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JSA represents Nippon Steel Corporation and JFE Steel Corporation in successfully obtaining an unconditional approval from the CCI in relation to acquisition of interest in the Blackwater coal mine based in Australia (“BW Coal Mine”)

JSA acted as the sole and lead Indian counsel to Nippon Steel Corporation (“Nippon Steel”) (including its newly incorporated special purpose vehicle NS Blackwater Pty Limited (“NS Blackwater”) (collectively “Nippon Entities”)) and JFE Steel Corporation (“JFE Steel”) (including its newly incorporated special purpose vehicle JFE Steel Australia (BW) Pty Ltd. (“JFE Steel BW”) (collectively “JFE Entities”)) in securing an unconditional approval from the Competition Commission of India (“CCI”) pertaining to the proposed acquisition of:

20% interest in the BW Coal Mine, along with a coal offtake rights agreement in relation to the coal produced by the BW Coal Mine for the Nippon Entities (“Proposed Nippon Transaction”); and
10% interest in the BW Coal Mine, along with a coal offtake agreement in relation to the coal produced by the BW Coal Mine for the JFE Entities (“Proposed JFE Transaction”).

The Proposed Nippon Transaction and the Proposed JFE Transaction was approved by the CCI on 18 February 2025 in 26 days. It was one of the first deals notified to the CCI solely on account of breaching the deal value threshold which has recently been notified by the Ministry of Corporate Affairs.

Deal Value: Nippon Steel Corporation – approx. USD 720 million; and JFE Steel Corporation – approx. USD 360 million.

Our transaction team comprised: Lead Partner and Chair, Competition Law – Nisha Kaur Uberoi, Partner – Harshita Parmar, Principal Associate – Rahat Dhawan, Senior Associate – Samriddha Gooptu, and Associates – Akanksha Mathur, Naman Katyal, and Ashmeka K.

Tags Competition Law, JSA, Leading Law Firm, Leading Lawyers, Legal Updates, Mining

JSA Prism | Power | February 2025

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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

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.
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.
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.
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:

the PPA has to be implemented in its existing form;
the current situation has arisen due to SEPC’s delay in completing the Project; and
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:

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.
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

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.
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].
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:

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;
through tariff, recovery of cost of electricity in a reasonable manner is also to be ensured;
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
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

Tags Green Energy, JSA, Leading Law Firm, Leading Lawyers, Legal Updates, Power

JSA advises ONGC NTPC Green Private Limited (ONGPL) for the acquisition of Ayana Renewable Power Private Limited

As one of the largest deals in the renewable energy space in India, ONGC NTPC Green Limited (ONGPL) is set to acquire 100% stake in Ayana Renewable Power Private Limited. ONGPL has entered into a share purchase agreement with National Infrastructure Investment Fund (NIIF), BII South Asia Renewables Limited, British International Investment Plc, CDC India Opportunities Limited, Green Growth Equity Fund and Ayana Renewable Power Private Limited (ARPPL).

The acquisition is subject to the fulfilment of conditions precedent and necessary regulatory approvals. Ayana Renewable Power Private Limited is an NIIF backed renewable energy platform – with and enterprise value of INR 195 Billion (US$ 2.3 Billion). ARPPL has a portfolio of 4.1 GW of operational and under-construction assets with an expected portfolio of 10 GW by 2025. ONGPL is a 50:50 joint venture between ONGC Green Limited and NTPC Green Limited, the renewable energy verticals of ONGC Limited and NTPC Limited.

This transaction is a significant milestone for ONGPL as it ONGPL’s first strategic acquisition since its inception in November 2024. JSA acting as buyer’s legal counsel and was involved in providing end to end legal advisory services including advising ONGPL on:

strategic advisory in structuring the transaction,
detailed project risk analysis and legal due diligence on the ARPPL portfolio; and
finalising the transaction documents. The transaction advisor for ONGPL was Deloitte Touche Tohmatsu India LLP.

Our transaction team comprised of – Venkatesh Raman Prasad (Partner), Vishnu P. Sudarsan (Partner), Ashish Suman (Partner), Shashank Vikram Singh (Partner) and Ashwin Nayar (Principal Associate).

Our due diligence team comprised of – Ayan Sinha (Senior Associate), Shruti Maheshwari (Associate), Swapnil Singh (Associate), Asmita Maan (Associate), Mehar Vasant (Associate), Ravneet Gill (Associate) and Vignesh Ravichandran (Associate).

Our competition team comprised of – Vaibhav Choukse (Partner), Ela Bali (Partner), Aditi Khanna (Senior Associate) and Faiz Siddiqui (Associate).

Tags Acquisition, Green Energy, JSA, Leading Law Firm, Leading Lawyers, Renewable Energy

JSA Prism | Power | February 2025

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Hon’ble High Court of Delhi quashes Goods and Services Tax notices issued to Central Electricity Regulatory Commission and Delhi Electricity Regulatory Commission

The Hon’ble High Court of Delhi (“Delhi HC”), by its recent judgment dated January 15, 2025 in CERC vs. Addl. Director, Directorate General of GST Intelligence and Anr.[1] and Batch, quashed the Show Cause Notices (“SCNs”) issued by the Directorate General of GST Intelligence (“DGGI”) to the Central Electricity Regulatory Commission (“CERC”) and Delhi Electricity Regulatory Commission (“DERC”) (“Electricity Regulatory Commissions”). It was inter alia held that the statutory functions discharged by the Electricity Regulatory Commissions under the Electricity Act, 2003 (“Electricity Act”) are not exigible to Goods and Services Tax (“GST”) under the Central Goods and Services Tax Act, 2017 (“CGST Act”) and the Integrated Goods and Services Tax Act, 2017 (“IGST Act”).

