before the maharashtra electricity … 58 42/order_53_of_2012_27_dec_201… · limited for approval...

Before the

MAHARASHTRA ELECTRICITY REGULATORY COMMISSION

World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai - 400 005

Tel. No. 022 22163964/65/69 – Fax 022 22163976

E-mail: [email protected]

Website: www.mercindia.org.in

Case No. 53 of 2012

In the matter of Petition of Maharashtra State Electricity Distribution Company

Limited for approval of PPA for additional quantum with Indiabulls Realtech Limited

(Nashik) and Adani Power Maharashtra Limited based on competitive bidding process

Shri V. P. Raja, Chairman

Shri Vijay L. Sonavane, Member

Maharashtra State Electricity Distribution Company Limited.............................……Petitioner

Present on behalf of the Petitioner: Shri A. S. Chavan

Shri S. G. Metre

ORDER

Dated: 27 December, 2012

Maharashtra State Electricity Distribution Company Limited (hereinafter referred as

"MSEDCL") submitted a Petition under affidavit on 15 May, 2012 under Sections 86 (1) (b)

and 63 of the Electricity Act, 2003 seeking approval of Power Purchase Agreements (PPA)

with Indiabulls Realtech Limited (Nashik) (hereinafter referred as "IBRL-Nashik") for 650

MW and Adani Power Maharashtra Limited (hereinafter referred as "APML") for 440 MW.

2. MSEDCL has made the following prayers under the present Petition:

"

Approve the PPA between MSEDCL and Indiabulls Realtech Ltd. for 650

MW

mailto:[email protected]

http://www.mercindia.org.in/

MERC Order on Petition seeking approval of additional LTPP Case No. 53 of 2012

MERC, Mumbai of 63

Approve the PPA between MSEDCL and Adani Power Maharashtra Ltd. for

440 MW

Approve of Adoption of Tariff for additional Power Procurement of 1090

MW (650 MW from IBPL - Nashik & 440 from APML)

Pass such orders as Hon'ble Commission may deem fit, just and proper in

the facts and circumstances of the case."

3. The brief facts of the Petition submitted by MSEDCL are discussed in the following

paragraphs.

3.1. The Petitioner, MSEDCL, is a company incorporated under the provisions of the

Indian Companies Act, 1956 with its registered office at Prakashgad, Bandra (E),

Mumbai and is a deemed licensee under Section 14 of the Electricity Act, 2003.

3.2. The Petitioner had floated a tender for long-term procurement of 2000 MW (-

20%/+30%) power under the competitive bidding process through Case 1 route

(hereinafter, this process has been referred as "Case 1 Stage-II bid process").

3.3. On completion of the Case 1 Stage-II bid process, MSEDCL approached the

Government of Maharashtra (GoM) for approval of the power purchase from the

successful bidders. The Government of Maharashtra (GoM) vide its letter dated 6

March, 2010, accorded its approval for the same. The details of the quantum and

Tariff offered by the successful bidders are as provided in the table below.

Table 1: Details of Quantum and Tariffs offered by successful bidders

Seller Quantum of power

tied up (MW)

Levellised Tariff

(Rs/kWh)

M/s Emco Energy Limited 200 2.879

M/s Adani Power Maharashtra Limited 1200 3.28

M/s Indiabulls Power Realtech Limited -

Amravati project 1200 3.26

3.4. MSEDCL approached the Commission for adoption of Tariff in line with the

principles outlined in Section 63 of the Electricity Act, 2003. The Commission

accorded in-principle approval for adoption of Tariff vide its Order in Case No. 22

of 2010 dated 28 December, 2010.


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3.5. Subsequently, APML offered an additional quantum of 125 MW at the same

levellised Tariff that it had offered under the Case 1 Stage-II bid process, i.e., Rs.

3.28 per kWh. MSEDCL approached the Commission for approval of the additional

power purchase of 125 MW from APML. The Commission, vide its Order dated 19

May, 2011 in Case No. 56 of 2010, approved the power purchase and also adopted

the Tariff for this additional power purchase of 125 MW from APML.

3.6. MSEDCL submitted that IBRL-Nashik had participated in Case 1 Stage-II bid

process and had offered 1200 MW at the levellised Tariff of Rs. 3.45 per kWh.

MSEDCL further submitted that subsequent to this initial offer, the GoM negotiated

the Tariff with IBRL-Nashik. Based on successful negotiations, IBRL-Nashik

agreed to reduce the levellised Tariff and submitted the revised offer to supply 950

MW at a levellised Tariff of Rs. 3.42 per kWh. APML also offered to supply an

additional 440 MW of power at a levellised Tariff of Rs. 3.28 per kWh.

3.7. MSEDCL submitted that Brihanmumbai Electric Supply and Transport Undertaking

(hereinafter referred as "BEST"), a distribution licensee in Mumbai Licence area,

vide letter dated 9 November, 2010, requested MSEDCL to put forth its proposal to

GoM for procuring 300 MW power while awarding the contract of power

procurement through competitive bidding process.

3.8. MSEDCL submitted a proposal to the GoM for approval of: (a) MSEDCL's

purchase of 650 MW from IBRL-Nashik at the levellised Tariff of Rs. 3.42 per

kWh; (b) BEST's purchase of 300 MW from IBRL-Nashik at the levellised Tariff of

Rs. 3.42 per kWh; and (c) MSEDCL's purchase of 440 MW from APML at the

levellised Tariff of Rs. 3.28 per kWh.

Table 2: Proposed power procurement submitted to GoM for approval

Sr.

No.

Procurer Seller Quantum (MW) Levellised Tariff

(Rs/kWh)

1 MSEDCL APML 440 3.28

2 MSEDCL IBRL-Nashik 650 3.42

3 BEST IBRL-Nashik 300 3.42

3.9. MSEDCL submitted that it considered the following aspects while submitting the

said proposal to the GoM for procurement of additional power.


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The demand for power in Maharashtra State (excluding Mumbai License

Area) is about 18,463 MW while the available generation capacity is 13,992

MW leading to a deficit of 4,473 MW. MSEDCL would be surplus

considering a demand growth of 8%, as projected by CEA in its 17th

Electric Power Survey (EPS) and the envisaged capacity addition. However,

considering 10% growth in peak demand, there will be shortfall of power

from FY 2016-17.

There are uncertainties in power procurement plan which may lead to a

shortage scenario on account of (a) projects from which, MSEDCL has

contracted power and which have been considered by it in its supply

projections, are delayed or not materialised; or (b) demand growth shoots

upto 10% from predicted rate of 8%.

Lanco Teesta hydro power project (hereinafter referred as "Lanco Teesta"),

which has a PPA with MSEDCL for 500 MW, has raised certain

apprehensions in supplying power as per the committed schedule on account

of various reasons. The major reasons cited by Lanco Teesta are: (a)

increase in project cost due to poor geological conditions; and (b) an

earthquake, that had occurred near the project site. Hence, there is

uncertainty about availability of power from Lanco Teesta.

APML, which has also tied up 1320 MW power with MSEDCL in Case 1

Stage-I bid process, is yet to resolve the issue of coal supply after

cancellation of Lohara coal block allocated to the project. Citing these

reasons, APML vide its letter dated 15 March, 2011, has sought revision in

Tariff if MSEDCL is not in favour of terminating the PPA.

MSEDCL had filed a Petition with the Commission for the approval of an

addendum to the PPAs to be signed between MSPGCL and MSEDCL for

upcoming projects. However, the Commission, vide its Order in Case No.

103 of 2010 dated 30 March, 2011, did not approve certain projects out of

the proposed 26 projects, for which PPAs were planned to be signed. The

projects which were not approved by the Commission are as follows:


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Table 3: MSPGCL projects for which PPAs have been disapproved by the

Commission

Sr. No. Project Installed capacity (MW)

1 Dondaicha -1,2,3,4 & 5 3300

2 Dhopave 1,2 and 3 1980

3 Latur JVC - 1 & 2 1320#

4 Paras – 5 660

Total 7260@

# 1500 MW if project is based on gas

@7440 MW if Latur JVC project is based on gas

Association of Power Producers (hereinafter referred as "APP") has filed a

Petition before the Hon'ble Central Electricity Regulatory Commission

(hereinafter referred as "CERC") in the matter of PPAs signed by NTPC

with a number of distribution utilities, including MSEDCL, for supply of

37,000 MW of power. APP has contended that NTPC has entered into PPAs

in anti-competitive manner, which has led to an adverse effect on

competition. This matter is sub judice with the Hon'ble CERC. Considering

the above facts, power supply based on the said PPAs signed by MSEDCL

with NTPC is not expected until the above matter is resolved.

MSEDCL is expected to be power surplus from December, 2012 onwards

considering 8% growth rate and current power procurement plan. However,

considering the uncertainty about availability of power from Uran GTPS

expansion (1220 MW), Latur power project (1320 MW), Lanco Teesta (500

MW) and PPAs with NTPC (1350 MW), a realistic assessment suggests that

there may be a shortfall of power from FY 2013-14.

Further, MSPGCL has withdrawn some of its aging units from operation.

These units are Koradi Unit-I to IV, Bhusawal Unit-I, Paras Unit-II, Parli

Unit-I and II and Nashik Unit-I and II. This has contributed to the shortfall

in power generation.

Paragraph 1.2 of the National Tariff Policy dated 6 January, 2006, issued by

Ministry of Power stipulates the requirement of spinning reserve in

generation capacity. The said paragraph is reproduced below.

"The National Electricity Policy has set the goal of adding new generation

capacity of more than one lakh MW during the 10th and 11th Plan periods


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to have per capita availability of over 1000 units of electricity per year and

to not only eliminate energy and peaking shortages but to also have a

spinning reserve of 5% in the system. Development of the power sector has

also to meet the challenge of providing access for electricity to all

households in next five years." (Emphasis added)

Based on the above principle, considering the capacity addition of 20,000

MW till 2020, a spinning reserve of 1000 MW is required to be contracted in

addition to the power required to meet the power demand.

Installed capacity in the Vidarbha region is greater than the demand in that

region. This is leading to instability in the transmission system and affecting

load management. As there is limited scope of development of new hydro

power projects in Maharashtra, MSEDCL will have to rely only on thermal

power projects for meeting its demand. Considering these facts, it will be

prudent to increase power generation capacity in western Maharashtra, so as

to facilitate MSEDCL in better load management.

For transmission of power from Vidarbha to western Maharashtra and

Konkan, additional transmission towers and sub-stations need to be added.

This new transmission infrastructure may face strong opposition from

farmers and also lead to an increase in capital cost. Since the power project

of IBRL-Nashik is located in the load centre, there will be minimal

requirement for additional transmission infrastructure. Considering these

facts, the power procured from this project would be economical along with

its advantage of improvement in system stability.

IBRL-Nashik and APML are being developed by utilising land, water and

other resources of the State of Maharashtra. In case the power is not utilised

by Maharashtra, the developers may sell the power from the project to other

States. Moreover, IBRL-Nashik is being developed in the area of

Maharashtra where the demand is high.

MSEDCL submitted that levellised Tariffs discovered in bid processes are

displaying an increasing trend as evident in the Stage-1 and Stage-2 of Case-


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1 procurement processes carried out by MSEDCL as well as the

procurement processes carried out by other distribution licensees in the

country. Hence if a fresh bid process is initiated at this stage, the Tariffs

discovered through this process may be higher compared to those offered by

IBRL-Nashik and APML.

3.10. GoM, vide its letter dated 1 December, 2011, informed MSEDCL regarding the

approval of Cabinet Sub-Committee (Energy) for purchase of additional power.

Cabinet Sub-Committee (Energy) also directed MSEDCL to obtain approval of the

Commission for the additional power purchase.

3.11. MSEDCL submitted that as per clause 2.2.8.2 of the RfP of the Case 1 Stage-II bid

process, for contracting power with IBRL-Nashik project, the PPA was required to

be executed between MSEDCL and IBRL, which is the power project company of

M/s Indiabulls Power Limited (hereinafter referred as "IBPL"), that is developing

the Nashik power project. MSEDCL further submitted that IBPL had mentioned the

configuration of the Nashik power project as 2 x 660 MW during the Case 1 Stage-II

bid process. However, IBPL informed MSEDCL vide letter dated 16 May, 2011,

that due to certain developments which threatened to impact the timely execution of

the project and after considering inputs from the equipment supplier, i.e., BHEL,

IBPL has decided to change the unit configuration from 660 MW to 270 MW. In

accordance with the same, IBPL is currently developing the project with the

configuration of 5 x 270 MW. MSEDCL submitted that IBPL, in its letter, also

clarified that there will be no change in the aggregate capacity offered and the

delivery date as specified in the PPA. Further, IBPL vide letter dated 4 April, 2012

clarified that there would be no impact on the quantum and the Tariff offered to

MSEDCL due to the change in unit configuration.

3.12. MSEDCL submitted that IBRL-Nashik and APML have offered to submit the

performance bank guarantee before signing the final PPA, once the proposed power

purchase is approved by the Commission.

3.13. MSEDCL submitted that vide its letters numbered CE/PP/Indiabulls/10325 dated 21

April, 2012 and CE/PP/APML/10906 dated 27 April, 2012, it communicated to

IBRL-Nashik and APML that the initialed PPAs will only be a draft document and it


MERC, Mumbai of 63

will not be legally binding till the time the Commission approves the proposed

power procurement and the performance bank guarantee is submitted. MSEDCL

submitted that the PPAs with APML and IBRL-Nashik have been initialed subject to

the above conditions.

3.14. MSEDCL further quoted the provisions of the Electricity Act, 2003, under which it

has filed the current Petition. The quoted provisions are reproduced below for

reference.

Section 86 (1) (b) of Electricity Act, 2003:

"... regulate electricity purchase and procurement process of distribution

licensees including the price at which electricity shall be procured from the

generating companies or licensees or from other sources through

agreements for purchase of power for distribution and supply within the

State..."

Section 63 of the Electricity Act, 2003:

"Notwithstanding anything contained in section 62, the Appropriate

Commission 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."

4. The Commission conducted the first hearing in this matter on 9 July, 2012 in the

office of the Commission. Shri A.S. Chavan, CE (PP), MSEDCL and Shri S.G.

Metre, EE, MSEDCL attended the hearing on behalf of MSEDCL. Dr. Ashok

Pendse, Thane Belapur Industries Association (hereinafter referred as TBIA),

authorised Consumer Representative, was also present during the hearing.

