MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY LIMITED versus ADANI POWER MAHARASHTRA LIMITED & ORS. on 3 March 2023

MAHARASHTRA STATE ELECTRICITY DISTRIBUTIONCOMPANY LIMITED

v.

ADANI POWER MAHARASHTRA LIMITED & ORS.

(Civil Appeal No. 684 of 2021)

MARCH 03, 2023

[B. R. GAVAI AND VIKRAM NATH, JJ.]

Power – Long-term Power Purchase Agreements (PPAs) –Supply of coal to power producers – Change of New CoalDistributional Policy, 2007 (NCDP, 2007) by New CoalDistributional Policy, 2013 (NCDP 2013) – Claim for ‘Change inLaw’ relief compensation – Operating parameters – Held: In theEnergy Watchdog case as well as in Adani Rajasthan case, theSupreme Court held that on account of the Change in Law, thegenerating companies were entitled to compensation so as to restorethe party to the same economic position as if such Change in Lawhad not occurred – Had the Change in Law not occurred, thegenerating companies would have been entitled to the supply asassured by the Coal India Ltd. (CIL)/Coal Companies under theFuel Supply Agreement (FSA) – The submission that when the bidderssubmitted their bids, this was a risk they knowingly took, is withoutsubstance – The generators are not claiming compensation on thebasis of rise in price of coal or on the ground of force majeure –Their claims, in fact, are on the basis of the Change in Law, whichthis Court, in the case of Energy Watchdog as well as in AdaniRajasthan case, has upheld on the ground of Change in Law – Thecontention of the Distribution companies (DISCOMS) that the AdaniRajasthan case is not applicable to the facts of the present caseinasmuch as in Adani Rajasthan case, the State of Rajasthan hadassured 100% coal supply and that it was not a case of FSA, iswithout substance – In the present case also, the NCDP 2007 hadassured 100% fuel/coal supply of the normative value – Therestitutionary principle has been stated by this Court in the case ofUttar Haryana Bijli Vitran Nigam Limited (UHBVNL) – Undisputedly,the claim of respondent no.1-APML stands on the basis of the Changein Law – The DISCOMS, which are instrumentalities of the State,cannot be expected to argue contrary to the stand of the Government,

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Awhich clearly provides that the generators would be entitled to pass-through for the coal required to be imported or purchased from theopen market on the ground of Change in Law – The stand taken bythe DISCOMS that, since the loss being sustained by the generatingcompanies is on account of non-fulfillment of obligation by CIL/Coal Companies, they should be relegated to the remedy availableBto them in law against the CIL/Coal Companies, is totallyunreasonable – The claim is based on change of NCDP 2007 byNCDP 2013, which, undisputedly, is covered by the term ‘Changein Law’ – Compensation – ‘Change in law’ compensation.

Judicial Review – Of decision taken by expert bodies – CentralCElectricity Authority (CEA), Central Electricity RegulatoryCommission (CERC) and Appellate Tribunal for Electricity (APTEL)–Held: – These bodies are bodies consisting of experts in the field– Courts should be slow in interfering with the decisions taken bythe experts in the field and unless it is found that the expert bodiesDhave failed to take into consideration the mandatory statutoryprovisions or the decisions taken are based on extraneousconsiderations or they are ex facie arbitrary and illegal, it will notbe appropriate for the Court to substitute its views with that of theexpert bodies.

Electricity Act, 2003 – Purpose and Object – One of the majorEreasons for the enactment of the Electricity Act was the deteriorationin performance of the State Electricity Boards – It is seen that in anumber of matters, concurrent orders passed by the Regulatory Bodyand the Appellate Forum are assailed – Such litigation would, infact, efface the purpose of the Electricity Act.FVivek Narayan Sharma v. Union of India 2023 SCCOnLine SC 1 – followed.

Energy Watchdog v. Central Electricity RegulatoryCommission and others (2017) 14 SCC 80 and JaipurVidyut Vitaran Nigam Ltd. and others v. Adani PowerGRajasthan Limited and another 2020 SCC Online SC697 – relied on.

Uttar Haryana Bijli Vitran Nigam Limited (UHBVNL)and another v. Adani Power Limited and others (2019)5 SCC 325 : [2019] 4 SCR 487; Reliance InfrastructureHLimited v. State of Maharashtra and others (2019) 3

MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. LTD. v.ADANI POWER MAHARASHTRA LTD.

SCC 352: [2019] 1 SCR 886; Central WarehousingCorporation v. Adani Ports Special Economic ZoneLimited (APSEZL) and others 2022 SCC OnLine SC1398;Maharashtra State Electricity DistributionCompany Limited v. Maharashtra Electricity RegulatoryCommission and others (2022) 4 SCC 657; Tamil NaduGeneration & Distribution Corporation Limited v. PPNPower Generating Company Private Limited (2014) 11SCC 53 : [2014] 4 SCR 667 and Nabha Power Limited(NPL) v. Punjab State Power Corporation Limited(PSPCL) and another (2018) 11 SCC 508: [2017] 14SCR 301 – referred to.

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Case Law Reference

CIVIL APPELLATE JURISDICTION : Civil Appeal No.684 of2021.

From the Judgment and Order dated 14.09.2020 of the AppellateTribunal for Electricity in Appeal No.182 of 2019.

With

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Civil Appeal No.6927 of 2021.

Balbir Singh, A.S.G., Gopal Jain, G. Umapathy, M. G.Ramachandran, Dr. A. M. Singhvi, Darius Khambata, Sajan Poovayya,Siddhartha Dave, S. B. Upadhyay, Sr. Advs., Anup Jain, Udit Gupta forM/s. Udit Kishan and Associates, G. Sai Kumar, Samir Malik, Ms. Eksshafor M/s. D.S.K. Legal, Anand K. Ganesan, Nikunj Dayal, Ms. PoorvaSaigal, Amal Nair, Shubham Arya, Ms. Kriti Soni, Ms. Ritu Apurva, Ms.Pallavi Saigal, Ms. Ritu Apurv, Ravi Nair, Ms. Shikha Sood, Ms. ReehaSingh, Ms. Anumeha Smiti, Aneesh Bajaj, Navin Prakash, Ms. AnushreeBardhan, Ms. Srishti Khindaria, Vishrov Mukherjee, Pukhrambam G

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ARamesh Kumar, Girik Bhalla, Yasashwi Kant, Mrs. Priyanka Vyas,Mahesh Agarwal, Amit Kapur, Ms. Geetika Sharma, Ms. PoonamSengupta, Ms. Sakshi Kapoor, Avishkar Singhvi, Arshit Anand, SaunakRajguru, Aman Sharma, Ms. Deepsika Mishra, Ankitesh Ojha, KaranRukhana, E. C. Agrawala, Ms. Pallavi Sharma, Vaibhav Kalra, NishantKumar, Ms. Anisha Upadhyay, Advs. for the appearing parties.BThe Judgment of the Court was delivered by

B. R. GAVAI, J.

INDEX*

I.INTRODUCTION………………………..Paras 1 and 2C

II.FACTS IN CIVIL APPEAL NO.684 OF2021……..................................................Paras 3 to 29

III.FACTS IN CIVIL APPEAL NO.6927 OF2021………….........................................Paras 30 to 39

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IV.SUBMISSIONS ON BEHALF OF THE

DISCOMS ……….......................................... Paras 43

V.SUBMISSIONS ON BEHALF OF THEGENERATING COMPANIES ……......Paras 44 and 45EV.RELEVANT DOCUMENTS………….... Paras 46 to 83VI.JUDGMENTS CITED…………………...Paras 84 to 93VII.STATUTORY PROVISIONS WITH REGARD TOREGULATORY MECHANISM………..Paras 94 to 104VIII. CONSIDERATIONS…………………Para 105 onwardsFList of abbreviations:1.ACQ-Annual Contracted Quantity2.APML-Adani Power MaharashtraLimitedG3.APTEL-Appellate Tribunal forElectricity4.C&AG-Comptroller and AuditorGeneral of India G

H*Ed Note : Pagination in the Index is as per the original judgment.

AINTRODUCTION

1. The questions involved in both these appeals, as in several otherappeals, are common.

2. Three of the issues involved in the present appeals are alsoinvolved in the other appeals which were listed along with these twoBappeals. However, the other appeals also involve some other ancillaryand incidental issues. As such, at the request of the learned counsel forthe parties, we have heard the present appeals. We have also heard thelearned counsel appearing in the other appeals on the three questionswhich are common.

CFACTS IN CIVIL APPEAL NO. 684 OF 2021

3. The facts, in brief, which arise in Civil Appeal No.684 of 2021are thus:

4. The appellant-Maharashtra State Electricity DistributionDCompany Limited (hereinafter referred to as “MSEDCL”) has enteredinto a long-term Power Purchase Agreements (“PPAs” for short) withAdani Power Maharashtra Limited (hereinafter referred to as “APML”).The first of the PPAs is dated 8[th] September 2008 for 1320 MW (“1320MW PPA” for short); the second one is dated 31[st] March 2010 for 1200MW (“1200 MW PPA” for short); the third one is dated 9[th] August 2010Efor 125 MW (“125 MW PPA” for short); and the fourth one is dated16[th] February 2013 for 440 MW (“440 MW PPA” for short). ThesePPAs were entered into in pursuance of the competitive biddingprocesses conducted by the appellant-MSEDCL under Section 63 ofthe Electricity Act, 2003 (hereinafter referred to as “the Electricity Act”)Fread with the Standard Bidding Guidelines issued by the Ministry ofPower (“MoP” for short).

5. Article 10 of the 1200 MW PPA dated 31[st ]March 2010 enteredinto between the appellant-MSEDCL and respondent No.1-APML dealswith “Change in Law”.G6. Article 10.1.2 defines the term “Change in Law”.

7. Article 10.2 deals with the application and principles forcomputing the impact of Change in Law. Article 10.2.1 provides thatwhile determining the consequence of a Change in Law under Article10, due regard has to be given to the principle, that to compensate the Party affected by such Change in Law is to restore through monthlyTariff Payment, to the extent contemplated in Article 10, the affectedParty to the same economic position as if such Change in Law has notoccurred.

8. Article 10.3 deals with “Relief for Change in Law”. Article10.3.1 provides relief for Change in Law during the Construction Period,whereas Article 10.3.2 provides for compensation to be paid on accountof Change in Law during Operating Period. For claiming relief on accountof a Change in Law, the Party is required to approach the AppropriateCommission along with documentary proof of such increase/decreasein the cost of the Power Station or revenue/expense for establishing theimpact of such Change in Law. Article 10.3.4 provides finality to thedecision of the Appropriate Commission with regard to compensationdetermined under Articles 10.3.1 and 10.3.2.

9. On 18[th] October 2007, the Government of India, through theMinistry of Coal (“MoC” for short), issued the New Coal DistributionalPolicy, 2007 (hereinafter referred to as “the NCDP, 2007”). As per theNCDP 2007, 100% of the quantity as per the normative requirement ofthe consumers was to be considered for the supply of coal, through FuelSupply Agreement (“FSA” for short) by Coal India Limited (“CIL” forshort) at fixed prices to be declared/notified by CIL. The NCDP, 2007also provided that to meet the domestic requirement of coal, CIL mayhave to import coal as may be required from time to time, if feasible.CIL was to adjust its overall price accordingly. It further provided that itwas the responsibility of CIL/Coal Companies to meet the fullrequirement of coal under FSAs even by resorting to imports, if necessary.

10. It is not in dispute that in accordance with the NCDP, 2007,APML had applied for coal linkage to MoC. It is also not in dispute thatWestern Coal Limited (“WCL” for short) and South Eastern Coal Limited(“SECL” for short) issued two Letters of Assurance (LoAs) in favourof APML and assured supply of coal.

11. Undisputedly, FSA was executed between APML and WCLfor domestic coal linkage. Subsequently, the FSA was amended and thequantum of coal assured by WCL was transferred to SECL.

12. It is also not in dispute that subsequently, on 21[st] June 2013,the Cabinet Committee on Economic Affairs (“CCEA” for short), inview of the persistent shortage of domestic coal, approved a revisedmechanism for coal supply to power producers.

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A13. Thereafter, the Government of India, through the Ministry ofCoal, issued Office Memorandum dated 26[th] July 2013 (hereinafterreferred to as “NCDP 2013”), thereby approving a revised arrangementfor the supply of coal to the identified Thermal Power Stations (“TPPs”for short). The said Office Memorandum provided that FSAs will besigned for the domestic coal quantity of 65%, 65%, 67%, and 75% ofBAnnual Contracted Quantity (“ACQ” for short) for the remaining fouryears of the 12[th] Plan for the power plants having normal coal linkages.It further provided that to meet the balance FSA obligations towards therequirement of the said 78,000 MW TPPs, CIL may import coal andsupply the same to the willing power plants on a cost-plus basis. It furtherCprovided that the power plants may also directly import coal themselves,if they so opt, in which case, the FSA obligations on the part of CIL tothe extent of import component would be deemed to have beendischarged.

14. On 31[st] July 2013, the MoP issued a letter to the CentralDElectricity Regulatory Commission (“CERC” for short) and StateElectricity Regulatory Commissions to consider as pass-through in tariffthe cost of alternate coal (procured to meet the shortfall in supply ofdomestic linkage coal) on a case to case basis.

15. Contending that on account of the Change in Law, APMLEwas entitled to compensation, APML filed a Petition bearing Case No.189of 2013 on 17[th] December 2013 before the Maharashtra ElectricityRegulatory Commission (“MERC” for short).

16. MERC, vide order dated 15[th] July 2014, disposed the saidPetition (i.e. Case No. 189 of 2013) by approving a framework forFdetermination of compensatory fuel charge, in view of the CCEA decisionof 21[st] June 2013 and the MoP’s advice dated 31[st] July 2013.

17. In compliance with the MERC’s order dated 15[th] July 2014,APML filed another Petition before the MERC bearing Case No. 140of 2014 on 23[rd] July 2014, inter alia, for approving a mechanism for theGdetermination of compensatory tariff.

18. The MERC, vide its order dated 20[th] August 2014, formulateda mechanism for the pass-through in tariff of the compensatory fuelcharge that had been allowed in Case No.189 of 2013.

19. Subsequently, APML filed a Review Petition before the MERCHbearing Case No.159 of 2014. The same was disallowed by the MERC

as being devoid of merits except on the issue of the effectiveness of thecompensatory fuel charge.

20. On 28[th] January 2016, the MoP issued the revised Tariff Policy.As per clause 6.1 of the revised Tariff Policy, the Appropriate Commissionwas required to consider the cost of imported/market-based e-auctioncoal procured for making up the shortfall in the domestic coal for pass-through in tariff of competitively bid projects.

21. Thereafter, on 9[th] March 2016, APML filed appeals beforethe Appellate Tribunal for Electricity (hereinafter referred to as“APTEL”), being Appeal Nos. 129 of 2016 and 130 of 2016, challengingthe orders passed by the MERC in Case Nos.189 of 2013 and 140 of2014. MSEDCL too filed cross-appeals against the MERC orders beingAppeal Nos. 187 and 188 of 2016.

22. On 4[th] May 2017, the learned APTEL remanded the issuesraised in the cross-appeals filed by APML and MSEDCL for freshconsideration by the MERC in the light of the judgment of this Court inthe case of Energy Watchdog v. Central Electricity RegulatoryCommission and others[1 ]which was decided on 11[th] April 2017.

