Three of the issues involved in the present appeals are also involved in the other appeals which were listed along with these two appeals. We have also heard the learned counsel appearing in the other appeals on the three questions which are common. The first of the PPAs is dated 8 September 2008 for 1320 MW (“1320 MW PPA” for short); the second one is dated 31 March 2010 for 1200 MW (“1200 MW PPA” for short); the third one is dated 9 August 2010 for 125 MW (“125 MW PPA” for short); and the fourth one is dated 16 February 2013 for 440 MW (“440 MW PPA” for short). Article 10.2.1 provides that while determining the consequence of a Change in Law under Article 10, due regard has to be given to the principle, that to compensate the Party affected by such Change in Law is to restore through monthly Tariff Payment, to the extent contemplated in Article 10, the affected Party to the same economic position as if such Change in Law has not occurred. As per the NCDP 2007, 100% of the quantity as per the normative requirement of the consumers was to be considered for the supply of coal, through Fuel Supply Agreement (“FSA” for short) by Coal India Limited (“CIL” for short) at fixed prices to be declared/notified by CIL.
It is also not in dispute that Western Coal Limited (“WCL” for short) and South Eastern Coal Limited (“SECL” for short) issued two Letters of Assurance (LoAs) in favour of APML and assured supply of coal. It further provided that to meet the balance FSA obligations towards the requirement of the said 78,000 MW TPPs, CIL may import coal and supply the same to the willing power plants on a cost-plus basis. In compliance with the MERC’s order dated 15 July 2014, APML filed another Petition before the MERC bearing Case No 140 of 2014 on 23 July 2014, inter alia, for approving a mechanism for the determination of compensatory tariff. On 4 May 2017, the learned APTEL remanded the issues raised in the cross-appeals filed by APML and MSEDCL for fresh consideration by the MERC in the light of the judgment of this Court in the case of Energy Watchdog v.
The learned APTEL framed the following three issues: “ Issue No 1: Whether the MERC was correct in holding that the net SHR submitted by the Appellant in its bid or SHR and Auxiliary Consumption norms specified for new generating stations under the MYT Regulations, 2011, whichever is superior shall form the basis for computing Change in Law compensation under the PPAs? Issue
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No 3: Whether the MERC was correct in holding that for the purpose of Change in Law compensation for 1180 MW capacity, shortfall in domestic linkage coal shall be assessed by considering the coal supply as the maximum of (1) actual quantum of coal offered for offtake by CIL under the LoA/FSA and (2) the minimum assured quantum in NCDP 2013 for the respective year?” 25.
In Civil Appeal No.6927 of 2021, the MSEDCL challenges the concurrent orders passed by the CERC dated 15 November 2018 and the order passed by the learned APTEL dated 16 July 2021. GMR entered into the following long-term PPAs for the supply of power from the Project: (a) Supply and sale of 200 MW of power on a long-term basis to MSEDCL in terms of PPA dated 17 March 2010. (c) Supply and sale of 150 MW of power on long term basis to TANGEDCO through back-to-back arrangements as follows: (i) Power Sale Agreement (PSA) dated 1 March 2013 between GMR Energy Trading Limited (GMRETL) and GMR, based on which a bid was submitted to TANGEDCO; (ii) PPA dated 27 November 2013 between GMRETL and TANGEDCO for the supply of power from GMR to TANGEDCO. Similarly, Appeal No 290/2017 was filed by DNH Power Distribution Company Ltd against the said order dated 1 February 2017 disputing the compensation claims allowed to GMR under some Change in Law events. It found that since the Design Heat Rate is 2211 kcal/kWh, the gross Heat Rate works out to 2355 kcal/kWh and 2310 kcal/kWh for the period 2009-14 and 2014-19 respectively. The arguments on behalf of the appellant-MSEDCL in Civil Appeal No.684 of 2021 were advanced by Shri Gopal Jain, learned Senior Counsel, whereas arguments in Civil Appeal No.6927 of 2021 were advanced by Shri G. The main arguments that were advanced on behalf of the Distribution Companies (hereinafter referred to “DISCOMS”) are as under: (i) The SHR and GCV value are declared in the bid document and it is not permissible for the Generating Companies to claim advantage on the basis of SHR value which is different than the one quoted i.e. (iii) It is submitted that the RFP itself mandated the participating bidders/generators to submit documentary evidence with regard to the ‘quantity’ of fuel required to generate power for the entire term of 25 years of the PPA. It is submitted that if there is any change with regard to the availability of fuel or the rate at which a bidder/generator is required to procure the coal, then the bidder/generator has to suffer the consequences thereof as he/it has submitted his/its bid with eyes open. It is submitted that while submitting the bids, the bidders/generators, therefore, had submitted their bids for supply of electricity to the DISCOMS knowing the position that they will not be compensated for higher cost of imported coal separately, over and above the quoted tariff /quoted energy charges, in the event of supply of imported coal by CIL.
