GUJARAT ELECTRICITY REGULATORY COMMISSION Ahmedabad Petition No.

1065/2011 In the matter of: Petition under section 86 of the Electricity Act,2003 for exemption of procurement of power by Distribution companies on Long term basis from State controlled/owned generating company(ies) through Tariff based Competitive Bidding process. Petitioner : Gujarat Urja Vikas Nigam Limited (GUVNL) Race Course, Vadodara. S/shri K.P Jangid, and V.T. Patel V/s Respondents : 1 Under Secretary to Government of Gujarat Energy & Petrochemicals Department, Government of Gujarat, Gandhinagar 2 Madhya Gujarat Vij Company Ltd., Sardar Patel Vidyut Bhavan, Race Course, Vadodara 3 Dakshin Gujarat Vij Company Ltd., Nana Varachha Road, Kapodara Char Rasta Surat 4 Uttar Gujarat Vij Company Ltd., Visnagar Road, Mehsana-384001. 5 Paschim Gujarat Vij Company Ltd., Laximi Nagar, NanaMava Main Road Rajkot 6 Gujarat State Electricity Generation Ltd., Sardar Patel Vidyut Bhavan, Racecourse Vadodara 7 GSPC Pipavav Power Company Ltd. Block No 15, 3rd Floor, Udyog Bhavan Sector -11, Gandhinagar
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Represented by

Represented by

8 Gujarat State Energy Generation Ltd. Block No 15, 3rd Floor, Udyog Bhavan Sector -11, Gandhinagar 9 Gujarat Mineral Development Corporation Ltd. Khanij Bhavan Nr University Ground Road 132 ft Ring Road, Vastrapur Ahmedabad. 10 Gujarat Industries Power Corporation Ltd. P O Petrochemicals, Vadodara : S/shri K.M. Dave and M.P. Trivedi for respondent no. 2 S/shri B.R. Icreamwala and K.M. Patel for respondent no.3 S/shri R.P. Raval and Kamal Sindhi for respondent no.4 Shri J.J. Gandhi for respondent no.5 Shri A.J. Mehta for respondent no.6 Shri P.N. Trivedi for respondent no.10 CORAM: Dr.P.K.Mishra, Chairman Shri Pravinbhai Patel, Member(T) Dr.M.K.Iyer, Member(F) ORDER

1.

The present petition is filed by the petitioner for approval of the Commission for procurement of power on cost plus approach on long-term and medium-term basis from State controlled/owned generating company(ies) instead of tariff based Competitive Bidding Process for a further period of five years i.e. upto 6th January, 2016 by State controlled / owned distribution licensees i.e. Uttar Gujarat Vij Company Ltd. (UGVCL), Madhya Gujarat Vij Company Ltd. (MGVCL), Dakshin Gujarat Vij Company Ltd. (DGVCL), and Paschim Gujarat Vij Company Ltd. (PGVCL).

2.

The facts leading to the present petition, in brief, are as under:

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2.1 The petitioner submitted that the erstwhile Gujarat Electricity Board (GEB), has been unbundled into seven functional entities under the Gujarat Electricity Industry (Reorganisation and Regulation) Act, 2003. The petitioner has been entrusted with the functional responsibility of bulk power purchase and sale on behalf of the unbundled distribution companies of erstwhile GEB. Hence, the present petition has been filed by the petitioner on behalf of the four unbundled distribution licensees, viz., MGVCL, DGVCL, PGVCL and UGVCL. 2.2 The Ministry of Power, Govt. of India, through Notification dated 6th January 2006 issued the Tariff Policy in compliance of Section 3 of the Electricity Act, 2003 and in continuation of the National Electricity Policy notified on 12th February, 2005. Section 61 of the Electricity Act, 2003 provides that the Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions (SERCs) shall be guided by the Tariff Policy while discharging their functions.

2.3 According to clause 5.1 of the Tariff Policy, issued by the Government of India, all the future requirements of power by distribution licensee from private developers is to be procured through competitive bidding process only. It is further provided that the distribution companies were exempted from procurement of power through competitive bidding process from the State controlled/owned companies for a period of five years or till the State Electricity Regulatory Commission is satisfied that the situation is ripe to introduce such competition. Accordingly, w.e.f. 06.01.2011, i.e. five years from the date of notification of the Tariff Policy, the distribution companies are required to procure all future requirements of power only through competitive bidding process from all the power project developers including state controlled/owned companies unless the said period of five years is extended by the Commission.