23. By order dated 7[th] March 2018, the MERC decided CaseNo.189 of 2013 and 140 of 2014, wherein, while allowing the claims ofAPML for relief on account of a Change in Law for 1180 MW capacity,it restricted it to the extent of the minimum supply obligations specifiedfor the CIL subsidiaries for the last four years of the 12[th] Five Year Planperiod i.e. Financial Year 2013-14 to Financial Year 2016-17 as per theNCDP, 2013. It further held that the alternate coal quantity for meetingthe domestic coal shortfall shall be computed based on the Station HeatRate (“SHR” for short) mentioned by APML in the bid documents andthe middle value of the Gross Calorific Value (“GCV” for short) rangeof assured coal grade for domestic coal as per the FSA/LoA/MoU.

24. Being aggrieved thereby, APML preferred appeals before thelearned APTEL. The learned APTEL framed the following three issues:

“Issue No. 1:Whether the MERC was correct in holdingthat the net SHR submitted by the Appellantin its bid or SHR and Auxiliary Consumptionnorms specified for new generating stations 1 (2017) 14 SCC 80

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under the MYT Regulations, 2011, whicheveris superior shall form the basis for computingChange in Law compensation under thePPAs?

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Issue No. 2:Whether the MERC was correct in holdingthat the reference GCV of domestic coalsupplied by CIL shall be the middle value ofGCV range of assured coal grade in LoA/FSA/MoU and not the GCV as received?

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Issue No. 3:Whether the MERC was correct in holdingthat for the purpose of Change in Lawcompensation for 1180 MW capacity, shortfallin domestic linkage coal shall be assessed byconsidering the coal supply as the maximumof (1) actual quantum of coal offered forofftake by CIL under the LoA/FSA and (2)the minimum assured quantum in NCDP 2013for the respective year?”

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25. On Issue No.1, the learned APTEL held that APML wasentitled to compensation on the ground of Change in Law based on theSHR specified in the MERC MYT Regulations 2011 or the actual SHREachieved by APML, whichever is lower.

26. On Issue No.2, the learned APTEL held that the compensationfor the Change in Law approved by the MERC shall be computed basedon the actual GCV of coal received.

27. On Issue No.3, the learned APTEL held that under the NCDP,2007, there was an assurance of 100% coal supply and as such, whilegranting compensation on the ground of Change in Law, it was not justifiedto restrict it to the maximum of 35% to 25% for the respective fouryears of the 12[th] Plan.

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28. The learned APTEL held that the restitution principle has toGbe applied. It further held that to protect the interests of consumers, theGenerators had itself indicated that the parameters which are morebeneficial to the consumers i.e. the lower amongst the actual or as perthe Regulations would protect the interests of the consumers.

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29. Being aggrieved thereby, the MSEDCL has approached thisCourt by way of Civil Appeal No.684 of 2021.

FACTS IN CIVIL APPEAL NO.6927 OF 2021

30. In Civil Appeal No.6927 of 2021, the MSEDCL challengesthe concurrent orders passed by the CERC dated 15[th] November 2018and the order passed by the learned APTEL dated 16[th] July 2021.

31. MSEDCL issued a Request for Proposal (RFP) on 15[th] May2009 and initiated the competitive bidding process for procurement ofpower on long-term basis. GMR Warora Energy Ltd. (“GMR” for short)submitted its bid on 7[th ]August 2009 and emerged as one of the successfulbidders with a levelized tariff of Rs. 2.879/kWh. Accordingly, the PPAwas executed for the procurement of 200 MW of power on 17[th ]March2010 by MSEDCL on long-term basis. Similarly in March 2012,Respondent No. 2-Union Territory of Dadra & Nagar Haveli (“DNH”for short) issued an RFP for the procurement of power throughcompetitive bidding and GMR emerged as one of the successful bidders.

32. Consequently, respondent No. 1 in Civil Appeal No.6927 of2021 i.e. GMR entered into the following long-term PPAs for the supplyof power from the Project:

(a) Supply and sale of 200 MW of power on a long-term basis toMSEDCL in terms of PPA dated 17[th] March 2010. The cut-offdate for this PPA is 31[st] July 2009. Supply of power in terms ofthe PPA commenced from 17[th] March 2014.

(b) Supply and sale of 200 MW of power on long term basis toElectricity Department, DNH in terms of PPA dated 21[st] March2013. The cut-off date of this PPA is 1[st] June 2012. Supply ofpower in terms of the PPA commenced from 1[st] April 2013.

(c) Supply and sale of 150 MW of power on long term basis toTANGEDCO through back-to-back arrangements as follows:

(i) Power Sale Agreement (PSA) dated 1[st] March 2013between GMR Energy Trading Limited (GMRETL) and GMR,based on which a bid was submitted to TANGEDCO;

(ii) PPA dated 27[th] November 2013 between GMRETLand TANGEDCO for the supply of power from GMR toTANGEDCO. The cut-off date of this PPA is 27[th] February2013.

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(iii) PPA dated 3[rd] May 2014 between GMR andGMRETL recording the terms and conditions in accordancewith PPA between GMRETL and TANGEDCO. The supplyof power under the PPA commenced on 22[nd] October 2015.

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33. Petition No. 8/MP/2014 was filed by GMR claimingBcompensation on account of the impact of the Change in Law eventsduring the Operation period and Construction period under MSEDCLand DNH PPAs. The Commission, by order dated 1[st ]February 2017,had allowed some of the claims of GMR on the ground of Change inlaw. Vide the said order, it has also disallowed some of the claims.Aggrieved by the said order, GMR filed Appeal No. 111 of 2017 beforeCthe learned APTEL in respect of the compensation claims disallowed bythe Commission. Similarly, Appeal No. 290/2017 was filed by DNH PowerDistribution Company Ltd against the said order dated 1[st] February 2017disputing the compensation claims allowed to GMR under some Changein Law events.

D34. During the pendency of the above said appeals, GMR hasfiled Petition (i.e. Petition No.88/MP/2018) seeking the following reliefs:

“(a) Confirms that the following operational parameters whichare imperative of calculation of compensation due to the Petitioneron account of change in law events, are to be considered on actuals:

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(i) Auxiliary Power Consumption

(ii) Station Heat Rate

(iii) Gross calorific Value

(b) Confirm that levy of Service Tax & Swachh Bharat Cess onFcoal transportation is on all components as per rail invoice;

(c) Release of amounts due to the Petitioner from RespondentNo. 1, MSEDCL in light of the Commission’s order dated 1.2.2017in Petition No. 8/MP/2014.”

G35. Two of the issues involved in the present appeals with regardto SHR and GCV also fell for consideration before the CERC.

36. The CERC found that the CERC norms applicable for theperiod 2009-14 and 2014-19 do not provide the norms for 300 MW units.It further found that the CERC norms provide for a degradation factorHof 6.5% and 4.5% respectively towards Heat Rate over and above the Design Heat Rate. It found that since the Design Heat Rate is 2211kcal/kWh, the gross Heat Rate works out to 2355 kcal/kWh and 2310kcal/kWh for the period 2009-14 and 2014-19 respectively. It directedthat the SHR of 2355 kcal/kWh during the period 2009-14 and 2310kcal/kWh during the period 2014-19 or the actual SHR, whichever waslower, shall be considered for calculating the coal consumption forcompensation under the Change in Law.

37. Insofar as the GCV is concerned, the CERC found that in the2014 Tariff Regulations of the Commission, the measurement of GCVhas been specified on “as received” basis. It, therefore, found that itwould be appropriate if the GCV on “as received” basis is consideredfor computation of compensation for Change in Law.

38. Being aggrieved by the order passed by the CERC dated 15[th]November 2018, the MSEDCL preferred an appeal being Appeal No.342of 2019 before the learned APTEL. The learned APTEL did not findmerit in the submission of the MSEDCL and as such, dismissed theappeal by judgment and order dated 16[th] July 2021.

39. Being aggrieved thereby, MSEDCL has approached this Courtby way of Civil Appeal No.6927 of 2021.

40. The arguments on behalf of the appellant-MSEDCL in CivilAppeal No.684 of 2021 were advanced by Shri Gopal Jain, learned SeniorCounsel, whereas arguments in Civil Appeal No.6927 of 2021 wereadvanced by Shri G. Sai Kumar, learned counsel.

41. We have also heard Shri Balbir Singh, learned AdditionalSolicitor General and Shri M.G. Ramachandran, learned Senior Counselappearing for some of the State Electricity Distribution Companies, whosematters are not being decided by this judgment, but wherein the aforesaidthree questions/issues are common.

42. On behalf of the respondent-APML as well as the respondent-GMR, Dr. Abhishek Manu Singhvi, learned Senior Counsel advancedthe arguments. His arguments were supplemented by Shri VishrovMukherjee, learned Counsel.

SUBMISSIONS ON BEHALF OF THE DISCOMS

43. The main arguments that were advanced on behalf of theDistribution Companies (hereinafter referred to “DISCOMS”) are asunder:

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A(i)The SHR and GCV value are declared in the bid documentand it is not permissible for the Generating Companies toclaim advantage on the basis of SHR value which is differentthan the one quoted i.e. the SHR value as provided in theTariff Regulations or the actual. It is their submission thatthe declaration of operational parameters i.e. SHR and GCVBwere the mandate of the bid in case of Case-1 competitivebidding process. It is submitted that if deviation from suchdeclared bid parameters for compensating the bidder/Generating Companies/ Generators under the PPA on theground of Change in Law is permitted, it will take away theCvery sanctity of the bid.

(ii) It is submitted that to ensure serious participation in the bidprocess and for timely completion of commencement ofsupply of power, the Competitive Bidding Guidelines 2005itself mandates the bidder/generator/Generating CompaniesDto have a ‘firm’ fuel arrangement. It is their submissionthat it is mandatory for the bidder/generator to declare the‘quantity’ of fuel required to generate power for the entireterm of the PPA. The DISCOMS argued that the quantityof fuel can only be ascertained by applying the SHR andGCV components as declared in the bid.E

(iii) It is submitted that the RFP itself mandated the participatingbidders/generators to submit documentary evidence withregard to the ‘quantity’ of fuel required to generate powerfor the entire term of 25 years of the PPA.

F(iv)It is submitted that for ascertaining the ‘quantity’, it wasalso necessary for the bidder/generator to provide‘supporting computation’ by declaring the SHR and GCVvalue applicable for the entire term of the PPA.

(v) It is the contention on behalf of the DISCOMS that theGbidder/generator, while submitting his/its bids, is required tosubmit the bids by taking into consideration all factors,including risks regarding fluctuations, availability of fuel/coal, etc. It is submitted that if there is any change withregard to the availability of fuel or the rate at which a bidder/generator is required to procure the coal, then the bidder/H

generator has to suffer the consequences thereof as he/ithas submitted his/its bid with eyes open.

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(vi) The thrust of the argument of the DISCOMS is that in acompetitive bid based PPA under Section 63 of theElectricity Act, the quoted tariff is sacrosanct and it is notopen for the respondent/generator to seek higher tariff orBextra compensation under the PPA, except as per Article13 of the PPA dealing with impact of Change in Law. It issubmitted that the reliance placed by the learned APTELon the judgment of this Court in the Case of EnergyWatchdog (supra) is totally misconceived.

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(vii) It is, therefore, submitted that the relief for the impact ofNCDP 2013 is admissible only to the extent of the changesbrought about by the NCDP 2013 and not in excess thereof.It is submitted that the Change in Law made by the CentralGovernment on 31[st] July 2013 was vis-à-vis the NCDP 2007which was in force as on the cut-off date provided in Article13.1 of the PPA i.e. 7 days before the bid submission date.It is submitted that the very purpose of compensating theparty affected by Change in Law is to restore, throughmonthly tariff payments, the affected party to the sameeconomic position as if the Change in Law had not occurred.

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(viii) It is submitted that as per para 2.2 of the NCDP 2007 readwith para 5.2, CIL was entitled to meet the shortfall in theavailability of domestic coal by importing coal. In such event,the Generators were required to pay the higher cost ofimported coal to CIL. It is submitted that while submittingthe bids, the bidders/generators, therefore, had submittedtheir bids for supply of electricity to the DISCOMS knowingthe position that they will not be compensated for highercost of imported coal separately, over and above the quotedtariff /quoted energy charges, in the event of supply ofimported coal by CIL.

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(ix) It is contended that, if in the event the Generator couldhave procured the fuel/coal at a lesser price, then the benefitwhich would have occurred to him/it on account of suchsaving in procurement would have gone to him/it. On thesame analogy, if the Generator is required to obtain the fuel/

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Acoal at a higher price then he/it cannot be heard to say thathe/it should be compensated for the same.

(x) It is submitted that, as a matter of fact, till 31[st] July 2013 i.e.when the NCDP 2013 was brought into effect, there couldhave been no claims from the Generators for increase inBtariff to be allowed for higher coal cost on account ofimported coal supply. It is submitted that if the NCDP 2013had not brought about a Change in Law, the position asprevalent before would have continued. It is submitted thatthis Court has consistently held that an unprecedentedincrease in input cost cannot be a ground for a supplier notCto perform the obligations under a binding contract or seekhigher price or compensation for such performance.

(xi) It is the submission of the DISCOMS that the benefit onaccount of the Change in Law brought into effect by theNCDP 2013 has to be restricted only to the extent of shortfallDas provided by the said policy. It is submitted that if it wasthe intention of the NCDP 2013 to provide for relief throughthe Change in Law/policy decision for the shortfall evenbelow the specified percentages i.e. for entire shortfall onactual basis, then there was no rationale in specifying theEpercentages in the NCDP 2013.

(xii) It is further contended by the DISCOMS that the contentionof the Generating Companies that Shakti Policy 2017 wasa continuation of NCDP 2013 is incorrect. It is submittedthat the first part under (A) of the Shakti Policy 2017 dealsFwith the old regime of LoA/FSA which is the NCDP aspect.The second part under (B) deals with the new transparentcoal allocation policy called SHAKTI. It is submitted that,as a matter of fact, SHAKTI and allocation of coalthereunder was admissible only to Entities which did nothave any LoA/FSA under the NCDP 2007 or the NCDPG2013. Reliance in this respect has been placed on thejudgment of this Court in the case of Jaipur Vidyut VitaranNigam Ltd. and others v. Adani Power RajasthanLimited and another[2 ](hereinafter referred to as “AdaniRajasthan case”)H2 2020 SCC Online SC 697

(xiii) It is submitted that the law laid down by this Court in thecase of Energy Watchdog (supra) has been applied by thelearned APTEL in a patently erroneous and perversemanner.

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(xiv) It is submitted that the total quantum of coal required is tobe computed not in an abstract manner but is to beBnecessarily based on the SHR of the power station. It issubmitted that the SHR has nothing to do with coal qualityor GCV of coal. It is submitted that the SHR is the boilerand turbine characteristic of a thermal power station and,therefore, indicative of the quality and efficiency of theCmachine. It is submitted that the quantum of coal requirementis less with lower SHR and increases with higher SHR,inasmuch as it relates to the ability and efficiency of themachines to extract heat energy from coal to produce perunit of electricity.

