TaxTMI 
TaxTMI 
2019 (1) TMI 2088
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.... to the appellant, its thermal power station at Dahanu has been subjected to a more sringent norm than other comparable units. MERC, it is asserted, breached the National Tariff Policy 2006. The High Court held against the appellant both on the maintainability of its writ petition under Article 226 of the Constitution and on the merits of the challenge to the validity of the statutory regulation. The case has thus travelled to this Court. 3. The Electricity Act 2003 came into force on 10 June 2003. Electricity Regulatory Commissions constituted under Section 82 are empowered to frame regulations under Section 181, including the terms and conditions for determination of tariff under Section 61 [Section 181(2)(zd)]. The MERC framed the MERC (Terms and Conditions of Tariff) Regulations 2005 [Tariff Regulations 2005] for a period of five years, upto financial year 2010-11. The regulations, in so far as the appellant is concerned were extended for a further period of one year upto financial year 2011-12. 4 Regulation 33.1.3 prescribed the Station Heat Rate (SHR). The SHR is the heat energy required to generate one unit of electrical energy. The SHR is significant because it repres....
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....ives would need be evolved along with appropriate arrangement for sharing the gains of efficient operations with the consumers. Except for the cases referred to in para 5.3 (h) (2), the operating parameters in tariffs should be at "normative levels" only and not at "lower of normative and actuals". This is essential to encourage better operating performance. The norms should be efficient, relatable to past performance, capable of achievement and progressively reflecting increased efficiencies and may also take into consideration the latest technological advancements, fuel, vintage of equipments, nature of operations, level of service to be provided to consumers etc. Continued and proven inefficiency must be controlled and penalized. The Central Commission would, in consultation with the Central Electricity Authority, notify operating norms from time to time for generation and transmission. The SERC would adopt these norms. In case where operations have been much below the norms for many previous years, the SERCs may fix relaxed norms suitably and draw a transition path over the time for achieving the norms notified by the Central Commission. Operating norms for distributio....
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....blished another draft approach paper in regard to the proposed multi year tariff regulations for financial years 2011-12 to 2015-16 together with draft regulations. On 26 October 2010, the appellant made submissions on the draft approach paper. On 4 February 2011, the MERC (Multi Year Tariff) Regulations, 2011 [Tariff Regulations 2011] were notified. Regulation 2(32) defines the Gross Station Heat Rate thus: "(32) "Gross Station Heat Rate" means the heat energy input in kcal required to generate one kWh of electrical energy at generator terminals." Regulation 44 provides norms for the operation of thermal generating stations. Regulation 44.2 stipulates gross station heat rates for existing generating stations in the following terms: "44.2 Gross Station Heat Rate - For existing Generating Stations: a) Existing Coal-based Thermal Generating Stations, other than those covered under clauses (b), (c) and (d), below: 200/210/250 MW sets 500 MW and above sets 2450 kcal/kWh 2425 kcal/kWh Note 1 In respect of 500 MW and above Units, where the boiler feed pumps are electrically operated, the gross Station Heat Rate shall be 40 kcal/....
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....as been prescribed for the units of MSPGCL. However, there is an exclusion within the exclusion for Unit 3 at Paras and Unit 6 at Parli, since these units are governed by the uniform criterion prescribed in clause (a). The dispensation for Units 4, 5 and 6 of TPC-G is prescribed in clause (c). For Unit 8 of TPC-G, the applicable SHR is in terms of the uniform rate of 2450 kCal/kWh, since this unit is not specified in clause (c). 9. The grievance of the appellant arises from the fact that a tighter standard or norm has been prescribed for its Dahanu TPS. As opposed to the uniform criterion of 2450 kCal/kWh in Regulation 44.2(a), the SHR for the Dahanu TPS varies between 2350 in financial year 2011-12 to 2370 in financial year 2015-16. Essentially, it is this prescription of a more stringent SHR in the case of R-Infra's Dahanu TPS which forms the focus of dispute in the present case. 10. In order to buttress its grievance of discrimination, the appellant has relied upon the Multi Year Tariff regulations notified by MERC for the previous period (2005-10) and for the subsequent period (2016-21). The MERC (Multi Year Tariff) Regulations 2015 [Tariff Regulations 2015] which gov....
