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Successes and Setbacks: Sector progress during the year

India is well on its way to achieving its ambitious “Panchamrit” targets: 500 GW of non-fossil fuel-based installed capacity by 2030, reduction of one billion tonnes of carbon emissions by 2030, generation of 50 per cent of the country’s energy requirements from renewable energy by 2050, reduction in the carbon intensity of the economy by 45 per cent over 2005 levels by 2030, and net zero emissions by 2070. The energy transition vector received an impetus at the recently concluded COP28 in Dubai, where nearly 200 countries agreed to “transition away from fossil fuels”. However, the commitment lacks firmed up timelines and concerns exist with respect to ambiguity in the terminology used.

Please click here to read the full article by Amit Kapur and Akshat Jain, published in Power Line.

Tags Energy, Fuel, JSA, Leading Law Firm, Leading Lawyers, Power Industry

JSA Prism | Energy | December 2023

Please click here to download the Prism as PDF.

Rajasthan High Court holds that interest levied on discoms due to delay in clearing principal outstanding dues, cannot be recovered from consumers

On November 9, 2023, the High Court of Judicature for Rajasthan at Jodhpur, (“Rajasthan High Court”) has rendered its final Judgment in the case of Bhansali Dyeing v State of Rajasthan & Ors.[1] While partly allowing a batch of writ petitions filed by various consumers of distribution licensees in Rajasthan, the Rajasthan High Court has held that carrying cost/interest levied on the distribution licensees of Rajasthan (“Rajasthan DISCOMs”) for their failure to clear their principal outstanding dues cannot be recovered by the Rajasthan DISCOMS from their consumers. In doing so, the Rajasthan High Court has partly quashed and set aside orders dated June 6, 2019, September 1, 2022, and September 20, 2022 (“Impugned Orders”) passed by Rajasthan Electricity Regulatory Commission (“RERC”).

Brief Facts and Procedural History

Adani Power Rajasthan Ltd (“APRL”) had executed a power purchase agreement (“PPA”) with the Rajasthan DISCOMS for generating and selling electricity from its coal-based power plant at Kawai, District Baran. Due to the State’s inability to allocate a coal block to APRL for its power plant, APRL was constrained to import coal from Indonesia. To offset the commercial impact of importing Indonesian coal, APRL approached RERC. The ensuing litigations are summarised hereunder:

APRL filed a petition before RERC seeking compensation under change in law to offset commercial impact of importing of coal from Indonesia. By its order dated May 17, 2018², RERC allowed the petition and directed Rajasthan DISCOMS to pay the claim amount of approximately INR 5,000 crore (Indian Rupees five thousand crore) to APRL.
Aggrieved by RERC’s order dated May 17, 2018, Rajasthan DISCOMS filed an appeal before the Appellate Tribunal for Electricity (“APTEL”). On September 24, 2018³, APTEL passed an interim order directing Rajasthan DISCOMS to pay 70% of the compensation amount to APRL, pending adjudication of the appeal.
Aggrieved by APTEL’s interim order, Rajasthan DISCOMS filed an appeal before the Supreme Court of India (“Supreme Court”). The Supreme Court vide order dated October 29, 2018⁴ dismissed Rajasthan DISCOM’s appeal but modified APTEL’s order and directed Rajasthan DISCOMS to pay 50% of the amount claimed by APRL.
Pending the appeal before APTEL, Rajasthan DISCOMS filed a petition before RERC seeking recovery of the amounts paid by them to APRL pursuant to the Supreme Court’s interim order (i.e., additional power purchase cost) through special fuel surcharge. RERC allowed the petition vide order dated June 13, 2019, and held that the Rajasthan DISCOMS were entitled to recover the amount of INR 2709.36 crore (Indian Rupees two thousand seven hundred and nine point three six crore) on account of fuel surcharge adjustment, from consumers over a period of 36 (thirty six) months.
In the meantime, APTEL dismissed Rajasthan DISCOMS Appeal by its Judgment dated September 14, 2019⁶.
Aggrieved by the judgment dated September 14, 2019, Rajasthan DISCOMS filed an Appeal before the Supreme Court. By its judgment dated August 31,2020⁷, the Supreme Court upheld the orders passed by RERC and APTEL. However, the Supreme Court granted limited relief to the Rajasthan DISCOMS by reducing the rate of interest/ late payment surcharge payable by the Rajasthan DISCOMS to APRL.
Aggrieved by the Supreme Court’s judgment, Rajasthan DISCOMS filed a review petition, which was dismissed on March 2, 2021⁸.
Thereafter, APRL filed a contempt petition⁹ against the Rajasthan DISCOMS before the Supreme Court alleging non-compliance of the judgment dated August 31, 2020. By its order dated April 19, 2022, the Supreme Court closed the contempt proceedings while noting that the principal due along with interest was paid by the Rajasthan DISCOMS to APRL. The Supreme Court further left open the issue of late payment surcharge to be decided by the appropriate forum.
Eventually, Rajasthan DISCOMS filed a petition before RERC seeking to recover the additional power purchase cost incurred by them in complying with the judgment dated August 31, 2020 of the Supreme Court, from their consumers, through special fuel surcharge.
By the Impugned Orders, RERC permitted the Rajasthan DISCOMS to recover said additional power purchase cost through special fuel surcharge. Being aggrieved by the Impugned Orders, a batch of writ petitions were preferred before the Rajasthan High Court.

