Dr Dhananjaya Y Chandrachud, J
1 Leave granted.
2 The validity of a tariff regulation framed by the Maharashtra Electricity
Regulatory Commission (MERC) was questioned before the High Court of
Judicature at Bombay. Bereft of jargon – both legal and scientific – the plea of
the appellant is of discrimination. The discrimination, according to the appellant,
lies in a statutory regulation determining the Station Heat Rate. According to
the appellant, its thermal power station at Dahanu has been subjected to a more
Digitally signed by norm than other comparable units. MERC, it is asserted, breachedSANJAY KUMARstringent
the National Tariff Policy 2006. The High Court held against the appellant both
on the maintainability of its writ petition under Article 226 of the Constitution and
on the merits of the challenge to the validity of the statutory regulation. The case
has thus travelled to this Court.
3 The Electricity Act 2003 came into force on 10 June 2003. Electricity
Regulatory Commissions constituted under Section 82 are empowered to frame
regulations under Section 181, including the terms and conditions for
determination of tariff under Section 611. The MERC framed the MERC (Terms
and Conditions of Tariff) Regulations 20052 for a period of five years, upto
financial year 2010-11. The regulations, in so far as the appellant is concerned
were extended for a further period of one year upto financial year 2011-12.
4 Regulation 33.1.3 prescribed the Station Heat Rate (SHR). The SHR is the
heat energy required to generate one unit of electrical energy. The SHR is
significant because it represents the ratio between heat input and the energy
output. SHR has a co-relationship with efficiency: a higher SHR reflects
comparative inefficiency while a reduction in the SHR is associated with increasing
levels of efficiency. In the Tariff Regulations 2005, the gross SHR was defined in
the following terms:
“33.1.3. Gross station heat rate
(a) Gross station heat rate for coal-based generating stations
200/210/250 MW sets 500 MW and above sets
During stabilization 2600 kCal/kWh 2550 kCal/kWh
Period
Subsequent period 2500 kCal/kWh 2450 kCal/kWh
Note 1:
1 Section 181(2)(zd)
In respect of 500 MW and above units where the boiler feed pumps are electrically
operated, the gross station heat rate shall be 40 kCal/kWh lower than the station heat
rate indicated above.
Note 2:
For generating stations having combination of 200/210/250 MW seats and 500 MW and
above sets, the normative gross station heat rate shall be the weighted average station
heat rate.”
In the above regulations, uniform norms were fixed for all coal based thermal
generating stations, without any distinction between individual generating stations.
The norm applicable to the Dahanu Thermal Power Station of the appellant was
2500 kCal/kWh. This norm also applied to other generating stations in the State
of Maharashtra.
5 On 6 January 2006 the Union of India in the Ministry of Power notified the
National Tariff Policy under Section 3 of the Electricity Act 2003. The policy, inter
alia, spelt out the general approach to be followed for the purpose of determining
tariffs including operating norms for generating stations. Clause 4 of the policy laid
out its objectives in the following terms:
“(a) Ensure availability of electricity to consumers at
reasonable and competitive rates;
(b) Ensure financial viability of the sector and attract
investments;
(c) Promote transparency, consistency and predictability in
regulatory approaches across jurisdictions and minimise
perceptions of regulatory risks;
(d) Promote competition, efficiency in operation and
improvement in quality of supply.”
Clause 5.0 spells out the “general approach to tariff”. Clause 5(f) stipulates
operating norms:
“(f) Operating Norms
Suitable performance norms of operations together with
incentives and dis-incentives would need be evolved along
with appropriate arrangement for sharing the gains of efficient
operations with the consumers. Except for the cases referred
to in para 5.3 (h) (2), the operating parameters in tariffs should
be at “normative levels” only and not at “lower of normative and
actuals”. This is essential to encourage better operating
performance. The norms should be efficient, relatable to past
performance, capable of achievement and progressively
reflecting increased efficiencies and may also take into
consideration the latest technological advancements, fuel,
vintage of equipments, nature of operations, level of service to
be provided to consumers etc. Continued and proven
inefficiency must be controlled and penalized. The Central
Commission would, in consultation with the Central Electricity
Authority, notify operating norms from time to time for
generation and transmission. The SERC would adopt these
norms. In case where operations have been much below the
norms for many previous years, the SERCs may fix relaxed
norms suitably and draw a transition path over the time for
achieving the norms notified by the Central Commission.
Operating norms for distribution networks would be notified by
the concerned SERCs. For uniformity of approach in
determining such norms for distribution, the Forum of
Regulators should evolve the approach including the
guidelines for treatment of state specific distinctive features.”
Clause 5 (h) adverts to the Multi Year Tariff:
“(h) Multi Year Tariff
(1) Section 61 of the Act states that the Appropriate
Commission, for determining the terms and conditions for
the determination of tariff, shall be guided inter-alia, by
multi-year tariff principles. The MYT framework is to be
adopted for any tariffs to be determined from April 1, 2006.
The framework should feature a five-year control period.
The initial control period may however be of 3 year duration
for transmission and distribution if deemed necessary by
the Regulatory Commission on account of data
uncertainties and other practical considerations. In cases
of lack of reliable data, the Appropriate Commission may
state assumptions in MYT for first control period and a
fresh control period may be started as and when more
reliable data becomes available.
(2) In cases where operations have been much below the
norms for many previous years, the initial starting point in
determining the revenue requirement and the improvement
trajectories should be recognised at “relaxed” levels and
not the “desired” levels. Suitable benchmarking studies
may be conducted to establish the “desired” performance
standards. Separate studies may be required for each
utility to assess the capital expenditure necessary to meet
the minimum service standards…”
6 In August 2009, MERC published a ‘draft approach paper’ for the purpose
of enacting multi year tariff regulations for financial years 2010-11 to 2014-15. On
23 October 2009, the appellant furnished its suggestions. In 2010, MERC
commissioned a report from the Central Power Research Institute (CPRI) for
ascertaining achievable performance parameters for thermal power plants in
Maharashtra and to suggest improvements. CPRI carried out an independent
assessment in respect of the plant of the appellant (DTPS), Tata Power
(Generation) – TPCG, and Maharashtra State Power Generation Company Limited
(MSPGCL). According to the appellant, no recommendation was made in respect
of their plant since it was performing better than the prescribed SHR.
