RELIANCE INFRASTRUCTURE LIMITED versus STATE OF MAHARASHTRA AND ORS. on 21 January 2019

SUPREME COURT REPORTS

[2019] 1 S.C.R.

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RELIANCE INFRASTRUCTURE LIMITED

v.

STATE OF MAHARASHTRA AND ORS.

(Civil Appeal No. 879 of 2019)

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JANUARY 21, 2019

[DR. DHANANJAYA Y CHANDRACHUDAND HEMANT GUPTA, JJ.]

MERC (Multi Year Tariff) Regulations, 2011 – Regn. 44.2(d) –Jurisdiction to decide validity of regulations – The grievance of theCappellant arises from the fact that regn. 44.2(d) prescribed a tighterstandard for its thermal generating station Dahanu TPS as comparedto other generating stations in the State – Petition filed by theappellant before Maharashtra Electricity Regulatory Commission(MERC) – Appellant requested for relaxation of the norms and toDbring it in the line with the normative Station Heat Rate (SHR) –MERC held that it had considered the norms for SHR based on theMYT regulations and it did not find any merit in altering the MYTnorms for SHR – The appellant filed an appeal u/s.111 of theElectricity Act 2003 before the Appellate Tribunal for Electricity(APTEL) – Also, appellant instituted a Writ petition u/Art.226 of theEConstitution before the Bombay High Court for the purpose ofchallenging regn 44.2(d) which specifies a separate SHR for theDahanu TPS as compared to other generating stations in the State– The High Court dismissed the Writ petition and imposed costs ofRs. 1 lakh on the appellant, and held that having approached theAppellate Tribunal for Electricity, the appellant was not justified inFmoving the High Court u/Art.226 “on the same issue” when theTribunal was in a position to provide adequate relief – On appeal,held: The position in law is established by the judgment ofConstitution Bench in PTC India Limited case that while the Tribunalmay decide upon a dispute involving the interpretation of aGregulation, for which an appeal under Section 111 of the Act wouldbe maintainable, no appeal can lie before the Tribunal on the validityof a regulation – Thus, High Court was not right in holding that theWrit petition u/Art.226 was not maintainable – Indeed, a challengeto the validity of the regulations framed by the MERC could lie onlybefore the High Court – Thus, the imposition of costs for havingH

adopted the remedy u/Art.226 was unjustified – However, there isno infirmity in the impugned regulation and accordingly ultimateconclusion of the High Court to dismiss the Writ petition u/Art.226affirmed – Electricity Act, 2003 – ss.61, 82, 111 and 181 – MERC(Terms and Conditions of Tariff) Regulations, 2005 – National TariffPolicy, 2006 – Constitution of India – Art.226 – Jurisdiction.

MERC (Multi Year Tariff) Regulations, 2011 – Regn. 44.2(d)– Validity of – Plea of discrimination by the appellant – The grievanceof the appellant arises from the fact that a tighter standard or normhas been prescribed for its thermal generating station Dahanu TPSas compared to other generating stations in the State – Thediscrimination, according to the appellant, lied in a statutoryregulations determining the Station Heat Rate (SHR) – Held: Thepower to frame regulations is of a legislative nature – The CentralPower Research Institute (CPRI) report was an input before theMaharashtra Electricity Regulatory Commission (MERC) in carryingout that exercise – MERC followed the statutory procedures laiddown for the determination of tariffs – It took into account factorswhich it is mandated by the statute to consider – The National TariffPolicy, suggestions of stakeholders as well as the assessment carriedout by the CPRI were duly considered – Thus, the present case doesnot fall in the paradigm of manifest unreasonableness orarbitrariness to warrant the interference of the Supreme Court –Regulation 44.2(d) of the MERC (Multi Year Tariff) Regulations,2011 does not suffer from any constitutional or statutory infirmity –National Tariff Policy, 2006.

On 04.02.2011, the MERC (Multi Year Tariff) Regulations,2011 were notified. Regulation 44 provides norms for theoperation of thermal generating stations. Regulation 44.2stipulates gross station heat rates for existing generating stations.The above regulation indicated that save and except for theexcluded categories set out in clauses (b), (c) and (d), the StationHeat Rate (SHR) for existing coal based thermal generatingstations is pegged at a uniform level of 2450 kCal/kWh (for 200/210/250 MW sets) and 2425 kCal/kWh (for 500 MW sets andabove). As opposed to the uniform criterion of 2450 kCal/kWh inRegulation 44.2(a), the SHR for the Dahanu TPS was variedbetween 2350 in financial year 2011-12 to 2370 in financial year AB

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A2015-16. It was this prescription of a more stringent SHR in thecase of R-Infra’s Dahanu TPS which forms the focus of dispute inthe present case.

Disposing of the appeal, the Court

HELD: 1. On the maintainability of the petition under ArticleB226 of the Constitution, the High Court, has overlooked theposition in law established by the judgment of a ConstitutionBench of this Court in PTC India Limited v Central ElectricityRegulatory Commission. The Constitution Bench consideredwhether the Appellate Tribunal for Electricity has jurisdiction todecide upon the validity of the regulations framed by the CentralCElectricity Regulatory Commission (CERC). CERC has beenentrusted with the power to frame regulations under Section 178of the Electricity Act 2003. The Constitution Bench held that thevalidity of a regulation framed under Section 178 can be testedonly before the court exercising judicial review. While theDTribunal may decide upon a dispute involving the interpretationof a regulation, for which an appeal under Section 111 of the Actwould be maintainable, no appeal can lie before the Tribunal onthe validity of a regulation. [Para 18][905-E-H]

2. In view of the legal position settled by the Constitution EBench, the High Court was not justified in disparaging theappellant for taking recourse to a constitutional remedy underArticle 226. Indeed, a challenge to the validity of the regulationsframed by the Maharashtra Electricity Regulatory Commission(MERC) could only lie before the High Court. Hence, theimposition of costs for having adopted the remedy under ArticleF226 was unjustified. There was no suppression of fact on thepart of the appellant which had indicated the recourse it had takenin the appeal before the Tribunal, arising from its prayer forrelaxation of the Station Heat Rate (SHR) norms before MERC.The plea before the Appellate Tribunal was for relaxation of theGSHR norms. The plea before the High Court was that the SHRfixed was discriminatory and ultra vires. Undoubtedly, if theappellant were to succeed before the Tribunal, it would perhapsobviate the challenge in the High Court. The appellant, did notpress ahead with its plea before the Tribunal. Hence, the writpetition could not have been held not to be maintainable.H[Para 18][906-G-H; 907-A-B]

3. The substratum of the case of the appellant is foundedon a plea of discrimination. Simply put, the plea is founded onthe hypothesis that the Central Power Research Institute (CPRI)report regarded the units of Dahanu TPS (DTPS) as identical toParli Unit 6 and Paras Unit 3 (of MSPGCL) and Trombay Unit 8(of TPC-G). The observations contained in the Central PowerResearch Institute (CPRI) report must be read in their entirety.The fact that the manufacturing specifications of the units may besimilar (assuming they are so) is only one aspect of the total rangeof considerations which are required to be borne in mind underthe terms of the National Tariff Policy notified u/s. 3 of theElectricity Act 2003. The tariff policy requires that the operatingnorms should be efficient, relatable to past performance, capableof achievement and progressively reflect increased efficiencies.They may also take into consideration technical advancements,fuel, vintage of equipment, nature of operations and the level ofservice among other factors. Appellant laid emphasis on clause5.3(f) of the National Tariff Policy where it prescribes that theoperating parameters and tariffs should be at “normative levels”only and not at the “lower of normative and actuals” except inthe case of those units governed by para 5.3(h)(2). Thissubmission will not, however, carry the case of the appellant anyfurther. Normative levels are those which are fixed by theapplication of the standards guided by the terms of the tariff policywhile actual levels are those which have been achieved as a matterof fact, in the past. The emphasis in the tariff policy is on creatingincentives for achieving higher efficiency in order to enable theultimate consumer to have the benefit of efficient operations.[Para 29][915-G-H; 916-A-D]

