In a landmark ruling, the Supreme Court of India resolved the Standby Charges Dispute between Tata Power Company and BSES/REL. This case addressed the contentious issue of determining the proportion of standby charges to be borne by the two parties. The judgement provides clarity on the legal aspects surrounding standby charges in the electricity sector. Read on for a detailed analysis of this crucial legal battle.
Facts
- The Tata Power Company (TPC) wanted to increase its generating capacity to reduce its offtake of electricity from MSEB to zero, causing a loss of revenue for MSEB.
- TPC demanded standby charges from BSES/Reliance Energy Limited (REL) to recover the lost revenue from MSEB, although standby charges were already being recovered from TPC’s customers.
- BSES/REL purchased electricity in bulk from TPC for supply to its customers, and TPC demanded standby charges varying between 29% to 37% for the years 1998 to 2006.
- A Committee under the Government of Maharashtra was appointed to resolve the quantum of standby charges to be paid by BSES to TPC.
- The Government stipulated that BSES/REL should pay Rs.3.5 crores per month to TPC for standby facility for the period 1998-1999.
- TPC and MSEB met to finalize the interconnection details regarding demand charges, with MSEB revising standby charges to Rs.24.75 crores per month.
- TPC sought revision of standby charges from BSES/REL, initially fixed at Rs.3.5 crores per month, by writing to the Government of Maharashtra.
- TPC issued a notice proposing tariff revision and other matters to the Government of Maharashtra in September 1998.
- BSES/REL is directed to bear 25 percent of the standby charges from TEC for Dahanu generating station.
- The matter of standby charges between TPC and BSES/REL has led to disputes and legal proceedings.
- BSES/REL was directed by the Government to pay 3.5 crores per month as standby charges to TEC.
- The High Court and APTEL have given various directions regarding the sharing of standby charges between TPC and BSES/REL.
- There was a disagreement on the proportion of standby charges to be borne by TPC and BSES/REL.
- MERC passed orders directing BSES/REL to bear 23 percent of the standby charges incurred by TPC.
- The APTEL upheld the decision that BSES/REL should bear a portion of the standby charges.
- TPC has already recovered a substantial amount of standby charges through electricity tariffs.
- The matter of standby charges has been under dispute and consideration by various judicial bodies.
- Finalization of commercial arrangements and rates for standby charges formed part of the legal proceedings.
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Arguments
- The Act of 1998 mandates that State Commissions should not show undue preference to any consumer of electricity while determining tariffs.
- Actual supply of electricity and charges paid for it are distinct from standby charges and guarantees.
- Generating capacity requires heavy investment, and the Technical Member incorrectly assigned zero cost for standby capacity.
- TPC gave notice to enhance standby charges for BSES according to tariff order dated 11.6.2004.
- TPC did not recover standby charges from customers for the excess standby facility provided by MSEB.
- The obligation to pay MSEB for standby facility is independent, and the spinning reserve should not be treated as zero cost.
- Standby charges cannot be apportioned based on total installed capacity and should be shared by TPC and BSES/REL in a 50:50 ratio.
- An agreement between TPC and BSES/REL ensured immediate availability of power in case of breakdown or stoppage of generation.
- Charges paid for standby arrangements constitute a component of the price charged by TPC and BSES from consumers.
- The standby arrangement for 550 MVA by TPC was to immediately draw power from MSEB in case of generation shortfall.
- BSES/REL should pay for 275 MVA as the quantum of 275 MVA standby is out of the same block of 550 MVA standby facility given by MSEB.
- BSES/REL has utilised standby power of TPC on approximately 90 percent of occasions.
- BSES/REL’s liability would exceed Rs.3.5 crores per month due to standby charges.
- TPC is currently paying Rs.363 crores as standby charges to MSEB.
- The charges for standby facility were revised and enhanced with effect from 1-12-1998 by operation of law.
- BSES/REL had made a plea before MERC to fix the standby charges payable to TPC.
Analysis
- The dispute between TPC and BSES/REL arose over the charges required to be paid for standby capacity.
- TPC enjoyed a standby facility of 550 MVA from MSEB, even after providing BSES/REL with a standby facility of 275 MVA.
- Standby charges were subject to dispute resolution, with the Government of Maharashtra issuing orders in 1998 to determine the charges.
- The agreement between TPC and BSES/REL for standby charges did not reach consensus on several aspects.
- The Maharashtra Electricity Regulatory Commission directed TPC to pay BSES/REL a sum of Rs. 315.30 crores within 15 days.
- Various factors were considered by the Committee to resolve the stand-by charges dispute between TPC and BSES/REL.
- The determination of charges fell within the jurisdiction of the State Commission as per the Electricity Regulatory Commissions Act.
- MERC’s decision on standby charges was based on the considerations of generation by TPC and MSEB, payments made, and financial positions.
- TPC provided standby support to BSES/REL on 90 percent of occasions, absolving MSEB of direct standby responsibilities.
- The APTEL did not follow the decision of this Court in BSES Ltd. v. Tata Power Co. Ltd.
- Electricity is not a commodity that can be stored or reserved.
- In the BSES Ltd. v. Tata Power Co. Ltd. case, the tariff notice dated 30.9.1998 was declared illegal and had no legal effect.
- The Principles of Agreement stipulated a certain amount to be paid, but a higher sum was ordered based on business equilibrium and other factors.
- The order issued by APTEL was found to be just and equitable, as agreed by BSES/REL.
- There is no valid reason to challenge the APTEL order, as it has been deemed fair and acceptable.
- The applicability of Article 14 of the Constitution was not relevant in this case.
- I.A. No.59365 of 2019 and I.A. No 59356 of 2019 were filed for substituting the name of Reliance Energy Limited with Adani Electricity Mumbai Limited with mutual agreement.
- No grounds were established for interference in the appeals filed by TPC and BSES/REL.
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Decision
- IA Nos.59365/2019 & 59374/2019 in CA No.415/2007 and IA Nos.59356/2019 & 59380/2019 in CA No.3229/2007 are disposed of.
- Any other IA, if any, also stands disposed of.
- No costs.
- The order passed by Technical and Judicial Members of APTEL is hereby upheld.
- The amount payable to Reliance Energy Limited, deposited or secured by way of bank guarantee by TPC as per order dated 07.02.2007 along with interest lying with the Registrar of this Court as per agreement of the Counsel for Reliance Energy Limited and Adani Electricity Mumbai Limited should be paid to Adani Electricity Mumbai Limited.
- The appeals being devoid of merits are dismissed.
Case Title: TATA POWER COMPANY LTD. Vs. ADANI ELECTRICITY MUMBAI LTD.
Case Number: C.A. No.-000415-000415 / 2007