7 In July 2010, MERC published another draft approach paper in regard to the
proposed multi year tariff regulations for financial years 2011-12 to 2015-16
together with draft regulations. On 26 October 2010, the appellant made
submissions on the draft approach paper. On 4 February 2011, the MERC (Multi
Year Tariff) Regulations, 20113 were notified. Regulation 2(32) defines the Gross
Station Heat Rate thus:
“(32) “Gross Station Heat Rate” means the heat energy input
in kcal required to generate one kWh of electrical energy at
generator terminals.”
Regulation 44 provides norms for the operation of thermal generating stations.
Regulation 44.2 stipulates gross station heat rates for existing generating stations
in the following terms:
“44.2 Gross Station Heat Rate - For existing Generating
Stations:
a) Existing Coal-based Thermal Generating Stations, other than
those covered under clauses (b), (c) and (d), below:
200/210/250 MW sets 500 MW and above sets
2450 kcal/kWh 2425 kcal/kWh
Note 1
In respect of 500 MW and above Units, where the boiler feed
pumps are electrically operated, the gross Station Heat Rate shall
be 40 kcal/kWh lower than the gross Station Heat Rate indicated
above.
Note 2
For Generating Stations having combination of 200/210/250 MW
sets and 500 MW and above sets, the normative gross Station
Heat Rate shall be the weighted average station heat rate.
b) Thermal Generating Stations of Maharashtra State Power
Generation Company Ltd. (MSPGCL):
Year Koradi Khaperkheda Chandrapur Nasik Bhusawal Paras Parli
excluding excluding
Unit No.3 Unit No.6
Provided that the Commission may revise the norms for heat rate
for the above mentioned Generating Stations in case of
Renovation & Modernisation undertaken for the Generating
Station.
c) Thermal Generating Units of the Tata Power Company Ltd.
Generation Business (TPC-G):
Year Unit-4 Unit-5 Unit-6
With Oil & Gas
mix.in
proportion of
50:50*
* In case variation in Oil and Gas mix is more than +/- 5%, the
Heat Rate for Unit 6 shall be approved considering the actual Oil
and Gas Mix.
d) Thermal Generating Station of Reliance Infrastructure Ltd.-
Generation Business (RInfra-G):
Year Dahanu TPS
FY 2011-12 2350
FY 2012-13 2355
FY 2013-14 2360
FY 2014-15 2365
FY 2015-16 2370
8 The above regulation indicates that save and except for the excluded
categories set out in clauses (b), (c) and (d), the SHR for existing coal based
thermal generating stations is pegged at a uniform level of 2450 kCal/kWh (for
200/210/250 MW sets) and 2425 kCal/kWh (for 500 MW sets and above). The
excluded categories are the generating stations of (i) MSPGCL; (ii) TPC – G; and
(iii) RInfra-G. As the table in clause (b) of Regulation 44.2 indicates, a relaxed
standard for the SHR has been prescribed for the units of MSPGCL. However,
there is an exclusion within the exclusion for Unit 3 at Paras and Unit 6 at Parli,
since these units are governed by the uniform criterion prescribed in clause (a).
The dispensation for Units 4, 5 and 6 of TPC-G is prescribed in clause (c). For Unit
8 of TPC-G, the applicable SHR is in terms of the uniform rate of 2450 kCal/kWh,
since this unit is not specified in clause (c).
9 The grievance of the appellant arises from the fact that a tighter standard or
norm has been prescribed for its Dahanu TPS. As opposed to the uniform criterion
of 2450 kCal/kWh in Regulation 44.2(a), the SHR for the Dahanu TPS varies
between 2350 in financial year 2011-12 to 2370 in financial year 2015-16.
Essentially, it is this prescription of a more stringent SHR in the case of R-Infra’s
Dahanu TPS which forms the focus of dispute in the present case.
10 In order to buttress its grievance of discrimination, the appellant has relied
upon the Multi Year Tariff regulations notified by MERC for the previous period
(2005-10) and for the subsequent period (2016-21). The MERC (Multi Year Tariff)
Regulations 20154 which govern the period 1 April 2016 to 31 March 2020 place
the Dahanu TPS of RInfra-G at par with other coal-based thermal generating
stations. Regulation 44.4 is in the following terms:
“44.4 Gross Station Heat Rate for existing coal-based thermal
Generating Stations, other than those covered under Regulation
44.5 and 44.6 shall be:
200/210/250 MW 300 MW sets 500 MW sets (sub-
sets critical boilers)
2450 kcal/kWh 2400 kcal/kWh 2375 kcal/kWh
Note 1
In respect of 500 MW Units, where the boiler feed pumps are
electrically operated, the Gross Station Heat Rate shall be 40
kcal/kWh lower than the gross Station Heat Rate specified above.
Note 2
For Generating Stations having combination of 200/210/250 MW
sets and 300 MW and 500 MW sets, the normative gross Station
Heat Rate shall be weighted average Station Heat Rate.”
Regulation 44.5 contains the SHR for the coal based thermal generating stations
of MSPGCL. Regulation 44.6 specifies the SHR for TPC-G. Regulations 44.5 and
44.6 are extracted below:
“44.5 Gross Station Heat Rate for existing coal-based thermal
Generating Stations of Maharashtra State Power Generation
Company Ltd. (MSPGCL) shall be:
Year Koradi Khaperkheda Chandrapur Nashik Bhusawal Parli
Provided that the Commission may revise the Gross Station Heat
Rate norms for these Generating Stations in case any Renovation
& Modernization is undertaken.
44.6 Gross Station Heat Rate for existing thermal Generating
Stations of The Tata Power Company Ltd- Generation Business
(TPC-G) shall be:
Year Unit-5 Unit- 6
With 100 % Gas With 100 % Oil With Oil &
firing firing Gas mix in
proportion
of 50:50*
*In case variation in Oil and Gas mix is more than +/- 5%, the
Gross Station Heat Rate for Unit 6 shall be approved considering
the actual Oil and Gas Mix.”
In Regulation 44.5, Units 4 and 5 at Bhusawal and Units 6 and 7 at Parli have been
excluded. Similarly, Unit 8 for TPC-G is excluded from the SHR in Regulation 44.6.