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2.4 If Government owned/controlled distribution companies are mandated to comply with the stipulation of clause no. 5.1 of Tariff Policy for procurement of power through Competitive Bidding Process, it may create uncertainty regarding tie up of power from already planned capacity by Government owned/controlled generating companies, tie up of project finances etc., which may hamper the capacity addition plans by the State Government.

2.5 The State controlled /owned generating company(ies) have planned significant capacity addition programme, based on ambitious capacity addition plan / targets set by Government of Gujarat / Government of India to ensure reliable and quality supply of power to all. Further, such capacity may remain stranded since the State controlled / owned distribution licensees may not be in a position to procure such capacity on account of mandatory requirement to procure through Competitive Bidding Process.

2.6 Moreover, some of the project developers who are selected under Competitive Bidding Process are struggling for developing their Power Projects, particularly on account of issues like non-tie up of fuel, inability to obtain statutory clearances, land acquisition etc. In some cases, even after award of Letter of Intent / Power Purchase Agreement, the project developers have backed out / terminated the contractual agreement. Such situations are leading to apprehension amongst State

Controlled/owned distribution companies about certainty/reliability of power supply from such developers.

2.7 For ensuring certainty about the availability of power tied up by State Controlled/owned distribution companies, it may be appropriate that both the options are kept available to State Controlled/owned distribution companies for procurement of power i.e. through competitive bidding from private project
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developers and continuing for some more time the Government owned/controlled generating companies.

cost plus approach from

2.8 The tariff for procurement of power from Government owned/controlled generating companies are determined by the Commission, which ensures protection of consumer interest since the tariff is worked out based on the approved norms / parameters by the Commission after prudence check on the capital cost of such projects. Procurement of power from such companies also ensures availability of power to the distribution licensees. The Honble Appellate Tribunal for Electricity has, in its judgment in Petitions No.106 of 2009 and 107 of 2009, upheld that the distribution licensees are eligible to procure electricity through both routes, viz. either under Section 62 read with section 86(1)(b) i.e. on regulated tariff based on cost plus approach or under section 63 of the Electricity Act,2003 i.e. under Competitive Bidding Process subject to approval of the Commission.

2.9

2.10 It has further been submitted that the State controlled/owned generating company(ies) may not be in position to offer power under Competitive Bidding Process to Distribution Company(ies) on account of the following difficulties: (i) Delay in obtaining statutory clearances and approvals like Environment & Forest clearance

(i). Problems in acquiring land particularly through acquisition process (ii). Achieving financial closure and deployment of equity on account of financial constraints 2.11 The Commission, having regard to the capacity addition already planned by the state controlled/owned generating company(ies), difficulties faced by them in
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offering capacity through Competitive Bidding Process and for ensuring reliable power supply to state controlled / owned distribution licensees, may grant permission to procure power on cost plus approach on Long term or Medium term basis from State controlled/owned generating company(ies) as identified developer (through other than Tariff based Competitive Bidding process) for a further period of five years i.e. up to 6th January, 2016. Hence, the present petition is preferred by the petitioner. 3. The respondent No. 6 viz. GSEG Ltd. which is a State PSU, filed reply contending, inter alia, that they are at present operating 156.1 MW plant at Hazira and currently executing 350 MW combined cycle power project Phase-II which shall be commissioned in 2011. They have planned further expansion under Phase-III by adding another unit of 350 MW. 3.1 It is further submitted that clause 5.1 of the Tariff Policy provides that all the future requirement of power by the distribution licensees is to be procured through competitive bidding process only. The distribution licensees were exempted from procurement of power through competitive bidding process from the state controlled/owned company for a period of 5 years or till the Regulatory Commission is satisfied that the situation is ripe to introduce such competition. Thus, unless it is extended, the last date for entering into PPA by the distribution licensees/petitioner to purchase power from the project developer is 5th January, 2011. The respondent No. 6 has planned expansion of another 350 MW Phase-III and desired to finalise the PPA with the petitioner. Based on the above, the

