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Konark Power Projects Ltd v. Bangalore Electric Supply Company Ltd.
Structured Summary of Judicial Opinion
Factual and Procedural Background
The Appellant, Konark Power Project Limited, is a biomass-based generating company that established a 6 MW plant (later revised to 7.5 MW) in Tumkur District, Karnataka. It entered into a Power Purchase Agreement (PPA) dated 4.4.2002 with Karnataka Power Transmission Corporation Limited (KPTCL) based on MNRE/MNES guidelines. KPTCL terminated that PPA unilaterally in 2003 and required biomass generators to enter fresh PPAs at reduced tariffs. The Appellant accepted a revised PPA and supplemental PPA (27.2.2006) at lower rates because its project was already commissioned and it had large sunk investments.
Due to a significant rise in biomass fuel prices, the Appellant's plant became uneconomic and was shut down from July 2009 to March 2010. The Government of Karnataka issued GO No. EN 29 EEB (6.4.2010) directing biomass generators to supply power at a "realistic tariff" of Rs.5.00 per kWh for short-term procurement; the Appellant supplied power April–June 2010 under that direction and then shut again in July 2010.
The Appellant petitioned the State Commission (KERC) to amend the PPA(s) and fix tariff at Rs.5.60 per unit. The State Commission, by order dated 16.9.2010, dismissed the petition for revision of tariff on the ground that the Appellant had not placed adequate material proving the need for revision. Aggrieved, the Appellant filed Appeal No. 35 of 2011 before this Tribunal and an interlocutory application seeking (alternatively) open access to sell to third parties, direction to the distribution licensee to purchase at Rs.4.27 (the rate paid to other companies), or permission to claim REC component. The interlocutory application and the main appeal were heard together.
Legal Issues Presented
- Whether the State Commission has the power to modify the tariff contained in a subsisting PPA (i.e., can the Commission revise a concluded PPA's tariff in larger public interest or under regulatory provisions)?
Arguments of the Parties
Appellant's Arguments
- The original PPA provided tariff based on MNRE recommendations and was remunerative; the Distribution Licensee (R-1) unlawfully terminated that PPA and coerced the Appellant into a revised PPA at much-reduced tariff, leaving the Appellant no practical choice given its investments.
- The negotiated rates under the revised PPA (Rs.3.348 for 6 MW and Rs.3.07 for remaining 1.5 MW for 2010–11) had become uneconomic because biomass costs rose steeply and scarcity/competition made procurement costly.
- Similarly situated biomass generators are being paid higher tariffs by Distribution Licensees, and the Appellant is being paid a lower rate in comparison.
- Another generator (M/s R K Power Gen) successfully challenged similar termination and had its PPA restored up to the Supreme Court, leading to higher tariff; the Appellant contends it should not be penalised for having accepted the revised PPA.
- The Maharashtra Electricity Regulatory Commission had increased tariffs for biomass units taking fuel cost and availability into account—indicating precedent for upward revision due to fuel costs.
- Under the Electricity Act, 2003 the Commission has ample power to modify and increase tariff; the Appellant invoked two Supreme Court judgments (Transmission Corporation of Andhra Pradesh v. Sai Renewable Power Pvt. Ltd., Civil Appeal No.2976/2006; and M/s PTC India Ltd. v. CERC (2010 4 SCC 603)) as supporting authority.
Respondent (Distribution Licensee)'s Arguments
- The appeal lacks merit and should be dismissed.
- Where a valid subsisting PPA exists, neither party may unilaterally seek modification of its terms (including tariff) unless mutually agreed and approved by the Commission.
- The PPA does not contemplate any tariff increase for any reason; the Appellant's submissions on increased tariff are therefore not maintainable under the PPA's terms.
- Difference in tariffs paid to other plants is not a valid ground for increasing the Appellant's tariff because each PPA governs rates on its own terms and cannot be compared mechanically to another PPA.
- The State Commission's 2004 Regulations established that generic tariffs for renewable sources should be modified generally (for a class) and not on an individual basis; the power to modify must be exercised according to the Regulations and cannot be used to alter the price payable under an individual PPA.
