The dispute centred around a Power Purchase Agreement(‘PPA’) signed between Punjab State Power Corporation Limited (‘PSPCL’) and Chadha Sugars and Industries Pvt. Ltd (‘Chadha Sugar’) for the supply of surplus power from Chadha Sugar’s 23 MW non-fossil fuel-based co-generation power project.

PSPCL issued a Demand Notice to Chadha Sugar stating that Chadha Sugar had availed Accelerated Depreciation under the Income Tax Act, 1961. According to the PPA and the applicable tariff order, availing Accelerated Depreciation necessitated a reduction in the tariff payable to Chadha Sugar by Rs. 0.18 per unit.

Chadha Sugar contested the demand notice, arguing that they had not benefited from the accelerated depreciation due to sustained losses. They also contended that PSPCL required confirmation from the Punjab Energy Development Agency (‘PEDA’) before revising the tariff, as stipulated in the PPA.

The State Commission on the issue of reduction of tariff on account of availing Accelerated Depreciation held that the demand notice is not in accordance with the PPA as Article 2.1 specifies ‘Section 80(1)(A) of the Income Tax Act’, whereas, Chadha Sugar had availed Accelerated Depreciation under Section 32 of the Income Tax Act and directed PSPCL to refund the amount along with the applicable late payment surcharge. 

1. Whether a lower tariff was payable by PSPCL considering Chadha Sugar had availed Accelerated Depreciation.
2. Whether confirmation from PEDA was required for the application of a reduced tariff upon Chadha Sugar exercising the option of availing Accelerated Depreciation.

Issue 1: Benefit of Accelerated Depreciation

The Appellate Tribunal noted that Section 32 of the Income Tax Act, 1961, governs depreciation, with companies having the option to choose between normal depreciation (straight-line method) and accelerated depreciation (written-down value method). This choice, once exercised, is irreversible and applies to all subsequent years.

The generic tariff order issued by the State Commission in 2010 had established a specific reduction in tariff (Rs. 0.18/kWh) for generating companies opting for accelerated depreciation. This reduction applied irrespective of the actual profit or loss incurred by the company.

The Appellate Tribunal emphasised that Chadha Sugar was aware of this provision, as evidenced by their undertaking, where they agreed to inform PSPCL and comply with the reduced tariff if they chose to avail accelerated depreciation in the future. Furthermore, the PPA itself stipulated a reduced tariff of Rs. 4.39/kWh in case Chadha Sugar availed Accelerated Depreciation.

The Appellate Tribunal rejected Chadha Sugar’s argument that the tariff reduction was inapplicable because they had not realised any actual benefits from the accelerated depreciation. The Tribunal clarified that the “benefit” in this context referred to the pre-defined, quantifiable reduction in tariff (Rs. 0.18/kWh), not the company’s overall financial performance.

The Appellate Tribunal concluded that allowing a generating company to switch between normal and reduced tariffs based on their profit or loss would create an absurd situation.

Issue 2: PEDA Confirmation

Chadha Sugar had argued that PSPCL required confirmation from PEDA before revising the tariff. The PPA stated that if a company was found to have availed benefits like Accelerated Depreciation or subsidies despite providing an undertaking to the contrary, PSPCL, after confirmation from PEDA, would revise the tariff.

The Appellate Tribunal concluded that the above-mentioned clause has to be read in conjunction with other relevant clauses in the PPA. Article 2.1.1(i) and (ii) of the PPA defined the applicable tariffs payable by PSPCL to Chadha Sugar, with no mention of any prerequisite PEDA certification. The financial impact of opting for accelerated depreciation was pre-determined and agreed upon by both parties, negating the need for further financial impact assessment.

Article 2.1.1(iii) of the PPA specifically addressed grants and subsidies, mandating PEDA confirmation regarding the amount claimed by the company and the financial impact to be incorporated into the tariff. The Appellate Tribunal noted that this distinction stemmed from PEDA’s role as the nodal agency for renewable energy, making them privy to information about subsidies and grants.

The Appellate Tribunal judgment emphasised that the quantifiable benefits associated with specific provisions, such as Accelerated Depreciation, are pre-defined and not contingent on the company’s overall financial performance.

The judgment also underscored the importance of reading contractual clauses in harmony with each other to arrive at a coherent and consistent interpretation.

In a significant ruling on 18.11.2024 in Review Petition No. 3 of 2024, the Appellate Tribunal for Electricity has upheld the rights of Haryana Discoms in their prolonged legal battle over unjustly levied Point of Connection (‘POC’) charges. The Tribunal directed a refund of these charges, along with applicable interest, to be passed on to consumers through tariff adjustments. This judgment not only rectifies the financial burden on Haryana Discoms but also sets a precedent for equitable resolution in disputes involving transmission charges. By emphasizing practical and consumer-centric methodologies, the Tribunal’s decision ensures fairness while addressing logistical challenges in refund disbursements.

Haryana Discoms has been paying the Transmission Charges for the 400 kV Transmission Line from Aravali Power Station to Daulatabad (‘Transmission Line’) as decided by the Haryana Electricity Regulatory Commission since the commissioning of the transmission line in March 2011. Thereafter, the Central Electricity Regulatory Commission (‘Central Commission’) notified the Central Electricity Regulatory Commission (Sharing of Inter State Transmission Charges and Losses) Regulations, 2010 (‘Sharing Regulations’), which came into effect from 01.07.2011. 