5. MSEDCL reiterated the issues raised by it in the Petition during the hearing.

6. Ms. Ashwini Chitnis, on behalf of Prayas Energy Group, authorised Consumer

Representative, conveyed through her letter dated 8 July, 2012, that she would not

be able to attend the hearing. However, she made her submissions through the said

letter which are summarised in this section.


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6.1. Ms. Ashwini Chitnis submitted that the need to contract additional power of 1090

MW needs to be critically analysed considering the following factors:

Quantum of power contracted by MSEDCL through competitive bidding and

MoUs with Independent Power Producers (IPPs), Central Generation Stations

(CGS) and State generating stations.

Plant-wise and unit-wise status of this contracted capacity and comprehensive

analysis of commissioning time frame of this capacity needs to be carried out,

which should include (a) when this capacity is/was expected to be commissioned

as per the respective contract? and (b) what is the actual status of the project?

MSEDCL's demand in the medium-term and long-term (5-10 years) needs to be

estimated after considering the impact of reduction in demand due to increased

instances of consumers procuring power through open access including

consequent impact of clarification by MoP on interpretation of Ministry of Law

and Justice on the operationalisation of open access in the power sector.

6.2. Ms. Chitinis also submitted that after evaluating the demand-supply considering the

above points, MSEDCL can still opt to contract additional power beyond the

demand that it is obligated to meet, but only by treating this power purchase as an

unregulated activity. However, in such a case, the risk of this contracted capacity

becoming a stranded asset should not be passed through to regulated consumers.

6.3. Ms. Chitnis submitted that after carrying out demand-supply analysis as described

above, if the need for contracting additional power is still established, then further

analysis would be required to be carried out to ascertain whether the Tariffs

proposed by IBRL-Nashik and APML for additional power of 1090 MW are

competitive and economical.

6.4. Further, Ms. Chitnis submitted that the Commission should first provide a regulatory

dispensation regarding MSEDCL's demand-supply situation based on the factors

mentioned above. In case, the need for further capacity addition is sufficiently

established, the Commission should then further ascertain whether the proposed

Tariffs are competitive and economical considering the present market situation. She

suggested that the above analysis of the Commission be made public, based on


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which, public consultation should be solicited. She suggested that the Commission

can issue a suitable Order based on the feedback received from the public.

6.5. Ms. Chitnis submitted that in the present Petition, MSEDCL has mentioned that

BEST is also planning to procure 300 MW from IBRL-Nashik at a levellised Tariff

of Rs. 3.42 per kWh. She submitted that the present Petition has been submitted by

MSEDCL and it concerns with only MSEDCL's share of 1090 MW. She submitted

that BEST should file a separate Petition seeking approval of its proposal to sign the

PPA with IBRL-Nashik for 300 MW. She submitted that the Commission should

consider all the above mentioned aspects and also ensure compliance with bidding

guidelines while evaluating BEST's proposal.

6.6. Ms. Chitnis also requested the Commission to allow Prayas Energy Group to make

additional submissions, if any, during the subsequent hearings or process in this

regard.

7. The Commission, after hearing the Petitioner and considering the submissions of

Consumer Representatives, observed that MSEDCL needs to go through a fresh bid

process as per the Competitive Bidding Guidelines to procure additional long-term

power. Accordingly, in its daily Order dated 9 July, 2012, the Commission gave

liberty to MSEDCL to withdraw the Petition, if it so desires, within a week from the

issuance of daily Order and reserved the matter for Order.

8. However, MSEDCL preferred not to withdraw the present Petition and in its letter

dated 17 July, 2012, informed the Commission that it will make additional

submissions in this matter shortly. It made an additional submission under affidavit

on 20 July, 2012, in which, it requested the Commission to reconsider the facts in

the Petition.

9. Additional points raised by MSEDCL in its additional submission on this matter are

as discussed in the subsequent paragraphs.

9.1. MSEDCL submitted that it is currently procuring long-term power from two gas

based power projects, i.e., MSPGCL's Uran gas based power project and Ratnagiri

Gas and Power Private Limited (hereinafter referred as "RGPPL"). As against an

installed capacity of 852 MW, the capacity of Uran power project has been derated


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to 672 MW and that of RGPPL has been derated to 1940 MW from 2150 MW. It

further submitted that it is only getting an average of 427 MW and 757 MW from

the Uran power project and RGPPL respectively due to lower gas availability. The

shortfall in generation from gas based power projects as described above is leading

to a shortage of power in Maharashtra. It submitted that GoM has taken up this issue

with Government of India (GoI) and has requested it to make sufficient gas available

for these projects.

9.2. MSEDCL submitted that Ministry of Petroleum and Natural Gas (hereinafter

referred as "MoPNG") has indicated that as against the availability of 42.67

mmscmd in FY 2011-12, gas production is likely to decrease by 15.3 mmscmd in

FY 2012-13 and an additional 3.42 mmscmd in FY 2013-14. MoPNG has also

indicated that no additional domestic gas is likely to be available till FY 2015-16

and hence developers are advised not to plan power projects based on domestic gas

till FY 2015-16. MSEDCL submitted that it can be inferred from the above that

there is uncertainty about availability of domestic gas which may result in further

reduction in generation from existing gas based power projects and delay in

commissioning of future gas based projects.

9.3. MSEDCL submitted that the MoP, vide letter dated 17 April, 2012, has clarified that

only four of the twelve identified Ultra Mega Power Projects (UMPPs) with an

aggregate capacity of 48,000 MW, have been awarded till date and work on only

two of these awarded UMPPs has commenced so far. In view of the above, MoP

directed MSEDCL to make the necessary arrangement for power procurement to

meet its power requirement. MSEDCL submitted that it has power allocation from

the following UMPPs: Mundra UMPP, Krishnapatnam UMPP, Sarguja UMPP,

Tilaiya UMPP, Cheyur UMPP, Tattiya UMPP and Munge UMPP.

9.4. MSEDCL submitted that out of the four awarded UMPPs, Coastal Andhra Power

Limited (CAPL), which is developing the Krishnapatnam UMPP, has stopped work

on the project. MSEDCL added that the procurers of power from Krishnapatnam

UMPP project have issued a notice for encashment of performance bank guarantee.

MSEDCL submitted that CAPL had filed a Petition before the Hon'ble Delhi High

Court against the encashment of bank guarantee and the Hon'ble Delhi High Court


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has issued the Order in the favour of procurers. MSEDCL submitted that CAPL has

filed an Appeal against the said Order in the Division Bench, High Court, Delhi.

MSEDCL submitted that till the time of submission of the present Petition, the

Order on the said Appeal was not issued.

9.5. MSEDCL submitted that Coastal Gujarat Power Limited (CGPL) has declared COD

of the first unit of Mundra UMPP and the second unit of the project has also been

synchronised. It submitted that although two units of the Mundra UMPP have been

commissioned, CGPL has filed a Petition with the CERC in the matter of increase in

Tariff citing the issue of increase in landed cost of imported coal from Indonesia.

9.6. MSEDCL further submitted that GoM has issued a status report dated 13 July, 2012

on the drought situation in Maharashtra wherein it has stated that water stock in the

reservoirs as on 13 July, 2012 was as low as 17% compared to 31% in 2011 and

23% in 2010, for the same period. As per the report, the water storage level is only

15% and 16% for big and medium reservoirs, respectively. MSEDCL submitted that

water storage level in small projects is even worse, where the stock is a meagre

11%. MSEDCL submitted that in such a situation, water in the reservoir could be

reserved for drinking purpose, resulting in less or no generation of power from

hydro power projects. Further, such a drought situation may arise in the future also.

9.7. MSEDCL submitted that in view of the above uncertainties, it may need to procure

additional power. It submitted that it may not get additional power or may get the

same at Tariffs higher than the Tariff being offered by IBRL-Nashik and APML.

9.8. MSEDCL submitted that in view of the above facts and circumstances, it was not in

a position to withdraw the Petition and requested the Commission to reconsider the

facts in the Petition.

10. On evaluating the additional submission of MSEDCL, the Commission held the

second hearing in this matter on 7 September, 2012. Shri. A.S. Chavan, CE (PP),

MSEDCL and Shri. S.G. Metre, EE, MSEDCL appeared in the hearing on behalf of

MSEDCL. Shri Rajiv Rattan appeared in the hearing on behalf of IBRL. After

hearing the parties, the Commission sought certain information from MSEDCL,

IBRL-Nashik and APML, which is described in subsequent paragraphs.


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10.1. The Commission directed MSEDCL to submit the following information:

The power requirement of MSEDCL and accordingly the power procurement

plan to meet its requirement for the next five years;

Various demand-supply scenarios, i.e., optimistic, pessimistic and realistic, and

the power procurement plan for the same;

The current status of the projects from which, power has been contracted,

including the expected Commercial Operation Date (COD) and scheduled

delivery date;

Unit wise allocation of coal blocks, copy of Letter of Assurance (LoA) and

present status of LoA; and

Implication of MoP’s letter regarding allocation of coal blocks on the Long-

Term PPAs.

10.2. Further, the Commission directed MSEDCL to submit an affidavit addressing the

following issues:

What is in the best interest of electricity consumers of Maharashtra?

What is in the best interest of the State of Maharashtra?

What is the policy of State on encouraging investment in power sector? and

Can any special consideration be given to the generation projects located in

Maharashtra? If so, what are the reasons for the same?

10.3. The Commission also directed IBRL-Nashik and APML (jointly referred hereinafter

as "Sellers") to submit their stand on the following issues with respect to power sold

in the intermediary period between the COD and the scheduled delivery date of

power supply as per the PPAs under consideration.

Whether the Sellers are free to sell the power on merchant basis?

If the Sellers will sell the power to MSEDCL between the COD and scheduled

delivery date, then at what price would they do so?

10.4. The Commission directed Indiabulls Realtech Limited (hereinafter referred as

"IBRL") to submit the copy of LoA issued by the subsidiaries of CIL for the coal


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linkages and the present status of the same. The Commission also directed IBRL to

file an affidavit addressing the following issues:

Why Indiabulls believes that Tariff offered by it is reasonable? and

How the State of Maharashtra will gain/lose by having an arrangement with

Indiabulls?

10.5. The Commission directed MSEDCL to formally implead Energy Department,

Government of Maharashtra, APML and IBRL and send a copy of the Petition to all

the parties impleaded in the present Petition.

11. MSEDCL submitted its reply on 17 October, 2012 and in its letter addressed to the

Commission stated that as most of the information being submitted by it is based on

assumptions and is also based on information collected from developers, the same

has been submitted without an affidavit. The reply submitted by MSEDCL is

summarised in the following paragraphs.

11.1. As regards the question of what is in the best interest of electricity consumers,

MSEDCL submitted that the primary objective of the Electricity Act, 2003, is (a) to

take measures conducive to development of electricity sector; (b) to promote

competition in the electricity sector; and (c) to protect the interest of consumers.

MSEDCL added that it is necessary to ensure continuous power supply at a

reasonable rate to the consumers of electricity in Maharashtra and the ultimate aim

of MSEDCL is to achieve this goal. It submitted that it has tied up power on long-

term and medium-term basis. MSEDCL added that in case of lower availability of

power from long-term contracts, short-term power will be required to be procured. It

further submitted that to mitigate imminent shortage of power, MSEDCL will have

to resort to purchase of power through energy exchanges. In addition, the rate at

which, power is traded on the energy exchanges fluctuates widely, and there is no

assurance on the quantum of power that may be available from the energy

exchanges at the rates, which are viable for MSEDCL. Such uncertainties make it

extremely difficult to plan the load management accurately and hence contracting

long-term power is beneficial.


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11.2. As regards the question of what is in the best interest of the State of Maharashtra,

MSEDCL submitted that due to the deficit for power in the State, it has resorted to

load shedding over the last seven years leading to unrest among the consumers of

MSEDCL and that consumers in rural areas are the worst affected. The deficit power

scenario has also affected industrial growth in the State. It further submitted that

contracting power from a generating station located near the load centre of the State

is beneficial in all respects, considering the savings on transmission expenses and

loss, etc. Power generation facilities at different locations throughout the State will

help it avoid unwarranted expenses on the development of transmission systems and

transmission losses and charges thereof. The hassles related to development of

transmission network such as opposition to acquisition of land and erection of

towers and sub-stations from affected farmers, etc., can be avoided in such a

scenario where power is contracted from generating stations located near the load

centres. MSEDCL further submitted that the projects of IBRL-Nashik and APML

are being developed by utilising the domestic coal linkages, land, water and other

resources of Maharashtra. It submitted that in case the power generated by these

projects is not utilised by Maharashtra, the developers of these projects will be

forced to sell their power to other States and this would deprive the State from

benefits available from these projects.

11.3. As regards the query on the policy of Maharashtra State on encouraging investment

in power sector, MSEDCL submitted that pursuant to the enactment of Electricity

Act, 2003, the GoM has framed a policy to promote investment in generation sector

and it has issued directions through GR No. PSP 2005/CR2068/NRG-7 dated 28

March, 2005. MSEDCL submitted that the said policy offers several benefits to

power generation companies such as administrative support to procure government

land, single window clearances, facilitation in fuel linkage and infrastructure like

roads, water and power evacuation facilities and right of way. Further, MSEDCL

also quoted Clause 5 and 6 of the said policy, which relate to the provisions of

procurement of power from projects established under the said policy. The said

clauses are reproduced below.

Clause-5:


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"Maharashtra State Electricity Board or its successors shall "buy back" power from

IPPs for the projects established under this policy at the rate approved by

MERC/CERC. Such buy back shall be through competitive bidding process of

MSEB or its successors. The terms and conditions as well as quantity of buy back

shall be specified by MSEB or its successors in the tender document. The buy back

of power shall be subject to the approval of MERC. Govt. of Maharashtra will give

guarantee to such "buy back" of power by MSEB or its successors from IPPs to the

extent of 2000 MW or 50% for the first 5 years"

Clause-6:

"The aforesaid incentives will be available only to such investors who submit

project DPR within six months, attain financial closure within one year and

commission the project within five years from the date of declaration of this policy."