- Accepting the Appellant's approach (individualized tariff revision) would produce administrative chaos and undermine normative/generic tariff regimes.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Transmission Corporation of Andhra Pradesh v. Sai Renewable Power Private Limited (Civil Appeal No.2976/2006) | Cited by the Appellant as a Supreme Court judgment supportive of the Appellant's plea for tariff revision/modification. | The judgment was mentioned by the Appellant; the Tribunal's opinion records that these Supreme Court judgments were relied upon by the Appellant but does not record any specific further reliance on them in the Tribunal's reasoning as reproduced in the text. |
| M/s PTC India Limited v. CERC (2010 4 SCC 603) | Cited by the Appellant as supporting authority from the Supreme Court for its position on tariff modification/power of regulatory authorities. | The Tribunal's text notes this case was invoked by the Appellant; the Tribunal's formal reasoning set out in the opinion relies primarily on statutory provisions, regulations and other tribunal precedent rather than expressly applying this Supreme Court decision in detail. |
| Techman v. Himachal Pradesh Electricity Regulatory Commission (Appeal No. 50 of 2008) | Used to show that where a generic normative parameter is unsuitable for a given project, promoters or the State entity may apply to the Commission for project-specific parameters (e.g., capital cost or CUF). | The Tribunal expressly relied on this Tribunal precedent to support its conclusion that the State Commission can determine tariff for a specific generator even if generic tariffs have been established for a class of generators. |
| M/s R K Power Gen (case referenced; no formal citation provided in text) | Referred to by parties: this generator contested termination and its termination was held illegal up to the Supreme Court, leading to restoration of its original PPA and a higher tariff as per original terms. | The Tribunal recorded this factual assertion as part of the Appellant's comparative argument; the Tribunal noted that this made R.K. Power Gen non-comparable to the Appellant for purposes of tariff claim, and did not rest its decision solely on that case. |
Court's Reasoning and Analysis
The Tribunal proceeded through a structured analysis focusing on statutory powers, regulatory provisions, factual context and public interest considerations:
- Identification of the core question: whether the State Commission has power to modify tariff in a subsisting PPA. The Tribunal framed this as the sole question for consideration.
- Review of the State Commission's own reasoning: the Tribunal reproduced the State Commission's view that it has power under section 86 read with sections 62 & 64 of the Electricity Act, 2003 to determine tariffs and that such power includes power to modify tariffs where circumstances warrant.
- Regulatory framework: the Tribunal examined the KERC Regulations. It noted that the 2004 Regulations provided for generic tariff determination, but that those regulations were repealed by the KERC (Power Procurement from Renewable Sources and Renewable Energy Certificate Framework) Regulations, 2011. The Tribunal quoted Regulation 9(1) of the 2011 Regulations which allows the Commission to determine at any time the tariff for purchase of electricity from renewable sources either suo motu or on an application by a generator or distribution licensee.
- Statutory support: the Tribunal considered Section 62 of the Electricity Act, 2003 (which mandates the Appropriate Commission to determine tariff for supply of electricity by a generating company to a distribution licensee) and Section 61 (which lists guiding principles for tariff regulations, including balancing commercial principles and safeguarding consumer interest while enabling recovery of costs). The Tribunal emphasized that Section 62 contemplates determination of tariff for a generating station and does not permit consumers to seek individualized tariff determination.
- Precedent support: the Tribunal relied on its own prior decision in Techman v. HPERC (Appeal No. 50 of 2008) to show that where normative/generic parameters are unsuitable for a particular project, the Commission may entertain project-specific determinations (e.g., capital cost or CUF). From this the Tribunal concluded that even if a generic tariff exists for a class of generators, the State Commission retains power to determine tariff for any generator supplying to a distribution licensee.