The aforementioned Regulations are applicable to Inter-State Transmission system (‘ISTS’) customers who use the ISTS or are connected to the ISTS only. Power System Operation Corporation Limited (‘POSOCO’) and Central Transmission Utility (‘CTU’) (then forming part of POWERGRID) started including the above Transmission Line in the bills raised on Haryana Discoms for payment of transmission charges, under the Sharing Regulations notified by the Central Commission.

Haryana Discoms after being made aware that the Transmission Line was being treated as an ISTS Line, approached the Central Commission by way of Petition No. 126/MP/2017. The Central Commission, after examining the provisions of Section 2(36) of the Electricity Act, 2003; Connectivity Regulations; Sharing Regulations as well as the Grid Code unequivocally vide its Order dated 04.05.2008 held that no inter-state transmission charges are payable by Haryana Discoms for the use of the Transmission Line as the same is an Intra State Line and not an ISTS, as claimed by POSOCO/CTU. However, the Central Commission only granted prospective relief with effect from the date of passing of the Order 04.05.2018.

Aggrieved by the restrictive prospective application of the Order dated 04.05.2018, Haryana Discoms filed an Appeal being No. 240 of 2018 before this Hon’ble Appellate Tribunal claiming a refund from July 2011 onwards along with carrying cost. The Hon’ble Appellate Tribunal passed an Order dated 04.02.2020 remanding the matter to the Central Commission for re-consideration. Thereafter the Central Commission passed the Order dated 30.07.2022 in Petition 126/MP/2017 upholding the stand taken in its earlier Order dated 04.05.2018. 

Aggrieved by the decision of the Central Commission, Haryana Discoms filed Appeal 383 of 2023 before the Hon’ble Appellate Tribunal seeking the setting aside of the Order dated 30.07.2022 and the refund of POC charges along with carrying cost.

The Hon’ble Appellate Tribunal vide Order dated 02.02.204, set aside the Order of the Central Commission dated 30.07.2022 and remanded the matter to the Central Commission for the refund to be initiated after quantification while granting the relief to Haryana Discoms until 3 years prior to the filing of the Petition. While passing the aforesaid Order, the Appellate Tribunal had further directed the Central Commission to refund the POC charges to the identified individual consumers in the State of Haryana and no finding on the claim for interest/carrying cost as prayed for by the Appellants was rendered.

Aggrieved of the aforesaid, the Haryana Discomsfiled a Review Petition before the Hon’ble Appellate Tribunal on the  following two aspects:

Haryana Discoms highlighted the difficulty in identifying and refunding individual consumers from past years due to the large and dynamic consumer base, which has grown from approximately 53.81 lakh in 2014 to 78.57 lakh in 2024. Many past consumers may no longer be part of the current consumer body, making direct refunds impractical. Reference was made to Regulation 67 of the HERC Tariff Regulations, which provides a methodology for adjusting prior period income. Given this, they proposed that the quantified refund amount be incorporated into the revenue requirements of the current year. Haryana Discoms emphasized that this approach ensures that the refund benefits are automatically passed on to the existing consumer base through a reduction in retail tariffs. Haryana Discoms argued that this established methodology is consistent with regulatory practices and addresses the logistical challenges of tracing individual past consumers while ensuring fairness to all current consumers in the State of Haryana.

Haryana Discoms contended that they should be restored to their original economic position and emphasized that any amount realized, including interest, would not be retained but adjusted in favour of Haryana’s consumers. Haryana Discoms argued that several judgments have established that interest is a natural consequence of granting relief.

In light of the above-challenged aspects, the Hon’ble Appellate Tribunal has been pleased to allow the Review Petition filed by Haryana Discoms to make the following determinations regarding the refund of POC charges to Haryana Discoms:

1. Refund to Consumers via Tariff Adjustment: The Hon’ble Appellate Tribunal has held that, since Haryana Discoms were required to pass on both the costs and benefits of the POC charges to their consumers, the Central Commission should not attempt to refund individual customers. Instead, the benefits of the refund should be passed on to consumers via a lower tariff through the ARR to be determined by the HERC, post receipt of the monies from POSOCO. 
2. Admissibility of Interest/Carrying Costs: The Hon’ble Appellate Tribunal was pleased to hold that since there was both a plea and a prayer for interest/carrying costs in all of the proceedings after the initial Petition and the same was nowhere disputed by CTU/POSCO, the relief towards the same was admissible to Haryana Discoms. The Hon’ble Tribunal also concluded that having illegally levied charges, POSOCO/CTU have to refund the amount with applicable interest
3. Entitlement to Interest: The Hon’ble Appellate Tribunal then discussed whether the Haryana Discoms were entitled to interest/carrying costs. It further held that Haryana Discoms were indeed entitled to interest on the amount to be refunded because they had been deprived of the use of that money while the case proceeded.
4. Determination of Principal and Interest: The Hon’ble Appellate Tribunal has now remanded the case to the Central Commission to determine the principal amount to be refunded along with the appropriate rate of interest on a simple or compound basis within a stipulated time period of four months.
5. Directives to CTU and POSOCO: In addition to determining the interest rate, the Hon’ble Appellate Tribunal directed the Central Commission to issue appropriate directions to CTU and POSOCO to pay the refund along with interest to Haryana Discoms.
6. Tariff Adjustment: Finally, the Hon’ble Appellate Tribunal ordered Haryana Discoms to adjust their tariff in the next tariff determination to pass on the benefits of the refund and interest to consumers.