Findings of the Rajasthan High Court

The Rajasthan High Court, while partly allowing the writ petitions has held that only the principal amount of INR 3048.64 crore (Indian Rupees three thousand and forty eight point six four crore) can be recovered from consumers through special fuel surcharge. The carrying cost/ interest cannot be recovered from the consumers. In this regard, the Rajasthan High Court has noted and held that:

RERC has levied special fuel surcharge on consumers for an amount of INR 7,438.58 crore (Indian Rupees seven thousand four hundred and thirty eight point five eight crore) [INR 3,048.64 crores (Indian Rupees three thousand and forty eight point six four crore) towards the principal amount + INR 2,947.81 crore (Indian Rupees two thousand nine hundred and forty seven point eight one crore) towards interest/carrying cost on principal amount + INR 1,442 (Indian Rupees one thousand four hundred and forty two) being additional interest amount due to lending from financial institutions].
In terms of the RERC Tariff Regulations read with Section 62(4) of the Electricity Act, 2003, RERC is empowered to levy special fuel surcharge to recover additional power purchase cost incurred by the Rajasthan DISCOMS.
The principal amount has become liable to be paid by Rajasthan DISCOMS due to a change in law which is an uncontrollable factor in terms of Regulation 9 of the RERC Tariff Regulations.
However, Rajasthan DISCOM’s liability to pay interest / carrying Cost on the principal amount has arisen due to non-payment of the principal amount in time – this cannot be considered as an uncontrollable factor in terms of Regulation 9 of the RERC Tariff Regulations. While the original principal amount was only INR 3,048.64 crores (Indian Rupees three thousand and forty eight point six four crore), the carrying cost/ interest amounts have been levied due to the delay by Rajasthan DISCOMS in paying the principal amount.
Recovering interest/ carrying cost from consumers through special fuel surcharge is unjustified. The delay in paying the principal amount has resulted due to Rajasthan DISCOMS pursuing consecutive litigations. In GMR Warora Ltd. v. Central Electricity Regulatory Commission & Ors¹⁰, the Supreme Court has deprecated the conduct of generators and DISCOMS in pursuing repeated and unnecessary litigation on change in law issues which are settled by courts through concurrent findings.
Consumers of Rajasthan cannot be compelled to bear the consequences of Rajasthan DISCOMS failure to discharge their liability on time.

Accordingly, the Rajasthan High Court has ruled that any excess amounts already recovered from consumers will be duly adjusted while levying a special fuel surcharge for the principal amount.

Conclusion

The Rajasthan High Court has stepped in to protect consumer interest by ensuring that consumers are not burdened with unnecessary interest/carrying cost/late payment surcharge incurred by the Rajasthan DISCOMs due to their imprudence.

Under the extant regulatory framework, DISCOMs are revenue neutral utilities and are entitled to return on equity at a fixed rate. The costs which are not passed onto consumers will have to be borne by DISCOMs and can have a significant impact on their financials. However, in commercial matters, it is imperative that unnecessary and prolonged litigations, especially on settled issues, is discouraged. The party which suffers an order/ decree of court ought to make payments in terms of such order/ decree while exercising its rights against such order/ decree. This is an important judgment which protects consumer interest and lays down an important precedent for commercial disputes in the regulatory sector.

This Prism has been prepared by:

Abhishek Munot
Partner

Tushar Nagar
Principal Associate

Purvi Shrivastava
Associate

For more details, please contact [email protected]

[1] 2023 SCC OnLine Raj 3292 (S.B. Civil Writ Petition No. 11242/2023)

Tags Energy, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates, Rajasthan High Court

Sembcorp to acquire wind assets from Leap Green Energy by way of 100% acquisition of its two SPVs

JSA advised Leap Green Energy Private Limited on its potential 100% stake sale of its two special purpose vehicles (SPVs) – Ivy Ecoenergy India Private Limited and Vanilla Clean Power Private Limited to the Sembcorp group.

Leap Green Energy Private Limited is multifaceted power generating company, committed to generating power through various renewable resources including by way of wind and solar assets. By way of this acquisition, Green Infra Wind Energy Limited, a wholly owned subsidiary of Sembcorp Industries Ltd. (a Singapore energy company), will acquire 228MW of operational wind assets owned by the SPVs of Leap Green in Madhya Pradesh, Maharashtra and Rajasthan in India. The deal forms part of Sembcorp’s 2028 target to achieve 25 GW of gross installed renewable capacity across the globe.

