….Respondents A glossary of defined terms used in the judgment has been provided below: Glossary of Terms Defined Term Definition Act Electricity Act, 2003 AEMIL/ second respondent Adani Electricity Mumbai Infra Limited AEML-T third respondent Adani Electricity Mumbai Limited – Transmission APTEL Appellate Tribunal for Electricity CEA Central Electricity Authority Development Guidelines Guidelines for encouraging Competition in Development of Transmission Projects DPR Detailed Progress Report EC/ fifth respondent Empowered Committee FoR Forum of Regulators GoM’s GR Government of Maharashtra’s, Government Resolution dated 04.01.2019 HVDC High Voltage Direct Current HVDC Project 1000 MW HVDC (VSC based) link between 400 kV MSETCL Kudus & 220 kV AEML Aarey EHV Station MERC/ first respondent Maharashtra Electricity Regulatory Commission MERC MYT Regulations Maharashtra Electricity Regulatory Commission (Multi Year Tariff)
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Regulations 2019 MERC MYT Amendment Maharashtra Electricity Regulatory 3 Regulations Commission (Multi Year Tariff) (First Amendment) Regulations 2022 MoP Ministry of Power MSETCL / fourth respondent Maharashtra State Electricity Regulatory Commission NEP National Electricity Policy NTP 2006 National Tariff Policy 2006 NTP 2016 National Tariff Policy 2016 REL Reliance Energy Ltd. 37 D.2 Policy framework…………………………………………………………….. 2 Relevance of GoM GR for MERC’s Decision……………………………………………. 3 Relevance of GoM GR vis–vis MSETCL’s decision…………………………………. On 12 November 2007, MSETCL issued a communication to CEA stating, inter alia, that it was difficult to lay overhead AC lines to bring power from the new 400kV sub-station, which was required to meet Mumbai’s growing demand of power, to Mumbai’s load centres due to constraints. The Committee recommended adopting the HVDC technology as a long-term solution for ensuring the reliability of power supply for Mumbai for the proposed transmission project with a 2 x 350 MW HVDC voltage PART A 7 source converter based transmission link for Mumbai. By an order dated 11 August 2011, MERC observed that R-Infra cannot be granted a transmission licence for the entire State of Maharashtra as paragraph 5.1 read with 7.1.6 of NTP 2016 mandated TBCB for transmission services. On 5 April 2013, MERC addressed a letter to R-Infra, granting it in- principle clearance for hiring a consultant for the Nagothane-Aarey HVDC Scheme to study the system and assist in the selection and design of the technology and bidding process of the DPR. On 19 March 2013, RInfra submitted an application to MSETCL seeking grid connectivity for the Nagothane-Aarey HVDC Scheme.
On 10 April 2014, MERC granted in-principle clearance to R-Infra for the Nagothane-Aarey HVDC Scheme. The reason for substituting the HVDC project to be executed by R-Infra with MSETCL’s HVAC transmission link from Kudus to Aarey was clarified in paragraph 9 of the letter which has been extracted below: The scope of the scheme proposed by MSECTL was delineated in paragraph 11 of the communication which is extracted below: PART A 12 In other words, instead of R-Infra developing a transmission link between Nagothane and Aarey using the HVDC technology, MSECTL proposed to establish the link between Kudus and Aarey itself using HVAC technology by including it in the five-year plan for 2015-16 to 2019-20. The letter noted that: (i) The approved HVDC Scheme had been recommended by the Standing committee appointed by MERC; (ii) The HVDC project which was envisaged with VSC based technology had significant technological advantages over the HVAC technology proposed by MSETCL; and (iii) In the past, Power Grid Corporation of India Limited and MSETCL had cancelled proposed HVAC transmission lines for bringing power into PART A 13 Mumbai or terminated them outside Mumbai on account of severe right- of-way constraints in and around Mumbai. By its order dated 12 September 2018, MERC noted that TPC-T has submitted a revised DPR twice, pursuant to which it had approved the extension of the target plan date to March 2017 and later, March 2019. On 23 November 2018, AEML submitted a proposal to MSETCL indicating that in view of the severe constraints on the construction of overhead lines in and around Mumbai, the 400kV Aarey – Kudus overhead transmission scheme of MSETCL “never took off”. On 28 May 2019, MSETCL submitted its five-year plan for 2018-19 to 2023-24 to MERC under which the HVDC Scheme was included as an additional scheme within the scope of AEML-T.
