Introduction

The case of Jbm Solar Power Maharashtra Private Ltd. v. Solar Energy Corporation Of India Limited And Others adjudicated by the Central Electricity Regulatory Commission (CERC) on January 24, 2021, addresses significant issues concerning the applicability of the Goods and Services Tax (GST) as a Change in Law under Power Purchase Agreements (PPAs) in the solar energy sector. The primary parties involved are Jbm Solar Power Maharashtra Private Ltd. (the Petitioner) and the Solar Energy Corporation of India Limited (SECI) along with other respondents.

The Petitioner sought compensation for additional costs incurred due to the implementation of GST, arguing that it constitutes a Change in Law affecting their PPAs. Additionally, the Petitioner claimed that increased Operation and Maintenance (O&M) expenses resulting from outsourcing these services should be compensated. The Respondents contested these claims, leading to a comprehensive examination of the contractual and legal frameworks governing such disputes.

Summary of the Judgment

The CERC, after thorough deliberation, recognized the implementation of GST effective from July 1, 2017, as a Change in Law under Article 12 of the relevant PPAs. Consequently, SECI was directed to compensate the Petitioner for the GST impact, provided the Petitioner could demonstrate a clear correlation between the GST implementation and the additional expenses incurred, supported by relevant invoices and auditor certifications.

However, the Commission dismissed the Petitioner's claims for increased O&M costs arising from outsourcing these services. It held that such outsourcing decisions are internal commercial choices of the Petitioner and are not covered under the Change in Law provisions of the PPAs. Additionally, claims for carrying costs or interest during the period awaiting the Commission's decision were denied due to the absence of explicit provisions in the PPAs.

Analysis

Precedents Cited

The judgment extensively referenced prior rulings, notably:

• Adani Power Rajasthan Pvt Ltd. v. Rajasthan Electricity Regulatory Commission: Discussed the non-applicability of carrying costs when PPAs lack provisions for economic restitution.
• Energy Watchdog & Ors. v. CERC & Ors. (2017 SCC 80): Addressed the jurisdiction of CERC in composite schemes involving multiple states.
• South Eastern Coalfields Ltd. v. State of Madhya Pradesh & Ors. (2003): Highlighted the necessity of equitable jurisdiction in the absence of explicit contractual prohibitions.
• Various CERC orders related to GST impact on renewable energy projects, reinforcing the recognition of GST as a Change in Law.

Legal Reasoning

The Commission interpreted the PPAs in light of the definitions provided under Article 12, which articulates that any enactment, amendment, or implementation of a law resulting in additional recurring or non-recurring expenditures qualifies as a Change in Law. GST's introduction met these criteria, thereby mandating compensation to the affected parties.

Regarding jurisdiction, the CERC upheld its authority based on Section 79 of the Electricity Act, 2003, which delegates to the Central Commission the responsibility to adjudicate disputes in composite schemes spanning multiple states. Given that the National Solar Mission (NSM) guidelines facilitate the supply of power across state boundaries, the Commission affirmed its jurisdiction over the matter.

On the matter of O&M costs, the Commission reasoned that since the PPAs did not explicitly require O&M to be performed internally by the Petitioners, outsourcing such services remains a discretionary commercial decision. Consequently, any additional costs arising from outsourcing do not fall under the contractual Change in Law provisions.

Additionally, the absence of specific clauses addressing carrying costs or interest in the event of delayed compensation led the Commission to deny such claims, emphasizing adherence to the contractual terms.

Impact

This judgment sets a noteworthy precedent in the renewable energy sector by:

• Affirming that GST is a Change in Law warranting compensation under PPAs structured similarly to those in the case.
• Clarifying that operational decisions, such as outsourcing O&M services, are beyond the scope of Change in Law claims unless explicitly covered in contractual agreements.
• Reinforcing the jurisdictional authority of CERC in disputes involving multi-state energy projects under composite schemes.
• Establishing that compensation mechanisms must strictly adhere to the provisions outlined in PPAs, with no room for unauthorised claims outside those terms.

Future cases involving Change in Law claims will likely reference this judgment, especially in contexts where the contractual language delineates specific provisions for compensation and restitution.

Complex Concepts Simplified

Change in Law

"Change in Law" refers to any alteration in legislation or regulatory practices that affects the contractual obligations of parties involved. In this case, the introduction of GST altered the financial dynamics for the Petitioner, necessitating compensation as per the contractual agreement.

Composite Scheme

A "Composite Scheme" involves the generation and sale of electricity across multiple states, thereby invoking the jurisdiction of the Central Commission under the Electricity Act, 2003. This ensures a centralized regulatory approach for inter-state energy transactions.

Jurisdiction under Section 79

Section 79 of the Electricity Act, 2003, empowers the Central Commission to regulate tariffs and adjudicate disputes involving generating companies operating under composite schemes that span multiple states.

Conclusion

The CERC's judgment in Jbm Solar Power Maharashtra Private Ltd. v. SECI And Others significantly impacts the renewable energy landscape by formally recognizing the GST implementation as a Change in Law deserving compensation under existing PPAs. However, it delineates the boundaries of such compensation, explicitly excluding operational cost increases stemming from internal commercial decisions like outsourcing O&M services.

This decision underscores the importance of precise contractual language in PPAs and reinforces the necessity for parties to anticipate and explicitly address potential Change in Law scenarios. By affirming CERC's jurisdiction in composite schemes, the judgment also provides clarity on regulatory oversight in multi-state energy projects, thereby contributing to a more structured and predictable legal environment for renewable energy stakeholders.

Stakeholders in the solar energy sector must meticulously review their contractual agreements to ensure comprehensive coverage of potential legislative changes. Additionally, the affirmation of GST as a compensable Change in Law may influence future policy formulations and contractual negotiations within the industry.