Gujarat Urja Vikas Nigam Limited & Ors. vs Renew Wind Energy (Rajkot) Private Limited & Ors.

countenanced – Thus, the reasoning of APTEL and the State Commission cannot be upheld – PPAs entered into voluntarily by the parties exercising equal bargaining power, before the Second Amendment were not affected by its terms – Findings to the contrary in the impugned order set aside – Furthermore, APTEL in the most cavalier fashion virtually rubber stamped the State Commission’s findings on coercion, in regard to the entering into the PPA by the parties – There was no evidence or any pleadings beyond a bare allegation of coercion against the appellant – Findings regarding coercion are wholly untenable and therefore, set aside – Gujarat Electricity Regulatory Commission (Procurement of Energy from Renewable Sources) Regulations, 2010 – Regulation 4(1), 9(1).

Electricity Act, 2003– Central Electricity Regulatory Commission (Terms and Conditions for Recognition and issuance of Renewable Energy Certificate for Renewable Energy Generation) Regulations, 2010 – Objective of – Discussed. Electricity Act, 2003 – s.64 – Tariff Orders u/s.64 – Held: Are quasi-judicial in nature and ipso facto binding on the parties unless amended or modified through law.

Electricity – Power Purchase Agreements, if statutory contracts – Held: Power Purchase Agreements are essentially not statutory contract showever, certain terms contained in those contracts are regulated by law, i.e. applicable regulations, under the Act – The PPA between a generating company or, as in the instant case, a wind generator, and a distribution licensee, such as the appellant, is the outcome of a carefully considered decision, whereby the parties after due deliberations and negotiations agree on terms based on existing law and regulations.

Pleadings – Standard of – Allegation of coercion/duress/fraud – Findings on, not to be rendered casually by APTEL – Held: It is incomprehensible how an allegation of coercion w.r.t entering into the PPA by the parties could have been entertained and incorporated as a finding, given that the respondents are established companies who enter into negotiations and have the support of experts, including legal advisers, when contracts are finalized – Casual approach of APTEL in not reasoning how such findings could be rendered cannot be countenanced – As a judicial tribunal, dealing with contracts and bargains, which are entered into by parties with equal bargaining power, APTEL is not expected to casually render findings of coercion, or fraud, without proper pleadings or proof, or without probing into evidence – Electricity Act, 2003. Allowing the appeals, the Court

HELD: 1. Did the PPA in the present case, require prior approval of the state commission

RWE and the other respondents urge that the PPA was unenforceable because it was not approved by the State Commission. The argument is unmerited and insubstantial. From a reading of the State Commission’s regulations (Renewable Sources Regulations) relating to procurement of energy from Renewable Sources, it is evident that there was never any provision, which mandated prior approval by the state commission, of PPAs entered into, by parties, in exercise of their free choice, in relation to renewable energy sources. As a matter of fact, in the case of renewable power, the state commission had approved a model PPA. Further, the tariff terms and conditions to the extent decided are by the Central Commission and not by the State Commission. These are incorporated in the model PPA. Neither the commission, nor the contesting respondents, during the hearings in the present appeals, were able to point out any provision in the PPA in the present case, which conflicted with any provision of the model PPA, or any express regulation. Furthermore, it was not established how in the absence of any reference to the Multi Year Tariff Regulations, they were applicable to PPAs relating to renewable energy sources. In the absence of specific norms prescribing prior approval of PPAs like in the case of provisions of Regulation 21 of the Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulations, 2019; Regulation 45 of the Delhi Electricity Regulatory Commission Comprehensive (Conduct of Business) Regulations 2001 and Regulation 36 of the Andhra Pradesh Electricity Regulatory Commission (Distribution Licensee) Regulations, 2013, the respondent’s arguments on this aspect cannot be accepted. In these circumstances, the findings of APTEL, not based on any stipulated obligations under provisions of the state regulations, requiring approval of the state ENERGY (RAJKOT) PVT. LTD.

commission, for its operation, cannot be sustained. [Paras 4548][699-F-G; 700-B-F]

