Hon’ble Appellate Tribunal for Electricity (“Hon’ble APTEL”) by its landmark Judgment dated 08.02.2022 in Appeal Nos. 239 and 240 of 2021 has inter alia upheld the right of Beneficiaries / Distribution Companies (“Discoms”) to exit from Power Purchase Agreements (“PPA”) with Thermal Generating Stations which have completed 25 years from Commercial Date of Operation (“COD”).
The issues posed before the Hon’ble APTEL were: –
- Whether the beneficiaries [i.e., BSES Rajdhani Power Ltd. and BSES Yamuna Power Ltd. (collectively referred to as “BSES Discoms”)] can relinquish the PPA / Supplementary PPA (“SPPA”) after the Thermal Generating Station has completed useful life of 25 years from COD under Regulation 17 of the CERC (Terms and Conditions for Tariff) Regulations, 2019 (“Tariff Regulations, 2019”)?
- Whether the provisions contained in the PPA and SPPA and/or the Guidelines dated 22.03.2021 issued by Ministry of Power, Government of India (“MoP”) can override the provisions of the Regulations?
Hon’ble APTEL by its Judgment dated 08.02.2022, while allowing the Appeals, was pleased to hold inter alia that: –
- As held by a Constitution Bench of Hon’ble Supreme Court in PTC v. CERC, 2010 4 SCC 603, all agreements / contracts have to be aligned with the Regulations (the subordinate legislation) if it falls under the domain of the Regulation.
- Further, Guidelines issued by the Government of India on allocation or de-allocation of power cannot override the provisions contained in the Tariff Regulations, 2019. [ 34 (1), 48 & 51]
- Any extension of Useful Life of a Thermal Generating Station can only be granted by the Appropriate Commission and cannot be extended by the Central Government through an Executive Order under Article 73 of the Constitution of India. [ 34 (2)]
- Central Government can exercise powers to issue Executive Orders under Article 73 only on subjects which do not encroach upon the provisions of any law made by the Parliament. [ 45]
- Any Executive Order issued by the Central Government infringing any provisions of either the Electricity Act, 2003 or the Tariff Regulations, 2019 is bad in law. [ 45]
- MoP allocation and Guidelines dated 22.03.2021 read with clarification dated 05.07.2021 cannot be considered as Executive Orders under Article 73 of the Constitution as the powers for determination of tariff and framing the Tariff Regulations, 2019 are vested with the Ld. Central Electricity Regulatory Commission for Central Generating Stations, and therefore, are non-statutory documents. [ 77(a)]
- Once the provision under Regulation 17(2) is exercised by BSES Discoms to exit from the agreement, the PPA for scheduling of power from the Thermal Generating Station is deemed to be terminated. [ 77(d)]
This Judgment has industry-wide implications as it supports the developments in the Power Sector for promotion of renewable energy and schemes to curb air pollution as well as increased awareness / concerns regarding phasing out of the old / inefficient Thermal Generating Station.
Recognizing the right of the Discoms to exit from PPAs where the Thermal Generating Station has completed 25 years from COD thereby inter alia aiding in reducing the burden of Fixed Costs on consumer tariff, which may be replaced with cheaper power from renewable energy sources;
The Judgment is also in consonance with:
- Objects of the Electricity Act, 2003 of distancing regulatory responsibilities from the Government; and
- Mandate of Section 61 of the Electricity Act, 2003 which requires Appropriate Commissions to inter alia encourage and promote competition, efficiency, and economical use of resources, safeguard consumer interest and reward efficiency in performance.
JSA Team comprised Joint Managing Partner – Amit Kapur, Partner – Anupam Varma, Partner – Rahul Kinra, Senior Associate – Aditya Gupta, Associate – Aditya Ajay, Associate – Manu Tiwari.
Aditya primarily focuses on Regulatory, Policy advisory and Dispute Resolution in Electricity, Renewable Energy and PPP Projects. He also has extensive experience in handling matters under the Insolvency and Bankruptcy Code, 2016.