# ~ A.P. ELECTRICITY REGULATORY COMMISSION v. MIS. R.V.K. ENERGY PVT. LTD. AND ANOTHER

- **Citation:** [2008] 9 S.C.R. 579
- **Court:** Supreme Court of India
- **Decided:** 2008-05-16
- **Case number:** Civil Appeal No. 8094 of 2002
- **Bench:** S.B. Sinha, D.K. Jain
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/a-p-electricity-regulatory-commission-v-mis-r-v-k-energy-pvt-ltd-and-another-24883
- **Pages:** 56

## Headnote

Andhra Pradesh Electricity Reforms Act, 1988 - Applicabilityllnterpretation of vis-a-vis orders passed by the Andhra
Pradesh Electricity Regulatory Commission - High Court c
passing orders on appeal by parties - On appeal, Held: Commission constituted under the 2003 Act to consider the matter
afresh in the light of the new statute - Commission to pass
appropriate orders taking into consideration all the material
---11(
facts - Commission would be at liberty to vary, modify, rescind D
the order of the Commission and issue directions as may be
considered just and reasonable - Till such time Commission
passes an appropriate interim order, the interim order passed
by this court shall continue.
Doctrines:
E
Doctrine of promissory estoppel - Applicability of.
Interpretation and/or application of the provisions of
the Andhra Pradesh Electricity Reforms Act, 1998 (The 1998
Act) vis-a-vis the orders passed by the Andhra Pradesh
F
Electricity Regulatory Commission ('the Commission')
were involved in these appeals which arise out of the judgments and orders passed by a Division Bench of the
Andhra Pradesh High Court.
.. "!
Disposing of the appeals with certain directions, the Court G
HELD: 1.1 The State took a policy decision. It was
with a view to develop growth of generation and supply
of electrical energy. Monopoly of the State Electricity
579
H
580
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A Board was sought to be given a go bye. The intention of
the State to lay down the policy decision in regard to
privatization of generation and supply of electrical energy
is manifest from the GOMs. issued by it. (para 10) [617-E,F]
1.2 There is absolutely no doubt whatsoever that the
8 Commission, which is a statutory authority, is bound by the
direction of the State but it would not be so bound if it is
•
contrary to or inconsistent with any of the provisions contained in 1998 Act. Respondents sought for an exemption
from the provisions thereof. They filed applications in terms
C of Section 16of1998 Act. Whether such an application was
filed on a mistaken belief or not is one question but the action taken by the Commission must be construed upon taking a holistic view of the matter. (para 11) [617-F,G,H]
0
1.3 Respondents acted pursuant to the promise
made by the State. They altered their position. They have
invested a huge amount. They secured foreign collabo-·
ration, raised huge loans from financial institutions. They
not only entered into Power Purchase Agreements but
also entered into Power Wheeling Agreements with
E APTRANSCO. The said arrangements were entered into
in view of the fact that the private generating companies
did not have the requisite infrastructure for transmission
of electrical energy from their generating stations to the
consumers. (para 12) [618-A,B]
F
West Bengal Electricity Regulatory Commission vs.
C.E.S.C. Ltd. etc. etc. (2002) 8 SCC 715 - referred to.
2.1 No doubt the functions of the Commission are
wide. It, in terms of clause (e) of sub-section (1) of Section
G 11 of the 1998, the Commission is entitled to regulate the
purchase, distribution and supply as also utilization of electricity but when the Act speaks of regulation, the same would
not ordinarily mean that it can totally prohibit supply to third
parties. It may do so in exceptional situations. Such an ... :~
H der is not to be passed. (para 14) [618-G,H, 619-A]
\,. -
'
A.P. ELECTRICITY REGULATORY COMMISSION v. 581
M/S. R.V.K. ENERGY PVT. LTD.
...
"-
2.2 The Commission, keeping in view the purported A
object of the Act, ordinarily was bound to give effect to
the policy decision of the State. The Act was enacted to
encourage competition. It speaks of privatization of generation of power. The Commissioner's power to regulate
supply of power must be considered keeping in view the B
purport and object of the Act. (para 15) (619-A,B]
'
2.3 If the State had accorded sanction for sale of elec-
)>
trical energy generated by the MPPs, the Commission
save and except for

## Text

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[2008] 9 S.C.R. 579
~
A.P. ELECTRICITY REGULATORY COMMISSION
A
v.
MIS. R.V.K. ENERGY PVT. LTD. AND ANOTHER
(Civil Appeal No. 8094 of 2002)
MAY 16, 2008
B
).
[S.B. SINHA AND D.K. JAIN, JJ.]
Andhra Pradesh Electricity Reforms Act, 1988 - Applicabilityllnterpretation of vis-a-vis orders passed by the Andhra
Pradesh Electricity Regulatory Commission - High Court c
passing orders on appeal by parties - On appeal, Held: Commission constituted under the 2003 Act to consider the matter
afresh in the light of the new statute - Commission to pass
appropriate orders taking into consideration all the material
---11(
facts - Commission would be at liberty to vary, modify, rescind D
the order of the Commission and issue directions as may be
considered just and reasonable - Till such time Commission
passes an appropriate interim order, the interim order passed
by this court shall continue.
