APTEL Stays The Order of Central Commission Allowing The Claim for Deemed Fixed Charges From Distribution Licensees Not Procuring Any Power As Claimed Under the Section 11 Directions Issued By The Ministry of Power

Implications of APTEL’s Decision to Stay the Central Commission Order

On 18.04.2023, the Hon’ble Appellate Tribunal for Electricity (‘APTEL’) passed an order in an Appeal filed by Haryana and Punjab Utilities, staying the Order dated 03.01.2023 passed by the Central Electricity Regulatory Commission (‘CERC’) in the Petition filed by Tata Power Company Limited (‘Tata Power’) seeking compensation on account of the ‘adverse financial impact’ in terms of Section 11(2) of the Electricity Act, 2003.  

BRIEF BACKGROUND:

Section 11 of the Electricity Act, 2003 deals with directions to generating companies. It provides that the Appropriate Government may specify that a generating company shall, in extraordinary circumstances operate and maintain any generating station in accordance with the directions of that Government. On 05.05.2022, the Ministry of Power, Government of India issued directions under Section 11 of the Electricity Act, 2003 making it mandatory for ‘All imported coal based power plants shall operate and generate power to their full capacity’.

In the petition filed by Tata Power, the Central Commission had held that the Haryana and Punjab Utilities are obligated to pay the deemed fixed charges to Tata Power for the contracted capacity of 380 MW and 475 MW under the Power Purchase Agreement (‘PPA’) even in the situation when the said Utilities have opted not to avail any power from Tata Power under Section 11 Directions issued by the MoP.

The interim order passed by the Central Commission in the present petition had already been stayed earlier, by the Hon’ble Supreme Court on 14.11.2022 against the interim order, subject to the deposit of 50% of the fixed charges claimed by Tata Power.

The question for deliberation before APTEL was whether the Central Commission can levy fixed charges payable under the Section 11 Directions dated 05.05.2022 issued by the Ministry of Power (‘MoP’).

SUBMISSIONS OF THE HARYANA AND PUNJAB UTILITIES:

1. The Directions issued by MoP under Section 11 (1) of the Act were for Tata Power (i.e., the generator) to generate and supply power from its power station under the extraordinary circumstances which occurred on account of an increase in demand for power and the coal deficit in the domestic market; 
2. The Section 11 Directions cannot in any manner modify the obligation of Tata Power to generate and supply the contracted capacity under the PPA at the tariff terms and conditions specified therein; 
3. The Haryana and Punjab Utilities have never consented to offtake the power made available by Tata Power under the Section 11 dispensation and there cannot be any claim for fixed/ capacity charges on deemed basis; 
4. The Utilities have been penalized twice over, namely to procure alternate power for the capacity not made available by Tata Power and pay deemed fixed charges to Tata power
5. While granting the relief under Section 11(2), the Central Commission has acted contrary to the intent and objective of Section 11, as contained in the Directions dated 05.05.2022 which inter-alia stated that the circumstances leading to the issuance of Section 11 Directions were the increase in demand for power and the coal deficit in the domestic market and not the financial viability of the individual Generating Stations; 

In a nutshell, the case of the Haryana and Punjab Utilities was that they were being compelled to compensate Tata Power for the quantum of power that Tata Power was offering at a much higher tariff than the tariff admissible under the PPA, despite the fact that the Utilities have represented to Tata Power that they are not willing to procure the power at the benchmark rates under the Section 11 directions, throughout the duration of such directions. 

SUBMISSIONS OF TATA POWER: 

1. The Central Commission has rightly allowed the claim for the fixed charges from the Utilities and has proceeded in accordance with the terms of the Directions of the MoP under Section 11 of the Electricity Act, 2003; 
2. There is an adverse financial implication on Tata Power on account of the non-payment of the fixed charges by the Utilities; and
3. Tata Power has been sharing 50% of the profits of the power being sold in the power exchanges during the Section 11 dispensation with the Utilities.

OBSERVATION AND FINDING

The APTEL, after having considered the submissions raised by the parties; the order dated 14.11.2022 passed by the Hon’ble Supreme Court, the Section 11 Directions dated 05.05.2022 along with the clarifications, held that prima facie, the Central Commission order ought to be stayed.

In view of the above, the APTEL stayed the operation of the order dated 03.01.2023 passed by the Central Commission, subject to the payment of 50% of the total claims raised to the Utilities. 

RAVI NAIR comments that “the decision of the APTEL to stay the Central Commission order has wide implications and has protected the Discoms from further financial distress. According to Niti Aayog’s report, most Discoms in the country incur heavy losses every year — the total loss was estimated to be Rs 90,000 crore in the Financial Year 2021.”