- Factual and public-interest considerations: the Tribunal noted undisputed facts — the Appellant's plant was shut down because it became unviable at prevailing tariff; the State experienced acute power shortage; the Government issued GO No. EN 29 EEB (6.4.2010) approving short-term purchase at Rs.5.00/kWh to revive generation. The Tribunal drew three inferences from the Government Order: (a) the Order related to generators with concluded PPAs, (b) Rs.5.00 per unit was realistic in 2008–09 and had been adopted by the Commission in its 11.12.2009 order, and (c) the State Commission can modify tariff for concluded PPAs in certain circumstances, for example to revive closed generating stations in public interest.
- Balancing interests and policy: invoking Section 61 principles, the Tribunal held that the Commission must maintain a balance so that generators do not suffer unnecessarily, particularly when keeping plants shut harms public interest during a power shortage and when a large proportion of investment is debt-funded.
- Application to the present case: taking statutory powers, the regulatory framework (Regulation 9(1) of 2011 Regulations), the Techman precedent, and the Government Order together with the factual situation (plant closure due to high biomass costs and severe power shortage), the Tribunal concluded that the Commission has power to modify tariff in a concluded PPA and that the question must be decided in favour of the Appellant on the power question.
- Evidentiary remand: the Tribunal noted the State Commission had dismissed the petition on the ground of insufficient material (mere invoices were not enough). Accordingly, the Tribunal remanded the matter to the State Commission with directions that the Appellant should place all material (details of actual costs, supporting evidence, etc.) before the Commission to enable a decision in the proper perspective, and directed the State Commission to refix the tariff for the Appellant keeping in view the Tribunal's observations.
Holding and Implications
Holding:
DISPOSED IN FAVOUR OF THE APPELLANT; APPEAL ALLOWED.
The Tribunal set aside the impugned order dated 16.9.2010 and remanded the matter to the State Commission with directions that:
- The Appellant shall place all relevant material before the State Commission to substantiate its claim for tariff revision.
- The State Commission shall re-evaluate and refix the Appellant's tariff in light of the Tribunal's observations, the statutory and regulatory framework (including Regulation 9(1) of the 2011 Regulations and Sections 61/62 of the Electricity Act, 2003), and the public interest considerations noted.
Consequences and implications:
- Direct effect on parties: The Appellant obtains a favourable ruling on the question of the Commission's power to modify a tariff in a subsisting PPA and gains a procedural opportunity to present complete material before the State Commission for tariff refixation. The impugned order dismissing its petition is set aside.
- Remedial direction: The State Commission must revisit the Appellant's petition with full evidentiary material and may refix tariff as appropriate under the statutory and regulatory framework.
- Costs: The Tribunal made no order as to costs.
- On precedent: The Tribunal's decision emphasises and applies existing statutory/regulatory powers and Tribunal precedent (Techman). The opinion does not claim or identify the establishment of a new legal precedent beyond its application of the statutory/regulatory framework and prior authority; it answers the specific power question in the Appellant's favour and provides remedial directions accordingly.
Disposition recorded in the opinion: Appeal allowed; no order as to costs. (Dated: 10th February, 2012)
PER HONBLE MR. V J TALWAR TECHNICAL MEMBER
1. Konark Power Project Limited, a Biomass based Generating Company is the Appellant here in.
2. The Bangalore Electric Supply Company Limited, a Distribution Licensee in the State of Karnataka is the first Respondent and Karnataka Electricity Regulatory Commission (the State Commission) is the second Respondent.
3. Aggrieved by the Order dated 16.9.2010 passed by the State Commission dismissing the Appellants petition for revision of tariff, the Appellant, Konark Power Project Limited has filed this Appeal.
4. The brief facts of the case are as follows:
I. The Appellant Konark Power Project Ltd. (Generating Company) has established a 6 MW biomass based power generating plant at Ballapura village of Tumkur District in the State of Karnataka. On 4.4.2002 it entered into a Power Purchase Agreement (PPA) with Karnataka Power Transmission Corporation Limited (KPTCL) with tariff fixed as per prevalent MNES Guidelines.
II. The PPA dated 4.4.2002 was terminated by KPTCL in 2003 unilaterally. KPTCL then asked the all the Biomass based Generating Companies in the state of Karnataka to enter into fresh PPAs at reduced tariff.
