Recently, the Hon'ble Supreme Court has inter alia delineated the scope of power vested with the State Electricity Regulatory Commissions (“State Commissions”) under the Electricity Act, 2003 (“Electricity Act”) particularly when it comes to determining (or adopting) the tariff.
The issue in dispute arose from petition filed by Rajasthan Rajya Vidyut Prasaran Nigam Limited ("RVPNL") before the Ld. Rajasthan Electricity Regulatory Commission ("RERC") seeking approval for procurement of 1000 MW of power through competitive bidding[1]. In pursuit of this, RVPN issued a request for proposal ("RFP"). The Bidding Evaluation Committee ("BEC") preliminarily evaluated non-financial bids and shortlisted 7 bidders as being qualified to submit the financial bids. Subsequently, LOIs were issued in favor of the lowest bidders, and Power Purchase Agreements were signed with L-1, L-2, and L-3 bidders[2].
Later, RVPN filed a petition before Ld. RERC seeking approval for the adoption of tariffs for the purchase of long-term base load power, as quoted by L-1, L-2, and L-3. However, the Energy Assessment Committee appointed by the Government of Rajasthan recommended that there was no requirement for long-term procurement of 1000 MW. Following this, the Government of Rajasthan approved the purchase of 500 MW of power on a long-term basis (contrary to the `originally planned 1000 MW for which PPAs had already been executed)[3]. In accordance with the recommendation of the EAC and the approval of the Government of Rajasthan, RVPN submitted an application to the Ld. RERC for the adoption of tariffs and approval of the reduced quantum of 500 MW of power. Consequently, the Ld. RERC approved the tariffs as quoted by the L-1 to L-3 bidders.
Be that as it may, L – 2 and L – 3 bidders, being aggrieved with the Ld. RERC's decision to reduce the procurement quantum, lodged appeals before the Hon’ble APTEL, which ruled in their favor by deeming the reduction in quantum as incorrect. Contesting this ruling, the Appellants herein approached the Hon’ble Supreme Court, arguing against the restoration of the RFP quantum from 500 MW to 1000 MW. Additionally, a civil appeal was filed by the L-5 bidder, contending that the Ld. RERC erred in permitting higher quantum procurement by L-2 and L-3 bidders.
In its judgment, the Hon’ble Supreme Court has overturned the reduction of procurement quantum from 1000 MW to 500 MW, emphasizing the original bids' significance over any subsequent increases[4]. The Apex Court directed the Ld. RERC to scrutinize the approval for tariff adoption concerning L-4 and L-5 bidders, noting that their tariffs did not align with prevailing market rates[5]. Challenging the Ld. RERC’s decision, the L-5 bidder appealed to the Hon’ble APTEL, which held that the Ld. RERC was obligated to adopt the tariff without considering its alignment with market prices. Subsequently, MB Power filed a writ petition before the High Court of Rajasthan, seeking writ of Mandamus to the effect of issuance of LOI and signing of PPA. The test of ‘filling the bucket’ was applied to hold that the Rajasthan Discoms are liable to take supply from MB Power at the quoted rates to make up for remaining capacity. Aggrieved, the Appellant preferred the present civil appeal before the Hon’ble Supreme Court.
The Supreme Court's focus revolves around three key issues raised before APTEL. These issues are as follows:
1. Can the Ld. RERC legally reject the tariff/bid submitted by the Appellant, as per Section 63 of the Electricity Act?
2. Is there adequate evidence to demonstrate that the bid made by the Appellant aligns with market price?
3. Can the Discoms in the present case raise the plea of consumer interest to reject the bid?
Insofar as the first issue is concerned, the Hon’ble Supreme Court, relying on its prior ruling in the Energy Watchdog case, emphasized upon the State Commission's general regulatory powers encompassing its power to regulate tariff determination. The court further clarified that the State Commission does not function as “a mere post office” under Section 63 of the Electricity Act[6]. It determined that the non-obstante clause in Section 63 pertains solely to Section 62 and not to Section 79 and 86 of the Electricity Act. Notably, the court highlighted the expansive authority granted to the State Commissions under Section 86(1)(b) of the Electricity Act, empowering it to regulate the electricity purchase and procurement process of distribution licensees, including setting prices for electricity procurement from generating companies[7].