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(xv) It is submitted that in Case 2 bidding, the net SHR is abidding parameter as coal linkage is arranged by the entityinviting bids, and actual cost of coal is allowed as a pass-through in the tariff as per the formula specified. It is theirsubmission that there are no quoted energy charges in Case2 bidding but only quoted fixed charges. It is submitted that,whereas, in Case 1 bidding, SHR may not, as such, be thecriteria for selection but is a necessary requirement/condition to be given for identifying the quantum of coalrequired to generate electricity over the length of the PPA.While submitting his/its bid and quoting energy charges, thebidder/generator was required to take into consideration thequantum of coal requirement which, in turn, is based on theSHR and auxiliary consumption parameters to be given bythe bidder/generator. It is submitted that the coal SupplyAgreement for quantum of coal is signed by CIL only forthe quantum as determined above, based on the SHR andoperating parameters provided by the bidder/generator. Itis submitted that the view taken by the learned APTEL iscontrary to the view taken by it between the same partiesin its judgment dated 13[th] April 2018 in Appeal No. 210 of2017.

EFG

A(xvi) It is submitted that if the SHR which is higher than the onequoted by the bidder/generator is to be taken intoconsideration, then it will amount to granting premium tothe Generator for its inefficiency. It is submitted that if thecoal consumption increases on account of highest SHR,the excess expenditure on quantum of coal is to be borneBby the Generator.

(xvii) It is submitted that if the bid assumed SHR is 2200 kcal/kgand actual SHR is 2300 kcal/kg, when the quoted tariff isbased on the SHR of 2200 kcal/kg, for Change in Lawimpact, SHR of 2300 kcal/kg cannot be permitted to beCused for computation of compensation for Change in Law.

(xviii) It is submitted that the impugned judgment permitting theactual SHR or the SHR given in Tariff Regulations,whichever is lower, if upheld, would amount to convertingthe scope of Section 63 tariff determination into a SectionD62 cost plus tariff determination. It is submitted that this isimpermissible in a competitive bid based PPA.

(xix) It is further submitted that the MERC Tariff Regulationsexpressly provides that the Tariff Regulations will have noapplication to Section 63 tariff determination and the sameEis governed by the guidelines of the Central Governmentunder Section 63 of the Electricity Act.

(xx) It is submitted that perusal of Regulation 2(2)(a) of theCentral Electricity Regulatory Commission (Terms andConditions of Tariff) Regulations, 2019 would reveal thatthey are not applicable where the tariff has been discoveredthrough tariff based competitive bidding in accordance withthe guidelines issued by the Central Government and adoptedby the Commission under Section 63 of the Electricity Act.

F

(xxi) It is submitted that when admittedly there is bid assumedSHR as per bidding conditions, the learned APTEL cannotGignore the same on the purported ground of equity andprovide for an alternate parameter for computationalpurpose of actual SHR with the ceiling as under the TariffRegulations. It is submitted that this will result in changingthe bidding terms and conditions after the bid was acceptedand became final.H

(xxii) It is further submitted that the finding that the GCVcomputation is to be made on ‘as received’ basis, is alsopatently erroneous. It is submitted that the real purposebehind relying on the said methodology of computation is torecover the grade slippage in the coal grade actually suppliedas against the coal grade billed by the Coal Company andall the losses in the heat value of the coal during the timeperiod when the coal is taken delivery from the coal minesand transported to the Power Plant and unloading at thePower Plant site.

(xxiii) It is submitted that the evaluation of GCV on air dried basisby Coal Company was well known/existing even prior tobidding and the Generators were very much aware of it.Accordingly, the same has already been factored into whilethe Generators submitted their bids. As such, if thecomputation of GCV is permitted on ‘as received’ basis,the Generators will be doubly compensated. In any case, itis submitted that if the Generators had any issues withregard to the grade of coal i.e. GCV range and quantum,then that is an issue between the Generators and therespective Coal Companies, which is required to be resolvedunder the FSA between them. The DISCOMS cannot beroped into for the resolution of such disputes between theGenerators/Generating Companies and the Coal Companies.

(xxiv) Lastly, it is submitted that since the letter of the MoP, whichhas been considered as a Change in Law event, is dated31[st] July 2013, the learned APTEL could not have giveneffect to the same from 1[st] April 2013. It is submitted thatthis would permit giving the benefit of compensation withretrospective effect.

(xxv) Insofar as the reliance placed by the Generating Companieson the judgment of this Court in Adani Rajasthan case isconcerned, it is submitted that the said judgment would notbe applicable to the facts of the present case. It is submittedthat in the said case, there was no FSA and the StateGovernment had undertaken to supply the entire coalquantum.

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A(xxvi) It is further submitted that the judgment of this Court in thecase of Nabha Power Limited (NPL) v. Punjab StatePower Corporation Limited (PSPCL) and another[3 ]wouldalso not be applicable to the facts of the present caseinasmuch as the said case was under Case-2.

B(xxvii)It is submitted that the inability of a Generator to seeksufficient relief from the Coal Companies cannot be a reasonto claim relief from the Distribution Licensees/DISCOMSor the consumers. The DISCOMS cannot be penalized onaccount of failure by the Coal Companies of supplyingsufficient coal.C

(xxviii) An additional ground in Civil Appeal No.6927 of 2021 raisedis that CERC has erred in holding that the principle of latepayment surcharge envisaged in Articles 8.3.5 and 8.8.3 ofthe PPA is applicable towards payment of the balanceamounts by MSEDCL in respect of the relief under ChangeDin Law.SUBMISSIONS ON BEHALF OF THE GENERATINGCOMPANIES

44. As against this, it is submitted on behalf of the GeneratingCompanies as under:

E(i)It is submitted that under the NCDP 2007, 100% normativecoal requirement of Generating Companies was assured tobe supplied by the CIL. However, by NCDP 2013, theresponsibility of CIL to supply coal was reduced to 65%,65%, 67% and 75% of ACQ for the remaining years of the12[th] Five Year Plan i.e. Financial Year 2013-14 to FinancialFYear 2016-17.

(ii) It is submitted that the NCDP has been held to be a law forthe purposes of the Electricity Act. It is, therefore, submittedthat the Generating Companies are entitled to compensationfor the shortfall of coal in terms of NCDP 2013 and theGsame has to be paid on actuals, i.e. to the extent the shortfallin coal supply actually exists.

(iii) It is submitted that the said issue is no more res integraand is covered by the judgment of this Court in the case of 3 (2018) 11 SCC 508H

Energy Watchdog (supra) and in Adani Rajasthan case(supra).

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(iv) It is submitted that, as per the guideless issued by the MoP,for Case-1 bidding, SHR and GCV are not bid parameters.The SHR and GCV mentioned in the bid is part of technicalinformation and is not relevant for computing Change inBLaw compensation. It is submitted that there are substantialdistinctions between Case-1 and Case-2 bid. The first oneis that in Case-1 bid, SHR and GCV are not bid parameters,whereas in Case-2, SHR and GCV are bid parameters.Secondly, in Case-1 bidding, energy charge is not computedsince the energy charge forms part of quoted tariff, whereasCin Case-2 bidding, energy charge is computed based on thenet heat rate quoted in the financial bid. Thirdly, in Case-1bidding, the PPA has no definition of quoted Net Heat Rate/SHR, whereas in Case-2 bid, the PPA defines quoted NetHeat Rate/SHR. It is, therefore, submitted that in Case-1Dbid there is no consideration of SHR and GCV in the formulaof energy charge, whereas in Case-2 bid, these twoparameters provide the formula for computing energycharge.

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(v) It is submitted that the learned APTEL in the case ofEWardha Power v. Reliance Infrastructure & Ors.[4] hasheld that if SHR and GCV as submitted in the bid areconsidered for Change in Law compensation, it may resultin over or under recovery and should be considered only on‘actuals’. It is submitted that the said judgment in WardhaPower (supra) has not been challenged/appealed againstFand has thus attained finality.

(vi) The Generators further rely on the judgment of this Courtin Adani Rajasthan case (supra). It is submitted that inthe said case, the learned APTEL had held that operationalparameters (like SHR and Auxiliary consumption) must beconsidered as per ‘normative’ value, and this view has beenupheld by this Court.

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(vii) It is further submitted that the MERC in its order dated 7[th]March 2018 in Case No.123 of 2017 (JSW v. MSEDCL)

4 Appeal No.288 of 2013

has held that the lower of actual or normative parameterfor Auxiliary consumption (an operational parameter likeSHR) has to be considered for Change in Lawcompensation. It is submitted that the MSEDCL has notchallenged the said judgment, which has thus attained finality.

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B(viii) It is submitted that the SHR is continuously being monitoredand its actual value, as certified by Energy Auditors, issubmitted to MSEDCL along with claims. As such, ‘actuals’can be ascertained and verified for computation purposes.

(ix) It is submitted that, equally, the GCV of coal is certified bythird party sampling agencies. A GCV certificate isCsubmitted to MSEDCL for each railway rake separately,along with claim. Such ‘actuals’ on ‘as received’ basis canbe ascertained/verified for computational purposes.

(x) It is further submitted that some of the DISCOMS in theproceedings before the CERC have contended that theDSHR shall be considered after ascertaining actual designheat rate and margin as per CERC Regulations from timeto time. They have further taken a stand that AuxiliaryConsumption shall be considered as per CERC Regulations.On affidavit, it is also stated that GCV of alternate coalEshall be as certified by a Third Party Sampling Agency, forwhich the Commission should provide appropriate guideline.It is, however, submitted that now the DISCOMS are takinga U-turn by contending that the SHR should be based onbid assumed parameters.

(xi) It is submitted that, in any case, to maintain balance, APMLFhad itself offered for the benefit to be granted on the lowerof ‘actual’ or ‘normative’ SHR as per Regulations. Thesame has been accepted by the learned APTEL. It issubmitted that this will ensure that no inefficiency is passedon to consumers and, at the same time, the Generator isGrestituted.

(xii) It is submitted that had there been no occurrence of Changein Law event, i.e. there was no shortfall in coal supply, thetariff payment to the Generating Companies would havebeen based on quoted energy charge. In such a situation,HSHR and GCV of coal would not have come into the picture.

However, when there is an occurrence of Change in Lawevent, the principle of ‘Restitution’ comes into play. It issubmitted that ‘restitution’ can take place only withconsideration of ‘actual’ parameters.

(xiii) It is submitted that taking this into consideration, expertbodies like the CERC and APTEL have allowed the SHRand GCV to be determined on ‘actual’ basis.

(xiv) It is submitted that the SHR indicated in the bid as part oftechnical information does not conform to the mandate ofrestitution as it cannot put the Generator back to the sameeconomic position had Change in Law event not occurred.

(xv) It is submitted as per the NCDP 2007, 100% normativerequirement of coal was to be supplied by the CIL. However,due to shortfall of coal in the country, the responsibility ofCIL to supply coal was reduced to 65%, 65%, 67% and75% of the ACQ. The shortfall in coal was to be met eitherby the CIL or by the Generating Companies/Generators byimporting coal. It is submitted that the higher cost of suchimported coal was allowed to be a pass-through.

(xvi) It is submitted that a conjoint reading of CERC statutoryadvice dated 20[th] May 2013, CCEA decision dated 21[st] June2013, MoP letter dated 31[st] July 2013, and clause 6.1 of theTariff Policy 2016 issued by the MoP would reveal thatpass-through of the higher cost of quantity of shortfall incoal procured from alternate sources was to be allowed. Itis submitted that this position has been upheld by thejudgments of this Court in the case of Energy Watchdog(supra) and Adani Rajasthan case (supra).

(xvii) It is submitted that this pass-through is by way of restitutiondue to shortfall in 100% assured quantity of coal and it cannotbe limited to the percentages/trigger levels specified in theNCDP 2013. It is submitted that the principle of restitutionwould require the pass-through to the extent the supply fromCIL was cut down. It is submitted that an argument to thecontrary has already been rejected by this Court in the caseof Adani Rajasthan case (supra).

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A(xviii) In addition to the judgments of this Court in the cases ofEnergy Watchdog (supra) and Adani Rajasthan case(supra), the Generating Companies also rely on the judgmentof this court in the case of Uttar Haryana Bijli VitranNigam Limited (UHBVNL) and another v. Adani PowerBLimited and others[5].

(xix) It is also submitted that the contention on the part of theDISCOMS that Adani Rajasthan case (supra) would notbe applicable to the facts of the present case, inasmuch asthere was no FSA scenario, is also factually incorrect.

C45. In addition to the aforesaid submissions, the respondent inCivil Appeal No.6927 of 2021 i.e. GMR, the following submissions havebeen made.

(i) That Schedule 10 of the PPA executed between GMR andMSEDCL clearly mentions that the levelized tariff will beDas per CERC Regulations.

(ii) It is submitted that the normative SHR as mentioned in thebid is computed assuming power plant is operating at 85%of the Plant Load Factor (“PLF” for short). It is, however,submitted that the PLF is at the sole discretion of theEprocurer-DISCOMS as they decide the quantum of powerto off-take.

(iii) It is submitted that the SHR is a real-time operatingparameter which varies from time to time, and it is computedby working out the total electricity generated from theFamount of coal consumed in heat value (kCal) terms.

(iv) It is further submitted that the GCV of coal actually deliveredat site and fed to the boiler varies from wagon to wagon. Itcannot be a homogeneous value.

(v) It is further submitted that the details given in the bid withGregard to SHR and GCV were only indicative of the coallinkage to show that GMR had the necessary means tosupply power on sustained basis and was a serious bidder,and to further demonstrate its meeting of the eligibilityrequirement prescribed under the RFP.

H5 (2019) 5 SCC 325

MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. LTD. v.109ADANI POWER MAHARASHTRA LTD. [B. R. GAVAI, J.](vi)It is submitted that the supporting documents/informationAregarding fuel only provides the quantity of coal requiredfor the project at Normative PLF and SHR computed asper CERC norms, which is 2355 kCal/kWh. It is submittedthat MSEDCL is now insisting on Design Gross Heat Rateof 2211 kCal/kWh, which was not considered even forBcomputation of quantum of coal at the time of bidsubmission.

(vii) It is further submitted that the Central Electricity Authority,vide Notifications dated 17[th] October 2017 and 18[th] October2017, has even allowed for loss in GCV from ‘as receivedCbasis’ to ‘as fired basis’ and as such, there is no reason asto why GCV could not be computed on ‘as received basis’.

(viii) It is further submitted that the MSEDCL cannot be permittedto equate GMR’s case with APML and Rattan India PowerLimited inasmuch as GMR falls under the jurisdiction ofCERC, whereas the other two fall under the jurisdiction ofDMERC.

(ix) Insofar as late payment charges are concerned, it issubmitted that MSEDCL had unilaterally deducted theamount, which is contrary to the provisions of the PPA andas such, both CERC and learned APTEL have rightly heldthat GMR was entitled to late payment surcharge in termsof Article 8.3.5. Reliance in this respect is placed on thejudgment of this Court in the case of Maharashtra StateElectricity Distribution Company Limited v.Maharashtra Electricity Regulatory Commission andothers[6]and Tamil Nadu Generation & DistributionCorporation Limited v. PPN Power GeneratingCompany Private Limited[7]

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RELEVANT DOCUMENTS

46. For considering the rival submissions, it will be relevant torefer to certain documents placed on record.

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47. The MoP notified the Competitive Bidding Guidelines, 2005(hereinafter referred to as “the said Guidelines”) on 19[th] January 2005.The said Guidelines were framed under Section 63 of the Electricity 6 (2022) 4 SCC 6577 (2014) 11 SCC 53

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AAct. It will be relevant to refer to the following part of the preamble ofthe said Guidelines.