III. In the mean time all PPAs entered into between the Generation Companies and KPTCL, a State Transmission Utility, were assigned to respective Distribution Licensees. Judgment in Appeal No 35 of 2011 Page 3 of 17
IV. Since the project of the Appellant was already commissioned on 5.5.2005 and the Appellant had made huge investments, it was left with no choice but to enter into revised PPA with lower tariff. Thus PPA dated 4.4.2002 was revised with lower tariff and a supplemental PPA was entered into on 27.2.2006 for enhanced Capacity of 7.5 MW.
V. Due to unforeseen increase in the price of Biomass fuel, the Appellant was not in a position to produce power and supply to the Licensee (R-1) with the lower tariff fixed. The Appellant, therefore, decided to stop the power generation by declaring lay off to employees and by suspension of all contracts and agreements. The generating plant of the Appellant remained closed from July 2009 to March 2010
VI. Government of Karnataka vide GO No. EN 65 EEB dated. 6.4.2010 issued directions under Section 11 of 2003 Act to all the Biomass based generators in the state to supply Electricity to the grid at a Realistic Tariff of Rs 5 per unit. Accordingly, the Appellant restarted generation and fed power in to the Grid during the period between April 2010 and June 2010 i.e. during imposition of State Governments Order under Section 11 of the 2003 Act. The generating plant was again shut down in July 2010.
VII. In the mean time, the Appellant filed a petition before the State Commission seeking amendment to PPA dated 4.4.2002 and Supplemental PPA dated 27.2.2006 and prayed for fixing tariff for electricity at generated by its plant Rs 5.60 per unit as the cost of Biomass fuel had increased enormously and it had become Judgment in Appeal No 35 of 2011 Page 4 of 17 practically impossible for the Biomass Power Plants to generate power with the existing tariff.
VIII. The State Commission vide its Impugned Order dated 16.9.2010 dismissed the petition on the ground that adequate material had not been placed before it by the Appellant to justify its claim for revision of tariff.
IX. Aggrieved by the said order, the Appellant has filed this Appeal No. 35 of 2011 with the prayer to set aside the impugned Order dated 16.9.2010 and to suitably amend the PPA dated 4.4.2002 read along with the Supplemental PPA dated 27.2.2006 by fixing tariff at Rs 5.60 per unit.
X. During the pendency of this Appeal the Appellant filed an Interlocutory Application bearing no. 82 of 2011 on 8.4.2011with a following alternative prayers.
i. To grant open access to sell power to third party during the pendency of the Appeal OR
ii. To direct the Respondent Distribution licensee to purchase power at least at a rate of Rs 4.27 being paid to other power companies OR
iii. To direct the Respondent to permit the Appellant to Claim Renewable Energy Certificates (REC) component at existing tariff.
XI. The said IA was listed and heard together along with the main Appeal and the same is being disposed off. Judgment in Appeal No 35 of 2011 Page 5 of 17
5. The Learned Senior Counsel for the Appellant has urged the following contentions:
I. The original PPA dated 4.4.2002 had a provision for tariff based on MNRE recommendations and which was quite remunerative. The Respondent 1 Distribution Licensee unilaterally terminated the valid PPA and coerced the Appellant Generating Company to enter in to a revised PPA at much less tariff. Since the Appellant Generating Company had invested huge amount of money in the project it had no option but to accept the revised PPA.
II. The rate negotiated by the Appellant with the Respondent -1 worked out to Rs.3.348 for 6 MW and Rs.3.07 for the remaining 1.5 MW for the year 2010-11. This rate has become unworkable and uneconomical in view of the steep increase in the cost of production of electricity. The cost of biomass has gone up abnormally because of the scarcity of the material and competition among the biomass power plants.
III. The other similarly situated biomass generators in the State are paid at a higher tariff by Distribution Licensees. The table submitted before the Tribunal reveals that the higher rates at which the other Biomass based Generating Companies are being paid for the electricity being supplied to Distribution Licensees in the State, whereas the Appellant is being given the lesser tariff.