when the NCDP 2013 was brought into effect, there could have been no claims from the Generators for increase in tariff to be allowed for higher coal cost on account of imported coal supply. It is submitted that, as a matter of fact, SHAKTI and allocation of coal thereunder was admissible only to Entities which did not have any LoA/FSA under the NCDP 2007 or the NCDP 2013. It is submitted that the quantum of coal requirement is less with lower SHR and increases with higher SHR, inasmuch as it relates to the ability and efficiency of the machines to extract heat energy from coal to produce per unit of electricity.
While submitting his/its bid and quoting energy charges, the bidder/generator was required to take into consideration the quantum of coal requirement which, in turn, is based on the SHR and auxiliary consumption parameters to be given by the bidder/generator. (xviii)
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It is submitted that the impugned judgment permitting the actual SHR or the SHR given in Tariff Regulations, whichever is lower, if upheld, would amount to converting the scope of Section 63 tariff determination into a 62 cost plus tariff determination. (xx) It is submitted that perusal of Regulation 2(2)(a) of the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2019 would reveal that they are not applicable where the tariff has been discovered through tariff based competitive bidding in accordance with the guidelines issued by the Central Government and adopted by the Commission under Section 63 of the Electricity Act. (xxiii)
It is submitted that the evaluation of GCV on air dried basis by Coal Company was well known/existing even prior to bidding and the Generators were very much aware of it. (xxv) Insofar as the reliance placed by the Generating Companies on the judgment of this Court in Adani Rajasthan case is concerned, it is submitted that the said judgment would not be applicable to the facts of the present case. (xxvii) It is submitted that the inability of a Generator to seek sufficient relief from the Coal Companies cannot be a reason to claim relief from the Distribution Licensees/DISCOMS or the consumers.
It is, therefore, submitted that the Generating Companies are entitled to compensation for the shortfall of coal in terms of NCDP 2013 and the same has to be paid on actuals, i.e. Secondly, in Case-1 bidding, energy charge is not computed since the energy charge forms part of quoted tariff, whereas in Case-2 bidding, energy charge is computed based on the net heat rate quoted in the financial bid. It is submitted that in the said case, the learned APTEL had held that operational parameters (like SHR and Auxiliary consumption) must be considered as per ‘normative’ value, and this view has been upheld by this Court. (x) It is further submitted that some of the DISCOMS in the proceedings before the CERC have contended that the SHR shall be considered after ascertaining actual design heat rate and margin as per CERC Regulations from time to time.
In such a situation, SHR and GCV of coal would not have come into the picture. (xiv) It is submitted that the SHR indicated in the bid as part of technical information does not conform to the mandate of restitution as it cannot put the Generator back to the same economic position had Change in Law event not occurred. It is submitted that a conjoint reading of CERC statutory advice dated 20 May 2013, CCEA decision dated 21 June 2013, MoP letter dated 31 July 2013, and clause 6.1 of the Tariff Policy 2016 issued by the MoP would reveal that pass-through of the higher cost of quantity of shortfall in coal procured from alternate sources was to be allowed.