11.4. As regards the Commission's query on whether any special consideration can be

given to the generation projects in Maharashtra and if yes, what are the reasons for

the same, MSEDCL replied that the proposed PPAs are based on the transparent

competitive bidding process carried out as per MoP guidelines. It submitted that the

offer for power supply from IBRL-Nashik was not considered at the time of Case 1

Stage-II bid process, as the quantum of power required by MSEDCL at that time

was fulfilled by the quantum offered by the three lowest offers in terms of levellised

Tariff i.e., Emco Energy, IBPL - Amravati and APML. MSEDCL submitted that

after the three lowest bidders, IBRL-Nashik was the fourth-lowest bidder. It

submitted that in view of the present demand-supply situation and considering that

new projects are getting delayed, procurement of power on long-term from a project,

which has achieved substantial progress in construction, is a prudent choice. It

further submitted that development of new thermal power projects in the future is

expected to reduce considering the shortage of coal. It submitted that the existing

planned generation capacities are getting delayed, as the developers are facing

uncertainties regarding Tariff and environmental issues. MSEDCL submitted that as

per the press release by the Prime Minister's Office (PMO) on 15 February, 2012,

Coal India Limited will sign FSA with only those power projects, which have signed

long-term PPAs with power distribution companies and have been commissioned or


MERC, Mumbai of 63

would be commissioned on or before 31 March, 2015. MSEDCL submitted that as

per the press release, FSA will be signed for full quantity of coal mentioned in the

LoA for a period of 20 years with trigger levels for penalty as 80% of supply and

incentive as 90% of supply. MSEDCL submitted that both APML and IBRL-Nashik

have LoAs for supply of domestic coal.

11.5. MSEDCL further submitted that new hydro projects are getting delayed due to

environmental, geological and/or political issues. Further, reduced gas availability

has forced gas based projects to run at suboptimal levels of operation. In such a

scenario, the proposed PPAs for additional power with APML and IBRL-Nashik,

which are in an advanced stage of construction, must be considered, as this will help

Maharashtra to meet its energy demand in the long-term.

11.6. MSEDCL also submitted the results of demand-supply analysis, after incorporating

the suggestions of the Commission. The results of the demand supply analysis are

reproduced in the table given below.

Table 4: Results of projected demand-supply analysis of MSEDCL

Financial

Year

Peak

demand

(MW)

Less: Demand

reduction due

to Open

Access (MW)

Net peak

demand

(MW)

Peak

availability

(MW)

Peak

shortfall/(surplus)

(MW)

2012-13

(Apr-Dec) 15,096 700 14,396 12,977 1,569

2012-13

(Dec - Mar) 15,447 700 14,747 13,688 1,209

2013-14 16,992 700 16,292 17,881 (1,369)

2014-15 18,691 700 17,991 19,040 (898)

2015-16 20,560 700 19,860 20,285 (275)

2016-17 22,616 700 21,916 21,762 305

2017-18 24,878 700 24,178 22,278 2,050

2018-19 27,366 700 26,666 22,278 4,538

2019-20 30,102 700 29,402 22,278 7,275

12. IBRL submitted its reply to the questions raised by the Commission under an

affidavit on 12 October, 2012. The salient features of the reply are described in the

subsequent paragraphs.

12.1. IBRL gave a brief background of the present case and the facts of the case.

12.2. As regards the question of what is in the best interest of electricity consumers, IBRL

submitted the following arguments:


MERC, Mumbai of 63

Advantage of Domestic Coal Linkage, which is the cheapest source of

thermal power generation: IBRL submitted that as per the directive of PMO

for supply of domestic coal linkage, only those power projects which have long-

term PPAs with distribution utilities and which are getting commissioned before

31 March, 2015, will get supply of domestic linkage coal. IBRL added that in

case the said PPA with MSEDCL under consideration is not approved, the

Nashik power project, in spite of having the LoA for domestic coal linkage and

also getting commissioned before 31 March, 2015, will lose the opportunity of

getting linkage coal and passing on the benefits of cheaper power to the State of

Maharashtra.

No interstate transmission charge and transmission loss: IBRL submitted

that the Nashik power project being located within the State of Maharashtra, no

interstate transmission network would be involved for transmission of power

generated from this plant for consumption within Maharashtra. This aspect

would make the Tariff for power supplied from this project lower by around Rs.

0.70 to 1.00 per kWh, which are the approximate transmission charges for

projects supplying power to Maharashtra from coal-rich States like Jharkhand

and Orissa.

IBRL submitted that the approval of the Commission for the initialed PPA

between MSEDCL and IBRL-Nashik will result in the consumers of

Maharashtra getting the benefit of cheaper power. Bulk of power demand in

Maharashtra is from customers in the western region, i.e., Mumbai, Pune and

Nashik areas. IBRL submitted that purchase of power from Nashik power plant,

which is based on domestic linkage coal, and is located in the load centre for

power, would be in the best interest of the consumers of Maharashtra as they

would get cheaper power.

12.3. As regards the question of what is in the best interest of the State of Maharashtra,

IBRL submitted the following reply:

IBRL submitted that the LoA for domestic coal linkage is project specific and

cannot be transferred to any other project. It submitted that the approval of the

Commission on PPA initialed between IBRL-Nashik and MSEDCL will ensure


MERC, Mumbai of 63

that the Nashik power project does not lose the coal linkage forever. IBRL

added that the fuel cost of power generation based on domestic linkage coal is

cheaper when compared to power generation using either e-auction or imported

coal. IBRL submitted that considering the above facts, if the domestic coal

linkage is lost due to disapproval of the proposed PPA, an option of getting

cheaper power for MSEDCL and consequently, the consumers of the State of

Maharashtra, will also be lost forever.

IBRL submitted that power generation activity in Maharashtra is heavily

concentrated in the Vidarbha region, whereas the highest demand for power is in

western Maharashtra. IBRL added that against the present demand of around

3,031 MW, Vidarbha has generating capacities of around 4,525 MW. It further

submitted that installed capacity in rest of Maharashtra is 9,467 MW against the

demand of 15,432 MW. IBRL submitted that Nashik is part of the heavily

industrialised western belt, which is the load centre of the State and has high

demand for power. It added that the power generation capacity in the Vidarbha

region is much more than the demand, leading to a heavy load on the

transmission system to evacuate the surplus power. Since most of the demand

for power is from western Maharashtra including the heavily industrialised

western belt, power needs to be transmitted from existing and upcoming

generating projects located in Vidarbha region to western Maharashtra, leading

to requirement of fresh investment in the transmission network. In contrast,

Nashik power project of IBRL is located in western Maharashtra, which is the

load centre, and hence does not require new investments in the transmission

network to evacuate the power generated from this project to the consumers.

IBRL submitted that purchase of power from Nashik power project, which is

located at load centre in Maharashtra and has domestic coal linkage, would be in

the best interest of the State of Maharashtra.

12.4. As regards the query on the policy of Maharashtra State on encouraging investment

in power sector, IBRL submitted the following reply:

IBRL submitted that GoM issued the "Maharashtra State policy for investment

in the power generation sector for capacity addition of 500 MW and above" vide


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resolution no. PSP 2005/CR 2068/NRG-7 dated 28 March, 2005 to encourage

private investment in the power sector. It added that in line with the principles of

the said policy, the GoM, through Industries, Energy and Labour Department

vide letter dated 3 November, 2008, issued a letter of support for Nashik power

project. IBRL added that as per Clause 5 of the aforesaid policy, Maharashtra

State Electricity Board or its successors is/are required to buy power from power

project established under the said policy at the rate approved by the

Commission.

12.5. As regards the question whether any special consideration can be given to the

generation projects in Maharashtra and if so, what are the reasons for the same,

IBRL submitted the following reply:

IBRL submitted that the State of Maharashtra is suffering from acute power

shortage and to mitigate this demand-supply gap, MSEDCL will have to resort

to power procurement in future. IBRL added that in case, the procurement of

power from Nashik project is not approved by the Commission, MSEDCL will

need to conduct a new bidding process for procurement of power. Considering

the current trend of Tariffs offered by various developers across the country,

MSEDCL will not get power at a Tariff in the range of Rs. 3.42 per kWh, as

developers are factoring the cost of e-auction and/or imported coal required to

be procured due to the shortfall of domestic linkage coal from CIL. This has

been demonstrated in the Tariff discovered in the bidding processes conducted

by various distribution utilities across India. Even IBRL will not be able to offer

power at the Tariff of Rs. 3.42 per kWh, in case a fresh bidding is conducted.

IBRL quoted the range of Tariffs discovered in recent Case 1 bids, which are

represented below.

Table 5: Tariffs quoted in recent Case 1 bids

State/Utility Period when bids

submitted

Power Required (MW) Range of Tariff

offered by bidders

(Rs./kWh)

Andhra Pradesh June 2012 2000 (+/- 20%) 4.290 - 6.989

RInfra,

Maharashtra

August 2011 1000 (+/- 20%) 3.513-5.593

Bihar April 2011 1050 (+/- 20%) 3.691-12.445


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Karnataka January 2010 2000 (+/- 20%) 3.757-5.300

IBRL submitted that above Tariffs are the result of change in various economic

factors like (a) shortage of domestic coal linkage (b) increase in input costs (c)

higher railway freight charges, (d) increase in interest rates, etc., which have

changed since August 2009, when power was initially offered from Nashik

power plant. IBRL submitted that it has also participated in a couple of the

above mentioned bidding processes, wherein it could not quote a Tariff

equivalent to Rs. 3.42 per kWh, which has been offered to MSEDCL from

Nashik power plant under the PPAs under consideration.

IBRL submitted that it has been provided with land and water by the State of

Maharashtra. The project would be meeting part of its coal requirement through

coal provided by Western Coalfields Limited extracted from mines in the State

of Maharashtra. IBRL submitted that special consideration given to such

projects in the State of Maharashtra will ensure that while the natural resources

like water, land, coal, etc., of the State are utilised by such projects, the benefits

arising from these projects also are utilised by Maharashtra and not other States.

It submitted that in case MSEDCL doesn't sign the PPA with IBRL for purchase

of power from Nashik power plant, the power generated will be sold outside the

State, resulting in depletion of natural resources of the State without any benefits

to the consumers of the State of Maharashtra or the Government of Maharashtra.

IBRL further submitted that importing power from outside the State would

increase the power procurement cost by Rs. 0.70 to 1.00 per kWh. Hence, there

is a clear commercial advantage of procuring power from the Nashik power

project, which is located within the State of Maharashtra.

IBRL further added that in anticipation of approval from GoM, IBRL started

construction of Nashik power plant in the year 2010. It submitted that the plant

is now at an advanced stage of commissioning with "boiler light up" expected in

October, 2012, and commissioning expected in January, 2013. IBRL also

submitted the detailed status of the project as an annexure to its submission.

It submitted that due to the above reasons, a special consideration must be given

for such projects within the State of Maharashtra.


MERC, Mumbai of 63

12.6. As regards their stand on price of power in the intermediary period between COD

and Scheduled Delivery Date, IBRL submitted the following reply.

Whether the bidder is free to sell the power on merchant basis?: IBRL

submitted that as per clause 4.5.2 (a) of PPA submitted for approval to the

Commission by MSEDCL, the Seller is free to sell such power to any offtaker

prior to scheduled delivery date and hence can opt for merchant sale. IBRL

quoted the said clause from the PPA, which is reproduced below:

"Notwithstanding Article 4.5.1, the Seller is free to sell such power to any

third party prior to the Scheduled Delivery Date or Revised Scheduled

Delivery Date(s) as the case may be and any capacity which is in excess of

the quantum of power agreed to be supplied under this Agreement from

each such Revised Scheduled Delivery Date(s) "

If power will be sold to MSEDCL, then at what price the bidder would be

selling the power between COD and scheduled delivery date of the power

supply?: IBRL submitted that as per Article 4.5.1 and 4.5.2 of PPA, the

exclusive right over contracted capacity of MSEDCL commences only after the

scheduled delivery date. Accordingly, during the period between COD and the

scheduled delivery date, IBRL is free to sell power to any party including

MSEDCL at mutually agreed terms.

12.7. Further, IBRL submitted the copies of Letters of Assurance (LoA) issued by Coal

India Limited subsidiaries as sought by the Commission. On the Commission's

query of status of these coal linkages, IBRL submitted that all the LoAs issued by

the subsidiaries of CIL for Nashik power plant are valid and eligible for signing of

FSA with Coal India Limited subsidiaries, if this initialed PPA between IBRL-

Nashik and MSEDCL is approved by the Commission.

12.8. As regards the question about why IBRL feels that the Tariff offered by it is

reasonable, IBRL submitted the following reply.

As per the information available with it, MSEDCL is purchasing short-term

power at a Tariff of approximately Rs. 4.10 per kWh. IBRL submitted that


MERC, Mumbai of 63

Maharashtra has recently approved purchase of power form NTPC Solapur at a

Tariff of Rs. 4.07 per kWh and from RGPPL at Rs. 5.29 to Rs. 8.19 per kWh.

IBRL submitted that the price discovered in recent Case 1 bids are all higher

than the Tariff of Rs. 3.42 per kWh offered by IBRL-Nashik. IBRL reiterated

that even it has not been able to quote a Tariff equivalent to Rs. 3.42 per kWh in

other bids where it has participated.

IBRL submitted that if fresh bids are carried out again, no bidder is likely to

offer to supply power at a levellised Tariff of Rs. 3.42 per kWh, which is also

demonstrated in the Tariff discovered in recent Case 1 bids. IBRL submitted that

the reason for the same is that very few developers having power projects in

Maharashtra have domestic coal linkage. IBRL submitted that the majority of

the other operating/under construction projects are based on imported coal and

the break-even generation cost for such projects is Rs. 4.50 per kWh. It

submitted that it was able to bid for supply of power at Rs. 3.42 per kWh from

Nashik power project only because it has domestic coal linkage.

IBRL submitted that even with coal linkage, it will be getting domestic coal to

the extent of 80% of Normative Availability of 85% which is 68% of the total

coal requirement. It submitted that based on this coal availability, the resultant

Plant Load Factor (PLF) will be ~68%. It added that at such a PLF, IBRL will

not be able to make any profits or contribution to its RoE and will not be able to

pay the principal loan amount but will only be able to service the interest cost.

The approval of the proposed power purchase would therefore allow IBRL to

avoid default on its debt and hence the power plant will not become a Non

Performing Asset (NPA).

IBRL submitted that considering current domestic coal shortage situation and

other general economic factors, the Tariff offered from Nashik power project is

very cost effective.

12.9. As regards the question about how the State of Maharashtra will gain or lose by

having an arrangement with Indiabulls, IBRL submitted that the State will not suffer

any loss and has only to gain from this arrangement due to the following reasons.


MERC, Mumbai of 63

Advantage of Domestic Linkage Coal, the cheapest source of thermal power

generation: IBRL submitted that coal linkage from CIL is available for the

project. IBRL added that only a limited number of projects have linkage from

CIL and that linkage coal is cheaper than imported coal or coal purchased from

CIL through the e-auction route. IBRL submitted that due to the above reasons,

the cost of power generated by using coal from sources other than CIL linkage

coal would be higher.