Our transaction team comprised lead partner – Sidharrth Shankar, partner – Prakriti Jaiswal, principal associate – Anindita Basu, associate – Rishika Agarwal and Abhilash Raghav.

Tags Acquisition, Equity Stake, JSA, Leading Law Firm, Leading Lawyers, Merger and Acquisitions, Private Equity

Supreme Court upholds gas power plant’s entitlement to fixed charges

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The Supreme Court of India (“Supreme Court”) in the case of Maharashtra State Electricity Distribution Company Limited v. Ratnagiri Gas and Power Pvt. Limited & Ors.[1] upheld the decisions rendered by both Central Electricity Regulatory Commission (“CERC”) and the Appellate Tribunal for Electricity (“APTEL”) that Ratnagiri Gas and Power Pvt. Limited (“RGPPL”) is entitled to fixed charges for the duration the Maharashtra State Electricity Distribution Company Ltd. (“MSEDCL”) did not schedule electricity from RGPPL.

MSEDCL did not schedule power from RGPPL (for a certain duration) as RGPPL executed an alternate arrangement with Gas Authority of India Ltd. (“GAIL”) for supply of Recycled Liquefied Natural Gas (“RLNG”), without taking MSECCL’s permission. RGPPL declared capacity for its gas power plant based on RLNG (to be) supplied by GAIL. The issue before CERC, APTEL and Supreme Court was whether MSEDCL should pay fixed charges to RGPPL for capacity declared based on RLNG (to be) supplied by GAIL.

CERC and APTEL recognized that this alternate arrangement was executed due to shortage of domestic gas supply since September 2011. Both CERC and APTEL held that provisions of the power purchase agreement (“PPA”) between MSEDCL and RGPPL allowed RGPPL to declare capacity based either on liquid gas or RLNG and it was only for payment of variable charges that MSEDCL’s permission was required for executing agreements for gas supply/transport.

Brief Facts

RGPPL owns a gas based generating plant with installed capacity of 1967.08 MW (one thousand nine hundred and sixty seven point zero eight megawatt). The plant has a liquid natural gas (“LNG”) terminal of 5 MMTPA (five million metric tonnes per anum). 95% of the plant’s capacity is allocated to MSEDCL with balance capacities of Daman & Diu etc.

On April 10, 2007, RGPPL and MSEDCL executed a PPA.

On August 18, 2010, CERC approved tariff for RGPPL till FY 2013-14 where CERC determined the normative annual plant availability factor as 80% from FY 2009 till FY 2013-14. CERC noted that RGPPL executed contracts with Reliance India Ltd. and Oil and Natural Gas Ltd. for supply of domestic gas.

September 2011 onward, RGPPL suffered shortage of domestic gas supply and despite efforts on part of RGPPL, the domestic gas supply could not be restored.

In December 2011, RGPPL entered into an arrangement with GAIL for supply of RLNG under spot cargo on a reasonable endeavour basis (take and pay contract). Thereafter, through communications dated December 19, 2011, and December 23, 2011, MSEDCL sent letters to RGPPL stating that if MSEDCL purchased power at high cost of INR 7.05 (Indian Rupees seven paise zero five) per unit, then the consumers would un-necessarily be overburdened.

In 2012, RGPPL had filed a petition before the CERC i.e. RGPPL v. MSEDCL & Ors.[2], seeking resolution of issues related to no availability of domestic gas etc. MSEDCL during the hearing in this petition submitted that as per Article 5.9 of the PPA, RGPPL was required to obtain MSEDCL’s permission for executing an agreement with GAIL and therefore, MSEDCL is not obligated to pay fixed charges to RGPPL for capacity declared based on agreement with GAIL.

On July 30, 2013, CERC passed its order in the abovementioned petition (“CERC Order”) holding that as per Article 4.3 of the PPA, RGPPL was permitted to use RLNG as a primary fuel. This provision suffices so far as declaration of capacity using RLNG is concerned. MSEDCL relying on Article 5.9 of the PPA for refusing to pay fixed charges is incorrect since as per Article 5.9, the only permission required is related to variable charge i.e. cost of natural gas/RLNG- Article 5.9 cannot render Article 4.3 redundant.

In 2013, MSEDCL filed an appeal challenging the CERC Order before APTEL in MSEDCL v. CERC & Ors.[3]. MSEDCL contended that as per Article 5.9, RGPPL was to take MSEDCL’s permission to execute any gas supply/transport agreement.