Brief facts

SCNs dated May 29, 2024 and July 23, 2024 were issued by DGGI to the CERC and the DERC respectively alleging that both bodies were liable to pay GST on various fees collected while performing statutory functions under the Electricity Act. These included:
- filing fees for tariff petitions filed by power utilities;
- fees collected for determining or regulating electricity tariffs;
- license fees for granting licenses to transmission and distribution utilities;
- annual registration fees collected from registered entities; and
- miscellaneous fees related to other regulatory activities;
DGGI:
- classified these fees as consideration for “support services to electricity transmission and distribution” taxable under the Service Accounting Code (“SAC”) 998631 as per Serial No. 466 of the Annexure to Notification No. 11/2017 – Central Tax (Rate) dated June 28, 2017, read with the explanatory notes to the Scheme of Classification of Services as adopted by the Central Board of Indirect Taxes and Customs (“CBIC”);
- stated that the support services so rendered would be taxable with a GST rate of 18% as per Serial No. 24(ii) of notification[2] dated June 28, 2017, and thus falling within the ambit of “support services to mining, electricity, gas and water distribution”.
SCNs asserted that regulatory functions of the Electricity Regulatory Commissions were distinct from adjudicatory functions. While the latter could be exempt under Schedule III of the CGST Act, the regulatory activities allegedly constituted ‘supply of services’.
Petitioners (Electricity Regulatory Commissions) had broadly submitted as under:
- functions of Electricity Regulatory Commissions under the Electricity Act, including regulating tariff and licensing, are statutory and not commercial. In the absence of any commercial consideration or business objective, the discharge of such statutory activities in public interest cannot be subjected to a levy under either the CGST or the IGST; and
- both the Electricity Regulatory Commissions have all the trappings of a court and thus liable to be viewed as a ‘tribunal’, being exempt from taxation.
Respondent (DGGI) had broadly submitted as under:
- adjudicatory functions (under Section 79(1)(f) / 86(1)(f) of the Electricity Act) of the Electricity Regulatory Commissions alone qualify for exemption, while regulatory functions should attract GST liability;
- regulatory functions appear to be a ‘service’ in terms of Section 2(102) of the CGST Act read with Section 2(24) of the IGST Act and as such, a ‘taxable supply’ in terms of Section 2(108) of the CGST, 2017 read with Section 2(24) of the IGST Act, 2017 which is leviable to tax under the Section 9 of the CGST Act read with Section 5 of IGST Act;
- activities carried out by the Electricity Regulatory Commissions fall under the definition of ‘business’ as defined in Section 2(17) of the CGST Act read with Section 2(24) of the IGST Act;
- CBIC has compiled and released a booklet containing 31 (thirty-one) frequently asked questions on GST in government services sector, stating that statutory or regulatory bodies like the Electricity Regulatory Commissions do not qualify as ‘government’ or ‘local authority’ under the CGST Act; and
- as such, financial consideration/fees received by the CERC/DERC is towards a function/service rendered by them and, in absence of any blanket exemption available, the said services appear to be taxable under the CGST Act, 2017/IGST Act, 2017.

Issues

The following issues arose for consideration of the Delhi HC:

whether GST is leviable on fees collected by the Electricity Regulatory Commissions for their regulatory functions?
whether the Electricity Regulatory Commissions fall within the scope of “tribunal” under Schedule III of the CGST Act? and
whether a distinction can be drawn between regulatory and adjudicatory functions of the Electricity Regulatory Commissions for the purpose of GST liability?

Findings of the Delhi HC

The Delhi HC, while allowing the writ petitions filed by CERC and DERC and setting aside the SCNs, held as under:

Schedule III to the CGST Act lists out activities which are neither liable to be treated as a supply of goods nor a supply of services, which includes services rendered by a tribunal established under any law. Electricity Regulatory Commissions act as quasi-judicial bodies with all the trappings of a tribunal. Reliance is placed on PTC India Ltd. vs. CERC[3];
Regulatory function discharged by the Electricity Regulatory Commissions would clearly not fall within the scope of the word ‘business’ as defined by Section 2(17) of the Electricity Act. Thus, even if the fee so received by the CERC and DERC were to be assumed as being consideration received, it was clearly not one obtained in the course or furtherance of business;
Schedule III of CGST Act in express and unambiguous words excludes services rendered by a court or tribunal. Once that exclusion had come to be expressly incorporated, DGGI could not have undertaken an exercise to bifurcate or draw a wedge between the adjudicatory and regulatory role of the Electricity Regulatory Commissions;
It cannot be accepted that regulation of tariff, inter-state transmission of electricity or the issuance of license would be liable to be construed as activities undertaken or functions discharged in the furtherance of business. Even if these were functions being performed in the exercise of a regulatory function, the same were being discharged by a quasi-judicial body (CERC/DERC) which undoubtedly had all the trappings of a tribunal. The grant of a license to transmit or distribute is clearly not in furtherance of business or trade but in extension of the statutory obligation placed upon a Commission to regulate those subjects;
Even though Section 2(102) of the CGST Act defines the expression ‘services’ to mean ‘anything other than goods’, the expansive reach of that definition would have to necessarily be read alongside Schedule III which excludes services per se rendered by a court or tribunal established under any law. The provision made in Schedule III is clearly intended to insulate and exempt the functions discharged by a court or tribunal from the levy of a tax under the CGST;
Electricity Act makes no distinction between the regulatory and adjudicatory functions which it vests in and confers upon an Electricity Regulatory Commission. Those functions are placed in the hands of a quasi-judicial body enjoined to regulate and administer the subject of electricity distribution. Electricity, undoubtedly, is a natural resource which vests in the State. The SCNs infringe the borders of the incredible and inconceivable.
SCNs issued by DGGI were arbitrary and unsustainable. Exemption in Schedule III of the CGST Act, which applies to services provided by courts or tribunals, extends to the Electricity Regulatory Commissions. Classification of fees collected as ‘support services to electricity transmission and distribution’ under SAC 998631 does not override the statutory exemption provided in Schedule III.

Conclusion

The Delhi HC by the present judgment has held that Electricity Regulatory Commissions such as the CERC and DERC performing statutory and regulatory functions in the public interest under the Electricity Act, cannot be subjected to GST without express provisions under the statute. The exemption under Schedule III of the CGST Act protects Electricity Regulatory Commissions from their statutory roles being classified as taxable supplies. Electricity Act makes no distinction between the regulatory and adjudicatory functions which it vests in and confers upon an Electricity Regulatory Commission. Those functions are placed in the hands of a quasi-judicial body enjoined to regulate and administer the subject of electricity distribution.

This Prism has been prepared by:

Anupam Varma
Partner

Nikhil Sharma
Partner

Aditya Ajay
Senior Associate

For more details, please contact [email protected]

[1] W.P. (C) No. 10680 of 2024

[2] Notification No. 8 / 2017 – Integrated Tax (Rate) dated June 28, 2017.

[3] (2010) 4 SCC 603

Tags Central Electricity Regulatory Commission, Delhi High Court, GST, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates, Power

JSA Prism | Power | February 2025

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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

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”).
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”).
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”).
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”).
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.
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.
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.
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.
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.
The Impugned Order was challenged in appeal before APTEL by UPPCL.

Issues

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?
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

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.
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.
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.
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.
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.
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.
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

In terms of the PPA, UP Discoms are obligated to reimburse transmission charges to MB Power for the Contracted Capacity.
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

Tags Green Energy, JSA, Leading Law Firm, Leading Lawyers, Legal Updates, Power

JSA acts as legal counsel to Hetero Group in the sale of its 125 MW renewable energy portfolio to JSW Neo Energy Limited

JSA acted as legal counsel to Hetero Labs Limited and Hetero Drugs Limited (“Hetero Group”) in relation to the sale of its renewable energy portfolio of 125 MW generation capacity to JSW Neo Energy Limited (JSWNEL).

The transaction values the portfolio at an enterprise valuation of approximately INR 630 Crores, excluding net current assets and other adjustments under the definitive agreements.

Our transaction team comprised of Lead Partner – Vishnu Sudarsan, Partners – Shashank Vikram Singh and Kartikeya GS, and Associates – Ravneet Singh Gill and Vignesh Ravichandran.

Tags Energy, JSA, Leading Law Firm, Leading Lawyers, Legal Counsel, Power, Renewable Energy

JSA Newsletter | ESG | December 2024 Edition

Please click here to download the Newsletter as a PDF.

Supreme Court judgements/orders

Protection of sacred groves of Rajasthan and the community stewardship associated therewith

The Supreme Court of India, in its judgment dated December 18, 2024, in the case of TN Godavarman Thirumulpad v. Union of India and Ors[1] directed the forest department to recognise the sacred grooves/orans of Rajasthan as “forests” under the Forest Conservation Act, 1980. The Court stated that the recognition should be based on the groves’ purpose, as well as their cultural and ecological significance to the local community, rather than solely on their size or extent. The Court further proposed suggestions to sustainably conserve the sacred groves/ orans of the Rajasthan and empower the communities associated with their protection. Some of the key suggestions are as follows:

the Rajasthan Government should identify traditional communities that have historically protected sacred groves and designate these areas as ‘Community Forest resource’ under Section 2(a) of the Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006 (“Forest Rights Act”);
models like Piplantri village demonstrate how community driven initiatives can effectively address social, economic, and environmental challenges in a cohesive manner. Active measures are required at the Governmental level to ensure that such ideas are implemented/replicated in other parts of the country to promote sustainable development and gender equality; and
the Ministry of Environment, Forests and Climate Change (“MoEFCC”) is recommended to create a comprehensive policy for the governance and management of sacred groves across the country. As part of this policy, the MoEFCC must also develop a plan for a nationwide survey of sacred groves, by whatever name they are identified in each State. Further, the court suggested that MoEFCC should strive to create policies and programs that protect the rights of these communities and involve them in forest conservation.

