Ensuring Consideration of Change in Law Events During Tariff Adoption: The Green Infra Renewable Energy v. RERC Decision

Introduction

In the landmark case of Green Infra Renewable Energy Limited v. Rajasthan Electricity Regulatory Commission (RERC) & Ors., decided on October 12, 2021, the Appellate Tribunal for Electricity addressed critical issues pertaining to the adoption of tariffs for grid-connected solar photovoltaic (PV) power projects in Rajasthan. The appellant, Green Infra Renewable Energy Limited, contested the RERC's decision to decline compensation claims based on force majeure and change in law events that occurred post the bid deadline but prior to the tariff adoption. This case underscores the obligations of State Commissions under the Electricity Act, 2003, particularly in ensuring regulatory certainty and comprehensiveness during tariff determination processes.

Summary of the Judgment

The central issue in this appeal was the RERC's refusal to entertain Green Infra Renewable Energy Limited's (the appellant) claims for compensation arising from specific change in law and force majeure events that transpired after the bid submission deadline but before the tariff adoption. The State Commission concluded that it would not consider the merits of these claims in the present proceedings, suggesting that the appellant file a fresh petition at an appropriate time.

Upon review, the Appellate Tribunal found the RERC's adjudication incomplete, particularly criticizing the Commission's failure to consider the change in law events as stipulated in Article 12.1.3 of the Power Purchase Agreement (PPA). The Tribunal emphasized that the RERC has a duty under Section 86(1)(b) of the Electricity Act, 2003, to address such claims concurrently during tariff adoption to prevent regulatory uncertainty and ensure financial stability for project developers. Consequently, the Tribunal allowed the appeal, directing the RERC to revisit the appellant's change in law claims and render a decision within two months.

Analysis

Precedents Cited

The appellant referenced the APTEL's judgment dated August 28, 2020 in Talwandi Sabo Power Limited v. Punjab State Electricity Regulatory Commission & Anr. and Nabha Power Limited v. The Secretary, Punjab State Electricity Regulatory Commission & Anr. These cases emphasized the necessity for regulatory bodies to maintain certainty for project developers, highlighting that deferring critical compensation claims can lead to financial ambiguities and hinder project feasibility. The Tribunal corroborated these precedents by underscoring the importance of addressing change in law events within the same procedural framework as tariff adoption.

Legal Reasoning

The Tribunal's legal reasoning centered on the obligations prescribed under the Electricity Act, 2003, specifically Section 86(1)(b), which mandates State Commissions to consider change in law events during tariff adoption. Article 12.1.3 of the PPA explicitly outlines the procedures for claiming relief due to changes in basic customs duty, deeming such changes as change in law events warranting compensation.

The RERC's decision to exclude the appellant's claims was deemed contrary to these provisions. The Tribunal noted that the RERC failed to provide a rationale for its inaction and neglected the express terms of the PPA. By deferring the consideration of change in law claims to a separate proceeding, the RERC introduced regulatory uncertainty and impeded the appellant's ability to achieve financial closure for the project.

The Tribunal further reasoned that recognizing these change in law events at the tariff adoption stage aligns with the principles of transparency and comprehensive regulatory oversight, ensuring that tariff adjustments reflect the true financial landscape affecting project viability.

Impact

This judgment sets a significant precedent by reinforcing the duty of State Commissions to consider change in law and force majeure events contemporaneously during tariff adoption processes. It ensures that project developers like Green Infra Renewable Energy Limited can secure necessary compensations without being subjected to fragmented and prolonged proceedings.

The decision promotes regulatory certainty, which is fundamental for attracting investments in the renewable energy sector. It also mandates that State Commissions uphold their responsibilities under the Electricity Act, thereby fostering a more predictable and stable regulatory environment.

Complex Concepts Simplified

Change in Law

"Change in law" refers to any alteration in the statutory, regulatory, or policy framework that impacts the financial or operational aspects of a project post the bid submission but before its completion. In this case, increases in customs duties and new regulations affecting solar energy components were considered changes in law.

Force Majeure

Force majeure encompasses unforeseen events beyond the control of the parties, such as natural disasters, pandemics, or significant labor strikes, which hinder the fulfillment of contractual obligations. The appellant sought compensation for disruptions caused by COVID-19 lockdowns and strikes by Patwaris.

Tariff Adoption

Tariff adoption is the process by which regulatory bodies set the rates at which electricity will be purchased from project developers. This process involves evaluating bids to ensure they are economically viable and comply with governmental guidelines.

Conclusion

The Green Infra Renewable Energy v. RERC decision is a pivotal development in the realm of electricity regulation in India. By mandating the consideration of change in law events during tariff adoption, the Tribunal has reinforced the necessity for comprehensive and timely regulatory processes. This ensures that project developers are not left in a state of uncertainty, thereby facilitating smoother financial closures and promoting sustained investment in the renewable energy sector.

Moving forward, State Commissions are compelled to meticulously evaluate all relevant factors, including legislative and policy changes, during tariff determination phases. This approach not only aligns with statutory obligations but also fosters a more robust and reliable framework for energy project development.