Load flow studies were also carried out for 2024-25 conditions considering all schemes planned by PART A 17 AEML-T and TPC-T till 2024-25 and schemes of the STU until 2021-22. On 28 June 2019, MERC issued a letter to MSETCL directing it to take necessary steps for the expeditious execution of Kudus-Aarey 1000 MW HVDC PART A 18 link by AEML-T according to the five-year transmission plan of the STU dated 28 May 2019. TPC-T filed its objections in response to a public notice issued by AEML-T, on the ground that the HVDC Scheme should be executed under the TBCB route in terms of GoM’s GR dated 4 January 2019. On 30 May 2020, the EC of GoM conducted its fourth meeting at which it opined that the HVDC Scheme which was a part of the earlier five-year plan for 2018-19 to 2023-24 was not a part of the plan for 2019-20 to 2024-25.
On 21 September 2020, AEML-T filed an application in Case 195 of 2019 before MERC proposing to amend its licence and sought permission to delete the HVDC Scheme in its entirety from the scheme proposed in the petition on the ground that the scheme is proposed to be executed by its subsidiary company, AEMIL. On 12 October 2020, MSETCL filed its reply stating that it does not recommend the grant of a transmission licence for the HVDC project to AEMIL on the grounds that: (a) On 23 October 2020, a communication was addressed by CEA to MSETCL recording that: The need for implementing the HVDC Scheme as proposed was highlighted in the following extracts of the letter: PART A 24 In this backdrop, the letter stated that an additional infeed to the Mumbai area from sources such as the 1000MV VSC based HVDC from Kudus to Aarey as suggested by CEA was required to be implemented on a priority basis.
Apart from the above decisions, the applicability of the limit of Rs 500 crore to “new / old projects” was discussed and it was decided that: PART A 25 36. In their response dated 31 December 2020, AEMIL and AEML-T stated that the approval of the DPR was cancelled by MERC only due to the proposal of MSETCL that the technology be altered from HVDC to HVAC. In its additional submission dated 20 January 2021 filed before MERC, MSETCL adverted to the CEA report and stated that it would proceed in accordance with the decision of the EC. On 21 March 2021, MERC issued an order granting AEMIL the transmission licence to develop the Aarey-Kudus transmission project based on HVDC technology where tariff was to be determined through the RTM approach under Section 62 of the Act. As on 4 January 2019, the HVDC project was an ‘existing’ project for the following reasons: PART B 28 (a) The cancellation of the DPR by the Commission in May 2016 was specific to the ‘technology’. (v) Even if the GR is held to be applicable which would give the EC statutory force for identification of projects under the TBCB route, the HVDC Kudus-Aarey project is still not mandated to be allotted through the TBCB route since: (a) Merely because STU has listed the HVDC Scheme in the agenda for the EC Meeting, it does not mean that the scheme has been chosen for TBCB.
Since the HVDC project falls under the exception, the EC has not recommended that the HVDC Scheme must be allotted through the TBCB route since it is an existing project and not a ‘new’ project. The HVDC Scheme according to the STU Plan 2019-20 to 2024-25 should be undertaken under Section 62 because: (a) The cost- benefits of the project if awarded under the TBCB route cannot be assessed since there is no precedent of a completed HVDC Scheme being awarded through the TBCB route; (b) HVDC Scheme is a high-cost project with high end technology with limited international suppliers. However, it withdrew those proceedings with liberty to move APTEL under Section 111 of the Act. TPC-T filed an appeal under Section 111 of the Act before APTEL. The change in route from Nagothane to Kudus was similar to modifications that are common to all transmission projects and the project cannot be considered as a new project merely due to change of connection point; (iii) That while the change of stance of the STU is not proper and a decisive and timely approach is instead expected, the same cannot be a ground to vitiate the decision taken by MERC; PART C 34 (iv) That the grant of licence was not contrary to Section 15 which requires the publication of a notice for suggestions and objections before granting a licence. MERC had issued a public notice and the proceedings under Section 15 cannot be conducted de hors the entity which has to implement the project; and (v) That even though there may be reasons justifying the adoption of the option under Section 63, this is not reason enough for the Tribunal to sit in appeal and supplant the views of the Commission. On the other hand, Dr Abhishek Manu Singhvi and Mr Vikas Singh, learned senior counsel appearing on behalf of the AEML-T and AEMIL have urged the following submissions: (i) On a proper construction of the provisions of Sections 61, 62 and 63, the legal position is that Sections 62 and 63 stand on an equal footing and it would be incorrect to postulate that Section 63 has a dominant character; (ii) The award of the HVDC project would inject much needed power to Mumbai; (v) TPC-T has not challenged the multi-year tariff order dated 30 March 2020 issued by MERC which was a product of a detailed consideration where considering the critical nature of the schemes and the time required for obtaining regulatory approvals, MERC directed STU and AEML-T to initiate the necessary steps to implement the scheme.
