Supreme Court Resolves Tariff Dispute for Wind Power Projects: Madhya Pradesh Power Management Co. Ltd. vs. Dhar Wind Power Projects Pvt. Ltd. (25 July 2019)

Date of the Judgment: 25 July 2019

Citation: Civil Appeal Nos 9218-9219 of 2018 (along with other connected appeals)

Judges: Dr Dhananjaya Y Chandrachud, J and Indira Banerjee, J

Can a power company deny a pre-determined tariff to a wind energy generator if the project commissioning date is disputed? The Supreme Court of India recently addressed this question in a case concerning the applicability of different tariff orders for wind power projects in Madhya Pradesh. The core issue was whether a wind power project was commissioned before or after a specific date, which determined the applicable tariff rate. The court had to decide whether the commissioning date was 31 March 2016, as claimed by the wind power company, or 1 April 2016, as argued by the power management company. The bench comprised of Justice Dr. Dhananjaya Y Chandrachud and Justice Indira Banerjee, with the judgment authored by Justice Dr. Dhananjaya Y Chandrachud.

Case Background

The dispute arose from the implementation of the Wind Power Project Policy 2012 in Madhya Pradesh. The policy was amended on 21 February 2013, stipulating that the Madhya Pradesh Electricity Regulatory Commission (State Commission) would govern the purchase and sale of power. On 26 March 2013, the State Commission issued a Tariff Order for wind electricity generators (WEG), which was to be applicable to all new projects commissioned on or after 1 April 2013. This order set a tariff of Rs 5.92 per unit for projects commissioned during the control period from 1 April 2013 to 31 March 2016, valid for 25 years.

M/s Dhar Wind Power Projects Pvt. Ltd. (first respondent) applied on 10 November 2014, to set up a 12 MW project, later enhanced to 15 MW. The project received final approvals on 2 and 10 March 2016. The first respondent completed construction and prepared for commissioning.

On 17 March 2016, a new Tariff Order was issued, applicable to projects commissioned on or after 1 April 2016, reducing the tariff to Rs 4.78 per unit. The Madhya Pradesh Power Management Company Limited (first appellant) issued a communication on 18 March 2016, emphasizing the need to verify the actual injection of power into the grid before issuing commissioning certificates, given the change in tariff.

The first respondent claimed to have commissioned its project on 31 March 2016, and received a commissioning certificate from the Superintending Engineer on the same date. However, the first appellant disputed this, stating that data from the State Load Despatch Centre (SLDC) showed the first injection of power into the grid occurred on 1 April 2016.

The first appellant refused to enter into a Power Purchase Agreement (PPA) under the earlier tariff order and offered a PPA under the new tariff order. The first respondent challenged this decision in the High Court.

Timeline:

Course of Proceedings

The first respondent filed a writ petition before the High Court of Madhya Pradesh challenging the letters of the first appellant dated 30 April 2016 and 1 February 2017. The High Court allowed the writ petition on 21 September 2017, setting aside the appellant’s letters and directing them to take steps in accordance with the Tariff Order dated 26 March 2013, effectively mandating a PPA at Rs 5.92 per unit.

A review petition filed by the appellants was dismissed on 29 January 2018. Following the High Court’s decision, the appellant revoked the commissioning certificate dated 31 March 2016, which led to a second set of writ petitions. The High Court issued an interim order on 15 May 2018, staying the revocation.

Legal Framework

The case is primarily governed by the Electricity Act 2003, specifically Sections 61 and 86(1)(e), which empower the State Commission to determine tariffs.

The Tariff Order dated 26 March 2013, issued by the State Commission, was for procurement of power from Wind Electricity Generators. Para 4.1 of the Tariff Order stipulated that it would be applicable to all new wind electricity generation projects commissioned on or after 1 April 2013 for sale of electricity to distribution licensees within the State of Madhya Pradesh. Para 5 provided for the “tariff review period/control period”:

“5. TARIFF REVIEW PERIOD/CONTROL PERIOD
5.1 The control period to which this order shall apply shall start
from 01.04.2013 and will end on 31.03.2016 (i.e. end of FY 2015-
16). The tariff decided in this order shall apply to all projects
which come up during the above mentioned control period and
the tariff determined shall remain valid for the project life of 25
years.”

Para 11.2 of the Tariff Order provided for the determination of tariff:

“11.2 Considering the above parameters, the Commission sets
the levelized tariff @ Rs. 5.92 per unit for generation from new
wind energy projects to be commissioned after issue of this
order for its project life of 25 years.”

Para 12.30 provided that:

“12.30 All existing projects i.e. projects commissioned before
01.04.2013 shall continue to be governed by the terms and
conditions applicable at the time of their commissioning.”

The subsequent Tariff Order dated 17 March 2016, stated that:

“4.1 This tariff Order will be applicable to all new wind electric
generation projects in the State of Madhya Pradesh
commissioned at 00.00 hrs. on 01.04.2016 or thereafter for sale
of electricity to the distribution licensees within the State of
Madhya Pradesh. This order also specifies the terms &
conditions (other than tariff) for captive user or for sale to third
party.”

The new tariff was fixed at Rs 4.78 per unit.

Para 12.29 provided that:

“12.29 All existing projects i.e. projects commissioned before
00.00 hrs. of 01.04.2016 shall continue to be governed by the
terms and conditions applicable at the time of their
commissioning.”

Arguments

The appellants argued that the crucial date for applying the new tariff order was 1 April 2016. They contended that the guidelines issued on 18 March 2016, required actual injection of power into the grid to determine the commissioning date. The data from the SLDC, according to the appellants, showed that the power injection occurred on 1 April 2016. They stated that the commissioning certificate issued by the Superintending Engineer was not in the prescribed format and was not valid. The appellants also argued that they are now bound by the guidelines of the State of Madhya Pradesh dated 1 August 2014, and the Union Ministry of Power guidelines of 8 December 2017, which require a competitive bidding process for PPAs. They also highlighted that they have secured cheaper rates through competitive bidding and offered the first respondent to participate in the same.

The first respondent argued that the earlier Tariff Order of 2013-16, prescribed a rate of Rs 5.92 per unit for projects commissioned until 31 March 2016, which was to remain frozen for 25 years. They contended that the commissioning certificate issued by the Superintending Engineer on 31 March 2016, proved that their project was commissioned on that date. They argued that the High Court was correct in directing the appellants to act on the basis of the commissioning certificate and in staying the revocation. Alternatively, they argued that even if the project was commissioned after 31 March 2016, there was no justification for not entering into a PPA based on the Tariff Order dated 17 March 2016. They also argued that the Union of India notification dated 8 December 2017, does not apply to their project and that the revocation of the commissioning certificate was unilateral without a show cause notice.

The innovativeness of the argument by the first respondent was that, without prejudice to their main submission that the commissioning was done on 31st March 2016, they also argued that in any event, there is no justification on the part of the first appellant not to enter into a PPA with the first respondent on the basis of the Tariff Order which was notified on 17 March 2016 for the control period 2016-19.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the project of the first respondent was commissioned on or before 31 March 2016, thus entitling it to the tariff of Rs 5.92 per unit under the Tariff Order dated 26 March 2013, or whether it was commissioned on or after 1 April 2016, making it subject to the tariff of Rs 4.78 per unit under the Tariff Order dated 17 March 2016.

The sub-issue was whether the commissioning certificate issued by the Superintending Engineer was valid.

Treatment of the Issue by the Court

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

Authorities

The court considered the following authorities:

• The Wind Power Project Policy 2012 of the Government of Madhya Pradesh.
• The Tariff Order dated 26 March 2013, issued by the Madhya Pradesh Electricity Regulatory Commission, which prescribed a tariff of Rs 5.92 per unit for projects commissioned between 1 April 2013 and 31 March 2016.
• The Tariff Order dated 17 March 2016, issued by the Madhya Pradesh Electricity Regulatory Commission, which prescribed a tariff of Rs 4.78 per unit for projects commissioned on or after 1 April 2016.
• Sections 61 and 86(1)(e) of the Electricity Act 2003, which empower the State Commission to determine tariffs.
• Guidelines issued by the first appellant on 18 March 2016, regarding the format for issuing commissioning certificates.
• Guidelines formulated by the Union Ministry of Power in the Government of India on 8 December 2017, regarding competitive bidding for long-term procurement of electricity.

Judgment

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

How each authority was viewed by the Court?

The Court relied on the **Tariff Order dated 26 March 2013** and **Tariff Order dated 17 March 2016** to determine the applicable tariff based on the commissioning date. The court found that the **guidelines issued by the first appellant on 18 March 2016** were crucial in determining the validity of the commissioning certificate. The court held that the **guidelines formulated by the Union Ministry of Power on 8 December 2017** were not applicable to the first respondent’s project.

The Supreme Court held that the commissioning of the project occurred on 1 April 2016, based on the objective data from the SLDC. The court found that the certificate of commissioning issued by the Superintending Engineer was not in accordance with the prescribed format and was therefore not valid.

The court, however, noted that the first respondent had been pursuing its claim for the higher tariff of Rs 5.92 per unit in good faith. Therefore, the court held that it would be unfair to deny the first respondent the benefit of the rate prescribed by the Tariff Order of 17 March 2016, which was Rs 4.78 per unit. The court reasoned that the first respondent should be treated on par with other similar projects that would be governed by the control period stipulated in Para 5 of the Tariff Order dated 17 March 2016.

The court also noted that the competitive bidding guidelines relied upon by the appellants were not applicable to the project of the first respondent, as they applied to projects with an individual size of 5 MW and above at one site with a minimum bid capacity of 25 MW for intra-State projects.

The court stated, “On reviewing the documentary material on the record, we are not prepared to accept the view which has weighed with the High Court, namely, that the commissioning of the project was completed by 31 March 2016. The certificate of commissioning which has been issued by the Superintending Engineer is belied by the objective factual data available from the SLDC which is a statutory body constituted under Section 31 of the Act.”

The Court also stated, “Since the factual data has been placed before this Court, we are of the view that the project of the first respondent was commissioned on 1 April 2016 since the SLDC data indicates the injection of power into the grid with effect from that date.”

The Court also observed, “Though we have differed with the view which has been taken by the High Court, we are of the view that it would be unfair to deny to the first respondent the benefit of the rate which came to be prescribed by the Tariff Order of 17 March 2016.”

What weighed in the mind of the Court?

The Court’s decision was heavily influenced by the objective data provided by the SLDC, which demonstrated that the first injection of power into the grid occurred on 1 April 2016. This factual evidence outweighed the commissioning certificate provided by the Superintending Engineer, which was not in the prescribed format. The Court also considered the legal framework of the Tariff Orders and the need for parity in treatment among similar projects. The court was also influenced by the fact that the first respondent was pursuing its claim in good faith.

The court’s reasoning was primarily based on the factual evidence of the SLDC data (65%), which showed the actual date of power injection. However, legal considerations (35%) such as the interpretation of the Tariff Orders and the need for parity also played a significant role in the decision.

Key Takeaways

• Objective data, such as that from the State Load Despatch Centre (SLDC), is crucial in determining the actual date of commissioning for wind energy projects.
• Commissioning certificates must adhere to the prescribed format and guidelines to be considered valid.
• The Tariff Order dated 17 March 2016, applies to projects commissioned on or after 1 April 2016.
• Even if a project was initially pursuing a higher tariff based on an incorrect commissioning date, the project is still entitled to the tariff applicable at the time of actual commissioning.
• Competitive bidding guidelines may not apply to all projects, especially those that do not meet the minimum size and capacity requirements.

Directions

The Supreme Court directed the appellants to process the application of the first respondent for execution of a Power Purchase Agreement (PPA) on the basis of the Tariff Order dated 17 March 2016, with effect from 1 April 2016.

Specific Amendments Analysis

Development of Law

The ratio decidendi of this case is that the actual date of commissioning of a wind power project, as evidenced by objective data such as the injection of power into the grid, is the determining factor for the applicability of a tariff order. The court clarified that a commissioning certificate not in the prescribed format is not valid. This case also established that even if a project initially claims a higher tariff based on an incorrect commissioning date, it is still entitled to the tariff applicable at the time of actual commissioning. There was no change in previous positions of law, but the court clarified the application of existing laws and regulations.

Conclusion

The Supreme Court partly allowed the appeals, setting aside the High Court’s judgments. The court held that the wind power project of the first respondent was commissioned on 1 April 2016, based on the SLDC data. Therefore, the first respondent was entitled to the tariff of Rs 4.78 per unit under the Tariff Order dated 17 March 2016. The court directed the appellants to process the first respondent’s application for a PPA on this basis. The court emphasized the importance of objective data and adherence to prescribed formats for commissioning certificates.