Doctrines:
E
Doctrine of promissory estoppel - Applicability of.
Interpretation and/or application of the provisions of
the Andhra Pradesh Electricity Reforms Act, 1998 (The 1998
Act) vis-a-vis the orders passed by the Andhra Pradesh
F
Electricity Regulatory Commission ('the Commission')
were involved in these appeals which arise out of the judgments and orders passed by a Division Bench of the
Andhra Pradesh High Court.
.. "!
Disposing of the appeals with certain directions, the Court G
HELD: 1.1 The State took a policy decision. It was
with a view to develop growth of generation and supply
of electrical energy. Monopoly of the State Electricity
579
H
580
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A Board was sought to be given a go bye. The intention of
the State to lay down the policy decision in regard to
privatization of generation and supply of electrical energy
is manifest from the GOMs. issued by it. (para 10) [617-E,F]
1.2 There is absolutely no doubt whatsoever that the
8 Commission, which is a statutory authority, is bound by the
direction of the State but it would not be so bound if it is
•
contrary to or inconsistent with any of the provisions contained in 1998 Act. Respondents sought for an exemption
from the provisions thereof. They filed applications in terms
C of Section 16of1998 Act. Whether such an application was
filed on a mistaken belief or not is one question but the action taken by the Commission must be construed upon taking a holistic view of the matter. (para 11) [617-F,G,H]
0
1.3 Respondents acted pursuant to the promise
made by the State. They altered their position. They have
invested a huge amount. They secured foreign collabo-·
ration, raised huge loans from financial institutions. They
not only entered into Power Purchase Agreements but
also entered into Power Wheeling Agreements with
E APTRANSCO. The said arrangements were entered into
in view of the fact that the private generating companies
did not have the requisite infrastructure for transmission
of electrical energy from their generating stations to the
consumers. (para 12) [618-A,B]
F
West Bengal Electricity Regulatory Commission vs.
C.E.S.C. Ltd. etc. etc. (2002) 8 SCC 715 - referred to.
2.1 No doubt the functions of the Commission are
wide. It, in terms of clause (e) of sub-section (1) of Section
G 11 of the 1998, the Commission is entitled to regulate the
purchase, distribution and supply as also utilization of electricity but when the Act speaks of regulation, the same would
not ordinarily mean that it can totally prohibit supply to third
parties. It may do so in exceptional situations. Such an ... :~
H der is not to be passed. (para 14) [618-G,H, 619-A]
\,. -
'
A.P. ELECTRICITY REGULATORY COMMISSION v. 581
M/S. R.V.K. ENERGY PVT. LTD.
...
"-
2.2 The Commission, keeping in view the purported A
object of the Act, ordinarily was bound to give effect to
the policy decision of the State. The Act was enacted to
encourage competition. It speaks of privatization of generation of power. The Commissioner's power to regulate
supply of power must be considered keeping in view the B
purport and object of the Act. (para 15) (619-A,B]
'
2.3 If the State had accorded sanction for sale of elec-
)>
trical energy generated by the MPPs, the Commission
save and except for cogent and compelling reasons could
· not have dire.cted the sale of entire production of electric- c
. ity energy to APTRANSCO. If that was the stand of the
Commission and APTRANSCO, the question of entering
into any Wheeling Agreement did not arise. It is one thing
to say that the privileges conferred by G.O.Ms: issued by
the State Government were prior to the coming into force D
of the 1998 Act and appointment of the Commission, but
~ then the Commission was bound to give due weight to
the policy decision taken by the State even prior to its
.. es.tablishment and coming into force of the 1998 Act, particularly when the Act was enacted in furtherance thereof. E
(para 16) (620-F,G, 621-A]
2;4 Indisputably respondents were entitled to produce electrical energy under Section 28 of 1910 Act. They
were authorized to generate electrical energy. The quesF
-i
tion which arises is as to whether they were required to
file appropriate applications for grant of licence or for exemption which' should have been dealt with accordingly.
At that point of time, the Commission was not exercising
Us other functions. A condition, which is per se unreason-
. .able should not· have been imposed. It is one thing to say G
that the statutory authority exercised its powers one way
.. ~
or the other. ·but it is other thing to say that in the garb of
exercising power: of g.rant of licence and/or exemption
·thereunder; it issued a direction which has nothing to do
directly ther~with. (para 17) [621-B,C,D]
H
582
SUPREME COURT REPORTS
[2008) 9 S.C.R.
A
State of Tripura and others vs. Sudhir Ranjan Nath (1997)
3 sec 665; Jiyajeerao Cotton Mills Ltd. and another VS.
Madhya Pradesh Electricity Board and another 1989 Supp
(2) SCC 52 and Talcher Municipality vs. Talcher Regulated
Market Committee and another (2004) 6 SCC 178 - referred
B to.
Advanced Law Lexicon, 3rd edition, page 4026 - referred to.
3.1 Commercial relationship between a generating
c company and the consumer has all along been accepted.