IV. One of the Generators viz., M/s R K Power Gen did not agree with the tariff but approached the Commission against illegal unilateral termination of original PPA by the Respondent. In that case the Commission held that the termination was illegal and restored the PPA. This was confirmed by the Honble Supreme Court as well. Judgment in Appeal No 35 of 2011 Page 6 of 17 Accordingly, the said Generating Company is getting much higher tariff as per original PPA i.e. determined as per MNRE guidelines. The Appellant on the other hand accepted the revised PPA and thus being penalised by getting only lower Tariff.
V. Maharashtra Electricity Regulatory Commission has increased the tariff of Biomass units considerably taking into account the increase in the cost of fuel, limited availability of biomass and the high cost incurred in procuring the same.
VI. Under the provisions of Electricity Act, 2003, the Commission has ample power to modify and increase the tariff.
VII. Two judgments of the Honble Supreme Court, one in the case of the Transmission Corporation of Andhra Pradesh Vs. Sai Renewable Power Private Limited (Civil Appeal No.2976/2006) and the second in the case of M/s PTC India Limited Vs. CERC (2010 4 SCC 603) would support the plea of the Appellant.
6. Per contra, the Learned Senior Counsel for the Respondent Distribution Licensee opposed the contentions of the Appellant by submitting that the Appeal has no merits and the same is liable to be dismissed. In elaboration of this point, he has submitted the following reply:
I. Once there is a PPA which is valid and subsisting, there is no right for either of the parties to seek modification of the same including the rates unless mutually agreed upon and approved by the Commission.
II. The submissions made in support of the increase in tariff cannot be considered, as the PPA doesnt contemplate any increase in tariff for any reason whatsoever. Judgment in Appeal No 35 of 2011 Page 7 of 17
III. Similar plants getting higher rates cannot be a ground for the Appellant to seek increase in the rates for his plant, as in each case the sale and purchase of electricity and the rate would depend upon the terms of the PPA and one PPA cannot be compared with another.
IV. The contention on behalf of the Appellant that the tariff is liable to be increased on account of higher prices being paid to other suppliers is completely misconceived. In the case of R.K. Power Gen, their PPA of 18.10.2001 was terminated on 5.7.2003 (in a similar manner the Appellants PPA was also terminated) but the said Company questioned the termination and the termination was held to be bad upto the Supreme Court and therefore, they would be governed by the terms of their PPA which provides for higher tariff. As such the other power producers are not comparable to the Appellant
V. The State Commission, on 27.9.2004, has notified Regulations for Power Procurement from Renewable Sources of Energy by Distribution Licensee (2004 Regulations). Clause 5.1 of these Regulations provide that the State Commission shall determine the tariff for purchase of electricity from renewable sources by the Respondent. It also provided that the PPAs approved by the Commission including the PPAs deemed to have been approved under Section 27(2) of the Karnataka Electricity Reforms Act 1999, prior to notification of these Regulations shall continue to apply for such period as mentioned in those PPAs. Clause 5.2 of these regulations provided that the State Commission shall determine the tariff separately for each category of renewable source of energy. Judgment in Appeal No 35 of 2011 Page 8 of 17
VI. The Power to modify the tariff is vested with the State Commission This has to be exercised only in the manner contemplated by the Regulations. The Regulations do not contemplate any modification of the price payable to an individual Generating Company. It can only be done for a class of generators. It is not the role of the State Commission to keep on modifying the tariff agreed by the parties in a PPA.
7. In the light of the rival contentions urged by the Learned Counsel for the parties, the only question would arise for our consideration as to Whether the Commission has the power to modify the tariff contained in a subsisting PPA.
8. Before we proceed further, let us examine the findings of the State Commission on this issue which are reproduced below: Under section 86 of the electricity act, 2003 read with sections 62 & 64, the Commission has the power to determine the tariff of the generating companies including NCE projects who supply electricity to the Distribution Licensees. In exercise of its powers under these provisions, the Commission has passed two orders, one during 2005 and another on 11.12.2009, and has also approved the PPAs. Once this Commission has powers to fix and approve the tariff, in our considered view, the same includes the power to modify the same in case there are circumstances warranting such modification.
