The Tata Power Company Limited Transmission vs Maharashtra Electricity Regulatory Commission and Ors.

Electricity Act, 2003 – ss.61, 181 – Framing of necessary regulations by Regulatory Commissions to put into effect the principles prescribed under the Act – All State Regulatory Commissions directed to frame Regulations u/s.181 of the Act on the terms and conditions for determination of tariff – Appropriate Commission shall be guided by the principles prescribed in s.61, which also includes the National Electricity Policy (NEP) and National Tariff Policy (NTP) – The Commissions while being guided by the principles contained in sec.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.

Dismissing the appeal, the Court

HELD: 1. The Appropriate Commission is not mandated to adopt the tariff determined through the bidding process irrespective of the fulfilment of the statutory requirements. The Commission can reject the tariff determined through the bid if the tariff process is not (i) transparent; and (ii) in accordance with the guidelines issued by the Central Government. Thus, if the Commission does not adopt the tariff determined through bidding, and if the decision is challenged, the bidding process can be reviewed substantively (on the ground of transparency) and procedurally (on the ground of compliance with Central Government guidelines) to determine if the Commission could have exercised its discretion to determine the tariff under Section

62 while rejecting the tariff determined under Section 63. Therefore, Section 63 can only be invoked after the tariff has been determined through bidding. The terms and conditions notified by the Appropriate Commission under Section 61 will have to be referred for the purpose of choosing the modality of tariff determination that the Commission should undertake. In view of the above discussion, the argument of the appellant that a reading of Section 61, 62 and 63 indicates that the TBCB route is the dominant route of tariff determination does not hold merit. [Para 77][677-F-H; 678-A-B]

2.1 The value of TBCB Guidelines prescribed under Section

Section 63 of the Act does not prescribe bidding as the dominant route of tariff determination. The Guidelines framed by the Central Government under Section 63 prescribe the mechanism and procedure for bidding. The Guidelines framed under Section 63 of the Act cannot be used to determine whether the RTM route or the TBCB route ought to be followed. [Para 78][678-B-C]

2.2 On 13 April 2006, the MoP framed the TBCB Guidelines under Section 63 of the Act. Clause 2.2 of the Guidelines states that it shall apply for the procurement of transmission services through competitive bidding according to the mechanism described in the notification. [Para 79][678-D]

2.3 A reading of the clauses indicates that the TBCB Guidelines shall apply for (i) procurement of transmission services, which would include HVDC links; and (ii) selecting the transmission provider for a new transmission line. The TBCB Guidelines also advert to the appointment of a Bid Process Coordinator who would be responsible for coordinating the bid process for procurement of required transmission services. The TBCB Guidelines prescribe the procedure for conducting bids for procurement of, among other services, transmission services. Clause 3.3 states that for the procurement of transmission services required for intra-state transmission, the State Government may notify the organisation or the State Public Sector Undertaking to be the Bid Process Coordinator. A reading of clauses 2.2 and 2.4 does not indicate that that the tariff for all new transmission projects shall be determined by competitive bidding. It notifies the procedural mechanism for competitive bidding. As observed earlier, the reference in Section 63 to the Guidelines framed by the Central Government is made to the limited extent of determining whether the procedure of bidding was in accordance to the Guidelines framed thereunder, which is the TBCB Guidelines. [Para 80][678-G-H; 679-A-C]

3.1 General Regulatory Power of the Appropriate Commission

In the case of intra-state transmission of electricity, the State Commission would be bound by the guidelines issued under Section 63. In addition to the guidelines under Section 63 of the Act, the State Commission shall also be bound by the regulations framed by it under Section 181(zd) read with Section 61 while it discharges its function of determining the tariff under Section 86 of the Act. However, if the guidelines issued under Section 63 or the regulations framed under Section 181(zd) of the Act have not been notified or if the guidelines do not deal with a given situation, then the Commission shall exercise its general regulatory power under Section 86(1)(a) of the Act to regulate tariff. [Para 85][681E-F]

3.2 The TBCB Guidelines issued by the Central Government under Section 63 of the Act prescribe the mechanism of the bidding process and do not lay down the criteria or guidelines for choosing between the alternative routes under Section 62 and 63 of the Act. MERC has neither notified any Regulations under Section 181 nor has it notified the terms and conditions under Section 61 of the Act. That being the case, the Commission could choose the modality of tariff determination by taking recourse to the general regulatory power under Section