IBRL submitted that as per the Prime Minister's Office (PMO) directive dated

15 February, 2012, CIL will sign FSA with only those projects awarded LoAs

which: (a) have long-term PPA with power distribution companies and (b) are

getting commissioned before 31 March, 2015. IBRL averred that based on the

above directive, unless the PPA initialed between MSEDCL and IBRL-Nashik

is approved by Commission, IBRL-Nashik will not be able to sign FSA and get

coal despite having LoA for domestic coal linkage.

IBRL submitted that without this PPA, the coal linkage will be lost forever,

since the linkage is awarded for a specific project and cannot be transferred to

any other project. IBRL submitted that as a consequence of the disapproval of

PPA, the option of getting cheaper power by MSEDCL and in turn, its

consumers of the State of Maharashtra will also be lost forever.

IBRL submitted that in case IBRL-Nashik generates power using imported coal,

the fuel cost will be approximately Rs. 3.20 per kWh and the capacity charge

will be of the order of Rs. 1.50 per kWh, which would translate to a total cost

per unit of approximately Rs. 4.70 per kWh. IBRL submitted that as a

consequence of losing the opportunity to generate power on domestic linkage

coal, the Tariff from the project would go up to Rs. 4.70 per kWh, which is

much higher as compared to the offered Tariff or Rs. 3.42 per kWh.

IBRL submitted that since most of the demand for power in Maharashtra is from

western Maharashtra, including the heavily industrialised western belt in

Nashik, power needs to be transmitted from Vidarbha region to western

Maharashtra leading to requirement of fresh investment in the transmission

network to evacuate power from upcoming power projects in Vidarbha region. It


MERC, Mumbai of 63

submitted that in contrast to the above, Nashik power plant of IBRL is located in

western Maharashtra which is the load centre for power in the State and hence,

does not require any new investment on transmission assets. IBRL submitted

that if this investment on transmission assets and the transmission loss from

Vidarbha region to load centers in western Maharashtra are considered, the

levellised Tariff of Rs. 3.42 per kWh would be very economical compared to

other sources of power for Maharashtra.

IBRL submitted that IBRL-Nashik being within the State of Maharashtra, no

inter-state transmission network would be involved for transmission of power

generated from the project for consumption within Maharashtra. It submitted

that this aspect would make the Tariff lower by around Rs. 0.70 to 1.00 per kWh

in comparison with the power imported from coal-rich States like Jharkhand and

Orissa.

IBRL submitted that in light of the above facts, the approval of the proposed

PPA between MSEDCL and IBRL-Nashik will ensure that the consumers of

Maharashtra are given the benefit of cheaper power generated from domestic

linkage coal, which is the cheapest source of coal. It submitted that based on the

above facts, purchase of power from IBRL-Nashik would be in the best interest

of consumers of Maharashtra.

13. The Commission held a third hearing in this matter on 17 October, 2012. Shri. A.S.

Chavan, CE (PP), MSEDCL and Shri. S.G. Metre, EE (PP), MSEDCL appeared in

the hearing on behalf of MSEDCL. Shri Rajiv Rattan appeared on behalf of IBRL

and Shri Kandarp Patel appeared on behalf of APML. Shri M.D. Chopade, OSD,

Energy Department, GoM, appeared on behalf of GoM.

14. During the hearing, the Commission requested the Energy Department, GoM to

revisit the matter considering all the facts, issues and materials placed on record by

the parties and submit their views on the same. The Commission also requested

GoM to submit a copy of all the relevant papers placed before the Cabinet Sub-

Committee (Energy) for approval of quantum and price of additional long-term

power procurement from IBRL-Nashik and APML to the Commission. The


MERC, Mumbai of 63

Commission also directed MSEDCL to submit all the documents and information in

detail to all the parties including authorised Consumer Representatives.

15. After the third hearing, a Committee comprising of officers of the Commission,

Consumer Representatives and consultants was formed to study the submissions in

this case in detail, as per the directions of the Commission. The details of the

constitution, proceedings and findings of the Committee have been discussed in the

following paragraphs.

15.1. The following is the list of members of the Committee.

Table 6: List of members of the Committee formed to study the submissions in

Case no. 53 of 2012

Sr. No. Name of the person

1 Shri Rajendra Ambekar, Director (Tariff), MERC Convener

2 Dr. Ashok Pendse, Consumer Representative (TBIA) Member

3 Ms. Ashwini Chitnis, Consumer Representative (Prayas Energy Group) Member

4 Shri Umesh Agrawal, PwC Member

5 Shri Ghanashyam Patil, Dy. Director (Technical), MERC Member

6 Shri Ravindra Sonawane, Dy. Director (Legal), MERC Member

7 Shri Suresh Shukla, Regulatory Expert, MERC Member

8 Shri Saurabh Gupta, Regulatory Officer, MERC Member

9 Shri Ketan Patil, Regulatory Officer, MERC Member

10 Ms. Gayatri Ramanathan, Consultant, MERC Member

15.2. The Committee met five times between the period of 1 November, 2012 and 4

December, 2012. The members of the Committee scrutinised all the submissions

made by MSEDCL, IBRL and APML in the present Petition.

15.3. The Committee was informed during the first meeting that Dr. Ashok Pendse, TBIA,

in his letter dated 1 November 2012 and Ms. Ashwini Chitnis, in her letter dated 31

October, 2012 had expressed their unwillingness to participate in the Committee.

However, both the Consumer Representatives made their written submission for the

consideration of the Committee. The Committee discussed and analysed the written

submission made by the Consumer Representatives and their opinions have been

considered by the Committee while drafting their report.

15.4. The Committee analysed the matter under five major categories, which are as

follows.


MERC, Mumbai of 63

Is there any precedent to the present case under consideration (Case No. 53 of

2012)?

Is there a demand-supply gap for MSEDCL in the long-term?

Are the Tariffs offered by APML/ IBRL competitive under the current market

trends? What are the factors that may affect the Tariffs discovered in the fresh

competitive bidding process?

Is there a possibility of going for Swiss Challenge Methodology and what are

the merits & demerits associated with Swiss Challenge Methodology? and

Does the present coal linkage policy have implications on the projects under

consideration?

15.5. The Committee sought the details on computation of year-wise Tariff for the period

of supply and the levellised Tariff of the power offered under the PPAs for

additional power proposed under the present Petition from IBRL and APML through

a letter dated 2 November, 2012.

15.6. IBRL submitted their reply through the letter dated 12 November, 2012. However,

in the said reply, IBRL submitted only the year-wise Tariff after applying the

indexing mechanisms as per the PPA, but did not submit the levellised Tariff based

on the revised supply period.

15.7. APML, through their letter dated 20 November, 2012, conveyed that they need

further clarity on the computation of Tariff as sought by the Committee.

15.8. The Committee again sought the details on computation of levellised Tariff based on

the revised supply period from IBRL and APML through a letter dated 20

November, 2012.

15.9. However, APML through their letter dated 4 December, 2012, submitted that the

methodology of computing the Tariff as suggested by the Committee (based on the

format submitted in the query) would not be appropriate and may mislead in the

decision making process. APML submitted that the levellised Tariff is used only for

comparing multiple bids and does not represent the Tariff at which the power would

be sold to the utility.


MERC, Mumbai of 63

15.10. IBRL did not submit any response against this query.

15.11. The Committee submitted its report on 5 December, 2012. The major findings of the

Committee are reproduced below.

"

The Committee has studied various Orders/Judgments similar to the present

case. However, the facts and circumstances of each case are different and

hence, it would not be possible to draw a parallel with the present case under

consideration.

In the past, while approving/disapproving the PPAs, the Hon’ble Commission

has ensured that;

Sanctity of the bidding process is maintained; and

Interest of the consumer is protected

A fair and equal opportunity should be provided to the other bidders who

qualified in the bidding process.

Based on the submissions of MSEDCL, there is a peak shortfall of power from

FY 2017-18 onwards. However, the Committee has presented its observations

on the data submitted by MSEDCL.

Though the bids submitted by APML/ IBRL look more competitive than the

recent Case-1 long-term bids in other States, the competitiveness of the bids

need to be compared for the same period of supply and also looking at other

parameters, such as, financial health of the utility (buyer).

The revised levelised tariff required to be computed based on the actual period

of supply has not been provided by IBRL and APML. According to the initialed

PPA provided, the schedule delivery date is 48 months from the effective date.

A Swiss challenge may be considered after taking into account, the merits and

demerits associated with it. If a Swiss challenge is adopted, certain parameters

highlighted by the Committee must be clearly addressed before initiating the

process.


MERC, Mumbai of 63

Coal India Limited will supply coal to the power generators only if they have

signed PPA with the distribution utility."

15.12. The detail report of the Committee, comprising of the details on proceedings,

analysis and findings of the Committee, is annexed at Annexure-1.

16. MSEDCL submitted its revised demand-supply projection on 9 November, 2012,

wherein it incorporated the impact of reduction in demand due to growth in open

access consumers over the supply period. The revised demand-supply projection is

given in the table below.

Table 7: Revised results of projected demand-supply analysis of MSEDCL

Financial Year Peak demand

(MW)

Peak availability

(MW)

Peak shortfall/

(surplus) (MW)

2012-13 (Apr-Dec) 14,396 12,977 1,419

2012-13 (Dec - Mar) 14,747 13,688 1,059

2013-14 16,222 17,837 (1,615)

2014-15 17,844 19,065 (1,221)

2015-16 19,628 20,311 (683)

2016-17 21,591 21,787 (196)

2017-18 23,750 22,304 1,447

2018-19 26,125 22,304 3,822

2019-20 28,738 22,304 6,434

17. Dr. Ashok Pendse made a submission to the Commission in the matter of the current

Petition on 17 November, 2012. The major arguments put forth by Dr. Pendse in his

submission are summarised in this Section.

17.1. Dr. Pendse highlighted that MSEDCL has not approached the Commission for

approval of the quantum of 1090 MW as done in earlier cases of power

procurement. He submitted that in addition to the above, MSEDCL has considered a

higher growth rate of demand for power, i.e., 10% instead of 8% and also proposed

that additional capacity is required to be procured for creating a spinning reserve to

support its argument regarding the need to procure additional power under the

current Petition. Dr. Pendse argued that contracting additional power for maintaining

a spinning reserve will add to the average cost of supply and the distribution

licensees in Mumbai have been able to supply power continuously without having a

spinning reserve.


MERC, Mumbai of 63

17.2. Dr. Pendse argued that approving MSEDCL's proposal in the current Petition will

mean that other private entities are denied the opportunity of bidding in this process

of power procurement. To highlight the importance of allowing an opportunity to

other private entities for bidding in the power procurement process, Dr. Pendse

submitted that Hon'ble CERC has notified the draft Regulations on prevention of

adverse effect on competition recently.

17.3. Dr. Pendse submitted that in its Order in Case No. 56 of 2010 in the matter of

approval of an additional 125 MW of power from APML, the Commission had ruled

that the approval in that case should not create precedence for procurement of an

additional quantum of power over and above the approved quantum.

17.4. On the argument put forth by MSEDCL and IBRL that the Tariff offered under the

proposed power procurement is lower than that discovered for medium-term power

purchase in other States, and accordingly the proposed power purchase is in the

interest of consumers, Dr. Pendse submitted that the rates discovered in short-term

power purchase by MSEDCL are much lower than that proposed by APML and

JSW for medium-term power sale in Case No. 104 of 2012. He submitted that as a

principle, the Tariff for long-term power procurement will be lower than that offered

under medium-term power procurement. He also submitted that it is pertinent to

note the opinion of the Commission expressed in Order in Case No. 29 of 2011

dated 23 September, 2011 regarding the importance of following the process of

competitive bidding in power procurement. He quoted the following paragraph from

the said Order of the Commission in this regard.

“It is not only a question of procuring power at negotiated lower rates for the

benefit for consumers, but it is also a question of upholding the sanctity of Section

63 of the 2003 Act which lays down the requirement of transparent process of

bidding in accordance with the guidelines issued by the Central Government.”

17.5. In response to IBRL's argument that if the proposed PPAs are not approved, both the

projects from which the PPAs have been proposed will become stranded assets, Dr.

Pendse submitted that the investment policy in the State is a subject matter of the

State and not MSEDCL. He submitted that any benefits given under the policy will

have to come from the State and not at the cost of consumers of MSEDCL. He


MERC, Mumbai of 63

submitted that consequently, if the power generation assets are stranded, the

problem needs to be addressed by the State and not the Commission.

17.6. Dr. Pendse highlighted that APML had not offered 440 MW in the Case 1 Stage-II

bid process, which they are offering under the present Petition. He submitted that it

is essential to note that IBRL-Nashik was not in the list of winning bidders in the

purchase of 2600 MW under Case 1 Stage-II bid process as a consequence of higher

Tariff offered by it. He submitted that IBRL is offering the same 1200 MW in the

present Petition. He submitted that IBRL and APML already knew that the power

generation assets, from which, the purchase of power has been proposed under the

present Petition, are likely to become stranded assets even three years ago, i.e.,

2009, when the Case 1 Stage-II bid process was conducted. He submitted that

keeping the same in view, the argument of these assets becoming stranded does not

hold valid in deciding the matter in the present Case.

17.7. In response to IBRL's argument that IBRL-Nashik is located near the load centre

and hence power procurement from the same is beneficial, Dr. Pendse submitted that

although procurement of power from a power generating station located near the

load centre is always beneficial, the same cannot be the sole criteria for procuring

power from such project.

17.8. In response to MSEDCL's argument that the Cabinet Sub-Committee (Energy) of

the State Government has already approved the purchase of the power for which the

approval has been sought in the present Petition, Dr. Pendse submitted that

Competitive Bidding Guidelines issued by MoP have clearly stated the role of the

evaluation committee to be formed under the guidelines for approving such power

purchase. He submitted that as per the guidelines, the evaluation committee must

consist of one external member. He submitted that as per the guidelines, the

evaluation is required to be done after following the due process explained under the

guidelines. He submitted that the approval of Cabinet Sub-Committee (Energy) is an

internal matter of MSEDCL, since it is owned by the Government. He opined that

the Commission cannot subjugate the role of evaluating the power procurement

offer to the Cabinet Sub-Committee (Energy).


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17.9. Dr. Pendse added that Coal India has recently clarified that they will sign FSA for a

power project only if the generating company has a PPA with a distribution utility.