Public interest would not mean the interest of
APTRANSCO alone. Equity in favour of one of the generating companies could not have been the sole ground
for coming out with such a policy decision and that too
0 while considering application for grant of exemption from
the purview of the licensing provision. (para 18) (621-D,E]
3.2 It is assumed that the Legislature of the State with
some purpose in mind provided for taking of licence under the 1998 Act but the very fact that they had the requiE site licence in terms of the provisions of 1910 Act, itself
was one of the relevant considerations for the purpose
of grant of exemption. It could have been rejected in which
event the MPPs would have applied for grant of licence.
Indisputably the State Government has the power to grant
F provisional licence. In terms of sub-section (4) of Section
14 of 1998 Act, the provisional licences are also issued
by the State Government. Indisputably again the said provisional licences have been granted to avoid a situation
as a result whereof the MPPs would be forced to stop their
G function during interregnum period. Even if the licences
were required to be issued, each case should have been
considered on its own merit. (pcua 19) [621-F,G, 622-A]
3.3 When an application for grant of exemption is filed,
the same is required to be dealt with independently. What
H was necessary for the said purpose was interest of the
y•
A.P. ELECTRICITY REGULATORY COMMISSION v. 583
MIS. R.V.K. ENERGY PVT. LTD.
~
consumers as well as the consideration that supply and A
distribution cannot be maintained unless the charges for
electricity supply are adequately levied and duly collected.
The Commission, therefore, was bound to strike a balance. It should have given due consideration as to how
and in what manner the MPPs were established. They B
were not per se inconsistent with the object sought to be
.... .,.
achieved by the 1998 Act. (para 20) [622-B,C]
3.4 It was necessary for the MPPs to apply for licence
under Section 14 of the Act. While considering the application for grant of exemption, the Commission did not c
have any jurisdiction to issue a direction that all MPPs
must supply electricity to APTRANSCO only. The power
and extent of jurisdiction of the Commission to regulate
supply is a wide one but the same, does not extend to
prohibition or positive direction that the supply of total D
energy produced must be made to APTRNASCO while
exercising the said jurisdiction. In fact there was no occasion for issuing such a direction. It is one thing to say
that the Commission is entitled to fix tariff but therefor then
it cannot take into consideration the case of APTRANSCO
E
alone. (para 21) [624-C,D,E]
3.5 What should be the basis for issuing any tariff
could have been the question which was to be posed by
...
~
the Commission to itself. For the said purpose, the Commission was required to take into consideration all asF
pects of the matter including the fact that Wheeling Agreement had already been entered into and only by reason
thereof, the APTRANSCO may generate a lot of revenue.
The decision of the Commission, therefore, being illegal
has rightly been set aside by the High Court. (para 21)
G
,. ""
Grid Corporation otOrissa Ltd. vs. Indian Charge Chrome
Ltd. (1998) 5 sec 438 - distinguished.
Andhra Pradesh Gas Power Corporation Ltd. vs. Andhra
Pradesh State Regulatory Commission (2004) 10 SCC 511 -
H
584
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A referred to.
4.1 So far as LVS Powers Ltd. is concerned it had
acted on the basis of the directions of the Commission. It
for all intent and purport proceeded on the basis thereof.
It not only held negotiations with APTRNASCO for the
B purpose of arriving at a mutually settled tariff, it having
regard to huge loan taken by it and presumably on the
pressure of IDBI accepted almost all the suggestions
made by APTRANSCO. From the letter dated 24th July,
1996 to M/s. LVS Power Ltd. it is evident that its consume ers were Hindustan Shipyard Ltd.; Hindustan Zinc Ltd.;
Essar Steels Ltd. and Andhra Cements Ltd. all situated at
Visakhapatnam i.e. within the State of Andra Pradesh. The
Commission appears to have even succumbed to the
pressure of the employees of the State Electricity Board.
D It allowed the employees to be impleaded as parties. It
heard them. Why the employees of APTRANSCO had to
be heard is beyond comprehension. (para 22) (624-G, 625A-C]
4.2 Interestingly the State of Andhra Pradesh did not
E put in their appearance before the Commission. The Commission merely received a communication from the Principal Secretary to the Government. The same per se was
F
illegal. (para 22) (625-F, 626-A]
i
5.1 It is strange that while Commissioh was so conscious of is own power as envisaged under clause (e) of
sub-section (1) of Section 11 of the Act in prohibiting third
party sale so far as MPPs are concerned, it even could
not take its own order to its logical conclusion. It is with
G some displeasure it must be noticed as to how Commission mis-directed itself at every stage. Despite the State
supported the application for grant of exemption, the third
party sale was prohibited. Parties were asked to negotiate and come back for fixation of tariff but then without
realizing the consequence which has to be suffered by
H
A.P. ELECTRICITY REGULATORY COMMISSION v.
585
M/S. R.V.K. ENERGY PVT. LTD.
~
the parties, it says it could not do anything in the matter. If A
APTRANSCO was not agreeable to the orders passed by
the Commission, which might have been passed during
the pendency of the proceedings, it could have questioned the same. It did not d.o that. It accepted the orders.