The Hon’ble Appellate Tribunal for Electricity has held that POSOCO/CTU acted unlawfully in raising and collecting Inter-State Transmission Charges from Haryana Discoms in relation to an Intra-State Transmission Line. Furthermore, the Tribunal prescribed a methodology for adjusting past refunds in the forthcoming ARR, noting that it is impractical to allocate the costs and benefits of POC charges to individual consumers. This approach is not only time- and cost-efficient but also more pragmatic and conclusive.

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On 17.10.2024, the  Central Electricity Regulatory Commission (‘Central Commission’)directed Tamil Nadu Transmission Corporation Limited (‘TANTRANSCO’) to pay its outstanding transmission charges along with applicable Late Payment Surcharge to Power Grid Corporation of India Limited (‘POWERGRID’).

POWERGRID had been entrusted with the responsibility of setting up certain elements that are part of the transmission system associated with the Kalpakkam PFBR 500 MW project. Consequently, POWERGRID approached the Central Commission seeking approval of the transmission tariff for three assets associated with the said system that was being set up by it.

The Central Commission vide its Tariff Order dated 04.03.2021, approved the date of commercial operation of the said asset as 01.04.2014. It was further directed that the Transmission Charges from the said date would be borne by the generating company – BHAVINI and the transmission licensee – TANTRANSCO in equal proportion until either the generation by BHAVINI or the transmission system set up by TANTRANSCO is commissioned.

Pursuant to the above-mentioned Order dated 04.03.2021, bilateral invoices were raised on TANTRANSCO.

Thereafter, POWERGRID approached the Central Commission for truing up of the transmission tariff for the 2014-19 period and determination of the transmission tariff for the 2019-24 period. The Central Commission vide its order dated 05.12.2021 trued up the transmission tariff for the 2014-19 period. Subsequent to the passing of the aforementioned True-UpOrder, the final invoice was raised on TANTRANSCO.

As TANTRANSCO failed to make the payment within the stipulated time in terms of the final invoice raised, POWERGRID filed a Petition before the Central Commission under Section 79 of the Electricity Act, 2003 for the execution of the Tariff Order dated 04.03.2021.

1. TANTRANSCO has continuously defaulted in complying with the Tariff Order. Subsequent to the Tariff Order, bilateral invoices were raised on TANTRANSCO. However, even after several notices, TANTRANSCO has not paid the outstanding dues.
2. No Appeal or Review has been preferred against the Tariff Order by TANTRANSCO.
3. POWERGRID has no contractual mechanism to enforce the recoveries against TANTRANSCO. There is no bank guarantee or Letter of Credit available with PGCIL for encashment to recover the outstanding dues.
4. The Central Commission is vested with the powers of civil courts and therefore, it can execute its own orders under Regulation 119 of the Conduct of Business Regulations, 1999.
5. The Central Commission exercises regulatory powers under Section 79 of the Act which includes within its scope the power to enforce and implement its orders and can initiate suo-moto action under Section 142 of the Electricity Act, 2003 in the event of any non-compliance of regulation or the orders of  Commission.

The Central Commission observed in its Order that although Section 79 of the Electricity Act, 2003 does not specifically elaborate on the execution of orders passed by the Commission, it nevertheless enables the Commission to regulate the Inter-State Transmission of Electricity, to determine its tariff and also to adjudicate upon the disputes in connection therewith. 

Relying upon the judgement of the Hon’ble Supreme Court in Central Power Distribution Co. & Ors. v. Central Electricity Regulatory Commission &Ors., (2007) 8 SCC 197the Central Commission observed that the power to regulate also includes within it the power to enforce. 

Reliance was also placed upon the decision of the Hon’ble Supreme Court in Maharashtra State Electricity Distribution Company Ltd. v. Maharashtra State Electricity Regulation Commission & Ors. (2022) 4 SCC 657wherein it was observed that the Electricity Regulatory Commissions constituted under the Electricity Act, 2003 are to be seen as substitutes for civil courts in relation to disputes between the licensees and the generating companies. Therefore, the Commissions would have the power to execute their own orders.

The Central Commission rejected the contention of TANTRANSCO that POWERGRID failed to avail appropriate remedies under Section 142 of the Electricity Act, 2003. The Central Commission observed that invoking the provisions of Section 142 for non-compliance of an order is not the sine qua non in enforcement proceedings and is simply one of the means of ensuring compliance.

Further, the Central Commission has also observed that the truing-up exercise is not an independent exercise but is in furtherance to the determination of tariff under the tariff order. Merely because the applicable transmission charges for the said asset have undergone revision due to the truing-up exercise, it does not render the tariff order, especially the directions issued thereunder, non-executable or unenforceable.

The National Company Law Appellate Tribunal (NCLAT) continues to play a critical role in shaping the implementation of the Insolvency and Bankruptcy Code (IBC). In a recent NCLAT ruling, the Delhi Bench of NCLAT, led by Justice Ashok Bhushan, addressed a significant issue regarding the payment of electricity dues incurred by the Corporate Debtor during the moratorium period of the Corporate Insolvency Resolution Process (CIRP). This case involved Earthcon Infracon Pvt. Ltd., which was under CIRP, and Noida Power Company Ltd. (NPCL), raising concerns about whether current dues must be settled even during the protective moratorium phase provided by Section 14(1) of the IBC.