He submitted that this has been further modified to the extent that although CIL will

sign FSA for a project which does not have a PPA, the PPA should be in place when

actual delivery of coal starts. He submitted that in the absence of FSA, the only

choice for procurement of coal by generators is through e-auction and/or imported

coal. He submitted that based on the above facts, it appears that the attempt to sign

PPA for power procurement under the present Petition is only being made to sign

FSA with CIL.

18. MSEDCL submitted an additional submission on 20 November, 2012 under

affidavit. The additional points raised in this additional submission are summarised

in the following paragraphs.

18.1. MSEDCL submitted that initially during the Case 1 Stage-II bid process, IBRL-

Nashik had submitted their bid with a levellised Tariff of Rs. 3.45 per kWh.

Subsequently, on negotiations between IBRL-Nashik and GoM, IBRL-Nashik

offered to supply power at a revised levellised Tariff of Rs. 3.42 per kWh and

submitted a revised Tariff stream for the negotiated levellised Tariff.

18.2. MSEDCL submitted that it deliberated on the revised Tariff stream submitted by

IBRL-Nashik and analysed the components of Tariff stream, which are as provided

below.

Table 8: Break-up of components of Tariff as originally bid by IBRL-Nashik

and as per revised negotiated Tariff

Levellised

Tariff

(Rs/kWh)

When was

the Tariff

stream

submitted

Levellised

non-escalable

capacity

charges

Levellised

non-escalable

energy

charges

Levellised

escalable

energy

charges

Levellised

escalable

inland

transportation

charge

3.45 As per bid 1.074 0.595 0.762 1.019

3.42 Revised

after

negotiations

0.793 0.235 1.542 0.851

18.3. MSEDCL submitted that on carrying out an analysis of the break-up of Tariff as

provided above, it observed that:


MERC, Mumbai of 63

IBRL-Nashik had increased the escalable energy charges and reduced all other

components of Tariff; and

There is a major shift of charges from non-escalable energy charge to escalable

energy charges. This would make the Tariff actually payable by MSEDCL

dependent on various economic factors which cannot be predicted.

18.4. MSEDCL submitted that it deemed appropriate to reduce all the components of

Tariff on a pro-rata basis, so as to maintain the risk profile of the Tariff stream. It

submitted that the MSEDCL Board also discussed the issue and resolved that the

revised Tariff stream for levellised Tariff of Rs. 3.42 per kWh calculated by

proportionate reduction of components of Tariff should be adopted.

18.5. MSEDCL submitted that it requested IBRL-Nashik vide its letter dated 18 October,

2012, to accord consent to the revised Tariff stream based on pro-rata reduction of

Tariff components.

18.6. MSEDCL submitted that IBRL-Nashik, vide its letter dated 22 October, 2012,

averred that there is no front loading of the Tariff stream submitted by them and the

Tariff stream proposed by them will also result in a lower Net Present Value of the

amount to be paid by MSEDCL. IBRL-Nashik requested that based on the above

observations, MSEDCL should retain the Tariff stream proposed by IBRL-Nashik.

18.7. Based on the these events, MSEDCL prayed to the Commission in the additional

submission that the risk profile of the Tariff stream should be maintained as per the

original Tariff stream submitted by IBRL-Nashik in the bid. It further prayed the

Commission to replace the Tariff stream submitted along with the initialed PPA in

the Petition in Case No. 53 of 2012 with the Tariff stream submitted by MSEDCL in

this additional submission, which has been computed by pro-rata reduction in all the

components of Tariff.

19. IBRL made an additional submission on 23 November, 2012 in reply to the issues

raised by MSEDCL in its submission dated 20 November, 2012. The major

arguments put forth by IBRL are summarised in the following paragraphs.

19.1. IBRL submitted that once the negotiated Tariff is agreed, MSEDCL has never asked

any bidding company to change the Tariff streams based on pro-rata reduction in


MERC, Mumbai of 63

Tariff elements. IBRL added that only in their case, MSEDCL has sought a revision

in Tariff stream on pro-rata basis.

19.2. It submitted that in all the past cases, where the levellised Tariff was negotiated

between the bidder and the State Government subsequent to the Stage-I and Stage-II

of the Case-I bidding processes, the bidding company was given the freedom to

adjust the different Tariff elements in the stream to match the negotiated levellised

Tariff, that was agreed post negotiations. IBRL also presented the information

related to the past cases referred by it in its above argument.

19.3. It submitted that asking IBRL to reduce the Tariff proportionately amounted to

discrimination with IBRL. It submitted that the Tariff stream proposed by them

would be in the best interest of the electricity consumers of Maharashtra.

19.4. IBRL further explained that the Tariff stream proposed by it did not lead to front

loading and also lead to a lower NPV of the cash outgo of MSEDCL for the power

procurement from IBRL.

19.5. It prayed the Commission to approve the proposed PPA and to retain the Tariff

stream proposed by it, which has also been submitted in the initialled PPA.

20. APML made a submission on 26 November, 2012 and the major arguments put forth

by APML in the additional submission are discussed in the following paragraphs.

20.1. APML submitted that the Tariff offered in the proposed power procurement of 440

MW is based on the Tariff discovered through competitive bidding process and is

very competitive.

20.2. APML added that since the project is located in Maharashtra, there will be no

implication of additional transmission charges.

20.3. APML referred the Order issued by Delhi Electricity Regulatory Commission

(DERC) in Petition No. 05/2009, in which it has approved the power purchase of

132 MW from Jhajjar Power Limited through Tata Power Trading Company

Limited. The quantum of power for which approval was sought, was the balance

10% of the total capacity of Jhajjar Power Limited that was remaining after

contracting the power with Uttar Haryana Bijli Vitran Nigam Limited (UHBVNL)

and Dakshin Haryana Bijli Vitran Nigam Limited (DHBVNL) on long term basis.


MERC, Mumbai of 63

21. IBRL made an additional submission on 26 November, 2012. The major arguments

put forth by IBRL in the additional submission are discussed in the following

paragraphs.

Implication of not approving the present Petition and inviting fresh RfPs

21.1. IBRL submitted that MSEDCL is in desperate need for contracting long-term power

and is also facing an acute power deficit currently. IBRL also emphasised on the

issue raised by MSEDCL regarding the reduced availability of power (a) from Uran

power project and RGPPL due to lower gas availability, (b) from upcoming UMPPs

due to delay in awarding and commissioning and (c) from hydro power projects, due

to lower water level in the reservoirs. It also submitted that GoM has already

announced its intention to make Maharashtra a zero load shedding State.

21.2. It submitted that if MSEDCL is compelled to go for a fresh bidding process to

procure additional power to meet the increasing demand-supply gap, the quoted

Tariffs are expected to be much higher than Rs. 3.42 per kWh because of the

following reasons.

Cost of financing has increased in comparison to 2009 indicated by the increase

in SBI PLR as well as discounting factor for bid evaluation notified by Hon'ble

CERC, which has increased from 10.19% in 2009 to 11.08% currently.

Cost of coal has increased from 2009 till date, indicated by the increase in WPI

of domestic coal from 116.53 in 2009 to 161.38 in 2011. Considering the coal

shortage scenario, price of coal is expected to increase further.

Cost of coal transportation has also increased during the period of 2009 to 2011.

No fresh LoAs are being issued by Ministry of Coal and CIL is unable to supply

the committed quantity against its existing LoAs.

Risk perception of investors in the power sector has increased, which along with

the above factors, would lead to higher quotes in case a fresh bidding process is

initiated.

21.3. Further, IBRL quoted the Tariffs discovered in recent Case 1 bids to substantiate its

arguments mentioned above.


MERC, Mumbai of 63

21.4. IBRL reiterated its arguments given in the earlier submission regarding higher cost

of power purchase from NTPC stations and RGPPL.

21.5. IBRL reiterated its arguments given in the earlier submission that if power from

IBRL-Nashik is purchased, MSEDCL will not have to (a) bear any inter-state

Transmission charges and losses, thereby leading to a savings of Rs. 0.70 to 1.00 per

kWh and (b) invest in the intra-state Transmission system.

21.6. IBRL further added that the time frame to carry out the bid process is 3 months as

per the Competitive Bidding Guidelines and in most cases, an additional 6 to 8

months are required to conclude the bid process, thereby taking the total time frame

for contracting additional power to approximately 12 months.

21.7. It further submitted that in the last three years, since the levellised Tariff of Rs. 3.42

per kWh was offered, there has been no significant positive impact on any of the

economic and financial factors which would enable any bidders to offer a lower

Tariff. It submitted that on the contrary, there has been a substantial increase in the

price of coal, capital expenditure and interest cost. It submitted that to add to the

above, the fuel risk i.e., non-availability of linkage coal, issues with water

availability and land availability have further enhanced the risk profile of power

projects. IBRL added that the above factors have pushed the power sale Tariffs on

the higher side, as has been demonstrated in the recently discovered Tariffs in Case

1 bids in other States. IBRL submitted that it would be incorrect to assume that the

rates discovered in a fresh bid would be lower than the Tariff offered under the

initialed PPAs with MSEDCL.

21.8. IBRL submitted that it has also quoted a Tariff of more than Rs. 5.00 per kWh in

response to a tender floated by UPPCL in July, 2012, for procurement of power

under Case 1 route.

Swiss Challenge Method not feasible

21.9. The Commission had discussed the possibility of carrying out a Swiss Challenge in

the present case in the third hearing. IBRL submitted that Swiss Challenge method

will not work in the present case due to the following reasons.


MERC, Mumbai of 63

Swiss Challenge method has never been used in long-term power procurement

and hence has never been tested.

Two streams of Tariffs with different levellised Tariffs have been used in the

two PPAs initialed by MSEDCL, which are under consideration in the present

Petition, one with IBRL-Nashik at a levellised Tariff of Rs. 3.42 per kWh and

other with APML for Rs. 3.28 per kWh. Thus there is no single levellised Tariff,

against which bidders can quote in the Swiss Challenge method.

For procurement of power under Case 1 bid, bidders are supposed to bid not

only the levellised Tariff, but also submit a 25-year Tariff stream for different

components of Tariff. Since the levellised Tariff as well as the stream used in

the initialed PPAs are available in the public domain, any challenger can tweak

the Tariff stream marginally to get a lower levellised Tariff, which might have

higher cash payout for MSEDCL.

Conducting a Swiss Challenge would give an opportunity to non-serious

entities, which may use this opportunity to grab the bid by way of offering a

small discount in the Tariff, as the information on Tariff is in public domain.

In the past, such bidders have won bids by quoting unreasonably low Tariffs but

have failed to supply power under one pretext or other. Currently, some such

cases are already under litigation at various stages.

It will take at least eight months to call for Swiss Challenge bids and another

three to four months to finalise the bids. Since the information on Tariff stream

of IBRL-Nashik and APML is already in public domain, any frivolous entity

may derail the whole process by offering a Tariff lower by Rs. 0.01 per kWh

from the Tariff offered in the proposed PPAs under consideration under the

present Petition and then may not develop the project or may not supply power

at the bid rate under some pretext or other. This entire process may take several

years, if the matter goes into litigation.

21.10. IBRL submitted that considering the above arguments, such an exercise would be

time consuming and may not result in real supply of power to the State.


MERC, Mumbai of 63

21.11. IBRL submitted that IBRL-Nashik is at an advanced stage of implementation. It

added that the boiler light-up has been completed and the power from the project

will be available to the State from 2013. IBRL submitted that any new serious

bidder will take a minimum of five to six years for supplying power.

21.12. IBRL submitted that the Swiss Challenge method entails serious risks and may

derail the whole process of power procurement.

Impact of ruling in this Case on coal linkage available to the project

21.13. IBRL submitted that Standing Linkage Committee (Long Term) (hereinafter

referred as "SLC"), Ministry of Coal has sanctioned long-term coal linkage and

accordingly, subsidiary companies of Coal India Limited (CIL) have issued LoAs to

IBRL-Nashik, details of which are as follows.

LoA dated 12 June, 2009, issued by Western Coalfields Limited.

LoA dated 11 June, 2009, issued by Mahanadi Coalfields Limited.

LoA dated 8 September, 2009, issued by South Eastern Coalfields Limited.

21.14. IBRL submitted that GoI issued the National Coal Distribution Policy (NCDP) in

2007 which outlines the guidelines for distribution of coal. IBRL submitted that as

per the said policy, 100% of the quantity of normative requirement of the consumers

would be considered for supply of coal through FSA by CIL. IBRL submitted that in

spite of the above; CIL has been insisting its consumers accept a lower quantity of

coal against the commitment as per the LoAs, due to scarcity of coal in the country.

21.15. IBRL submitted that in spite of domestic linkage coal being the cheapest source for

thermal power generation, no new linkages have been granted since April 2010 due

to scarcity of domestic coal. IBRL submitted that CIL currently is barely able to

supply 65% of the assured quantum of coal to LoA holders. IBRL submitted that

owing to these reasons, bidders have been forced to factor the cost of e-auction

and/or imported coal for the balance requirement of coal into the estimation of

Tariffs, which they have offered in various Case 1 bids. IBRL submitted that due to

the above reason, the Tariff discovered in any new bid will be higher than that

offered from the IBRL-Nashik project.


MERC, Mumbai of 63

21.16. IBRL submitted that Association of Power Producers requested the Hon'ble Prime

Minister of India to intervene and resolve the issue of domestic coal supply, based

on which, the Hon'ble PM issued a directive through press release on 15 February,

2012. IBRL submitted that as per the PMO's directive, projects which have linkage,

but no long-term PPAs, will not get any domestic coal linkage from CIL. IBRL

submitted that based on the above, the benefit of coal linkage available to IBRL-

Nashik can be availed by the State of Maharashtra only if the PPA initialed between

MSEDCL and IBRL-Nashik is approved by the Commission, which in turn, would

enable IBRL to sign the FSA and get domestic linkage coal.

21.17. IBRL submitted that as per the directive, in case the PPA for power purchase

proposed under this Petition is not signed, IBRL-Nashik, which is located at the load

centre, will lose coal linkage since the coal linkage is specific to a project, unit size

and capacity. IBRL submitted that in addition to the above, coal linkage is also not

transferrable and cannot be shifted to another project even if it is owned by the same

company. IBRL submitted that this would result in the State of Maharashtra losing

the advantage of procuring power generated using domestic coal linkage, which is

the cheapest source of power generation.

21.18. IBRL submitted that in view of the policy guidelines as per the NCDP, GoI is

insisting that CIL should supply the committed quantity of coal, for which CIL may

import coal to meet the shortage in coal production. IBRL added that the additional

cost of imported coal would be spread over the domestic coal component by a

mechanism of price pooling to ensure minimum financial implication on the average

procurement cost of coal. Benefit of such price pooling would be available only for

linkage coal to be supplied to LoA holders. IBRL submitted that the benefit of

getting cheap imported coal would be lost in the absence of a PPA, as FSA is linked

to execution of the PPA.