Furthermore, the court affirmed the State Commission's prerogative to reject all price bids if they do not align with prevailing market prices, citing the evaluation committee's authority (under Clause 5.15 of the bidding guidelines) to assess bid rates against market rates and reject bids accordingly. Thereby, the Hon’ble Supreme Court rejected the test of ‘filling the bucket’ which was used to justify the obligation to take supply of electricity from MB Power at rates that do not align with the market prices to make up for the unfulfilled capacity.
The Hon’ble Supreme Court noted that the State Commissions possess authority to regulate the prices at which electricity is procured from generating companies. Since, under Clause 5.15 of the bidding guidelines, BEC has the power to reject all bids that do not align with prevailing market prices, no question can be raised regarding the authority of the Ld. RERC to reject the bids in a competitive process, despite the same being transparent and compliant with bidding guidelines[8].
It would not be economically feasible to accept all the bids made as it would force Discoms to purchase electricity at higher rates, which ultimately would have to be passed on to the consumers[9]. Given that Discoms are revenue-neutral, the burden of the increased rates would adversely affect consumers and prejudice broader public interest. Consequently, the Apex Court held the APTEL's observation as erroneous, emphasizing that the State Commissions indeed possess the authority to assess whether bid prices are market-aligned and to consider consumers' interests in this regard[10].
The Respondent argued that Clause 5.15 of the Bidding Guidelines grants the Evaluation Committee the authority to reject "all" price bids rather than just "any" one of them.
Referring to the Constitution Bench Judgment in Vivek Narayan Sharma and others v. Union of India and others[11], the court emphasized the importance of interpreting words like "all" or "any" in their context, considering the overall scheme and purpose of the enactment. Consequently, the Hon’ble Supreme Court held that the term "all" in Clause 5.15 of the Bidding Guidelines, when read in conjunction with the legislative policy of the Electricity Act and Section 86(1)(b) of the Act, should be interpreted to include "any."[12]
The court stressed the importance of choosing an interpretation that advances the purpose of the Act and ensures its smooth operation, while avoiding interpretations that lead to absurdity or undermine the Act's basic scheme and purpose[13]. Therefore, the court concluded that the APTEL erred in overturning Ld. RERC's findings, emphasizing that it is impermissible to prioritize the interests of generators over that of consumers and the public.
The High Court's decision to issue a mandamus compelling state instrumentalities to enter into a contract that would harm public interest[14] and was legally Untenable thereby it was set aside. If electricity was brought from MB Powers at a higher rate than market price it would impose a substantial financial burden on the state, which would ultimately be passed on to consumers. The High Court's failure to consider the broader interests of consumers and the resulting public interest rendered the mandamus legally unsustainable[15].
This judgment marks a significant expansion of the power granted to State Commissions while adopting tariffs under Section 63 of the Electricity Act, allowing them to reject tariffs that do not align with market prices. The decision rightly highlights the increased discretion afforded to State Commissions and underscores the importance of careful consideration while adopting tariffs. Departing from a strictly textualist approach, the Hon’ble Supreme Court applied a purposive interpretation. This application of the purposive rule of interpretation, rather than a textualist approach, has ensured a broader understanding of the powers of State Commissions, maintaining a delicate balance between the interests of generators and the consumers.
[1] Jaipur Vidyut Vitran Nigam Ltd. and Ors. vs. MB Power (Madhya Pradesh) Limited and Ors. 2024 INSC 23
[2] Supra at 7
[3] Supra at 9
[4] Jaipur Vidyut Vitran Nigam Ltd. and Ors. vs. MB Power (Madhya Pradesh) Limited and Ors. 2024 INSC 23
[5] Supra
[6] Supra at 53
[7] Supra at 58
[8] Supra
[9] Supra
[10] Supra at 63
[11] 2023 INSC 2
[12] Jaipur Vidyut Vitran Nigam Ltd. and Ors. vs. MB Power (Madhya Pradesh) Limited and Ors. 2024 INSC 23
[13] Supra at 84
[14] Supra at 98
[15] Jaipur Vidyut Vitran Nigam Ltd. and Ors. vs. MB Power (Madhya Pradesh) Limited and Ors. 2024 INSC 23