(xix) It is also submitted that the contention on the part of the DISCOMS that Adani Rajasthan case (supra) would not be applicable to the facts of the present case, inasmuch as there was no FSA scenario, is also factually incorrect. (iii) It is submitted that the SHR is a real-time operating parameter which varies from time to time, and it is computed by working out the total electricity generated from the amount of coal consumed in heat value (kCal) terms. (viii) It is further submitted that the MSEDCL cannot be permitted to equate GMR’s case with APML and Rattan India Power Limited inasmuch as GMR falls under the jurisdiction of CERC, whereas the other two fall under the jurisdiction of MERC. Reliance in this respect is placed on the judgment of this Court in the case of Maharashtra State Electricity Distribution Company Limited v. The said Guidelines were framed under Section 63 of the Electricity Act. The guidelines shall apply for procurement of base-load, peak-load and seasonal power requirements through competitive bidding, through the following mechanisms: (i) Where the location, technology, or fuel is not specified by the procurer ( Case 1 ); (ii) For hydro-power projects, load center projects or other location specific projects with specific fuel allocation such as captive mines available, which the procurer intends to set up under tariff based bidding process ( Case 2 ). Clause (I) of Para 3.2 deals with Case-2, whereas clause (II) of Para 3.2 deals with Case-1.
Under sub- clause (iii), the bidder is required to supply forest clearance, if applicable, for the land for the power station. In case of imported coal, the Bidder shall have either acquired mines having proven reserves for at least 50% of the quantity of coal required OR shall have a fuel supply agreement for at least 50% of the quantity of coal required for a term of at least five (5) years or the term of the PPA, whichever is less. Clause (b) of sub-clause (iv) of clause (II) of Para 3.2 deals with imported coal, in which case the bidder shall have either acquired mines having proven reserves for at least 50% of the quantity of coal required OR shall have a fuel supply agreement for at least 50% of the quantity of coal required for a term of at least five years or the term of the PPA, whichever is less. The energy charges shall be payable as per the following formula: Energy Charges = Net quoted heat rate X Scheduled Generation X Monthly Weighted Average Price of Fuel/Monthly Average Gross Calorific Value of Fuel If the price of the fuel has not been determined by the Government of India, government approved mechanism or the Fuel Regulator, the same shall have to be approved by the appropriate Regulatory Commission.
In case of any dispute regarding the impact of any change in law, the decision of the Appropriate Commission shall apply.” It can thus be seen that any Change in Law impacting cost or revenue from the business of selling electricity to the procurer with respect to the law applicable on the date which is 7 days before the last date for RFP bid submission shall be adjusted separately. Even in case of bids based on net heat rate, the bidder shall factor in site conditions, loading conditions, frequency variations etc and no adjustment shall be allowed on the quoted net heat rate for the duration of the contract.” It can thus be seen that no adjustment is to be provided for heat rate degradation of the generating stations. The units/power plants, which are yet to be commissioned but whose coal requirements has already been assessed and accepted by Ministry of Coal and linkage/Letter of Assurance (LoA) approved as well as future commitments would also be covered accordingly.” It can thus be seen that the NCDP 2007 assured 100% of the quantity as per the normative requirement of the consumers for supply of coal, through FSA by CIL at fixed prices to be declared/notified by CIL.
Thus, it will be the responsibility of CIL/Coal companies to meet full requirement of coal under FSAs even by resorting to imports, if necessary.” It can thus be seen that clause 5.2 of the NCDP 2007 provides that in order to meet the domestic requirement of coal, CIL may have to import coal as may be required from time to time, if feasible. Para 5.2 of NCDP provides that “ In order to meet the domestic requirement of coal, CIL may have to import coal as may be required from time to time, if feasible. Thus, while the fuel price risk would have been taken into account and factored in the escalable component of energy charges, it is assumed that no fuel availability risk would have been taken into consideration on account of the LOAs given by CIL. In view of this scenario, PPAs which are already concluded between the developers and discoms as a result of competitive bidding in the last few years based on domestic coal linkage (LOA) may have to use imported coal to bridge the shortage of domestic coal in order to fulfil that contractual obligations. In view of the circumstances stated above CERC is requested to advice the Government on the manner in which the issue of fuel availability risk arising out of CIL’s inability to meet its LOA commitments could be addressed with regard to power producers who have already entered into long term PPAs with distribution companies based on such commitments and the feasibility of passing on the additional cost of procuring market fuel incurred by the power developers on account of the circumstances stated in the aforesaid paras.