21.19. IBRL reiterated that it can supply to MSEDCL at the proposed Tariff only because it

has access to cheaper domestic linkage coal and if this benefit of linkage coal is lost,

the State of Maharashtra and consumers of MSEDCL will lose the benefit of this

cheaper source of power generation.

Negative impact on the Investments in State


MERC, Mumbai of 63

21.20. IBRL submitted that IBRL-Nashik might have to be shut down and an investment of

Rs. 7,000 crore may become stranded as a result of the impact of disapproval of the

PPA for the proposed power sale under the present Petition. IBRL added that this

will send a very bad signal to the investor community around the world.

21.21. IBRL submitted that as a consequence of shutting down this project, it would default

in debt servicing to the lenders, which are mostly government owned. IBRL added

that around 1500 people are employed directly or indirectly in this project and may

lose their livelihood as a consequence of shutting down of this project.

21.22. IBRL added that the State of Maharashtra is expected to save around Rs. 1,000 crore

per annum and Rs. 25,000 crore over the entire PPA tenure, if power is procured

based on the proposed PPAs because of cheaper power generation and no

transmission charges.

21.23. IBRL submitted that IBRL-Nashik has been allotted 190 MLD water from sewage

produced from Nashik city. IBRL submitted that state of art advanced water

treatment techniques will be employed in the project to productively use the sewage

and help in reduction in the polluting of the Godavari river.

21.24. Based on the above arguments, IBRL prayed to the Commission to approve the

proposed power purchase under the present Petition.

22. The Commission held the fourth hearing in this matter on 27 November, 2012. Shri.

A.S. Chavan, CE (PP), MSEDCL and Shri. S.G. Metre, EE (PP), MSEDCL

appeared in the hearing on behalf of MSEDCL. Shri Rajiv Rattan appeared on

behalf of IBRL and Shri Kandarp Patel appeared on behalf of APML. Shri Avinash

Subhedar, Deputy Secretary, Energy, GoM, appeared on behalf of GoM.

23. In the said hearing, the Commission directed MSEDCL to approach Emco Energy

Limited, which was the lowest bidder in Case 1 Stage-II bid process, and enquire

whether they are willing to supply additional quantum of power available from their

Warora power project. MSEDCL was also directed to approach IBRL and enquire

whether they are willing to supply additional quantum available from their Amravati

power project.


MERC, Mumbai of 63

24. The Commission also directed IBRL to submit the details of any other PPA entered

for Nashik power project, including the PPA’s under arbitration, if any, apart from

the PPA for which the approval has been sought by MSEDCL under the present

Petition.

25. The Commission also requested GoM again to submit a copy of all the relevant

papers placed before the GoM for approval of quantum and price for additional

long-term power procurement from IBRL-Nashik and APML to the Commission

within a week from the date of the fourth hearing. The Commission also directed all

the parties to serve their copy of replies/submissions in this matter to the authorised

Consumer Representatives and the GoM.

26. On the issue of revised Tariff stream for the negotiated levellised Tariff of Rs.3.42

per kWh offered by IBRL-Nashik raised by MSEDCL through its additional

submission dated 20 November, 2012, the Commission directed MSEDCL and

IBRL-Nashik to mutually discuss the issue and make an effort to resolve the same.

The Commission further clarified that if MSEDCL and IBRL-Nashik are not able to

reach any conclusion on the above matter, then the Commission will take an

appropriate decision after analysing the submissions in this matter in detail.

27. The GoM submitted its response through letter dated 4 December, 2012, in which, it

submitted the letters on decision of GoM to purchase long-term power for (a) 2600

MW (i.e., during Case 1 Stage-II bid process), (b) 125 MW (i.e., additional power

from APML) and (c) 1090 MW (i.e., additional power proposed under the present

Petition). However, it submitted that the note prepared by the Energy Department,

which was submitted for approval to Cabinet Sub-Committee (Energy), is not

available with the department, as it was destroyed in the fire that broke out in

Mantralaya building.

28. IBRL made an additional submission on 4 December, 2012 in response to the query

raised by the Commission in the fourth hearing. In the additional submission, IBRL

clarified that no PPA has been executed for supply of power from the Phase-I of the

Nashik thermal power project except the one initialed with MSEDCL, for which the

approval has been sought by MSEDCL in the present Case. It added that the PPA

with Tata Power Trading Company Limited (hereinafter referred as "TPTCL") that


MERC, Mumbai of 63

was mentioned during the hearing on 27 November, 2012, is a PPA signed between

Indiabulls Power Limited, which is the parent company of Indiabulls Realtech

Limited, and TPTCL. The said PPA was signed on 5 June, 2009 for a supply of

maximum 1000 MW power from Amravati thermal power project being developed

by Indiabulls Power Limited. It submitted that the aforesaid PPA was terminated on

2 June, 2011 and the said PPA is in arbitration due to the disputes between the

parties to the PPA.

29. MSEDCL made an additional submission on 4 December, 2012 in response to the

direction given by the Commission in the fourth hearing. In the additional

submission, MSEDCL submitted that it had already inquired from Emco Energy

Limited and Indiabulls Realtech Limited (Amravati) about their willingness to

supply additional quantum of power through its letter dated 6 March, 2011. In

response, both Emco Energy Limited and Indiabulls Realtech Limited (Amravati)

had expressed their inability to supply an additional quantum of 125 MW, as sought

by MSEDCL, through their letters dated 19 March, 2011 and 21 March, 2011

respectively.

30. The Commission held the fifth hearing in this matter on 5 December, 2012. Shri.

A.S. Chavan, CE (PP), MSEDCL and Shri. S.G. Metre, EE (PP), MSEDCL

appeared in the hearing on behalf of MSEDCL. Shri Rajiv Rattan appeared on

behalf of IBRL and Shri Kandarp Patel appeared on behalf of APML. Shri Avinash

Subhedar, Deputy Secretary, Energy, GoM, appeared on behalf of GoM.

31. In the fifth hearing, the Commission discussed the information submitted by GoM,

IBRL and APML.

32. In this hearing, the submission of Dr. Ashok Pendse made in his letter dated 5

December, 2012, was also read out. The submissions made by Dr. Pendse are

summarised in the subsequent paragraphs.

32.1. He submitted that IBRL has raised the following points in its recent submission.

A fresh bidding will result in high cost of power purchase as compared to the

proposed power purchase under the current Petition;


MERC, Mumbai of 63

Maharashtra's objective of becoming a load shedding free State will not be

achieved if a fresh bidding is started;

Not signing the proposed PPA will lead to the current investments becoming

stranded assets;

Coal linkage may not available to other bidders, unlike IBRL;

Power is being procured from RGPPL at a much higher Tariff as compared to

that proposed in the current Petition;

IBRL - Nashik is located near load centre, leading to lower transmission charges

and losses;

As per the press release by PMO dated 15 February, 2012, FSA will only be

signed with the developers having PPA with distribution utilities; and

The disapproval of the power procurement proposed will have a negative impact

on the investments in the State of Maharashtra and will also lead to loss of jobs

in the State.

32.2. Dr. Pendse submitted that the broad issue to be considered in this case is whether

Section 63 of the Electricity Act, 2003 takes into account any of the factors

mentioned above for considering the adoption of Tariff.

32.3. He submitted that as per Section 63 of the Electricity Act, 2003, the Commission is

required to adopt the Tariff for procurement only if the bidding is transparent and

has been followed as per the required process of bidding as per the guidelines issued

by Government of India.

32.4. He averred that the submissions of IBRL do not have any implication on the above

aspects of Section 63 of Electricity Act, 2003.

32.5. Dr. Pendse quoted a Judgement of Hon'ble Supreme Court on the appointment of

Chairman, Uttar Pradesh Electricity Regulatory Commission (UPERC) wherein the

entire process of being appointed and joining as the Chairman and also acting as a

Chairman for almost three years was held to be null and void as the provisions under

the Electricity Act, 2003 were not appropriately followed in the process of selection.

Dr. Pendse submitted that the Hon'ble Supreme Court did not consider any other


MERC, Mumbai of 63

factors while giving the Judgement in this Case apart from the fact that the process

was not followed as per the provisions laid out in the Electricity Act, 2003.

32.6. He submitted that the Commission can approve the proposed power procurement

only if the conditions of Section 63 of Electricity Act, 2003 are met. He submitted

that in TBIA's opinion, the conditions outlined in Section 63 of the Electricity Act,

2003 have not been met in the case of proposed power procurement and hence, the

proposal should be rejected.

33. During the hearing, the Commission directed IBRL to clarify the issue pertaining to

status of PPA signed from IBRL-Nashik, if any, as the claim of IBRL that it has no

PPAs from IBRL-Nashik was contrary to the information available in the minutes of

the meeting of Standing Linkage Committee held on 14 February, 2012, which

reveal that a PPA has been signed from the IBRL-Nashik.

34. The Commission also directed all the parties to submit their reply to the issues raised

by Dr. Pendse in his letter dated 5 December, 2012 at the earliest.

35. In a letter dated 10 December, 2012 addressed to the Commission, Wardha Power

Company Limited (hereinafter referred as "WPCL") offered to supply power to

MSEDCL from its Warora power project on medium-term basis. In the said letter

WPCL mentioned that it had noted the Commission's directive to MSEDCL during

the proceedings in Case No. 53 of 2012, as per which, MSEDCL was required to

approach Emco Energy Limited and Indiabulls-Amravati to enquire whether they

are willing to supply additional power to MSEDCL. WPCL submitted that it is

currently supplying 260 MW power to RInfra-D under medium-term and another

100 MW to open access consumers from its power project, which has a net

generation capacity of 480 MW. It submitted that it has a spare capacity of 100 MW,

which it can immediately supply to MSEDCL under medium-term at the same Tariff

which MSEDCL has proposed to purchase power from APML.

36. APML submitted its response under affidavit on 13 December, 2012 addressing the

queries raised by Dr. Pendse in his letter dated 5 December, 2012. APML's reply is

summarised in this section.


MERC, Mumbai of 63

36.1. APML submitted that TBIA has not objected to the purchase of 440 MW power

from APML.

36.2. APML submitted that it has offered to supply power under the current Petition at the

Tariff of Rs. 3.28 per kWh, that had been discovered through transparent

competitive bidding process as per the guidelines issued by the Central Government

and the Tariff has also been approved and adopted by GoM and Commission

respectively. APML submitted that in view of the above, its offer for supply of 440

MW power fulfils all the three criteria outlined by Dr. Pendse, which must be

considered while approving the power purchase by the Commission, i.e., a)

transparency in the procurement process; b) procurement through competitive

bidding and c) adherence to guidelines issued by Central Government.

36.3. To highlight the fact that the Commission can approve power purchase without

conducting a fresh bidding process, APML submitted that DERC has also approved

long-term power purchase by New Delhi Power Limited (NDPL) from TPTCL in its

Order dated 13 May, 2010, which is similar to the current Case.

36.4. APML prayed to the Commission to approve the initialed PPA and allow it to revise

the Tariff stream, resulting in the same levellised Tariff as also proposed by IBRL.

37. IBRL submitted its reply under affidavit on 14 December, 2012 against the query

raised by the Commission during the hearing held on 5 December, 2012. In the

submission, IBRL clarified that it does not have any PPA from either Phase-I of

IBRL-Nashik, from which the power has been offered in the current Petition or from

Phase-II of the project. It clarified that the details regarding PPA from IBRL- Nashik

mentioned in the minutes of Standard Linkage Committee (Long Term) for meeting

held on 14 February, 2012 were incorrect. It further clarified that it has already

communicated to CEA regarding this erroneous description of power tie-up in the

said minutes of meeting. IBRL also submitted a copy of the said letter written to

CEA along with its submission.

38. IBRL made a submission on 19 December, 2012 in reply to the arguments put forth

by Dr. Pendse through his letter dated 5 December, 2012. Salient features of IBRL's

submission are summarised in this section.


MERC, Mumbai of 63

38.1. IBRL submitted that the crucial issue in the present Case is whether the Tariff of Rs.

3.42 per kWh that has been offered by it in the proposed power procurement, has

been determined through transparent process of bidding in accordance with the

Competitive Bidding Guidelines issued by the Ministry of Power, Government of

India.

38.2. IBRL submitted that to determine the above, it is required to understand the meaning

of transparent bidding process in terms of the Electricity Act, 2003. It submitted that

as per Section 63 of the Electricity Act, 2003, the process of determining Tariff is

transparent if it is determined through bidding in the accordance with the guidelines

issued by the Ministry of Power, Government of India.

38.3. It submitted that the specific objectives of the Competitive Bidding Guidelines

issued by MoP under the provisions of Section 63 of the Electricity Act, 2003 are as

follows:

Promote competitive procurement of electricity by distribution licensees;

Facilitate transparency and fairness in procurement process;

Facilitate reduction of information asymmetries for various bidders;

Protect consumer interest by facilitating competitive conditions in procurement

of electricity;

Enhance standardisation and reduce ambiguity and hence time for

materialisation of projects; and

Provide flexibility to suppliers on internal operations while ensuring certainty on

availability of power and Tariff for buyers.

38.4. IBRL summarised the proceedings of Case 1 Stage-II bid process to accentuate that

procurement process was carried out as per the Competitive Bidding Guidelines and

highlighted that bids were technically and financially evaluated by the officials of

MSEDCL, M/s. Feedback Ventures Pvt. Ltd. (advisors of MSEDCL) and an

external expert member namely Prof. Sebastian Morris, IIM Ahmedabad.

38.5. It highlighted that a negotiation committee was constituted which was headed by the

Chief Secretary and had representatives from Energy Department, Industries


MERC, Mumbai of 63

Department and Finance Department of GoM as well as MSEDCL and Central

Electricity Authority. IBRL highlighted that the Tariff of IBRL - Nashik was

negotiated from Rs. 3.45 per kWh to Rs. 3.42 per kWh based on negotiations.

38.6. IBRL submitted that subsequent to the above process, MSEDCL executed the PPAs

at the Tariff discovered through the transparent bidding process as per the

Competitive Bidding Guidelines and the Commission adopted the Tariff in the

initialed PPAs as per the provisions of Section 63 of the Electricity Act, 2003.