11 In order to complete the narration, it may be noted that on 2 September
2011, MERC passed an order on a petition filed by the appellant for deferring the
implementation of the MYT regulations. On 5 May 2012, the appellant submitted a
petition for approval of its business plan for financial years 2010-11 to 2015-16.
The appellant requested that the norm should be relaxed and brought in line with
the normative SHR. On 25 October 2012, MERC passed an order on the MYT
Business Plan for RInfra-G stating that it had considered the norms for SHR based
on the MYT regulations. MERC held thus:
“Station heat rate
4.5.2
RInfra-G submitted that MYT Regulations, 2011 framed the
norms for DTPS based on the plant’s historical performance.
RInfra-G submitted that it believes that all operating
parameters, “norms” including the secondary oil consumption,
auxiliary energy consumption, station heat rate and transit loss
should be specified to create a level playing field and bring
discipline for regulated entities for the benefit of beneficiaries
of the state. RInfra-G submitted that the essence of the norms
should be to create benchmarks based on industry-wide
performance and let the market to reward or penalize the
performance of the utilities vis-à-vis those benchmarks. RInfra-
G further submitted that such mechanism will not only force
underperforming utilities to perform but also bring the
competitive price of power in the market in overall benefit of
consumers.
4.5.3
In its Petition under Case No.45 of 2011, RInfra-G had raised
the issue of specifying separate norms for SHR of DTPS in the
MYT Regulations, 2011 and argued that any norm for
generating stations should be made based on performance of
the industry as a whole and should not be specific to a plant
based on its historical performance.
4.5.4
RInfra-G submitted that specific relaxations from the norms
can, however, be provided considering the specific issues of
any given plant. In the said Petition, RInfra-G also highlighted
the SHR norms adopted by other Regulatory Commissions to
bring out its point that the SHR norms should be linked with
unit size and ageing and not driven by the performance of the
generating company. RInfra-G further added that the tightening
of the norms for efficient generating plant is against the
principle of equality and rewarding efficiency.
4.5.5
Accordingly, RInfra-G has requested the Commission not to
tighten the norms for DTPS and retain it at industrial normative
level of 2450 kCal/kWh. RInfra-G submitted that the
Commission, in its Order in Case No.45 of 2011 dated 2
September, 2011 on the said Petition did not provide any
specific ruling on the said contention of RInfra-G; however
stated that the Commission could invoke its powers alter the
MYT norms for SHR and OEM cost, if required.
4.5.6
The Commission is of the view that norms can be fixed station
wise based on the historical performance of the plant. The SHR
of the plant is dependent on the age of the plant, the technology
used, the capital expenditure incurred overhauling the plant,
regular repair and maintenance expenditure incurred and
various other factors. Hence, there could be wide variations on
SHR across plants. Further, if the Commission derives the
benchmark considering only the industry-wide performance
capital and operating expenditures incurred, the generating
company may not have sufficient motivation to continue to
operate as efficiently as it had been in the past. Therefore, a
balanced approach is to provide a target which will adequately
motivate the generating plant to perform at existing levels or
better and still have room for earning incentives. Moreover, the
MYT Regulations, 2011 have been finalised after following
appropriate regulatory process after considering and
deliberating on the views of all stakeholders on various issue.
Considering all the facts discussed above, the Commission
does not find any merit in altering the MYT norms for SHR.
Therefore, though RInfra-G has proposed a SHR of 2,450
kCal/kWh, the Commission has considered the SHR as per the
MYT Regulations, 2011.
4.5.7
For FY 2011-12, the Commission has considered the SHR as
approved in the ARR Order in Case No.163 of 2011. The SHR
approved by the Commission for RInfra-G for the second
control period is as below:
Table 5: Approved station heat rate for the second control
period
Station heat FY 2011-12 FY 2012-13 FY 2013-14 FY 2014-15 FY
rate 2015-16
(kCal/kWh) As submitted 2500 2450 2450 2450 2450 by RIfra-G
As approved by 2500 2355 2360 2365 2370
the
Commission
12 On 7 December 2012, the appellant filed an appeal under Section 111 of
the Electricity Act 2003 before the Appellate Tribunal for Electricity (APTEL)
against the order dated 25 October 2012. The appellant submitted that the MERC
ought to have exercised its power under Regulations 99 and 100 of the Tariff
Regulations 2011 to amend and remove difficulties since the SHR which was
prescribed for Dahanu TPS was not the same as for similarly situated generating
units.
13 On 3 October 2013, the appellant instituted a writ petition under Article 226
of the Constitution before the Bombay High Court for the purpose of challenging
Regulation 44.2(d) which specifies a separate SHR for the Dahanu TPS as
compared to other generating stations in the State of Maharashtra. The appellant
disclosed the pendency of the appeal before the Tribunal against MERC’s order
dated 25 October 2012 disallowing the prayer for relaxing the norms.
14 MERC opposed the writ petition. MERC submitted that the appellant had
filed a substantive petition seeking approval of its business plan for the financial
years 2010-11 to 2015-16 and an SHR of 2450 kCal/kWh for 2012-13 to 2015-16.
MERC in the course of its adjudication on the business plan had adopted the same
SHR as under the tariff regulations. MERC contended that since the appeal before
the Tribunal was pending, the appellant was not entitled to pursue a remedy under
Article 226 of the Constitution.
15 The Appellate Tribunal for Electricity disposed of the appeal on 8 April 2015,
recording that it did not survive in view of the institution of the writ proceedings
before the Bombay High Court. The appellant asserts that it drew the attention of
the High Court, when the writ petition was being heard, to the fact that the appeal
before the Tribunal was not pending and had been disposed of.