Delhi’s solid waste crisis demands immediate action; SC directs authorities to comply

The Supreme Court in its order dated December 19, 2024, in MC Mehta vs Union of India, addressed several critical environmental concerns, particularly related to solid waste management, air quality, and pollution control raising concerns over the Delhi government and the Municipal Corporation of Delhi’s non-compliance with the Solid Waste Management Rules, 2016 (“SWM Rules”). It directed the Delhi government to submit a detailed affidavit outlining compliance with specific provisions and timelines under the SWM Rules.

The Court observed that Delhi generates 11,000 tonnes of municipal solid waste daily, however, experiences a processing shortfall of 3,000 tonnes per day which has resulted in widespread illegal dumping. This situation poses significant risks to the environment and public health while violating the citizens’ fundamental right to a pollution-free environment. The Court urged authorities to adopt innovative solutions to address the deficit and warned that unchecked waste generation might necessitate a reassessment of the city’s development activities.

The Court also highlighted the daily dumping of 3,800 tonnes of solid waste at the Ghazipur and Bhalswa sites, which causes environmental degradation and frequent fires. It directed the Delhi government to submit an affidavit by January 15, 2025, detailing measures taken to prevent fires at these sites and mitigate their environmental impact. Additionally, the Court instructed the Delhi government and the Municipal Corporation of Delhi to file a comprehensive affidavit addressing all aspects of compliance with the 2016 Rules.

The National Green Tribunal sets up a joint committee to examine Bengaluru’s nitrogen dioxide levels

The National Green Tribunal vide Order dated December 19, 2024, has constituted a joint committee to examine the high levels of nitrogen dioxide in Bengaluru. The said committee is instructed to visit site, collect relevant information and submit a factual report within 2 (two) months from the date of this order, with the Registrar, Southern Zonal Bench, Chennai of this Tribunal.

Regulatory updates

Battery Waste Management (Third Amendment) Rules, 2024

MoEFCC, vide notification dated December 3, 2024, has amended the Battery Waste Management Rules, 2022 to decriminalize certain contraventions under the rules, providing that any person who fails to comply with or contravenes the provisions of the principal rules will be liable to a penalty in accordance with the provisions of Section 15 of the Environment (Protection) Act, 1986.

Draft Environment Protection (Extended Producer Responsibility for Packaging made from Paper, Glass and Metal as well as Sanitary Products) Rules, 2024

MoEFCC, vide notification dated December 6, 2024, has notified the draft rules to introduce Extended Producer Responsibility (“EPR”) for promoting sustainable packaging practices, ensuring environmentally sound management of post-consumer paper including paper board, glass, metal (excluding non-ferrous metal based) packaging and sanitary products and to promote circular economy through reuse, recovery and recycling thereby creating new opportunities for economic activities, green jobs and innovations. MoEFCC has invited stakeholders to submit comments, suggestions, or objections by February 4, 2025.

Draft Solid Waste Management Rules, 2024

MoEFCC, vide notification dated December 9, 2024, has notified the draft rules. The salient features are as follows:

the rules inter alia propose to focus on waste management in environmentally sustainable ways. Special duties have been carved out for operator of waste processing facilities. Further, standards for incineration i.e. emission from incinerators/thermal technologies in solid waste treatment facility have been specified in Schedule II of these rules;
more intricate manner for segregation of waste i.e. categories like wet, dry, sanitary and special care waste added;
mandatory usage of Refuse Derived Fuel (“RDF”)/solid recovered fuel in industrial units using solid fuel (which are located near solid waste-based RDF plants). This was earlier limited to 5% in the Solid Waste Management Rules, 2016. Now the prescribed limit is 6 to 15%;
carves out special duties for bulk waste generators like industrial units;
use of centralised online portal for registering waste management entities;
landfill user fee introduced for urban/rural local body for waste sent to landfills- which will be higher than collection, transportation and waste processing costs. This fee collected shall be used towards processing of unsegregated waste/solid waste management infrastructure of the local body;
closer monitoring of biomining of legacy waste through centralised online portal where agencies will be required to disclose, update process, file quarterly returns etc. on the portal; and

polluter pays principle is applied for non-compliance of these rules – compensation to be determined by implementation committee formulated by Central Pollution Control Board (“CPCB”) which will also lay down guidelines.

MoEFCC has invited stakeholders to submit comments, suggestions, or objections by February 7, 2025. The rules are proposed to be implemented on October 1, 2025.

Public Liability Insurance (Amendment) Rules, 2024

MoEFCC, vide notification dated December 17, 2024, has notified the amendments made to the Public Liability Insurance Rules, 1991. Some of the key provisions are as follows:

Rule 3 is revised to specify that applications for relief or property restoration will be made to the collector using Form I. Further, it is clarified that an application for claim for restoration of the property may also be filed by a person who holds an interest in the affected public property, and can demonstrate a direct and substantial connection with that property;
Rule 3A is inserted outlining the process for allocating funds from the environmental relief fund for environmental damage restoration. The CPCB or State Pollution Control Boards (“SPCBs”) will apply to the Central Government using Form II. The Central Government will then determine the allocation (up to 10% of the fund) using Form III. The CPCB/SPCBs will maintain accounts and submit annual reports on fund utilisation; and
Rule 5A is inserted mandating industrial units to publicise among the affected persons their right to claim for relief in case of an accident occurring in any industrial unit.