38.7. IBRL highlighted that in the bid process, the financial bids of only qualified bidders

were opened. It highlighted that the Bid Evaluation Committee for considering

bidder's qualification was constituted in line with the requirements of Competitive

Bidding Guidelines and also had an external expert member. IBRL submitted that as

per the above observations, it is clear the process followed for power procurement

was completely transparent.

38.8. IBRL submitted that a total of 6,645 MW capacity was offered against the

requisitioned capacity of 2,000 MW, indicating that the bid process was also

competitive along with being transparent.

38.9. IBRL submitted that the SBD issued by MoP under the Competitive Bidding

Guidelines were used in the bid process after taking certain deviations with the

approval of the Commission.

38.10. IBRL submitted that based on above observations, it is clear that the Competitive

Bidding Guidelines issued by the Ministry of Power, Government of India were

followed in the case of the proposed power procurement.

38.11. On Dr. Pendse's argument comparing the issues in present Case with the Case in

which the Hon'ble Supreme Court had held that the entire process of selection of the

Chairman of UPERC was null and void as the Selection Committee had not

followed the procedures as per the Electricity Act, 2003, IBRL submitted that the

contention of Dr. Pendse that no Evaluation Committee was constituted for

procurement of power by MSEDCL is factually incorrect. IBRL submitted that

MSEDCL had constituted an Evaluation Committee for evaluation of bids, as per

the requirements outlined in Competitive Bidding Guidelines. IBRL submitted that


MERC, Mumbai of 63

the Evaluation Committee also consisted of an external member and the Committee

performed the functions stipulated under the guidelines while evaluating the bids.

Thereafter, keeping in view the interest of consumers, a negotiation Committee was

formed to negotiate the Tariff discovered as per the Competitive Bidding Guidelines

framed under the provisions of Section 63 of the Electricity Act, 2003. IBRL

submitted that after such negotiations, the Tariff was agreed and it is on such Tariff

that the present initialed PPA has been executed. IBRL submitted that it is clear

from the above facts that the evaluation of bids was carried out as per the stipulated

guidelines for procurement of power.

38.12. IBRL submitted that the Cabinet Sub-Committee has in no way undermined or

substituted the powers or the authority of either the Evaluation Committee or the

Commission. IBRL submitted that while approving the additional quantum to be

procured at the Tariff discovered after evaluation by the individuals involving third

party and independent expert and as further negotiated by the Negotiation

Committee, the Cabinet Sub-Committee has categorically stipulated that the same

has to be submitted to the Commission for approval. IBRL submitted that

considering the above arguments, the referred Judgement of the Hon'ble Supreme

Court is not applicable to the present Case, wherein the requirements as per the

Section 63 of the Electricity Act, 2003 have been fulfilled.

38.13. IBRL submitted that the State Commissions have been constituted under the

Electricity Act, 2003 to exercise their powers to ensure that the objectives of the

Electricity Act, 2003 are achieved. IBRL submitted that in cases where the

Commission is satisfied that the objectives of the Electricity Act, 2003 are being

met, the Commission has been empowered to exercise its powers in approving

deviations, if any, in following the procedures laid down under the Competitive

Bidding Guidelines. IBRL cited the opinion of Attorney General of India (AGI)

while interpreting the term "regulate" used in the Electricity Act, 2003. IBRL added

that AGI has opined that the Electricity Act, 2003 confers wider powers to the

Commission which empower it to even modify a concluded PPA. IBRL submitted

that in the said opinion, AGI has referred to the Judgement of the Hon'ble ATE in

Appeal No. 35 of 2011, in which, the Hon'ble ATE has held that the State


MERC, Mumbai of 63

Commission has the power to modify the Tariff even for a concluded PPA in larger

public interest.

38.14. IBRL submitted that if the Commission is satisfied that the approval of the PPA for

procurement of additional quantum at Tariff discovered under the Competitive

Bidding Guidelines fulfils the objectives of the Electricity Act, 2003, it should

exercise its powers in approving deviations, if any, and accord its approval to the

proposed PPA in the larger public interest and the interest of Maharashtra and its

consumers.

39. IBRL made another submission under affidavit on 19 December, 2012. The major

arguments put forth by IBRL in this additional submission are described in this

Section.

39.1. IBRL submitted that it had submitted a bid on 24 September, 2012 in the long-term

Case 1 bid process conducted by Uttar Pradesh Power Corporation Limited

(UPPCL) and had offered 1200 MW from IBRL-Nashik and 600 MW from its

Amravati power project.

39.2. IBRL submitted that nine of the eleven bids submitted were found to responsive and

the financial bids of these bidders were opened. IBRL submitted the details of

source, quantum offered and evaluated levellised Tariff offered by these bidders,

which is provided in the table below:

Table 9: Tariff discovered in recent UPPCL Case 1 bid process

Sr.

No Bidder Plant

Capacity

Offered

(MW)

Levellised

Tariff (Rs./

kWh)

Cumulative

Capacity

(MW)

1 NSL

Power Orissa 300 4.480 300.0

2 PTC TRN Energy (Aryan

Power) Chattisgarh 390 4.886 690.0

3 Lanco Babandh-Orissa 423.9 5.074 1113.9

4 RKM

Powergen Chattisgarh 350 5.088 1463.9

5 KSK Chattisgarh 1000 5.443 2463.9

6 PTC MB Power, MP 361 5.730 2824.9

7 Navyug Krishnapatnam

Power, AP 800 5.843 3624.9

8 IPL

(IBRL–Nashik 1200 5.970 4824.9


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Sr.

No Bidder Plant

Capacity

Offered

(MW)

Levellised

Tariff (Rs./

kWh)

Cumulative

Capacity

(MW)

Nashik)

9 PTC DB Power –

Chattisgarh 203 5.970 5027.9

10 Jindal

Power Chattisgarh 300 6.115 5327.9

11

IPL

(IBRL-

Amravati)

Amravati 600 6.300 5927.9

12 Lanco Amarkantak 1072.5 6.303 7000.4

13 NCC AP 200 6.425 7200.4

14 Lanco Vidharbha 454.2 6.643 7654.6

15 PTC East Cost Energy 300 6.819 7954.6

16 PTC DB Power – MP 302 7.101 8256.6

39.3. IBRL submitted that only 8257 MW capacity was offered against the requisitioned

capacity of 6,000 MW and the discovered levellised Tariff per kWh was in the range

of Rs. 4.480 to 7.101 per kWh.

39.4. IBRL highlighted that the lowest levellised Tariff discovered in the above process,

i.e., Rs. 4.48 per kWh is Rs. 1.06 per kWh higher than the Tariff of Rs. 3.42 offered

by it to MSEDCL. IBRL submitted that if UPPCL has to procure the entire quantum

of 6000 MW, the marginal price would be Rs. 6.303 per kWh.

39.5. IBRL submitted that it has offered 1200 MW from IBRL - Nashik at a Tariff of Rs.

5.97 per kWh.

39.6. IBRL further highlighted that Lanco and KSK, which had participated in Stage-I and

Stage-II of the Case 1 bid process conducted by MSEDCL, had quoted much higher

Tariff in this recently conducted bid process.

39.7. IBRL highlighted that among all the bids received by UPPCL, only Lanco and

Indiabulls could offer power from projects based in Maharashtra, which indicates

that there are very few IPPs coming up in near future in Maharashtra. As a

consequence of this, if a fresh bidding is conducted, most of the bids will come from

projects located outside Maharashtra and thus, the State will have to incur additional

interstate transmission charges.

39.8. IBRL submitted that the above mentioned developments support their arguments

made in their earlier submissions regarding the worsening economical and financial


MERC, Mumbai of 63

factors which have affected the discovered Tariffs. It further submitted that these

developments, along with the higher Tariffs discovered in other States clearly

indicate that MSEDCL may receive bids at higher Tariffs, if a fresh bidding is

conducted. It reiterated that considering the above factors, the approval of the

proposed power purchase in the current Petition is in the best interest of Maharashtra

and its consumers.

40. Chamber of Marathwada Industries and Agriculture (hereinafter referred as

“CMIA”) vide its letter submitted to the Commission on 21 December, 2012,

averred that the bidding process conducted by MSEDCL in 2009 was carried out

following a completely transparent process outlined under the competitive bidding

guidelines issued by Ministry of Power. Power Purchase Agreements (PPAs) were

signed with the three lowest bidders, which was in compliance with the Section 63

of Electricity Act, 2003. CMIA submitted that considering the interest of the State

and consumer at large, it would be beneficial to purchase power from IBRL and

APML at the levellised Tariffs quoted in Case 1 bid process. It submitted that as per

the reassessment of demand-supply situation, State is projected to have an additional

requirement of 3379 MW power in FY 2015-16. It further submitted that since the

Tariff discovered in other States are on much higher side, it will be incorrect to

assume that Tariff discovered in a fresh bidding process would be lower than that

offered in the current Petition. Based on the above submission, it requested the

Commission to consider the proposal submitted by MSEDCL to purchase power

from IBRL and APML.

41. Maharashtra Chamber of Commerce, Industry & Agriculture (hereinafter referred as

“MACCIA”) vide its letter dated 21 December, 2012 submitted that considering the

demand for power and the interest of industry & consumers, it is necessary for

MSEDCL to contract additional power. It submitted that Tariffs discovered in other

States are on higher side as compared to the Tariff discovered in Case 1 Stage-II

bidding process. Considering the above facts, MACCIA requested the Commission

to consider and approve the power purchase from IBRL and APML as proposed by

MSEDCL.


MERC, Mumbai of 63

42. The Commission held the last hearing in this matter on 24 December, 2012 in the

office of the Commission. Shri Ashok Chavan was present in the hearing on behalf

of MSEDCL. Shri Rajiv Rattan was present on behalf of IBRL. Shri Vipul Jadhav

was present on behalf of APML. Shri M.D. Chopade was present on behalf of GoM.

43. During the hearing, the Commission read out the letters received by CMIA and

MACCIA.

Commission's Analysis and Ruling

44. The Commission has analysed the matter in the current Petition under the following

broad heads, which are further discussed in detail in this section.

A) Quantum of power proposed to be procured;

B) Process followed for the procurement of proposed quantum of power;

C) Competitiveness of the proposed procurement;

D) Specific issues associated with the proposed procurement; and

E) Options for procurement of power.

(A) Quantum of power proposed to be procured

44.1. As regards the approval for the quantum of power to be procured, the Commission

observes that Clause 3.1 (iii) (b) of the Competitive Bidding Guideline (CBG)

stipulates as follows:

“…For the quantum of capacity / energy to be procured, in case the same is

exceeding the projected additional demand forecast for next three years following

the year of expected commencement of supply proposed to be procured. Such

demand forecast shall be based on the latest available (at the time of issue of RFQ)

Electric Power Survey published by Central Electricity Authority. (Both for Case 1

and Case 2)…”

44.2. The Commission has relied on 17th

EPS report published by CEA for examining

compliance to the above guidelines as 18th

EPS is still in draft stage. The

Commission observes that survey provides the peak demand for the whole State and

it is difficult to derive the peak demand for MSEDCL from the survey as there are


MERC, Mumbai of 63

multiple distribution licensees in the State and each of them have varying consumer

mix.

44.3. Further, the Commission analysed the demand-supply forecast submitted by

MSEDCL. The detail demand-supply forecast as projected by MSEDCL is provided

below.

Table 10: Results of projected demand-supply analysis of MSEDCL

Financial Year Peak demand

(MW)

Peak availability

(MW)

Peak shortfall/

(surplus) (MW)

2012-13 (Apr-Dec) 14,396 12,977 1,419

2012-13 (Dec - Mar) 14,747 13,688 1,059

2013-14 16,222 17,837 (1,615)

2014-15 17,844 19,065 (1,221)

2015-16 19,628 20,311 (683)

2016-17 21,591 21,787 (196)

2017-18 23,750 22,304 1,447

2018-19 26,125 22,304 3,822

2019-20 28,738 22,304 6,434

44.4. The Commission observes that MSEDCL has projected the peak demand for FY

2012-13 by assuming a growth rate of 10% over the peak demand of FY 2011-12,

i.e., 14,043 MW and providing for 700 MW reduction in demand due to migration

of consumers to other sources of supply through open access. The peak demand for

FY 2012-13 computed as per the above methodology works out to 14,747 MW. The

reduction in demand in subsequent years have been projected considering a growth

rate of 10% per annum to reflect the increased migration due to open access.

44.5. The demand growth rate projected by MSEDCL is not substantiated with analysis

and it appears to be higher than the growth rate as per the 17th

EPS projected for the

State including other distribution licensees in the State. As pointed out by the

Consumer Representatives, MSEDCL needs to carry out a detailed demand-supply

analysis for its license area.

44.6. The Commission analysed MSEDCL’s submissions on procurement planning issues

impacting the availability of power. The major issues impacting the availability of

power from contracted sources as highlighted by MSEDCL are:

a) Uncertainties about availability of supply from some of its contracted sources as

the matters are sub judice;


MERC, Mumbai of 63

b) Reduced availability of power from Uran gas project and RGPPL project due to

shortage of gas supply;

c) Reduction in availability from UMPPs as only two of the twelve UMPPs

envisaged are in construction stage; and

d) Some of the PPAs signed between MSEDCL and NTPC are sub judice before

the Hon'ble CERC.

44.7. Based on the demand-supply analysis carried out by MSEDCL, it has projected a

shortfall of 1,447 MW in FY 2017-18 and the projected shortfall is expected to

increase to 6,434 by FY 2019-20.

44.8. Based on the fact that the proposed quantum of procurement is less than the

demand-supply gap projected for FY 2017-18 and the issues highlighted by

MSEDCL on supply from planned sources of supply, the Commission approves the

quantum of 1090 MW as proposed by MSEDCL for procurement at this stage.

44.9. However, as also pointed out by the Consumer Representatives, the Commission

directs MSEDCL to carry out a detailed study for long-term demand-supply forecast

for its supply area considering various developments for future power procurements.

The Commission notes that a detailed demand forecast and supply plan under

various scenarios has become important in the emerging competitive environment.

B) Process followed for procurement of proposed quantum of power

44.10. The Commission observes that MSEDCL had initiated a bid process for

procurement of power through Case 1 route under the Competitive Bidding

Guidelines issued by the Ministry of Power under Section 63 of Electricity Act,

2003 in May, 2009 after obtaining required approvals from the Commission.

44.11. Subsequently, on conducting the technical evaluation of the eight bids submitted,

MSEDCL opened the financial bids for following five technically qualified bidders

as detailed below.

Table 11: Qualified bidders under Case 1 Stage-II bid process

Sr.