It for all intent and purport forced the respondent to alter B
its position to its great detriment. The Commission itself
..,
is responsible for the said situation. If it has the power to
,,..
regulate, as it has been contending, it should have proceeded progressively and not regressively: It could have
taken into consideration the provisions of Section 11 (1 )(f) c
whereby one of its function is to promote competitiveness
and progressively involve the participation of private sector, while ensuring fair deal to the customers. (para 24)
[631-A-E]
5.2 The Commission had been waiting for some diD
-....;
rections of the Government of Andhra Pradesh. It is from
that angle it must be held that the decision of the State to
allow MPPs. to generate electricity was a matter of policy.
The Commission for all intent and purport has frustrated
the policy and object of the Act. APTRANSCO in terms of E
Chapter V of the Act also acts as a statutory authority.
The Commission must function within the four cor"ers
of the 1998 Act. It is again subject to the power of the State
Government under Section 12~ It has referred the matter
-.
~
again and again to the State and when the State asked it F
. to proceed in the manner, it backed out and APTRANSCO
was constituted with the principal object of engaging the
business of promoting and supply of electrical energy. It
is required to obtain licence for the said purpose. (para
25) [631-F,G,H, 632-A]
G
6.1 Licence under section 14 is necessary but the
' ~
same is only for transmission and supply and not for generation of electrical energy. Such a licence is required so
as to enable the Commissioner to effectively control and
regulate transmission and supply. It is also relevant to note H
586
SUPREME COURT REPORTS
[2008] 9 S.C.R.
...
A that Section 21 provides for restriction on licensees and
generating companies. Sub-section (4) empowers a
holder of supply or transmission licence to enter into arrangements for the purchase of electricity. Sub-section
(5) provides that any agreement relating to any transacB tion of the nature described in any of the sub-sections
unless made with or subject to such consent as aforesaid, shall be void. It, therefore, restricts the power and
...
r
activities of APTRANSCO. It is in the aforementioned situation that the doctrine of promissory estoppel should be
c held to be applicable. (para 26) [632-D-H]
6.2 As regards setting up of MPPs the principle of
estoppel shall also apply. It is now a well settled principle
of law that nobody should suffer for the wrong done to
by a quasi-judicial body. In view of the principle analoD gous to 'actus curiae neminem grvabit', this Court is of the
opinion that because of the unreasonable stand taken by
~-
APTRANSCO before the Commission, LVS Powers
should not suffer. In the aforementioned situation the High
Court has issued the directions. (para 27) [633-E,F]
E
6.3 APTRANSCO did not intend to increase its efficiency. It did not equip itself so as to be able to compete
with others. It might have been in a disadvantageous position. On the one hand the Commission asked for total
prohibition for third party sale on the premise that it had
~ -
F to supply electricity to agriculturist, but then when a situation came that it must purchase the power pursuant to
the impugned directions of the Commission from MPPs it
made a contradictory stand that MPPs can sell the power
outside the State. (para 28) [633-F,G,H]
~
G
Southern Petrochemical Industries Co. Ltd. vs. Electric_.,
ity Inspector and ETIO and others (2007) 5 sec 447 - rey '
ferred to.
7.1 Before this Court IDBI intervened. Indisputably it
H had granted financial assistance to the first respondent-
A.P. ELECTRICITY REGULATORY COMMISSION v. 587
M/S. R.V.K. ENERGY PVT. LTD .
..
LVS Power. IPDB granted loan only on the basis that the A
unit shall be functional. This Court on 11 1h October, 2002
and 2"d December, 2002 passed interim orders. It was submitted that the first respondent has been paid a huge
amount pursuant to the said orders and this Court may
issue a direction for refund thereof. This cannot be agreed B
upon. The interim order by this Court was passed to maintain a balance and in the interest of the parties. (para 29)
[634-A,B,C]
7 .2 In this case interest of justice would be subserved
if in modification of the order passed by the High Court, c
the impugned judgments are set aside and the Commission constituted under the 2003 Act is directed to consider the matter afresh in the light of the new statute. The
Commission shall pass appropriate orders upon taking
into consideration all the material factors. It would be at D
-~
liberty to vary, modify, rescind the order of the old Commission and issue directions as may be considered just
and reasonable. It may, in the changed situation, also allow the parties to effect third party sale. It will be at liberty
to evolve a scheme for revival of the companies, keeping E
in view the public interest involved and in particular the
interest of the financial institutions. The time granted for
completion of the projects should be extended by one
i
year. Till such time as the Commission may not pass an
appropriate interim order, the interim order passed by this F
court shall continue. (paras 29 and 30) [634-C-G]
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 8094
of2002
From the Judgment and final Order dated 2.4.2002 of the G
•
High Court of Judicature, Andhra Pradesh at Hyderabad in
~ ...
C.M.A. No. 1458/2000
WITH
C.A. Nos. 8101, 8102, 8096, 8095 and 8093 of 2002.
H
588
SUPREME COURT REPORTS
[2008] 9 S. C.R.
....