2. Whether change in the REC Regulations obliged revision of the PPA in this case

Section 61 of the Act enacts the basis for tariff determination. On the other hand, Section 62 is concerned with the fixation of various other charges and tariffs. Section 64 lists the manner and procedure for tariff determination by the Commission. Section 86 lists the functions of the Commission and reiterates the determination of tariffs to be a prominent task of the commission. Tariff determination no doubt, comprehends the exercise of regulatory function, including purchase, sourcing, procurement of electricity from generators, by distribution and other licensees, and their sales. This part involves generating companies entering into PPA(s) with procuring entities or licensees. Tariff fixation is a statutory function. Yet, by virtue of Section 42, it is subject to open access determination of the price of power, and subject to Section 63 wherever it involves open bidding. In the facts of this case, the PPA incorporated a tariff between the respondents and Gujarat Urja constituted the tariff fixed by the State Regulatory Commission in the exercise of its statutory powers. The issue and sale of RECs, constituted an important part of that bargain, between the two parties, based on the assessment of their commercial interest. The important feature of the REC Mechanism is that in it, WPDs (i.e. respondents) had to sell power to distribution licensees at a mutually agreed price, not exceeding the Average Power Purchase Cost (‘APPC’) of the DISCOMs, (such as Gujarat Urja). The WPDs were entitled to the additional benefit of Renewable Energy Certificates issued to it which could be traded in Power Exchange for a price. The consideration payable to WPDs consisted of firstly, a mutually agreed power Component and secondly a green component through RECs traded in the Exchange. The alternative to the WPDs was to sell to licensees at a preferential tariff, determined by the state commission. In the latter event, WPDs were not entitled to the additional benefit of the green component, which was the tradable RECs the sale of which would have led to increased revenues. The respondent WPDs chose the REC mechanism, while entering into PPAs in these cases, with Gujarat Urja. The PPAs entered by WPDs provided for the fixed tariff of 2.64/kWh for the entire term (25 years), as mutually agreed (Article 5.2 of PPA). WPDs were entitled to and were trading RECs in the power exchange, deriving extra monetary 1.50/kWh (floor

benefits: which, at the relevant period was

price at the time of signing of PPA). The Preferential Tariff determined by the state commission, for WPDs not opting for 3.56/kWh. The WPDs were not

the REC Mechanism was

entitled to any additional REC benefits, had they adopted the preferential tariff route. Regulation 9 of the REC Regulations 2010 prescribes the price determination mechanism for RECs in the power exchange. Proviso to Regulation 9 (1) of the REC Regulations 2010 empowers the central commission, in consultation with the Central Agency and the Forum of Regulators, to provide the floor price and forbearance price separately for solar and non-solar certificates. This provision is important because it enables regulatory intervention in the public interest: if the price went below a certain limit, the floor price was to be prescribed, to take care of the interests of generatorslike the respondents; if the price went too high, a forbearance price could be fixed, to take care of the interests of the consumers and distributors. By Regulation 9 (2) of the REC Regulations 2010, the Central Commission, was to be guided, in determining the floor and forbearance price, by diverse factors, such as (a) variation in cost of generation of different renewable energy technologies falling under solar and non-solar category, across states in the country; (b) variation in the Pooled Cost of Purchase across States in the country; (c) Expected electricity generation for non-renewable energy sources [including (i) expected renewable energy capacity under preferential tariff (ii) expected renewable energy under mechanism of certificates] (d) Renewable purchase obligation targets set by various State Commissions. By virtue of Explanation to Regulation 5 (1) of the REC Regulations, “the weighted average pooled price at which the distribution licensee has purchased the electricity including cost of self-generation, if any, in the previous year from all the energy suppliers long-term and short-term, but excluding those based on renewable energy sources, as the case may be.” An important factor ENERGY (RAJKOT) PVT. LTD.

which cannot be lost sight of is that all the respondent’s WPDs were registered, under the REC Regulations, based on the state commission’s tariff order, of 2010. It is undisputed, that to register under the REC Regulations 2010, an entity (such as WPDs) had to be (a) accredited, with a State Agency [(defined by Regulation

2 (n) of the REC Regulations as an agency “designated by the State Commission to act as the agency for accreditation and recommending the renewable energy projects for registration”) and an entity “not having any power purchase agreement for the capacity related to such generation to sell electricity at a preferential tariff determined by the Appropriate Commission]. Furthermore, the state commission, in its tariff order, dated 30.01.2010 (which was operative for three years, with the control period beginning from 10.08.2009) while determining the preferential tariff, had observed that it would apply for 25 years. In the present case, the PPA was entered into by the parties on 29.03.2102, within the control period stipulated in the tariff order of 2010. The change in the REC Regulations 2010, whereby the Explanation to Regulation 5 was amended resulted in a change. The pre-existing clause that the power would be “at a price not exceeding pooled cost of the power purchase” was altered to “at the pooled cost of power purchase”. This change, was through the Second Amendment (to the REC Regulations), carried out on 10.07.2013. It is a matter of record, that for the period between 29.03.2102 and 10.07.2013 - and indeed, after the Second Amendment, no difficulty was experienced in the pricing mechanism agreed by the parties, under the PPA. It was on 10.12.2013 that the respondent WPD approached the state commission for redetermination of tariff. Clearly, this was an opportunistic attempt to derive advantage from the change, brought about by the Second Amendment, and seek to have it applied to an existing contract, which cannot be countenanced. In view of these reasons, it is held that the reasoning of APTEL, and the State Commission cannot be upheld. [Paras 55-59][707-G; 708-A-H; 709-B-H; 710A-B, E-G]