9. The main objection raised by the learned Senior Counsel for the 1st Respondent before us is that under the 2004 Regulations framed by the State Commission, the State Commission would fix the normative tariff for energy generated from different types of Renewable Sources of energy and sold to distribution Company. Accordingly, the State Commission, vide its Order dated 18.1.2005, fixed generic tariff for Biomass based plants. The tariff so fixed can be modified generally and Judgment in Appeal No 35 of 2011 Page 9 of 17 not in individual cases. The Ld. Counsel for the Respondent -1 further submitted that if the argument of the Appellant that the power to modify tariff also enables the State Commission to take individual grievances and facts in to account to modify normative tariff is accepted, it would lead to utter chaos as the State Commission will have to decide thousands of applications by power consumers in regard to the supply of tariff and innumerable generators in regard to the tariff payable to the generating companies and this would render the normative tariff a dead letter apart from the whole exercise being impractical.
10. This above argument of the 1st Respondent Distribution Licensee is not tenable for the following reasons:
I. The State Commission has framed the KERC (Power Procurement from Renewable Sources by Distribution Licensee and Renewable Energy Certificate Framework) Regulations, 2011. These Regulations has repealed the 2004 Regulations. Regulation 9 of the new Regulations deals with determination of tariff for electricity from renewable sources of energy. Regulation 9(1) is relevant:
9. Determination of Tariff for electricity from Renewable sources of energy:- (1) The Commission may determine at any time the tariff for purchase of electricity from Renewable sources of energy by Distribution Licensees either suo motu or on an application either by generator or by Distribution Licensee; Provided that the tariff approved by the Commission including the PPAs deemed to have been approved under sub-Section (2) of Section 27 of the Karnataka Electricity Reforms Act, 1999, prior to the coming into force of these regulations shall continue to apply for such period as mentioned in those PPAs. Judgment in Appeal No 35 of 2011 Page 10 of 17 Bare reading of clause 9.1 of these Regulations would reveal that the State Commission has power to determine at any time tariff for purchase of energy from renewable sources of energy by Distribution Licensee either suo motu or on an application by generator or by Distribution Licensee.
II. It is incorrect to state that in case the plea of the Appellant is accepted and its tariff is fixed individually, then the State Commission would have to determine tariff for each consumer. The State Commission is required to determine the tariff under section 62 of the 2003 act. section 62 of the 2003 act reads as under:
62. Determination of tariff.(1) The Appropriate Commission shall determine the tariff in accordance with the provisions of this Act for (a) supply of electricity by a generating company to a distribution licensee: (b) transmission of electricity; (c) wheeling of electricity; (d) retail sale of electricity: (2) The Appropriate Commission may require a licensee or a generating company to furnish separate details, as may be specified in respect of generation, transmission and distribution for determination of tariff. (3) The Appropriate Commission shall not, while determining the tariff under this Act, show undue preference to any consumer of electricity but may differentiate according to the consumers load factor, power factor, voltage, total consumption of electricity during any specified period or the time at which the supply is required or the geographical Judgment in Appeal No 35 of 2011 Page 11 of 17 position of any area, the nature of supply and the purpose for which the supply is required. (5) The Commission may require a licensee or a generating company to comply with such procedure as may be specified for calculating the expected revenues from the tariff and charges which he or it is permitted to recover. Thus as per Section 62(1)(a) of the Act, State Commission is required to determine tariff for a generating station. State Commission is also required to determine tariff for retail supply of electricity in terms of Section 62(1)(d). Supply has been defined in Section 2(70) as sale of electricity. Thus a consumer cannot approach State Commission to determine its tariff.