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....ts 6 and 7 at Parli have been excluded. Similarly, Unit 8 for TPC-G is excluded from the SHR in Regulation 44.6. 11. In order to complete the narration, it may be noted that on 2 September 2011, MERC passed an order on a petition filed by the appellant for deferring the implementation of the MYT regulations. On 5 May 2012, the appellant submitted a petition for approval of its business plan for financial years 2010-11 to 2015-16. The appellant requested that the norm should be relaxed and brought in line with the normative SHR. On 25 October 2012, MERC passed an order on the MYT Business Plan for RInfra-G stating that it had considered the norms for SHR based on the MYT regulations. MERC held thus: "Station heat rate 4.5.2 RInfra-G submitted that MYT Regulations, 2011 framed the norms for DTPS based on the plant's historical performance. RInfra-G submitted that it believes that all operating parameters, "norms" including the secondary oil consumption, auxiliary energy consumption, station heat rate and transit loss should be specified to create a level playing field and bring discipline for regulated entities for the benefit of beneficiaries of the state. R....
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....tinue to operate as efficiently as it had been in the past. Therefore, a balanced approach is to provide a target which will adequately motivate the generating plant to perform at existing levels or better and still have room for earning incentives. Moreover, the MYT Regulations, 2011 have been finalised after following appropriate regulatory process after considering and deliberating on the views of all stakeholders on various issue. Considering all the facts discussed above, the Commission does not find any merit in altering the MYT norms for SHR. Therefore, though RInfra-G has proposed a SHR of 2,450 kCal/kWh, the Commission has considered the SHR as per the MYT Regulations, 2011. 4.5.7 For FY 2011-12, the Commission has considered the SHR as approved in the ARR Order in Case No.163 of 2011. The SHR approved by the Commission for RInfra-G for the second control period is as below: Table 5: Approved station heat rate for the second control period Station heat rate (kCal/kWh) FY 2011-12 FY 2012-13 FY 2013-14 FY 2014-15 FY 2015-16 As submitted by RIfra-G 2500 2450 2450 2450 2450 As approved by the Commission 2500 2355 ....
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.... (ii) CPRI was commissioned to undertake a study in order to fix norms for SHR for different power stations in the State of Maharashtra and it was only after the technical material collated by CPRI was considered and reviewed that the tariff regulations were notified prescribing SHR norms for various power stations; (iii) MERC has applied the principles evolved in the tariff policy which stipulates that the operating norms should be "efficient, relatable to past performance, capable of achievement and progressively reflect increased efficiencies". The past performance of the Dahanu TPS of the appellant was also taken into consideration; (iv) The submissions urged by the appellant was not accepted for two reasons which were formulated by the High Court as follows: "Firstly, if this submission is accepted then the whole exercise of undertaking an expert analysis, the working of each of the thermal power station to determine the SHR by studying various factors including the past performance would be rendered nugatory. Secondly the tariff standards are required to be fixed on realistic data and its consideration, as public interest is directly involved in f....
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....n before the High Court: "27. As stated hereinabove, the Petitioners have preferred Appeal No.4 of 2013 before the Appellate Tribunal for Electricity challenging the Order dated 25th October 2012 insofar as Respondent No.1 disallows the Petitioners prayer for relaxation of the norms under Regulations 99 and 100 of the MYT Regulations. The present Petition challenges the vires, legality and validity of Regulation 44.2 (d) of the MYT Regulations that fixes SHR norms for the 1st Petitioners. Save as aforesaid, the Petitioners have not filed any other Petition in respect of the subject matter of the present Petition either before this Hon'ble Court or any other High Court or the Supreme Court of India." In response to the objection raised by MERC, the following assertion was contained in the rejoinder filed by the appellant before the High Court: "2.3. The Petitioners in the Petition have, inter alia, in paragraph 27 thereof disclosed to this Hon'ble Court that they have preferred Appeal No. 4 of 2013 before the Appellate Tribunal for Electricity challenging the order dated 25th October 2012 passed in Case No. 156 of 2011 which disallowed the Petitioners....
