Supreme Court Rules State Electricity Regulatory Commission Has Powers To Question Market-Aligned Tariff

Supreme Court Rules State Electricity Regulatory Commission Has Powers To Question Market-Aligned Tariff

Directs the respondent to pay the costs to the appellants quantified at Rs.5 lakh in each case

The Supreme Court has allowed the appeals of Jaipur Vidyut Vitran Nigam involving the procurement of 1000 MW of power by a competitive bidding process.

The Division Bench comprising Justice B.R. Gavai and Justice Prashant Kumar Mishra ruled that the Appellate Tribunal for Electricity (APTEL) grossly erred in holding that the state electricity regulatory commission had no power to question whether the prices quoted were market-aligned.

The appeal was filed in the matter considering that the Government of India notified the Competitive Bidding Guidelines under Section 63 of the Electricity Act, 2003.

In 2012, Rajasthan Vidyut Prasaran Nigam (RVPN) issued an RFP, inviting sellers to participate in the competitive bidding for the procurement of 1000 MW under the Bidding Guidelines.

Thereafter, in consonance with the LoI, PPAs were signed with the L-1, L-2, and L-3 bidders (PTC India Ltd through developer Maruti Clean Coal and Power Limited; PTC India Ltd (through DB Power Limited), and Lanco Power Limited (generation source Lanco Babandh Power Limited).

Thereafter, RVPN filed a petition before the State Commission under Section 63 read with clause 5.16 of the Bidding Guidelines for the adoption of the tariff for the purchase of long-term base-load power of 1000 MW (±10%). It was quoted by the successful bidders (L-1, L-2, L-3) under the Case-I bidding process.

Later, L-4 and L-5 bidders filed writ petitions, seeking to strike down the negotiation process and the higher quantum awarded to L-1, L-2, and L-3 bidders.

The State Commission held that the quantum of only 500 MW power was liable to be approved considering the demand in the State as recommended by the Energy Attributes Certificates (EAC). The State Commission also approved the tariff quoted by the L-1 to L-3 bidders.

Aggrieved by the reduction of quantum by the State Commission, the L-2 and L-3 bidders appealed before the tribunal for APTEL.

On an interlocutory application being filed by the L-5 bidder, SKS Power, an interim order was passed holding that the L-5 bidder was entitled to supply power to the appellants at the tariff of Rs.2.88 per unit.

Subsequently, a writ petition was filed by respondent No.1-MB Power.

The appeals filed in the Apex Court challenged the judgment passed by the division bench of the Jaipur branch of the Rajasthan High Court. The writ petition was filed by MB Power-respondent No.1

The High Court held that respondents No.1 to 5 (appellants and the State of Rajasthan) were bound to purchase a total of 906 MW of electricity from the successful bidders.

Referring to Clause 5.15 of the Bidding Guidelines, the Apex Court observed that the State Commission was justified in considering clause 5.15 of the Bidding Guidelines, which specifically permitted to rejecting all price bids if the rates quoted did not align with the market prices prevailing.

The bench held that Section 86(1)(b) of the Electricity Act gave ample power to the State Commission to regulate the electricity purchase and procurement process of distribution licensees. It also empowered the Commission to regulate matters including the price at which electricity would be procured from the generating companies.

The Court rejected the contention that it had ordered that the bids quoted by the bidders were to be accepted without going into the question of it being market-aligned or not.

The Judges stated, “APTEL has grossly erred in holding that the State Commission has no power to go into the question, as to whether the prices quoted are market aligned or not and also not to take into consideration the aspect of consumers’ interest.”

The bench explained that when the Bidding Guidelines permitted the BEC to reject all price bids if the rates did not align with the prevailing market price, the State Commission had ample powers under Section 86(1)(b) of the Electricity Act. It included the power to regulate the prices. Thus, the finding of the APTEL was erroneous.

The Court also noted that from the Court orders, it could not be read that the Commission was bound to accept the bids as quoted by the bidders till the bucket was filled.

It stated, “No such direction can be issued by this Court de hors the provisions of Section 63 and 86(1)(b) of the Electricity Act and the Bidding Guidelines.”

It clarified that while applying the principle of literal interpretation, the evaluation committee/BEC would be entitled to reject the price bids if it found that the rates quoted by the bidders did not align with the prevailing market prices. It did not stipulate the rejection of all the bids in the bidding process.

Regarding the provision, the bench held that an interpretation, which advanced the purpose of the Act and ensured its smooth and harmonious working, must be chosen. If it led to absurdity, confusion, friction, contradiction, conflict, undermined, or tended to defeat, or destroy the basic scheme and purpose of the enactment, it must be eschewed.

The Top Court observed that the High Court erred in directly entertaining the writ petition when respondent No.1 - the writ petitioner before the High Court, had an adequate alternate remedy of approaching the State Electricity Commission.

The bench observed that the decision-making process, as adopted by the BEC, was totally in conformity with the principles laid down by the Supreme Court time to time.

Thereafter, considering the competitive rates offered in the bidding process in various States, the BEC concluded that the rates quoted by SKS Power (L-5 bidder) were not market-aligned. The decision had been approved by the State Commission. Since the decision-making process adopted was in accordance with the law laid down by the Apex Court, it should not have been interfered with by the APTEL.

The bench held, “The High Court, by the impugned judgment and the order, could not have issued a mandamus to the instrumentalities of the State to enter a contract, which was totally harmful to the public interest. If electricity is to be procured by the procurers at the rates quoted by respondent No.1-MB Power, which is even higher than the rates quoted by SKS Power (L-5 bidder), the State would have been required to bear the financial burden in thousands of crores of rupees, which would have, in turn, been passed on to the consumers.”

Thus, the Top Court quashed the impugned judgment of the High Court. While allowing the appeals, the bench directed respondent No.1-MB Power to pay the costs to the appellants quantified at Rs.5 lakh in each case.