State Electricity Commission Has Complete Autonomy In Tariff Regulation; State & Center Only Have Advisory Role- SC | Rare Techy

A Supreme Court Bench of Chief Justice Dr Dhananjaya Y Chandrachud, US Justice Bopannaand Judge JB Pardiwala has argued that the Provincial Electricity Commission has complete autonomy in the determination and regulation of tariffs, while the Provincial and Central governments only play an advisory role. Later, the Court also confirmed that “The provisions of the Electricity Act 2003 do not prescribe one dominant method of determining tariffs. Section 63 operates after the bidding process has been carried out.”

Senior counsel Shyam Divan appeared on behalf of the Appellants, while Senior Advisor Vikas Singh and Advise Dr. Abhishek Manu Singhvi appears on behalf of Adani Listrik Sukabumi Infra Limited – Transmission (AEML-T) and Adani Listrik Sukabumi Limited (AEMIL).

In this regard, the Maharashtra Electricity Regulatory Commission (MERC) has granted a transmission license to AEMIL under Section 14 and Section 15 of the Electricity Act, 2003, for setting up a 1000 MW High Voltage Direct Current (HVDC) link. TATA Power Company Limited Transmission (TPC-T) approached the Appellate Tribunal for Electricity, challenging the MERC order on the ground that there was no Tariff Based Competitive Bidding (TBCB) process before awarding the license to AEMIL.

TPC-T argued that the absence of this process based on Section 63 of the Act is against the statutory mandate, as well as the public interest. However, the appeal was rejected by APTEL, and as a result, TPC-T appeared before the Supreme Court under Article 125 of the Act.

The court analyzed the applicable factual and statutory position and framed the following issues:

(i) Why the Electricity Act 2003 envisages the TBCB line in Article 63 as the dominant method to determine the tariff;

(ii) Whether the National Tariff Policy (NTP) framed under Section 3 of the Act is binding on the State Regulatory Commission, especially in view of the observations made by this Court in Energy Watchdog v Central Electricity Regulatory Commission

(iii) Does the Regulatory Commission have the power to prescribe the modalities for determining the tariff in the provisions of the Electricity Act 2003 (and the regulations framed therein);

(iv) Whether MERC should decide the tariff for HVDC Project through TBCB under Section 63 based on Maharashtra Government Resolution dated January 04, 2019 notifying decision to allocate new intra-state transmission project through TBCB route and set up. an Empowered Committee; and

(v) Whether the decision of the Maharashtra State Electricity Regulatory Commission (MSETCL) not to refer the HVDC Project to the Empowered Committee for bidding on the TBCB line is in violation of the Government Resolution.

The Supreme Court held that the decision of the Regulatory Commission to approve the HVDC project under Section 62 of the Act was a reasonable exercise of its powers. They also observed that “The Electricity Act 2003 or the policy framework, particularly the NTP 2016 read with the GoM GR dated January 4, 2019, does not bind MERC to provide HVDC projects only through the TBCB route.”

Next, the Court came to the following conclusions:

(i) The Electricity Act of 2003 provides sufficient flexibility for States to regulate intra-state transmission systems, where the Appropriate State Commission has the power to determine and regulate tariffs. The Electricity Act 2003 seeks to distance State Governments from the determination and regulation of tariffs, placing such powers entirely within the purview of the Appropriate Commission;

(ii) The provisions of the Electricity Act 2003 do not prescribe a dominant method for determining tariffs. Section 63 operates after the Bid process has been carried out. Where the tariff has been determined through bidding, the appropriate Commission must adopt the tariff as determined. The Appropriate Commission cannot negate such a tariff determined through the Bidding by using its power under Section 62. The tariff determined through the Bidding process may not be adopted by the appropriate Commission only if the Bidding process is not transparent (do a substantive review) or procedure. prescribed by the guidelines of the Central Government in Section 63 is not followed (do a procedural review);

(iii) Sections 62 and 63 set out the modalities of tariff determination. The non-obstante clause in Section 63 cannot be interpreted to mean that Section 63 will take precedence over Section 62 at the stage of choosing the modality for determining the tariff. Criteria or guidelines to determine the modality of tariff determination must be notified by the Provincial Commission in accordance either through regulations in Section 181 of the Act or guidelines in Section 61 of the Act;

(iv) MERC does not have framed regulations or notified guidelines prescribing criteria or guidelines for choosing modalities to determine tariffs. Therefore, MERC shall determine the tariff by exercising its general regulatory powers under Section 86(1)(a) of the Act;

(v) MERC while exercising its general regulatory powers under Section 86(1)(a) shall be guided by the NTP 2016, which shall be subject to consideration. Accordingly, while NTP 2016 requires intra-state transmission projects above the threshold limit to be allotted through the TBCB line, this constitutes a material consideration to be taken into account. The threshold value in case of Maharashtra has not been notified by MERC;

(vi) Threshold limit not notified by MERC, it is open for MERC to share HVDC projects either in RTM or TBCB line;

(vii) MERC and APTEL have reached a joint finding that the 1000MW HVDC Aarey-Kudus project is an ‘existing project’ for the purpose of applying GR 2019 GoM. interfere with joint findings on questions of fact. However, even in an independent assessment of the facts, the HVDC project is an existing project;

(viii) Even if the HVDC Project is considered a ‘new project’ in terms of GR GoM, the same is not issued in terms of Section 108 as a directive to the State Commission, the decision of MERC cannot be challenged on the ground of failure. to comply with the same as MERC is an independent body with statutory power to determine and regulate tariffs; and

(ix) MSETCL has implemented GR GoM as it has referred HVDC project to Empowered Committee and decision not to refer HVDC project on TBCB line as per direction of Empowered Committee. The Empowered Committee has the power to select the projects to be implemented on the TBCB line under GR GoM.

Consequently, the Supreme Court issued a directive. To that end, the Court said that “All State Regulatory Commissions to frame regulations in Section 181 of the Law on the terms and conditions for determining tariffs within three months from the date of this decision. The principles prescribed in Section 61, which also includes NEP and NTP. Where the Commission (s) has been framed regulations, they will be amended to include provisions on the criteria for choosing the modality to determine the tariff, in case they have not been. The Commission when guided by the principles contained in Section 61 must implement a balance that will create a model of sustainable electricity regulation in the United States. Furthermore, the regulation which is prepared must be in accordance with the purpose of the Electricity Law 2003, which To increase the investment of private stakeholders in the electricity regulation sector so as to create a sustainable and effective tariff determination system that is cost efficient so that such benefits reach the end consumer.

Therefore, this appeal is dismissed.

Cause: TATA Power Company Limited Transmission v. Maharashtra Electricity Regulatory Commission & Ors.

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