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....eal can lie before the Tribunal on the validity of a regulation. The summary of the findings in the judgment includes, inter alia, the following: "(iii) A regulation under Section 178 is made under the authority of delegated legislation and consequently its validity can be tested only in judicial review proceedings before the courts and not by way of appeal before the Appellate Tribunal for Electricity under Section 111 of the said Act. (iv) Section 121 of the 2003 Act does not confer the power of judicial review on the Appellate Tribunal. The words "orders", "instructions" or "directions" in Section 121 do not confer the power of judicial review in the Appellate Tribunal for Electricity. In this judgment, we do not wish to analyse the English authorities as we find from those authorities that in certain cases in England the power of judicial review is expressly conferred on the tribunals constituted under the Act. In the present 2003 Act, the power of judicial review of the validity of the regulations made under Section 178 is not conferred on the Appellate Tribunal for Electricity. (v) If a dispute arises in adjudication on interpretation of a regulatio....
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....urged the following submissions: (i) Regulation 44.2(d) is contrary to the national tariff policy. While framing regulations under Section 181, MERC is required by Section 61(i) to be guided by the "National Electricity Policy and tariff policy". Clause 5.3(f) of the national tariff policy notified on 6 January 2006 by the Union Ministry of Power requires that operating parameters and tariffs should be at "normative levels" only and not at "lower of normative and actuals". Regulation 44.2(d) lays down a more stringent SHR for the appellant, based on its energy efficient performance by disregarding the normative levels; ii) The CPRI report, which was commissioned by MERC contains the following conclusions on the comparability of RInfra's Dahanu TPS with Paras Unit 3 and Parli Unit 6 (of MSPGCL) and TPC-G Unit 8: "i. DTPS units are identical to units installed at Parli Unit 6, Paras Unit 3 & Tata Trombay Unit 8. They are of the general or standard design of 250 MW duplicated by BHEL in nearly 25 units in India. iii. Both DTPS units have operating margins of 8% steam flow in the boiler side (BMCR flow), 5% power output on the turbine side (VWO f....
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....the consumer; (ii) There is a fundamental error in the submission that the CPRI report found an equivalence between the appellant's Dahanu TPS with Parli Unit 3 and Paras Unit 6 (of MSPGCL) and Trombay Unit 8 (of Tata Power). CPRI found an equivalence of specifications and not of performance. The dates on which the above three units commenced operations were: ● Paras 3 31 March 2008; ● Parli 6 1 November 2007; ● TPC 8 31 March 2008. The appellant's unit at Dahanu commenced operations in 1995. CPRI has not, as a matter of fact, come to the conclusion that the performance of DTPS was equivalent to Parli Unit 6, Paras Unit 3 and Trombay Unit 8; (iii) The CPRI report has separately evaluated DTPS and the units of Tata Power and MSPGCL. It is factually incorrect to posit that the CPRI study was for Parli Unit 6, Paras Unit 3 and Trombay Unit 8; (iv) After the enactment of the Electricity Act 2003, the first MYT regulations were promulgated in 2005. All units were placed at par in the absence of a base line study at that stage; (v) Section 61(i) requires that the appropriate commission "shall be g....
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....tions for determination of tariff under the Electricity (Supply) Act, 1948, the Electricity Regulatory Commission Act, 1998 and the enactments specified in the Schedule as they stood immediately before the appointed date, shall continue to apply for a period of one year or until the terms and conditions for tariff are specified under this section, whichever is earlier." Section 61 provides that the appropriate commission shall, subject to the provisions of the Act, specify the terms and conditions for the determination of tariff. In doing so, it has to be guided by the considerations which are stipulated in clauses (a) to (i). Among them, in clause (i) is the national electricity policy and tariff policy. 23. Section 181 empowers the state commissions to make regulations consistent with the Act and the rules to carry out the provisions of the Act. Among the matters for which the regulations may provide are "the terms and conditions for the determination of tariff under Section 61" [Section 181 (2)(zd)]. In specifying the terms and conditions for the determination of tariff, the appropriate commission (as Section 61 provides) "shall be guided" by the factors which are set out ....