4. MERC is an expert body which is entrusted with theduty and function to frame regulations, including the terms andconditions for the determination of tariff. The Court, whileexercising its power of judicial review, can step in where a caseof manifest unreasonableness or arbitrariness is made out.Similarly, where the delegate of the legislature has failed to followstatutory procedures or to take into account factors which it ismandated by the statute to consider or has founded itsdetermination of tariffs on extraneous considerations, the Court ABCDEF

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Ain the exercise of its power of judicial review will ensure that thestatute is not breached. However, it is no part of the function ofthe Court to substitute its own determination for a determinationwhich was made by an expert body after due consideration ofmaterial circumstances. [Para 30][917-F-G]

B5. The power to frame regulations is of a legislative nature.The CPRI report was an input before the MERC in carrying outthat exercise. MERC followed the statutory procedures laid downfor the determination of tariffs. It took into account factors whichit is mandated by the statute to consider. The national tariff policy,suggestions of stakeholders as well as the assessment carriedCout by the CPRI were duly considered. Hence, the present casedoes not fall in the paradigm of manifest unreasonableness orarbitrariness to warrant the interference of this Court. It wouldbe rather formulaic for the Court to accept that merely becauseDTPS was placed at par in the immediately previous period (2006-D07) and the period immediately succeeding (2016-20), that thismust necessarily be extrapolated to the intervening periodgoverned by the MYT Regulations 2011. A body which isentrusted with the task of framing subordinate legislation has arange of options including policy options. If on an appraisal of allthe guiding principles, it has chosen a particular line of logic orErationale, this Court ought not to interfere. [Para 31][918-D-F]

5. Thus, this Court has come to the conclusion thatregulation 44.2(d) of the MERC (Multi Year Tariff) Regulations,2011 does not suffer from any constitutional or statutory infirmity.However, the ultimate decision of the High Court to dismiss theFwrit petition is affirmed. The High Court was not right in holdingthat the writ petition under Article 226 was not maintainable andaccordingly the direction on the imposition of costs is set aside.However, this Court holds that there is no infirmity in theimpugned regulation and accordingly affirm the ultimateGconclusion of the High Court to dismiss the writ petition underArticle 226. [Para 32][918-F-H]

PTC India Limited v. Central Electricity RegulatoryCommission (2010) 4 SCC 603 : [2010] 3 SCR 609 –followed.

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RELIANCE INFRASTRUCTURE LIMITED v. STATE OFMAHARASHTRA

Transmission Corporation of Andhra Pradesh Ltd. v.Sai Renewable Power Pvt. Ltd. (2011) 11 SCC 34 :[2010] 8 SCR 636; Association of Industrial ElectricityUsers v. State of Andhra Pradesh (2002) 3 SCC 711 :[2002] 2 SCR 273 – relied on.

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Case Law Reference

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 879 of2019.

From the Judgment and Order dated 18.04.2016 of the High Courtof Judicature at Bombay in Writ Petition No. 2474 of 2013.

P. Chidambaram, S. K. Rungta, Sr. Advs., Ms. Anjali Chandurkar,Hasan Murtaza, Ms. Divya Anand, Kartik Anand, Alok Kumar, AnkurKashyap, Rajesh Kumar, A. V. Rangam, Buddy A. Ranganadhan,Ms. Stuti Krishn, Ms. Deepa M. Kulkarni, Nishant R. Katneshwarkar,Advs. for the appearing parties.

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The Judgment of the Court was delivered by E

DR. DHANANJAYA Y CHANDRACHUD, J. 1. Leavegranted.

2. The validity of a tariff regulation framed by the MaharashtraElectricity Regulatory Commission (MERC) was questioned before theHigh Court of Judicature at Bombay. Bereft of jargon – both legal andscientific – the plea of the appellant is of discrimination. Thediscrimination, according to the appellant, lies in a statutory regulationdetermining the Station Heat Rate. According to the appellant, its thermalpower station at Dahanu has been subjected to a more stringent normthan other comparable units. MERC, it is asserted, breached the NationalTariff Policy 2006. The High Court held against the appellant both onthe maintainability of its writ petition under Article 226 of the Constitutionand on the merits of the challenge to the validity of the statutory regulation.The case has thus travelled to this Court.

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A3. The Electricity Act 2003 came into force on 10 June 2003.Electricity Regulatory Commissions constituted under Section 82 areempowered to frame regulations under Section 181, including the termsand conditions for determination of tariff under Section 61[1]. The MERCframed the MERC (Terms and Conditions of Tariff) Regulations 2005[2]for a period of five years, upto financial year 2010-11. The regulations,Bin so far as the appellant is concerned were extended for a further periodof one year upto financial year 2011-12.

4. Regulation 33.1.3 prescribed the Station Heat Rate (SHR).The SHR is the heat energy required to generate one unit of electricalenergy. The SHR is significant because it represents the ratio betweenCheat input and the energy output. SHR has a co-relationship withefficiency: a higher SHR reflects comparative inefficiency while areduction in the SHR is associated with increasing levels of efficiency.In the Tariff Regulations 2005, the gross SHR was defined in the followingterms:D“33.1.3. Gross station heat rate (a) Gross station heat rate for coal-based generating stations 200/210/250 MW sets500 MW and above setsDuring stabilization 2600 kCal/kWh2550 kCal/kWhPeriod Subsequent period 2500 kCal/kWh 2450 kCal/kWh E

Note 1:

In respect of 500 MW and above units where the boiler feedFpumps are electrically operated, the gross station heat rate shall be 40kCal/kWh lower than the station heat rate indicated above.

Note 2:

For generating stations having combination of 200/210/250 MWseats and 500 MW and above sets, the normative gross station heat rateGshall be the weighted average station heat rate.”

In the above regulations, uniform norms were fixed for all coalbased thermal generating stations, without any distinction betweenindividual generating stations. The norm applicable to the Dahanu Thermal 1 Section 181(2)(zd)

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Power Station of the appellant was 2500 kCal/kWh. This norm alsoapplied to other generating stations in the State of Maharashtra.

5. On 6 January 2006 the Union of India in the Ministry of Powernotified the National Tariff Policy under Section 3 of the Electricity Act2003. The policy, inter alia, spelt out the general approach to be followedfor the purpose of determining tariffs including operating norms forgenerating stations. Clause 4 of the policy laid out its objectives in thefollowing terms:

“(a) Ensure availability of electricity to consumers at reasonableand competitive rates; (b) Ensure financial viability of the sector and attract investments;

(c) Promote transparency, consistency and predictability inregulatory approaches across jurisdictions and minimiseperceptions of regulatory risks; (d) Promote competition, efficiency in operation and improvementin quality of supply.”

Clause 5.0 spells out the “general approach to tariff”. Clause 5(f)stipulates operating norms:

“(f) Operating Norms

Suitable performance norms of operations together with incentivesand dis-incentives would need be evolved along with appropriatearrangement for sharing the gains of efficient operations with theconsumers. Except for the cases referred to in para 5.3 (h)(2),the operating parameters in tariffs should be at “normative levels”only and not at “lower of normative and actuals”. This is essentialto encourage better operating performance. The norms should beefficient, relatable to past performance, capable of achievementand progressively reflecting increased efficiencies and may alsotake into consideration the latest technological advancements, fuel,vintage of equipments, nature of operations, level of service to beprovided to consumers etc. Continued and proven inefficiencymust be controlled and penalized. The Central Commission would,in consultation with the Central Electricity Authority, notifyoperating norms from time to time for generation and transmission.The SERC would adopt these norms. In case where operationshave been much below the norms for many previous years, the A

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SERCs may fix relaxed norms suitably and draw a transition pathover the time for achieving the norms notified by the CentralCommission.

