State Electricity Regulatory Commission Can Refuse To Adopt Tariff Not Aligned With Market Prices : Supreme Court

The Supreme Court has held that the State Electricity Regulatory Commission has a power to reject the adoption of tariff if it is not aligned with market prices. While adopting the tariff, the Commission is bound to take into consideration the protection of consumer interest.

Reversing the order of the High Court and the Appellate Tribunal for Electricity (“APTEL”), the bench comprising of Justices BR Gavai and Prashant Kumar Mishra restored the order passed by the State Commission by observing that the State Commission has a power to 'adoption' of tariff only if such tariff has been determined through a transparent process of bidding, and that, this transparent process of bidding must be in accordance with the guidelines issued by the Central Government.

The Court noted that as per Clause 5.15 of the Bidding Guidelines the bidder who has quoted lowest levelized tariff as per evaluation procedure, shall be considered for the award. It also provides that the evaluation committee shall have the right to reject all price bids if the rates quoted are not aligned to the prevailing market prices.

In the instant case, the Supreme Court was dealing with three connected civil appeals, where facts related to the two appeals as mentioned in Civil Appeal No. 6503 of 2022 states as follows:

Factual Background

The Rajasthan Rajya Vidyut Prasaran Nigam Limited (“RVPN”) has filed a Petition before the Rajasthan Electricity Regulatory Commission (“State Commission”) seeking approval for procurement of 1000 MW of power by a competitive bidding process. In pursuance, thereof, the sellers have participated in the bidding process, and based on the preliminary evaluation of the non-financial bids by the BEC, 7 bidders were declared as qualified for opening of the financial bids. After receiving the bids, a meeting of the Board of Directors of RVPN was conveyed where it was decided to take an opinion from the BEC as to whether negotiations should be held to reduce tariff keeping in view of the long-term impact and quantum of the amounts involved. The Board of the RVPN decided to hold negotiations with the qualified bidders. Consequently, a Power Purchase Agreement (“PPAs”) were signed with the L-1, L-2 and L-3 bidders, the lowest among all bidders.

RVPN filed a petition for approval of adoption of tariff for purchase of long-term base load power of 1000 MW as quoted by L-1, L-2 and L-3. However, the Government of Rajasthan, ultimately approved the purchase of a quantum of 500 MW power on long term basis as against the quantum of 1000 MW for which PPAs had already been executed. Consequently, the State Commission held that the quantum of only 500 MW power was liable to be approved considering the demand in the State as recommended by the EAC. The State Commission also approved the tariff quoted by the L-1 to L-3 bidders.

Aggrieved by the reduction of quantum by the State Commission, the L-2 and L-3 bidders preferred appeals before the APTEL, which allowed the Appeal by holding that the reduction of quantum by the State Commission from 1000 MW to 500 MW was incorrect. The order of the learned APTEL was challenged by the present appellants before the Supreme Court on the ground that the RFP quantum cannot be restored from 500 MW to 1000 MW. Furthermore, a civil appeal was filed by L-5 bidder on the ground that the State Commission could not have permitted the procurement of higher quantum by the L-2 and L-3 bidders.

While disposing the civil appeals, the Supreme Court set aside the reduction of quantum of procurement from 1000 MW to 500 MW and held that the quantum originally offered by the bidders in the bidding process has to be taken into consideration and not the increased one, with a direction to the State Commission to go into the issue of approval for adoption of tariff with regard to L-4 and L-5 bidders. The state commission in its order held that the tariffs offered by the L-4 and L-5 bidders were not aligned to the prevailing market prices.

Being aggrieved by the order of the State Commission L-5 bidder challenged the order before Ld. APTEL, which held that the State Commission had to necessarily adopt the tariff, and had no power to consider whether the tariff was aligned to market prices. Against the APTEL order, the present appellants filed civil appeal before the Supreme Court, where the court on an interlocutory application filed by L-5 bidder an order was passed that the L-5 bidder was entitled to supply power to the appellants at the tariff of Rs.2.88 per unit.

Subsequently, a writ petition was filed by the present respondent no.1 before the High Court seeking writ of mandamus, by issuing a Letter of Intent in favor of the respondent no. 1 and signing a power purchase agreement with it.

Being aggrieved by allowing the writ petition of the respondent no. 1, that this civil appeal has been filed before the Supreme Court by the present appellant.