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....with those cases where operations have been much below the norm for several previous years. In those cases, the initial starting point in determining the revenue requirement and the trajectories are fixed at a relaxed level and not at desired levels. Under clause 5.3(f), the operating norms must fulfil several parameters. They must be (i) efficient; (ii) relatable to past performance; (iii) capable of achievement; and must progressively reflect increased efficiencies. They may also take into consideration latest technological advances, fuel, vintage of equipment, nature of operations, level of service to be provided to consumers, among other factors. Continuous and proven inefficiency has to be controlled and penalised. The operating norms must be designed to promote efficiency and to ensure that the gains which accrue on account of efficient operations are shared with the consumers of electricity. The operating norms will, therefore, have due regard to the performance in the past as well as capacities for future achievement. These must be dovetailed with all relevant considerations, bearing on the requirements of the policy. 26. The Tariff policy provides guidance to the app....
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....009-10 as follows: "Table No: 2 SHR achieved by DTPS from FY 2006-07 to FY 2009-10 Year Station Heat Rate (SHR) (kcal /kWh) RInfra's Submission in Petition MERC Approved DTPS Achieved FY 2006-07 2315 2500 2278 FY 2007-08 2500 2500 2279 FY 2008-09 2500 2500 2300 FY 2009-10 2500 2500 2293 " It has been explained that to anticipate the SHR for financial year 2011-12 till financial year 2015-16, the actual heat rate achieved during the previous years and predicted deviation due to factors such as reduction in boiler efficiency due to coal energy degradation and average annual aging loss were considered. The anticipated SHR for DTPS for financial years 2011-12 to 2015-16 was computed in the following manner: "SHR = 2292* + (Reduction in Boiler Efficiency + Coal Quality Degradation + Annual Ageing Loss) = 2350 kCal/kWh. (* Station Heat Rate of 2292 kCal/kWh was taken from CPRI Test Reports of March, 2010.)" On a similar basis, CPRI carried out technical studies for Units 5 and 6 of TPC-G. The SHR achieved by TPC-G Unit 5 (coal fired) from 2006-07 and 2008-09 was computed. On this basis, the SHR,....
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....as a rebate in Tariff over such period as may be stipulated in the Order of the Commission under Regulation 8.4; (b) The balance amount of such gain shall be retained by the Generating Company or Licensee or MSLDC." While in the Regulations of 2011, one-third of the aggregate gain was to be passed on in the form of a rebate in tariff and the balance two-thirds was to be utilised by the generating company at its discretion, in the 2015 regulations, the proportion has been reversed. In the 2015 regulations, two-thirds of the amount of the gain is required to be passed on as a rebate in tariff while the balance shall be retained by the generating company. The interests of the consumer are required to be borne in mind under the terms of the tariff policy consistent with Section 61. In its expert judgment, the Commission, while formulating the 2015 regulations mandated that an enhanced ratio of the aggregate gain would be passed on in the form of a rebate on the tariff. This could have legitimately been borne in mind as a relevant consideration in evaluating what should be appropriately fixed as the SHR for the period in question. 29. The substratum of the case of the app....
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....11) 11 SCC 34] a two judge Bench of this Court held thus: "17. Fixation of tariff is, primarily, a function to be performed by the statutory authority in furtherance to the provisions of the relevant laws. We have already noticed that fixation of tariff is a statutory function as specified under the provisions of the Reform Act, 1998, Electricity Regulatory Commissions Act, 1998 and the Electricity Act, 2003. These functions are required to be performed by the expert bodies to whom the job is assigned under the law ... The functions assigned to the Regulatory Commission are wide enough to specifically impose an obligation on the Regulatory Commission to determine the tariff. The specialized performance of functions that are assigned to Regulatory Commission can hardly be assumed by any other authority and particularly, the Courts in exercise of their judicial discretion. The Tribunal constituted under the provisions of the Electricity Act, 2003, again being a specialized body, is expected to examine such issues, but this Court in exercise of its powers under Article 136 of the Constitution would not sit as an appellate authority over the formation of opinion and determinat....