On April 22, 2015, APTEL passed its judgment in Appeal No. 261 of 2013 and held as under (Para 13 and 14):

It is clear from the analysis of the provisions of Article 4.3 of the PPA that the primary fuel for RGPPL is LNG, natural gas or R-LNG and the normal capacity of the generating station will be declared on gas or R-LNG. The consent or agreement by a distribution licensee will be required only in the case the power generator makes the arrangements of liquid fuel(s) for the quantum required by MSEDCL.
In the case in hand, RGPPL, due to heavy scarcity of domestic gas had to change the nature of primary fuel namely LNG/natural gas to R-LNG. The consent of MSEDCL is not required prior to entering into the GSA/GTA as this is not a case of change from LNG/natural gas or R-LNG to liquid fuel but it is a case of change of inter se primary fuel.
Since there was a heavy shortage of domestic gas at the relevant time and MSEDCL was not agreeing to schedule power for the declared availability, RGPPL was left with no other option except to enter into GSA/GTA with GAIL in order to generate electricity for which purpose the plant in question was set up after a lot of efforts between the State Government, the Government of India and different other institutions of the highest level to meet the requirements of electricity of the State as well as the centre.
Since the declared capacity is in accordance with Article 4.3 of the PPA the capacity charges as provided in Article 5.2 of the PPA are payable.

Issue

Whether RGPPL is entitled to fixed charges for capacity declared based on execution of an alternate gas supply arrangement with GAIL for RLNG for which no permission was taken from MSEDCL by RGPPL?

Contentions of MSEDCL

MSEDCL had broadly contended as follows:

CERC and APTEL have virtually re-written the contract between the parties which is impermissible under settled principles of contractual interpretation.
There is an “organic interlinking” between Article 5.9, commercial implications, plant availability, declared capacity, and declaration of capacity in terms of choice of fuel as provided in Article 4.3. Therefore, the compartmentalization of Article 4.3 and 5.9, which is the premise of the impugned decision is flawed.

Findings of the Supreme Court

The Supreme Court interpreted the clauses of PPA and held that such permission was not required since PPA recognised RLNG as a primary fuel. The Supreme Court recognised that alternate arrangement was executed only due to domestic gas shortage i.e., circumstances beyond RGPPL’s control. Relevant paragraphs of the judgment are as follows:

“28. In accordance with settled principles governing the interpretation of contracts, the PPA is required to be read as a whole. Clause 4.3 has two parts: according to the first, primary fuels include LNG/Natural gas and/or RLNG; according to the second, the appellant’s agreement is required in case liquid fuels are to be employed. A bare reading of the clause indicates that the requirement to seek such an agreement does not attach to the first part of the clause which envisages RLNG as a primary fuel. An arrangement involving a transition from one primary fuel to another primary fuel is permissible by the clause, even without the appellant’s agreement.

29. The requirement of an agreement, mandated for an arrangement involving liquid fuel cannot be read into the plain text of the former part of Clause 4.3. Thus, the capacity declaration based on RLNG could be done unilaterally, unencumbered by the requirement of the appellant’s consent in the latter half or the prior approval requirement under Clause 5.9 of the PPA.

30. We must remain mindful of the conspectus of facts that led to the establishment of the first respondent. It was set up consequent to the failure ofM/s Enron International, and M/s Dabhol Power Company to meet the energy needs of the State of Maharashtra. The tariff requirements have been determined based on the need to preserve the viability of the unit.

31. The first respondent was compelled to make alternate arrangements in view of the country-wide shortage of domestic gas, making RLNG a viable and contractually permissible alternative. Notably, the appellant has not disputed the circumstances in which this need arose.

32. In the present case, CERC and APTEL have correctly held that the GSA/GTA with GAIL is permissible by the terms of the contract and the consent or approval of the appellant is irrelevant. Clause 5.9 and Clause 4.3 operate in different spheres and the requirements of the former cannot be foisted on an arrangement permissible by the latter…

35. A commercial document cannot be interpreted in a manner that is at odds with the original purpose and intendment of the parties to the document. A deviation from the plain terms of the contract is warranted only when it serves business efficacy better. The appellant’s arguments would entail reading in implied terms contrary to the contractual provisions which are otherwise clear. Such a reading of implied conditions is permissible only in a narrow set of circumstances.

36. In the present context, bearing in mind the background of the establishment of the first respondent, and the shortfall of domestic gas for reasons beyond the control of the first respondent, such a deviation from the plain terms is not merited and militates against business efficacy as it has a detrimental impact on the viability of the first respondent.”

Conclusion

The Supreme Court recognised that a commercial document cannot be interpreted in a manner that is at odds with the original purpose and intendment of the parties to the document – a deviation from the plain terms of the contract is warranted only when it serves business efficacy better. The Supreme Court in this way recognised the circumstances that surrounded RGPPL rather than only reading the contractual terms between the parties.