Operating norms for distribution networks would be notified bythe concerned SERCs. For uniformity of approach in determiningBsuch norms for distribution, the Forum of Regulators should evolvethe approach including the guidelines for treatment of state specificdistinctive features.”

Clause 5 (h) adverts to the Multi Year Tariff:

“(h) Multi Year TariffC

(1) Section 61 of the Act states that the Appropriate Commission,for determining the terms and conditions for the determination oftariff, shall be guided inter-alia, by multi-year tariff principles. TheMYT framework is to be adopted for any tariffs to be determinedfrom April 1, 2006. The framework should feature a five-yearDcontrol period. The initial control period may however be of 3year duration for transmission and distribution if deemed necessaryby the Regulatory Commission on account of data uncertaintiesand other practical considerations. In cases of lack of reliabledata, the Appropriate Commission may state assumptions in MYTfor first control period and a fresh control period may be startedEas and when more reliable data becomes available.

(2) In cases where operations have been much below the normsfor many previous years, the initial starting point in determiningthe revenue requirement and the improvement trajectories shouldbe recognised at “relaxed” levels and not the “desired” levels.FSuitable benchmarking studies may be conducted to establish the“desired” performance standards. Separate studies may berequired for each utility to assess the capital expenditure necessaryto meet the minimum service standards…”

6. In August 2009, MERC published a ‘draft approach paper’ forGthe purpose of enacting multi year tariff regulations for financial years2010-11 to 2014-15. On 23 October 2009, the appellant furnished itssuggestions. In 2010, MERC commissioned a report from the CentralPower Research Institute (CPRI) for ascertaining achievableperformance parameters for thermal power plants in Maharashtra and H

to suggest improvements. CPRI carried out an independent assessmentin respect of the plant of the appellant (DTPS), Tata Power (Generation)– TPCG, and Maharashtra State Power Generation Company Limited(MSPGCL). According to the appellant, no recommendation was madein respect of their plant since it was performing better than the prescribedSHR.

7. In July 2010, MERC published another draft approach paper inregard to the proposed multi year tariff regulations for financial years2011-12 to 2015-16 together with draft regulations. On 26 October 2010,the appellant made submissions on the draft approach paper. On 4February 2011, the MERC (Multi Year Tariff) Regulations, 2011[3] werenotified. Regulation 2(32) defines the Gross Station Heat Rate thus:

“(32) “Gross Station Heat Rate” means the heat energy input inkcal required to generate one kWh of electrical energy at generatorterminals.”

Regulation 44 provides norms for the operation of thermalgenerating stations. Regulation 44.2 stipulates gross station heat ratesfor existing generating stations in the following terms:

“44.2 Gross Station Heat Rate - For existing Generating Stations:

a) Existing Coal-based Thermal Generating Stations, other thanthose covered under clauses (b), (c) and (d), below:

200/210/250 MW sets 500 MW and above sets 2450 kcal/kWh2425 kcal/kWh Note 1

In respect of 500 MW and above Units, where the boiler feedpumps are electrically operated, the gross Station Heat Rate shallbe 40 kcal/kWh lower than the gross Station Heat Rate indicatedabove.

Note 2

For Generating Stations having combination of 200/210/250 MWsets and 500 MW and above sets, the normative gross StationHeat Rate shall be the weighted average station heat rate.

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896SUPREME COURT REPORTS

[2019] 1 S.C.R.

Ab) Thermal Generating Stations of Maharashtra State PowerGeneration Company Ltd. (MSPGCL):

K cal/kWhYear Koradi Khaperkheda ChandrapurNasik Bhusawal Paras Parli excluding excluding BUnit Unit No.3No.6FY 2010-2965 2560 2617 2722 2734 3186 2745 11 FY 2011-297525682626273127423199275312 FY 2012-2985 2575 2635 2740 2751 3212 2762 C13 FY 2013-2873 2424 2539 2664 2671 3225 2679 14FY 2014-2881 2429 2544 2670 2677 3237 2684 15FY 2015-2889 2433 2549 2677 2683 3250 2690 D16

Provided that the Commission may revise the norms for heat ratefor the above mentioned Generating Stations in case of Renovation& Modernisation undertaken for the Generating Station.

c) Thermal Generating Units of the Tata Power Company Ltd.EGeneration Business (TPC-G):

K cal/kWhYear Unit-4 Unit-5 Unit-6With Oil & Gas mix.in proportion of 50:50* FY 2011-12 2570 2575 2519 FY 2012-13257625832524FY 2013-14258125912529FY 2014-15 2586 2573 2534 FY 2015-16 2591 2581 2539

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* In case variation in Oil and Gas mix is more than +/- 5%, theHeat Rate for Unit 6 shall be approved considering the actual Oiland Gas Mix.

d) Thermal Generating Station of Reliance Infrastructure Ltd.-Generation Business (RInfra-G):

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K cal/kWhYear Dahanu TPS FY 2011-12 2350 FY 2012-13 2355 FY 2013-14 2360 FY 2014-152365FY 2015-162370

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8. The above regulation indicates that save and except for theexcluded categories set out in clauses (b), (c) and (d), the SHR forexisting coal based thermal generating stations is pegged at a uniformlevel of 2450 kCal/kWh (for 200/210/250 MW sets) and 2425 kCal/kWhD(for 500 MW sets and above). The excluded categories are the generatingstations of (i) MSPGCL; (ii) TPC – G; and (iii) RInfra-G. As the table inclause (b) of Regulation 44.2 indicates, a relaxed standard for the SHRhas been prescribed for the units of MSPGCL. However, there is anexclusion within the exclusion for Unit 3 at Paras and Unit 6 at Parli,since these units are governed by the uniform criterion prescribed inEclause (a). The dispensation for Units 4, 5 and 6 of TPC-G is prescribedin clause (c). For Unit 8 of TPC-G, the applicable SHR is in terms of theuniform rate of 2450 kCal/kWh, since this unit is not specified in clause (c).

9. The grievance of the appellant arises from the fact that a tighterstandard or norm has been prescribed for its Dahanu TPS. As opposedto the uniform criterion of 2450 kCal/kWh in Regulation 44.2(a), theSHR for the Dahanu TPS varies between 2350 in financial year 2011-12to 2370 in financial year 2015-16. Essentially, it is this prescription of amore stringent SHR in the case of R-Infra’s Dahanu TPS which formsthe focus of dispute in the present case.

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10. In order to buttress its grievance of discrimination, the appellanthas relied upon the Multi Year Tariff regulations notified by MERC forthe previous period (2005-10) and for the subsequent period (2016-21).The MERC (Multi Year Tariff) Regulations 2015[4] which govern the 4 Tariff Regulations 2015

Aperiod 1 April 2016 to 31 March 2020 place the Dahanu TPS of RInfra-G at par with other coal-based thermal generating stations. Regulation44.4 is in the following terms:

“44.4 Gross Station Heat Rate for existing coal-based thermalGenerating Stations, other than those covered under Regulation44.5 and 44.6 shall be:

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200/210/250 MW 300 MW sets500 MW sets (sub-setscritical boilers)2450 kcal/kWh2400 kcal/kWh2375 kcal/kWh CNote 1

In respect of 500 MW Units, where the boiler feed pumps areelectrically operated, the Gross Station Heat Rate shall be 40 kcal/kWh lower than the gross Station Heat Rate specified above.

Note 2D

For Generating Stations having combination of 200/210/250 MWsets and 300 MW and 500 MW sets, the normative gross StationHeat Rate shall be weighted average Station Heat Rate.”