“1.Preamble

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These guidelines have been framed under the above provisions ofBsection 63 of the Act. The specific objectives of these guidelinesare as follows:

1. Promote competitive procurement of electricity bydistribution licensees;

2. Facilitate transparency and fairness in procurementCprocesses;

3. Facilitate reduction of information asymmetries for variousbidders;

4. Protect consumer interests by facilitating competitiveconditions in procurement of electricity;D

5. Enhance standardization and reduce ambiguity and hencetime for materialization of projects;

6. Provide flexibility to suppliers on internal operations whileensuring certainty on availability of power and tariffs forbuyers.”E

48. Paragraph 2 of the said Guidelines deals with the scope of theGuidelines. Para 2.2 of the said Guidelines reads thus:

“2.2. The guidelines shall apply for procurement of base-load,peak-load and seasonal power requirements through competitivebidding, through the following mechanisms:F

(i) Where the location, technology, or fuel is not specified bythe procurer (Case 1);

(ii) For hydro-power projects, load center projects or otherlocation specific projects with specific fuel allocation suchGas captive mines available, which the procurer intends toset up under tariff based bidding process (Case 2).

However separate RFP shall be used for procuring base load orpeak load or seasonal load requirements as the case may be.”

49. It can thus be seen that Para 2.2 distinguishes two types ofHcases, viz., Case-1 and Case-2. Case-1 deals with the case where the location, technology, or fuel is not specified by the procurer. Case-2deals with hydro-power projects, load center projects or other locationspecific projects with specific fuel allocation such as captive minesavailable, which the procurer intends to set up under tariff based biddingprocess.

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50. Paragraph 3 of the said Guidelines deals with preparation forBinviting bids. Clause (I) of Para 3.2 deals with Case-2, whereas clause(II) of Para 3.2 deals with Case-1. Sub-clause (i) of clause (II) of Para3.2 requires the bidder to undertake site identification and land acquisition.The bidder is required to submit a copy of notification issued for the landin question under Section 4 of the Land Acquisition Act, 1894. For theCpart of land excluding that which is to be acquired under the LandAcquisition Act, 1894, the bidder is required to furnish documentaryevidence to establish allotment/ lease/ ownership/ vesting of at leastone-third area of the said land. Under sub-clause (ii), the bidder is requiredto submit environmental clearance for the power station. Under sub-clause (iii), the bidder is required to supply forest clearance, if applicable,Dfor the land for the power station. Sub-clause (iv) is the most importantfor the resolution of the present dispute, which reads thus:

“3.Preparation for inviting bids

3.1…………

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3.2(I)……………(II)………………(i)………………

(ii) ………………

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(iii) ………………

iv) Fuel Arrangements: (a) In the following cases fuelarrangements shall have to be made for the quantity offuel required to generate power from the phase of thepower station from which power is proposed to besupplied at Normative Availability for the term of thePPA.

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In case of domestic coal, the Bidder shall havemade firm arrangements for fuel tie up either byway of coal block allocation or fuel linkage H

In case of domestic gas, the Bidder shall havemade firm arrangements for fuel tie up by way oflong term fuel supply agreement for the term &quantity as per Government of India gas allocationpolicy A

b) Fuel arrangements in the following cases shall haveto be made for the quantity of fuel required to generatepower from the power station for the total installedcapacity.

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In case of imported coal, the Bidder shall haveeither acquired mines having proven reserves forat least 50% of the quantity of coal required ORshall have a fuel supply agreement for at least50% of the quantity of coal required for a term ofat least five (5) years or the term of the PPA,whichever is less.

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In case of RLNG, the Bidder shall have madefirm arrangements for fuel tie up by way of fuelsupply agreement for at least 50% of the quantityof fuel required for a term of at least five (5)years or the term of the PPA, whichever is less.

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Blending of Imported and Domestic coal may be usedin which case, criteria for imported and domestic coalshall be met separately in the ratio of blending.”

51. It can thus be seen that in case of domestic coal, the bidder isrequired to make firm arrangements for fuel tie up either by way of coalFblock allocation or fuel linkage.

52. Clause (b) of sub-clause (iv) of clause (II) of Para 3.2 dealswith imported coal, in which case the bidder shall have either acquiredmines having proven reserves for at least 50% of the quantity of coalrequired OR shall have a fuel supply agreement for at least 50% of theGquantity of coal required for a term of at least five years or the term ofthe PPA, whichever is less.

53. Paragraph 4 of the said Guidelines deals with Tariff Structure.It will be relevant to refer to Para 4.2, which reads thus:

“4. Tariff Structure

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4.1……..

4.2. In case of long term procurement with specific fuel allocation(Case 2), the procurer shall invite bids on the basis of capacitycharge and net quoted heat rate. The net heat rate shall be ex-bustaking into account internal power consumption of the powerstation. The energy charges shall be payable as per the followingformula:

Energy Charges = Net quoted heat rate X ScheduledGeneration 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 Governmentof India, government approved mechanism or the Fuel Regulator,the same shall have to be approved by the appropriate RegulatoryCommission.

In case of coal/lignite fuel, the cost of secondary fuel oil shall befactored in the capacity charges.”

54. It can thus be seen that insofar as Case-2 is concerned, theprocurer is required to invite bids on the basis of capacity charge and netquoted heat rate. The net heat rate is required to be ex-bus taking intoaccount internal power consumption of the power station. It furtherprovides that if the price of the fuel is not determined by the Governmentof India, government approved mechanism or the Fuel Regulator, thesame shall have to be approved by the appropriate RegulatoryCommission.

55. Para 4.4 provides that the capacity charge shall be paid basedon actual availability, as per charges quoted in Rs./kwh and shall belimited to the normative availability. It further provides that the normativeavailability for Case-1 and thermal stations under Case-2 shall be amaximum of 85%.

56. Para 4.7 is another important clause for the resolution of thepresent dispute, which reads thus:

“4.7. Any change in law impacting cost or revenue from thebusiness of selling electricity to the procurer with respect to thelaw applicable on the date which is 7 days before the last date for A

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ARFP bid submission shall be adjusted separately. In case of anydispute regarding the impact of any change in law, the decision ofthe Appropriate Commission shall apply.”

57. It can thus be seen that any Change in Law impacting cost orrevenue from the business of selling electricity to the procurer with respectBto the law applicable on the date which is 7 days before the last date forRFP bid submission shall be adjusted separately. It provides that in caseof any dispute regarding the impact of any Change in Law, the decisionof the Appropriate Commission shall apply.

58. It will also be relevant to refer to Para 4.12, which reads thus:

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“4.12 No adjustment shall be provided for heat rate degradationof the generating stations. Even in case of bids based on net heatrate, the bidder shall factor in site conditions, loading conditions,frequency variations etc and no adjustment shall be allowed onthe quoted net heat rate for the duration of the contract.”

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59. It can thus be seen that no adjustment is to be provided forheat rate degradation of the generating stations. Even in case of bidsbased on net heat rate, the bidder shall factor in site conditions, loadingconditions, frequency variations etc. and no adjustment shall be allowedon the quoted net heat rate for the duration of the contract.

E60. The NCDP 2007 would be of vital importance. Clause 2.2thereof deals with Power Utilities including Independent Power Producers(IPPs)/Captive Power Plants (CPPs) and Fertilizer Sector. Clause 2.2reads thus:

“2. Distribution and Pricing of coal to different consumers/Fsector(s):

2.1. ………………

2.2 Power Utilities including Independent Power Producers(IPPs)/Captive Power Plants(CPPs) and Fertilizer Sector 100% of the quantity as per the normative requirement of theconsumers would be considered for supply of coal, through FuelSupply Agreement (FSA) by Coal India Limited (CIL) at fixedprices to be declared/notified by CIL. The units/power plants,which are yet to be commissioned but whose coal requirementshas already been assessed and accepted by Ministry of Coal and G

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linkage/Letter of Assurance (LoA) approved as well as futurecommitments would also be covered accordingly.”

61. It can thus be seen that the NCDP 2007 assured 100% of thequantity as per the normative requirement of the consumers for supplyof coal, through FSA by CIL at fixed prices to be declared/notified byCIL. It further provided that the units/power plants, which are yet to becommissioned but whose coal requirements has already been assessedand accepted by MoC and linkage/Letter of Assurance (LoA) approvedas well as future commitments would also be covered in accordancetherewith.

62. It will also be relevant to note the following part of clause 5.2of the NCDP 2007.

“5.Policy for New Consumers

5.1. ……………

5.2. ……………In order to meet the domestic requirementof coal, CIL may have to import coal as may be required fromtime to time, if feasible. CIL may adjust its overall price accordingly.Thus, it will be the responsibility of CIL/Coal companies to meetfull requirement of coal under FSAs even by resorting to imports,if necessary.”

63. It can thus be seen that clause 5.2 of the NCDP 2007 providesthat in order to meet the domestic requirement of coal, CIL may have toimport coal as may be required from time to time, if feasible. It furtherprovided that CIL would adjust its overall price accordingly. The NCDP2007 emphasizes the responsibility of CIL/Coal Companies to meet fullrequirement of coal under FSAs even by resorting to imports, if necessary.

64. It will also be relevant to refer to the communication addressedby the MoP dated 9[th] May 2013 to the Secretary, CERC.

“Subject: Impact on tariff on the concluded PPAs due to domesticcoal availability.

Sir,

Coal linkages have been granted for power projects underthe New Coal Distribution Policy 2007 (NCDP), which mandatesthat CIL will meet 100% of normative requirement of power sector.Para 5.2 of NCDP provides that “In order to meet the domestic A

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Arequirement of coal, CIL may have to import coal as may berequired from time to time, if feasible. CIL may adjust its overallprice accordingly. Thus, it will be the responsibility of CIL/Coal companies to meet full requirement of coal under FSAseven by resorting to imports, if necessary”. Post NCDP MoCgranted linkages between 2008-2010 with the assumption that itBwould meet coal requirement at around 85% PLF. On this basisLoAs were issued by coal companies, after getting commitmentguarantees in the form of Bank Guarantee from the developersthereby undertaking an explicit obligation to supply coal to theextent of the specified quantity to the power developer. HavingCobtained the LOA the developers would have proceeded on theassumption of getting the requisite quantity of domestic coal withthe disincentive trigger of 90% of LoA quantity prevailing underthe then Fuel Supply Agreement (FSA) with a provision for CILresorting to import of coal to bridge the gap, if any. It is assumedthat the power producers would have factored this assuranceDregarding coal supply while submitting their bids in response toCase 1 and Case 2 competitive bidding for long term powerpurchase agreements. Thus, while the fuel price risk would havebeen taken into account and factored in the escalable componentof energy charges, it is assumed that no fuel availability risk wouldEhave been taken into consideration on account of the LOAs givenby CIL.

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2. It now transpires that on account of the limited availability ofcoal Ministry of Col has indicated that CIL may not be in a positionto supply more than 60 to 65% of ACQ to those power producerswho had been earlier issued LOAs of normative quantitiescorresponding to 85% PLF. Simultaneously, it has been proposedthat the disincentive trigger for coal supply would be brought downfrom 90% to 60 to 65% by CIL in the new fuel supply agreementsto be signed with these power producers. This obviously wouldcreate a situation where the power producers would have to arrangefuel from open market including imports either through CIL ordirectly. In view of this scenario, PPAs which are alreadyconcluded between the developers and discoms as a result ofcompetitive bidding in the last few years based on domestic coallinkage (LOA) may have to use imported coal to bridge theshortage of domestic coal in order to fulfil that contractual F

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obligations. The Association of Power Producers represented onthis issue of shortage of domestic coal and its consequential effecton the concluded PPAs through competitive bidding route.

3. The Cabinet Committee on Economic Affairs (CCEA) has alsoconsidered the situation arising out of the inadequate availabilityof coal leading to this non-fulfilment of the LOA commitments onthe part of CIL. CCEA has decided the following guidelines in itsmeeting held on 06.02.2013 in respect of generating plantscommissioned/to be commissioned during the period 1.4.09 to31.03.15:

i)CIL will provide imported coal on cost plus basis to allproducers willing to take such cost;

ii)That the higher cost of imported coal will be allowed as apass through.

3. In view of the circumstances stated above CERC is requestedto advice the Government on the manner in which the issue offuel availability risk arising out of CIL’s inability to meet its LOAcommitments could be addressed with regard to power producerswho have already entered into long term PPAs with distributioncompanies based on such commitments and the feasibility of passingon the additional cost of procuring market fuel incurred by thepower developers on account of the circumstances stated in theaforesaid paras. CERC is also requested to suggest appropriateways for issuing advisory to SERCs/State Governments whichmay necessitated to be issued by MoP for the implementation ofthe above.

4. CERC’s considered advice is requested in this matter at theearliest.

5. This issues with the approval of MOSP (I/C).”

65. Perusal of the communication dated 9[th] May 2013 would clearlyshow that the NCDP 2007 mandates that CIL will meet 100% ofnormative requirement of power sector. It states that, post NCDP 2007,MoC has granted linkages between 2008-2010 with the assumption thatit would meet coal requirement at around 85% of the PLF. On thatbasis, the LoAs were issued by Coal Companies, after gettingcommitment guarantees in the form of Bank Guarantees from the AB

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Adevelopers, thereby undertaking an explicit obligation to supply coal tothe extent of the specified quantify to the power developer. It furtherstates that having obtained the LoA, the developers would haveproceeded on the assumption of getting the requisite quantity of domesticcoal with the disincentive trigger of 90% of LoA quantity prevailing underthe then FSA with a provision for CIL resorting to import of coal toBbridge the gap, if any. It specifically mentions that the power producerswould have factored in this assurance regarding coal supply whilesubmitting their bids in response to Case-1 and Case-2 competitive biddingfor long-term PPAs.

66. The said communication further records that it now transpiresCthat on account of the limited availability of coal, MoC has indicated thatCIL may not be in a position to supply more than 60 to 65% of ACQ tothose power producers who had been earlier issued LoAs of normativequantities corresponding to 85% of the PLF. It was proposed that thedisincentive trigger for coal supply would be brought down from 90% toD60 to 65% by CIL in the new FSAs to be signed with these powerproducers. It further states that in view of this scenario, PPAs whichare already concluded between the developers and the DISCOMS as aresult of competitive bidding in the last few years based on domesticcoal linkage (LoA) may have to use imported coal to bridge the shortageof domestic coal in order to fulfil their contractual obligations.

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67. The communication further records that the CCEA has alsoconsidered the situation arising out of the inadequate availability of coalleading to the non-fulfilment of its LOA commitments on the part of theCIL. The CCEA, therefore, in its meeting held on 6[th] February 2013 hasdecided the following guidelines in respect of generating plantsFcommissioned/to be commissioned during the period 1[st] April 2009 to31[st] March 2015:

ii)That CIL will provide imported coal on cost plus basis to allproducers willing to take such cost; Giii)That the higher cost of imported coal will be allowed as apass-through.

68. The communication therefore requested the CERC to advisethe Government on the manner in which the issue of fuel availabilityrisk, arising out of CIL’s inability to meet its LOA commitments, couldbe addressed. The CERC was also requested to suggest appropriateH

ways for issuing advisories to SERCs/State Governments by the MoP,which may be necessitated for the implementation of the above.

