Supreme Court Limits Inherent Powers of Electricity Regulatory Commissions in Tariff Disputes: Gujarat Urja Vikas Nigam Ltd vs. Solar Semiconductor Power Company (25 October 2017)

Introduction

Date of the Judgment: 25 October 2017
Citation: Not Available in the provided document
Judges: Kurian Joseph, J., R. Banumathi, J.

Can an Electricity Regulatory Commission use its inherent powers to alter a tariff period agreed upon in a Power Purchase Agreement (PPA)? The Supreme Court of India recently addressed this question, focusing on the extent of the Gujarat Electricity Regulatory Commission’s (the Commission) authority. This case revolves around a dispute between Gujarat Urja Vikas Nigam Limited (GUVNL) and Solar Semiconductor Power Company (India) Private Limited (SSPCIPL) concerning the extension of a control period for a solar power tariff.

The core issue is whether the Commission could extend the period during which a specific tariff order would apply to SSPCIPL, especially when the project commissioning was delayed beyond the agreed-upon deadline in the PPA. The Supreme Court examined the powers of the Commission under the Electricity Act, 2003, and its own regulations to determine if such an extension was legally permissible.

The judgment was delivered by a two-judge bench comprising Justice Kurian Joseph and Justice R. Banumathi. Justice Kurian Joseph authored the main judgment, with Justice R. Banumathi providing a concurring opinion.

Case Background

The case originated from a Power Purchase Agreement (PPA) dated 30 April 2010, between GUVNL and SSPCIPL. The agreement was for the sale and purchase of electricity from a 20 MW Solar PV Power project. The tariff was determined by the Commission’s order dated 29 January 2010, which set a rate of Rs. 15/KWh for the first 12 years and Rs. 5/KWh for the subsequent 13 years. This tariff was applicable for projects commissioned on or before 31 December 2011.

SSPCIPL initially intended to develop the project in Ajawada village, but due to unforeseen events, they changed the location to Shivlakha village. This change led to a Supplemental Power Purchase Agreement (SPPA) on 10 May 2011. The SPPA stipulated that SSPCIPL would pay liquidated damages even if the transmission system was not available by the Scheduled Commercial Operation Date. It also stated that all other terms and conditions, including the tariff, would remain unchanged.

SSPCIPL faced delays in commissioning the project. They requested the Commission to extend the control period, which was the period during which the tariff order of 29 January 2010 would apply. The Commission initially refused this request on 27 January 2012, stating that the reasons for delay were project-specific and not industry-wide. The Commission also noted that a new tariff order was under consideration, which proposed a lower tariff.

The Appellate Tribunal for Electricity (APTEL) reversed the Commission’s decision, stating that the Commission had inherent powers to extend the control period. However, the Supreme Court dismissed the appeal against the APTEL order, clarifying that the Commission should decide the matter independently, uninfluenced by APTEL’s observations.

Following the remand, the Commission extended the control period on 5 April 2014, citing reasons beyond SSPCIPL’s control, such as land unavailability and delays in transmission line availability. This decision was again challenged, leading to the current appeal before the Supreme Court.

Timeline

Legal Framework

The judgment refers to several key sections of the Electricity Act, 2003:

• Section 61 of the Electricity Act, 2003: This section outlines the principles for determining tariffs, emphasizing commercial principles, competition, efficiency, consumer interests, and renewable energy promotion. It mandates that the State Commission should be guided by the principles and methodologies specified by the Central Commission for determination of the tariff.
• Section 62 of the Electricity Act, 2003: This section empowers the Appropriate Commission to determine tariffs for electricity supply, transmission, wheeling, and retail sale. It also states that tariffs should not be amended more than once in a financial year, except for fuel surcharge adjustments.
  (4) No tariff or part of any tariff may ordinarily be amended, more frequently than once in any financial year, except in respect of any changes expressly permitted under the terms of any fuel surcharge formula as may be specified.
• Section 64 of the Electricity Act, 2003: This section lays down the procedure for tariff orders, requiring applications, public consultation, and a decision within 120 days. It also specifies that a tariff order remains in force for the period specified in the order, unless amended or revoked.
  (6) A tariff order shall, unless amended or revoked, continue to be in force for such period as may be specified in the tariff order.
• Section 82 of the Electricity Act, 2003: This section mandates the constitution of a State Electricity Regulatory Commission by each State Government.
• Section 86 of the Electricity Act, 2003: This section specifies the functions of the State Commission, including determining tariffs, regulating electricity purchase, and promoting renewable energy.
  (1) The State Commission shall discharge the following functions, namely:- (a)determine the tariff for generation, supply, transmission and wheeling of electricity, wholesale, bulk or retail, as the case may be, within the State:
• Section 92 of the Electricity Act, 2003: This section deals with the proceedings of the Appropriate Commission, stating that it shall observe such rules of procedure in regard to the transaction of business at its meetings as it may specify.
• Section 94 of the Electricity Act, 2003: This section outlines the powers of the Appropriate Commission, which include those of a civil court, such as summoning witnesses, receiving evidence, and reviewing its decisions.
  (1) The Appropriate Commission shall, for the purposes of any inquiry or proceedings under this Act, have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908) in respect of the following matters, namely :- (f) reviewing its decisions, directions and orders;
• Section 95 of the Electricity Act, 2003: This section states that proceedings before the Appropriate Commission shall be deemed to be judicial proceedings and the Appropriate Commission shall be deemed to be a civil court.
• Section 181 of the Electricity Act, 2003: This section empowers State Commissions to make regulations consistent with the Act.
  (1) The State Commissions may, by notification, make regulations consistent with this Act and the rules generally to carry out the provisions of this Act.

The Court also considered the Gujarat Electricity Regulatory Commission (Conduct of Business) Regulations, particularly Regulations 80-82, which pertain to the inherent powers of the Commission. These regulations state that the Commission can make orders necessary for justice, adopt procedures at variance with the regulations, and deal with matters not covered by the regulations.

The Court also referred to Regulation 85 of the Conduct of Business Regulations, which allows the Commission to extend or abridge time prescribed by the regulations or by order of the Commission.

Arguments

The arguments presented by both sides are as follows:

Appellant (Gujarat Urja Vikas Nigam Limited – GUVNL) Arguments:

• No Inherent Power to Extend Control Period: GUVNL argued that the Commission does not have the inherent power to extend the control period of a tariff order, especially when it affects the terms of a PPA. They contended that the Commission’s power is limited by the Electricity Act, 2003, and its regulations.

• PPA Terms are Binding: GUVNL argued that the terms of the PPA, which specified that the tariff order of 29 January 2010, would apply only if the project was commissioned by 31 December 2011, were binding on both parties. They stated that the Commission cannot alter these terms using its inherent powers.

• No Industry-Wide Issue: GUVNL contended that the reasons for the delay were project-specific and not an industry-wide issue, therefore not warranting an extension of the control period. They argued that many other projects were commissioned within the stipulated time.

• Consumers’ Interest: GUVNL argued that extending the control period would harm consumers’ interests by requiring them to pay a higher tariff. They stated that the Commission should consider all stakeholders, not just the project developer.

• Regulation 85 Inapplicable: GUVNL argued that Regulation 85 of the Conduct of Business Regulations, which allows for the extension of time, does not apply to the control period specified in the tariff order. They contended that the control period is not a time prescribed by the regulations or by an order of the Commission for doing any act.

• No Force Majeure: GUVNL argued that if the delay was due to reasons beyond SSPCIPL’s control, they should have invoked the force majeure clause. By paying liquidated damages, SSPCIPL had accepted the terms of the PPA, and the Commission should not interfere with the terms of the contract.

• Statutory Requirement of Chief Electrical Inspector Certificate: GUVNL argued that the project was commissioned only after the Chief Electrical Inspector Certificate was granted, which was after the cut-off date, meaning that the project was not ready for commissioning before the deadline.

Respondent (Solar Semiconductor Power Company (India) Private Limited – SSPCIPL) Arguments:

• Inherent Power to Extend Control Period: SSPCIPL argued that the Commission has inherent powers under its regulations to extend the control period to ensure justice. They contended that the delays were due to reasons beyond their control, such as land acquisition issues and delays in transmission line availability.

• Earlier Tribunal Decision: SSPCIPL argued that the Appellate Tribunal had already decided that the Commission has inherent powers to extend the control period in individual cases. They contended that this issue had become final between the parties and could not be reopened.

• Delay Beyond Control: SSPCIPL contended that the delay in commissioning was due to factors beyond their control, including changes in government policy regarding land acquisition and the failure of GETCO to provide transmission lines within the stipulated time. They argued that this justified an extension of the control period.

• Financial Hardship: SSPCIPL argued that if the lower tariff of the new order was applied, they would be forced to shut down due to non-recovery of costs.

The following table categorizes the sub-submissions by main submissions of both sides:

Issues Framed by the Supreme Court

The Supreme Court framed the following substantial questions of law:

1. Whether the State Commission has inherent powers to extend the control period of Tariff Order dated 29.01.2010 beyond the control period, thereby adversely affecting the sanctity of PPA which was entered into by the parties by consensus-ad-idem?
2. Whether the State Commission can invoke Regulations 80-82 of Conduct of Business Regulations—inherent powers of the Commission—to grant substantive relief to the generating company like respondent No.1 and thereby alter the terms of the contract arrived at between the parties consensus-ad-idem?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court allowed the appeal, setting aside the orders of the Appellate Tribunal and the Commission that had extended the control period. The Court held that the Commission does not have the inherent power to extend the control period of a tariff order, especially when it affects the terms of a Power Purchase Agreement (PPA). The Court clarified that inherent powers are meant for procedural matters and cannot be used to alter substantive rights or contractual obligations.

The Court emphasized that the terms of the PPA were binding on both parties and that the Commission cannot use its inherent powers to rewrite the contract. The Court also noted that the Commission’s power to extend time under Regulation 85 of the Conduct of Business Regulations does not apply to the control period specified in the tariff order.

The Supreme Court also clarified that the earlier dismissal of the appeal against the Appellate Tribunal’s order was not an endorsement of the Tribunal’s views. The Supreme Court had specifically directed the Commission to take an independent decision uninfluenced by the observations of the Appellate Tribunal.

The Court, while setting aside the orders, allowed the respondent (SSPCIPL) to seek re-determination of the tariff if permissible under the law. This means that the respondent can approach the Commission to determine a separate tariff, if they are eligible under the law, and in which case, both parties may raise all available contentions before the Commission.

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Court’s view on the authorities is as follows:

• Gujarat Urja Vikas Nigam Limited v. EMCO Limited and another [(2016) 11 SCC 182]: The Court followed this case, emphasizing that it had held that the lower of the two tariffs should apply if a project is not commissioned within the control period.
• Gujarat Urja Vikas Nigam Limited v. Tarini Infrastructure Limited and others [(2016) 8 SCC 743]: The Court distinguished this case, clarifying that the circumstances were different and that the tariff in that case was subject to periodic review.
• The Court referred to various other cases to explain the nature and scope of inherent powers, emphasizing that such powers are procedural and cannot alter substantive rights or contractual obligations.

The Supreme Court’s reasoning can be summarized as follows:

Justice R. Banumathi, in her concurring opinion, also emphasized that the inherent powers of the Commission are to regulate its own procedure and cannot be used to alter the terms of a contract. She also noted that the tariff was determined by the State Commission under Section 62 of the Electricity Act, and when it is incorporated in the PPA, it becomes a matter of contract between the parties.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Statutory Limitations: The Court emphasized that the Commission’s powers are limited by the Electricity Act, 2003, and its regulations. It cannot assume powers not explicitly conferred upon it.
• Contractual Obligations: The Court stressed the sanctity of contracts and held that the Commission cannot use its inherent powers to alter the terms of a PPA, which is a binding agreement between two parties.
• Procedural vs. Substantive Powers: The Court made a clear distinction between procedural powers and substantive powers, stating that inherent powers are procedural in nature and cannot be used to affect the substantive rights of the parties.
• Consumer Interest: The Court considered the impact of extending the control period on consumers, noting that it would lead to higher tariffs.
• Clarity on the Scope of Inherent Powers: The Court aimed to clarify the scope of inherent powers of regulatory bodies, ensuring that they are not used to bypass statutory limitations or contractual obligations.
• Adherence to the Law: The Court emphasized that regulatory bodies must adhere to the provisions of the law and cannot use their inherent powers to create a situation that is not permissible under the law.

Conclusion

The Supreme Court’s judgment in Gujarat Urja Vikas Nigam Ltd vs. Solar Semiconductor Power Company is a significant ruling that clarifies the limits of the inherent powers of Electricity Regulatory Commissions. The Court held that these commissions cannot use their inherent powers to extend the control period of a tariff order, especially when it affects the terms of a Power Purchase Agreement (PPA). The ruling underscores the importance of contractual sanctity and the need for regulatory bodies to operate within the confines of the law.

The judgment has significant implications for the electricity sector, particularly for renewable energy projects. It clarifies that tariff orders and PPAs are binding and cannot be altered by regulatory bodies using their inherent powers. This ruling provides more certainty for investors and project developers in the sector, ensuring that agreements are honored and that regulatory bodies do not overstep their boundaries.

The judgment also highlights the importance of clear and unambiguous contracts, as well as the need for project developers to meet their obligations within the stipulated timeframes. It emphasizes that regulatory bodies must balance the interests of all stakeholders, including consumers, and cannot favor one party over another.

In summary, the Supreme Court’s decision reinforces the principle that inherent powers are procedural and cannot be used to alter substantive rights or contractual obligations. It ensures that regulatory bodies operate within the framework of the law and that contracts are honored, providing a more stable and predictable environment for the electricity sector.