A
Shanti Bhushan, L.N. Rao, DushyantA. Dave, T.L.V. Aiyer,
M.G. Ramachandran, K.V. Mohan, K.V. Balakrishnan, Anand
K, Genesan, Swapna Sheshadri, Sanjai Pathak, Gulnar, Atul
Bandhu, Rakesh K. Sharma, G. Ramakrishna Prasad,
Suyodhan Byrapancni, Siddharth Patna1k, G. Arun, S. Udaya
B Kr. Sagar, Bina Madhavan (for M/s. Lawyer's Knit & Co.), Manoj
Saxena, Rajnish Singh, Rahul Shukla, T.V. George, A.D.N. Rao,
P.S. Narasimha (for D. Bharathi Reddy), Pavan Kumar and
...
Satya Prakash Sharma for the Appearing Parties.
c
The Judgment of the Court was delivered by
5.8. SINHA, J. Interpretation and/or application of the provisions of the Andhra Pradesh Electricity Reforms Act, 1998
(for short the 1998 Act) vis-a-vis the orders passed by the Andhra
Pradesh Electricity Regulatory Commission (for short 'the ComD mission') are involved in these appeals which arise out of the
judgments and orders passed by a Division Bench of the Andhra
~-
Pradesh High Court.
The matter relating to generation, supply and distribution
E of electrical energy in the State of Andhra Pradesh used to be
governed by the provisions of the Electricity (Supply} Act, 1948
(For short, the 1948 Act).
With a view to bring reforms in the Power Sector and to
meet shortages in power supply, the State of Andhrc: adopted a
...
F policy decision for generation of power through MPPs of 30
MW capacity in private sector. For the said purpose it issued
two G.Os. being G.O. No.116 dated 5111 August, 1995 and G.O.
No. 152 dated 29
111 November, 1995.
G
In the said Government orde~s. the liberalization policy of
the state in respect of its industrial economy so as to enable
'
the State Government to attract investment from otht'!r parts of
-. '
the country as also from outside the country was highlighted. It
intended to bring about competition in the industry. It is stated
H
A.P. ELECTRICITY REGULATORY COMMISSION v.
589
,.
M/S. R.V.K. ENERGY PVT. LTD. [S.B. SINHA, J.]
to have taken a series of measures for augmenting power inA
eluding privatization. It took into consideration the fact that the
power plants costing less than Rs.100 crores and which do not
require Central Electricity Authority's clearance, and in respect
of which project clearance at the State level would suffice as a
result thereof the period may be reduced considerably.
B
The relevant extract of G.O. No.116 dated 51t1 August, 1985
reads:-
"The state government have therefore felt that it would be
appropriate to setup mini power plants based on residual c
fuels in the industrial estates to relieve the burden of the
industrial load centres and tail end areas which are
suffering from stress on account of transmission and
distribution problem."
It further provided:
D
--...
'The Government have also felt it necessary to take up
mini power plants of 30 MW capacity which could be
implemented within a period of 12-18 months at suitable
locations where industries are concentrated and the power
E
plants can meet the demand of industries without any
interruption."
The G.O. further provided thatthe residual fuel shall be used
and that the pricing arrangement was subject to fixation of tariff
by the Commission.
F
In this context, the supply of electricity generated by the
MPP to the identified consumers was allowed.
We, may, however, notice that at a later stage the capital
costs invested for the said purpose was raised to Rs.250 crores.
G
J
~
By G.O. Ms. No.152 dated 29th November, 1995 the terms
and conditions of setting up of MPPs were laid down, some of
which read thus:-
"3. Energy from the mini power plants can be supplied to
H
590
SUPREME COURT REPORTS
[2008] 9 S.C.R.
~
A
identified consumers using either Andhra Pradesh State
Electricity Board's existing distribution network of setting
up a dedicated transmission after obtaining a licence under
section (3) of the Indian Electricity Act, 1910. In the case
of the former, Andhra Pradesh State Electricity Board may
B
on request, lease out the distribution net work to the
developer. Detailed arrangements like lease, rent etc.,
will be worked out on mutually acceptable terms between
the Andhra Pradesh State Electricity Board and the Mini
Power plant developers. Similar arrangement can also
c
be finalised for the dedicated net works established by
Mini Power Plant developers so as to confirm to statutory
requirement.
6. In the event of the mini power plants generating power
in excess of the requirement of their consumers, the same
D
can be purchased by the Andhra Pradesh State Electricity
Board. Such purchases by the Andhra Pradesh State
.... -
Electricity Board may be upto 15% of individual Mini Power
Plant capacity. TheAndhra Pradesh State Electricity Board
may also purchase power beyond 15% of the Mini Power
E
Plant capacity, at Andhra Pradesh State Electricity Board's
option without conferring any pre-emptive right of sale on
the Mini Power Plant. The price for supplies made to the
Andhra Pradesh State Electricity Board will be weighted
average price of purchase of power made by the Andhra
F
Pradesh state Electricity Board from Central and other
State Electricity Enterprises on a monthly basis.
Settlement of accounts will be on a monthly basis. The
above procedure would be in force upto the end of
December 2000 AD and would be subject to review
G
thereafter.
8. The Mini Power Plant developer shall necessarily sell
,,... ..
power to the consumers above the Board's High Tension
tariff rate"
H
Indisputably, pursuant to or in furtherance of the said policy
A.P. ELECTRICITY REGULATORY COMMISSION v.
591
M/S. R.V.K. ENERGY PVT. LTD. [S.B. SINHA, J.]