Transmission Corporation of Andhra Pradesh Ltd v Sai Renewable Power Private Limited (2010) 8 SCR 636; Gujarat Urja v. Solar Power Company India Pvt. Ltd. [2017] 14 SCR 115; Bangalore Electricity Supply Co. Ltd. vs. Konark Power Projects Ltd. & Ors. (2016) 13 SCC 515 – referred to.

3. Applicability of the Second Amendment to pre-existing contracts- the general law

In the present case, the PPAs were entered into in the exercise of equal bargaining power, after due negotiation by the parties, and within the framework of existing regulations: both central and state. Therefore, unless any later amendment expressly overrides existing contracts, the terms of such agreements bind the parties. Thus, agreements such as the PPAs in the present case, entered into, voluntarily by the parties, before the Second Amendment, were not affected, by its terms. The findings to the contrary in the impugned order, are set aside. [Paras 63, 66][714-C; 715-G; 716-A]

PTC India Ltd. v. CERC [2010] 3 SCR 609 –

distinguished.

Purbanchal Cables & Conductors (P) Ltd. v. Assam State Electricity Board & Ors. [2012] 6 SCR 905;

Commissioner of Income Tax v Vatika Township (P) Ltd. [2014] 12 SCR 1037 – relied on.

4. Were the respondents coerced into entering into PPAs APTEL, in the most cavalier fashion, virtually rubber stamped the State Commission’s findings on coercion, in regard to the entering into the PPA by the parties. There was no shred of evidence, nor any particularity of pleadings, beyond a bare allegation of coercion, alleged against Gujarat Urja. It is incomprehensible how such an allegation could have been entertained and incorporated as a finding, given that the respondents are established companies, who enter into negotiations and have the support of experts, including legal advisers, when contracts are finalized. The findings regarding coercion are, therefore, wholly untenable. The casual approach of APTEL, in not reasoning how such findings could be rendered, cannot be countenanced. As a judicial tribunal, dealing with contracts and bargains, which are entered into by parties with equal bargaining power, APTEL is not expected to casually render ENERGY (RAJKOT) PVT. LTD.

findings of coercion, or fraud, without proper pleadings or proof, or without probing into evidence. The findings of coercion are therefore, set aside. [Para 71][717-F-G; 718-A-B]

Shanti Budhiya Vesta Patel &Ors. v. Nirmala

Jayprakash Tiwari & Ors. [2010] 4 SCR 958;

BishundeoNarain v. Seogeni Rai [1951] 1 SCR 548; New Indian Assurance Co. Ltd v. Genus Power

Infrastructure Ltd [2014] 12 SCR 360 – relied on. Gujarat Urja Vikas Nigam Limited v. EMCO Limited [2016] 1 SCR 857; Gujarat Urja Vikas Nigam Limited v. ACME Solar Technologies (Gujarat) Pvt Ltd & Others [2017] 16 SCC 498; Central Bank of India v. Hartford Fire Insurance Co. Ltd AIR 1965 SC 1288; Her Highness Maharani Shantidevi P Gaikwad v. Savjibai Haribai Patel & Ors 2001 (5) SCC 101: [2001] 2 SCR 590; Hindustan Zinc Ltd. v. Rajasthan Electricity Regulatory Commission [2015] 7 SCR 1104; Gujarat Urja Vikas Nigam Ltd. v. Tarini Infrastructure Ltd. [2016] 5 SCR 990; Union of India v. Indusind Bank Ltd. [2016] 11 SCR 700; Kerala State Electricity Board & Anr v. Principal Sir Syed Institute for Technical Studies [2020] 7 SCR 885; Gujarat Urja Vikas Nigam Limited v. Solar Semi-Conductors Power Limited Company (India) Private Limited [2017] 14 SCR 115 – referred to.