Regulation 44.5 contains the SHR for the coal based thermalEgenerating stations of MSPGCL. Regulation 44.6 specifies the SHR forTPC-G. Regulations 44.5 and 44.6 are extracted below:

“44.5 Gross Station Heat Rate for existing coal-based thermalGenerating Stations of Maharashtra State Power GenerationCompany Ltd. (MSPGCL) shall be:

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Provided that the Commission may revise the Gross Station HeatRate norms for these Generating Stations in case any Renovation& Modernization is undertaken.

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44.6 Gross Station Heat Rate for existing thermal GeneratingAStations of The Tata Power Company Ltd- Generation Business(TPC-G) shall be:

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*In case variation in Oil and Gas mix is more than +/- 5%,the Gross Station Heat Rate for Unit 6 shall be approved considering the actual Oil and Gas Mix.”

In Regulation 44.5, Units 4 and 5 at Bhusawal and Units 6 and 7at Parli have been excluded. Similarly, Unit 8 for TPC-G is excludedfrom the SHR in Regulation 44.6.

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11. In order to complete the narration, it may be noted that on 2September 2011, MERC passed an order on a petition filed by theappellant for deferring the implementation of the MYT regulations. On5 May 2012, the appellant submitted a petition for approval of its businessplan for financial years 2010-11 to 2015-16. The appellant requestedthat the norm should be relaxed and brought in line with the normativeSHR. On 25 October 2012, MERC passed an order on the MYTBusiness Plan for RInfra-G stating that it had considered the norms forSHR based on the MYT regulations. MERC held thus:

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RInfra-G submitted that MYT Regulations, 2011 framed the normsfor DTPS based on the plant’s historical performance. RInfra-Gsubmitted that it believes that all operating parameters, “norms”Gincluding the secondary oil consumption, auxiliary energyconsumption, station heat rate and transit loss should be specifiedto create a level playing field and bring discipline for regulatedentities for the benefit of beneficiaries of the state. RInfra-Gsubmitted that the essence of the norms should be to create H

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benchmarks based on industry-wide performance and let themarket to reward or penalize the performance of the utilities vis-à-vis those benchmarks. RInfra-G further submitted that suchmechanism will not only force underperforming utilities to performbut also bring the competitive price of power in the market inoverall benefit of consumers.

4.5.3

In its Petition under Case No.45 of 2011, RInfra-G had raised theissue of specifying separate norms for SHR of DTPS in the MYTRegulations, 2011 and argued that any norm for generating stationsshould be made based on performance of the industry as a wholeand should not be specific to a plant based on its historicalperformance.

4.5.4

RInfra-G submitted that specific relaxations from the norms can,however, be provided considering the specific issues of any givenplant. In the said Petition, RInfra-G also highlighted the SHR normsadopted by other Regulatory Commissions to bring out its pointthat the SHR norms should be linked with unit size and ageing andnot driven by the performance of the generating company. RInfra-G further added that the tightening of the norms for efficientgenerating plant is against the principle of equality and rewardingefficiency.

4.5.5

Accordingly, RInfra-G has requested the Commission not to tightenthe norms for DTPS and retain it at industrial normative level of2450 kCal/kWh. RInfra-G submitted that the Commission, in itsOrder in Case No.45 of 2011 dated 2 September, 2011 on the saidPetition did not provide any specific ruling on the said contentionof RInfra-G; however stated that the Commission could invokeits powers alter the MYT norms for SHR and OEM cost, ifrequired.

4.5.6

The Commission is of the view that norms can be fixed stationwise based on the historical performance of the plant. The SHR

of the plant is dependent on the age of the plant, the technologyused, the capital expenditure incurred overhauling the plant, regularrepair and maintenance expenditure incurred and various otherfactors. Hence, there could be wide variations on SHR acrossplants. Further, if the Commission derives the benchmarkconsidering only the industry-wide performance capital andoperating expenditures incurred, the generating company may nothave sufficient motivation to continue to operate as efficiently asit had been in the past. Therefore, a balanced approach is to providea target which will adequately motivate the generating plant toperform at existing levels or better and still have room for earningincentives. Moreover, the MYT Regulations, 2011 have beenfinalised after following appropriate regulatory process afterconsidering and deliberating on the views of all stakeholders onvarious issue. Considering all the facts discussed above, theCommission does not find any merit in altering the MYT normsfor SHR. Therefore, though RInfra-G has proposed a SHR of2,450 kCal/kWh, the Commission has considered the SHR as perthe MYT Regulations, 2011.

4.5.7

For FY 2011-12, the Commission has considered the SHR asapproved in the ARR Order in Case No.163 of 2011. The SHRapproved by the Commission for RInfra-G for the second controlperiod is as below:

Table 5: Approved station heat rate for the second controlperiod “

12. On 7 December 2012, the appellant filed an appeal underSection 111 of the Electricity Act 2003 before the Appellate Tribunal forElectricity (APTEL) against the order dated 25 October 2012. The A

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Aappellant submitted that the MERC ought to have exercised its powerunder Regulations 99 and 100 of the Tariff Regulations 2011 to amendand remove difficulties since the SHR which was prescribed for DahanuTPS was not the same as for similarly situated generating units.

13. On 3 October 2013, the appellant instituted a writ petitionBunder Article 226 of the Constitution before the Bombay High Court forthe purpose of challenging Regulation 44.2(d) which specifies a separateSHR for the Dahanu TPS as compared to other generating stations inthe State of Maharashtra. The appellant disclosed the pendency of theappeal before the Tribunal against MERC’s order dated 25 October2012 disallowing the prayer for relaxing the norms.C

14. MERC opposed the writ petition. MERC submitted that theappellant had filed a substantive petition seeking approval of its businessplan for the financial years 2010-11 to 2015-16 and an SHR of 2450kCal/kWh for 2012-13 to 2015-16. MERC in the course of its adjudicationon the business plan had adopted the same SHR as under the tariffDregulations. MERC contended that since the appeal before the Tribunalwas pending, the appellant was not entitled to pursue a remedy underArticle 226 of the Constitution.

15. The Appellate Tribunal for Electricity disposed of the appealon 8 April 2015, recording that it did not survive in view of the institutionEof the writ proceedings before the Bombay High Court. The appellantasserts that it drew the attention of the High Court, when the writ petitionwas being heard, to the fact that the appeal before the Tribunal was notpending and had been disposed of.

16. The High Court by its judgment dated 18 April 2016 dismissedFthe writ petition. In coming to the conclusion that the petition was lackingin merit, the High Court came to the following conclusions:

(i) MERC in framing statutory regulations in exercise of the powerconferred by Section 181 had followed the procedure by granting anopportunity to stake holders including the appellant to make theirGsuggestions on the draft approach paper which was published on thebasis of the CPRI report;

(ii) CPRI was commissioned to undertake a study in order to fixnorms for SHR for different power stations in the State of Maharashtraand it was only after the technical material collated by CPRI was H

considered and reviewed that the tariff regulations were notifiedprescribing SHR norms for various power stations;

(iii) MERC has applied the principles evolved in the tariff policywhich stipulates that the operating norms should be “efficient, relatableto past performance, capable of achievement and progressively reflectincreased efficiencies”. The past performance of the Dahanu TPS ofthe appellant was also taken into consideration;

(iv) The submissions urged by the appellant was not accepted fortwo reasons which were formulated by the High Court as follows:

“Firstly, if this submission is accepted then the whole exercise ofundertaking an expert analysis, the working of each of the thermalpower station to determine the SHR by studying various factorsincluding the past performance would be rendered nugatory.Secondly the tariff standards are required to be fixed on realisticdata and its consideration, as public interest is directly involved infixation of the electricity tariff. The contention of the petitioner ifaccepted it would also result in a situation that the realistic standardsare deviated to fix unrealistic or a camouflage norms. This is surelynot permissible and is fundamentally against public interest beingagainst the interest of the consumers of electricity. The submissionof the petitioner is only from the sole consideration of profits ofthe petitioner, while disregarding the norms and standards requiredto be followed by the 2[nd] Respondent in determination of theelectricity tariff.”