The NCLAT ruling sheds light on the responsibilities of the Resolution Professional (RP) in managing ongoing dues during insolvency proceedings, ensuring that essential utilities like electricity are not disrupted, provided there is no default in the payment of current dues.

The case arose when Earthcon Infracon Pvt. Ltd. (Corporate Debtor) entered into the Corporate Insolvency Resolution Process (CIRP), and a Resolution Professional (RP) was appointed to manage its affairs during the moratorium period. During this time, Noida Power Company Ltd. (NPCL) issued multiple notices regarding the non-payment of post-CIRP electricity dues. The RP initially sought relief from the Adjudicating Authority, requesting that the electricity not be disconnected and proposing an instalment plan for the dues.

Despite the interim orders passed by the Adjudicating Authority, preventing NPCL from disconnecting the electricity, the issue escalated as no resolution for the payment schedule was reached. NPCL filed further applications to vacate the interim orders, and the RP filed applications to permanently stay NPCL’s disconnection notices.

Eventually, the NCLAT ruling ordered that the RP should collect electricity dues from the homebuyers and remit them to NPCL. It was also directed that the RP could take necessary steps in case of non-payment. However, the issue of electricity disconnection for common areas such as lifts and corridors remained under dispute, leading to additional hearings and orders from the Adjudicating Authority.

The core issue before the Tribunal was whether the Appellant, Noida Power Company Ltd. (NPCL), was lawfully entitled to demand payment of current electricity dues incurred by the Corporate Debtor during the moratorium period. Additionally, NPCL sought to determine whether it had the right to disconnect the electricity connection if the dues remained unpaid.

The NCLAT ruling clarified that while the Corporate Debtor is under the protective shield of the moratorium as outlined in Section 14(1) of the Insolvency and Bankruptcy Code (IBC), this protection does not absolve the debtor from paying current dues. The Tribunal highlighted that the benefit of continued electricity supply, or any essential utility, is contingent upon there being no default in the payment of current dues. Therefore, the Resolution Professional (RP) has an obligation to ensure these payments are made to avoid disruptions.

In this specific NCLAT ruling, the Tribunal referred to previous judgements, including Shailesh Verma vs Maharashtra State Electricity Distribution Company and Sanskriti Allottee Welfare Association & Ors vs Gaurav Katiyar, both of which established that the RP is responsible for the settlement of such dues. These cases underscored the importance of ensuring that utilities remain functional while the Corporate Debtor undergoes insolvency resolution, but only when current dues are settled.

This NCLAT ruling has significant implications for both Resolution Professionals (RP) and creditors, particularly utility providers like electricity companies. It reinforces the principle that while the moratorium under Section 14(1) of the IBC protects the Corporate Debtor from legal actions during the insolvency process, this protection is conditional upon the payment of ongoing dues.

For Resolution Professionals, the NCLAT ruling serves as a reminder of their duty to manage not only the debtor’s assets but also to ensure that essential services like electricity, which are critical to the operation of the Corporate Debtor, are maintained. Failing to pay such dues can lead to the discontinuation of services, which could further complicate the Corporate Insolvency Resolution Process (CIRP). Moreover, the Tribunal’s reliance on past rulings reaffirms the obligation of the RP to collect dues from residents or other stakeholders when needed, as seen in this case with the homebuyers.

On the other hand, utility companies are assured that they are entitled to receive payments for services rendered during the CIRP. The NCLAT ruling makes it clear that utility providers are not obligated to continue offering their services free of charge, even when the Corporate Debtor is under moratorium protection, provided there are unpaid current dues.

The recent NCLAT ruling involving Noida Power Company Ltd. and Earthcon Infracon Pvt. Ltd. highlights the delicate balance between protecting the interests of the Corporate Debtor during insolvency and ensuring that current dues, such as electricity payments, are not neglected. By directing the Resolution Professional to pay the outstanding electricity dues or arrange a phased payment plan, the Tribunal has emphasized the importance of maintaining essential services while ensuring that obligations are met.

This NCLAT ruling serves as a precedent for future cases involving utility dues during the Corporate Insolvency Resolution Process (CIRP). It underscores the role of the Resolution Professional in safeguarding the debtor’s operations while simultaneously addressing the rights of creditors, including utility providers. Ultimately, the decision provides clarity on how Section 14(1) of the Insolvency and Bankruptcy Code (IBC) should be interpreted in relation to ongoing financial obligations during the moratorium period.

In a recent case, the Appellate Tribunal for Electricity vide its Judgement dated 24.09.2024 has upheld the decision passed by the Rajasthan Electricity Regulatory Commission (‘State Commission’) holding that in the absence of requisite mandatory Notices under the Power Purchase Agreement (‘PPA’), the Generator was responsible for the delay in commissioning the Project.

Arjun Green Power Private Limited (‘Arjun Green’), a Solar developer in the State of Rajasthan, challenged the Order passed by the State Commission, wherein, the State Commission rejected the prayer made by Arjun Green to extend the SCOD and increase in Tariff.

Arjun Green and Rajasthan Renewable Energy Corporation Limited (‘RREC’) entered into a PPA on the term that the SCOD was to be achieved within 12 months of the signing of the PPA.

