Please click here to download the document.

The Appellate Tribunal for Electricity settles dispute on modification of tariff under the power purchase agreement between a Section 62 generator and Tamil Nadu Generation and Distribution Corporation Limited

The Appellate Tribunal for Electricity (“APTEL”) in the case of Tamil Nadu Electricity Generation and Distribution Company Ltd. vs. Tamil Nadu Electricity Regulatory Commission & Anr.[1] disposed of the matter by granting a path-breaking relief to an imported coal based (“ICB”) thermal power generating company which set up its power plant under Section 62 of the Electricity Act, 2003 (“Act”). APTEL allowed modification of terms of power purchase agreement (“PPA”) including terms related to tariff by in effect upholding the order passed by the Ld. Tamil Nadu Electricity Regulatory Commission (“TNERC”) i.e., order dated August 31, 2023[2] (“Order”). The Order relied upon GUVNL vs. Tarini Infrastructure Ltd.[3] (“GUVNL Judgement”) and considered global price rise of imported coal. Due to the price rise, the thermal power generator was suffering on account of a stifling ceiling price mechanism prescribed in the PPA. TNERC appreciated the issue and inter alia allowed removal of ceiling on tariff.

TNERC’s Order was challenged before APTEL by Tamil Nadu Generation and Distribution Corporation Limited (“TANGEDCO”). Before APTEL, TANGEDCO primarily argued against the removal of ceiling on tariff by TNERC. Without prejudice to the settled law by Hon’ble Supreme Court in the GUVNL Judgement[4], it was brought to APTEL’s notice (by the ICB thermal power generator) that TANGEDCO had submitted to the jurisdiction of TNERC to determine the tariff afresh, thereby giving up on tariff under the PPA. APTEL agreed with the said understanding. It is in this view APTEL passed its final judgment dated January 27, 2025, deciding on the aspects of implementation of arrangement of power supply between the ICB generator and TANGEDCO.

With APTEL’s judgment disposing of the above matter, findings of TNERC on the aspect of modification of tariff forming part of the PPA executed under Section 62 of the Act are final.

JSA represented the ICB thermal power generator before TNERC as well as before APTEL.

Brief facts

1. SEPC Power Private Limited (“SEPC”) is an imported coal based thermal power plant of a 1 x 525 Mega Watt capacity (“Project”). SEPC has a PPA with TANGEDCO i.e., the distribution licensee of the State of Tamil Nadu. The PPA was executed on February 12, 1998, through a Memorandum of Understanding (“MoU”) route which was later approved by TNERC under Section 62 of the Act. The PPA was last amended on February 25, 2021 (“Addendum #3”) which introduced a ceiling and discount on variable fuel charge (“VFC”) viz:
   • Ceiling on VFC was linked with domestic coal prices i.e., regardless of actual imported coal price (per unit), the entitlement of SEPC’s VFC would be the price of domestic coal from Talcher mines.
   • Discount of INR 0.225 (Indian rupees zero point two two five)/unit on VFC was made conditional i.e., discount was to be made applicable only in case the actual price of imported coal was lower than the ceiling on VFC.
2. This ceiling and discount on tariff were implemented pursuant to TNERC’s order dated January 10, 2020, in M.P. No. 27 of 2016 in the case of SEPC vs. TANGEDCO.
3. After execution of Addendum #3, the imported coal prices rose multi-fold starting June 2021. This price rise made the ceiling and discount on VFC unviable. SEPC’s Project achieved commissioning on November 30, 2021. SEPC could however not commence operation due to high price of international coal.
4. Recognising the issue of price rise and many ICBs being stranded in the country, the Ministry of Power issued directions on May 5, 2022, to all ICBs under Section 11 of the Act i.e., for them to operate at full capacity subject to certain conditions specified. TANGEDCO also issued directions akin to Section 11 directions, to SEPC on April 29, 2022, and requestioned power on pass through basis as a one-time measure. SEPC accordingly commenced Project operations from April 30, 2022, under Section 11 directions. Meanwhile, SEPC filed a petition before TNERC seeking appropriate directions including a direction for removal of ceiling and discount on VFC.

Issue

Whether a Section 62 thermal power generator inter alia was entitled to modification of the PPA including removal of ceiling and discount on VFC in view of global price rise of international coal?

Contentions of TANGEDCO

TANGEDCO broadly contended as follows:

1. the PPA has to be implemented in its existing form;
2. the current situation has arisen due to SEPC’s delay in completing the Project; and
3. imported coal price rise cannot lead to amendment of tariff under the PPA as per Energy Watchdog v. CERC[5].

Findings by TNERC

TNERC held as follows in its Order dated August 31, 2023, by formulating 2 (two) questions in order to answer the aforementioned issue:

1. Whether the contention of SEPC that the unprecedented rise in the price of the imported coal has rendered the supply of power under the PPA with the existing price mechanism an unviable one is sustainable under law and facts of the case?
   • as per the data submitted by SEPC, the global price index of imported coal i.e. Argus Index, demonstrates manifold rise in price. The difference between ceiling limit under the PPA and the current per unit price is about INR 2 (Indian Rupees two)/unit;
   • TANGEDCO has not disputed the factum of rise in prices;
   • since the PPA is based on usage of imported coal as primary fuel for the supply of power, there can be no escape from the logical conclusion that the rise in the price of the imported coal has led to rise in VFC for SEPC. The loss on account of cost of VFC is a substantial one;
   • Section 61 and 62 of the Act mandate that commercial principles be considered for the supply of electricity. It is to protect all the parties from suffering any loss that the said provisions have been incorporated in the Act; and
   • on a conspectus evaluation of the evidence placed on record through documents it is decided that the unprecedented rise in the price of imported coal has rendered the supply of power under the PPA with the existing price mechanism an unviable one.
2. To what relief, if any, SEPC is entitled to?
   • ceiling price mechanism in the PPA has now become unviable in view of rise in international prices of coal. SEPC has relied on Hon’ble Supreme Court’s GUVNL Judgment to pray for the relief of removal of ceiling on VFC. The Supreme Court’s judgment holds as under:
     • fixation and determination of tariff is a statutory function performed by the State Electricity Regulatory Commissions (“SERC”) constituted under the Act;
     • the power to determine tariff is statutory. Tariff incorporated in the PPA is the tariff fixed by an SERC in exercise of its statutory powers;

• • • tariff agreed by and between parties, though finds mention in the contractual context, is not an act of volition of the parties which can in no case be altered except by mutual consent; and

• • • Section 86 (1) (b) of the Act empowers SERCs to regulate the price of sale and purchase of electricity between generating companies and distribution licensees through agreements of power purchase;
  • in view of the settled law, TNERC exercises its regulatory powers under the Act to ameliorate the crisis faced by the generator for non-supply of power due to factors which are beyond its control. Since SEPC is not accountable for the change in circumstances where imported coal prices have risen multi fold leading to exorbitant increase in energy charges, SEPC is entitled to some relief in accordance with Section 61 and 62 of the Act;
  • SEPC is entitled to a permission to procure the imported coal at the cheapest price together with other related reasonable restrictions as an ‘interim arrangement’ for the supply of power to TANGEDCO; and
  • long term solution for SEPC is to obtain domestic coal linkage. The interim arrangement for supply through imported coal shall be valid only until SEPC procures domestic coal linkage and commences supply of power using domestic coal supplied through the linkage.

Findings by APTEL

1. TANGEDCO challenged the abovesaid Order passed by TNERC on the primary ground that removal of ceiling on tariff was untenable. During arguments before APTEL, we (on behalf of SEPC) pointed out the following aspects:
   • ceiling stipulated in the PPA was never insisted upon by TANGEDCO i.e. it was not TANGEDCO’s case to insist SEPC to supply power on ceiling VFC linked with domestic coal prices;
   • TANGEDCO in fact submitted to the jurisdiction of TNERC to determine the tariff afresh; and
   • TNERC accordingly stipulated the interim arrangement of supply of power based on procurement of imported coal on Argus Index prices i.e. at Argus index price of indices specified in the PPA.
2. Upon APTEL’s observation on TANGEDCO never having argued sanctity of contracts, TANGEDCO submitted a ‘proposal’ for the ‘interim arrangement’ between parties. SEPC agreed to the proposal in part. The contentious issue which remained was regarding continuation of ‘discount on VFC’ [ to Para 1(d) under Findings by TNERC].
3. APTEL based on arguments on both sides, passed the following directions in its judgment dated January 27, 2025:
   • SEPC to supply power to TANGEDCO as per the ‘interim arrangement’ decided in accordance with the proposal i.e. for SEPC to procure coal as per indices specified in Addendum #3 (without ceiling);
   • the index price of the cheapest indices shall be adjusted to the grade of coal actually procured by SPEC as per the provisions of the PPA;
   • discount on VFC to not continue since the discount offered by SEPC earlier was valid only for the period of 3 (three) years which ended on November 30, 2024. Discount cannot be continued without going through ‘Review Mechanism’ under the PPA;
   • ‘interim arrangement’ to continue 12 (twelve) months beyond the date on which SHAKTI Policy (revamped) comes into force. In case any proceedings are initiated by TANGEDCO regarding procurement of domestic coal linkage, SEPC is also at a liberty to initiate the required proceedings afresh; and
   • Both parties to execute Addendum #4 to the PPA based on the above directions, within three (3) months from the date of the judgment i.e., by April 27, 2025.

Conclusion

While passing the GUVNL Judgment, the Supreme Court dealt with the question of whether the tariff fixed under a PPA is sacrosanct and inviolable. The power producer in that case had sought revision of tariff on the ground of increase in cost due to longer distance to which the power was to be evacuated than the one envisaged. In that context, the Supreme Court held that the tariff determination being a statutory exercise is not inviolable. The law laid down in GUVNL Judgment has been given effect to by the APTEL. Hence, law which holds the ground today so far as Section 62 projects are concerned, is as follows:

1. the power to determine tariff is undoubtedly statutory. In case tariff incorporated in the power purchase agreement is the tariff fixed by State Commission in exercise of its statutory powers then it is not possible to hold that the said tariff agreed by and between parties, though finding mention in the contractual context, is the result of an act of volition of the parties which can in no case be altered except by mutual consent;
2. through tariff, recovery of cost of electricity in a reasonable manner is also to be ensured;
3. Section 86 (1) (b) of the Act empowers SERC to regulate the price of sale and purchase of electricity between generating companies and distribution licensees through agreements of power purchase. The power regulation is of wide import; and
4. in view of Section 86 (1) (b) of the Act, the court must lean in favor of flexibility and not read inviolability in terms of PPA in so far as tariff stipulated therein as approved by the concerned SERC.

TANGEDCO though voraciously argued on maintaining ceiling and discount on VFC, however, such contentions were disallowed. TNERC and APTEL considered the intricate facts involved in the case and effectively adjudicated on the right of a generating company under Section 61 of the Act.

This Prism has been prepared by:

Poonam Verma Sengupta Partner

Gayatri Aryan Principal Associate

Rajesh Jha Associate

For more details, please contact [email protected]

[1] Judgment dated January 27, 2025 in Appeal No. 910 of 2023

[2] In M.P. No. 3 of 2022 (SEPC vs. TANGEDCO)

[3] (2016) 8 SCC 743

[4] In this judgment, the Hon’ble Supreme Court dealt with the question of whether the tariff fixed under a PPA is sacrosanct and inviolable and beyond review and correction by the State Electricity Regulatory Commission. The Hon’ble Supreme Court then decided that Section 86(1)(b) of the Act empowers Regulatory Commission to regulate price of sale and purchase of electricity between generating companies and distribution licensees through agreements and that the Regulatory Commission has power to re-determine the tariff rate when the tariff rate mentioned in the PPA between generating company and distribution licensee was fixed by the Regulatory Commission in exercise of its statutory powers.

[5] 2017 (14) SCC 80

Please click here to download the document.

JSA successfully represented MB Power (Madhya Pradesh) Ltd. to secure payment of capacity charges and transmission charges withheld by Procurers

The Hon’ble Appellate Tribunal for Electricity (“APTEL”) in its recent judgment dated January 17, 2025, in Uttar Pradesh Power Corporation Ltd. and Ors. vs. Central Electricity Regulatory Commission & Ors., reaffirmed Uttar Pradesh Power Corporation Limited’s (“UPPCL”) obligation to pay capacity charges and transmission charges for the capacity declared by MB Power (Madhya Pradesh) Ltd. (“MB Power”)[1], even though the same was not scheduled.

Brief facts

1. UPPCL represents the distribution companies in Uttar Pradesh, i.e., Paschimanchal Vidyut Vitran Nigam Limited (“Paschimanchal”), Purvanchal Vidyut Vitran Nigam Limited (“Purvanchal”), Madhyanchal Vidyut Vitran Nigam Limited (“Madhyanchal”) and Dakshinanchal Vidyut Vitran Nigam Limited (“Dakshinanchal”) (collectively “UP Discoms”/ “Procurers”).
2. MB Power is a generating company operating a 1200 megawatt (“MW”) (2 X 600 MW) thermal power project in District Anuppur, Madhya Pradesh (“Project”). PTC India Ltd. (“PTC”) is a trading licensee in terms of the Electricity Act, 2003 (“Electricity Act”).
3. On January 18, 2014, UP Discoms entered into a Power Purchase Agreement (“PPA”) to procure 361 MW (“Contracted Capacity”) power from PTC from the Project (“Procurer’s PPA”). On January 20, 2014, PTC entered into a back-to-back PPA with UPPCL to procure 361 MW from MB Power for onward supply to UP Discoms (“PTC PPA”).
4. While executing the PTC PPA, MB Power already had Long Term Open Access (“LTA”) of 192 MW for Northern Region. Thereafter, MB Power applied for balance LTA of 169 MW and signed LTA Agreement with Central Transmission Utility of India Ltd. (“CTUIL”).
5. Since operationalisation of LTA of 169 MW by CTUIL was taking time, MB Power, secured Medium Term Open Access (“MTOA”) as an interim arrangement till operationalisation of the corresponding LTA. MB Power’s existing MTOA of 169 MW was valid till October 29, 2016, on October 12, 2015, MB Power made an application to CTUIL for MTOA of 169 MW for 3 (three) years, which was granted with effect from October 30, 2016.
6. After expiry of the earlier MTOA, there was delay in operationalisation of the fresh MTOA for 169 MW and the same could only be partly operationalised (i.e., 85 MW out of 169 MW) with effect from November 10, 2016.
7. While on March 30, 2017, MB Power was ready to schedule the Contracted Capacity with immediate effect, it was only on May 15, 2017, that UPPCL conveyed its consent for scheduling Contracted Capacity of 361 MW. For the period from April 1, 2017, to May 16, 2017, UP Discoms did not schedule the entire Contracted Capacity and did not pay capacity charges and transmission charges in respect of MB Power’s Declared Capacity.
8. Subsequently, MB Power filed a petition before the Central Electricity Regulatory Commission (“CERC”) inter-alia seeking directions to UP Discoms, for payment of capacity charges and transmission charges for the period from April 1, 2017, to May 16, 2017.
9. On April 30, 2019, CERC passed an Order (“Impugned Order”) and held that UP Discoms wrongfully withheld payment of claimed capacity charges and transmission charges in MB Power’s invoices for April and May 2017 and directed UPPCL to pay the amount with carrying cost.
10. The Impugned Order was challenged in appeal before APTEL by UPPCL.

Issues

1. Whether UP Discoms is liable to pay capacity charges and transmission charges for the period from April 1, 2017, to May 16, 2017, when UP Discoms scheduled only 277 MW out of the Contracted Capacity?
2. Whether MB Power was obligated to give 60 (sixty) days’ preliminary notice plus additional 30 (thirty) days’ final notice, prior to operationalisation of LTA for the Contracted Capacity?

Analysis and observations of APTEL

Re. Payment of capacity charges

1. MB Power commenced supply of Contracted Capacity on August 26, 2015. There was no prerequisite for availability of LTA for the entire Aggregate Contracted Capacity of prior to participation in the bidding process and signing of the PPAs.
2. UP Discoms, having accepted satisfaction of condition subsequent in terms of Article 3.1.1 of the Procurer’s PPA, which included obtaining necessary permission for LTA, cannot now contend to the contrary.
3. UP Discoms had granted clearance for commencement of power supply in terms of Article 4.1 of the Procurer’s PPA, making no distinction whether such supply should only be through LTA alone as UPSLDC’s no objection certificate had been issued for availing MTOA.
4. There is no difference whether power is received under MTOA or LTA except for the priority in the grid operation. LTA users have the highest priority for scheduling and the least likelihood of curtailment in case of congestion while on the other hand in case of congestion, if curtailment of scheduling is required in the grid, MTOA users have higher priority than short-term access users but lower than LTA users.
5. In terms of Article 4.3.1 of the Procurer’s PPA, it is the Procurer’s obligation to ensure the availability of Interconnection Facilities and evacuation of power from the Delivery Point before the Scheduled Delivery Date or the Revised Scheduled Delivery Date.
6. UP Discoms are liable to pay capacity charges for the quantum (84 MW) which was not scheduled by them during the period from April 1, 2017 to May 16, 2017 even though the MB Power was in a position to schedule entire quantum of 361 MW through LTOA since April 1, 2017.
7. UP Discoms were aware of their liability to pay the Capacity Charges upon operationalisation of open access whether the power is scheduled or not.

Re. Preliminary notice and final notice

In terms of the Procurer’s PPA, the requirement of preliminary notice of 60 (sixty) days and final notice of 30 (thirty) days is only before commencement of power supply. It cannot be the case that whenever there is disruption in supply or change in type of open access, the generator will have to provide a fresh 60 (sixty)/30 (thirty) day notice to the Procurer.

Re. Reimbursement of transmission charges

1. In terms of the PPA, UP Discoms are obligated to reimburse transmission charges to MB Power for the Contracted Capacity.
2. Once LTA is granted and operationalised for an applicant, such capacity is booked for that applicant and the Procurer is liable to pay charges for the same, whether such LTA is utilised or not.

Conclusion

The judgment passed by APTEL re-affirms the regulatory principles for payment of capacity charges and transmission charges in cases where the generating company has declared such capacity to be available, irrespective of whether such capacity is scheduled by the Procurer. The judgment provides regulatory certainty for generators and protects their interests in instances where the Procurers indulge in unilateral withholding of capacity charges and transmission charges.

MB Power was represented by Amit Kapur, Akshat Jain and Shikhar Verma

This Prism has been prepared by:

Amit Kapur Joint Managing Partner

Akshat Jain Partner

Shikhar Verma Associate

For more details, please contact [email protected]

[1] MB Power was represented in the dispute by Amit Kapur, Akshat Jain and Shikhar Verma