Three Generators, namely, Indiabulls Power Limited (1200 MW), Adani Power Maharashtra Limited (1865 MW) and JSW Energy Limited (300 MW), which had executed Power Purchase Agreements (PPA) under the Case 1 Route of the competitive Bidding Guidelines, with Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL) in the year 2007 to 2009, approached the Maharashtra Electricity Regulatory Commission (MERC) for compensation on account of shortfall in supply of domestic coal and increase in price of imported coal. The petitioners relied upon the 'change in law' provisions of the PPAs and cited the CCEA approved mechanism for supply of coal to power producers dated February 2013, the amendment to New Coal Distribution Policy (NCDP) dated 26 July 2013 and a letter from the Ministry of Power addressed to the secretary CERC dated 31 July 2013 as events that fall under these provisions. JSW Energy, which runs imported coal based plant, filed its petition under Section 61, 86 (1) (b) and other Applicable provisions of Electricity Act 2003, praying for a suitable increase in Tariff to offset the increase in cost of importing coal claiming that factors underlying its bid have been fundamentally altered with, inter alia, cancellation of its mining licence in Indonesia, the promulgation of Indonesian Regulations and the significant increase in imported coal prices.

Prayas participated in the proceedings pertaining to the above-mentioned matters and submitted that in none of the cases, there were any events which fall under the change in law related provisions of the PPA and hence no relief is applicable. Prayas also pointed out that the Commission had ruled in an earlier matter (case no 50 of 2012) that any advice issued by the Central Ministry to a State Commission is not binding in nature and can only be considered as a guiding principle. Thus, whether to act on the said advice or not, is solely the discretion of MERC. Therefore, it was argued by Prayas that in case the Commission decides to act in these matters, it will have to establish the reasons for such action and will have to clearly pronounce the legal principles under which it is taking such steps. However, on 15th July 2014, the MERC passed orders approving a framework for pass through of costs arising on account of shortages in domestic coal.

Aggrieved by this decision of the MERC, Prayas has filed a petition under section 85 of the Conduct of Business regulations of MERC, seeking review of the impugned orders. In spite of the serious concerns and legal questions being raised during the proceedings, the Commission approved a mechanism for passing through of what it calls a ‘compensatory tariff’ over and above the PPA agreed rate, without establishing the legal provisions under which it is acting. This decision of the Commission will impose an additional tariff impact of more than Rs. 2,000 Crores per year on MSEDCL consumers. The impugned order also fails to invoke any legal principles/provisions while deciding a framework for pass-through of costs over and above the PPA agreed tariff. The said order also fails to explicitly mention under what circumstances and which legal or contractual provisions, the said framework can be made applicable, if at all.

Following are the main prayers of the review petition filed by Prayas:

  • The commission should first decide the review petition in case no 167 of 2014 and provide clarity regarding the exact legal provisions under which it has chosen to act in the impugned orders.
  • In consequence, the implementation of the Orders passed in case nos 140 of 2014, 145 of 2014 and 147 of 2014 after the impugned Orders under review should be stayed till this present matter is decided. Based on the review of the impugned order, the said orders may be accordingly recalled, set aside or reviewed.

The impugned order, submissions made by Prayas in the courses of the hearings related to the impugned order and the review petition filed by Prayas, along with additional submissions can be downloaded using the link below.