- The Supreme Court set aside an Appellate Electricity Tribunal decision allowing power generator giants Adani Power and Tata Power to charge compensatory tariff from their consumers spread across States including Gujarat and Haryana
- Background: The tribunal, in a judgment on April 7 last year, permitted the companies to hike the tariff
- This was allowed because, Indonesia — where they source coal from to power their plants — decided in 2010 to align its coal export prices to international market prices instead of what they have been charging for the past 40 years
- The companies had argued that the increased coal prices was a ‘force majeure’ event (an unforeseen situation) provided for in the power purchase agreements (PPAs) entered into between them and distributors
- The tribunal had then remanded the case to the Central Electricity Regulation Commission to find out the impact of the ‘force majeure’ event to grant compensatory tariff
- On December 6, 2016, the Commission had arrived at a certain determination as to compensatory tariff to be granted on account of force majeure
- Supreme Court: Setting aside all past orders of the tribunal and the commission, SC held that a change in Indonesian coal export regulations does not measure up to be a force majeure event for which the consumers have to compensate for
- The fundamental basis of the PPAs remains unaltered
- Nowhere do the PPAs state that coal is to be procured only from Indonesia at a particular price
- In fact, it is clear on a reading of the PPA as a whole that the price payable for the supply of coal is entirely for the person who sets up the power plant to bear
- It is clear that an unexpected rise in the price of coal will not absolve the generating companies from performing their part of the contract for the very good reason that when they submitted their bids, this was a risk they knowingly took
- The court held that “changes in the cost of fuel, or the agreement becoming onerous to perform, are not treated as force majeure events under the PPA itself”
- The court further held that force majeure clause cannot be claimed for change in foreign laws, but only for Indian laws
- The court ordered the Central Electricity Regulatory Commission to go into the matter afresh and determine what relief should be granted to the power generators
Important decision which would influence business ecosystem as well as consumer rights and power sector. Note the highlighted terms. Keep track of the developments in the issue. Also dwell on the issues related to tribunals which have come up in recent past like- reorganisation of tribunals, judiciary v/s tribunals conflict.
1. Central Electricity Regulatory Commission (CERC), a key regulator of power sector in India, is a statutory body functioning with quasi-judicial status under sec – 76 of the Electricity Act 2003.
2. CERC was initially constituted on 24 July 1998 under the Ministry of Power’s Electricity Regulatory Commissions Act, 1998 for rationalization of electricity tariffs, transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, and for matters connected Electricity Tariff regulation.
3. CERC was instituted primarily to regulate the tariff of Power Generating companies owned or controlled by the government of India, and any other generating company which has a composite scheme for power generation and interstate transmission of energy, including tariffs of generating companies.