2009 (5) TMI 906 - SC - Indian Laws

Whether recourse to Section 23 of the Electricity Act, 2003 can be taken for issuance of any direction to the generating company? Whether the Commission while applying the provisions of Section 86(1)(b) of the Act could also take recourse to Sections 23 and 60 thereof? Whether equitable allocation of power generated by a generating company is permissible?

Issues Involved:

1. Jurisdiction of the Electricity Regulatory Commission under Section 23 of the Electricity Act, 2003.
2. Interpretation of Section 86(1)(b) of the Electricity Act, 2003.
3. Equitable allocation of power generated by a generating company.
4. Application of Section 60 of the Electricity Act, 2003.
5. Role and limitations of Power Purchase Agreements (PPAs).

Detailed Analysis:

1. Jurisdiction of the Electricity Regulatory Commission under Section 23 of the Electricity Act, 2003:

The Supreme Court examined whether the Maharashtra Electricity Regulatory Commission (MERC) could issue directions to generating companies under Section 23 of the Electricity Act, 2003. The Court concluded that Section 23, which falls under the chapter dealing with licensing, does not contemplate issuance of directions to generating companies. The section is intended for licensees, and the term "supply" in this context refers to the distribution licensees and not generating companies. The Court emphasized that the generating companies were deliberately kept outside the licensing regime to promote free generation and competition, and thus, imposing regulatory measures on them through Section 23 would defeat the purpose of the Act.

2. Interpretation of Section 86(1)(b) of the Electricity Act, 2003:

Section 86(1)(b) empowers the State Commission to regulate the electricity purchase and procurement process of distribution licensees, including the price at which electricity shall be procured from generating companies or licensees through agreements. The Court held that while the Commission has the power to approve Power Purchase Agreements (PPAs), it does not have the authority to direct the allocation of electricity to different licensees. The Commission's role is to ensure that the terms and conditions of the PPAs are fair and reasonable, but it cannot impose allocation decisions on generating companies, which would undermine the de-licensing provisions of the Act.

3. Equitable allocation of power generated by a generating company:

The Court addressed the issue of equitable allocation of power generated by a generating company, particularly in the context of the dispute between Tata Power Company (TPC) and Reliance Energy Ltd. (RInfra). The Court found that the Commission's attempt to allocate power among distribution licensees was beyond its jurisdiction. The Act allows generating companies to enter into contracts with distribution licensees, and these contracts are subject to regulatory approval. However, the Commission cannot mandate the allocation of power, as this would reintroduce a licensing regime that the Act sought to eliminate.

4. Application of Section 60 of the Electricity Act, 2003:

Section 60 empowers the Commission to issue directions to a licensee or generating company if they abuse their dominant position or enter into combinations that adversely affect competition. The Court noted that this provision is applicable in cases of abuse or misuse of dominant position. However, in the present case, the Commission did not find any such abuse by TPC. Therefore, the application of Section 60 was not warranted. The Court emphasized that regulatory measures should be applied only when there is clear evidence of anti-competitive behavior.

5. Role and limitations of Power Purchase Agreements (PPAs):

The Court highlighted the importance of PPAs in the regulatory framework. PPAs are essential for ensuring the long-term stability of power supply and investment in the generation sector. The Commission's role is to approve these agreements to ensure they are fair and reasonable. The Court found that the Commission had duly considered the PPAs between TPC and BEST, and TPC and TPC (D), and had approved them based on detailed analysis. The Tribunal's decision to set aside these approvals was incorrect, as the Commission had followed the appropriate regulatory procedures.

Conclusion:

The Supreme Court set aside the judgment of the Appellate Tribunal, holding that the Commission's jurisdiction under Section 23 does not extend to issuing directions to generating companies. The Court reaffirmed the de-licensing policy for generating companies and emphasized the importance of PPAs in the regulatory framework. The appeals were allowed, and the Commission's approval of the PPAs was upheld. The Court awarded costs to the appellants.

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