a statute, which is a complete code in itself, in our view, was not justified." (emphasis supplied) 35. Grant of Relief by the High Court: Applying these legal principles, we will now analyse whether the High Court could have granted relief of aligning the Implementation Agreement with the CERC Regulations, 2019 by exercising writ jurisdiction. The High Court proceeded on the basis that: (i) the appellant-State is a deemed licensee; (ii) the CERC Regulations, 2019 are relevant not only for determination of tariff but also for other purposes and are binding on the appellant-State; and (iii) the 13% cap on free power supply under Note 3, Regulation 55 has the effect of o....
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....t have entered into the domain of interpreting these Regulations which deal with tariff determination, as the same falls within the exclusive domain of the CERC. The Electricity Act itself provides the appellate mechanisms by establishing a specialised and permanent tribunal, namely the APTEL, and an appeal before this Court, against the CERC's orders. In view of the existence of a statutory regulatory forum, the High Court should not have entertained the writ petition by interpreting the CERC Regulations, 2019. 39. Equally, we are of the opinion that the High Court incorrectly relied on the CERC's order dated 17.03.2022 to grant relief to respondent no. 1. As explained above, the CERC's order only deals with the PPA and PSAs despite taking note of Article 5.1 of the Implementation Agreement. Upon reading the order, it is clear that its effect is not that of restraining respondent no. 1 from supplying free power beyond 13%. Hence, it does not in any way adversely affect or prejudice the contractual rights of the appellant-State. Hence, the High Court could not have proceeded on the basis of this order to grant the relief of modifying the Implementation Agreement. X. Conclusio....
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....ssion, distribution, trading and use of electricity and generally for taking measures conducive to development of electricity industry, promoting competition therein, protecting interest of consumers and supply of electricity to all areas, rationalisation of electricity tariff, ensuring transparent 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 incidental thereto." ^27 See K.C. Ninan (supra), para 93. ^28 Dilip v. Satish, 2022 SCC OnLine SC 810, para 9. ^29 Chameli Singh v. State of U.P., (1996) 2 SCC 549, para 8. ^30Section 7 of the Electricity Act reads: "Section 7. (Generating company and requirement for setting up of generating station): Any generating company may establish, operate and maintain a generating station without obtaining a licence under this Act if it complies with the technical standards relating to connectivity with the grid referred to in clause (b) of section 73." ^31The relevant portion of Section 8 of the Electricity Act reads: "Section 8. (Hydro-ele....
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....a regulation under the Act, one needs to apply the test of general application. On the making of the impugned 2006 Regulations, even the existing power purchase agreements (PPA) had to be modified and aligned with the said Regulations. In other words, the impugned Regulations make an inroad into even the existing contracts..." (emphasis supplied) ^39See Indsil Hydro Power & Manganese Ltd. v. State of Kerala, (2021) 10 SCC 165, paras 43-43.1; 56-57. ^40 "Beneficiary" has been defined in Regulation 3(8) of the CERC Regulations, 2019 as follows: "3. Definitions. - In these regulations, unless the context otherwise requires: *** (8) 'Beneficiary' in relation to a generating station covered under clauses (a) or (b) of sub-section 1 of section 79 of the Act, means a distribution licensee who is purchasing electricity generated at such generating station by entering into a Power Purchase Agreement either directly or through a trading licensee on payment of capacity charges and energy charges; Provided that where the distribution licensee is procuring power through a trading licensee, the arrangement shall be secured by the trading licensee through back to back....