~
decision, 31 companies in the private sector showed their inA
terest for setting up MPPs. The Government of Andhra Pradesh,
upon taking into consideration the said applications allowed
the respondents herein to set up MPPs capacity in private sector with residual fuel in industrial load centres in the State, whereafter, approval for the same had been granted.
B
We may at this stage notice the fact of the mater involved
...
~
in the respective appeals including the proceeding before the
Commission.
CIVIL APPEAL NO. 8093 OF 2002
c
2. Permission was granted to LVS Power Ltd. to set up a
37.8 MW residual fuel based power plant at Visakhapatnam so
as to enable it to generate and supply power directly to specified industrial consumers by using the existing transmission and
distribution network of APT. In the letter for grant of permission D
-~
issued to LVS Power Ltd. by the Secretary to the State Government letter dated 24th July, 1996. Clauses 1 and 4 of the permission letter read :-
"1. The total completed cost of the project (MPP) including
E
the cost of land and the total EPC cost shall not exceed
Rs.100 crores".
4. The copies of actual supply agreements with the
identified consumers shall be furnished to the A.P. State
i
Electricity Board in advance of commencement of supply.
F
Along with the agreements, 3 months notices seeking
termination of the Agreements with the A. P. State Electricity
Board by the identified consumers of generating company,
if they so desire, shall be submitted to the A.P. State
Electricity Board."
G
> ....
Alongwith the said letter it annexed the names of the consumers with their possible demand, which read :-
H
592
SUPREME COURT REPORTS
[2008] 9 S.C.R.
...
A
"S.No.
Name of the Consumer
Demand
1. Hindustan Shipyard Ltd., Visakhapatnam 6,000 KVA
2. Hindustan Zinc Ltd., Visakhapatnam
22,000 KVA
B
3. Essar Steels Ltd., Visakhapatnam
40,000 KVA
4. Andhra Cements Ltd., Visakhapatnam
9,000 KVA
....
...
77,000 KVA"
c
All the aforementioned industries are located in the State
of Andhra Pradesh.
The proposal of the company was accepted in terms of
Section 18A(a) of the 1948 Act.. The MPP was allowed to be
D operated on multifuels (LSHS/Furnace Oil/Naptha) alongwith
tie-line.
~ -
The terms and conditions of setting up of the MPP were
amended from time to time in terms of letter dated 201h October, 1997; 18th May, 1999 and 21st August, 2001. We are not
E concerned with the details thereof.
,
Pursuant to or in furtherance of the approval granted by
the Government of Andhra Pradesh to the company for setting
up of MPP it entered into Wheeling 'Agreement with APTRANSC
'r
F
wheeling power from generating station to the consumers. In
terms of the Wheeling Agreement, the company was required
to pay 8 % to 12 % of power generated as wheeling charges to
APTRANSCO for utilizing their transmission lines. It also entered into Power Sales Agreements with 13 industrial consumers for sale of powers.
G
In the meantime in the year 1998, the Parliament enacted
.,.. '
The Electricity Reforms Act, 1998. The State of Andhra Pradesh
also enacted the 1998 Act; in terms whereof, Andhra Pradesh
Electricity Regulatory Commission (for short 'the Commission')
H was constituted on or about 23'd January, 2000.
AP. ELECTRICITY REGULATORY COMMISSION v.
593
•
M/S. R.V.K. ENERGY PVT. LTD. [S.S. SINHA, J.]
Indisputably, after coming into force of the 1998 Act the A
MPPs applied for grant of exemption under the said Act as envisaged in Section 14 thereof, before the Commission.
The said Act provided for grant of licence and the exemption therefrom. The Company applied for grant of licence as B
provided in Section 15 of the Act. By an order dated 18th May,
~ ,.
2000 the Commission directed the company to come back to it
for the said purpose four months prior to the commencement of
commercial operation. In view of the said direction of the Commission, the company commenced construction of the project
in June, 2000. For the said purpose it drew 'equity' from the c
promoters and investors and term loans from the lenders. The
total cost of the project was said to be Rs.133 crores.
When the said plant was nearing completion, having regard
to the said direction dated 181h May, 2000, the company apD
~-...;
proached the Commission on 5th March, 2001 as the project was
expected to be completed by July, 2001. The Commission, however, by a letter dated 4th May, 2001 informed the company that it
was of the opinion that no third party sale of power should be permitted and asked it to send specific proposals to AP.TRANSCO
E
for sale of entire power from the project purported to be in terms of
Central Government's Notifications within fifteen days.
It appears that before the Commission the Andhra Pradesh
State Electricity Board Engineers Association intervened. The
said intervention was entertained by the Commission.
F
The Commission noted that out of31 MPPs which received
permission/sanctions of the State to generate energy based at
residual fuels, only 19 survived. The name of the respondent
company was also found therein. The Commission also noticed
the essential features of the grant of such permission, one of G
.;. '(
which being clause 5, which reads :
"(v) Copies of the supply agreements entered into with the
identified consumers should be supplied to the APSES.
The agreement with the APSES for wheeling shall reflect H
594
SUPREME COURT REPORTS
(2008] 9 S.C.R.
