State Electricity Commissions Possess Complete Autonomy In Regulation Of Tariff; State & Centre Only Have Advisory Role- SC

A Supreme Court Bench of Chief Justice Dr. Dhananjaya Y Chandrachud, Justice AS Bopanna, and Justice J.B. Pardiwala has held that the State Electricity Commissions possess complete autonomy in the determination and regulation of tariffs, while the State and Central governments only play an advisory role. Further, the Court also stressed that "The provisions of the Electricity Act 2003 do not prescribe one dominant method to determine tariff. Section 63 operates after the bidding process has been conducted."

Senior Counsel Shyam Divan appeared on behalf of the Appellants, while Senior Counsel Vikas Singh and Counsel Dr. Abhishek Manu Singhvi appeared on behalf of the Adani Electricity Mumbai Infra Limited - Transmission (AEML-T) and Adani Electricity Mumbai Limited (AEMIL).

In this case, the Maharashtra Electricity Regulatory Commission (MERC) had granted a transmission license to AEMIL under Section 14 and Section 15 of the Electricity Act, 2003, for setting up a 1000 MW High Voltage Direct Current (HVDC) link. The TATA Power Company Limited Transmission (TPC-T) approached the Appellate Tribunal for Electricity, challenging the MERC's order on the ground that no Tariff Based Competitive Bidding (TBCB) process took place before granting the license to AEMIL.

TPC-T argued that the absence of this process pursuant to Section 63 of the Act was against the statutory mandate, as well as the public interest. However, the appeal was dismissed by the APTEL, and consequently, TPC-T appeared before the Supreme Court under Section 125 of the Act.

The Court analysed the applicable factual and statutory position and framed the following issues:

(i) Whether the Electricity Act 2003 envisages the TBCB route under Section 63 as the dominant method to determine tariff;

(ii) Whether the National Tariff Policy (NTP) framed under Section 3 of the Act is binding on the State Regulatory Commissions, particularly in view of the observations made by this Court in Energy Watchdog v. Central Electricity Regulatory Commission

(iii) Whether the Regulatory Commissions have the power to prescribe the modalities to determine the tariff under the provisions of the Electricity Act 2003 (and the regulations framed under it);

(iv) Whether MERC was bound to decide the tariff for the HVDC Project through TBCB under Section 63 in view of the Government of Maharashtra's Resolution dated 04 January 2019 notifying the decision to allocate new intra-state transmission projects through the TBCB route and setting up an Empowered Committee; and

(v) Whether the Maharashtra State Electricity Regulatory Commission's (MSETCL) decision of not referring the HVDC Project to the Empowered Committee for holding bidding under the TBCB route is in breach of the Government Resolution.

The Supreme Court was of the opinion that the Regulatory Commission's decision to grant the HVDC project under Section 62 of the Act was a reasonable exercise of its powers. It also observed that "The Electricity Act 2003 or the policy framework, particularly NTP 2016 read with the GoM GR dated 4 January 2019, did not make it binding upon MERC to allot the HVDC project only through the TBCB route."

Subsequently, the Court came to the following conclusions:

(i) The Electricity Act 2003 provides the States sufficient flexibility to regulate the intra-state transmission systems, wherein the Appropriate State Commissions possess the power to determine and regulate tariff. The Electricity Act 2003 seeks to distance the State Governments from the determination and regulation of tariff, placing such power completely within the ambit of the Appropriate Commissions;

(ii) The provisions of the Electricity Act 2003 do not prescribe one dominant method to determine tariff. Section 63 operates after the bidding process has been conducted. Where the tariff has already been determined through bidding, the Appropriate Commission has to adopt such tariff that has been determined. The Appropriate Commission cannot negate such tariff determined through bidding by using its powers under Section 62. The tariff determined through the bidding process may not be adopted by the Appropriate Commission only if the bidding process was not transparent (undertaking a substantive review) or the procedure prescribed by the Central Government guidelines under Section 63 was not followed (undertaking a procedural review);

(iii) Sections 62 and 63 stipulate the modalities of tariff determination. The non-obstante clause in Section 63 cannot be interpreted to mean that Section 63 would take precedence over Section 62 at the stage of choosing the modality to determine tariff. The criteria or guidelines for the determination of the modality of tariff determination ought to be notified by the Appropriate State Commission either through regulations under Section 181 of the Act or guidelines under Section 61 of the Act;

(iv) MERC has neither framed regulations nor notified guidelines prescribing the criteria or guidelines for choosing the modalities to determine tariff. Thus, MERC shall determine the tariff by exercising its general regulatory powers under Section 86(1)(a) of the Act;

(v) MERC while exercising its general regulatory powers under Section 86(1)(a) shall be guided by the NTP 2016, which shall be a material consideration. Accordingly, while NTP 2016 requires intra-state transmission projects above the threshold limit to be allotted through TBCB route, this constitutes a material consideration to be taken into account. The threshold value in the case of Maharashtra has not yet been notified by MERC;

(vi) The threshold limit not having been notified by MERC, it was open to MERC to allot the HVDC project either under the RTM or the TBCB route;

(vii) MERC and APTEL have arrived at concurrent findings that the 1000MW HVDC Aarey-Kudus project is an 'existing project' for the purpose of the applicability of the GoM's GR 2019. This Court deciding a statutory appeal under Section 125 of the Act cannot interfere with the concurrent findings on a question of fact. Nonetheless, even on an independent assessment of the facts, the HVDC project is an existing project;

(viii) Even if the HVDC Project were to be considered a 'new project' in terms of the GoM's GR, the same not having been issued in terms of Section 108 as a direction to the State Commission, MERC's decision cannot be challenged for failing to comply with the same as MERC is an independent body with statutory powers to determine and regulate tariff; and

(ix) MSETCL has acted in terms of the GoM's GR as it has referred the HVDC project to the Empowered Committee and the decision to not refer the HVDC project under the TBCB route was in line with the Empowered Committee's directions. The Empowered Committee has the power to select projects to be taken up under the TBCB route under the GoM's GR.

Consequently, the Supreme Court passed directions. To that end, the Court said that "all State Regulatory Commissions to frame Regulations under Section 181 of the Act on the terms and conditions for determination of tariff within three months from the date of this judgment. While framing these guidelines on determination of tariff, the Appropriate Commission shall be guided by the principles prescribed in Section 61, which also includes the NEP and NTP. Where the Appropriate Commission(s) has already framed regulations, they shall be amended to include provisions on the criteria for choosing the modalities to determine the tariff, in case they have not been already included. The Commissions while being guided by the principles contained in Section 61 shall effectuate a balance that would create a sustainable model of electricity regulation in the States. The Regulatory Commission shall curate to the specific needs of the State while framing these regulations. Further, the regulations framed must be in consonance with the objective of the Electricity Act 2003, which is to enhance the investment of private stakeholders in the electricity regulatory sector so as to create a sustainable and effective system of tariff determination that is cost efficient so that such benefits percolate to the end consumers."

Therefore, the appeal was dismissed.

Cause Title: The TATA Power Company Limited Transmission v. Maharashtra Electricity Regulatory Commission & Ors.

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