petitioner has submitted that considering the capacities already planned by the state controlled/owned generating company(ies), difficulties faced by them in offering capacity through Competitive Bidding Process and for ensuring reliable power supply to state controlled / owned distribution licensees, Commission may grant permission to state controlled / owned distribution licensees.
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3.2 The Tariff Policy provides that the Commission is empowered to exempt the distribution licensees from procurement of power through competitive bidding process in case the power is tied up from the state controlled/owned generating company(ies) for a period of five years or till such time when the Regulatory Commission is satisfied that the situation is ripe to introduce such competition. Hence, the Commission is requested to exempt the petitioner from following

competitive bidding process for procurement of power for a period of another five years. 4. The respondent No. 7 viz. GPPCL filed reply contending, inter alia, that it is a public limited company incorporated under the Companies Act, 1956 and setting up 2 x 351 MW combined cycle power plant near Pipavav, Gujarat. The respondent No. 7 has also entered into PPA with the petitioner for this capacity. The respondent and GUVNL had, in January 2008, signed MOU for sale and purchase of electricity for total capacity of 1050 MW. Out of this, work on 700 MW power plant is in progress, as stated above, They have obtained statutory clearance for setting up 1000 MW power plant and the 3rd unit of 350 MW is also under advance stages. The Government of Gujarat has taken a decision for repowering of the Gujarat State Electricity Corporation Ltds old and existing coal/fuel oil based power plants by converting into the gas based combined cycle power plants through the respondent No. 7. GPPC is also planning expansion of the said project by 1000 MW in 2 nd phase. Hence, if the Government owned/controlled distribution companies are

mandated to comply the stipulation of clause No. 5.1 of the Tariff Policy for procurement of power through competitive bidding process, it may create uncertainty regarding capacity addition by the state owned generating companies and hamper their future plans. Therefore, the Commission may exempt the distribution licencesee owned/controlled by the State Government from procurement of power through competitive bidding process for a period of five
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years i.e., upto 6.1.2016 so that the Government owned/controlled generating companies are able to plan the additional capacity and supply to the distribution licensees.

5.

The matter was heard by the Commission on 1.2.2011 and 3.10.211. When the matter was called out on 3.10.2011, S/shri K.P.Jangid amd Hitesh Modi were present on behalf of the petitioner. Shri M.P. Trivedi was present on behalf of respondent no. 2. S/Shri B.R.Icecreamwala and K.M.Patel were present on behalf of respondent No.3. S/shri R.P.Raval and K.S. Sindhi were present on behalf of respondent No.4. Shri J.J.Gandhi was present on behalf of respondent No.5. Shri A.J.Mehta was present on behalf of respondent No.6. Shri P.N.Trivedi was present on behalf of respondent No.10. Nobody was present on behalf of respondents No.1, 7, 8 and 9.

6.

Shri K.P.Jangid, on behalf of the petitioner reiterated the facts as stated in para 2 above. He further submitted that under section 86(1)(a) and (b) of the Act, the Commission is empowered to decide the tariff for generation, supply, transmission, wheeling of electricity, wholesale, bulk or retail, as the case may be. The Commission is also empowered to decide the power procurement made by the distribution licensee. He further submitted that in the Electricity Act, 2003 the power procurement by the distribution licensee is provided in two ways. Sections 61, 62 and 64 empower the distribution licensee to procure power from the

generating companies/ licensees other than through the competitive bidding process based on the Regulations framed by the Commission. Whereas section 63 of the Act provides for procurement of power through competitive bidding process as per the guidelines of the Central Government. Both the routes for power procurement by the distribution licensee, as stated above, are regulated activities and the same have been approved by the Commission.

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6.1 The tariff policy formulated under Sec. 3 of the Electricity Act, 2003 provides that distribution licensees shall be required to procure power through competitive bidding from 6.1.2011. However, the Honble Appellate Tribunal for Electricity has in its judgement dated 31.3.2010 in Appeal Nos. 106 and 107 of 2009 decided that distribution licensees are empowered to procure power either through

competitive bidding process or as provided under Section. 62 read with section 64 of the Electricity Act, 2003. The provisions of the Tariff Policy regarding

