Power distribution firms like Tata and Adani Power can't charge compensatory tariff: Supreme Court

The Supreme Court today said that power distribution firms like Adani Power Ltd and Tata Power Ltd cannot charge "compensatory tariff" from consumers and set aside the appellate tribunal's judgement in this regard.

Tata Power's wholly owned subsidiary Coastal Gujarat Power Ltd and Adani Power had originally moved the Central Electricity Regulatory Commission (CERC) seeking higher tariff on the grounds that their input costs had gone up due to rupee devaluation and higher costs of coal imported from Indonesia, owing to a regulation passed by the Southeast Asian nation. The apex court did not agree with the contentions of these firms which referred to the findings of the Appellate Tribunal for Electricity that rise in coal price consequent to change in the Indonesian law was a factor that entitled them to claim compensatory tariff.

While setting aside the appellate tribunal's judgement as well as the CERC's order, a bench of Justices P C Ghose and R F Nariman said that an unexpected rise in coal price would not absolve the firms from adhering to the contract as they had knowingly taken the risk while submitting their bids. "The fact that fuel supply agreement has to be appended to the PPA (power purchase argeement) is only to indicate that the raw material for the working of the plant is there and is in order," the court said in its 65-page verdict.

"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," it said. Referring to the PPA entered into by the power distribution firms, the court said the fundamental basis of the agreements remains unaltered and "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 PPAs 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 noted.
"Consequently, we are of the view that neither clause 12.3 nor 12.7 of section 32 of the Contract Act, will apply so as to enable the grant of compensatory tariff to the respondents," it said.

The bench also said that during the period of the PPA, compensation for any increase or decrease in the cost to the seller shall be determined and be effective from such date as decided by the CERC. "This being the case, we are of the view that though change in Indonesian law would not qualify as a change in law under the guidelines read with the PPA, change in Indian law certainly would," it said. "The CERC will, as a result of this judgement, go into the matter afresh and determine what relief should be granted to those power generators which fall within clause 13 of the PPA as has been held by us in this judgment," the bench said.

The court also noted the contentions of these firms that pursuant to a change in law in Indonesia in 2010, the coal price had increased. Several power distribution companies in Rajasthan, Punjab and Maharashtra had moved the apex court challenging the electricity tribunal's decision which had held that power producers were entitled to compensatory tariff and referred the case to the CERC for calculating the compensatory tariff. Referring to the order, Adani Power informed the BSE that the company will decide further course of action once the final order of the apex court is available to it.

It, however, said preliminary analysis reveals that the company will get benefit in respect of its PPA (1424 MW) to Haryana power distribution firms and PPA (3,300 MW) with such Maharashtra companies as also with PPA (1200 MW) with Rajasthan firms. Reacting to the order, Tata Power said, "CGPL/Tata Power considers it very unfortunate that neither Regulatory Powers of CERC nor Forced Majeure as adjudicated by Aptel, have been accepted by Hon'ble Supreme Court.

"The final order got uploaded in the evening and the company is studying the same. However, CGPL would continue to work towards alternatives, including sourcing of competitive & alternative coals to best contain the onslaught of under recovery."