(v) In the exercise of its jurisdiction under Article 226 of theConstitution, the High Court cannot decide on technical parameters orcome to the conclusion that the norms fixed by MERC are inappropriate;

(vi) The power to frame tariff regulations under Section 181 ofthe Electricity Act 2003 is of a legislative character. The regulationsconstitute subordinate legislation. Once MERC has followed appropriateprocedures mandated by the Electricity Act, the Court will not interferewith the regulations merely on the ground that the SHR prescribed forthe power station of the appellant was fixed at a rate below its peers;

(vii) Profitability of the producer is not the only consideration indetermining the SHR. The regulations are also framed in the interest ofthe consumers of electricity; and AB

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A(viii) Having approached the Appellate Tribunal for Electricity,the appellant was not justified in moving the High Court under Article226 “on the same issue” when the Tribunal was in a position to provideadequate relief. Entertaining a writ petition of this nature, when analternate remedy is provided by the statute would render the statutorymachinery under the Electricity Act nugatory. The petition under ArticleB226 was held to be an abuse of process.

While dismissing the petition, the High Court imposed costs ofRs 1 lakh on the appellant.

17. While assailing the decision of the High Court,CMr P Chidambaram, learned Senior Counsel, urged that the High Courtwas not justified in coming to the conclusion that in view of the pendencyof the appeal before APTEL, recourse to the jurisdiction under Article226 constituted an abuse of process. Learned Senior Counsel submitsthat the pendency of the appeal before APTEL was disclosed in paragraph27 of the writ petition before the High Court:D

“27. As stated hereinabove, the Petitioners have preferred AppealNo.4 of 2013 before the Appellate Tribunal for Electricitychallenging the Order dated 25[th] October 2012 insofar asRespondent No.1 disallows the Petitioners prayer for relaxationof the norms under Regulations 99 and 100 of the MYTERegulations. The present Petition challenges the vires, legalityand validity of Regulation 44.2 (d) of the MYT Regulations thatfixes SHR norms for the 1[st] Petitioners. Save as aforesaid, thePetitioners have not filed any other Petition in respect of the subjectmatter of the present Petition either before this Hon’ble Court orFany other High Court or the Supreme Court of India.”

In response to the objection raised by MERC, the following assertionwas contained in the rejoinder filed by the appellant before the HighCourt:

“2.3. The Petitioners in the Petition have, inter alia, in paragraphG27 thereof disclosed to this Hon’ble Court that they have preferredAppeal No. 4 of 2013 before the Appellate Tribunal for Electricitychallenging the order dated 25[th] October 2012 passed in CaseNo. 156 of 2011 which disallowed the Petitioners’ prayer forrelaxation of the norms under Regulations 99 and 100 of the MYT

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Regulations. It is settled law of the Hon’ble Supreme Court ofIndia that the Appellate Tribunal for Electricity has no power,authority or jurisdiction to go into validity or legality of Regulationsframed by a Regulatory Commission. Regulation 44.2 (d) has beenchallenged in the present Writ Petition and is not the subject matterof any other Petition or Appeal in any other Court as stated, interalia, in paragraph 27 of the Petition. In fact, the Petitioners haveenclosed at Exhibit-K to the Petition a copy of the Memorandumof Appeal without annexures. It is denied that there is any forumshopping. The said Appeal has since been heard by the AppellateTribunal, in any event, was not pressed by the Petitioners at thefinal hearing of the Appeal. The grievance of Respondent No. 2,in any event, does not survive.”

The submission of the appellant on the maintainability of theproceedings under Article 226 is that the scope of the appeal before theTribunal was entirely different from the ambit of the writ petition. Theappellant moved the Tribunal against the order of MERC dated 25 October2012 which disallowed the prayer for relaxation of the norms underRegulations 99 and 100 of the Tariff Regulations 2011. The petitionchallenged the vires of the regulations before the High Court and theremedy before the High Court was the only remedy available to challengethe validity of the regulations.

18. On the maintainability of the petition under Article 226, theHigh Court, in our view, has overlooked the position in law establishedby the judgment of a Constitution Bench of this Court in PTC IndiaLimited v Central Electricity Regulatory Commission[5]. TheConstitution Bench considered whether the Appellate Tribunal forElectricity has jurisdiction to decide upon the validity of the regulationsframed by the Central Electricity Regulatory Commission. CERC hasbeen entrusted with the power to frame regulations under Section 178of the Electricity Act 2003. The Constitution Bench held that the validityof a regulation framed under Section 178 can be tested only before thecourt exercising judicial review. While the Tribunal may decide upon adispute involving the interpretation of a regulation, for which an appealunder Section 111 would be maintainable, no appeal can lie before theTribunal on the validity of a regulation. The summary of the findings inthe judgment includes, inter alia, the following:

5 (2010) 4 SCC 603

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“(iii) A regulation under Section 178 is made under the authorityof delegated legislation and consequently its validity can be testedonly in judicial review proceedings before the courts and not byway of appeal before the Appellate Tribunal for Electricity underSection 111 of the said Act.

B(iv) Section 121 of the 2003 Act does not confer the power ofjudicial review on the Appellate Tribunal. The words “orders”,“instructions” or “directions” in Section 121 do not confer thepower of judicial review in the Appellate Tribunal for Electricity.In this judgment, we do not wish to analyse the English authoritiesas we find from those authorities that in certain cases in EnglandCthe power of judicial review is expressly conferred on the tribunalsconstituted under the Act. In the present 2003 Act, the power ofjudicial review of the validity of the regulations made under Section178 is not conferred on the Appellate Tribunal for Electricity.

(v) If a dispute arises in adjudication on interpretation of a regulationDmade under Section 178, an appeal would certainly lie before theAppellate Tribunal under Section 111, however, no appeal to theAppellate Tribunal shall lie on the validity of a regulation madeunder Section 178.”

Hence the conclusion of the Court is in the following terms:E

“The Appellate Tribunal for Electricity has no jurisdiction to decidethe validity of the Regulations framed by the Central ElectricityRegulatory Commission under Section 178 of the Electricity Act,2003. The validity of the Regulations may, however, be challengedby seeking judicial review under Article 226 of the Constitution ofFIndia.”

Though the above principles emerge in the context of regulationsframed under Section 178 by the CERC, the logic of the judgment extendsto the regulations framed under Section 181 by the State ElectricityRegulatory Commissions. In view of the legal position settled by theGConstitution Bench, we are of the clear view that the High Court wasnot justified in disparaging the appellant for taking recourse to aconstitutional remedy under Article 226. Indeed, a challenge to the validityof the regulations framed by the MERC could only lie before the HighCourt. Hence, the imposition of costs for having adopted the remedyunder Article 226 was unjustified. There was no suppression of fact onH

the part of the appellant which had indicated the recourse it had taken inthe appeal before the Tribunal, arising from its prayer for relaxation ofthe SHR norms before MERC. The plea before the Appellate Tribunalwas for relaxation of the SHR norms. The plea before the High Courtwas that the SHR fixed was discriminatory and ultra vires. Undoubtedly,if the appellant were to succeed before the Tribunal, it would perhapsobviate the challenge in the High Court. The appellant, as learned SeniorCounsel informed the court, did not press ahead with its plea before theTribunal. Hence, the writ petition could not have been held not to bemaintainable.

