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 BackgroundThe 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 CourtThe observation of the Supreme Court resolves around the...

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

Yash Mittal

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