16 The High Court by its judgment dated 18 April 2016 dismissed the writ
petition. In coming to the conclusion that the petition was lacking in merit, the High
Court came to the following conclusions:
(i) MERC in framing statutory regulations in exercise of the power conferred by
Section 181 had followed the procedure by granting an opportunity to stake holders
including the appellant to make their suggestions on the draft approach paper
which was published on the basis of the CPRI report;
(ii) CPRI was commissioned to undertake a study in order to fix norms for SHR
for different power stations in the State of Maharashtra and it was only after the
technical material collated by CPRI was considered and reviewed that the tariff
regulations were notified prescribing SHR norms for various power stations;
(iii) MERC has applied the principles evolved in the tariff policy which stipulates
that the operating norms should be “efficient, relatable to past performance,
capable of achievement and progressively reflect increased efficiencies”. The past
performance of the Dahanu TPS of the appellant was also taken into consideration;
(iv) The submissions urged by the appellant was not accepted for two reasons
which were formulated by the High Court as follows:
“Firstly, if this submission is accepted then the whole exercise
of undertaking an expert analysis, the working of each of the
thermal power station to determine the SHR by studying
various factors including the past performance would be
rendered nugatory. Secondly the tariff standards are required
to be fixed on realistic data and its consideration, as public
interest is directly involved in fixation of the electricity tariff. The
contention of the petitioner if accepted it would also result in a
situation that the realistic standards are deviated to fix
unrealistic or a camouflage norms. This is surely not
permissible and is fundamentally against public interest being
against the interest of the consumers of electricity. The
submission of the petitioner is only from the sole consideration
of profits of the petitioner, while disregarding the norms and
standards required to be followed by the 2nd Respondent in
determination of the electricity tariff.”
(v) In the exercise of its jurisdiction under Article 226 of the Constitution, the
High Court cannot decide on technical parameters or come to the conclusion that
the norms fixed by MERC are inappropriate;
(vi) The power to frame tariff regulations under Section 181 of the Electricity Act
2003 is of a legislative character. The regulations constitute subordinate
legislation. Once MERC has followed appropriate procedures mandated by the
Electricity Act, the Court will not interfere with the regulations merely on the ground
that the SHR prescribed for the power station of the appellant was fixed at a rate
below its peers;
(vii) Profitability of the producer is not the only consideration in determining the
SHR. The regulations are also framed in the interest of the consumers of electricity;
and
(viii) Having approached the Appellate Tribunal for Electricity, the appellant was
not justified in moving the High Court under Article 226 “on the same issue” when
the Tribunal was in a position to provide adequate relief. Entertaining a writ petition
of this nature, when an alternate remedy is provided by the statute would render
the statutory machinery under the Electricity Act nugatory. The petition under
Article 226 was held to be an abuse of process.
While dismissing the petition, the High Court imposed costs of Rs 1 lakh on the
appellant.
17 While assailing the decision of the High Court, Mr P Chidambaram, learned
Senior Counsel, urged that the High Court was not justified in coming to the
conclusion that in view of the pendency of the appeal before APTEL, recourse to
the jurisdiction under Article 226 constituted an abuse of process. Learned Senior
Counsel submits that the pendency of the appeal before APTEL was disclosed in
paragraph 27 of the writ petition before the High Court:
“27. As stated hereinabove, the Petitioners have preferred
Appeal No.4 of 2013 before the Appellate Tribunal for
Electricity challenging the Order dated 25th October 2012
insofar as Respondent No.1 disallows the Petitioners prayer
for relaxation of the norms under Regulations 99 and 100 of
the MYT Regulations. The present Petition challenges the
vires, legality and validity of Regulation 44.2 (d) of the MYT
Regulations that fixes SHR norms for the 1st Petitioners. Save
as aforesaid, the Petitioners have not filed any other Petition in
respect of the subject matter of the present Petition either
before this Hon’ble Court or any other High Court or the
Supreme Court of India.”
In response to the objection raised by MERC, the following assertion was
contained in the rejoinder filed by the appellant before the High Court:
“2.3. The Petitioners in the Petition have, inter alia, in
paragraph 27 thereof disclosed to this Hon’ble Court that they
have preferred Appeal No. 4 of 2013 before the Appellate
Tribunal for Electricity challenging the order dated 25th
October 2012 passed in Case No. 156 of 2011 which
disallowed the Petitioners’ prayer for relaxation of the norms
under Regulations 99 and 100 of the MYT Regulations. It is
settled law of the Hon’ble Supreme Court of India that the
Appellate Tribunal for Electricity has no power, authority or
jurisdiction to go into validity or legality of Regulations framed
by a Regulatory Commission. Regulation 44.2 (d) has been
challenged in the present Writ Petition and is not the subject
matter of any other Petition or Appeal in any other Court as
stated, inter alia, in paragraph 27 of the Petition. In fact, the
Petitioners have enclosed at Exhibit-K to the Petition a copy
of the Memorandum of Appeal without annexures. It is denied
that there is any forum shopping. The said Appeal has since
been heard by the Appellate Tribunal, in any event, was not
pressed by the Petitioners at the final hearing of the Appeal.
The grievance of Respondent No. 2, in any event, does not
survive.”
The submission of the appellant on the maintainability of the proceedings under
Article 226 is that the scope of the appeal before the Tribunal was entirely different
from the ambit of the writ petition. The appellant moved the Tribunal against the
order of MERC dated 25 October 2012 which disallowed the prayer for relaxation
of the norms under Regulations 99 and 100 of the Tariff Regulations 2011. The
petition challenged the vires of the regulations before the High Court and the
remedy before the High Court was the only remedy available to challenge the
validity of the regulations.
18 On the maintainability of the petition under Article 226, the High Court, in
our view, has overlooked the position in law established by the judgment of a
Constitution Bench of this Court in PTC India Limited v Central Electricity
Regulatory Commission5. The Constitution Bench considered whether the
Appellate Tribunal for Electricity has jurisdiction to decide upon the validity of the
regulations framed by the Central Electricity Regulatory Commission. CERC has
been entrusted with the power to frame regulations under Section 178 of the
Electricity Act 2003. The Constitution Bench held that the validity of a regulation
framed under Section 178 can be tested only before the court exercising judicial
review. While the Tribunal may decide upon a dispute involving the interpretation
of a regulation, for which an appeal under Section 111 would be maintainable, no
appeal can lie before the Tribunal on the validity of a regulation. The summary of
the findings in the judgment includes, inter alia, the following:
“(iii) A regulation under Section 178 is made under the
authority of delegated legislation and consequently its validity
can be tested only in judicial review proceedings before the
courts and not by way of appeal before the Appellate Tribunal
for Electricity under Section 111 of the said Act.
(iv) Section 121 of the 2003 Act does not confer the power of
judicial review on the Appellate Tribunal. The words “orders”,
“instructions” or “directions” in Section 121 do not confer the
power of judicial review in the Appellate Tribunal for Electricity.