The Supreme Court recognised that there was a shortage of supply of domestic gas to RGPPL and gave the necessary interpretation to clauses of the PPA. The Supreme Court differentiated between the contractual clause permitting a generating station to declare capacity based on primary fuel versus a contractual clause putting condition on payment of energy charges i.e. mandating approval of gas supply agreements by the distribution licensee.

The Supreme Court not only recognised the circumstances of shortage of supply of gas, but also noted how in this dispute, MSEDCL never denied existence of this situation. The Supreme Court granted relief to RGPPL and protected the viability of the power generator.

This Prism has been prepared by:

Poonam Verma Sengupta
Partner

Gayatri Aryan
Senior Associate

For more details, please contact [email protected]

[1] 2023 INSC 993. Judgment dated November 9, 2023.

[2] Petition No. 166/MP/2012.

[3] Appeal No. 261 of 2013.

Tags JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates, Power Plant, Supreme Court

Supreme Court penalizes Punjab distribution licensee for evading payments to generator and reagitating settled issues

Please click here to download the Prism as PDF.

The Supreme Court in its judgment dated October 9, 2023 in Nabha Power Ltd. vs. Punjab State Power Corporation Ltd.[1], deprecated Punjab State Power Corporation Ltd. (“PSPCL”) for its attempts to reagitate settled issues through multiple judicial proceedings and wriggle out of its payment obligations towards the generator. As a result, Supreme Court imposed exemplary costs of INR 65,00,000 (Indian Rupees sixty five lakh)[2] on PSPCL.

Background of the dispute and the issues decided by Supreme Court

Dispute arose between Nabha Power Ltd. (“Nabha”) and PSPCL due to unilateral deductions made by PSPCL in tariff payments on several attributes of coal pricing including coal washery charges, road transportation cost, third party coal testing charges, consideration of midpoint Gross Calorific Value (“GCV”) of coal to calculate energy charges etc.
No relief for recovery of such deductions was granted either by the State Commission or Appellate Tribunal for Electricity. Thus, Nabha had preferred an appeal before Supreme Court that led to the landmark decision of Nabha Power Ltd. v. Punjab State Power Corporation Ltd. & Anr.[3] (“Nabha SC Judgment”) which was allowed in its favour on October 5, 2017.
In Nabha SC Judgment, the Supreme Court decided as under:
- Emphasized on the primacy of express terms of a contract. However, as an exception, it also laid down a five-fold test to be strictly satisfied by a party for reading an implied condition in a contract viz such condition being (i) reasonable and equitable, (ii) necessary to give business efficacy to the contract, (iii) so obvious that it goes without saying, (iv) clearly expressed, and (v) not contrary to express terms of such contract.
- Allowed Nabha to recover washing cost of coal and cost of road transportation from PSPCL and further held GCV to be considered on “as received” basis.

Re-opening of the issues by PSPCL already decided and settled between parties.

Instead of making payment (as directed) throughout, PSPCL adopted endless dilatory tactics leading to multiple judicial proceedings as under:
- PSPCL filed a ‘Miscellaneous Application’ and subsequently a ‘Review Petition’ before the Supreme Court. Both were dismissed.
- Nabha filed a ‘Contempt Petition (“1^st Contempt Petition”) before Supreme Court seeking compliance of its directions in Nabha SC Judgment (tagged along with similar petition filed by Talwandi Sabo Pvt. Ltd. (“Talwandi”)).
- Supreme Court disposed of the 1^st Contempt Petition directing PSPCL to follow the Nabha SC Judgment in letter and spirit and make the payment within 8 (eight) weeks.
- PSPCL filed a Miscellaneous Application in the 1^st Contempt Petition which got dismissed with grant of further time for payment.
- Nabha filed another Contempt Petition (“2^nd Contempt Petition”) against PSPCL and Supreme Court held PSPCL guilty for non-compliance of Nabha SC Judgment.
- PSPCL was granted time for making payments in 2 (two) instalments i.e. by March 31, 2021 and May 31, 2021 respectively (“2^ndContempt Order”).
PSPCL paid the amounts and filed a fresh Petition (No. 49/2021) before Punjab State Electricity Regulatory Commission (“PSERC”) under Section 86 (1)(a) of the Electricity Act, 2003 for directions against Nabha seeking:
- Due and correct accounts of washing of coal;
- Coal quality reports etc;
- Refund of principal amount of INR 386,80,00,000 (Indian Rupees three hundred eighty six crore eighty lakh) (along with late payment surcharge).
PSERC held the Petition maintainable. Nabha then filed a Special Leave Petition before the Supreme Court challenging such order of PSERC. PSPCL sought to justify the fresh Petition on the basis of liberty granted by Supreme Court in its 2^nd Contempt Order whereby it was stated that, such order does not preclude PSPCL from raising all future disputes arising from the PPA. PSPCL alleged that Nabha diverted higher GCV coal as ‘rejects’ and did not disclose the same to PSPCL leading to higher washing charges and income from such disposal.