It states that, post NCDP 2007, MoC has granted linkages between 2008-2010 with the assumption that it would meet coal requirement at around 85% of the PLF. It was proposed that the disincentive trigger for coal supply would be brought down from 90% to 60 to 65% by CIL in the new FSAs to be signed with these power producers. The communication therefore requested the CERC to advise the Government on the manner in which the issue of fuel availability risk, arising out of CIL’s inability to meet its LOA commitments, could be addressed. Non-availability of adequate quantum of coal has posed serious challenge to power generation as reflected in the data compiled by the Central Electricity Authority (CEA): the Plant Load Factor (PLF) of the generating stations across the country has been severely affected for want of adequate coal supply by CIL/Coal Companies. As a follow up, the FSAs between the CIL/its subsidiaries and the power producers will have to be modified through Supplementary Agreements.” It can thus clearly be seen that the CERC has noted that the non-availability of adequate quantum of coal has posed serious challenge to power generation as reflected in the data compiled by the Central Electricity Authority (CEA). The appropriate Commissions are expected to take decisions on the merits of each case including the claims of the Project Developers for compensation on account of imported coal after consultation with the stakeholders.” It can thus be seen that the CERC states that for claiming any benefits under the Change in Law, the Project Developer would have to move the appropriate Commission. “The Cabinet Committee on Economic Affairs (CCEA) today approved the following mechanism for supply of coal to power producers: (i) Coal India Ltd.
MoP to issue appropriate advisory to CERC/SERCs including modifications if any in the bidding guidelines to enable the appropriate Commissions to decide the pass through of higher cost of imported coal on case to case basis.” It is thus clear that taking into account the overall domestic availability and actual requirements, FSAs were to be signed for domestic coal quantity of 65%, 65%, 67% and 75% of ACQ for the running/remaining four years of the 12th Five Year Plan.
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As per para 2.2 of the said policy, Power Utilities including Independent Power Producer were to be supplied 100 per cent of the quantity as per their normative requirement through Fuel Supply Agreement(s) (FSAs) by Coal India Limited (CIL) at fixed prices to be declared/notified by CIL. To meet its balance FSA obligations towards the requirement of the said 78,000 MW TPPs, CIL may import coal and supply the same to the willing power plants on cost plus basis. CIL and its subsidiaries and SCCL are advised to take further action accordingly.” It can thus be seen that the NCDP 2013 also specifically states that, as per NCDP 2007 and specifically paragraph 2.2 thereof, Power Utilities, including IPPs, were to be supplied 100% of the quantity as per their normative requirement through FSAs by CIL at fixed prices to be declared/notified by CIL. It further states that to meet the balance FSA obligations towards the requirement of the said 78,000 MW TPPs, CIL may import coal and supply the same to the willing power plants on cost plus basis.