In this judgment, we do not wish to analyse the English
authorities as we find from those authorities that in certain
cases in England the power of judicial review is expressly
conferred on the tribunals constituted under the Act. In the
present 2003 Act, the power of judicial review of the validity of
the regulations made under Section 178 is not conferred on the
Appellate Tribunal for Electricity.
(v) If a dispute arises in adjudication on interpretation of a
regulation made under Section 178, an appeal would certainly
lie before the Appellate Tribunal under Section 111, however,
no appeal to the Appellate Tribunal shall lie on the validity of a
regulation made under Section 178.”
Hence the conclusion of the Court is in the following terms:
“The Appellate Tribunal for Electricity has no jurisdiction to
decide the validity of the Regulations framed by the Central
Electricity Regulatory Commission under Section 178 of the
Electricity Act, 2003. The validity of the Regulations may,
however, be challenged by seeking judicial review under
Article 226 of the Constitution of India.”
Though the above principles emerge in the context of regulations framed under
Section 178 by the CERC, the logic of the judgment extends to the regulations
framed under Section 181 by the State Electricity Regulatory Commissions. In view
of the legal position settled by the Constitution Bench, we are of the clear view that
the High Court was not justified in disparaging the appellant for taking recourse to
a constitutional remedy under Article 226. Indeed, a challenge to the validity of the
regulations framed by the MERC could only lie before the High Court. Hence, the
imposition of costs for having adopted the remedy under Article 226 was
unjustified. There was no suppression of fact on the part of the appellant which
had indicated the recourse it had taken in the appeal before the Tribunal, arising
from its prayer for relaxation of the SHR norms before MERC. The plea before the
Appellate Tribunal was for relaxation of the SHR norms. The plea before the High
Court was that the SHR fixed was discriminatory and ultra vires. Undoubtedly, if
the appellant were to succeed before the Tribunal, it would perhaps obviate the
challenge in the High Court. The appellant, as learned Senior Counsel informed
the court, did not press ahead with its plea before the Tribunal. Hence, the writ
petition could not have been held not to be maintainable.
19 The High Court has dealt with the merits of the challenge to the validity of
the regulations. The constitutional validity of Regulation 44.2(d) of the Tariff
Regulations 2011 is the subject of the challenge in these proceedings. The basic
challenge which has been addressed before the Court is founded on a plea of
discrimination. Elaborating on this challenge, Mr P. Chidambaram, learned Senior
Counsel urged the following submissions:
(i) Regulation 44.2(d) is contrary to the national tariff policy. While framing
regulations under Section 181, MERC is required by Section 61(i) to be guided by
the “National Electricity Policy and tariff policy”. Clause 5.3(f) of the national tariff
policy notified on 6 January 2006 by the Union Ministry of Power requires that
operating parameters and tariffs should be at “normative levels” only and not at
“lower of normative and actuals”. Regulation 44.2(d) lays down a more stringent
SHR for the appellant, based on its energy efficient performance by disregarding
the normative levels;
(ii) The CPRI report, which was commissioned by MERC contains the following
conclusions on the comparability of RInfra’s Dahanu TPS with Paras Unit 3 and
Parli Unit 6 (of MSPGCL) and TPC-G Unit 8:
“ii. DTPS units are identical to units installed at Parli Unit 6,
Paras Unit 3 & Tata Trombay Unit 8. They are of the general
or standard design of 250 MW duplicated by BHEL in nearly 25
units in India.
iii. Both DTPS units have operating margins of 8% steam flow
in the boiler side (BMCR flow), 5% power output on the turbine
side (VWO flow) and 16% on the generator side (capability
curve) and 23% on the generator transformer side. These
margins are provided in all 250 BHEL supplied units, including
those at Paras Unit 3, Parli Unit 6 and Tata Trombay Unit 8 as
elaborated in the text.”
Moreover, the CPRI report observes that:
“vii. Combining all the margins provided by the OEM, R-Infra
has been able to load the unit to 268 MW against the design
value of 250 MW. Maintaining this load is not harming the life
of the unit as the DTPS has ensured that all parameters are
kept within OEM limits. High loadability is made possible by
high energy efficiency or low unit heart rate of the unit. When
the deviation of the unit heat rate from the design heart rate is
low, heat generation in the equipment is low which enables the
parameters not to exceed their limits. As many as 66 units in
India have clocked average annual plant loading in excess of
100% UMCR in 2007-08.”
R Infra’s Dahanu TPS unit has been found to be identical to Parli Unit 6, Paras unit
3 (MSPGCL) and Trombay unit 8 (of Tata power). The units have the same design,
standard and OEM. Therefore, merely because the appellant has performed
better, this would not be a ground to subject it to more stringent norms;
(iii) In any event, for the next control period – 2016-20, the appellant has been
equated with other thermal power stations. There exists no justifiable reason for
making a distinction for the period 2011-16 and for imposing more stringent norms
for SHR in the case of DTPS. In imposing more stringent norms on the appellant
for its DTPS unit for 2011-16, MERC has acted in an arbitrary exercise of power
which violates Article 14 of the Constitution; and
(iv) As a matter of fact, CPRI did not furnish a “trajectory” for the appellant’s
DTPS unit, as assumed by the High Court. A trajectory was furnished for less
efficient plants.
20 On the other hand, contesting the submissions which were urged on behalf
of the appellant, Mr SK Rungta, learned Senior Counsel for the respondents urged
the following submissions:
(i) The SHR represents heat energy required to generate one unit of electrical
energy. The norm determines the cost of coal and corresponding gas that will be
allowed to be recovered. Fixation of the SHR has an important bearing on the cost
of energy which will be recovered from the consumer;
(ii) There is a fundamental error in the submission that the CPRI report found
an equivalence between the appellant’s Dahanu TPS with Parli Unit 3 and Paras
Unit 6 (of MSPGCL) and Trombay Unit 8 (of Tata Power). CPRI found an
equivalence of specifications and not of performance. The dates on which the
above three units commenced operations were:
• Paras 3 31 March 2008;
• Parli 6 1 November 2007;
• TPC 8 31 March 2008.