86. [Para 87][683-G-H; 684-A]

4.1 The nature of NTP- binding or a material consideration

Even in the absence of guidelines under Section 61 or Regulations under Section 181 (zd), the Commission does not possess unbridled power or discretion while choosing the modality to determine tariff. Sub-Sections (3) and (4) of Section

86 provide that the State Commission while discharging its functions must ensure transparency and ‘shall be guided’ by the NTP and NEP. [Para 88][684-B-C]

4.2 Both NTP 2006 and NTP 2016 as a general rule prescribe competitive bidding for determination of tariff for all ‘new projects’. There are two prominent differences between NTP 2006 and NTP 2016. Firstly, the projects owned or controlled by the Government were exempted from bidding under NTP 2006. However, according to NTP 2016, the tariff for government owned projects is also to be determined by bidding, unless otherwise specified. Secondly, NTP 2016 introduced the threshold limit rule. State Commissions are required to notify the threshold limit. If the cost of the project exceeds the threshold limit, then the Commission is mandated to follow the bidding process for the determination of tariff. NTP 2016, by providing that state owned projects are not exempted from the TBCB process, has implemented the object of the Act, which is to create a fine balance between promoting competition and protecting the interests of the consumers. NTP 2006 was formulated with the objective of enhancing the participation of private players in the generation, transmission and distribution of electricity. The Central Government adopted a policy decision to introduce the bidding process for the determination of the tariff for all new transmission projects in 2006 but excluded its application to State projects. However, the distinction between State and private parties for the purpose of tariff determination through bidding was removed in NTP 2016. This transition between NTP 2006 and NTP 2016 depicts the intention of the Government to rationalise the tariff policy and to transfer the benefits of the rationalised tariff to the consumers. According to NTP 2016, the tariff for all new electricity transmission projects that cost above the threshold amount notified by the State Commission shall be determined through bidding. However, the MERC had not notified the threshold limit as on the date when it passed the order granting transmission licence to AEML-T. MERC notified the Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulations 2019 under Section 181 of the Act. The MERC MYT Regulations does not provide the guidelines or the criteria for the choosing the modality of tariff determination. The guidelines for choosing the modalities are sought to be introduced by the Maharashtra Electricity Regulatory Commission (Multi Year Tariff) (First Amendment) Regulations 2022. MERC circulated the draft of the MERC MYT Amendment Regulations on 19 August 2022 for comments, suggestions and objections. [Paras 90-92][684-GH; 685-A-G]

4.3 When the application seeking licence for the HVDC Kudus- Aarey transmission project was filed, and when it was granted by MERC, the threshold limit as required to be provided by NTP 2016 was not notified by MERC. Thus, the question is whether in the absence of any notification of the threshold by MERC, would MERC still be mandated to determine tariff for the transmission project through the TBCB route in view of NTP 2016. Merely because the threshold limit is not notified, it would not mean that MERC only had to determine tariff through the RTM route. It is open to MERC to determine the tariff through either the Section 63 or the Section 62 route. When MERC is exercising its general regulatory power under Section 86 to determine tariff, the NTP is a material consideration. Thus, the absence of a threshold limit would not affect the power that MERC holds to determine tariff (and its modalities). Since MERC has the power to regulate and determine tariff for the intra-state transmission of electricity, the guidelines and regulations issued by MERC, if any, must be analysed to determine if MERC was mandated to choose one of the two routes for the determination of tariff or whether it could exercise its discretion to choose the modality. [Paras 93, 100][687-D; 691-H; 692-A-C] Energy Watchdog v. Central Electricity Regulatory Commission (2017) 14 SCC 80 : [2017] 3 SCR 153; PTC India Ltd. v. Central Electricity Regulatory Commission (2010) 4 SCC 603 : [2010] 3 SCR 609; Reliance Infrastructure Limited v. State of Maharashtra (2019) 3 SCC 352 : [2019] 1 SCR 886 – referred to.