69. In pursuance of the aforesaid Communication dated 9[th] May2013, the CERC issued Statutory Advice on 20[th] May 2013 under Section79(2) of the Electricity Act regarding impact on tariff of the concludedPPAs due to domestic coal availability. It will be relevant to refer to thefollowing part of the said statutory advice.

“2. The matter was considered in the Commission. TheCommission appreciates the need for securing fuel supply forvarious projects in order to ensure optimum generation from thepower plants in the country. Non-availability of adequate quantumof coal has posed serious challenge to power generation asreflected in the data compiled by the Central Electricity Authority(CEA): the Plant Load Factor (PLF) of the generating stationsacross the country has been severely affected for want ofadequate coal supply by CIL/Coal Companies.

3. The proposal to make CIL supply imported coal on cost plusbasis to all power projects commissioned or to be commissionedduring the period 1.4.2009 to 31.3.2015 and willing to take suchcoal would require appropriate change in the NCDP, as at presentit is the full responsibility of CIL to meet full requirement of coalunder FSAs even by resorting to import; if necessary. As a followup, the FSAs between the CIL/its subsidiaries and the powerproducers will have to be modified through SupplementaryAgreements.”

70. It can thus clearly be seen that the CERC has noted that thenon-availability of adequate quantum of coal has posed serious challengeto power generation as reflected in the data compiled by the CentralElectricity Authority (CEA). It further noted that the PLF of the generatingstations across the country has been severely affected for want ofadequate coal supply by CIL/Coal Companies. It further records that togive effect to the proposal to make CIL supply imported coal on costplus basis to all power projects commissioned or to be commissionedduring the period from 1[st] April 2009 to 31[st] March 2015 and willing totake such coal, would require appropriate change in the NCDP, as atpresent it is the full responsibility of CIL to meet full requirement of coalunder FSAs even by resorting to import, if necessary. It further statesthat as a follow up, the FSAs between the CIL/its subsidiaries and the A

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Apower producers will have to be modified through SupplementaryAgreements.

71. After referring to clause 10.1.1 of the Standard PPA forProcurement of Power under Case-1 Bidding Procedure, which dealswith ‘Change in Law’, the statutory advice states thus:B

“For claiming any benefits under change in law, the ProjectDeveloper would have to move the appropriate Commission andthe decision of that Commission in this regard would be final, interms of the provisions of Articles 10.3.3 and 10.3.4 of the StandardPPA. The appropriate Commissions are expected to take decisionsCon the merits of each case including the claims of the ProjectDevelopers for compensation on account of imported coal afterconsultation with the stakeholders.”

72. It can thus be seen that the CERC states that for claiming anybenefits under the Change in Law, the Project Developer would have toDmove the appropriate Commission. It further records that the appropriateCommissions are expected to take decisions on the merits of each caseincluding the claims of the Project Developers for compensation onaccount of imported coal after consultation with the stakeholders.

73. Subsequent to the aforesaid communication, the MoC issueda Press Release on 21[st] June 2013. It will be relevant to refer to theEfollowing part of the said Press Release.

“The Cabinet Committee on Economic Affairs (CCEA) todayapproved the following mechanism for supply of coal to powerproducers:

F(i) Coal India Ltd. (CIL) to sign Fuel Supply Agreements (FSA)for a total capacity of 78000 MW including cases of taperinglinkage, which are likely to be commissioned by 31.03.2015. Actualcoal supplies would however commence when long term PowerPurchase Agreements (PPAs) are tied up.

G(ii) Taking into account the overall domestic availability and actualrequirements, FSAs to be signed for domestic coal quantity of 65percent, 65 percent, 67 percent and 75 percent of AnnualContracted Quantity (ACQ) for the running four years of the12th Five Year Plan.

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(iii) To meet its balance FSA obligations, CIL may import coal andsupply the same to the willing Thermal Power Plants (TPSs) oncost plus basis. TPPs may also import coal themselves. MoC toissue suitable instructions.

(iv) Higher cost of imported coal to be considered for pass throughas per modalities suggested by CERC. MoC to issue suitable orderssupplementing the New Coal Distribution Policy (NCDP). MoPto issue appropriate advisory to CERC/SERCs includingmodifications if any in the bidding guidelines to enable theappropriate Commissions to decide the pass through of highercost of imported coal on case to case basis.”

74. It is thus clear that taking into account the overall domesticavailability and actual requirements, FSAs were to be signed for domesticcoal quantity of 65%, 65%, 67% and 75% of ACQ for the running/remaining four years of the 12th Five Year Plan. It can further be seenthat the CCEA has also taken a decision that CIL may import coal tomeet its balance FSA obligations and supply the same to the willingTPPs on cost plus basis. TPPs may also be permitted to import coalthemselves. It further provided that the higher cost of imported coal wasto be considered for pass-through as per the modalities suggested by theCERC.

75. In pursuance thereof, the Government of India, through MoC,issued Office Memorandum dated 26[th] July 2013. The said OfficeMemorandum reads thus:

“Sub:New Coal Distribution Policy - further instructionsregarding implementation thereof.

The New Coal Distribution Policy (NCDP) was issued videthis Ministry’s Office Memorandum NO. 23011/4/2007-CPDdated 18.10.2007, laying down the guidelines for distribution andpricing of coal to various sectors. As per para 2.2 of the saidpolicy, Power Utilities including Independent Power Producer wereto be supplied 100 per cent of the quantity as per their normativerequirement through Fuel Supply Agreement(s) (FSAs) by CoalIndia Limited (CIL) at fixed prices to be declared/notified by CIL.As per para 5.2, in order to meet the domestic requirement, CILwas to import coal as required from time to time, if feasible andadjust the overall price accordingly.

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A2. Government has now approved a revised arrangement forsupply of coal to the identified Thermal Power Stations (TPPs) of78,000 MW capacity commissioned or likely to be commissionedduring the period from 01.04.2009 to 31.03.2015. Taking intoaccount the overall domestic availability and the likely actualrequirements of these TPPs, it has been decided that FSAs willBbe signed for the domestic coal quantity of 65%, 65%, 67% and75% of ACQ for the remaining four years of the 12th Plan for thepower plants having normal coal linkages. Cases of taperinglinkage would get coal supplies as per the Tapering Linkage Police.To meet its balance FSA obligations towards the requirement ofCthe said 78,000 MW TPPs, CIL may import coal and supply thesame to the willing power plants on cost plus basis. Power plantsmay also directly import coal themselves, if they so opt, in whichcase, the FSA obligations on the part of CIL to the extent of importcomponent would be deemed to have been discharged.

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3. Para 2.2 and 5.2 of the New Coal Distribution Policy issuedvide OM No. 23011/4/2007-CPD dated 18.10.2007 stand modifiedto the above extent.

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4. The above guidelines will also be applicable to the distributionof coal from Singreni Collieries Company Limited (SCCL).

E5. CIL and its subsidiaries and SCCL are advised to take furtheraction accordingly.”

76. It can thus be seen that the NCDP 2013 also specificallystates that, as per NCDP 2007 and specifically paragraph 2.2 thereof,Power Utilities, including IPPs, were to be supplied 100% of the quantityas per their normative requirement through FSAs by CIL at fixed pricesto be declared/notified by CIL. It further reiterates that, as per para 5.2,in order to meet the domestic requirement, CIL was to import coal asrequired from time to time, if feasible, and adjust the overall priceaccordingly.

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G77. Para 2 of the NCDP 2013 states that the Government hasnow approved a revised arrangement for supply of coal to the identifiedTPPs of 78,000 MW capacity commissioned or likely to be commissionedduring the period from 1[st] April 2009 to 31[st] March 2015. It states that,taking into account the overall domestic availability and the likely actualrequirements of these TPPs, it was decided that FSAs will be signed forH

the domestic coal quantity of 65%, 65%, 67% and 75% of ACQ for theremaining four years of the 12[th] Plan for the power plants having normalcoal linkages. It further states that to meet the balance FSA obligationstowards the requirement of the said 78,000 MW TPPs, CIL may importcoal and supply the same to the willing power plants on cost plus basis.It further states that the power plants may also directly import coalthemselves, if they so opt, in which case, the FSA obligations on the partof CIL to the extent of import component would be deemed to havebeen discharged.

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78. Immediately thereafter, on 31[st] July 2013, the MoP addresseda communication to the Secretary, CERC. It will be relevant to refer toPara 2 of the said communication, which reads thus:

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“2. After considering all aspects and the advice of CERC in thisregard, Government has decided the following in June, 2013:

i)taking into account the overall domestic availability andactual requirements, FSAs to be signed for domesticDcoal component for the levy of disincentive at thequantity of 65%, 65%, 67% and 75% of AnnualContracted Quantity (ACQ) for the remaining four yearsof the 12[th ]Plan.

ii)to meet its balance FSA obligations, CIL may importcoal and supply the same to the willing TPPs on costplus basis. TPPs may also import coal themselves ifthey so opt.

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iii)higher cost of imported coal to be considered for passthrough as per modalities suggested by CERC.”

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79. It can thus clearly be seen that the Government, afterconsidering all aspects and the advice of CERC in this regard, decidedthat the higher cost of imported coal was to be considered for pass-through as per modalities suggested by the CERC.

80. It will also be relevant to refer to Para 4 of the saidcommunication, which reads thus:

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“4. As per decision of the Government, the higher cost of import/market based e-auction coal be considered for being made a passthrough on a case to case basis by CERC/SERC to the extent ofshortfall in the quantity indicated in the LoA/FSA and the CIL

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Asupply of domestic coal which would be minimum of 65%, 65%,67% and 75% of LoA for the remaining four years of the 12thPlan for the already concluded PPAs based on tariff basedcompetitive bidding.”

81. Perusal of para 4 would clearly reveal that the higher cost ofBimport/market based e-auction coal was to be considered for being madea pass-through on a case to case basis by CERC/SERC to the extent ofshortfall in the quantity indicated in the LoA/FSA. It further reiteratesthat CIL may supply domestic coal which would be minimum of 65%,65%, 67% and 75% of LoA for the remaining four years of the 12thPlan for the already concluded PPAs based on tariff based competitiveCbidding.

82. The MoP thereafter vide Resolution dated 28[th] January 2016notified the ‘Tariff Policy’. It will be relevant to refer to clause 6.1 ofthe said Policy, which reads thus:

“6.0 GENERATIOND

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6.1 Procurement of power

As stipulated in para 5.1, power procurement for futurerequirements should be through a transparent competitive biddingEmechanism using the guidelines issued by the Central Governmentfrom time to time. These guidelines provide for procurement ofelectricity separately for base load requirements and for peakload requirements. This would facilitate setting up of generationcapacities specifically for meeting such requirements.

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However, some of the competitively bid projects as per theguidelines dated 19[th] January, 2005 have experienced difficultiesin getting the required quantity of coal from Coal India Limited(CIL). In case of reduced quantity of domestic coal supplied byCIL, vis-a-vis the assured quantity or quantity indicated in LetterGof Assurance/FSA the cost of imported/market based e-auctioncoal procured for making up the shortfall, shall be considered forbeing made a pass through by Appropriate Commission on a caseto case basis, as per advisory issued by Ministry of Power videOM No. FU-12/2011-IPC (Voi-IJI) dated 31.7.2013.”

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83. It is thus clear that the Tariff Policy dated 28[th] January 2016provided that the power procurement for future requirements should bethrough a transparent competitive bidding mechanism using the guidelinesissued by the Central Government from time to time. It further providesthe guidelines for procurement of electricity separately for base loadrequirements and for peak load requirements. It further notes that someof the competitively bid projects as per the guidelines dated 19[th] January,2005 have experienced difficulties in getting the required quantity ofcoal from CIL. It further provides that in case of reduced quantity ofdomestic coal supplied by CIL vis-à-vis the assured quantity or quantityindicated in LoA/FSA, the cost of imported/market based e-auction coalprocured for making up the shortfall shall be considered for being madea pass-through by Appropriate Commission on a case to case basis.This is in pursuance of the advisory issued by Ministry of Power dated31[st] July 2013.

JUDGMENTS CITED

84. Having considered these documents, we will now considerthe judgments which are relied on by both the parties.

85. In the case of Energy Watchdog (supra), after several roundsof litigation, the learned APTEL held that generation and sale of powerby Adani Power to GUVNL and Haryana Utilities was a compositescheme within the meaning of Section 79(1)(b) of the Electricity Actand, therefore, the CERC would have jurisdiction to proceed further inthe matter. It further held that force majeure was made out on the factsof the said cases and reversed the CERC’s/Commission’s order on thatscore. It also held that the Change in Law provisions do not apply toforeign law and, therefore, changes in Indonesian law did not come withinthe scope of the provisions. Insofar as changes in Indian law wereconcerned, it held that the government policies that were relied upon didnot constitute “law”. The said decision of the learned APTEL was assailedbefore this Court. This Court while rejecting the argument on the groundof force majeure observed thus:

“42. It is clear from the above that the doctrine of frustrationcannot apply to these cases as the fundamental basis of the PPAsremains unaltered. Nowhere do the PPAs state that coal is to beprocured only from Indonesia at a particular price. In fact, it isclear on a reading of the PPA as a whole that the price payable AB

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Afor the supply of coal is entirely for the person who sets up thepower plant to bear. The fact that the fuel supply agreement hasto be appended to the PPA is only to indicate that the raw materialfor the working of the plant is there and is in order. It is clear thatan unexpected rise in the price of coal will not absolve thegenerating companies from performing their part of the contractBfor the very good reason that when they submitted their bids, thiswas a risk they knowingly took. We are of the view that the merefact that the bid may be non-escalable does not mean that therespondents are precluded from raising the plea of frustration, ifotherwise it is available in law and can be pleaded by them. ButCthe fact that a non-escalable tariff has been paid for, for example,in the Adani case, is a factor which may be taken into accountonly to show that the risk of supplying electricity at the tariffindicated was upon the generating company.”

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86. This Court, thereafter, considered as to whether any ChangeDin Law could be stretched to mean “all laws”. This Court held that Clause4.7 read with Clause 5.17 of the Guidelines would reveal that it wouldnot include changes in Indonesian law, being foreign and not Indian law.

87. In Energy Watchdog (supra), this Court also had an occasionto consider the MoP communication dated 31[st] July 2013, the relevantEpart of which has already been reproduced by us herein above. ThisCourt observed thus:

“56. However, insofar as the applicability of Clause 13 to a changein Indian law is concerned, the respondents are on firm ground. Itwill be seen that under Clause 13.1.1 if there is a change in anyFconsent, approval or licence available or obtained for the project,otherwise than for the default of the seller, which results in anychange in any cost of the business of selling electricity, then thesaid seller will be governed under Clause 13.1.1. It is clear from areading of the Resolution dated 21-6-2013, which resulted in theletter of 31-7-2013, issued by the Ministry of Power, that the earlierGcoal distribution policy contained in the letter dated 18-3-2007stands modified as the Government has now approved a revisedarrangement for supply of coal. It has been decided that, seeingthe overall domestic availability and the likely requirement of powerprojects, the power projects will only be entitled to a certain percentage of what was earlier allowable. This being the case, on31-7-2013…..”