procurement of power through competitive bidding process after 6.1.2011 shall not come in the way of procurement of power by the distribution licensee through negotiated tariff under section 62 or tariff based on competitive bidding process done by the distribution licensee under Section 63 of the Act. He further submitted that the Ministry of Power has filed a writ petition before the Honble Supreme Court of India and challenged the judgement dated 31st March, 2010 in Appeal Nos. 106 and 107 of 2009 passed by the Honble Appellate Tribunal for Electricity. The aforesaid judgement of the Honble Appellate Tribunal is not stayed by the Honble Supreme Court. Therefore, the Commission is empowered to decide procurement of power by distribution licensees either through negotiated tariff under section 62 or tariff based on competitive bidding process done by distribution licensees under Section 63 of the Act. He requested that the Commission may adjourn the matter sine-die, pending decision of the Supreme Court in the writ petition filed by the Ministry of Power, Govt. of India. He further submitted that the Ministry of Power, Govt. of India has modified the earlier Notification and made compulsory for the Government/Public Sector Undertakings to procure power through competitive bidding process. Hence, the Commission may take appropriate decision in the above matter. 7. Shri J.J. Gandhi, on behalf of respondent No. 5 submitted that the Commission may take appropriate decision in the matter based on the submissions made by the parties.
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We have carefully considered the submissions made by the parties. The present petition is filed by Gujarat Urja Vikas Nigam Ltd. seeking extension of the period stipulated by the tariff policy by 5 years i.e. upto 6th January 2016 during which GUVNL would not be required to compulsorily follow the process of competitive bidding for procurement of power. In other words, the GUVNL would like to have an option of following an alternative router of cost-plus tariff. The respondent Nos. 6 and 7 also supported the submissions of the petitioner. However, before arriving at any decision, it is necessary to refer to the relevant provisions of the Electricity Act, 2003, Tariff Policy and the judgement of the Honble Appellate Tribunal for Electricity on the above issue.

Clause No.5.1 of the Tariff Policy notified by the Ministry of Power under section 3 of the Electricity Act,2003 reads as under: Tariff policy 5.0 GENERAL APPROACH TO TARIFF 5.1 Introducing competition in different segments of the electricity industry is one of the key features of the Electricity Act, 2003. Competition will lead to significant benefits to consumers through reduction in capital costs and also efficiency of operations. It will also facilitate the price to be determined competitively. The Central Government has already issued detailed guidelines for tariff based bidding process for procurement of electricity by distribution
th

licensees for medium or long-term period vide gazette notification dated 19 January, 2005. All future requirement of power should be procured competitively by distribution licensees except in cases of expansion of existing projects or where there is a State controlled/owned company as an identified developer and where regulators will need to resort to tariff determination based on norms provided that expansion of generating capacity by private developers for this purpose would be restricted to one time addition of not more than 50% of the existing capacity.

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The Tariff Policy provides that future requirement of power should be procured by the distribution licensees even from the Public Sector projects on the basis of competitive bidding after a period of five years or when the Regulatory Commission is satisfied that the situation is ripe to introduce such competition. Thus, it empowers the Regulatory Commission to extend the power procurement methodology based on cost plus and regulated tariff and not to insist to follow the Competitive Bidding Process till it is satisfied the situation is appropriate and ripe.

As per the provisions of the Electricity Act,2003, the procurement of the electricity by the distribution licensee is permissible through regulated procurement i.e. under sections 62(1) (a) read with 86(1)(b) or through competitive basis i.e. under section 63 of the Electricity Act,2003. In this connection, it is essential to refer to the judgment of the Appellate Tribunal for Electricity in Petitions No.106 of 2009 and 107 of 2009. Relevant para of this judgment read as under: 17. Section 62(1)(a) of the Act provides that the Appropriate Commission shall determine the tariff in accordance with the provisions of the Act for the supply of electricity by a generating company to a distribution licensee, whereas Section 63 of the Act provides that the tariff arrived through a transparent Competitive Bidding Process shall be adopted by the Appropriate Commission. Section 62(1)(a) and Section 63 of the Act are quoted as under: 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 Provided that the Appropriate Commission may, in case of shortage of supply of electricity, fix the minimum and maximum ceiling of tariff for sale or purchase of electricity in pursuance of an agreement, entered into between a generating company and a licensee or between licensees, for a period not exceeding one year to ensure reasonable prices of electricity. 63. Determination of tariff by bidding process Notwithstanding anything contained in Section 62, the Appropriate Commission
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shall adopt the tariff if such tariff has been determined through transparent process of bidding in accordance with the guidelines issued by the Central Government. 18. Thus these Sections provide for two alternatives to the concerned parties to procure power with the approval of tariff by the Appropriate Commission. These 2 alternatives are as follows: (i) Under Section 62(1)(a), the Appropriate Commission shall determine the tariff for the supply of electricity by a generating company to a distribution licensee. Under Section 63, when the tariff has been determined by the Competitive Bidding Process, the Appropriate Commission shall adopt such tariff. The wording contained in Sections 62 and 63 of the Act would make it clear that Section 63 is not couched as a non-obstante clause being an exception carved out from Section 62. Section 62 is a substantive provision. Section 63 is an exception. So the exception contained in Section 63 cannot override the scope of the substantive namely Section 62. In other words, Section 62 provides substantive power to the Appropriate Commission for determination of tariff with the sole exception of price discovery through the Competitive Bidding Process under Section 63.