The SCOD was extended from time to time till 21.02.2018. After the expiry of final extension, Arjun Green requested the Rajasthan Utilities to commission the Project. Rajasthan Utilities rejected the request on the ground that the extension period has expired and advised Arjun Green to approach the State Commission for the same.

Accordingly, Arjun Green approached the State Commission pursuant to which directions were given to the Rajasthan Utilities to form a committee for commissioning of the Project, and thereafter, the Project was commissioned after a delay of 3 months from the SCOD.

Since, there was a delay in commissioning of the Project, the Rajasthan Utilities imposed Liquidated Damages on Arjun Green on account of delay in commissioning of the Project. The said project got commissioned in the next financial year and Article 9 of the PPA stipulated that consequence of delay in commissioning of the project shall change the tariff and the tariff applicable at the time of commissioning of the project shall apply. In accordance with Article 9 of the PPA and the Tariff Order passed by the State Commission, the tariff for power generated and supplied by Arjun Green to Rajasthan Utilities was also reduced.

Consequently, Arjun Green approached the State Commission seeking extension of SCOD and claiming increase in the Tariff.

The State Commission dismissed the Petition filed by Arjun Green on the grounds that delay was attributable to Arjun Green and the reduction in Tariff is in accordance with the provisions of the PPA.

Arjun Green challenged the Order passed by the State Commission before the Appellate Tribunal for Electricity on the ground that Arjun Green had intimated the Rajasthan Utilities before the SCOD and the delay caused thereafter is not attributable to Arjun Green.

Rajasthan Utilities contended that issuance of Notice in the present case to the concerned authority is a mandatory requisite. In terms of the PPA, Arjun Green had to give a preliminary written notice at least 60 days in advance and final written notice of at least 30 days in advance of the date on which it intends to synchronize the Plant to the Grid, whereas, in the present case, Arjun Green has failed to issue any such notices.

Further, Article 9 of the PPA clearly stipulates that in case of delay in commissioning of the Project, agreed tariff or the applicable tariff in terms of the State Commission’s regulation for that year, whichever is lower will be paid to the power producer. The above Article does not make any distinction for the reasons for which the Project is delayed, namely, whether the same is on account of reasons attributable to Arjun Green or otherwise. Therefore, irrespective of the reasons for delay, Arjun Green would only be entitled to the tariff for the year in which the Project is actually commissioned.

The Appellate Tribunal observed that the present issue is no longer res-integra and has been held by the Hon’ble Supreme Court in its various judgements wherein it was held that PPA is a sacrosanct document and binding upon the parties. All the rights and obligations of the parties flow from the provisions of the PPA and the timelines given therein are to be adhered to. The Appellate Tribunal has made it absolute that the timelines given in a PPA have a purpose and are not a mere empty formality. Therefore, the parties cannot be given any liberty to bypass such mandatory provisions. In view of the delay, the Appellate Tribunal has also upheld the imposition of liquidated damages on the Developer. 

R Associates represented Rajasthan Urja Vikas Nigam Limited through Adv. Poorva Saigal and Adv. Shubha Arya.

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On 25.09.2024, the Hon’ble Appellate Tribunal of Electricity (‘Hon’ble Tribunal’) pronounced the judgment in the matter between Adani Power Limited (formerly Udupi Power) (‘Adani Power’) and Punjab State Electricity Regulatory Commission (‘Punjab Commission’) wherein it was held that the approval of a Power Purchase Agreements (‘PPA’) by the Punjab Commission is not only a statutory requirement but also a condition precedent to the enforceability of the contract, irrespective of whether the same is not mentioned specifically in the PPA. While doing so, the Hon’ble Tribunal ruled in the favour of Punjab State Power Corporation Limited (‘PSPCL’) and observed that while the PPA continues to exist since it has not been terminated, however it cannot be acted upon/be enforceable until the same is approved by the State commission. The cases analyses the regulatory framework governing PPA in India, particularly under Section 86(1)(b) of the Electricity Act, 2003.

Adani Power entered into PPA dated 26.12.2005 with Karnataka Distribution Licensees for sale of 90% of the power generated from its 2 X 600 MW imported coal based power project in Udupi District, Karnataka and with PSPCL on 29.06.2006 for the remaining 10%. The two units of the Project were commissioned on 11.10.2010 and 19.08.2012. PSPCL had not entered into any Transmission Service Agreement for evacuation of power and the entire 1200 MW was being sold to the Karnataka Discoms. 

In 2015, PSPCL sought to opt out of the PPA. In response, Adani agreed to sell power to third parties for a period of three years without any financial implications to PSPCL. In 2018, PSPCL requested that Adani continue to sell power to third parties, but Adani refused.

Thereafter, PSPCL filed Petition No. 41 of 2018 before the Punjab Commission seeking approval of the PPA dated 29.09.2006. The contention of Adani was that the parties are bound to discharge their respective obligation under the PPA irrespective of the date of approval of the PPA and the lack of approval of the PPA by the Punjab Commission does not affect the validity of the PPA. On the other hand, PSPCL’s main contention was that PPA is a contingent contract and it cannot be enforced until approved by the Punjab Commission in terms of the Electricity Act, 2003 and the applicable Rules/Regulations and the settled law.