Between 2007 and 2019 there was no objection to the project which was envisaged to be executed by R-infra and later by AEML-T; (vii) Even as of date, no threshold limit has been prescribed by MERC for adopting the TBCB route for the award of a licence for an intra-state transmission project; and (viii) Both MERC and APTEL are statutory expert bodies at the primary and appellate level and have taken a concurrent view. Before the enactment of the Electricity Act 2003, the Indian electricity sector was governed by the Indian Electricity Act 1910, the Electricity (Supply) Act 1948 and the Electricity Regulatory Commission Act 1998. The Electricity Act 2003 was enacted with the objective of encouraging the participation of the private sector in the generation, transmission, and distribution of electricity, and to harmonise and consolidate the provisions into a self-contained code: PART D 38 48. The STU shall undertake transmission of electricity through the intra-state transmission system and discharge functions relating to the planning and coordination of the intra-state transmission system.
The Central and State Regulatory Commissions shall among other functions, determine and regulate the tariff for inter-state transmission of electricity and intra-state transmission of electricity respectively. Section 14 envisages that the Appropriate Commission, defined in Section 2(4) to mean the Central or as the case may be the State Regulatory Commission, may grant a licence to any person: (a) To transmit electricity as a transmission licensee; (b) To distribute electricity as a distribution licensee; and (c) To undertake trading and electricity in any area specified in the licence. While the CTU, Central Government and the Central Regulatory Commission are responsible for the facilitation of inter-state transmission of electricity, the State Commission and the STU have been granted full autonomy with respect to intra- state transmission of electricity. Section 63 provides that notwithstanding the provisions of Section 62, the Commission shall adopt the tariff determined through the bidding process if the tariff has been determined through a transparent process in accordance with the guidelines issued by the Central Government. On 6 January 2006, the Ministry of Power notified the NTP 2006 in exercise of its power under Section 3 of the Act. Clause 7.1(6) deals with transmission pricing where it is emphasised that “investment of transmission developer other than CTU/STU would be invited through competitive bids”. On 13 April 2006, the Union MoP notified Tariff Based Competitive Guidelines for Transmission Services under Section 63 of the Act to promote competitive procurement of transmission services and encourage private investment in the development of transmission lines. Paragraph 5.3 which has been extracted above envisages that a competitive bidding process should be followed for intra-state transmission projects developed by the State government where the project cost is above a threshold limit that is to be prescribed by the SERCs. In the above backdrop, the communication stated that: PART D 47 (emphasis supplied) The communication urged that in the larger interest of consumers, it was strongly recommended that TBCB may be adopted also for the development of the intra- state transmission system. While notifying the guidelines, the object of the GR was spelt out in the following terms: PART E 48 The GR notes that: In terms of the GR, an Empowered Committee was to be set up to undertake transmission projects in accordance with the guidelines of the Central Government. 1 Section 63: The dominant route or the alternative route 70. Clause (a) provides that the PART E 50 Appropriate Commission shall be guided by the principles and methodologies specified by the Central Commission for determination of transmission tariff. While Section 61 stipulates the principles that shall guide the determination of tariff, Section 62 grants the Commission the discretion to determine the tariff. The non-obstante provision overrides Section 62 alone and not all the provisions of the Act; (ii) as opposed to Section 62 where the Commission is granted the power to determine the tariff, under the Section 63 route, the bidding process determines the tariff; (iii) the Commission is mandated to adopt PART E 52 such tariff that is determined by the bidding process; (iv) the Commission has the discretion to not adopt the tariff determined through the bidding process only if the twin conditions as mentioned in the provision are not fulfilled; and (v) the twin conditions are that (a) the bidding process must have been transparent; (b) the bidding process must have complied with the guidelines issued by the Central Government.