(ii)

20. The above relevant quoted portions of the clarification would make it clear that Section 63 is optional route for procurement of power by a distribution licensee and in case the same is followed, the Appropriate Commission is required to adopt the said tariff. Therefore, the power under Section 62(1)(a) and Section 86(1)(b) conferred on the State Commission cannot in any manner be restricted or whittled down by way of a policy document or a subordinate legislation or notification issued by the Government/Executive. Any rules, or executive instructions or notification which are contrary to any provisions of the tariff statute shall be read down as ultravires of the parent statute. This is a settled law as laid down by the Supreme Court in (2006) 4 SCC 327 in Kerala Samsthana Chethu Thozhilali Union versus State of Kerala and Ors.(quoted below) 17. A rule is not only required to be made in conformity with the provisions of the Act whereunder it is made, but the same must be in conformity with the provisions of any other Act, as a subordinate legislation cannot be violative of any plenary legislation made by Parliament or the State Legislature:
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9.

As per the above judgment of the Honble Appellate Tribunal for Electricity, the power procurement as per section 62 read with section 85(1)(b) and section 63 is still available over the provisions of Tariff Policy. The Honble Appellate Tribunal for Electricity has held that distribution licensees can procure power under section 62 or section 63 of the Electricity Act, 2003 and provisions of Tariff Policy are not binding in respect of power procurement through Competitive Bidding Process.

10. The petitioner submitted that the judgement of the Honble Appellate Tribunal in Appeal Nos. 106 and 107 of 2009 has been challenged by the Ministry of Power, Government of India before the Supreme Court, but the Supreme Court has not granted any stay against the judgement of the Appellate Tribunal. Therefore, the ratio decided in the said judgement is in force and hence, the plea taken by the petitioner to extend the time limit to procure power by the state controlled distribution licensees under the tariff negotiated under Sections 62 and 63 of the Electricity Act. 2003 upto 6.1.2016 has no relevance, because the procurement of power by the distribution licensee either under section 62 or section 63 of the Electricity Act, 2003 is permissible. The provisions of Tariff Policy are not binding in respect of power procurement through Competitive Bidding Process even after 6.1.2011 as the main Act provides that power procurement under section 62 or section 63 is permissible. However, the State Electricity Regulatory Commissions are empowered to approve the power procurement under Section 86(1)(b) of the Electricity Act, 2003.

11. The petitioner has prayed for adjourning the matter sine-die. We observe that the writ petition filed by the Ministry of Power, Govt. of India is pending before the Supreme Court and no stay has been granted against the judgement of the Appellate Tribunal in Appeal Nos. 106 and 107 of 2009. Therefore, the prayer of the petitioner is infructuous. As and when the judgement of the Supreme Court in
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the pending petition filed by the Ministry of Power, Government of India is pronounced, the same will be applicable to all concerned.

The petition is, therefore, premature especially in view of the judgment of the Appellate Tribunal for Electricity and is therefore, dismissed.

11. With the above observation, we decide that the prayer of the petitioner is infructuous. Hence, the petition is dismissed.

12.

We order accordingly.

Sd/[Dr.M.K. IYER ] MEMBER (F) Place: Ahmedabad Date : 21.10.2011

Sd/[PRAVINBHAI PATEL] MEMBER(T)

Sd/[Dr.P.K. MISHRA] CHAIRMAN

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