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.

Read Judgement

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.

The Central Electricity Regulatory Commission vide order dated 25.04.2024 has granted transmission line to Butwal-Gorakhpur Cross Border Power Transmission Limited (‘BGCPTL’), a joint venture between Powergrid Corporation of India Limited (‘PGCIL’) and Nepal Electricity Authority (‘NEA’) for implementation of Indian Portion of New Butwal – Gorakhpur 400 kV Double Circuit Cross Border Interconnection Transmission line and associated work.

As of present, there is only one high-capacity Muzaffarpur (India) – Dhalkebar (Nepal) cross-border link between India and Nepal. In case of an outage of this existing transmission line, it was predicted that Nepal would face grid disturbances and even a blackout. To prevent such a situation, and to supply secure and reliable power to Nepal, a second high-capacity transmission line is required.

Importantly, BGCPTL has been formed after approval of the Ministry of Power and NITI Aayog and has been nominated by the Government authorities of both India and Nepal to implement the transmission Project.

The Central Commission was of the view that BGCPTL does not fulfil any of the eligibility conditions for the grant of a transmission licence, however, considering the importance of the Transmission Project in promoting the exchange of power between India and Nepal and the policy decision of the Government, exercised its Power to Relax and granted license to BGCPTL for implementation of Indian portion of New Butwal- Gorakhpur 400 kV Double Circuit Cross-border interconnection transmission line.

This Project will strengthen the already existing Transmission System between India and Nepal and also reduce the risk of any outage or blackout in Nepal. This project will also play a key role in enhancing the relations between both the countries.