iii) higher cost of imported coal to be considered for pass through as per modalities suggested by CERC.” It can thus clearly be seen that the Government, after considering all aspects and the advice of CERC in this regard, decided that the higher cost of imported coal was to be considered for pass-through as per modalities suggested by the CERC. It further reiterates that CIL may supply domestic coal which would be minimum of 65%, 65%, 67% and 75% of LoA for the remaining four years of the 12th Plan for the already concluded PPAs based on tariff based competitive bidding. In case of reduced quantity of domestic coal supplied by CIL, vis-a-vis the assured quantity or quantity indicated in Letter of Assurance/FSA the cost of imported/market based e-auction coal procured for making up the shortfall, shall be considered for being made a pass through by Appropriate Commission on a case to case basis, as per advisory issued by Ministry of Power vide OM No FU- 12/2011-IPC (Voi-IJI) dated 31.7.2013.” It is thus clear that the Tariff Policy dated 28 January 2016 provided that the power procurement for future requirements should be through a transparent competitive bidding mechanism using the guidelines issued by the Central Government from time to time. It also held that the Change in Law provisions do not apply to foreign law and, therefore, changes in Indonesian law did not come within the scope of the provisions. In fact, it is clear on a reading of the PPA as a whole that the price payable for the supply of coal is entirely for the person who sets up the power plant to bear. It will be seen that under Clause 13.1.1 if there is a change in any consent, approval or licence available or obtained for the project, otherwise than for the default of the seller, which results in any change in any cost of the business of electricity selling, then the said seller will be governed under Clause 13.1.1. Both the letter dated 31-7-2013 and the revised Tariff Policy are statutory documents being issued under Section 3 of the Act and have the force of law. This being so, it is clear that so far as the procurement of Indian coal is concerned, to the extent that the supply from Coal India and other Indian sources is cut down, the PPA read with these documents provides in Clause 13.2 that while determining the consequences of change in law, parties shall have due regard to the principle that the purpose of compensating the party affected by such change in law is to restore, through monthly tariff payments, the affected party to the economic position as if such change in law has not occurred. An argument which is sought to be advanced before us that the Change in Law claim may be confined only to 35 to 40% was also advanced in the said case. Apart from that, we find from the order of the APTEL, that change in law provision would be limited to a shortfall in the supply of domestic linkage coal…… 51. It is provided in Article 10.2.1 how the change in law is to be applied to compensate for the impact.” In the case of Uttar Haryana Bijli Vitran Nigam Limited (UHBVNL) (supra), this Court observed thus: “ 13. The present case, therefore, falls within Article 13.4.1( i ). This being the case, it is clear that the adjustment in monthly tariff payment has to be effected from the date on which the exemptions given were withdrawn.
This being the case, it would be fallacious to say that the respondents would be claiming this restitutionary amount on some general principle of equity outside the PPA. It will be relevant to refer to sub-section (5) of Section 70 of the Electricity Act, which reads thus: “(5) The Members of the Authority shall be appointed from amongst persons of ability, integrity and standing who have knowledge of, and adequate experience and capacity in, dealing with problems relating to engineering, finance, commerce, economics or industrial matters, and at least one Member shall be appointed from each of the following categories, namely:— ( a ) engineering with specialisation in design, construction, operation and maintenance of generating stations; ( b ) engineering with specialisation in transmission and supply of electricity; ( c ) applied research in the field of electricity; ( d ) applied economics, accounting, commerce or finance.” One of them has to be an engineer with specialization in transmission and supply of electricity; one has to be a person who is expert in applied research in the field of electricity; one of them has to be an expert in applied economics, accounting, commerce or finance. Sub-section (1) of Section 77 provides that Chairperson and the Members of the CERC shall be persons having adequate knowledge of, or experience in, or shown capacity in, dealing with, problems relating to engineering, law, economics, commerce, finance or management. Clause (c) of sub-section (1) of Section 77 of the Electricity Act requires that two persons are required to have qualifications and experience in the field of economics, commerce, law or management. One of the functions of the CERC under clause (a) of sub-section (1) of Section 79 is to regulate the tariff of generating companies owned or controlled by the Central Government.
Sub-section (2) of Section 84 of the Electricity Act permits the State Government to appoint any person as the Chairperson from amongst persons who is, or has been, a Judge of a High Court. Section 111 of the Electricity Act provides for appeal to Appellate Tribunal by any person aggrieved by an order made by an adjudicating officer under the said Act (except under Section 127) or an order made by the Appropriate Commission. For being a Member of the Appellate Tribunal, following three categories have been provided for: (i) A person is, or has been, or is qualified to be, a Judge of a High Court; or (ii) A person is, or has been, a Secretary for at least one year in the Ministry or Department of the Central Government dealing with economic affairs or matters or infrastructure; or (iii) A person is, or has been, a person of ability and standing, having adequate knowledge or experience in dealing with the matters relating to electricity generation, transmission and distribution and regulation or economics, commerce, law or management.