 The Punjab Commission vide its Order dated 07.08.2020, rejected Adani Power’s arguments in Petition No. 41 of 2018. It concluded that there was no necessity for PSPCL to procure power from Adani on a long-term basis, as doing so would not be economically viable. The Punjab Commission highlighted that cheaper power was available in the market, and approving the PPA would not be in the best interest of consumers in Punjab.

Adani Power asserted that the Punjab Commission’s decision that the PPA becomes effective only upon its approval is contrary to the settled position of law that parties are bound to discharge their respective obligations under the PPA, irrespective of approval of the same. That as per the settled position of law whenever a contracting party is obligated to obtain approval/permission to give effect to the agreement, the contract cannot be construed as being contingent upon such obligation being complied with. It was argued that Section 32 of Contract Act, 1872 applies only where the contract itself provides for the contingencies upon happening of which contract cannot be carried out and provides the consequences. 

PSPCL’s main contention revolved around the fact that PPA becomes enforceable only upon the approval of the Punjab Commission which cannot be waived by the parties to the PPA either expressly or by conduct.  PSPCL, also contended that the tariff order passed for Average Revenue Requirement (‘ARR’) and determination of tariff under the relevant Tariff Regulations, are distinct from the ‘Conduct of Business Regulations 2005’. Further, the information in respect of power procurement submitted by PSPCL in the ARR petition is considered only for the purpose of Energy balance and determination of cost of power for the relevant year, and therefore, it cannot be considered as approval of the power procurement on long term basis as intended in Section 86(1)(b) of the Electricity Act.

The Hon’ble Tribunal while appreciating the submissions of PSPCL held that the “We, therefore, reiterate the basic legal proposition that the approval of Power Purchase agreement by the State Commission is mandatory, condition precedent without which the PPA executed between a generating company and Distribution Licensee cannot become enforceable or effective. The rights and obligations under the PPA would flow only after it is approved or consented to by the State Commission.”

In addition to the above, the Hon’ble Tribunal, after examining the scope of Section 86(1)(b) of the Act, Rule 8 of the Electricity Rules, 2005, Power procurement Regulations notified by the State Commission and the decisions of the Hon’ble Supreme Court/Hon’ble Tribunal held that “Since the approval of the PPA by the State Commission is a mandatory statutory requirement under Section 86(1)(b) of the Electricity Act, 2003 before it would be enforceable, it logically follows that such a requirement cannot be waived off by any of the parties to the PPA. It is for the reason that there can be no waiver, either by conduct or expressly, on the part of any of the parties to the PPA to such statutory requirement. We may note that the basic object of the requirement of approval of PPA by the State Commission under Section 86(1)(b) of the Electricity Act, 2003 is to safeguard the public interest by ascertaining whether the projected need for power by the Distribution Licensee is genuine and the rate quoted in the PPA is reasonable as well as economical. Therefore, waiver of the requirement of approval of PPA by the State Commission would certainly go against the public interest and for that reason also, waiver is not permissible.”

The Hon’ble Tribunal delineated the role of the State Commission, namely that it for the Commission to determine whether the Distribution Licensee actually requires the power for supply to its consumers and whether the rate quoted in. the PPA is reasonable or in consonance with the market conditions. The Hon’ble Tribunal further concluded that the basic object of the PPA approval is to safeguard public interest.

The Hon’ble Tribunal further held that the provisional approval of projections in the Annual tariff Orders cannot be construed as approval of PPA which has to be done in accordance with the provisions of Section 86(1)(b) of the Electricity Act, 2003.

Thereafter, Hon’ble Tribunal rejected Adani Power’s argument regarding the delay by PSPCL in seeking approval of the PPA and held that although the PPA was signed in 2006, Adani Power did not sell any power to PSPCL until 2018. Instead, they sold all its power to Karnataka Discoms until 2015 and they continued to sell the power to third parties. This conduct indicates that the Adani Power was satisfied with this arrangement, possibly finding it commercially advantageous.

 The Hon’ble Tribunal noted that the PPA dated 29.09.2006 still exists as none of the parties terminated or proceeded to terminate the same and that ‘it cannot be acted upon till it is approved by the State Commission.’ 

Thus, the Hon’ble Tribunal upheld the Impugned Order and dismissed the Appeal holding that the same is devoid of any merits.

Therefore, the case of Adani Power Limited v. Punjab State Electricity Regulatory Commission and Ors. emphasizes the fundamental principle that the approval of a PPA by the State Commission is not only a statutory requirement but also a condition precedent to the enforceability of the contract. Both the Punjab Commission and the Hon’ble Tribunal have unequivocally held the view that, without this approval, the rights and obligations under the PPA cannot take effect. This case reinforces the need for strict compliance with regulatory approvals to uphold the integrity and fairness of power purchase agreements.

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The dispute between Powergrid Southern Interconnector Transmission System Limited (PSITSL) and the Central Electricity Regulatory Commission (CERC) is a significant case in the domain of energy infrastructure and regulatory oversight in India. The appeal, numbered 194 of 2022, was adjudicated by the Appellate Tribunal for Electricity with a judgment delivered on 12th August 2024. This case primarily revolved around the interpretation of Force Majeure and Change in Law clauses in the context of delays and additional costs in large-scale transmission projects.