Environment Relief Fund (Amendment) Scheme, 2024

MoEFCC, vide notification dated December 17, 2024, has notified the amendments made to the Environment Relief Fund Scheme, 2008. Some of the key provisions are as follows:

the relief fund will be vested in the Central Government;
the sources of the fund are clarified to include amounts remitted as compensation or relief for environmental damage under Section 24 of the National Green Tribunal Act, 2010; penalties and additional penalties imposed under Sections 14, 15, or 17 of the Public Liability Insurance Act, 1991 and interest or returns earned on fund investments;
CPCB will serve as the fund manager for a period of 5 (five) years, starting January 1, 2025. This replaces the previous role of United Insurance Company Limited;
payments to the fund can be made via demand draft or other electronic modes;
the percentage of the fund allocated for administrative expenses has been increased from 1% to 2%;
the fund manager will develop and maintain an online portal for implementing the scheme and disburse funds based on orders issued by the District Collector or the Central Government; and
the fund’s accounts will be audited by an independent auditor appointed by the Central Government from a panel approved by the Comptroller and Auditor-General.

Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations, 2024

The Securities and Exchange Board of India (“SEBI”), vide notification dated December 12, 2024, has notified the SEBI (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations, 2024 (“LODR Amendment Regulations”), for significantly amending the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”). The LODR Amendment Regulations have been made effective from December 31, 2024, except for certain provisions relating to secretarial audit, which will be effective from April 1, 2025. Some of the key provisions of the LODR Amendment Regulations are as follows:

Related Party Transactions (“RPTs”):
- The term ‘related party transaction’ will not include the following: (i) corporate actions by subsidiaries provided by the subsidiaries of the listed entity; (ii) acceptance of current account deposits and saving account deposits by banks in compliance with the directions issued by the Reserve Bank of India or any other central bank in the relevant jurisdiction from time to time: and (iii) retail purchases from any listed entity or its subsidiary by its directors or its employees, without establishing a business relationship and at the terms which are uniformly applicable/offered to all employees and directors.
- Remuneration and sitting fees paid by listed companies or its subsidiaries to its director, key managerial personnel or senior management, except who is part of promoter or promoter group no longer require the approval of the audit committee (if the same are not material).
- The members of the audit committee, who are independent directors, may ratify RPTs within 3 (three) months from the date of the transaction or in the immediate next meeting of the audit committee (whichever is earlier), subject to the following conditions:
  - the value of the RPT whether entered into individually or taken together, during a financial year must not exceed INR 1,00,00,000 (Indian Rupees one crore);
  - the transaction is not material;

- - rationale for inability to seek prior approval for the transaction must be placed before the audit committee at the time of seeking ratification; and

- - the details of ratification must be disclosed along with the RPT disclosures submitted with the stock exchanges.
- The transactions in the nature of statutory dues, statutory fees or statutory charges entered into between an entity and the Central Government or any State Government or any combination thereof are exempted as an RPT. Further, transactions between a public sector company and the Central Government or any State Government or any combination thereof are also exempted.
Compliance Officers:
- Compliance officer of a listed entity must be in the whole-time employment of such listed entity. Further, the compliance officer must not be more than one level below the board of directors.
- Compliance officer of the listed entity will be designated as key managerial personnel.
- Any vacancy in the office of the compliance officer of a listed entity in respect of which a resolution plan under Section 31 of the Insolvency and Bankruptcy Code, 2016 has been approved, must be filled within a period of 3 (three) months of such approval.
Directors:
- A person can be appointed as the non-executive director of a listed entity until the age of 75.
- In case a listed entity wants to appoint a person of more than 75 years as its non-executive director, the shareholders of such listed company will be required to pass a special resolution to that effect, in which case the explanatory statement annexed to the notice for such motion must indicate the justification for appointing such a person as the non-executive director.
- In case there is a vacancy in the committees of the board of directors of a listed entity, such vacancy must be filled within 3 months or by the date of the vacancy’s occurrence, whichever is earlier.
Investor Grievance Redressal: A listed entity must file with the recognised stock exchange(s), on a quarterly basis, a statement detailing the redressal of investor grievances in such form and within the timelines as may be specified by SEBI.
Peer Reviewed Company Secretary: The term ‘peer reviewed company secretary’ is inserted to mean a company secretary in practice, who is either practicing individually or as a sole proprietor or as a partner of a peer reviewed practice unit, holding a valid certificate of peer review issued by the institute of Company Secretaries of India. Further, a person will be eligible for appointment as a secretarial auditor of the listed entity only if such person is a peer reviewed company secretary and has not incurred any of the disqualifications as specified by SEBI.