The appellant’s unit at Dahanu commenced operations in 1995. CPRI has not, as
a matter of fact, come to the conclusion that the performance of DTPS was
equivalent to Parli Unit 6, Paras Unit 3 and Trombay Unit 8;
(iii) The CPRI report has separately evaluated DTPS and the units of Tata
Power and MSPGCL. It is factually incorrect to posit that the CPRI study was for
Parli Unit 6, Paras Unit 3 and Trombay Unit 8;
(iv) After the enactment of the Electricity Act 2003, the first MYT regulations
were promulgated in 2005. All units were placed at par in the absence of a base
line study at that stage;
(v) Section 61(i) requires that the appropriate commission “shall be guided by”
the principles set out in the tariff policy. The tariff policy enunciates the factors
which have to be taken into account while framing the tariff regulations;
(vi) In the MYT regulations which governed the period 2011-16, the sharing of
gains occasioned by the SHR, between the producer and the consumer, was in
the ratio of 2/3:1/3. In the 2015 regulations, the ratio of sharing has been altered
and 2/3rd enures to the benefit of the consumer; and
(vii) The SHR delivered by the appellant for 2006-07 to 2009-10 would
sufficiently explain the basis of fixation. The same principle has been applied in
the case of Tata power;
(viii) Unless a subordinate legislation is found to suffer from manifest
unreasonableness or from a breach of the principle of proportionality, it would not
be regarded as ultra vires.
21 These submissions fall for our consideration.
22 The power to determine tariffs is of a legislative nature. Section 61 is borne
in Part VII of the Electricity Act 2003 which deals with tariffs. Section 61 provides
thus:
“Section 61. Tariff regulations: The Appropriate Commission
shall, subject to the provisions of this Act, specify the terms and
conditions for the determination of tariff, and in doing so, shall
be guided by the following, namely:-
(a) the principles and methodologies specified by the Central
Commission for determination of the tariff applicable to
generating companies and transmission licensees;
(b) the generation, transmission, distribution and supply of
electricity are conducted on commercial principles;
(c) the factors which would encourage competition, efficiency,
economical use of the resources, good performance and
optimum investments;
(d) safeguarding of consumer’s interest and at the same time,
recovery of the cost of electricity in a reasonable manner;
(e) the principles rewarding efficiency in performance;
(f) multi year tariff principles;
(g) that the tariff progressively reflects the cost of supply of
electricity and also reduces cross-subsidies in the manner
specified by the Appropriate Commission;
(h) the promotion of co-generation and generation of electricity
from renewable sources of energy;
(i) the National Electricity Policy and tariff policy:
Provided that the terms and conditions for determination of
tariff under the Electricity (Supply) Act, 1948, the Electricity
Regulatory Commission Act, 1998 and the enactments
specified in the Schedule as they stood immediately before the
appointed date, shall continue to apply for a period of one year
or until the terms and conditions for tariff are specified under
this section, whichever is earlier.”
Section 61 provides that the appropriate commission shall, subject to the
provisions of the Act, specify the terms and conditions for the determination of
tariff. In doing so, it has to be guided by the considerations which are stipulated in
clauses (a) to (i). Among them, in clause (i) is the national electricity policy and
tariff policy.
23 Section 181 empowers the state commissions to make regulations
consistent with the Act and the rules to carry out the provisions of the Act. Among
the matters for which the regulations may provide are “the terms and conditions for
the determination of tariff under Section 61”6. In specifying the terms and
conditions for the determination of tariff, the appropriate commission (as Section
61 provides) “shall be guided” by the factors which are set out in clauses (a) to (i).
The expression “shall be guided” comprises of two elements: the ‘shall’ and, the
‘guidance’. Clauses (a) to (i) provide guidance to the commission in specifying the
terms and conditions for the determination of tariff. The expression “shall” indicates
that the factors which are specified in clauses (a) to (i) have to be borne in mind
by the appropriate commission. As guiding factors, they provide considerations
which are material to the determination of tariffs by the appropriate commission.
24 The national tariff policy has multi-faceted objectives. Significant among
them is the need to ensure to consumers the availability of electricity at reasonable
and competitive rates. The policy also seeks to ensure the financial viability of the
sector and underlines the need to attract investments. A financially sustainable
electricity sector is an important facet of the overall regulatory framework. The
6 Section 181 (2)(zd)
objectives of the policy emphasise the need to promote transparency, consistency
and predictability in regulatory approaches across jurisdictions. The policy
emphasises the need to minimise perceptions of regulatory risk. Finally, the policy
recognises the need to promote competition, efficiency in operations and
improvements in the quality of supply. In designing and formulating the regulatory
framework for tariffs, the delegate of the legislature has to bring about a balance
between the competing goals which the tariff policy incorporates.
25 As part of the process, the delegate has to bear in mind the interests of
diverse stake holders including consumers and producers. The process of framing
tariffs is of equal significance, for it is through the procedural framework that norms
of consistency, transparency and predictability can be enforced. Competition,
efficiency and quality of supply are key components of the policy framework in
designing tariffs. Clause 5.3(f) of the tariff policy speaks of the need to evolve
performance norms which incorporate incentives and disincentives and provide an
appropriate arrangement that fosters the sharing of gains of efficiency in
operations with consumers. Operating parameters in tariffs are required to be
pegged only on a “normative level” and not at the “lower of normative and actuals”,
save and except in those cases referred to in paragraph 5.3(h)(2). Paragraph
5.3(h)(2) deals with those cases where operations have been much below the
norm for several previous years. In those cases, the initial starting point in
determining the revenue requirement and the trajectories are fixed at a relaxed
level and not at desired levels. Under clause 5.3(f), the operating norms must fulfil
several parameters. They must be (i) efficient; (ii) relatable to past performance;
(iii) capable of achievement; and must progressively reflect increased efficiencies.
They may also take into consideration latest technological advances, fuel, vintage
of equipment, nature of operations, level of service to be provided to consumers,
among other factors. Continuous and proven inefficiency has to be controlled and
penalised. The operating norms must be designed to promote efficiency and to
ensure that the gains which accrue on account of efficient operations are shared
with the consumers of electricity. The operating norms will, therefore, have due
regard to the performance in the past as well as capacities for future achievement.
These must be dovetailed with all relevant considerations, bearing on the
requirements of the policy.
26 The Tariff policy provides guidance to the appropriate commission when it
frames regulations. The power to frame regulations is legislative in nature. It is
conferred upon the appropriate commission. The commission weighs numerous
factors. Its discretion in carrying out a complex exercise cannot be constrained.