5.1 The New - Old Conundrum

The 1000MW Aarey-Kudus HVDC project by AEMIL is an ‘existing’ or an ‘old’ project with reference to the GoM GR for the following reasons: Firstly, the GR does not provide or explain the meaning of the phrase ‘new’ projects. Hence, MERC has the discretion to formulate its understanding of the phrase ‘new’ projects so long as it is reasonable and does not rely on factors extraneous to the decision making process. In view of the decisions of this Court discussed above and the provisions of the Act, MERC has the power to regulate tariff determination. MERC has not defined the phrase ‘new’ projects through the regulations. In this situation, MERC has the discretion to interpret the phrase ‘new’ projects which it did in the course of its judgment granting AEMIL the transmission license. MERC held that generally the cancellation of approval would amount to the closure of the project, unless the peculiar nature of the facts leads to an alternative conclusion (as in this case); Secondly, on applying the facts to the interpretation of the phrase ‘new’ project, MERC observed that the HVDC KudusAarey project is not a new project. APTEL, on appeal, upheld the observations of MERC that it is an ‘existing project’. The appeal against the judgment of APTEL before this Court under Section 125 of the Act can only be on the grounds mentioned in Section 100 of CPC. Section 100 of the Code of Civil Procedure 1908 stipulates that a second appeal shall lie only if the court (in this case the Supreme Court) is satisfied that the case involves a substantial question of law. It is settled law that concurrent findings of fact recorded by the fora below (MERC and APTEL) cannot be interfered with by this Court. [Para 106-106.2][695-FH; 696-A-C, F-G] DSR (Steel) Pvt. Ltd. v. State of Rajasthan (2012) 6 SCC

782 : [2012] 5 SCR 583 – referred to.

5.2 On 12 November 2007, MSETCL issued a

communication to CEA setting out the steps proposed to meet the growing demand of power for Mumbai’s load centres. The communication stated that TPC had proposed the setting up of overhead lines and underground cables while REL had proposed connections to Aarey by using the HVDC (VSC based) technology. MSETCL notified a five-year plan for 2009-10 to 2013-14 envisaging the use of the HVDC technology. The plan specifically provided for the ongoing schemes of R-infra together with new schemes including the HVDC based link between Nagothane and Aarey. Similar details were provided in relation to TPC’s ongoing and new schemes. Both TPC and R-infra were in the fray from the inception. While TPC was primarily in the overhead transmission line segment, R-infra had proposed the setting up of transmission lines on the HVDC technology. The criticality of the HVDC technology assumes importance after the grid failure which Mumbai experienced in November 2010. The committee chaired by a Professor of IIT recommended the HVDC technology as a long-term solution for ensuring reliability of power supply for Mumbai. MERC granted a transmission licence to Rinfra on 11 August 2011. R-infra submitted a DPR to MERC for the appointment of a consultant for the transmission line from Nagothane to Aarey on 1 February 2013. On 7 March 2013, MSETCL confirmed that the Nagothane -Aarey project was a part of the STU five-year plan for FY 2013-14 to 2017-18. MERC approved the hiring of the consultant on 5 April 2013. The application for the grant of grid connectivity for the proposed HVDC project was allowed on 21 August 2013. When matters were thus progressing, in November 2013 MSETCL had in a meeting with R-Infra proposed that R-Infra can avail of connectivity from the Kudus sub-station which was closer to the Aarey sub-station as compared to the sub-station at Nagothane. R-infra expressed its concern over the proposed revision on the point of connectivity. On 10 April 2014, MERC granted an inprinciple clearance for the HVDC Scheme. In January 2015, MSETCL proposed a revised scheme for where the 400KV Kudus-Aarey HVAC scheme was proposed by MSETCL. On 2 May 2016, the in-principle clearance granted to the NagothaneAarey HVDC Scheme was cancelled by MERC. [Paras 106.2.1, 106.2.2][697-G-H; 698-A-H; 699-A]