Industry standards on reporting of business responsibility and sustainability report core

SEBI, vide circular dated December 20, 2024, has outlined industry standards for the reporting of the Business Responsibility and Sustainability Report (“BRSR”) Core. These standards, developed by the Industry Standards Forum, aim to facilitate the standardisation and ease of implementation of BRSR Core disclosures under the LODR Regulations and will be applicable for the financial year 2024-25 and onwards.

Clarifications on Cybersecurity and Cyber Resilience Framework

SEBI, vide notification dated December 31, 2024, has clarified that with regard to the compliance requirements effective from January 1, 2025, under the Cybersecurity and Cyber Resilience Framework (CSCRF”), regulatory forbearance is provided till March 31, 2025. For any non-compliance during this period that comes to the notice of the regulator, no regulatory action will be taken provided the Regulated Entities (“REs”) are able to demonstrate meaningful steps taken/progress made in implementation of CSCRF. An opportunity will be given to the REs to demonstrate the same before any regulatory action is considered by SEBI. Further, it is clarified that the circular is effective from January 1, 2025, but the date of compliance of CSCRF for Know Your Client registration agencies and depository participants is extended from January 1, 2025, to April 1, 2025.

Other Developments

Department of Chemicals and Petrochemicals launches the first training programme on “Chemical and Petrochemical Industrial Safety”

Department of Chemicals and Petrochemicals, vide press release dated December 3, 2024, has announced the launch of the first training programme on “Chemical and Petrochemical Industrial Safety” at Ahmedabad, Gujarat. The first 2 (two) day residential training programme was conducted from November 28, 2024, to November 29, 2024, at Central Institute of Petrochemical Engineering & Technology: Institute of Petrochemicals Technology Ahmedabad, focusing on major accident hazard units in the chemical and petrochemical sector.

Union Minister of Steel and Heavy Industries unveiled the “Taxonomy of Green Steel”

The Ministry of Steel, vide press release dated December 12, 2024, announced that Union Minister of Steel and Heavy Industries, Shri H D Kumaraswamy, unveiled the “Taxonomy of Green Steel” for India. This initiative marks a global first, providing a formal definition for green steel while advancing India’s commitment to achieving net-zero emission intensity by 2070.

The taxonomy sets standards to define and categorize low-emission steel, outlining a framework for green steel production, market creation, and securing financial support for the steel industry’s green transition. The taxonomy introduces a star-rating system based on CO2 emission intensity, categorizing steel into five, four, and three-star ratings for emission levels below specific thresholds, while steel with emissions exceeding 2.2 t-CO2e/tfs is ineligible for green certification.

Ministry of New and Renewable Energy announces significant amendment to the Approved Models and Manufacturers of Solar Photovoltaic Modules Order 2019 to advance solar manufacturing

The Ministry of New and Renewable Energy, vide press release dated December 10, 2024, has announced a significant amendment to the Approved Models and Manufacturers of Solar Photovoltaic Modules (“ALMM”) Order, 2019 which will have far-reaching implications for India’s solar power sector and its clean energy transition. Taking effect from June 1, 2026, the amendment introduces List-II for solar photovoltaic (“solar PV”) cells under the ALMM framework, mandating that all solar PV modules used in projects, including government-backed schemes, net-metering projects, and open access renewable energy initiatives, source their solar cells from ALMM-approved manufacturers. This move aims to bolster domestic manufacturing, ensure quality assurance, and foster self-reliance in India’s renewable energy sector.

Existing projects which were bid out before the amendment’s issuance will be exempt, but all future bids must comply, signifying a shift toward sustainability and higher standards in the solar industry. Prioritizing domestic solar PV cell production will reduce India’s dependency on imports augmenting India’s goal of achieving 500 GW of non-fossil fuel power by 2030.

This Prism has been prepared by:

Amit Kapur
Joint Managing Partner

Sugandha Somani Gopal
Partner

Komal Karnik
Associate

For more details, please contact [email protected].

[1] 2024 INSC 997.

Tags Disputes, Environment Act, ESG, ESG Regulatory, JSA, Leading Law Firm, Leading Lawyers, Legal Updates, Newsletter

Greening the Economy – Stepping toward Sustainability

he key elements underpinnings India’s energy transition include renewable energy, smart metering, hydrogen based economy, carbon markets, domestic production of key supply chain products, pumped hydro projects, EV penetration, small nuclear reactors and a robust grid.

Please click here to read the full article by Partner Vishnu P. Sudarsan & Partner Kartikeya G.S. published in ETEnergyWorld.

Tags Articles, Clean Energy, Greenwashing, JSA, Leading Law Firm, Leading Lawyers, Legal Updates

JSA Prism | Power | January 2025

Please click here to download the document.

Karnataka Electricity Regulatory Commission restrains distribution companies from levying Grid Support Charges on Captive Power Projects, including Solar Rooftop Photovoltaic Plants, till the commission determines such charges

On January 15, 2025, the Karnataka Electricity Regulatory Commission (“KERC/Commission”) has passed an Order restraining electricity supply companies (“ESCOMs”) from levying Grid Support Charges (“GSC”) on Captive Power Plants (“CPPs”) including Solar Rooftop Photovoltaic Plants (“SRTPVs”), till KERC determines the charges.