The delegate of the legislature is therefore under a mandate to bring about a fair
and equitable balance between competing considerations. Standing at the
forefront of those considerations is above all the need to ensure efficiency and to
protect the interests of consumers. The submission which has been urged on
behalf of the appellant would reduce tariff fixation to a rather simplistic process of
bringing about equality between generating units which have the same design and
manufacturing origin. Such an approach overlooks the complex factors which
have to be borne in mind in the determination of tariffs. The submission which has
been urged on behalf of the appellant is based on the hypothesis that the CPRI
report underlined the similarity of Parli Unit 6, Paras Unit 3, Tata Trombay Unit 8
and the DTPS unit of the appellant. At the highest, the CPRI study would indicate
a similarity of specifications but not a similarity of performance. Performance, as
we have seen, is a critical element in designing an appropriate SHR. The SHR has
an important co-relationship with efficiency. The CPRI report indicates a detailed
analysis of RInfra’s DTPS. Specifically, in the context of DTPS, it observed:
“vii. Combining all the margins provided by the OEM, R-Infra
has been able to load the unit to 268 MW against the design
value of 250 MW. Maintaining this load is not harming the life
of the unit as the DTPS has ensured that all parameters are
kept within OEM limits. High loadability is made possible by
high energy efficiency or low unit heart rate of the unit. When
the deviation of the unit heat rate from the design heart rate is
low, heat generation in the equipment is low which enables the
parameters not to exceed their limits. As many as 66 units in
India have clocked an average annual plant loading in excess
of 100% UMCR in 2007-08.”
The CPRI report similarly contained an analysis of Units 5 and 6 of TPC-G and of
MSPGCL units. CPRI conducted studies on Units 1 and 2 of R Infra’s DTPS. In
its counter affidavit, MERC has tabulated the SHR achieved by DTPS for financial
years 2006-07 to 2009-10 as follows:
“Table No: 2 SHR achieved by DTPS from FY 2006-07 to FY 2009-10
Year Station Heat Rate (SHR) (kcal /kWh)
RInfra’s Submission in MERC Approved DTPS
Petition Achieved
It has been explained that to anticipate the SHR for financial year 2011-12 till
financial year 2015-16, the actual heat rate achieved during the previous years and
predicted deviation due to factors such as reduction in boiler efficiency due to coal
energy degradation and average annual aging loss were considered. The
anticipated SHR for DTPS for financial years 2011-12 to 2015-16 was computed
in the following manner:
“SHR = 2292* + (Reduction in Boiler Efficiency + Coal Quality
Degradation + Annual Ageing Loss) = 2350 kCal/kWh.
(* Station Heat Rate of 2292 kCal/kWh was taken from CPRI
Test Reports of March, 2010.)”
On a similar basis, CPRI carried out technical studies for Units 5 and 6 of TPC-G.
The SHR achieved by TPC-G Unit 5 (coal fired) from 2006-07 and 2008-09 was
computed. On this basis, the SHR, projected as an achievable heat rate, was
computed and an approved trajectory for Unit 5 for financial years 2011-12 to 2015-
16 was laid down. Similarly, in respect of Unit 6 of TPC-G, CPRI studies indicated
the SHR achieved for financial years 2006-07 to 2009-10. CPRI projected a heat
rate on the basis of fuel oil firing and fuel gas firing. On the basis of the CPRI report,
MERC arrived at its findings for TPC-G Units 5 and 6. In this regard, it has been
demonstrated in the counter affidavit that there was no discrimination in the
methodology followed and the same principle was uniformly applied.
27 The attention of the Court has also been drawn to the fact that the Tariff
Regulations 2011 contained a stipulation in clause 14 for the sharing of gains or
losses on account of controllable factors. Clause 14 provides as follows:
“14 Mechanism for sharing of gains or losses on account of
controllable factors:
14.1 The approved aggregate gain to the Generating Company
or Transmission License or Distribution License on account of
controllable factors shall be dealt with in the following manner:
(a) One-third of the amount of such gain shall be passed on as
a rebate in tariff over such period as may be stipulated in the
Order of the Commission under Regulation 11.6;
(b) The balance amount, which will amount to two-third of such
gain, may be utilised at the discretion of the Generating
Company or Transmission License or Distribution License.”
[The expression ‘controllable factors’ is explained in clause 12.2 of the regulations.]
28 Under the Tariff Regulations 2011, the approved aggregate gain to the
generating company was to be shared: one-third was required to be passed on as
a rebate in tariff while the balance of two-thirds would be utilised at the discretion
of the generating company. On the other hand, in the Tariff Regulations 2015,
Regulation 11 contains a corresponding mechanism for the sharing of gains on
account of controllable factors. Regulation 11 is in the following terms:
“11 Mechanism for sharing of gains or losses on account of
controllable factors:
11.1 The approved aggregate gain to the Generating Company
or Licensee or MSLDC on account of controllable factors shall
be dealt with in the following manner:
(a) Two-third of the amount of such gain shall be passed on as
a rebate in Tariff over such period as may be stipulated in the
Order of the Commission under Regulation 8.4;
(b) The balance amount of such gain shall be retained by the
Generating Company or Licensee or MSLDC.”
While in the Regulations of 2011, one-third of the aggregate gain was to be passed
on in the form of a rebate in tariff and the balance two-thirds was to be utilised by
the generating company at its discretion, in the 2015 regulations, the proportion
has been reversed. In the 2015 regulations, two-thirds of the amount of the gain
is required to be passed on as a rebate in tariff while the balance shall be retained
by the generating company. The interests of the consumer are required to be borne
in mind under the terms of the tariff policy consistent with Section 61. In its expert
judgment, the Commission, while formulating the 2015 regulations mandated that
an enhanced ratio of the aggregate gain would be passed on in the form of a rebate
on the tariff. This could have legitimately been borne in mind as a relevant
consideration in evaluating what should be appropriately fixed as the SHR for the
period in question.