The Supreme Court reprimanded PSPCL and imposed exemplary costs.

Supreme Court criticized PSPCL for its attempt to evade its payment obligations by filing yet another Petition before PSERC as under:
- The same thing (issues raised in the fresh Petition) was being raked up again and again by PSPCL to evade payment, until it was compelled to pay by virtue of the 2^nd Contempt Order.
- Having made such payment, PSPCL is now seeking its refund under the garb of raising a ‘future dispute’, thus attempting to wriggle out of its payment obligation.
- “All future disputes” for which liberty was given by the Supreme Court in the 2^nd Contempt Order cannot mean to unsettle the effect of the Nabha SC Judgment.
- Pricing of coal being the crux of the problem, which was adjudicated by Supreme Court, the same cannot be raked up again.
Supreme Court set aside PSERC’s order holding PSPCL’s fresh Petition as maintainable since it was another attempt to wriggle out of its payment obligation under the Nabha SC Judgment. Exemplary costs of INR 65,00,000 (Indian Rupees sixty five lakh) (INR 40,00,000 (Indian Rupees forty lakh (Nabha)+ INR 25,00,000 (Indian Rupees twenty five lakh) (Talwandi) were imposed upon PSPCL for its repeated attempts to evade the rigors of Supreme Court’s orders.

Conclusion

As a matter of practice, distribution licensees have been withholding and delaying payments to generators by reagitating issues already settled and decided between them. Therefore, the Supreme Court’s judgment clearly calling out PSPCL for its evasive attempts and imposing exemplary costs thereupon, certainly sets an effective deterrent for all distribution licensees across the country. Particularly, imposition of such huge costs revalidates the finality and sanctity of the adjudicative process and strengthens firm implementation of judicial decisions. Finally, by seeking to avert delays in payments to generators, the judgment furthers the consumer interest as greater the delay, greater the carrying cost which is ultimately borne by the end-consumers.

This Prism has been prepared by:

Poonam Verma Sengupta
Equity Partner

Subham Bhut
Associate

For more details, please contact [email protected]

[1] C.A. No. 2425 of 2023

[2] INR 40,00,000 (Indian Rupees forty lakh) (in favour of Nabha) + INR 25,00,000 (Indian Rupees twenty five lakh) (in favour of Talwandi)

[3] (2018) 11 SCC 508

Tags JSA, Leading Law Firm, Leading Lawyers, Legal Updates, Power Sector, Supreme Court

Supreme Court sets at rest the controversies impacting captive generating plants and investments therein

Please click here to download the Prism as PDF.

On October 9, 2023 the Supreme Court of India has rendered its final judgment in M/s. Dakshin Gujarat Vij Company Limited v. M/s. Gayatri Shakti Paper and Board Limited And Anr. and Batch matters settling the law on issues debated for past 15 (fifteen) years related to captive generation and use of electricity as also exemption of surcharges. The Supreme Court was called upon to settle the interpretation of Rule 3 of the Electricity Rules 2005 (“Electricity Rules”) given the conflicting interpretations rendered by the Appellate Tribunal for Electricity (“APTEL”) in the case of Kadodara Power Pvt. Ltd. & Ors. v. Gujarat Electricity Regulatory Commission & Anr.[1] (decided on September 22, 2009) (“Kadodara Power”) and Tamil Nadu Power Producers Association v. Tamil Nadu Electricity Regulatory Commission[2] (decided on June 6, 2021) (“TNPPA”)[3].

Findings of the Supreme Court

Supreme Court’s findings on the 3 (three) issues framed[4] are summarized below:

Electricity Act and Electricity Rules recognizes 2 (two) types of captive users – single captive user and group captive user. Within the group captive users, there are only 2 (two) categories of captive users i.e., co-operative societies and association of persons.[5]
In a captive generating plant (“CGP”) there is no implied prohibition on transfer of ownership once the CGP has been set up.[6]
Construction, maintenance or operation of a CGP can be done by 1 (one) person or different persons.[7]
A CGP does not lose its captive status due to transfer of its ownership or any part of its ownership, so long as the transferee, (i.e., a new captive user) complies with the eligibility criteria specified under Rule 3, i.e., captive user/s must together hold 26% of ownership (equity share capital with voting rights) of the CGP (“Ownership Requirement”) and consume 51% of the aggregate electricity generated by CGP (“Consumption Requirement”).[8]
CGP can operate in 2 (two) scenarios, viz.:-
- A person who constructs, maintains or operates a CGP for their own use may supply electricity to self through dedicated transmission lines.
- A person who constructs, maintains or operates a CGP may supply electricity by exercising their right to open access to the grid for the purpose of carrying electricity from the CGP to the destination of use by such person.