A
the conditions in G.O.Ms. No.152 dated 29.11.1995
besides other conditions."
At paragraph 14 of the said order, the Commission recorded that various Associations of the officers of the Andhra
B
Pradesh State Electricity Board inter alia submitted that third
party right should not be allowed as it affected the financial viability of the main licensee, APTRANSCO, apart from the fact
that they should not be permitted to generate power with residual fuel as the same is too costly for the purchase by the
grid. It was also noted that third party sale should not be alc lowed as MPPs would not suffer Transmission and Distribution
losses which the Licensee suffers and the Tariffs of the Licensee
for industrial consumers include considerable cross-subsidies.
The Government of Andhra Pradesh, was, however, not
D represented. A contention, however, was raised by a letter representing that the permission may be given to MPPs for third
party sales to HT Industrial consumers and in the event
APTRNASCO loses on account of the said arrangement, the
Commission can fix appropriate wheeling charges taking into
E
account the cross subsidization forgone by APTRANSCO on
account of third party sales.
The Commission stated that it was not inclined to permit
third party sale for the following reasons :-
F
"(19). For reasons already stated elaborately in our order
in O.P. No.2/1999 (GBR Projects Ltd.) and O.P. No.348/
2000 (Astha Power Corporation Pvt. Ltd.) the Commission
is not inclined to permit third party sales. Currently the
tariffs include substantial cross subsidy to the tune of about
Rs.2,000 crores by industrial and commercial consumers.
G
If these consumers are supplied power by MPPs, instead
of the Licensee, the cross subsidy element now existing
will come down, calling for increased tariffs for agriculture
and domestic consumers giving rise to a rate shock to
them or alternatively, the GoAP may have to bear the
H
increased burden in terms of subsidy. Further, to the extent
...
~
~~
)'
)' ..
A.P. ELECTRICITY REGULATORY COMMISSION v:
595
M/S. R.V.K. ENERGY PVT. LTD. [S.B. SINHA, J.]
the government subsidy is limited the burden of cross A
subsidy will increase on those industrial and commercial
consumers who stay with the Licensee. This would in turn
lead to these consumers going out of the system as they
would not be competitive for their products in the market
with such high tariffs. Finally, the Licensee would be left
B
with agricultural and domestic consumers who are highly
~
,.Ir
subsidized. This would effect totally the viability of the
Licensee and will result in failure of Licensee to discharge
its functions in the matter of supply of power. It is, therefore,
evident that permitting mushroom growth of MPPs and c
third party sales would not at all be in the interest of the
organized growth of the electricity industry which is
essential for the progress of any civil society. Permitting
third party sales would create discrimination between
industrial consumers drawing power from IPPs and the D
_.....,.
industrial consumers drawing power from APTRANSCO
DISCOMS who will be paying for power at different rates.
Further, the cost for supply of power for the Licensee
includes cross subsidization and transmission and
distribution losses in the system spread over the entire
E
State and approved by the Commission whereas, the cost
to the MPP developer does not include cross subsidization
and transmission and distribution loss cost. Thus, allowing
third party sales by MPPs at the same rate at which the
Licensee supplies to HT consumers, would result in either
unjust enrichment of developers which is neither F
contemplated nor permissible in a regulatory industry, or
in supply of power at lower prices than prescribed resulting
in differential prices for the same categories of consumers,
leading to discriminatory treatment.
(20) In O.P. No.2/1999 and O.P. No.348/2000, the G
.,;. ---(
Commission has directed the developers to approach
APTRANSCO and negotiate the sale of power on the
basis of their project cost. It would be appropriate if
directions are also issued to the eight developers
H
A
B
c
596
SUPREME COURT REPORTS
[2008) 9 S.C.R.
mentioned in para 18 above to make an offer of price on
the basis of the various Government of India Notifications
(including the Notifications dated 30.03.1992). These
Notifications set out the method and manner of calculation
of tariff for generating companies mutually agree on the
price for the pwer to be supplied and other conditions, a
PPA may be drawn up and submitted to the Commission
for its approval under Section 21 of APER Act. If on the
other hand they are not able to agree on the price and
other terms and conditions, they may apply to the
Commission for appropriate orders."
It noticed that pursuant to its interim order, the company
had entered into a Wheeling Agreement with APTRNASCO on
25th February, 1999. While directing renegotiations regarding
price and other terms and conditions at which they would be
D willing to supply power to APT it was directed:-
E
F
G
"(22). The Commission hereby directs that the eight MPPs
mentioned above send a specific proposal in writing based
on the existing Central Government Notifications on the
basis of their project costs to APTRANSCO within a
fortnight of the receipt of this order, with a copy to the
Commission. APTRANSCO
shall
respond
by
communicating views on the offer to the MPPs and the
Commission within another fortnight. If the parties need
more time for negotiations in the matter, they are free to
approach the Commission in the matter. If APTRANSCO
and the MPPs agree on the price and the other terms and
conditions, a (fresh) PPWA may be drawn up and sent for
the consent of the Commission.
(23). If there is no agreement between APTRANSO and
the MPPs on supply terms within a month's time, the
Commission will hear the eight MPPs and APTRANSCO
on 4.6.2001 for further orders."
