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.
Regulatory Clarity on Utilization of Spare Land for Data Centers
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.