In both scenarios cross-subsidy surcharge and additional surcharge are not payable. Wheeling charges are payable for use of the distribution system.[9]

Electricity generated from the CGP supplied through the grid for use of a licensee or consumer (third party), is subject to levy of such charges.
Consumption by a subsidiary, or holding company, when one of them is a captive user, is admissible as captive consumption by the captive user.^[10]
Members of a co-operative society when they collectively satisfy the Consumption Requirement will not be liable to pay cross-subsidy surcharge or additional surcharge, irrespective of whether they use dedicated transmission lines or open access. The co-operative society may supply 49% or less of the aggregate electricity generated to third parties for which such charges will be leviable on non-captive users/ consumers.^[11]
The minimum Ownership Requirement must be met and satisfied throughout the year and not at the end of financial year.^[12]
Companies or body corporates may come together and set up another company as a Special Purpose Vehicle, with a common purpose to achieve the common benefit of becoming captive user(s) and enjoy the advantages provided to captive users under the Electricity Act. Hence, special purpose vehicles are an “association of persons” in terms of the 2^nd Proviso to Rule 3(1)(a). Accordingly, companies, body corporates and other persons, who are shareholders and captive users of a CGP set up by a special purpose vehicle, are, in addition to meeting the Ownership Test and Consumption Test, also required to consume electricity in proportion to their shareholding in the CGP in terms of 2^nd Proviso to Rule 3(1)(a) (“Proportionality Test”).^[13]
For satisfying the Proportionality Test in a group CGP, the owner of every 1% shareholding in the CGP should have minimum consumption of 1.96% of the electricity generated by the CGP, within a variation of 10%. Therefore, the unitary qualifying ratio has to be within a range of 1.764% to 2.156%. 100% of the electricity generated does not have to be taken into consideration. This ensures that there is no gaming by owners.^[14]
In case of change of ownership, shareholding, or consumption, the principle of weighted average should be applied to ensure compliance with Proportionality Test. If a captive user exits or drops out in the middle of the year, transferring its shareholding to another or new captive user, the captive user who has become a shareholder in the middle of the year, is required to consume proportionately to the electricity generated. Existing captive users may enhance their consumption to take advantage of the variation. Weighted average methodology helps in calculating the relevant average shareholding of the captive user in the year and the proportionate electricity required to be consumed by him.[15]

Conclusion

The Supreme Court has upheld the principles laid down by APTEL in Kadodara Power regarding the applicability and computation of Proportionality Test. This balanced judgement of the Supreme Court has settled a lot of issues relating to captive generation, which was meant to be promoted:
- The group captive users have been recognized by the Supreme Court.
- The contention of distribution licensee’s that only the person who has actually constructed the power plant can be a captive user has been rejected. This should enable more consumers to take advantage of the group captive model.
- Cross subsidy surcharge and additional surcharge is not leviable on captive users even if open access is utilized.
- With the approval of the weighted average formula and the unitary qualifying ratio, Supreme Court has protected the interest of distribution licensees by preventing gaming and ensuring that only genuine players become part of CGPs. This will hopefully bring to an end various litigations pending on this issue. State Commission’s across India will now have to follow the same methodology for checking whether Proportionality Test is satisfied. This should allay investor concerns about the State Commission’s following different methodologies.
By holding that the captive users of a special purpose vehicle have to meet the Proportionality Test, the Supreme Court has settled the divergent views taken by APTEL on the issue, thereby creating regulatory certainty for the stakeholders.

This Prism has been prepared by:

Amit Kapur
Joint Managing Partner

Abhishek Munot
Partner

Kunal Kaul
Partner

Malcolm Desai
Principal Associate

Tushar Nagar
Principal Associate

For more details, please contact [email protected]

[1] 2009 SCC OnLine APTEL 119

[2] 2021 SCC OnLine APTEL 19

[3] APTEL’s Judgment in TNPPA was subsequently followed in in Sai Wardha Power Generation Limited & Ors. v. Maharashtra Electricity Regulatory Commission 2021 SCC OnLine APTEL 78

[4] Para 21

[5] Para 58

[6] Para 32

[7] Para 32

[8] Para 36

[9] Para 12 – 16

[10] Para 27

[11] Para 28

[12] Para 39

[13] Para 56 and 66

[14] Para 43 and 45

[15] Para 47

Tags Clean Energy, Climate Change, Energy, JSA, Leading Law Firm, Legal Updates, Supreme Court

India Energy and Infrastructure Report – 2023

India is projected to be one of the fastest growing major economies in the world with an ambitious target of growing to a US$ 10 trillion economy by 2030-2035 and US$ 26 trillion by 2047, to emerge as the world’s third largest economy behind the United States and China. The infrastructure sector will play a critical role in India’s economic growth. The blueprint for Indian infrastructure development was laid down in the National Infrastructure Pipeline (December 2019). As per the Economic Survey, 2022-23, after wide ranging structural reforms and policy initiatives, the financial cycle is poised to turn upward.