29 The substratum of the case of the appellant is founded on a plea of
discrimination. Simply put, the plea is founded on the hypothesis that the CPRI
report regarded the units of DTPS as identical to Parli Unit 6 and Paras Unit 3 (of
MSPGCL) and Trombay Unit 8 (of TPC-G). The observations contained in the
CPRI report must be read in their entirety. The fact that the manufacturing
specifications of the units may be similar (assuming they are so) is only one aspect
of the total range of considerations which are required to be borne in mind under
the terms of the tariff policy. The tariff policy requires that the operating norms
should be efficient, relatable to past performance, capable of achievement and
progressively reflect increased efficiencies. They may also take into consideration
technical advancements, fuel, vintage of equipment, nature of operations and the
level of service among other factors. Mr Chidambaram laid emphasis on clause
5.3(f) of the tariff policy where it prescribes that the operating parameters and tariffs
should be at “normative levels” only and not at the “lower of normative and actuals”
except in the case of those units governed by para 5.3(h)(2). This submission will
not, however, carry the case of the appellant any further. Normative levels are
those which are fixed by the application of the standards guided by the terms of
the tariff policy while actual levels are those which have been achieved as a matter
of fact, in the past. The emphasis in the tariff policy is on creating incentives for
achieving higher efficiency in order to enable the ultimate consumer to have the
benefit of efficient operations.
30 Tariff fixation is a complex exercise involving a careful balance between
numerous considerations. The “shall be guided” prescription under Section 61
requires the appropriate commission to bear those considerations in mind.
Deducing past performance on the basis of historical data, balancing diverse policy
objectives and evaluating the comparative weight to be ascribed to the interests of
stakeholders is a scientific exercise which is carried out by the commission. The
nature of judicial review that is exercisable in a given subject area depends in a
significant measure on the nature of the area and the body which is entrusted with
the task of framing subordinate legislation. In Transmission Corporation of
Andhra Pradesh Ltd. v Sai Renewable Power Pvt. Ltd.,7 a two judge Bench of
this Court held thus:
“17. Fixation of tariff is, primarily, a function to be performed by
the statutory authority in furtherance to the provisions of the
relevant laws. We have already noticed that fixation of tariff is
a statutory function as specified under the provisions of the
Reform Act, 1998, Electricity Regulatory Commissions Act,
1998 and the Electricity Act, 2003. These functions are
required to be performed by the expert bodies to whom the job
is assigned under the law… The functions assigned to the
Regulatory Commission are wide enough to specifically
impose an obligation on the Regulatory Commission to
determine the tariff. The specialized performance of functions
that are assigned to Regulatory Commission can hardly be
assumed by any other authority and particularly, the Courts in
exercise of their judicial discretion. The Tribunal constituted
under the provisions of the Electricity Act, 2003, again being a
specialized body, is expected to examine such issues, but this
Court in exercise of its powers under Article 136 of the
Constitution would not sit as an appellate authority over the
formation of opinion and determination of tariff by the
specialized bodies.
18. …This Court has consistently taken the view that it would
not be proper for the Court to examine the fixation of tariff rates
or its revision as these matters are policy matters outside the
purview of judicial intervention. The only explanation for judicial
intervention in tariff fixation/revision is where the person
aggrieved can show that the tariff fixation was illegal, arbitrary
or ultra vires the Act. It would be termed as illegal if statutorily
prescribed procedure is not followed or it is so perverse and
arbitrary that it hurts the judicial ‘conscience’ of the Court
making it necessary for the Court to intervene. Even in these
cases the scope of jurisdiction is a very limited one.”
MERC is an expert body which is entrusted with the duty and function to frame
regulations, including the terms and conditions for the determination of tariff. The
Court, while exercising its power of judicial review, can step in where a case of
manifest unreasonableness or arbitrariness is made out. Similarly, where the
delegate of the legislature has failed to follow statutory procedures or to take into
account factors which it is mandated by the statute to consider or has founded its
determination of tariffs on extraneous considerations, the Court in the exercise of
its power of judicial review will ensure that the statute is not breached. However,
it is no part of the function of the Court to substitute its own determination for a
determination which was made by an expert body after due consideration of
material circumstances. In Association of Industrial Electricity Users v State of
Andhra Pradesh,8 a three judge Bench of this Court dealt with the fixation of tariffs
and held thus:
“11. We also agree with the High Court that the judicial review
in a matter with regard to fixation of tariff has not to be as that
of an Appellate Authority in exercise of its jurisdiction under
Article 226 of the Constitution. All that the High Court has to be
satisfied with is that the Commission has followed the proper
procedure and unless it can be demonstrated that its decision
is on the face of it arbitrary or illegal or contrary to the Act, the
court will not interfere. Fixing a tariff and providing for cross-
subsidy is essentially a matter of policy and normally a court
would refrain from interfering with a policy decision unless the
power exercised is arbitrary or ex facie bad in law.”
31 We commenced our discussion by emphasising, in our prefatory
observations, that the power to frame regulations is of a legislative nature. The
CPRI report was an input before the MERC in carrying out that exercise. MERC
followed the statutory procedures laid down for the determination of tariffs. It took
into account factors which it is mandated by the statute to consider. The national
tariff policy, suggestions of stakeholders as well as the assessment carried out by
the CPRI were duly considered. Hence, the present case does not fall in the
paradigm of manifest unreasonableness or arbitrariness to warrant the
interference of this Court. It would be rather formulaic for the Court to accept that
merely because DTPS was placed at par in the immediately previous period (2006-
07) and the period immediately succeeding (2016-20), that this must necessarily
be extrapolated to the intervening period governed by the MYT Regulations 2011.
A body which is entrusted with the task of framing subordinate legislation has a
range of options including policy options. If on an appraisal of all the guiding
principles, it has chosen a particular line of logic or rationale, this Court ought not
to interfere.
32 For the reasons which we have recorded in this judgment, we have come to
the conclusion that regulation 44.2(d) of the MERC (Multi Year Tariff) Regulations,
2011 does not suffer from any constitutional or statutory infirmity. We have,
however, furnished reasons of our own for affirming the ultimate decision of the
High Court to dismiss the writ petition. We have disapproved of the view of the
High Court that the writ petition under Article 226 was not maintainable and
accordingly set aside the direction on the imposition of costs. However, we hold
that there is no infirmity in the impugned regulation and accordingly affirm the
ultimate conclusion of the High Court to dismiss the writ petition under Article 226.
The Civil Appeal is, accordingly, disposed of. There shall be no order as to costs.
[Dr Dhananjaya Y Chandrachud]
[Hemant Gupta]
New Delhi; January 21, 2019