5.3 However, since the HVAC scheme of MSETCL did not take off, AEML-T submitted an application for HVDC Scheme between Aarey to Kudus on 23 November 2018 where an amendment to the letter issued by MERC granting grid connectivity to the 2 x 500 HVDC (VSC based) scheme from Nagothane to Aarey was sought. The narration of facts indicates that AEML-T(or its predecessor in interest) has been involved in the execution of the HVDC Scheme since the inception of the scheme. The cancellation of the in-principle approval accorded to AEML-T by MERC cannot be held to terminate the project in view of the peculiar background of this case. It is due to the indecisiveness of MSETCL on the HVDC and HVAC technologies that AEML-T’s clearance was cancelled. The HVDC Scheme was attributed to R-Infra or, as the case may be, AEMLT since 2009. In the electricity regulatory sector, where the State Regulatory Commissions and STUs’ have been functioning in an ad-hoc manner running in many loops, the question of whether the project is an old or a new project must be determined through a holistic purview of the factual background. In view of the above factual narration, it is evident that the HVDC Scheme is an old project and the change in the location of the injection point from Nagothane to Kudus would not lead to the closure of the old project. [Paras 106.2.3, 106.2.4][699-B-F]

6. Relevance of GoM GR for MERC’s Decision

The fixation of tariff falls within the independent statutory domain of the Regulatory Commission. The State Government has the power to issue directions to the State Commission in matters of ‘policy involving public interest’ under Section 108 of the Act. While stating that the State Government may issue directions in matters of policy involving public interest, Section 108(2) states that if any question arises as to whether such direction relates to matters of policy involving public interest, the decision of the State Government on it shall be final. The provision further states that the State Commission shall be guided by the directions of the State Government in discharge of its functions. Section 108 deals with “directions in matters of policy involving public interest as the State Government may give to it in writing.” In the provision, the term ‘it’ refers to the State Commission. The GoM’s GR does not mention the State Commission and has not been issued as a direction to the MERC as envisaged in Section 108. Therefore, the HVDC Project is, firstly, an existing project in terms of the GoM GR, and secondly, the GoM GR has not been issued in terms of Section 108 as a direction to the State Commission. [Paras 111, 112][701-D-E, GH; 702-A]

7.1 Relevance of GoM GR vis-à-vis MSETCL’s decision It is clear from a reading of the Development Guidelines read with the functions of the State Utility in terms of Section 39(2) of the Act that while the State Transmission Utility shall be the apex authority for planning of intra-state transmission projects, the Empowered Committee is to identify projects to be undertaken under the TBCB route. [Para 120][704-G-H]

7.2 It is clear that the MSETCL’s decision regarding the HVDC Project not being referred under the TBCB route was in line with the Empowered Committee’s directions which have been set up in terms of the GoM GR and which has been granted the power to select projects to be taken up under the TBCB route. [Para 127][707-D-E]

8.1 Conclusion

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. 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). 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. 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. 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 the 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. 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. MERC and APTEL have arrived at concurrent findings that the 1000 MW 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. 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. 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. [Para 128][707-F-H; 708-A-H; 709-A-D]

8.2 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. The Regulatory Commission’s decision to grant the HVDC project under Section

62 was within a reasonable exercise of its powers. [Para 129][709E]

8.3 This case has brought the ad-hoc nature of the functioning of the STU to the notice of this Court. MSETCL has been changing its stance on the HVDC technology without following any due procedure. The flip-flops by MSETCL have led to the loss of time and investment while the demand in the electricity sector has been increasing exponentially. In matters dealing with electricity regulation, the regulatory commissions and the transmission utilities are usually bogged down by factors such as technological uncertainty, requirement of heavy investment and issues of right of way. The ad- hoc functioning of the transmission utilities is also attributable to the lacunae in the regulations guiding the exercise of their functions. The Electricity Act 2003 was enacted with the objective of providing the States with sufficient flexibility to regulate the intra-state electricity system and simultaneously provided the regulatory commissions with the power to determine tariffs. Though the Government, both at the Centre and in the States, have framed statutory policies and guidelines regulating the electricity sector, the Regulatory Commissions have not framed the necessary regulations to put into effect the principles prescribed under the Act. All State Regulatory Commissions are directed 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. [Paras 130, 131][709-F-H; 710-A-E]

Govindaraju v. Mariamman (2005) 2 SCC 500 : [2005]

1 SCR 1100; Hari Singh v. Kanhaiya Lal (1999) 7 SCC

288 : [1999] 2 Suppl. SCR 216; Ramaswamy

Kalingaryar v. Mathayan Padayachi (1992) 1 Supp SCC 712; Kehar Singh v. Yash Pal (2015) 7 SCC 769; Bismillah Begum v. Rahmatullah Khan (1998) 2 SCC

226 : [1998] 1 SCR 284 – referred to.