To read further details, click here or refer to the below document.

For more details, please contact [email protected]

*In case the document is not visible on the device you are using, please click the link above.

Tags Climate Change, Energy, Indian Economy, Infrastructure, JSA, Leading Law Firm, Leading Lawyers, Legal Updates, Make in India

JSA successfully represented UltraTech Cement Limited before Ld. Maharashtra Electricity Regulatory Commission

JSA successfully represented UltraTech Cement Limited (“UTCL“) before Ld. Maharashtra Electricity Regulatory Commission (“Ld. MERC”) in proceedings challenging retrospective re-classification of tariff category applicable to Ready Mix Concrete Plants (“RMC Plants”).

Ld. MERC vide Order dated 03.10.2023 held the following in favour of UTCL and passed consequential reliefs:

The activity carried out by UltraTech Cement Ltd. cannot be equated with ‘construction activities’ as the output provided by RMC Plants has different forms than its input and is processed scientifically.
Distribution Licensees are expected to interpret previous tariff orders of Ld. MERC and apply the tariff category based on usages analogous to those specified in such tariff orders.
Activities such as cement manufacturing, steel manufacturing etc. although in the nature of ‘construction activities’, is to be categorised as ‘Industrial’.

Ld. MERC noted that the above is applicable to similar RMC Plants across Maharashtra. Hence, the Order comes as a relief to the entire RMC industry in Maharashtra, which has been dealing with erroneous tariff categorization by MSEDCL and consequent retrospective demands.

The matter was argued by Abhishek Munot (Partner) and anchored by Malcolm Desai (Principal Associate).

Our Disputes Team Comprised Lead Partner – Abhishek Munot, and Principal Associate – Malcolm Desai.

Axis Bank Limited invests in INR 300 Crores NCDs issued by CESC Limited

JSA advised Axis Bank Limited (as the Investor) and IDBI Trusteeship Services Limited (as the Debenture Trustee) in connection with a financing by way of subscription to unlisted, secured non-convertible debentures (“NCDs”) issued by CESC Limited (“CESC”), for an amount of INR 300 crores.

CESC is a flagship company of the RP-Sanjiv Goenka Group, engaged in the business of generating and supplying electricity in Kolkata, Howrah and adjoining areas.

Khaitan & Co. acted as the legal counsel for CESC.

Our Transaction Team Comprised Lead Partner – Soumitra Majumdar, Partner – Abhishek Ray, and Associate – Aradhana Dey.

Tags Banking and Finance, CESC, Investment, JSA, Leading Law Firm, Leading Lawyers, NCDs

Rajasthan approves the draft of Green Hydrogen Policy 2023

Please click here to download the Prism as PDF.

The Government of Rajasthan (‘GoR’) on September 16, 2023 approved the draft Green Hydrogen Policy 2023 (“Draft Policy”). The Energy Department, GoR is expected to release the official notification soon.

Through the Draft Policy, the GoR aims to provide various incentives for green hydrogen production and encourage investment in the sector by leveraging the abundant renewable energy available in the state. Summarised below are some of the key features of the Draft Policy:

Specific energy generation target by 2030

The GoR aims to the achieve target of generating energy of 2000 kilo-tonnes per annum (KTPA) by 2030.

Incentives to green energy producers and investors

The GoR intends to offer various subsidies to companies involved in production of green hydrogen, including as follows:

50% rebate for 10 (ten) years in transmission and distribution charges on installation of 500 KTPA renewable energy plants on the state’s transmission system;
complete exemption on additional and cross subsidy surcharge for 10 (ten) years on purchasing renewable energy from the third party;
priority for land allotment for the generation of green hydrogen from treated or brackish water;
subsidy of 30%, subject to maximum upto INR 5,00,00,000 (Indian Rupees five crore) for setting up a research centre;
no prohibition on the capacity of captive power plants and on banking of generated electricity;
Lifting of ban on release of electricity during the peak hours;
100% waiver on wheeling and transmission charges. Moreover, the banking charges for power plants will be reimbursed for years ranging between 7 (seven) – 10 (ten) years.

Green Hydrogen to be thrust sector

The Rajasthan Investment Promotion Scheme 2022 identifies certain thrust sectors within manufacturing categories, for which additional incentive package have been declared by the GoR, over and above the standard incentive packages provided for the manufacturing sector. The Green Hydrogen sector will also form a part of the thrust sector category, enabling it to harness the additional benefits provided to such sector. Moreover, the incentives available to sunrise sectors will also be applicable to green hydrogen sector.

The Draft Policy appears to be in line with the Rajasthan Investment Promotion Scheme 2022, and is aimed at economic growth of the State, creating employment opportunities, and attracting further investments.

This Prism has been prepared by: