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The Supreme Court Upholds Adani Power's "change In Law" Compensation And Criticizes State Discoms For Defying The Federal Government

sahithi reddy ,
  17 March 2023       Share Bookmark

Court :
IN THE SUPREME COURT OF INDIA
Brief :

Citation :
Civil Appeal No. 684 of 2021

CAUSE TITLE:

Maharashtra State Electricity Distribution Company Limited v. Adani Power Maharashtra Limited And Ors.

DATE OF ORDER:  

03-03-2023

JUDGE(S):

Justice B.R. Gavai and Justice Vikram Nath

PARTIES:

Petitioner: Maharashtra State Electricity Distribution Company Limited

Respondent: Adani Power Maharashtra Limited And Ors.

SUBJECT

  • The DISCOMS (Distribution Companies) have come under fire from the Supreme Court for defying the Union of India's position on the payment of "Change in Law" compensation to electricity generation businesses.
  • The court made this statement while denying a petition brought by Maharashtra State Electricity Distribution Company Ltd that contested the "Change in Law" compensation awarded to Adani Power Maharashtra Limited and GMR Warora Energy Limited by the Appellate Tribunal for Electricity.

BRIEF FACTS 

  • Following a competitive bidding process, the Maharashtra State Electricity Distribution Company Limited (MSEDCL) and Adani Power Maharashtra Limited (APML) signed long-term Power Purchase Agreements (PPA). A "Change in Law" clause was present in one of the PPAs. The New Coal Distribution Policy, 2007 was released by the Indian government on October 18, 2007. By the provisions of the new policy, APML requested coal that might be linked to the Ministry of Coal. To supply coal to APML, Western Coal Limited (WCL) and South Eastern Coal Limited (SECL) obtained Letters of Assurance (LoAs). As a result, the Fuel Supply Agreement (FSA) for domestic coal linkage was signed by APML and WCL. The FSA was then changed, and SECL received the amount of coal that WCL had pledged.
  • A letter approving a revised arrangement for the delivery of coal to the designated Thermal Power Stations was released by the Ministry of Coal on July 26, 2013. On 31.07.2013, a letter was issued to the Central Electricity Regulatory Commission (CERC) and the State Electricity Regulatory Commissions to consider as pass-through in tariff the cost of alternate coal, which was procured to meet the shortfall in the supply of domestic linkage coal on a case to case basis. The Maharashtra Electricity Regulatory Commission (MERC) received a petition from APML seeking compensation for a "Change in Legislation". A methodology for calculating compensating fuel change was authorized by MERC.

ARGUMENTS ADVANCED BY THE APPELLANT

  • Also, GMR Warora Energy Ltd. (GMR), with which MSEDCL had PPP agreements, demanded compensation for the effects of the law's change throughout operation and constitution. While some of the claims were accepted, others were rejected. While the appeal was pending, GMR filed a petition with the Central Electricity Regulatory Commission and contacted APTEL (CERC). Before APTEL, MSEDCL criticized the CERC order that had been rendered in favor of GMR. APTEL dismissed the appeal after determining it lacked merit. MSEDCL thereafter requested the Apex Court.

ARGUMENTS ADVANCED BY THE RESPONDENT

  • Following that, APML submitted a petition to the MERC asking for approval of the framework for determining the compensatory tariff that the MERC had established. Before MERC, a review petition was submitted, but it was ultimately denied. The new Tariff Policy was published on January 28, 2016. To contest the MERC's rulings, APML filed appeals with the Appellate Tribunal for Electricity (APTEL). MSEDCL submitted counter-appeals. APTEL sent the case back for additional thought.
  • In light of the "Change in Law," it permitted APML claims, but with several limitations. The APTEL upheld the MERC's decision after APML appealed it, finding that APTEL was entitled to compensation due to a "Change in Law" based on the lower of the Station Heat Rate (SHR) specified in the MYT Regulations 2011 or the actual SHR achieved by APML; compensation approved by the MERC shall be calculated based on the actual Gross Calorific Value (GCV) of coal received; and Because 100% coal supply was guaranteed by the NCDP of 2007, it was not justifiable to limit compensation based on a change in the law to 35% to 25% for the corresponding four years of the 12th Plan. MSEDCL approached the Apex Court out of resentment.

ANALYSIS BY THE COURT

The Court noted that the APTEL determined that the SHR indicated in the Tariff Rules was only intended to serve as a guide and could not be used as the foundation for calculating the coal shortage requirement or the compensation for Change in Law to the SHR specified in the bid papers.

The APTEL ruled that the impacted parties would not be able to resume their prior economic circumstances as a result of the Change in Law due to the linkage of the Change in Law compensation to SHR as stated in the bid documents. Regarding GCV, APTEL ruled that "GCV as received" and not "the middle value of GCV range of promised coal quality" shall serve as the proper foundation for determining the amount of domestic coal shortage and the compensation due for the Change in Law.

To balance the interests of generators and consumers, SHR and GCV must be taken into account by the "actual" or the Tariff Rules, whichever is lower. An expert committee known as the Cabinet Committee on Economic Affairs (CCEA) has also stated that the GCV value should be determined not only on an "as received" basis but also on an "as fired" one. The Court stated that it should take its time interfering with conclusions made by subject-matter experts unless those choices are arbitrary and unlawful.

The Court held that the generating businesses are entitled to compensation as a result of the Change in Law putting the party back in the same financial situation as if the Change in Law had not occurred on the question of MERC's way of measuring shortage in domestic linkage coal. It referred to its earlier rulings in Energy Watchdog v. CERC and Ors. (2017) and Jaipur Vidyut Vitaran Nigam Ltd. and Ors. v. Adani Power Rajasthan Limited and Anr. in this regard (2020).

The generating businesses would have been entitled to the supply as guaranteed by the CIL/Coal Companies under the FSA had the Change in Law not taken place. It was observed that in another instance, MERC had held that the law change regarding auxiliary consumption had to adhere to the Commission's Norms or reality, whichever was lower. Yet, in this instance, a different stance was not chosen.

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