Background of the Case

PSITSL, a fully owned subsidiary of Power Grid Corporation of India Limited (PGCIL), was incorporated as a Special Purpose Vehicle (SPV) to develop the “Strengthening of Transmission System beyond Vemagiri” project. This project, critical for ensuring reliable power supply across southern India, was awarded to PGCIL under the Tariff Based Competitive Bidding route. Following the award, PGCIL acquired 100% shareholding in PSITSL and assumed responsibility for the project’s completion.

The dispute arose when PSITSL filed a petition with CERC under Section 63 read with Section 79 of the Electricity Act, 2003, seeking relief for delays in project execution caused by what they claimed were Force Majeure events and Change in Law circumstances. PSITSL argued that these unforeseen events significantly impacted their ability to meet the Scheduled Commercial Operation Date (SCOD), resulting in financial losses that they sought to recover.

Key Facts and Figures

• Petitioner: Powergrid Southern Interconnector Transmission System Limited (PSITSL)
• Respondent: Central Electricity Regulatory Commission (CERC)
• Date of Judgment: 12th August 2024
• Judges: Hon’ble Mr. Sandesh Kumar Sharma (Technical Member) and Hon’ble Mr. Virender Bhat (Judicial Member)
• Project Value Involved: Rs. 488.40 crore (as claimed by the petitioner for cost overruns)
• Relief Sought: Time extension of 289 days and an increase in the adopted annual non-escalable charges by 7.75%

Legal Arguments

Force Majeure Claims

PSITSL cited multiple events as Force Majeure, including severe right-of-way (ROW) issues, general elections, heavy rainfall, demonetization, and wildlife clearances. These, they argued, were beyond their control and had directly contributed to delays in project execution. A detailed breakdown of the delays and the reasons cited were provided to the tribunal, highlighting the challenges faced, particularly in the Krishna District of Andhra Pradesh, where local unrest and law and order issues severely impacted construction activities.

Change in Law Arguments

The Change in Law claims were centered around several regulatory changes that occurred after the project’s initiation, such as the introduction of the Goods and Services Tax (GST) and revised policies on land compensation by the state governments of Andhra Pradesh and Karnataka. PSITSL argued that these changes led to a significant increase in project costs, which they were entitled to recover under the Transmission Service Agreement (TSA).

CERC’s Position

The CERC rejected PSITSL’s petition, declining to recognize the delays as Force Majeure events and denying the requested time extensions and cost recoveries. CERC argued that the petitioner should have anticipated and mitigated the risks associated with the ROW issues and other delays, which were foreseeable and manageable through prudent utility practices.

Conclusion

The tribunal, led by Hon’ble Mr. Virender Bhat (Judicial Member), undertook a meticulous examination of the facts, legal provisions, and precedents. The tribunal acknowledged the complexity of the project and the challenges faced by PSITSL. However, it also emphasized the need for stringent adherence to contractual obligations and the importance of risk management in large infrastructure projects.

In its judgement, the tribunal partially agreed with PSITSL’s claims, recognizing that some of the Force Majeure events, particularly the ROW issues in Krishna District, were indeed beyond the petitioner’s control. The tribunal noted that these issues were severe enough to constitute Force Majeure under the TSA.

The Appellate Tribunal for Electricity in an important and far-reaching judgement has upheld and continued the practices of reallocation of bays at substations considering the vicinity/complex approach adopted by Central Transmission Utility of India Limited (CTU), until the Central Electricity Regulatory Commission (CERC) notifies the Regulation governing the field.

The issue involved related to the methodology and principles adopted by CTUIL on the aspects of how the reallocation of bays in a substation, which has become available on account of surrender/revocation by Grantees to existing Grantees of other substations or new applicants for connectivity adopting vicinity/Complex approach.

The above issue involved the interpretation of Regulations, namely, CERC (Grant of Connectivity, Long Term Access and Medium Term Access in Inter-State Transmission and Related Matters) 2009 [Connectivity Regulations] and CERC (Connectivity and General Network Access to the inter-State Transmission System) Regulations, 2022 [GNA Regulations] and the Detailed Procedure notified thereunder.

The Appeals filed by CTU and another Generator, namely, Project Nine Renewables challenged the order dated 19.01.2024 passed by CERC. The order dated 19.01.2024 was passed by CERC on Petitions filed by Generators- Eden Renewables seeking directions to be issued to CTUI for shifting of connectivity of their 300 MW Solar Power Project each from Fatehgarh-II Pooling Sub-Station (‘Fatehgarh-II PS’) to Fatehgarh-III Pooling Sub-Station (‘Fatehgarh-III PS’) or Bhadla II Pooling Sub-Station (‘Bhadla-II PS’) on account of the situation faced by Eden Bercy & Eden Passy regarding the requirement of underground dedicated transmission line from its Solar Power Projects to Fatehgarh II PS.

By order dated 19.01.2024, CERC held as under:

• CTU to stop the exercise of reallocation of bays holding that the re-allocation of bays was based on a criteria adopted on a case-to-case basis in a non-transparent and non-uniform basis;
• Issued the Practice Directions on which the reallocation exercise be conducted henceforth until appropriate amendments to the Regulations are issued;
• Reallocation carried out pursuant to minutes of meeting for reallocation meetings held on 20.06.2023 and 03.08.2023 or any subsequent reallocation meeting held for substations in Rajasthan be reconsidered in light of our observations

The Appellate Tribunal after critically analyzing the contentions of relevant parties including CERC set aside the order dated 19.01.2024 passed by CERC and directed that till the Regulations are amended, the existing practice of reallocation considering vicinity/complex approach adopted by CTU shall continue.

