Diversion Of Gas To Other Generating Stations Not Sufficient Ground To Seek Compensation When PPA Has No Such Provision: Supreme Court

While affirming the view of the Appellate Tribunal for Electricity, the Supreme Court held that the Electricity Board would not have to indemnify if there was no provision regarding compensation of full fixed charges and actual variable charges in respect of short supply of energy in the Power Purchase Agreement.

A Bench of Justices Ajay Rastogi and CT Ravikumar was hearing an appeal moved by Peenya Electricity Ltd., an Independent Power Producer operating and maintaining a combined cycle gas turbine power generating station in Tamil Nadu, dedicated to the Tamil Nadu Electricity Board. The entire power generated by the appellant is to be supplied to the Board. The parties entered into a Power Purchase Agreement on August 25, 2004.

The Tamil Nadu Electricity Regulatory Commission rejected the appellant’s claim relating to unpaid fixed charges of Rs.18.06 under Combined Cycle Operation as well as the claim of underpaid variable charges of Rs. 12.77 crores under Combined Cycle Operation for a period between July, 2006 to June, 2009. This was challenged by the appellant before the Appellate Tribunal for Electricity and came to be dismissed.

Senior Advocate Parag P Tripathi, for the appellant argued that the shortage of gas supply was due to the diversion of gas by GAIL to other generating stations and therefore, the electricity board shouldn’t have made the appellant to suffer basis the PPA’s terms.

Senior Advocate K Radha Krishnan for the respondent Board countered these arguments.

The PPA, the Court noted was not approved under Section 86(1)(b) of the Electricity Act, 2003. The Court also noted that there is no clause in the PPA which provides for full fixed cost, even when appellant fails to meet the Plant Load Factor. The PPA between the parties was entered based on a 1995 Government notification which clearly stated that it’s the independent power producer’s responsibility for fuel linkage and any fuel supply risk would have to be shared between the power and fuel producer/supplier and not by the Board to indemnify.

This apart, a bipartite agreement was executed between appellant and the GAIL, to which the respondent Board was not privy, the Court pointed out. In that too, it was said that in case of any default by GAIL in supply of natural gas to the appellant, the Board was not supposed to indemnify.

The Court also noted that the appellant has not been able to demonstrate any provision either under the Act, 2003 or under the PPA which protected the appellant’s rights.

“The submission made by learned counsel for the appellant that because of the diversion of gas to the other generating stations of the Board, at least on this account, the Board could not have made the appellant to suffer by citing the terms of PPA, on the first blush appears to be attractive but has no legs to stand for the reason that in the absence of there being any provision for compensation for capacity charges and variable charges due to the fact that the plant was not able to maintain the normative availability/PLF on account of shortage of fuel in terms of the Central Government’s Tariff Regulations, 2004, at least the respondent Board cannot be said to be at fault and that was the reason prevailed upon the Commission to arrive at the conclusion that the appellant was not entitled to payment of fuel fixed charges and actual variable charges in respect of supply of energy between 1 st July, 2006 and 15th June, 2009 during the period when partial parameters were rejected because of shortage of supply in view of the provision in PPA or tariff regulations”, the Court noted while dismissing the appeal.

Case Title: Penna Electricity Limited (Now M/s Pioneer Power Limited) v. The Tamil Nadu Electricity Board & Ors. | Civil Appeal No(S). 706 Of 2014

Citation : 2023 LiveLaw (SC) 221

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