Electricity Act | Power Purchase Tariff Not Matter Of Agreement; To Be Fixed Statutorily By Commission : Supreme Court Rejects GUVNL Appeals

The Supreme Court on Monday (Aug. 4) observed that the Gujarat Urja Vikas Nigam Limited (GUVNL) must act as a "model citizen" and cannot act like a "Shylock" towards wind energy producers contrary to the State's own renewable energy policy as well as the decision of the State Electricity Regulatory Commission"GUVNL cannot be guided only by its own commercial interests, like a private business entity and it's conduct, as a State-instrumentality, must be of the standard of a model citizen. However, patently unfair treatment was sought to be meted out by GUVNL to the respondent companies by binding them to a rate that was wholly inapplicable to them. Such conduct, akin to a Shylock, does not reflect positively upon GUVNL," the Court observed.The Court made these observations while dismissing the GUVNL's appeals against the orders of the Appellate Tribunal for Electricity (“APTEL”) and Gujarat Electricity Regulatory Commission (“GERC”) allowing four wind power producers to seek case-specific tariff determination, despite having signed Power Purchase Agreements (PPAs) with fixed rates, if they have not sought the benefit of accelerated depreciation under the Income Tax Act, holding that they are entitled to case-specific tariff determination, despite having signed Power Purchase Agreements (PPAs) with fixed rates.The four companies signed PPAs with the GUVNL for supply of power at a fixed rate of Rs.3.56 per kWh. Later, they approached the GERC seeking project-wise determination of tariff, claiming that they had not availed accelerated depreciation. GUVNL opposed saying that they are bound by the tariff fixed by the PPA.The Court observed that the GUVNL's argument may have been compelling had it simply been a commercial contract between two profit-oriented business entities."However, we cannot lose sight of the fact that GUVNL is an instrumentality of the State and was, therefore, bound by the policy directives of the State. It cannot advance commercial considerations in isolation on par with a private party, divorced from its responsibility to abide by and further the policy objectives of the State. In that context, it would be relevant to note the objectives underlying the Act of 2003 in relation to non- conventional and renewable energy sources, such as wind power, solar power, etc," the Court observed.The Court then referred to the policies of the Govt of India as well as the State Govt to promote renewable sources of energy, which the GUVNL was bound to follow."As pointed out earlier, GUVNL is bound to promote and give effect to the Government's policy of encouraging generation of power from renewable energy sources. When the Government promulgated a policy in that regard, offering various incentives to wind energy projects, GUVNL cannot act contrary thereto by fixing a tariff for purchase of power from such wind energy projects, which, on the face of it, is contrary to the mandate of Order No.1 of 2010 dated 30.01.2010 issued by the GERC."Price can't be fixed contrary to the electricity commission's orderThe Court also noted that as per the Electricity Act 2003, the Commission has the power to fixt the traiff.“Further, it is manifest and demonstrable from the statutory scheme obtaining under the Act of 2003 that the price at which power is to be procured by a distribution licensee from a generating company is not a matter of consensus and private agreement between the parties as it is to be fixed statutorily by the Appropriate Commission. GUVNL cannot, therefore, fix its own price or bind a generating company to such price, contrary to the dictum of the GERC. Significantly, in Tariff Order No. 1 of 2010 dated 30.01.2010, the GERC clearly stipulated that the levelized price of ₹3.56 per kWh was to apply only to those wind energy projects that availed the benefit of accelerated depreciation under the Act of 1961 and the Rules of 1962.”, the Court observed.The Court added :“GUVNL has no indefeasible right to bind them to a tariff which was applicable only to such wind energy projects that availed accelerated depreciation. The GERC had made it quite clear that the tariff of ₹3.56 per kWh would apply only to those wind energy projects that availed accelerated depreciation. Therefore, that tariff has no application to a wind energy project that did not avail accelerated depreciation. GUVNL cannot apply that wholly inapplicable tariff to the respondent companies which, admittedly, did not avail accelerated depreciation. The orders passed by the GERC and the APTEL holding to this effect, therefore, do not brook any interference.” Finding no error in the impugned findings, the judgment authored by Justice Sanjay Kumar ruled that the GUVNL, cannot force the Respondents to supply power at the fixed tariff rate when the Respondents have not claimed benefit of accelerated depreciation under Income Tax Act. Further, the Court found that the Appellant failure to obtain formal commitments regarding tax treatment at the...

Electricity Act | Power Purchase Tariff Not Matter Of Agreement; To Be Fixed Statutorily By Commission : Supreme Court Rejects GUVNL Appeals

Yash Mittal

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