288 of 2013 (M/s Wardha Power Company Limited V Reliance Infrastructure Limited & anr) has ruled that compensation under Change in Law cannot be correlated with the price of coal computed from the energy charge and the technical parameters like the Heat Rate and gross GCV of coal given in the bid documents for establishing the coal requirement. Therefore, it is not correct to co-relate the compensation on account of Change in Law due to change in cess/excise duty on coal, to the coal price computed from the quoted energy charges in the Financial bid and the heat rate and Gross Calorific value of Coal given in the bidding documents by the bidder for the purpose of establishing the coal requirement. As regards SHR, it was also suggested by MERC that net SHR as submitted in the bid or SHR norms specified for new thermal stations as per MYT Regulations, whichever is superior, shall be applicable. As the Design Heat Rate is 2211 kcal/kWh, the gross Heat Rate works out to 2355 kcal/kWh (2211 x 1.065)and 2310 kcal/kWh (2211 x 1.045) for the period 2009- 14 and 2014-19 respectively.
wherein the learned APTEL has held that it is not correct to co-relate the compensation on account of Change in Law due to change in cess/excise duty on coal to the coal price computed from the quoted energy charges in the financial bid and the heat rate and GCV of coal given in the bidding documents by the bidder for the purpose of establishing the coal requirement. The CERC has specifically observed that after extensive stakeholders’ consultation, the CERC has specified the SHR norms in the 2014 Tariff Regulations. The CERC, therefore, directed that the SHR of 2355 kcal/kWh during the period 2009-14 and 2310 kcal/kwh during the period 2014-19 or the actual SHR, whichever is lower, shall be considered for calculating the coal consumption for the purpose of compensation under the Change in Law. The learned APTEL has also referred to the following observations of the CERC in its order dated 16 May 2019 in the case of GMR Warora Energy Limited v. It was also held that SHR as a bidding document cannot be considered for deciding the coal requirement for the purpose of calculating relief under change in law…” [emphasis supplied] 112. Therefore, it will be appropriate if the GCV on ‘as received’ basis is considered for computation of compensation for the Change in Law. The learned APTEL in the case of Adani Power Maharashtra Limited (APML) (supra) has also considered the issue as to whether the reference GCV of domestic coal supplied by CIL for computing the Change in Law compensation should be “the middle value of GCV range of assured coal grade in LoA/FSA/MoU”.
It is also relevant to note that the Comptroller and Auditor General of India (“C&AG” for short), in its Performance Audit Report on “Fuel Management of Coal Based Power Stations of NTPC Limited” submitted to MoP, had observed that the ‘quality assessment of coal has inherent as well as manmade infirmities due to heterogeneous nature of coal and sampling errors’. It is acknowledged that there is a loss of GCV from point of “as received” to the point of “as fired” inside a power plant mainly due to following factors: (i) Effect of Moisture in GCV of coal sample taken from Wagon Top As stated by C&AG, there are sampling errors on account of heterogeneous nature of coal. (ii) Loss in GCV during coal storage inside power plant CEA is of the view and also substantiated by many national and international papers that there is a loss of GCV in the coal stock where coal is stored inside the power plant, mainly due to oxidation and weathering effect. CEA has also examined the views taken by various state regulators for considering such loss for the purpose of tariff allowed to generators. In addition, insofar as GCV is concerned, the CEA has opined that the margin of 85-100 kcal/kg for a non-pit head station may be considered as a loss of GCV measured at wagon top till the point of firing of coal in boiler. However, it is no part of the function of the Court to substitute its own determination for a determination which was made by an expert body after due consideration of material circumstances. Fixing a tariff and providing for cross-subsidy is essentially a matter of policy and normally a court would refrain from interfering with a policy decision unless the power exercised is arbitrary or ex facie bad in law.”
Union of India has held that the Courts should be slow in interfering with the decisions taken by the experts in the field and unless it is found that the expert bodies have failed to take into consideration the mandatory statutory provisions or the decisions taken are based on extraneous considerations or they are ex facie arbitrary and illegal, it will not be appropriate for this Court to substitute its views with that of the expert bodies.
Case Title: MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY LIMITED Vs. ADANI POWER MAHARASHTRA LIMITED (2023 INSC 208)
Case Number: C.A. No.-000684 / 2021