As regards the finding that CTU adopted a non-transparent approach in the reallocation exercise, the Appellate Tribunal held that the reallocation meetings were held in consultation with various other important stakeholders responsible for planning, development and operation of the electricity system, optimal utilization of resources including the development of renewable energy sources like CEA, SECI, Grid Controller of India, respective Load dispatch centres and therefore, the findings of non-transparent approach cannot be sustained. The Appellate Tribunal, however, agreed with the views of CERC regarding non-transparency as far as disclosure of procedure, Agenda and Minutes of such reallocation meetings on the website of CTU is concerned.

As regards the finding that CTU adopted a case to case approach in reallocation exercise, the Appellate Tribunal while disagreeing with the finding held that the process adopted by CTU has been followed since 2018 and Eden Renewables itself has been a beneficiary of the process and more importantly, apart from the Petition filed by Eden Renewables, there had been no complaint in regard to the process adopted by CTU.

As regards the Practice Directions issued by CERC, the Appellate Tribunal held that existing Regulations are fraught with the problems indicated by CTU. Further, it has been held that while the practice directions, according to CERC, has prospective application, it has the effect of unsettling some of the decisions taken in reallocation meetings/CMETS meetings on & prior to the date of the impugned order i.e. 19.01.2024, resulting in some decisions being re-opened.

In the present day energy management, the intersection of infrastructure development and technological innovation often presents complex legal challenges. Such was the case in the legal matter between POWERGRID (PGCIL), a leading entity in power transmission, and MPPMCL, a regulatory body tasked with safeguarding the interests of stakeholders.

Facts of the Case

The Petitioner- POWERGRID (PGCIL) filed a petition before the Central Electricity Regulatory Commission (Central Commission) under Section 17(3) of the Electricity Act, 2003 and Regulation 5(1)(b) of the Sharing of Revenue Regulations, seeking approval for the establishment of data centres at 15 of its substations on a lease/licence basis to its Wholly Owned Subsidiary (WOS) Company, Powergrid Teleservices Limited  (PTL) for undertaking Data Centre activities The primary objective is to optimise the use of transmission assets while adhering to regulatory requirements.

The case involves a complex interplay of regulatory compliance, related party transactions, and the commercial interests of long-term transmission customers. The Respondents had raised concerns regarding the legality of such arrangements and the potential impact on transmission operations. The Respondents contended that certain aspects of the proposed business model may contravene existing laws and regulations. Given the significance of this matter for both the petitioner and the respondent, the Commission has undertaken a thorough examination of the legal and factual issues involved. 

Contentions of the Parties

POWERGRID:

• POWERGRID, as the Petitioner, argued for the establishment of data centres at various substation locations
• It proposed a revenue-sharing model wherein the spare land or building at substations would be leased to its wholly-owned subsidiary (WOS) for data centre operations.
• The Petitioner emphasised its commitment to obtaining necessary approvals from relevant authorities, including State and Local Governments, 
• It was contended that the proposed revenue-sharing arrangement would adhere to corporate governance principles and transparency requirements.

MPPMCL:

• The Respondent(s) raised concerns regarding the classification of revenue earned by the WOS from the data centre business as revenue of POWERGRID. 
• The Respondent(s) questioned the utilisation of spare land at substations for non-transmission purposes, asserting that such activities could encumber transmission assets and compromise operational integrity. 
• The Respondent(s) underscored the importance of legal compliance and regulatory oversight in the establishment of data centres, particularly in obtaining approvals from state and local authorities and adhering to relevant provisions of the Electricity Act, 2003, and associated regulations.

Analysis and Decision

The analysis, rendered after thorough deliberation, encapsulated several pivotal points crucial for understanding the case’s outcome.

Firstly, the Central Commission classified revenue generated from data centre operations as related party transactions, thereby subjecting it to regulatory oversight in accordance with the provisions delineated in the Electricity Act, 2003. This classification underscored the regulatory scrutiny warranted by revenue streams associated with activities beyond the core function of transmission.

Secondly, the Central Commission stated the importance of compliance with regulatory frameworks, particularly emphasising the necessity for adherence to stipulations governing the sharing of revenue derived from non-transmission endeavours. 

In delineating the utilisation of spare land or buildings at substations for non-transmission purposes, such as data centre activities, the Central Commission firmly invoked Section 41 of the Electricity Act, 2003. Furthermore, it underscored the significance of obtaining requisite approvals from state and local authorities for non-transmission activities. 

Lastly, it stated its commitment to safeguarding the interests of end beneficiaries of transmission services. By emphasising the need to balance commercial imperatives with regulatory obligations, the Central Commission sought to uphold the integrity of the transmission ecosystem while fostering transparency and accountability associated with transmission substations.

Conclusion 

The order passed by the Central Commission concludes by approving the petitioner’s proposal to utilize spare land at various substations for establishing data centre facilities through its subsidiary, subject to specific conditions. It underscored the importance of complying with regulatory frameworks and ensuring transparency in related party transactions to safeguard the integrity of the transmission network. This decision not only allows for the exploration of additional revenue streams but also sets a precedent for similar cases, providing clarity on regulatory compliance and operational considerations regarding the utilization of spare land at substations for non-core activities.