Section 63 contemplates that in such situations where the tariff has been determined through the bidding process, the Commission cannot by falling back on the discretion provided under Section 62 negate the tariff determined through bidding. The observations of this Court in Energy Watchdog (supra) are summarised below: (i) The Appropriate Commission while ‘adopting’ the tariff determined through bidding is not a mere ‘post office’; and (ii) The Commission is mandated by Section 63 to adopt the tariff determined through bidding only if the bidding process was transparent, and such a PART E 54 process has been held in accordance with the guidelines issued by the Central Government under Section 63. Thus, if the Commission does not adopt the tariff determined through bidding, and if the decision is challenged, the bidding process can be reviewed substantively (on the ground of transparency) and procedurally (on the ground of compliance with Central Government guidelines) to determine if the Commission could have exercised its discretion to determine the tariff under Section 62 while rejecting the tariff determined under Section 63. A reading of the above clauses indicates that the TBCB Guidelines shall apply for (i) procurement of transmission services, which would include HVDC links; and (ii) selecting the transmission provider for a new transmission line. PART E 56 Clause 3.3 states that for the procurement of transmission services required for intra-state transmission, the State Government may notify the organisation or the State Public Sector Undertaking to be the Bid Process Coordinator. Clause (zd) of Section 181 stipulates that the State Commission may make regulations on the ‘terms and conditions for determination of tariff under Section 61.’ The relevant portion of Section 181 is extracted below: PART E 57
However, as on the date when MERC granted AEMIL the licence for the HVDC project from Kudus- Aarey, MERC had not framed any regulation under Section 181(zc) of the Act for the determination of Tariff.
Section 86(4) provides that in the discharge of its functions, which includes the determination of tariff for the transmission of electricity under clause (a), the State Commission shall be guided by the NEP, National Electricity Plan and NTP notified under Section 3 of the Act.
However, if the guidelines issued under Section 63 or the regulations framed under Section 181(zd) of the Act have not been notified or if the guidelines do not deal with a given situation, then the Commission shall PART E 59 exercise its general regulatory power under Section 86(1)(a) of the Act to regulate tariff. It was observed that the Regulatory Commission while exercising its functions must conform to the regulations that the Commission has formulated under Section 178 (the corresponding provision for the State Commission’s power to frame Regulations in Section 181).
Even in the absence of guidelines under Section 61 or Regulations under Section 181 (zd), the Commission does not possess unbridled power or discretion while choosing the modality to determine tariff. ( Paragraph 5.1 and 7.6) II Bidding route is applicable to government owned projects Tariff for projects owned or controlled by the Central Government shall be determined by bidding, unless otherwise specified by the Central Government on a case to case basis. (Paragraph 7(8) Intra-State transmission projects shall be developed by State Governments through competitive bidding for projects costing above a threshold limit.
The Central Government adopted a policy decision to introduce the bidding process for the determination of the tariff for all new transmission projects in 2006 but excluded its application to State projects. The preamble of the MERC MYT Amendment Regulations reads as follows: The MERC MYT Amendment Regulations seeks to amend Regulation 56 of the MERC MYT Regulations by adding Regulation 56.3. The relevant extract of the MERC MYT Amendment Regulations is as follows: The Annexure also states that the threshold limit shall be applied to all new Intra- State Transmission projects for which approval is yet to be accorded by the Commission or where the Commission’s approval is not valid or where the approval has been cancelled. This Court observed that ‘shall be guided by’ comprises of two elements, ‘shall’ and ‘guided’ which would mean that the guiding factors provide considerations which are material to the determination of tariffs by the appropriate Commission: PART E 67 This Court held that the principles prescribed in Section 61 are all material considerations that must guide the Appropriate Commission while it prescribes the terms and conditions for determining the tariff.