Brief facts

On June 1, 2023, KERC passed a tariff order determining the tariff and norms for SRTPVs. While dealing with the issue of imposition of GSC, KERC decided not to levy any GSC on SRTPVs, till it determines GSC after conducting necessary studies. However, for CPPs, KERC decided to continue levying demand charges in lieu of GSC as per the wheeling and banking agreement till determination of GSC.
Subsequently, KERC in its tariff orders (for retail supply of electricity) dated May 12, 2023, and February 28, 2024 held that a study needs to be conducted before it takes a view on the imposition of GSC on CPPs.
However, ESCOMs were continuing to levy GSC on captive and non-captive plants including SRTPVs. Representations were made by stakeholders before KERC highlighting that imposition of GSC on CPPs will discourage investment in captive power generation and is inconsistent with the provisions of the Electricity Act, 2003 (“Electricity Act”).

KERC Order

Pursuant to such representations, KERC has passed its Order. KERC notes that captive generation is governed by Section 9 of the Electricity Act[1], which provides the right to any person to establish, operate, and main a captive generating plant; and that the Electricity Act emphasizes promoting captive generation as a means of enhancing energy security, ensuring reliability of electricity supply and reducing dependency on the grid. Accordingly, KERC has held that GSC or parallel operating charges will not be imposed on CPPs including SRTPVs, till it is determined by the Commission.

Conclusion

KERC’s Order is in continuation of the Commission’s position taken in 2023 regarding non-levy of GSC on solar CPPs, including SRTPVs. The non-imposition of GSC can stimulate growth by helping CPPs and SRTPVs reduce their operational expenses, gain competitive advantage and encourage investment in the renewable energy sector. While KERC’s Order is a welcome step towards promoting captive generation, it is subject to the Commission’s final decision on determination of GSC.

This Prism has been prepared by:

Abhishek Munot
Partner

Kunal Kaul
Partner

Tushar Nagar
Principal Associate

Purvi Shrivastava
Associate

For more details, please contact [email protected]

[1] Section 9, Electricity Act, 2003: Captive Generation

Tags Green Energy, JSA, Leading Law Firm, Leading Lawyers, Legal Updates, Power

JSA Prism | Power | January 2025

Please click here to download the document.

Karnataka High Court strikes down Central Government’s Green Energy Open Access Rules and Karnataka Electricity Regulatory Commission’s Green Energy Open Access Regulations as being ultra vires the Electricity Act, 2003

In a significant judgment, the Karnataka High Court (“Karnataka HC”), in the case of Brindavan Hydropower Pvt. Ltd. vs. Union of India and Ors[1], struck down Central Government’s Electricity (Promoting Renewable Energy Through Green Energy Open Access) Rules, 2022 (“2022 GEOA Rules”) and Karnataka Electricity Regulatory Commission (Terms and Conditions for Green Energy Open Access) Regulations, 2022 (“2022 GEOA Regulations”) as being ultra vires the Electricity Act, 2003 (“Electricity Act”). This is bound to have a significant impact across the renewable energy space in the country.

Brief facts

On June 6, 2022, the Central Government framed the 2022 GEOA Rules in exercise of Sections 176(1) and 176(2)(z) of the Electricity Act. The 2022 GEOA Rules amongst others provided that banking will be permitted only for a month and prescribed the manner of charges to be levied for open access. Rule 5 provided that the Appropriate Commission may, if necessary, amend its regulations to be consistent with the 2022 GEOA Rules.
Karnataka Electricity Regulatory Commission (“KERC”) in light of 2022 GEOA Rules, framed the 2022 GEOA Regulations.
Both 2022 GEOA Rules and 2022 GEOA Regulations were challenged by generators as being ultra vires the Electricity Act.

Issues framed

The questions of law framed by the Karnataka HC were:

whether the provisions of the Electricity Act enable the Central Government to frame the impugned GEOA Rules 2022?
whether the Central Government – by the framing of said GEOA Rules of 2022 – could have directed the KERC to frame the impugned KERC Regulations of 2022, thereby depriving it of its statutory function of being the regulator, and whether these KERC Regulations would survive in view of the answer to this issue? and
whether the consequential orders passed by the KERC fixing the charges for open access in exercise of its powers under said KERC Regulations can be sustained?

Findings of Karnataka High Court

Re. Findings regarding the validity of the 2022 GEAO Rules and 2022 GEOA Regulations