III. In this context it would be appropriate to refer to a case came before this Tribunal in Appeal No. 50 of 2008. In this case the Himachal Pradesh Electricity Regulatory Commission had determined generic tariff based on normative parameters for all small hydro power stations in its Order dated 12.8.2007. This Order of Himachal Pradesh Electricity Regulatory Commission was challenged before this Tribunal in Appeal No. 50 of 2008 in the matter of Techman Vs Himachal Pradesh Electricity Regulatory Commission. The relevant portion of the judgment of this Tribunal in this Appeal is reproduced below: The promoters of hydro-power generation in the State of Himachal Pradesh as well as the Himachal Pradesh State Electricity Board shall be entitled to apply to the Commission for fixing project specific capital cost for any project in case the normative capital cost is not suitable to either of them. Similarly, if Capacity Utilisation Factor (CUF) of 45% for a specific project is contested by either party, it may approach the Commission with the site specific CUF. Judgment in Appeal No 35 of 2011 Page 12 of 17
11. Thus from the above judgment of this Tribunal in Appeal No. 50 of 2011 and Section 62 of the 2003 Act, it would be clear that the State Commission has powers to determine the tariff for any generator supplying electricity to distribution licensee even if the concerned the State Commission had determined the generic tariff for certain class of generators.
12. It is the undisputed fact that the generating plant of the Appellant remained shut down from July 2009 to March 2010 due to high procurement price of Biomass and plant becoming unviable to operate at the prevailing tariff. The State of Karnataka was reeling under acute power shortage and in order to mitigate the shortage, the Government of Karnataka vide its Order dated 6.4.2010 approved purchase of power at Rs 5.00/kWh and directed all Biomass based generators to feed power into the grid at this rate. Relevant portion of Government of Karnataka GO No. EN 29 EEB 2010 dated 6.4.2010 read as under:
1 Karnataka State has been reeling under acute power shortage for some time. The state has faced severe power shortage in the year 2008-09 as there was huge gap between demand supply in the State. To protect the interest of the consumers, Government decided to purchase power from various sources available including from Biomass Projects units in 2008-09 after negotiations held with Biomass Projects firms for working out a cost, and the realistic rate at Rs 5.02 per unit was arrived. Accordingly, the Government Order read at (1) above (GO No EN
65 2008 dated 27.01.2009}, it was decided to purchase power round the clock from Biomass Projects Units, which were supplying power under Power Purchase Agreement was subject to approval of KERC and all State ESCOMs to submit a Memorandum on the circumstances warranting higher price and need of State to procure more power before KERC
2 The State has faced a severe power deficit situation even in 2009-10 and adverse energy deficit is likely to continue till june 2010. In order to overcome the severe demand supply gap for the Judgment in Appeal No 35 of 2011 Page 13 of 17 coming summer months, action has been taken to purchase power from ... Biomass and other sources, keeping in view the public interest.
3 The proposal to purchase power for the short term in view of the critical shortage in the state and the need to augment short term capacity from co-generation Sugar Factories was placed before the State Cabinet on 29.3.2010. In the said Cabinet Meeting, purchasing power from Biomass projects Units has also been discussed, keeping in view the severe power shortage in summer months of 2010.
4 Based on the Above, Government has reviewed to purchase power from Biomass Projects Units for summer months for April & May 2010 to tide over the power crisis at rate of Rs 5/- per kWh as fixed last year, subject to approval of KERC including cost calculations as under: Considering Biomass per MT in Rs Cost per KWh in Rs 1280 3.66 1500 3.95 1800 4.34 2000 4.60 2200 4.86 2400 4.99 Accordingly this order GOVERNMENT ORDER NO. EN 29 EEB 2010 Bangalore Dated 6th April 2010
1 Under the circumstances explained above, Government are pleased to accord approval to purchase power as short term arrangement for the period from April and 2010 from Biomass projects units at Rs 5.00 (Rs Five only) per kWh
2 Payment of this rate to Biomass projects units, which are supplying the above power under Power Purchase Agreement is subject to approval by the Karnataka Electricity regulatory Commission, with reference to the applications filed by Electricity Supply Companies (ESCOMs) in this behalf Judgment in Appeal No 35 of 2011 Page 14 of 17
3 For biomass Projects Units without Power Purchase Agreement, the above rate is provisional and is subject to approval of KERC.
4 All ESCOMs shall submit a Memorandum on the circumstance and need of the State to procure power from Biomass Projects Units before the KERC immediately.
5 This order shall come into immediate effect and the above rates will be in force till 31st May 2010 or until further orders whichever is earlier.