19. The High Court has dealt with the merits of the challenge tothe validity of the regulations. The constitutional validity of Regulation44.2(d) of the Tariff Regulations 2011 is the subject of the challenge inthese proceedings. The basic challenge which has been addressed beforethe Court is founded on a plea of discrimination. Elaborating on thischallenge, Mr P. Chidambaram, learned Senior Counsel urged thefollowing submissions:

(i) Regulation 44.2(d) is contrary to the national tariff policy. Whileframing regulations under Section 181, MERC is required by Section61(i) to be guided by the “National Electricity Policy and tariff policy”.Clause 5.3(f) of the national tariff policy notified on 6 January 2006 bythe Union Ministry of Power requires that operating parameters andtariffs should be at “normative levels” only and not at “lower of normativeand actuals”. Regulation 44.2(d) lays down a more stringent SHR forthe appellant, based on its energy efficient performance by disregardingthe normative levels;

(ii) The CPRI report, which was commissioned by MERC containsthe following conclusions on the comparability of RInfra’s Dahanu TPSwith Paras Unit 3 and Parli Unit 6 (of MSPGCL) and TPC-G Unit 8:

“ii. DTPS units are identical to units installed at Parli Unit 6, ParasUnit 3 & Tata Trombay Unit 8. They are of the general or standarddesign of 250 MW duplicated by BHEL in nearly 25 units in India.

iii. Both DTPS units have operating margins of 8% steam flow inthe boiler side (BMCR flow), 5% power output on the turbineside (VWO flow) and 16% on the generator side (capability curve)and 23% on the generator transformer side. These margins areprovided in all 250 BHEL supplied units, including those at Paras AB

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AUnit 3, Parli Unit 6 and Tata Trombay Unit 8 as elaborated in thetext.”

Moreover, the CPRI report observes that:

“vii. Combining all the margins provided by the OEM, R-Infra hasbeen able to load the unit to 268 MW against the design value ofB250 MW. Maintaining this load is not harming the life of the unitas the DTPS has ensured that all parameters are kept within OEMlimits. High loadability is made possible by high energy efficiencyor low unit heart rate of the unit. When the deviation of the unitheat rate from the design heart rate is low, heat generation in theCequipment is low which enables the parameters not to exceedtheir limits. As many as 66 units in India have clocked averageannual plant loading in excess of 100% UMCR in 2007-08.”

R Infra’s Dahanu TPS unit has been found to be identical to ParliUnit 6, Paras unit 3 (MSPGCL) and Trombay unit 8 (of Tata power).DThe units have the same design, standard and OEM. Therefore, merelybecause the appellant has performed better, this would not be a groundto subject it to more stringent norms;

(iii) In any event, for the next control period – 2016-20, theappellant has been equated with other thermal power stations. ThereEexists no justifiable reason for making a distinction for the period 2011-16 and for imposing more stringent norms for SHR in the case of DTPS.In imposing more stringent norms on the appellant for its DTPS unit for2011-16, MERC has acted in an arbitrary exercise of power which violatesArticle 14 of the Constitution; and

(iv) As a matter of fact, CPRI did not furnish a “trajectory” forFthe appellant’s DTPS unit, as assumed by the High Court. A trajectorywas furnished for less efficient plants.

20. On the other hand, contesting the submissions which wereurged on behalf of the appellant, Mr SK Rungta, learned Senior Counselfor the respondents urged the following submissions:G

(i) The SHR represents heat energy required to generate one unitof electrical energy. The norm determines the cost of coal andcorresponding gas that will be allowed to be recovered. Fixation of theSHR has an important bearing on the cost of energy which will berecovered from the consumer;H

(ii) There is a fundamental error in the submission that the CPRIreport found an equivalence between the appellant’s Dahanu TPS withParli Unit 3 and Paras Unit 6 (of MSPGCL) and Trombay Unit 8 (ofTata Power). CPRI found an equivalence of specifications and not ofperformance. The dates on which the above three units commencedoperations were:

• Paras 3 31 March 2008;

• Parli 6 1 November 2007;

• TPC 8 31 March 2008.

The appellant’s unit at Dahanu commenced operations in 1995.CPRI has not, as a matter of fact, come to the conclusion that theperformance of DTPS was equivalent to Parli Unit 6, Paras Unit 3 andTrombay Unit 8;

(iii) The CPRI report has separately evaluated DTPS and theunits of Tata Power and MSPGCL. It is factually incorrect to posit thatthe CPRI study was for Parli Unit 6, Paras Unit 3 and Trombay Unit 8;

(iv) After the enactment of the Electricity Act 2003, the first MYTregulations were promulgated in 2005. All units were placed at par in theabsence of a base line study at that stage;

(v) Section 61(i) requires that the appropriate commission “shallbe guided by” the principles set out in the tariff policy. The tariff policyenunciates the factors which have to be taken into account while framingthe tariff regulations;

(vi) In the MYT regulations which governed the period 2011-16,the sharing of gains occasioned by the SHR, between the producer andthe consumer, was in the ratio of 2/3:1/3. In the 2015 regulations, theratio of sharing has been altered and 2/3[rd] enures to the benefit of theconsumer; and

(vii) The SHR delivered by the appellant for 2006-07 to 2009-10would sufficiently explain the basis of fixation. The same principle hasbeen applied in the case of Tata power;

(viii) Unless a subordinate legislation is found to suffer frommanifest unreasonableness or from a breach of the principle ofproportionality, it would not be regarded as ultra vires.

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A21. These submissions fall for our consideration.22. The power to determine tariffs is of a legislative nature. Section61 is borne in Part VII of the Electricity Act 2003 which deals withtariffs. Section 61 provides thus:

“Section 61. Tariff regulations: The Appropriate CommissionBshall, subject to the provisions of this Act, specify the terms andconditions for the determination of tariff, and in doing so, shall beguided by the following, namely:- (a) the principles and methodologies specified by the CentralCommission for determination of the tariff applicable to generatingCcompanies and transmission licensees; (b) the generation, transmission, distribution and supply of electricityare conducted on commercial principles;

(c) the factors which would encourage competition, efficiency,Deconomical use of the resources, good performance and optimuminvestments;

(d) safeguarding of consumer’s interest and at the same time,recovery of the cost of electricity in a reasonable manner; (e) the principles rewarding efficiency in performance; E

(f) multi year tariff principles;

(g) that the tariff progressively reflects the cost of supply ofelectricity and also reduces cross-subsidies in the manner specifiedby the Appropriate Commission; F(h) the promotion of co-generation and generation of electricityfrom renewable sources of energy;

(i) the National Electricity Policy and tariff policy:

Provided that the terms and conditions for determination of tariffunder the Electricity (Supply) Act, 1948, the Electricity RegulatoryGCommission Act, 1998 and the enactments specified in theSchedule as they stood immediately before the appointed date,shall continue to apply for a period of one year or until the termsand conditions for tariff are specified under this section, whicheveris earlier.”

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Section 61 provides that the appropriate commission shall, subjectto the provisions of the Act, specify the terms and conditions for thedetermination of tariff. In doing so, it has to be guided by theconsiderations which are stipulated in clauses (a) to (i). Among them, inclause (i) is the national electricity policy and tariff policy.

23. Section 181 empowers the state commissions to makeregulations consistent with the Act and the rules to carry out the provisionsof the Act. Among the matters for which the regulations may provideare “the terms and conditions for the determination of tariff under Section61”[6]. In specifying the terms and conditions for the determination oftariff, the appropriate commission (as Section 61 provides) “shall beguided” by the factors which are set out in clauses (a) to (i). Theexpression “shall be guided” comprises of two elements: the ‘shall’ and,the ‘guidance’. Clauses (a) to (i) provide guidance to the commission inspecifying the terms and conditions for the determination of tariff. Theexpression “shall” indicates that the factors which are specified in clauses(a) to (i) have to be borne in mind by the appropriate commission. Asguiding factors, they provide considerations which are material to thedetermination of tariffs by the appropriate commission.