From the scheme of the Electricity Act, it is evident that the role of the Central Government is confined to formulate policy on electricity, tariff, standalone system in rural areas etc., whereas the Appropriate Commission has been conferred with the power to regulate/grant of open access and the Central/ State Government has no role to play. This is evident from the following:
as per Section 3 of the Electricity Act, Central Government does not have the independent power to frame the National Electricity Policy or the Tariff Policy. Central Government is statutorily required to consult the State Governments and the Central Electricity Authority;
even under the National Electricity Policy, the responsibility and obligation to facilitate non-discriminatory open access is only on the Regulatory Commissions;
all aspects regarding tariff determination, regulation of electricity purchase and facilitation of intra-state open access are to be monitored by the State Commission;
charges for transmission and wheeling of electricity is to be determined only by the State Commission;
the purpose of creating a Regulatory Commission is to ensure that there is an independent and impartial body to deal with open access charges and that this would ensure a fair determination;
the Appropriate Commission is not required to consult the State Government when determining tariff under Section 64. If the State Government decides to provide subsidy to those affected by a tariff order, it is required to pay such subsidy in advance; and
as per Sections 107-108 of the Electricity Act, directions of both Central and State Governments on Appropriate Commissions are only guiding factors and the same is not binding on the Appropriate Commission.
If the power to frame regulations for determination of transmission and wheeling charges is conferred on the Commission and the substantive provisions are also categorical that aspects of transmission and distribution, especially in relation to open access, are to be determined by the State Commission, it is obvious that no other authority can have a role to play nor can any other authority have even a supervisory role in these matters. All aspects of open access lie within the exclusive domain of the State Commission. Hence, the Central Government does not have the power to frame the rules dealing with the issue of open access and determination of wheeling and transmission charges.
Central Government’s submission that it has the power to frame the 2022 GEAO Rules under Section 176(2) (z) of the Electricity Act, i.e. ‘any other matter which is required to be, or may be, prescribed’, is incorrect. The Central Government cannot take the support of the residual power to frame the 2022 GEOA Rules. If such contention is accepted, it will grant the power to the Central Government to amend Section 42(2) by virtue of passing the 2022 GEAO Rules, which is impermissible. Hence, they have to be struck down.
The Central Government’s submission that it has enacted 2022 GEOA Rules on account of the fact that India is a signatory to the Paris Convention and that Inda has committed to achieve net zero emission, is contrary to Article 253 of the Constitution of India. Article 253 does not permit the Central Government to transgress an existing law and frame Rules/Regulations by sidestepping the Electricity Act. However, Parliament is empowered to amend the Electricity Act if it is of the view that the nation is to implement an international treaty.
Since the 2022 GEOA Regulations have been framed by KERC as a consequence of 2022 GEOA Rules, 2022 GEOA Regulations also have to be struck down.

Re. Findings regarding ‘Banking of Electricity’

The Electricity Act does not contain any provision which entitles the generating company to demand a banking facility. The banking facility is, in essence, a process where a generating company injects the energy that it has generated into the grid and withdraws the same at a subsequent point in time, as per its choice and convenience. Electricity generated by a generating company is deposited in a bank i.e., the grid and this energy is withdrawn from the bank whenever the generating company desires.
While the generating company has the statutory right to inject the energy that is generated into the grid and have the same to be transmitted and distributed to its consumers, it would not have any statutory right to bank its energy. If the statute does not provide for a statutory right to bank the energy so generated, the generator cannot demand that he be provided with banking facility. The facility of baking is a mere promotional benefit allowed by the Commission.

Basis the above, the following directions were passed:

2022 GEAO Rules and 2022 GEOA Regulations are ultra-vires the Electricity Act and therefore struck down;
KERC is directed to frame appropriate regulations if it so desires in the matter of granting of open access to green energy generators and consumers. This does not mean that KERC has to necessarily make the regulations. It can continue with the 2004 Regulations as well;
since there would be vacuum till the time new regulations are formulated, an interim arrangement would therefore have to be made to ensure that the wheeling and banking facilities availed hitherto by the petitioners are facilitated;
the parties will continue to pay transmission charges at the rate of 50% of the transmission charges determined by KERC vide its order dated July 5, 2024;
the petitioners are also be permitted to avail banking facility subject to payment of 4% under the wheeling and baking arrangements;
since the wheeling and banking agreements have expired, monthly banking will be allowed till new regulations are formulated by KERC;
it is suggested that KERC examines the possibility of providing the annual banking facility. KERC could ensure that the generators do not take advantage of the annual banking facility, by holding that the generators would be entitled to energy charges as was prevailing on the date of injection into the grid and not the charges that are prevailing on the date they seek to withdraw the energy from the grid;
this would ensure that the green energy generators do not hedge their profits by taking advantage of the annual banking facility and entitle themselves to a higher energy charge during periods when the demand for electricity is high and, consequently, higher electricity prices would be prevailing in the market; and
an oral request for grant of stay of this order was made at the time of pronouncement of this order, and the same is refused since it has been held that Central Government lacked the competence to frame the 2022 GEOA Rules and therefore the question of permitting it to continue would be illegal.

Conclusion

Karnataka HC struck down the Central Government’s 2022 GEOA Rules holding them as being contrary to the Electricity Act, 2003 as well as settled administrative law principles. 2022 GEOA Regulations were also struck down since these were premised on the 2022 GEOA Rules. The judgment is silent on whether the 2022 GEOA Rules and 2022 GEOA Regulations are being struck down prospectively. This lack of clarity may give rise to several questions qua validity of open access/banking facility granted in terms of the the 2022 GEOA Rules/2022 GEOA Regulations. However, Karnataka HC has put in place an interim arrangement regarding payment of open access/banking charges until fresh regulations are framed. This judgment may have some impact on the issues stated above as well as several other rules framed by Central Government and/or regulations formulated in terms of such rules.

This Prism has been prepared by:

Abhishek Munot
Partner

Kunal Kaul
Partner