Issues Dealt by the Court

The observation of the Supreme Court resolves around the three issues framed by the APTEL while hearing the appeal against the order of the State Commission, the issues are: -

1. Whether the Respondent Commission could reject the tariff/bid of the Appellant, in terms of Section 63 of the Electricity Act, 2003 and the directions issued by the Hon'ble Supreme Court?
2. Whether there was a sufficient proof to show that the bid of the Appellant was market aligned?
3. Whether the argument of Consumer interest be advanced by the Rajasthan Discoms in the facts of the present Appeal?”

Observation of the Court

Issue 1

The Court while referring to its earlier decision in the case of Energy Watchdog observed that the general regulatory power of the State Commission is the source of the power to regulate, which includes, the power to determine or adopt tariff. The court in para 71 also noted that “Electricity Act gives ample power on the State Commission to regulate electricity purchase and procurement process of distribution licensees. It also empowers the State Commission to regulate the matters including the price at which electricity shall be procured from the generating companies, etc.”

The court has found the state commission was justified to reject all price bids if the rates quoted are not aligned to the prevailing market prices on the pretext that the evaluation committee is empowered to consider, as to whether the rates quoted are aligned to the market price or not, and that the evaluation committee shall have the right to reject all the price bids if it finds that the rates quoted are not aligned to the prevailing market price.

To this effect, the court's observation in para 75 is meaningful:

“In this background, the State Commission was justified in considering clause 5.15 of the Bidding Guidelines, which specifically permits to reject all price bids if the rates quoted are not aligned to the prevailing market prices.”

Issue 2

The court observed that the powers have been vested with the state commission to regulate the prices at which electricity shall be procured from the generating companies, etc., moreover the bidding guidelines empowers the BEC to reject all price bids if the rates quoted are not aligned to the prevailing market prices. The Court rejected the argument of the respondent that once the bidding process was found to be transparent and in compliance with the Bidding Guidelines is to be accepted, by noting that “accepting the contention of the respondent No.1 would result in adversely affecting the interests of the consumers and, in turn, would be against the larger public interest.”

Thus, the court found the observation of the APTEL as erroneous, where in para 78 the court noted:

“We are, therefore, of the considered view that the learned APTEL has grossly erred in holding that the State Commission has no power to go into the question, as to whether the prices quoted are market aligned or not and also not to take into consideration the aspect of consumers' interest.”

Issue 3

It was contented by the Respondent that clause 5.15 of the Bidding Guidelines will come into play, which permits the Evaluation Committee to reject “all” price bids and not “any” one of them, however, the court while rejecting such contention of the respondent in para 91 noted that if the said contention is accepted, it will lead to nothing else than resulting in absurdity, as the requirement of balancing the consumers' interest with that of the interest of the generators would get unrecognized otherwise.

Therefore, the court while referring to the Constitution Bench Judgment passed in Vivek Narayan Sharma and others v. Union of India and other, observed that the words “all” or “any” will have to be construed in their context taking into consideration the scheme and purpose of the enactment, and thus held that the word “all” used in clause 5.15 of the Bidding Guidelines, read with the legislative policy for which the Electricity Act was enacted and read with Section 86(1)(b) of the Electricity Act, will have to be construed to be the one including “any”.

The Court viewed that an interpretation which advances the purpose of the Act and which ensures its smooth and harmonious working must be chosen and the other which leads to absurdity, or confusion, or friction, or contradiction and conflict between its various provisions, or undermines, or tends to defeat or destroy the basic scheme and purpose of the enactment must be eschewed.

Thus, the court held that the APTEL committed error in reversing the findings of the State Commission by stating that it will not be permissible to take a lopsided view only to protect the interest of the generators ignoring the consumers' interest and public interest.

Conclusion

The Court ultimately held that if the power/electricity is to be procured by the procurers at the rates quoted by the respondent No.1, which is even higher than the rates quoted by the L-5 bidder, then the State would have been required to bear financial burden in thousands of crore rupees, which would have, in turn, passed on to the consumers. Thus, the court set-aside the impugned judgement and order passed by the High Court in a writ of mandamus being unsustainable in law because of failing to taking into consideration of the larger consumer interest and consequential public interest.

Hence, the Appeals are accordingly allowed.

Case Title: JAIPUR VIDYUT VITRAN NIGAM LTD. & ORS. V. MB POWER (MADHYA PRADESH) LIMITED & ORS.

Citation : 2024 LiveLaw (SC) 24

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