24. The national tariff policy has multi-faceted objectives.Significant among them is the need to ensure to consumers the availabilityof electricity at reasonable and competitive rates. The policy also seeksto ensure the financial viability of the sector and underlines the need toattract investments. A financially sustainable electricity sector is animportant facet of the overall regulatory framework. The objectives ofthe policy emphasise the need to promote transparency, consistency andpredictability in regulatory approaches across jurisdictions. The policyemphasises the need to minimise perceptions of regulatory risk. Finally,the policy recognises the need to promote competition, efficiency inoperations and improvements in the quality of supply. In designing andformulating the regulatory framework for tariffs, the delegate of thelegislature has to bring about a balance between the competing goalswhich the tariff policy incorporates.

25. As part of the process, the delegate has to bear in mind theinterests of diverse stake holders including consumers and producers.The process of framing tariffs is of equal significance, for it is throughthe procedural framework that norms of consistency, transparency and 6 Section 181 (2)(zd)

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Apredictability can be enforced. Competition, efficiency and quality ofsupply are key components of the policy framework in designing tariffs.Clause 5.3(f) of the tariff policy speaks of the need to evolve performancenorms which incorporate incentives and disincentives and provide anappropriate arrangement that fosters the sharing of gains of efficiencyin operations with consumers. Operating parameters in tariffs areBrequired to be pegged only on a “normative level” and not at the “lowerof normative and actuals”, save and except in those cases referred to inparagraph 5.3(h)(2). Paragraph 5.3(h)(2) deals with those cases whereoperations have been much below the norm for several previous years.In those cases, the initial starting point in determining the revenueCrequirement and the trajectories are fixed at a relaxed level and not atdesired levels. Under clause 5.3(f), the operating norms must fulfilseveral parameters. They must be (i) efficient; (ii) relatable to pastperformance; (iii) capable of achievement; and must progressively reflectincreased efficiencies. They mayalso take into consideration latest technological advances, fuel, vintage of equipment, nature of operations,Dlevel of service to be provided to consumers, among other factors.Continuous and proven inefficiency has to be controlled and penalised.The operating norms must be designed to promote efficiency and toensure that the gains which accrue on account of efficient operationsare shared with the consumers of electricity. The operating norms will,Etherefore, have due regard to the performance in the past as well ascapacities for future achievement. These must be dovetailed with allrelevant considerations, bearing on the requirements of the policy.

26. The Tariff policy provides guidance to the appropriatecommission when it frames regulations. The power to frame regulationsFis legislative in nature. It is conferred upon the appropriate commission.The commission weighs numerous factors. Its discretion in carrying outa complex exercise cannot be constrained. The delegate of the legislatureis therefore under a mandate to bring about a fair and equitable balancebetween competing considerations. Standing at the forefront of those considerations is above all the need to ensure efficiency and to protectGthe interests of consumers. The submission which has been urged onbehalf of the appellant would reduce tariff fixation to a rather simplisticprocess of bringing about equality between generating units which havethe same design and manufacturing origin. Such an approach overlooksthe complex factors which have to be borne in mind in the determinationH

of tariffs. The submission which has been urged on behalf of the appellantis based on the hypothesis that the CPRI report underlined the similarityof Parli Unit 6, Paras Unit 3, Tata Trombay Unit 8 and the DTPS unit ofthe appellant. At the highest, the CPRI study would indicate a similarityof specifications but not a similarity of performance. Performance, aswe have seen, is a critical element in designing an appropriate SHR.The SHR has an important co-relationship with efficiency. The CPRIreport indicates a detailed analysis of RInfra’s DTPS. Specifically, inthe context of DTPS, it observed:

“vii. Combining all the margins provided by the OEM, R-Infra hasbeen able to load the unit to 268 MW against the design value of250 MW. Maintaining this load is not harming the life of the unitas the DTPS has ensured that all parameters are kept within OEMlimits. High loadability is made possible by high energy efficiencyor low unit heart rate of the unit. When the deviation of the unitheat rate from the design heart rate is low, heat generation in theequipment is low which enables the parameters not to exceedtheir limits. As many as 66 units in India have clocked an averageannual plant loading in excess of 100% UMCR in 2007-08.”

The CPRI report similarly contained an analysis of Units 5 and 6of TPC-G and of MSPGCL units. CPRI conducted studies on Units 1and 2 of R Infra’s DTPS. In its counter affidavit, MERC has tabulatedthe SHR achieved by DTPS for financial years 2006-07 to 2009-10 asfollows:

“Table No: 2 SHR achieved by DTPS from FY 2006-07 toFY 2009-10

Year Station Heat Rate (SHR) (kcal /kWh)RInfra’s Submission MERC Approved DTPS in PetitionAchievedFY 2006-07231525002278FY 2007-08250025002279FY 2008-09250025002300FY 2009-10 2500 2500 2293

“

It has been explained that to anticipate the SHR for financial year2011-12 till financial year 2015-16, the actual heat rate achieved duringthe previous years and predicted deviation due to factors such as A

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Areduction in boiler efficiency due to coal energy degradation and averageannual aging loss were considered. The anticipated SHR for DTPS forfinancial years 2011-12 to 2015-16 was computed in the following manner:

“SHR = 2292* + (Reduction in Boiler Efficiency + Coal QualityDegradation + Annual Ageing Loss) = 2350 kCal/kWh.

B

(* Station Heat Rate of 2292 kCal/kWh was taken from CPRITest Reports of March, 2010.)”

On a similar basis, CPRI carried out technical studies for Units 5and 6 of TPC-G. The SHR achieved by TPC-G Unit 5 (coal fired) from2006-07 and 2008-09 was computed. On this basis, the SHR, projectedCas an achievable heat rate, was computed and an approved trajectoryfor Unit 5 for financial years 2011-12 to 2015-16 was laid down. Similarly,in respect of Unit 6 of TPC-G, CPRI studies indicated the SHR achievedfor financial years 2006-07 to 2009-10. CPRI projected a heat rate onthe basis of fuel oil firing and fuel gas firing. On the basis of the CPRIDreport, MERC arrived at its findings for TPC-G Units 5 and 6. In thisregard, it has been demonstrated in the counter affidavit that there wasno discrimination in the methodology followed and the same principlewas uniformly applied.

27. The attention of the Court has also been drawn to the factEthat the Tariff Regulations 2011 contained a stipulation in clause 14 forthe sharing of gains or losses on account of controllable factors. Clause14 provides as follows:

“14 Mechanism for sharing of gains or losses on account ofcontrollable factors:

F14.1 The approved aggregate gain to the Generating Company orTransmission License or Distribution License on account ofcontrollable factors shall be dealt with in the following manner:

(a) One-third of the amount of such gain shall be passed on as arebate in tariff over such period as may be stipulated in the OrderGof the Commission under Regulation 11.6; (b) The balance amount, which will amount to two-third of suchgain, may be utilised at the discretion of the Generating Companyor Transmission License or Distribution License.”

[The expression ‘controllable factors’ is explained in clause 12.2of the regulations.]

28. Under the Tariff Regulations 2011, the approved aggregategain to the generating company was to be shared: one-third was requiredto be passed on as a rebate in tariff while the balance of two-thirdswould be utilised at the discretion of the generating company. On theother hand, in the Tariff Regulations 2015, Regulation 11 contains acorresponding mechanism for the sharing of gains on account ofcontrollable factors. Regulation 11 is in the following terms:

“11 Mechanism for sharing of gains or losses on account ofcontrollable factors:

11.1 The approved aggregate gain to the Generating Company orLicensee or MSLDC on account of controllable factors shall bedealt with in the following manner:

(a) Two-third of the amount of such gain shall be passed on as arebate in Tariff over such period as may be stipulated in the Orderof the Commission under Regulation 8.4; (b) The balance amount of such gain shall be retained by theGenerating Company or Licensee or MSLDC.”