Pursuant to and in furtherance of the said order of the
H Commission the Company submitted a proposal on or about
A.P. ELECTRICITY REGULATORY COMMISSION v.
597
MIS. R.V.K. ENERGY PVT. LTD. [S.B. SINHA, J.]
181h May, 2001 for sale of its entire power from the project as
A
per the norms laid down or set up by the Central Electricity Authority alongwith necessary supporting documents assuming the
cost of the project at about Rs. 125 crores. Negotiations took
place inter alia on 1 ?!Jl August, 2001 when the company agreed
to the proposal of the APTRANSCO to sell power as per the
B
said norms assuming the project cost at Rs.125 crores. The
..
_...
said proposal of the company was accepted in its entirety by
the APTRANSCO. According to it the tariff could be re-fixed
after the capital cost is approved by the Government of Andhra
Pradesh whereafter the consent of the Commission to purchase c
power from the company was sought for.
The Commission accorded its consent to the said proposal by its letter dated 18tJi August, 2001. Keeping in view the
aforementioned consent of the Commission on 24th August,
2001 the company terminated the power sales agreements D
-
_.,.
entered into by it with the industrial consumers to avoid any liability
The project was completed on 181h October, 2001.
APTRANSCO asked for extension of time from the Commission to Purchase power from the company by its letter dated
E
30!Jl November, 2001 till the end of February, 2001 on the purported ground that firm proposal (PPA) could not be sent since
the project cost was yet to be approved by the Government of
Andhra Pradesh. A reminder was also sent by APTRANSC on
91h November, 2001 to the Commission. The Commission again
F
by its letter dated 26!Jl November, 2001 granted permission
sought for by APTRANSCO stating:-
"With reference to letter (1) and (2) cited above,
Commission accepts the proposal of APTRANSCO to G
purchase power from Mis. LVS Power Limited at the rates
specified in letter (3) cited above and extends the period
of purchase of power from 31.10.2001 to 30.11.2001
purely as an interim measure. This is without prejudice to
the rights of the Commission to pass any further order in
H
598
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A
this matter.
B
APTRANSCO is directed to send the Firm Proposal with
the approved Project cost from competent Authority latest
by 30.11.2001, for the Commission to pass appropriate
orders."
On or about 26th November, 2001 by a letter addressed to
the Government of Andhra Pradesh, the APTRANSCO sought
for its approval of the project cost stating that it was willing to
purchase power from the company if the project cost was rec stricted to Rs.) 25 crores. As the said consent was not forthcoming another extension was sought for by the APTRANSCO
from the Commission for purchase of power till the end of January, 2002 by its letter dated 3rc1 December, 2001. The Commission by its letter dated 2?1h December, 2001 directed the
D APTRANSCO to submit firm proposal alongwith the approval
of the capital cost of the project from the competent authority by
31st January, 2001. The matter was posted for hearing on 7th
February, 2002.
The Government of Andhra Pradesh in the meantime
E sought for the opinion of the Central Electricity Authority as regards the reasonableness of the project cost. It may be noticed
that the Central Electricity Authority by a letter dated 26th February, 2002 stated that the capital cost of the company is lowest
among the similar type of plants in the country by observing :-
F
"Reference is invited to GOAP letter dated 29.12.2001
seeking the advice of CEA under Section 3 of Electricity
(Supply) Act, 1948. The matter has been examined based
on the subsequent details/clarifications received vide
APTRANSCO letters dated 28.1.2002 & 4.2.2002 and
G
GOAP letter dated 15.2.2002. The following observations
are made:
H
(i)
Clarifications furnished vide GOAP letter dated
15.2.2002 do not indicate as to whether GOAP Order
dated 29.11.1995 giving revised policy guidelines
y
--..,
-'r
..: ~
'
"
"'(
A.P. ELECTRICITY REGULATORY COMMISSION v.
599
MIS. R.V.K. ENERGY PVT. LTD. [S.B. SINHA, J.]
regarding generation of power through Mini Power A
Plants in Private Sector had been reviewed as
contemplated in Para 6 of the said orderw.r.t. capital
costs. Etc.
(ii)
It is seen that the clarification on the increase in capial
8
cost ceiling from Rs.100 crores as earlier
contemplated to Rs.250 crores was given to M/s.
LVS only w.r.t. their request. It is not clear whether all
the MPP developers were informed of this increase
in capital cost ceiling and whether any reference is
made to capacity of the plant to be generated within · C
the capital cost of Rs.250 crores.
(iii) The capacity of the LVS plant has been reduced
from 55 MW as originally approved in July, 1996 to
46.08 MW vide GOAP letter dated 9.7.1997 and
D
again to 37.8 MW vide GOAP letter dated 11.4.2001
whereas the capital cost ceiling was increased from
Rs.100 crores as originally approved in July, 1996 to
Rs.250 crores in January, 1999. The compulsions
for reduction in plant capacity are not clear from the
E
documents received from GOAP/APTRANSCO.
(iv)
The APTRANSCO's consultant had in their report
indicated that revised capital copst of Rs.125.23
crores for 2 x 18.9 MW was without complete audit
of the cost incurred and physical verification.