88. This Court, thereafter, referred to the Tariff Policy dated 28[th]January 2016, the relevant part of which has already been reproducedby us herein above. This Court observed thus:

“57. Both the letter dated 31-7-2013 and the revised Tariff Policyare statutory documents being issued under Section 3 of the Actand have the force of law. This being so, it is clear that so far asthe procurement of Indian coal is concerned, to the extent thatthe supply from Coal India and other Indian sources is cut down,the PPA read with these documents provides in Clause 13.2 thatwhile determining the consequences of change in law, parties shallhave due regard to the principle that the purpose of compensatingthe party affected by such change in law is to restore, throughmonthly tariff payments, the affected party to the economic positionas if such change in law has not occurred. Further, for the operationperiod of the PPA, compensation for any increase/decrease incost to the seller shall be determined and be effective from suchdate as decided by the Central Electricity Regulation Commission.This being the case, we are of the view that though change inIndonesian law would not qualify as a change in law under theguidelines read with the PPA, change in Indian law certainlywould.”

89. It can thus clearly be seen that insofar as the arguments withregard to effect of the Change in Law being given on the basis of ACQis concerned, the same stands specifically rejected.

90. A bench of three learned Judges of this Court in AdaniRajasthan case (supra) also had an occasion to consider a similar issue.An argument which is sought to be advanced before us that the Changein Law claim may be confined only to 35 to 40% was also advanced inthe said case. Rejecting the said contention, this Court observed thus:

“50. Shri C. Aryama Sundaram argued that the FSA relatedapproximately 61 per cent of the fuel requirement. Thus, thechange in law claim may be confined to 35 to 40 per cent. Theargument cannot be accepted as bidding was not based on dualfuel, but was evaluated on domestic coal. There was no suchstipulation that evaluation of bidding was done on domestic basis; A

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the tariff was to be worked out in the aforesaid ratio of 60 : 40 percent of imported coal and domestic coal respectively. Apart fromthat, we find from the order of the APTEL, that change in lawprovision would be limited to a shortfall in the supply of domesticlinkage coal......

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B51. It was clarified that APRL would be entitled to relief underthe change in law provision to the extent of shortage in supply indomestic linkage coal. Thus, we find no merit in the submissionraised. We find the findings of the APTEL to be reasonable, proper,and unexceptional.”

C91. In the said case (i.e. Adani Rajasthan case) also, the provisionwith regard to the Change in Law was similar to the one that falls forconsideration in the present case. This Court observed thus:

“59. The change in policy and in the terms and conditionsprescribed for obtaining any consents, clearances and permits orDthe inclusion of any new terms or conditions for obtaining suchconsents, clearances, and permits are also included. Thesubmission raised on behalf of appellant that there is no questionseeking benefit due to change in foreign law is based on wrongfactual premise. The relief was not claimed on the basis of changein foreign law. Apart from that, admission has been relied uponEchange in law. The PPA was based on the domestic law andthere was a change in domestic law. Thus, consequences mustfollow. The Government of Rajasthan entered into a MoU withAPRL with respect to coal linkage in 2008 to provide coal linkageor coal from other sources.

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60. We find similarity in the present case as well as the EnergyWatchdog. The factual matrix was similar with the present case.We find that the RERC and the APTEL have recorded theconcurrent finding on facts. We find no ground to interfere. Nosubstantial question of law is involved. It was held in EnergyGWatchdog, that change in law was brought about in the NCDP of2007 by the decision of 26.7.2013. It is provided in Article 10.2.1how the change in law is to be applied to compensate for theimpact.”

92. In the case of Uttar Haryana Bijli Vitran Nigam Limited(UHBVNL) (supra), this Court observed thus:H

“13. A reading of Article 13 as a whole, therefore, leads to theposition that subject to restitutionary principles contained in Article13.2, the adjustment in monthly tariff payment, in the facts of thepresent case, has to be from the date of the withdrawal ofexemption which was done by administrative orders dated 6-4-2015 and 16-2-2016. The present case, therefore, falls within Article13.4.1(i). This being the case, it is clear that the adjustment inmonthly tariff payment has to be effected from the date on whichthe exemptions given were withdrawn. This being the case,monthly invoices to be raised by the seller after such change intariff are to appropriately reflect the changed tariff. On the factsof the present case, it is clear that the respondents were entitledto adjustment in their monthly tariff payment from the date onwhich the exemption notifications became effective. This beingthe case, the restitutionary principle contained in Article 13.2 wouldkick in for the simple reason that it is only after the order dated 4-5-2017 [Adani Power Ltd. v. Uttar Haryana Bijli Vitran NigamLtd., 2017 SCC OnLine CERC 66] that CERC held that therespondents were entitled to claim added costs on account ofchange in law w.e.f. 1-4-2015. This being the case, it would befallacious to say that the respondents would be claiming thisrestitutionary amount on some general principle of equity outsidethe PPA. Since it is clear that this amount of carrying cost is onlyrelatable to Article 13 of the PPA, we find no reason to interferewith the judgment of the Appellate Tribunal.

93. This Court specifically rejected the contention of the DISCOMSthat the Generator was claiming the restitutionary amount on some generalprinciple of equity outside the PPA. This Court held that the amount ofcarrying cost was relatable to Article 13 of the PPA.

STATUTORY PROVISIONS WITH REGARD TOREGULATORY MECHANISM

94. We will now consider the relevant provisions of the Electricity Act.

95. Section 70 of the Electricity Act deals with constitution of theCentral Electricity Authority (“CEA”). The CEA shall consist of notmore than 14 Members (including its Chairperson) of whom not morethan 8 are required to be full-time Members to be appointed by the AB

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ACentral Government. It will be relevant to refer to sub-section (5) ofSection 70 of the Electricity Act, which reads thus:

“(5) The Members of the Authority shall be appointed fromamongst persons of ability, integrity and standing who haveknowledge of, and adequate experience and capacity in, dealingBwith problems relating to engineering, finance, commerce,economics or industrial matters, and at least one Member shall beappointed from each of the following categories, namely:—

(a) engineering with specialisation in design, construction,operation and maintenance of generating stations; C

(b) engineering with specialisation in transmission and supplyof electricity;

(c) applied research in the field of electricity; (d) applied economics, accounting, commerce or finance.”

D96. It can thus clearly be seen that the Members of the CEA arerequired to be persons who have adequate experience and capacity indealing with problems relating to engineering, finance, commerce,economics or industrial matters. Four of the Members are required to befrom the categories as mentioned in clauses (a) to (d). One of them hasto be an engineer with specialization in design, construction, operationEand maintenance of generating stations. One of them has to be an engineerwith specialization in transmission and supply of electricity; one has tobe 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.F

97. Section 73 of the Electricity Act deals with functions and dutiesof the CEA. The CEA is required to advise the Central Government onvarious matters with regard to generation, transmission, trading,distribution and utilization of electricity. It is also required to advise theCentral Government on any matter on which its advice is sought orGmake recommendation to that Government on any matter if, in the opinionof the CEA, the recommendation would help in improving the generation,transmission, trading, distribution and utilization of electricity.

98. Section 76 of the Electricity Act provides for constitution ofthe CERC. The CERC is a five member body which consists of aHChairperson and three other Members, and the Chairperson of the CEA

who shall be the ex officio Member. A high-level Selection Committeeconsisting of 6 high officials selects the Members of the CERC and thelearned APTEL.

99. Section 77 of the Electricity Act provides for qualifications forappointment of Members of the CERC. Sub-section (1) of Section 77provides that Chairperson and the Members of the CERC shall be personshaving adequate knowledge of, or experience in, or shown capacity in,dealing with, problems relating to engineering, law, economics, commerce,finance or management. It further requires that one person to beappointed must be having qualifications and experience in the field ofengineering with specialization in generation, transmission or distributionof electricity. One person to be appointed has the qualifications andexperience in the field of finance. Clause (c) of sub-section (1) of Section77 of the Electricity Act requires that two persons are required to havequalifications and experience in the field of economics, commerce, lawor management. The proviso to sub-section (1) of the Section 77 of theElectricity Act provides that not more than one Member shall be appointedunder the same category under clause (c).

100. Sub-section (2) of Section 77 of the Electricity Act, which isa non-obstante clause, empowers the Central Government to appointany person as the Chairperson from amongst persons who is, or hasbeen, a Judge of the Supreme Court or the Chief Justice of a High Courtnotwithstanding anything contained in sub-section (1). However, suchappointment cannot be made except after consultation with the ChiefJustice of India.

101. Section 79 of the Electricity Act deals with the functions ofthe CERC. One of the functions of the CERC under clause (a) of sub-section (1) of Section 79 is to regulate the tariff of generating companiesowned or controlled by the Central Government. Clause (b) requires itto regulate the tariff of generating companies other than those owned orcontrolled by the Central Government specified in clause (a), if suchgenerating companies enter into or otherwise have a composite schemefor generation and sale of electricity in more than one State.

102. Similarly, Section 82 of the Electricity Act deals withconstitution of a State Commission. Section 83 of the Electricity Actpermits a Joint Commission to be constituted by an agreement betweentwo or more Governments of States. It also permits the CentralGovernment to constitute a Joint Commission in respect of one or more AB

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AUnion Territories, and one or more Governments of States. Under Section84, the persons to be appointed as the Chairperson and the Members ofthe State Commission are required to have adequate knowledge of, andhave shown capacity in, dealing with problems relating to engineering,finance, commerce, economics, law or management. Sub-section (2) ofSection 84 of the Electricity Act permits the State Government to appointBany person as the Chairperson from amongst persons who is, or hasbeen, a Judge of a High Court. However, such an appointment can bemade only after consultation with the Chief Justice of that High Court. Ahigh-level Selection Committee under the Chairmanship of a person whohas been a Judge of the High Court, the Chief Secretary of the concernedCState and the Chairperson of the CEA or the Chairperson of the CERCselects the Chairperson and the Members of the State Commission.Analogous to Section 79, Section 86 of the Electricity Act defines thefunctions of the State Commission. Clause (b) of sub-section (1) ofSection 86 of the Electricity Act requires the State Commission to regulateelectricity purchase and procurement process of distribution licenseesDincluding the price at which electricity shall be procured from thegenerating companies or licensees or from other sources throughagreements for purchase of power for distribution and supply within theState.

103. Section 110 of the Electricity Act provides for establishmentEof the Appellate Tribunal. Section 111 of the Electricity Act provides forappeal to Appellate Tribunal by any person aggrieved by an order madeby an adjudicating officer under the said Act (except under Section 127)or an order made by the Appropriate Commission. Section 112 dealswith composition of the Appellate Tribunal. It provides that it shall consistFof a Chairperson and three other Members. Section 113 provides forqualifications for appointment of Chairperson and Members of AppellateTribunal. Only a person who is, or has been a Judge of the SupremeCourt or the Chief Justice of a High Court is entitled to be the Chairpersonof the Appellate Tribunal. For being a Member of the Appellate Tribunal,following three categories have been provided for:G

(i) A person is, or has been, or is qualified to be, a Judge of aHigh Court; or

(ii) A person is, or has been, a Secretary for at least one yearin the Ministry or Department of the Central GovernmentHdealing 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 withthe matters relating to electricity generation, transmissionand distribution and regulation or economics, commerce,law or management.

104. It can thus be seen that the CEA, CERC and learned APTELare bodies consisting of experts in the field.

CONSIDERATIONS

105. The issues with regard to SHR and GCV have beenconsidered by the CERC in its order dated 15[th] November 2018 in thecase of GMR Warora Energy Limited v. Maharashtra StateElectricity Distribution Company Limited & Anr[8]. It will be relevantto reproduce the relevant part of the CERC’s order dated 15[th] November2018, which reads thus:

“29. The submissions regarding SHR and GCV have beenconsidered. The APTEL in its judgement dated 12.9.2014 in AppealNo. 288 of 2013 (M/s Wardha Power Company Limited VReliance Infrastructure Limited & anr) has ruled that compensationunder Change in Law cannot be correlated with the price of coalcomputed from the energy charge and the technical parameterslike the Heat Rate and gross GCV of coal given in the biddocuments for establishing the coal requirement. The relevantobservations of APTEL are extracted as under:

“26. The price bid given by the Seller for fixed and variablecharges both escalable and non-escalable is based on theAppellant’s perception of risks and estimates of expenditureat the time of submitting the bid. The energy charge asquoted in the bid may not match with the actual energycharge corresponding to the actual landed price of fuel.The seller in its bid has also not quoted the price of coal.Therefore, it is not correct to co-relate the compensationon account of Change in Law due to change in cess/exciseduty on coal, to the coal price computed from the quotedenergy charges in the Financial bid and the heat rate and 8 Petition No.88/MP/2018

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Gross Calorific value of Coal given in the bidding documentsby the bidder for the purpose of establishing the coalrequirement. The coal price so calculated will not be equalto the actual price of coal and therefore, compensation forChange in Law computed on such price of coal will notrestore the economic position of the Seller to the same levelas if such Change in Law has not occurred.”

30. In the light of the above observations, the technical parameterssuch as Heat Rate and GCV of coal as per the bidding documentcannot be considered for deciding the coal requirement for thepurpose of calculating the relief under Change in law. Therefore,the submissions of the Respondent, MSEDCL to consider the bidparameters are not acceptable. The Respondent has also reliedon MERC order with regard to GCV. As regards SHR, it wasalso suggested by MERC that net SHR as submitted in the bid orSHR norms specified for new thermal stations as per MYTRegulations, whichever is superior, shall be applicable. In our view,the decision in the said order has been given in the facts of thecase and does not have any binding effect in case of the projectsregulated by this Commission. Moreover, the SHR given in thebid are under test conditions and may vary from actual SHR. TheCommission after extensive stakeholders consultation hasspecified the SHR norms in the 2014 Tariff Regulations. Therefore,it would be appropriate to take SHR specified in the Regulationsas a reference point instead of other parameters as suggested byMSEDCL.

31. In the present case, the Petitioner has considered SHR of2355 kcal/Kwh whereas, the Respondent MSEDCL hasconsidered the Design Heat Rate of 2211 kcal/kWh as submittedin the RFP. It is pertinent to mention that the CERC normsapplicable for the period 2009-14 and 2014-19 do not provide thenorms for 300 MW units, but provide for a degradation factor of6.5% and 4.5% respectively towards Heat Rate over and abovethe Design Heat Rate. As the Design Heat Rate is 2211 kcal/kWh, the gross Heat Rate works out to 2355 kcal/kWh (2211 x1.065)and 2310 kcal/kWh (2211 x 1.045) for the period 2009- 14and 2014-19 respectively. Accordingly, we direct that the SHR of2355 kcal/kWh during the period 2009-14 and 2310 kcal/kwh during

the period 2014- 19 or the actual SHR whichever is lower, shallbe considered for calculating the coal consumption for the purposeof compensation under change in law. The Petitioner and theRespondent MSEDCL are directed to carry out reconciliation onaccount of these claims annually.

32. In case of GCV, the Respondent has submitted that it shouldbe mid value of GCV band which should be applied on GCVmeasured on ‘as billed’ basis. In our view, on account of the gradeslippage of the coal supplied by CIL, it would not be appropriateto consider GCV on ‘as billed’ basis. In the 2014 Tariff Regulationsof the Commission, the measurement of GCV has been specifiedas on ‘as received’ basis. Therefore, it will be appropriate if theGCV on ‘as received’ basis is considered for computation ofcompensation for Change in law.”