13. Perusal of this Government Order would clearly bring out three important aspects related to the present case. These are:
a) The above referred Order of Government of Karnataka relates to Biomass based generators having concluded PPA. This fact would indicate that quite a few Biomass based generators were shut down at relevant time which made Government of Karnataka to issue such an Order.
b) The price of Rs 5.00 per unit was realistic in the year 2008-09 and the same had been adopted by the State Commission vide its Order dated 11.12.2009.
b) The tariff for concluded PPA can be modified by the State Commission, if situation so warrants. One of such situation could be to revive closed generating station(s) in larger consumer interest.
14. Again section 61 of the 2003 act mandates the State Commission to frame Tariff Regulations and while doing so the Commission shall be guided by the following: Judgment in Appeal No 35 of 2011 Page 15 of 17
(i) The Principles and methodologies specified by the Central Commission for determination of the tariff applicable to generating companies and transmission licensees;
(ii) The generation, transmission, distribution and supply of electricity are conducted on commercial principles;
(iii) The factors which would encourage competition, efficiency, economical use of the resources, good performance and optimum investments;
(iv) Safeguarding of consumers interest and at the same time, recovery of the cost of electricity in a reasonable manner;
15. The above guidelines would indicate that the Commission has to maintain a balance of interests so that the generators also may not suffer unnecessarily. It is not disputed that unit of the Appellant was shut down due to its becoming unviable at the existing tariff. The State as well as the Country has been facing power shortage and this fact has been accepted by the Government of Karnataka in its GO mentioned above. Under such circumstances it should be our endeavour to produce energy to the extent possible. It would not be desirable to keep any generating unit out of service for want of just tariff more so when 70% of investment is funded by Public Sector Banks or Financial Institutions as loan. In the context of prevailing power scenario in the country, it is well said that No power is expensive power. In other words power at any cost is acceptable as the Cost of unserved energy (loss due load shedding) could be very high.
16. In view of the above findings that the rate of Rs 5.00/kWh was realistic in the year 2008-09 and Commission has powers to modify the tariff for concluded PPA and the tariff under Section 62 should be so designed that the generator should not suffer unnecessarily, the question is answered in favour of the Appellant. Judgment in Appeal No 35 of 2011 Page 16 of 17
17. It would be pertinent to note that the State Commission in the impugned Order while holding that it has powers to modify the tariff had also made the following observations before dismissing the petition:
4 We have gone through the material placed before us and the reasons urged in support of the revision by the petitioner. The main reason pleaded by the petitioner in support of its prayer for increase in tariff is that the rate of fuel has gone up abnormally and the tariff paid under the PPA is too low affecting the very viability of the plant. The petitioner in support of its contention has produced certain invoices of purchase of biomass. In our view, mere production of some invoices will not be enough to justify the increase in rates. The petitioner has not produced details of its actual costs supported by material evidence to substantiate the effect of the present tariff on the viability of the unit. Therefore, we hold that the petitioner has not made out a case for revision of the tariff contained in the PPA. Accordingly this petition is liable to be rejected and hence dismissed.
18. Summary of our findings:
a) The State Commission as indicated in the impugned order has power to modify the tariff for concluded PPA in larger public interest.
b) The guiding principles laid down in section 61 of the 2003 act would indicate that the Commission has to maintain a balance so that the generators also may not suffer unnecessarily. In the context of prevailing power situation in the country, it would not be desirable to keep any generating unit out of service for want of just tariff.
19. In view of the observations of the State Commission, that enough material had not been placed before it by the Appellant to justify its claim, we remand back the matter to the State Commission with the direction to the Appellant to place all the material before the State Judgment in Appeal No 35 of 2011 Page 17 of 17 Commission to enable it to decide the issue in the proper perspective. Accordingly, the impugned Order is set aside and we direct the State Commission to refix the tariff for the Appellant keeping in view our observations made above.
20. The Appeal is allowed. However, there is no order as to costs. (V J Talwar ) (Justice M. Karpaga Vinayagam) Technical Member Chairperson Dated: 10th February, 2012 REPORTABLE/NOT REPORTABLE
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