While in the Regulations of 2011, one-third of the aggregate gainwas to be passed on in the form of a rebate in tariff and the balancetwo-thirds was to be utilised by the generating company at its discretion,in the 2015 regulations, the proportion has been reversed. In the 2015regulations, two-thirds of the amount of the gain is required to be passedon as a rebate in tariff while the balance shall be retained by thegenerating company. The interests of the consumer are required to beborne in mind under the terms of the tariff policy consistent with Section61. In its expert judgment, the Commission, while formulating the 2015regulations mandated that an enhanced ratio of the aggregate gain wouldbe passed on in the form of a rebate on the tariff. This could havelegitimately been borne in mind as a relevant consideration in evaluatingwhat should be appropriately fixed as the SHR for the period in question.

29. The substratum of the case of the appellant is founded on aplea of discrimination. Simply put, the plea is founded on the hypothesisthat the CPRI report regarded the units of DTPS as identical to ParliUnit 6 and Paras Unit 3 (of MSPGCL) and Trombay Unit 8 (of TPC- A

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AG). The observations contained in the CPRI report must be read in theirentirety. The fact that the manufacturing specifications of the units maybe similar (assuming they are so) is only one aspect of the total range ofconsiderations which are required to be borne in mind under the termsof the tariff policy. The tariff policy requires that the operating normsshould be efficient, relatable to past performance, capable of achievementBand progressively reflect increased efficiencies. They may also takeinto consideration technical advancements, fuel, vintage of equipment,nature of operations and the level of service among other factors. MrChidambaram laid emphasis on clause 5.3(f) of the tariff policy where itprescribes that the operating parameters and tariffs should be atC“normative levels” only and not at the “lower of normative and actuals”except in the case of those units governed by para 5.3(h)(2). Thissubmission will not, however, carry the case of the appellant any further.Normative levels are those which are fixed by the application of thestandards guided by the terms of the tariff policy while actual levels arethose which have been achieved as a matter of fact, in the past. TheDemphasis in the tariff policy is on creating incentives for achieving higherefficiency in order to enable the ultimate consumer to have the benefitof efficient operations.

30. Tariff fixation is a complex exercise involving a careful balance

30. Tariff fixation is a complex exercise involving a careful balance between numerous considerations. The “shall be guided” prescriptionEunder Section 61 requires the appropriate commission to bear thoseconsiderations in mind. Deducing past performance on the basis ofhistorical data, balancing diverse policy objectives and evaluating thecomparative weight to be ascribed to the interests of stakeholders is ascientific exercise which is carried out by the commission. The natureFof judicial review that is exercisable in a given subject area depends in asignificant measure on the nature of the area and the body which isentrusted with the task of framing subordinate legislation. InTransmission Corporation of Andhra Pradesh Ltd. v SaiRenewable Power Pvt. Ltd.,[7] a two judge Bench of this Court heldthus:G“17. Fixation of tariff is, primarily, a function to be performed bythe statutory authority in furtherance to the provisions of the relevantlaws. We have already noticed that fixation of tariff is a statutoryfunction as specified under the provisions of the Reform Act, 1998,Electricity Regulatory Commissions Act, 1998 and the ElectricityH 7 (2011) 11 SCC 34

Act, 2003. These functions are required to be performed by theexpert bodies to whom the job is assigned under the law… Thefunctions assigned to the Regulatory Commission are wide enoughto specifically impose an obligation on the Regulatory Commissionto determine the tariff. The specialized performance of functionsthat are assigned to Regulatory Commission can hardly be assumedby any other authority and particularly, the Courts in exercise oftheir judicial discretion. The Tribunal constituted under theprovisions of the Electricity Act, 2003, again being a specializedbody, is expected to examine such issues, but this Court in exerciseof its powers under Article 136 of the Constitution would not sitas an appellate authority over the formation of opinion anddetermination of tariff by the specialized bodies.

18. …This Court has consistently taken the view that it would notbe proper for the Court to examine the fixation of tariff rates orits revision as these matters are policy matters outside the purviewof judicial intervention. The only explanation for judicial interventionin tariff fixation/revision is where the person aggrieved can showthat the tariff fixation was illegal, arbitrary or ultra vires the Act.It would be termed as illegal if statutorily prescribed procedure isnot followed or it is so perverse and arbitrary that it hurts thejudicial ‘conscience’ of the Court making it necessary for the Courtto intervene. Even in these cases the scope of jurisdiction is avery limited one.”

MERC is an expert body which is entrusted with the duty andfunction to frame regulations, including the terms and conditions for thedetermination of tariff. The Court, while exercising its power of judicialreview, can step in where a case of manifest unreasonableness orarbitrariness is made out. Similarly, where the delegate of the legislaturehas failed to follow statutory procedures or to take into account factorswhich it is mandated by the statute to consider or has founded itsdetermination of tariffs on extraneous considerations, the Court in theexercise of its power of judicial review will ensure that the statute is notbreached. However, it is no part of the function of the Court to substituteits own determination for a determination which was made by an expertbody after due consideration of material circumstances. In Associationof Industrial Electricity Users v State of Andhra Pradesh,[8] a threejudge Bench of this Court dealt with the fixation of tariffs and held thus: 8 (2002) 3 SCC 711

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A“11. We also agree with the High Court that the judicial review ina matter with regard to fixation of tariff has not to be as that of anAppellate Authority in exercise of its jurisdiction under Article226 of the Constitution. All that the High Court has to be satisfiedwith is that the Commission has followed the proper procedureand unless it can be demonstrated that its decision is on the faceBof it arbitrary or illegal or contrary to the Act, the court will notinterfere. Fixing a tariff and providing for cross-subsidy isessentially a matter of policy and normally a court would refrainfrom interfering with a policy decision unless the power exercisedis arbitrary or ex facie bad in law.”

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31. We commenced our discussion by emphasising, in our prefatoryobservations, that the power to frame regulations is of a legislative nature.The CPRI report was an input before the MERC in carrying out thatexercise. MERC followed the statutory procedures laid down for thedetermination of tariffs. It took into account factors which it is mandatedDby the statute to consider. The national tariff policy, suggestions ofstakeholders as well as the assessment carried out by the CPRI wereduly considered. Hence, the present case does not fall in the paradigmof manifest unreasonableness or arbitrariness to warrant the interferenceof this Court. It would be rather formulaic for the Court to accept thatmerely because DTPS was placed at par in the immediately previousEperiod (2006-07) and the period immediately succeeding (2016-20), thatthis must necessarily be extrapolated to the intervening period governedby the MYT Regulations 2011. A body which is entrusted with the taskof framing subordinate legislation has a range of options including policyoptions. If on an appraisal of all the guiding principles, it has chosen aFparticular line of logic or rationale, this Court ought not to interfere.

32. For the reasons which we have recorded in this judgment, wehave come to the conclusion that regulation 44.2(d) of the MERC (MultiYear Tariff) Regulations, 2011 does not suffer from any constitutional orstatutory infirmity. We have, however, furnished reasons of our own forGaffirming the ultimate decision of the High Court to dismiss the writpetition. We have disapproved of the view of the High Court that thewrit petition under Article 226 was not maintainable and accordingly setaside the direction on the imposition of costs. However, we hold thatthere is no infirmity in the impugned regulation and accordingly affirmthe ultimate conclusion of the High Court to dismiss the writ petitionHunder Article 226.

The Civil Appeal is, accordingly, disposed of. There shall be noorder as to costs.

Ankit Gyan

Appeal disposed of.

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D

E

F

G

H