The counsel for the appellants has relied on observations made by a two- Judge Bench of this Court in Energy Watchdog (supra) that the NTP 2016 is a ‘statutory document being issued under Section 3 of the Act and has the force of law’ to argue that the NTP is binding on the Commission. CERC advised that suitable amendments would have to be made to the TBCB Guidelines that were issued under Section 63, the NEP, and NTP. However, the observation in Energy Watchdog (supra) that the NTP is ‘law’ cannot be held to bind the interpretation of the phrase ‘shall be guided’. Section 61 stipulates that the Appropriate Commission shall ‘specify the terms and conditions’ for the determination of tariff. The State Commission while exercising its power to make regulations under Section 181(2)(zd) on the terms and conditions for determination of tariff under Section 61 must conform to the provisions of the Act. One of the objectives of the Act was to provide the “states enough flexibility to develop their PART E 71 power sector in the manner they consider appropriate.” Thus, since the Appropriate Commissions possess full autonomy in the determination and regulation of tariff, and the States have been provided flexibility to develop their power systems for intra-state transmission of electricity, the NTP 2016 shall be one of the material considerations. Since MERC has the power to regulate and determine tariff for the intra-state transmission of electricity, the guidelines and regulations issued by MERC, if any, must be analysed to determine if MERC was mandated to choose one of the two routes for the determination of tariff or whether it could exercise its discretion to choose the modality. No 11/5/2005-PG(I) dated 13 April 2006 which indicated that the ‘State Government may adopt these guidelines for intra-state transmission projects or having considered these guiding principles may constitute similar committees for facilitating establishment of state transmission projects in the State.” The resolution further notes that the Government has decided to constitute committees such as the Empowered Committee and Bid Evaluation Committee for undertaking transmission projects through TBCB. MERC by its order dated 21 March 2021 granted a licence for the HVDC Kudus-Aarey transmission project under Section 62 of the Act to AEML-T holding that it was an ‘existing’ project as on the date the GoM’s GR was notified, that is 4 January 2019. By its letter dated 23 November 2018, AEML-T sought an amendment to the letter issued by MERC granting grid connectivity to the 2 x 500 HVDC (VSC based) scheme from Nagothane to Aarey. However, MERC took into account the unique historical background of the HVDC project when the Kudus-Aarey project was proposed by AEML-T in November 2018. MERC held that generally the cancellation of approval would amount to the closure of the project, unless the peculiar nature of the facts leads to an alternative conclusion (as in this case); 106.2 Secondly, on applying the facts to the interpretation of the phrase ‘new’ project, MERC observed that the HVDC Kudus-Aarey project is not a new project. The court held: PART E 78 Since both APTEL and MERC have recorded concurrent findings that the HVDC Aarey- Kudus project is an existing project, it would not be open to this Court in an appeal under Section 125 of the Act to reopen the findings.. The communication stated that TPC had proposed the setting up of overhead lines and underground cables while REL had proposed connections to Aarey by using the HVDC (VSC based) technology. When matters were thus progressing, in November 2013 MSETCL had in a meeting with R-Infra proposed that R-Infra can avail of connectivity from the Kudus sub-station which was closer to the Aarey sub-station as compared to the sub-station at Nagothane.
106.2.3 However, since the HVAC scheme of MSETCL did not take off, AEML-T submitted an application for HVDC Scheme between Aarey to Kudus on 23 November 2018 where an amendment to the letter issued by MERC granting grid connectivity to the 2 x 500 HVDC (VSC based) scheme from Nagothane to Aarey was sought. Regardless, we deem it appropriate to also decide upon the issues before us for consideration in terms of the relevance of the GoM GR in the decision making of MERC and holding of the bidding process by MSETCL. Paragraph 3.3 of the TBCB Guidelines states that for the procurement of transmission services for intra-state transmission, the appropriate State Government may notify any organization or state public sector undertaking especially engaged for bidding to be the Bidding Process Coordinator. Another contentious aspect of the GoM GR is the portion wherein it notified that the State Government “has decided to implement Tariff Based Competitive PART E 82 Bidding-TBCB process for new Projects.” The GR did not define the term ‘new projects.’ The appellant has argued that the GR notified by the State Government being binding on MERC, MERC had no option but to determine tariff through the bidding process for all ‘new’ projects, and if the HVDC project is a ‘new project’ then tariff could not have been determined through the Section 62 route.
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While stating that the State Government may issue directions in matters of policy involving public interest, Section 108(2) states that if any question arises as to whether such direction relates to matters of policy involving public interest, the decision of the State Government on it shall be final.
Therefore, the HVDC Project is, firstly, an existing project in terms of the GoM GR, and secondly, the GoM GR has not been issued in terms of Section 108 as a direction to the State Commission. The functions of the Empowered Committee include “ to identify projects to be developed under this Scheme.” Further, it is this Empowered Committee which facilitates preparation of bid documents, evaluation of bids as well as finalization of Transmission Service Agreements between the developer and the concerned utilities. Accordingly, it is clear from a reading of these Development Guidelines read with the functions of the State Utility in terms of Section 39(2) of the Act that while the State Transmission Utility shall be the apex authority for planning of intra-state transmission projects, the Empowered Committee is to identify projects to be undertaken under the TBCB route.
Case Title: THE TATA POWER COMPANY LIMITED TRANSMISSION Vs. MAHARASHTRA ELECTRICITY REGULATORY COMMISSION (2022 INSC 1222)
Case Number: C.A. No.-001933 / 2022