106. The CERC has referred to the judgment of the learnedAPTEL dated 12[th] September 2014 in Appeal No. 288 of 2013 in thecase of M/s Wardha Power Company Limited v. RelianceInfrastructure Limited & anr. wherein the learned APTEL has heldthat it is not correct to co-relate the compensation on account of Changein Law due to change in cess/excise duty on coal to the coal pricecomputed from the quoted energy charges in the financial bid and theheat rate and GCV of coal given in the bidding documents by the bidderfor the purpose of establishing the coal requirement. The learned APTELhas held that the coal price so calculated will not be equal to the actualprice of coal and therefore, compensation for Change in Law computedon such price of coal will not restore the economic position of the sellerto the same level as if such Change in Law had not occurred.

107. The CERC has further found that the SHR given in the bidare under test conditions and may vary from actual SHR. The CERChas specifically observed that after extensive stakeholders’ consultation,the CERC has specified the SHR norms in the 2014 Tariff Regulations.It, therefore, found that it will be appropriate to take SHR specified inthe Regulations as a reference point instead of other parameters assuggested by MSEDCL.

108. The CERC further found that the CERC norms applicable tothe period 2009-14 and 2014-19 do not provide the norms for 300 MWunits, but provide for a degradation factor of 6.5% and 4.5% respectively A

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Atowards Heat Rate over and above the Design Heat Rate. The CERCfound that since the Design Heat Rate was 2211 kcal/kWh, the grossHeat Rate worked 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.The CERC, therefore, directed that the SHR of 2355 kcal/kWh duringthe period 2009-14 and 2310 kcal/kwh during the period 2014-19 or theBactual SHR, whichever is lower, shall be considered for calculating thecoal consumption for the purpose of compensation under the Change inLaw.

109. These findings of the CERC are affirmed by the learnedAPTEL in its Judgment dated 16[th] July 2021. The learned APTELCobserved thus:

“8.8 We are in agreement with the observations made bythe CERC. Relegating the Appellant to the contractualremedy under the FSA when the genesis of the Appellant’sclaim is Change in Law under the PPA would not beDappropriate. It is, however, made clear that if the Appellantwere to receive any disincentive or compensation from thecoal company on account of short supply or grade slippage,such compensation will be adjusted/credited against theChange in Law compensation payable by the Respondent,EMSEDCL.”

110. The learned APTEL in its judgment dated 14[th] September2020 in Appeal No.182 of 2019 in the case of Adani Power MaharashtraLimited (APML) v. Maharashtra State Electricity DistributionCompany Ltd. (impugned in Civil Appeal No. 684 of 2021) has referredto the order of MERC dated 7[th] March 2018 in Case No.123 of 2017F(JSW Energy Ltd. v. MSEDCL), wherein it held that AuxiliaryConsumption has to be considered as lower of actual or MYT norms forthe purpose of the Change in Law compensation. The learned APTELheld that in view of its earlier order, the State Commission, being MERC,ought to have followed the same approach for SHR in the present caseGalso. It has been found that there is no reason for the MERC to applytwo different principles for Auxiliary Consumption and SHR, when bothare operational parameters and the Commission was dealing with thesame PPA in both cases.

111. The learned APTEL has also referred to the followingHobservations of the CERC in its order dated 16[th] May 2019 in the case of GMR Warora Energy Limited v. MSEDCL and Anr. (PetitionNo.284/MP/2018):

“52.It is pertinent to mention that similar submissions of theRespondent, MSEDCL were considered by theCommission in Petition No.88/MP/2018 and it wasobserved by order dated 15.11.2018 that SHR given inthe bid is under test conditions and may vary from actualSHR. Therefore, it would only be correct to take SHRspecified in the tariff Regulations as a referencepoint instead of other parameters suggested byMSEDCL. It was also held that SHR as a biddingdocument cannot be considered for deciding the coalrequirement for the purpose of calculating relief underchange in law…”

112. The learned APTEL thereafter held that the SHR submittedin the bid was not a bid parameter as per the bidding guidelines. Itconcurred with the findings of the CERC that the SHR specified in theTariff Regulations was as a reference point. It held that it cannot beused as the basis for computing the coal shortfall requirement and,thereby, for computation of Change in Law compensation to be awardedto the generating company. It held that such linking of Change in Lawcompensation to the SHR mentioned in the bid documents would notrestitute the affected party to the same economic position as if theapproved Change in Law event had not occurred.

113. Insofar as the GCV is concerned, the CERC in the case ofGMR Warora Energy Limited (supra) has specifically rejected thecontention of the MSEDCL that the GCV should be taken at the midvalue of GCV band which should be applied on GCV measured on ‘asbilled’ basis. The CERC held that, on account of the grade slippage ofthe coal supplied by CIL, it would not be appropriate to consider GCVon ‘as billed’ basis. It has been held that in the 2014 Tariff Regulationsof the Commission, the measurement of GCV has been specified as on‘as received’ basis. Therefore, it will be appropriate if the GCV on ‘asreceived’ basis is considered for computation of compensation for theChange in Law. This finding of the CERC is affirmed by the learnedAPTEL.

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A114. The learned APTEL in the case of Adani PowerMaharashtra Limited (APML) (supra) has also considered the issueas to whether the reference GCV of domestic coal supplied by CIL forcomputing the Change in Law compensation should be “the middle valueof GCV range of assured coal grade in LoA/FSA/MoU”. The learnedAPTEL observed that it was a fact that there is no guidance in theBPPAs or in the bidding Guidelines as to the reference GCV that shouldbe applied in case of the Change in Law claims in Case 1 bid projectswhere SHR or GCV is not a bid parameter. It, however, held that theoverarching principle for Change in Law compensation was that thegenerating company should not be left with in a worse economic position.CIt held that the GCV ‘as received’ should be the appropriate basis toassess the quantum of shortfall in domestic coal and calculate the Changein Law compensation accordingly.

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115. It is also relevant to note that the Comptroller and AuditorGeneral of India (“C&AG” for short), in its Performance Audit ReportDon “Fuel Management of Coal Based Power Stations of NTPC Limited”submitted to MoP, had observed that the ‘quality assessment of coal hasinherent as well as manmade infirmities due to heterogeneous nature ofcoal and sampling errors’. The C&AG, therefore, recommended to theMoP that there was a need to appropriately review the methods for energy pricing and had requested the MoP to coordinate with CERC inElight of the audit findings. The MoP, therefore, addressed a communicationdated 28[th] June 2017 to the CEA. In the said communication, the MoPhad stated that the NTPC has highlighted the issues of sampling error onaccount of change of point of sampling for measurement of GCV from“as fired” to “as received” basis as per the 2014 Tariff Regulations,Fnon-homogeneous nature of samples taken from the wagons, loss ofGCV from point of “as received” to the point of “as fired”, and difficultywith coal sampling through ‘Augurs’. It further states that the MoP hadalso sought views of the CERC on the said issue. The CERC had,therefore, requested the MoP for consulting CEA in this regard andaccordingly the matter was referred to CEA.G116. The CEA in its communication dated 17[th] October 2017 statedthus:

“The issue has been examined in CEA. After preliminarydiscussions with NTPC on the issue on 05.09.2017, CEA has alsotaken views of other specialist agencies in the field of coal suchHas CIMFR and CPRI in the meeting held on 21.09.2017.

It is acknowledged that there is a loss of GCV from point of “asreceived” to the point of “as fired” inside a power plant mainlydue to following factors:

(i) Effect of Moisture in GCV of coal sample taken fromWagon Top As stated by C&AG, there are sampling errors on accountof heterogeneous nature of coal. This issue was deliberatedin detail with CIMFR and CPRI. Both CIMFR and CPRIacknowledged the difference in wagon top-bottom GCVdue to heterogeneous nature of coal, tendency of moistureto settle at the bottom and exposure of top layer toatmosphere.

CEA is of the view that GCV measurement of wagon topcoal will give comparatively higher GCV value due tosteeling of moisture at the bottom of the wagon and loss ofmoisture from wagon top during transportation of coal,however, loss in GCV will vary as per seasonal variations.

(ii) Loss in GCV during coal storage inside power plant CEA is of the view and also substantiated by many nationaland international papers that there is a loss of GCV in thecoal stock where coal is stored inside the power plant, mainlydue to oxidation and weathering effect. Further, most ofthe losses in GCV during long storage of coal takes placein the initial period of storage, mostly due to loss in volatilecontent.

(iii) Reduction in GCV during handling inside power plant

C&AG in its Performance Audit Report has observed thatGCV of coal progressively decreased from ‘as billed’ stageto ‘as fired’ stage.

It is acknowledged that there are minor unavoidable lossesinside the power plant in handling the coal starting fromunloading point to the point of bunkering. Loss in GCV mayoccur mainly due to dust suppression measures used aroundcoal conveyors and transfer points, loss in volatile matterduring crushing of the coal etc.

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ACEA has also examined the views taken by various state regulatorsfor considering such loss for the purpose of tariff allowed togenerators. However, as the margin would vary from plant toplant, season to season and varying coal characteristics, CEA isof the opinion that a margin of 85-100 kcal/kg for a non-pit headstation may be considered as a loss of GCV measured at wagonBtop till the point of firing of coal in boiler.”117. Vide Corrigendum dated 18[th] October 2017, in the lastsentence, after the words wagon top, the words “at unloading point”were added.C118. The aforesaid advice was given by the CEA after holdingmeeting on 21[st] September 2017 with specialist agencies in the field ofcoal such as CIMFR and CPRI. It has also examined the views takenby various state regulators for considering such loss for the purpose oftariff allowed to generators. While considering at what point of time themargin may be considered as a loss of GCV, the CEA considered theDviews of all the stakeholders. It, thereafter, opined that the loss of GCVshould be measured at wagon top till the point of firing of coal in boiler.

119. As already discussed herein above, the CEA is an independentbody having Members who are experts in various fields related toelectricity generation, transmission, finance, etc.E

120. It could thus be seen that two expert bodies i.e. the CERCand the learned APTEL have concurrently held, after examining thematerial on record, that the factors of SHR and GCV should be consideredas per the Regulations or actuals, whichever is lower. The CERC aswell as the State Regulatory bodies, after extensive consultation withFthe stakeholders, had specified the SHR norms in respective TariffRegulations. In addition, insofar as GCV is concerned, the CEA hasopined that the margin of 85-100 kcal/kg for a non-pit head station maybe considered as a loss of GCV measured at wagon top till the point offiring of coal in boiler.

121. In this respect, we may refer to the following observationsGof this Court in the case of Reliance Infrastructure Limited v. State ofMaharashtra and others[9].

“38. MERC is an expert body which is entrusted with the dutyand function to frame regulations, including the terms and conditions9 (2019) 3 SCC 352H

for the determination of tariff. The Court, while exercising itspower of judicial review, can step in where a case of manifestunreasonableness or arbitrariness is made out. Similarly, wherethe delegate of the legislature has failed to follow statutoryprocedures or to take into account factors which it is mandatedby the statute to consider or has founded its determination of tariffson extraneous considerations, the Court in the exercise of its powerof judicial review will ensure that the statute is not breached.However, it is no part of the function of the Court to substitute itsown determination for a determination which was made by anexpert body after due consideration of material circumstances.

39. In Assn. of Industrial Electricity Users v. State ofA.P. [Assn. of Industrial Electricity Users v. State of A.P., (2002)3 SCC 711] a three-Judge Bench of this Court dealt with thefixation of tariffs and held thus : (SCC p. 717, para 11)

“11. We also agree with the High Court [S. BharatKumar v. State of A.P., 2000 SCC OnLine AP 565 : (2000) 6ALD 217] that the judicial review in a matter with regard tofixation of tariff has not to be as that of an appellate authorityin exercise of its jurisdiction under Article 226 of theConstitution. All that the High Court has to be satisfied with isthat the Commission has followed the proper procedure andunless it can be demonstrated that its decision is on the face ofit 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 powerexercised is arbitrary or ex facie bad in law.”

122. As already discussed herein above, various expert bodiesincluding the CERC and the learned APTEL, after taking intoconsideration various relevant factors, have decided the issue with regardto SHR and GCV. Not only that, but another expert body i.e. CEA hasalso advised that GCV value has to be taken not only on ‘as received’but on ‘as fired’ basis.

123. Recently, the Constitution Bench of this Court in the case ofVivek Narayan Sharma v. Union of India[10 ]has held that the Courts10 2023 SCC OnLine SC 1

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Ashould be slow in interfering with the decisions taken by the experts inthe field and unless it is found that the expert bodies have failed to takeinto consideration the mandatory statutory provisions or the decisionstaken are based on extraneous considerations or they are ex faciearbitrary and illegal, it will not be appropriate for this Court to substituteits views with that of the expert bodies.B

124. That leaves us with the third issue as to whether the MERCwas correct in holding that, for the purpose of Change in Lawcompensation, shortfall in domestic linkage coal shall be assessed byconsidering the coal supply as the maximum of (1) actual quantum ofcoal offered for offtake by CIL under the LoA/FSA and (2) the minimumCassured quantum in NCDP 2013 for the respective year.

125. Undisputedly, vide the NCDP 2007, insofar as the powerutilities including IPPs/CPPs and Fertilizer Sector are concerned, theMoC had assured 100% of the quantity as per the normative requirementof the consumers for supply of coal, through FSA by CIL at fixed pricesDto be declared/notified by CIL. The units/power plants, which were yetto be commissioned but whose coal requirements has already beenassessed and accepted by the MoC and linkage/LoA approved as wellas future commitments, were also to be covered by the said Policy. Para5.2 of the NCDP 2007 also provided that in order to meet the domesticrequirement of coal, CIL may have to import coal as may be requiredEfrom time to time, if feasible. The CIL was to adjust its overall priceaccordingly. There was an unequivocal assurance given that it will bethe responsibility of CIL/Coal Companies to meet full requirement ofcoal under FSAs even by resorting to imports, if necessary.

126. However, in 2013, on account of the limited availability ofFcoal, the MoC had indicated that CIL may not be in a position to supplymore than 60 to 65% of ACQ. The Union of India, therefore, realisedthat PPAs which are already concluded between the developers and theDISCOMS as a result of competitive bidding in the last few years basedon domestic coal linkage (LoA) may have to use imported coal to bridgethe shortage of domestic coal in order to fulfill their contractual obligations.G127. The CCEA considered the issue and decided that the highercost of imported coal will be allowed as a pass-through. This is evidentfrom the communication dated 9[th] May 2013 addressed by the MoP tothe CERC.

128. The CERC also considered the issue. It noted that it was theHfull responsibility of CIL to meet full requirement of coal under FSAs even by resorting to import, if necessary. After referring to the Changein Law clause, the CERC, in its advice dated 20[th] May 2013, stated thatfor claiming any benefit under Change in Law, the Project Developerwould have to move the appropriate Commission and the appropriateCommissions are expected to take decisions on the merits of each caseincluding the claims of the Project Developers for compensation onaccount of imported coal. Such decisions were required to be takenafter consultation with the stakeholders.

129. The Government of India through MoP, in its Press Notedated 21[st] June 2013, published the decision of the CCEA which clearlyprovided that the higher cost of imported coal was to be considered forpass-through as per the modalities suggested by CERC.

130. The MoP, thereafter, addressed a communication dated 31[st]July 2013 to the Secretary, CERC specifically pointing out the decisionof the CCEA to the effect that the higher cost of imported coal was tobe considered for pass-through as per the modalities suggested by CERC.The communication states that, as per the decision of the Government,the higher cost of import/market based e-auction coal will have to beconsidered for being made a pass-through on a case to case basis byCERC/SERC to the extent of shortfall in the quantity indicated in theLoA/FSA.

131. The Tariff Policy dated 28[th] January 2016 issued by the MoPin paragraph 6.1 also specifically notes this position and states that, incase of reduced quantity of domestic coal supplied by CIL vis-à-vis theassured quantity or quantity indicated in LoA/FSA, the cost of imported/market based e-auction coal procured for making up the shortfall shallbe considered for being made a pass-through by the AppropriateCommission.

132. Undisputedly, in the case of Energy Watchdog (supra) aswell as in Adani Rajasthan case (supra) this Court has held that onaccount of the Change in Law, the generating companies were entitledto compensation so as to restore the party to the same economic positionas if such Change in Law had not occurred. Had the Change in Law notoccurred, the generating companies would have been entitled to the supplyas assured by the CIL/Coal Companies under the FSA.

133. It is contended by the DISCOMS that in the case of EnergyWatchdog (supra), this Court has specifically held that the doctrine offorce majeure was not applicable if there was an unexpected rise in the AB

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Aprice of coal and, as such, it will not absolve the generating companiesfrom performing their part of the contract. It is submitted that when thebidders submitted their bids, this was a risk they knowingly took. Wefind the said submission to be without substance. The generators are notclaiming compensation on the basis of rise in price of coal or on theground of force majeure. Their claims, in fact, are on the basis of theBChange in Law, which this Court, in the case of Energy Watchdog(supra) as well as in Adani Rajasthan case (supra), has upheld on theground of Change in Law.

134. The contention of the DISCOMS that the Adani Rajasthancase (supra) is not applicable to the facts of the present case inasmuchCas in Adani Rajasthan case (supra), the State of Rajasthan had assured100% coal supply and that it was not a case of FSA, is, in our consideredview, without substance. In the present case also, the NCDP 2007 hadassured 100% fuel/coal supply of the normative value.

135. The restitutionary principle has been stated by this Court inDthe case of Uttar Haryana Bijli Vitran Nigam Limited (UHBVNL)(supra) thus:

“10. Article 13.2 is an in-built restitutionary principle whichcompensates the party affected by such change in law and whichmust restore, through monthly tariff payments, the affected partyEto the same economic position as if such change in law has notoccurred. This would mean that by this clause a fiction is created,and the party has to be put in the same economic position as ifsuch change in law has not occurred i.e. the party must be giventhe benefit of restitution as understood in civil law. ………….”F136. Undisputedly, the claim of APML stands on the basis of theChange in Law. The DISCOMS, which are instrumentalities of the State,cannot be expected to argue contrary to the stand of the Government,which clearly provides that the generators would be entitled to pass-through for the coal required to be imported or purchased from the openGmarket on the ground of Change in Law.

137. Shri M.G. Ramachandran, learned Senior Counsel has alsomade a submission that though the Change in Law event is dated 31[st]July 2013, the learned APTEL has erred in giving effect to the samefrom 1[st] April 2013. In this respect, it is to be noted that the Change inLaw has been made applicable to the remaining four years of the 12[th]H

Plan for power plants. The MERC, in the case of APML, as well as theCERC, in the case of GMR, has given effect to the Change in Law forthe last four financial years beginning from the Financial Year 2013-2014. The financial year begins from 1[st] of April of every year. Apartfrom that, from the perusal of the orders passed by the learned APTELin both the matters, it is clear that no such challenge was made beforethe learned APTEL, and, even in the present appeals, there is ground tothis effect in the Memo of Appeals. Only oral submissions have beensought to be made in that regard.

138. In view of the concurrent orders of the authorities with regardto the date on which the Change in Law compensation is to be given, wesee no reason to entertain such a plea, which does not have a foundationin the pleadings.

139. Another contention raised on behalf of the DISCOMS is thatif the generators are permitted to claim compensation on the basis ofactual SHR or the SHR as per the Regulations, whichever is lower, itwill permit them to take advantage of their inefficiency. It is submittedthat lesser the SHR, greater the efficiency of the machine and, therefore,higher the generation of electricity. Per contra, when the machine isinefficient, the SHR is higher and the electricity generation is lower. TheSHR is not only dependent on the efficiency of the machine but onvarious other factors. One of the other factors is the PLF. In this respect,it will be relevant to refer to the statutory advice issued by the CERC on20[th] May 2013, the relevant part of which has already been reproducedhereinabove. It clearly states that for want of adequate coal supply byCIL/Coal Companies, the PLF of the generating stations across thecountry has been severely affected. As such, the contention in that regard,in our considered view, is without substance.

140. Apart from that, it appears that various DISCOMS are takingself-contradictory stands. In Petition No. 97 of 2017 between M/s AdaniPower Limited v. Uttar Haryana Bijli Vitran Nigam Ltd. & Anr., theDISCOMS have filed an affidavit stating thus:

“a.While deciding the relief on account of Change in Law underArticle 13 of the PPA may be pleased to consider improvedefficiency parameters in line with CERC Tariff Regulationssuch that the impact on consumers of the Respondents inminimal in nature.

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Ab.Any relief (if granted), may be passed after consideringthe following significant observations:

(i) The actual impact of the said period should becalculated on the basis of various factors namely thequantum of requirement on normative proceduressuch as the following:

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i.Station Heat Rate shall be considered afterascertaining actual design heat rate andmargin as per CERC regulations from timeto time.

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ii.Similarly, Auxiliary Consumption shall beconsidered as per CERC regulations.

iii.GCV of alternate coal shall be as certifiedby Third Party Sampling Agency for whichthe Hon’ble Commission should provideappropriate the guideline.

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iv.The targeted PLF;

v.The accurate date of actual coal utilized bythe Petitioner on a monthly and yearly basis;

vi.The quantity of coal offered by the MCL whichwas rejected or not taken by the Petitioner; E

vii.The quantum of actual of electricity generatedby the Petitioner Thus, it is submitted that the Petitioner’s claimfor relief in this regard requires to be computedin a categorical and systematic manner takingthe above parameters into consideration. ThePetitioner’s computation as stated in its petitionis therefore liable to be rejected as it is generaland vague in nature.

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(ii) Further, the Petitioner has indicated the impact limitedto the past period only. However, the Respondentshumbly request the Hon’ble Commission to onlyapprove such claims for the past period, after H

considering the above along with a formula for thefuture period.”

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141. It can thus be seen that the DISCOM-UHBVNL has itselfstated that improved efficiency parameters in line with CERC TariffRegulations should be considered for deciding the relief on account ofChange in Law, such that the impact on consumers of the respondents isminimal in nature. It has also requested for any relief, if granted, to takeinto consideration the SHR after ascertaining actual design heat rateand margin as per CERC regulations from time to time. Similarly, it hasalso requested that Auxiliary Consumption be considered as per the CERCRegulations. Insofar as the GCV of alternate coal is concerned, it hasfurther stated that it has to be certified by Third Party Sampling Agency.

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142. It is not in dispute that the SHR is required to be auditedcontinuously and the GCV has to be certified by a Third Party SamplingAgency.

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143. It is further pertinent to note that the MERC itself in its orderdated 7[th] March 2018 in Case No.123 of 2017 (JSW v. MSEDCL),hastaken a totally contradictory stand. It will be relevant to refer to paragraph19.11 of the said order dated 7[th] March 2013, which reads thus:

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“19.11In view of the above, financial impact of Change inELaw on the auxiliary consumption to restore thegenerator to the same economic position as if suchChange in Law has not occurred is allowed. TheChange in Law shall be applicable on auxiliaryconsumption of the Unit as per the Norms laid downFby the Commission or actual, whichever is less sincethe tariff of the project is based on CompetitiveBidding the auxiliary power consumptionconsidered is not known. However this auxiliaryconsumption should be at a normative valuecorresponding to Scheduled generation only.GMoreover, this Change in Law with respect toauxiliary consumption shall not include powerconsumption for staff colonies of the generatingstation.”

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[emphasis supplied]

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144. It is, thus, difficult to appreciate as to how the MERC, in onecase, has taken a view that Change in Law on the Auxiliary Consumptionhas to be as per the Norms laid down by the Commission or actual,whichever is less, when it has rejected the same in the case of APML inthe order dated 7[th] March 2018[11].

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145. We may gainfully refer to the stand taken by the Union ofIndia in the case of Energy Watchdog (supra), which reads thus:

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“15. The learned Attorney General appearing on behalf of theUnion of India, submitted before us that he was not interested inthe ultimate outcome of the appeals before us. He was onlyappearing in order to apprise us that the electricity sector,Chaving been privatised, has largely fulfilled the object soughtto be achieved by the 2003 Act, which is that electricitygeneration, being delicensed, should result in production offar greater electricity than was earlier produced. He urgedus not to disturb the delicate balance sought to be achieved byDthe Act i.e. that producers or generators of electricity, in orderthat they set up power plants, be entitled to a reasonablemargin of profit and a reasonable return on their capital, sothat they are induced to set up more and more power plants.This must be consistent with competitiveness among them, whichthen translates itself into reasonable tariffs that are payable byEconsumers of electricity. For this purpose, he relied strongly uponSection 3 of the Electricity Act, which states that the CentralGovernment, shall from time to time, prepare a National ElectricityPolicy and a tariff policy in consultation with the StateGovernments, and the authority for development of the powersystem, based on optimal utilisation of natural resources.FAccording to him, the National Electricity Policy and TariffPolicy that are issued from time to time, being statutory innature, are binding on all concerned. This is, in fact, furtherrecognised by Section 61(i) by which the appropriate Commission,in specifying terms and conditions for determination of tariffs,Gshall be guided by the National Electricity Policy and Tariff Policy.The Central Government’s role can further be seen even inSection 63, where guidelines that are binding on all are issuedby the Central Government in cases where there is atransparent process of bidding.

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11 Passed in Case Nos. 189 of 2013 and 140 of 2014H

16. Further, according to the learned Attorney General, Section79(4) also points in the same direction, stating that, in discharge ofits functions, the Central Commission shall be guided by the NationalElectricity Policy, National Electricity Plan, and tariff policypublished under Section 3. He also referred us to the CabinetCommittee for Economic Affairs recognising the overallshortfall in manufacture of domestic coal and the new coaldistribution policy issued in July 2013 pursuant to the CabinetCommittee which, according to him, are in the nature ofbinding directions making it clear that as generators ofelectricity, who depend upon indigenous coal, have been givenless coal than was anticipated, should be allowed either toimport the coal themselves, or purchase imported coal fromCoal India Ltd., with the difference in price being passedthrough to them. He further referred to and relied upon the revisedtariff policy of 28-1-2016 for the same purpose.”

146. The submissions made by the learned Attorney General haveto be construed in reference to the purpose for which the Electricity Actcame to be enacted. Prior to the Electricity Act coming into effect, matterswith regard to generation, transmission, distribution and supply ofelectricity were governed by three enactments, viz., the Indian ElectricityAct, 1910, the Electricity (Supply) Act, 1948 and the Electricity RegulatoryCommission Act, 1998. The Electricity (Supply) Act, 1948 mandated thecreation of a State Electricity Board. However, it was found that over aperiod of time, the performance of the said Electricity Boards haddeteriorated on account of various factors. As such, it was foundnecessary to enact a new legislation to meet various challenges. Thestatement of objects and reasons would reveal that one of the mainfeatures for enactment of the Electricity Act was delicensing ofgeneration and freely permitting captive generation. As such, the learnedAttorney General, in the case of Energy Watchdog (supra), stated thatthe electricity sector, having been privatized, had largely fulfilled theobject sought to be achieved by the Electricity Act. After the enactmentof the Electricity Act, delicensed electricity generation resulted inproduction of far greater electricity than was earlier produced. Thelearned Attorney General had further urged the Court not to disturb thedelicate balance sought to be achieved by the Electricity Act, i.e. that AB

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Aproducers or generators of electricity, in order that they set up powerplants, be entitled to a reasonable margin of profit and a reasonablereturn on their capital, so that they are induced to set up more and morepower plants.

147. It is further to be noted that, though it was sought to beBcontended in the case of Energy Watchdog (supra) that in a case underSection 63 of the Electricity Act, the Commission was only to adopt atariff as determined through a transparent process of bidding, this Courtrejected the said contention. It held that, in fact, Sections 62 and 63 ofthe Electricity Act deal with ‘determination’ of tariff, which is part of‘regulating’ tariff. It further held in a situation where the guidelines issuedCby the Central Government under Section 63 cover the situation, theCentral Commission is bound by those guidelines and must exercise itsregulatory functions.

148. It would be relevant to refer to clause 4.7 of the guidelinesissued by the Union of India, which have been held to be binding in theDcase of Energy Watchdog (supra), which reads thus:

“Clause 4.7. (amended)

Any change in law impacting cost or revenue from the businessof selling electricity to the procurer with respect to the lawEapplicable on the date which is 7 days before the last date forRFP bid submission shall be adjusted separately. In case of anydispute regarding the impact of any change in law, the decision ofthe appropriate Commission shall apply.”

149. The judgment of this Court in the case of Energy WatchdogF(supra) has been approved by a three Judge Bench of this Court inAdani Rajasthan case (supra).

150. In spite of this legal position and the stand taken by the Unionof India, the DISCOMS are taking a stand which is contrary to the standof the Union of India. In Energy Watchdog (supra), it was also soughtGto be urged by DISCOMS that even on account of Change in Law,adjustments would not be permissible, which contention was outrightlyrejected. We have come across a number of matters wherein concurrentorders passed by the Regulatory Body and the Appellate Forum areassailed. Such a litigation would, in fact, efface the purpose of theHElectricity Act. As already discussed herein above, one of the major reasons for the enactment of the Electricity Act was the deterioration inperformance of the State Electricity Boards.

151. In that view of the matter, we find that the stand taken by theDISCOMS that, since the loss being sustained by the generatingcompanies is on account of non-fulfillment of obligation by CIL/CoalCompanies, they should be relegated to the remedy available to them inlaw against the CIL/Coal Companies, is totally unreasonable. The claimis based on change of NCDP 2007 by NCDP 2013, which, undisputedly,is covered by the term ‘Change in Law’.

152. Recently, this Court, in the case of Central WarehousingCorporation v. Adani Ports Special Economic Zone Limited(APSEZL) and others[12], has deprecated the practice of differentinstrumentalities of the State taking contradictory/different positions/stands on the same issue.

153. In the present case, the learned APTEL has also held thatSHR and GCV has to be taken into consideration as per the ‘actual’ orthe Tariff Regulations, whichever is lower and as such, balanced theinterests of generators as well as consumers.

154. That leaves us to deal with the additional point raised in thecase of GMR (i.e. Civil Appeal No.6927 of 2021).

155. The CERC, apart from its finding on SHR and GCV, hasalso directed late payment surcharge to be paid. The same has beenaffirmed by the learned APTEL. The CERC as well as the learnedAPTEL, on the interpretation of Articles 8.3.5 and 8.8.3 of the PPA,have concurrently found that the procurer had delayed the payment bynot making the payment within the due date and, as such, GMR wasentitled to late payment surcharge. We find no reason to interfere withthe said concurrent findings of fact.

156. We, therefore, find no merit in the appeals. The appeals aredismissed. There shall be no order as to costs. Pending application, ifany, shall stand disposed of.

Bibhuti Bhushan Bose(Assisted by : Pranjal Singh and Rahul Rathi, LCRAs)

Appeals dismissed.

12 2022 SCC OnLine SC 1398

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