No. Name of the Bidder

Levellised

Tariff

Position in the

bid process

Quantum offered

(MW)

1 Emco Energy Limited 2.879 L1 200


MERC, Mumbai of 63

Sr.

No. Name of the Bidder

Levellised

Tariff

Position in the

bid process

Quantum offered

(MW)

2 IBRL – Amravati 3.260 L2 1200

(450+750)

3 APML 3.280 L3 1200

4 IBRL-Nashik 3.450 L4 950

5 Wardha Power Company Limited 3.620 L5 675

44.12. The quantum to be procured by MSEDCL (2600 MW) was met by the quantum

offered by the first three lowest bidders. Accordingly, MSEDCL initialed PPAs with

the first three lowest bidders, i.e., Emco Energy Limited, IBRL-Amravati and

APML. The Commission accorded in-principle approval for adoption of Tariff for

the said PPAs vide its Order in Case No. 22 of 2010 dated 28 December, 2010.

44.13. Subsequently, MSEDCL approached the Commission for approval of power

purchase of an additional 125 MW power from APML at a Tariff, that was offered

by APML in the Case 1 Stage-II bid process i.e., Rs 3.28 per kWh. The Commission

vide its Order in Case No. 56 of 2010 dated 19 May, 2011, approved the proposed

power purchase as a special case, as quantum of procurement of power was less and

it was not advisable to start a fresh process of procurement of power through

competitive bidding process.

44.14. The Commission notes that even though the current Petition is based on the bidding

process carried out by MSEDCL following the Competitive Bidding Guidelines

issued by Government of India under section 63 of the Electricity Act, 2003, the

process initiated in 2009 was complete with the adoption of Tariffs for the proposed

2600 MW proposed under that process. The Commission as a special case approved

125 MW procurement as outlined above considering the fact the quantum of

procurement was only 125 MW and it would not have been prudent to carry out a

bid process for such small quantum of procurement.

44.15. The proposed procurement relies on the Tariffs discovered in the said Competitive

Bidding Process carried out for arriving at the Tariffs. The procurement considers

the clearing Tariff over and above the quantum proposed under the earlier

procurement process. About three years have lapsed since the bidding process was

completed and hence there would be a need to review the competitiveness of the

Tariffs under the current market scenario.


MERC, Mumbai of 63

44.16. In order to provide equal opportunity to the earlier qualified / selected bidders, the

Commission directed the Petitioner to check with other successful bidders to supply

additional power at the respective quoted Tariffs. MSEDCL informed the

Commission that it vide its letter dated 6 March 2011 wrote letters to other

successful bidders viz. (i) Emco Energy Limited (ii) Indiabulls Realtech Limited

(Amravati) to supply additional power at the respective quoted Tariffs. However, as

per MSEDCL’s submissions, none of the successful bidders were keen to supply

power at the quoted Tariffs

44.17. Emco Energy Limited vide its letter dated 19 March 2011 expressed its inability to

supply additional power. The extract of the said letter is reproduced below.

“We regretfully wish to confirm that we will be unable to supply additional power

from the project to the MSEDCL under the same levellised tariff, terms and

conditions of the existing PPA.”

Similarly, Indiabulls Realtech Limited (Amravati) vide its letter dated 21 March,

2011, expressed its inability to supply an additional quantum as sought by MSEDCL.

The extract of the said letter is reproduced below.

“However, you may appreciate the fact that our tariff of Rs.3.26 was quoted by us

way back in 2009 under the prevailing market conditions then.

As such, although we are keen to supply such quantum of additional power to

MSEDCL as may be required, in line with the terms & conditions of the Power

Purchase Agreements already executed by us and referred above, we would not be

able to supply power at Rs. 3.26/ kWhr.”

44.18. The Commission notes that WPCL, one of the bidders who was technically

qualified, has offered to supply 100 MW immediately and another 260 MW from

April 2014 onwards under medium-term contract to MSEDCL. The present Petition

is for long-term power requirement. Further the Tariff quoted by WPCL in the

competitive bidding process was higher than those proposed under these Petition.

Hence, WPCL’s offer to supply power to MSEDCL under medium-term could not

be considered.


MERC, Mumbai of 63

44.19. On an examination of the letters written by the successful bidders clearly stating

their inability to supply additional power, the Commission is satisfied that a

transparent process has been followed. The successful bidders have been given an

equal opportunity to supply the additional quantum offered by IBRL-Nashik and

APML. These letters and correspondences extracted above giving chance and

opportunity to other bidders is akin to a competitive bidding process.

44.20. The Commission has even carried out an analysis considering various Tariffs

discovered in the recent bids as well as the recent developments in power sector

impacting the Tariffs.

(C) Competitiveness of the quoted Tariff

45. The Commission analysed the submissions made by the Petitioner as well as other

impleaded parties in the Case on the issue of competitiveness of the Tariffs offered

under the proposed procurement. The Commission also constituted a Committee to

study the issues in detail.

45.1. The salient observations of the Commission are discussed in this Section.

45.1.1. There is an increasing trend in Tariff as displayed in the Case1 Stage-I and Case 1

Stage-II competitive bidding processes carried out by MSEDCL for procurement of

power. It may be noted that both the processes were for similar quantum of

procurement.

45.1.2. The same trends are observed in the competitive bidding processes carried out by

other distribution licensees in the country as seen in the submission made by the

Petitioners and the impleaded parties and analysis carried out by the Committee

constituted by the Commission.

45.1.3. The Commission notes that the Tariffs discovered in the recent Case 1 bidding

process conducted by UPPCL are in the range of Rs. 4.48 to 7.10 per kWh. This

corroborates the analysis carried out by the Commission in the above paras on the

trends in Tariffs discovered in Case 1 bidding process. The Commission further

notes that the quantum offered by qualified bidders in the UPPCL bid process is

only 8,256 MW against the requirement of 6000 MW.


MERC, Mumbai of 63

45.1.4. The Tariffs discovered in the bidding process depend on a number of factors

including the evaluation framework and parameters notified as per the provisions of

the Competitive Bidding Guidelines, the supply period, etc. Hence the levellised

Tariffs are not strictly comparable.

46. The Commission revisited the developments in power sector which have an impact

on the cost structure of power projects and hence Tariffs. The following factors have

an impact to increase the Tariffs for future procurements of power.

Lack of clarity on allocation of coal blocks as well as fresh coal linkage;

Emerging scenario on account of cancellation of coal blocks and linkages;

Resources taxes levied by different countries for export of coal;

Proposed pooled pricing of coal;

Withdrawal of Mega Power Policy since July, 2012; and

Impacts exchange rate and interest rate movements.

47. Above analysis leads to the conclusion that while it is difficult to establish whether

one would receive more competitive Tariffs as compared to the proposed

procurement if the bidding process is carried out today, there has been an increasing

trend in Tariffs discovered in the Case1 bidding process; and the recent

developments mentioned above are likely to impact it further.

48. Further, the revised model documents for power purchase by distribution licensees

are in a draft stage; and it may take three to six months of time to get finalised. This

uncertainty may affect the competition, in case a new bidding process is conducted

now.

(D) Specific issues associated with the proposed procurement

49. The Commission notes that the proposed procurement under the Petition has several

specific factors that need a careful analysis. Some of the factors highlighted during

the hearings and submissions are described below.

49.1. Both the projects are based on linkage based domestic coal. Considering the fact that

a) increase in imported coal prices in general; b) unavailability of new coal blocks;


MERC, Mumbai of 63

and c) unavailability of gas, it appears that domestic linkage coal based generation is

competitive as compared to other sources.

49.2. Both the projects have been set under the policy of GoM for promoting investment

in power generation in the State of Maharashtra ("Maharashtra State policy for

Investment in the power generation Sector for capacity addition of 500 MW and

above" issued on 28 March, 2005). The said policy offers several benefits to power

generation companies, which are summarised below:

Administrative support to procure government land;

Single window clearances;

Facilitation in fuel linkage;

Infrastructure like road and water;

Power evacuation and right of way;

Fiscal support in the form of 100% exemption from stamp duty and registration

charges, 100% exemption from payment of Octroi for equipments and no tax on

sale of electricity on power sold outside State; and

Buy back of power through competitive bidding, subject to the approval of the

Commission.

49.3. The Commission notes that the said policy provides considerable benefits to the

projects being set up under this policy and the projects under consideration are the

beneficiaries of the above benefits.

49.4. Further, the Commission observes that the projects of APML and IBRL-Nashik are

based on domestic linkage coal. It may be noted that as per the NCDP and further

clarification issued by PMO, in absence of a PPA with distribution utility, both the

projects from which power procurement has been proposed by MSEDCL, may lose

an opportunity to avail linkage coal. The relevant clause of the NCDP is quoted

below.


MERC, Mumbai of 63

“Actual drawal of coal will be subject to 85% of power being tied up through long

term PPA with DISCOMS through Tariff based competitive bidding (Except for

PSU projects where PPAs were signed by 5.1.2011”

49.5. Further, the relevant extract of the press release issued by PMO dated 15 February,

2012, is reproduced below.

“...Coal India Limited will sign FSAs with power plants that have entered into long-

term PPAs with power distribution utilities/ have been commissioned/ would get

commissioned on or before 31st March, 2015.....”

49.6. The coal linkage awarded to the projects under consideration is not transferrable.

Recently, no new coal linkages have been awarded by Ministry of Coal. Hence, in

the near future, procurement of power from projects based on domestic coal, which

are based in Maharashtra, will be more difficult as compared to the past.

49.7. The Commission observes that if the projects from which power procurement has

been proposed by MSEDCL are not able to tie up power under long-term PPA, these

projects may lose the linkage coal. If the coal linkage is lost, the projects will have

to depend on imported coal for power generation.

49.8. In such a scenario, there is a possibility that these projects, which have been set-up

under the GoM's policy for promoting investment in power generation, may not be

able to contract power in long-term at all or may sign long-term PPAs with States

other than Maharashtra. The Commission notes that in such a scenario, the benefits

of these projects set up under the GoM policy, which have utilised the natural

resources of Maharashtra, may accrue to other States. The Commission also notes

that this may impact future private investment in power generation sector in the

State.

50. Since the projects from which power purchase has been proposed are located in the

State, they will assist the Maharashtra power system in the following ways:

Inter-state transmission charges and losses are not applicable for the

procurement from these projects leading to a cost saving compared projects

located outside the State.


MERC, Mumbai of 63

IBRL-Nashik is located near the load centre. This would help MSEDCL to save

on investment in transmission network and additional intra-state transmission

charges and losses. In addition, it will facilitate MSEDCL in better load

management.

51. The proposed power purchase was approved by the GoM vide letter dated 1

December, 2011 after the approval of the Cabinet Sub-Committee (Energy) on 1

November, 2011. The Commission tried to understand the issues, such as, demand-

supply situation in the State, uncertainties with contracted sources of supply,

competitiveness of the proposed Tariffs under current market scenario, the larger

public interest of making power available for all, benefits provided under the State

policy, etc. that would have been considered by the Cabinet Sub-Committee

(Energy) while approving the proposed power purchase of 1090 MW from APML

and IBRL-Nashik. Accordingly, the Commission sought all the relevant material

from GoM, that had been placed before the Cabinet Sub-Committee (Energy) while

seeking the approval of the proposed power purchase of 1090 MW from APML and

IBRL-Nashik. The Energy Department of GoM submitted that because of a fire

which broke out in Mantralaya, all notes and materials that were presented to the

Cabinet Sub-Committee (Energy) have been gutted under fire and accordingly, the

same cannot be provided to the Commission. However, it submitted the final

approval letter for the power purchase proposed under the current Petition.

(E) Options for procurement of proposed power

52. Having established that demand-supply gap proposed by MSEDCL requires the

proposed procurement of 1090 MW from FY 2017-18 onwards, the Commission

derived a conclusion that even though it is difficult to establish in absolute terms

whether one would receive more competitive offers if the procurement is carried out

today, it is certain that there has been an upward trend in levellised Tariffs for

subsequent bidding processes and the analysis shows that the trend is likely to

continue.

53. With the above analysis, it is a fact that the proposed Tariffs are competitive in

current scenario. Further, the project specific factors strengthen the fact that

domestic linkage coal based power is likely to be competitive and the projects have


MERC, Mumbai of 63

received benefits under the investment promotion scheme of Maharashtra. The

future projects are likely to see an increasing trend of Tariff on account of the issues

analysed by the Commission in the previous sections.

54. The Commission deliberated that it would have been in a position to establish the

absolute competitiveness of the bids in current market scenario if a Swiss Challenge

process was carried out. The process would ensure that the special Tariffs under the

proposed procurement negotiated by GoM are retained while other developers are

encouraged to better the Tariffs. This issue was also examined by the Committee

constituted by the Commission. However, after detailed analysis of the issues

involved in Swiss Challenge based on the study of Committee and the submissions

made by the impleaded parties, the Commission concluded that while it would be a

good idea to initiate a Swiss Challenge but the obstacles are many and there is a

likelihood of the exercise becoming futile. Since the procurement has to commence

from 2017-18, there is not enough time to experiment with a new process which is

not established in power sector.

55. Further on an examination of the letters written by MSEDCL dated 6 March, 2011

to the successful bidders and the clearly stated inability of these bidders expressed

vide letters dated 21 March, 2011 (IBRL-Amravati) and 19 March, 2011 (Emco) to

supply additional power, the Commission is satisfied that a transparent process has

been followed. The successful bidders have been given an equal opportunity to

supply the additional quantum at respective quoted Tariffs. These letters and

correspondences extracted above giving chance and opportunity to other bidders is

akin to a competitive bidding process.

56. Based on the above analysis the Commission rules as under:

a) The Commission approves the demand-supply gap of 1090 MW for MSEDCL

at this stage. Further, MSEDCL is directed to submit its comprehensive long-

term demand-supply forecast for the Commission’s approval;

b) The Commission approves the 1090 MW quantum of power procurement for

MSEDCL from IBRL & APML (650 MW from IBRL-Nashik and 440 MW


MERC, Mumbai of 63

from APML) and adopts the following levellised Tariff for above mentioned

power procurement:

IBRL-Nashik – Rs. 3.42 per kWh (Levellised Tariff)

APML – Rs. 3.28 per kWh (Levellised Tariff); and

c) The Commission directs MSEDCL to submit the signed PPAs to the

Commission for record. PPAs should be made public and uploaded on the

website of the MSEDCL.

With the above, the present Petition stands disposed of.

Sd/- Sd/-

(Vijay L. Sonavane)

Member

(V.P.Raja)

Chairman

Annexure-1: Detail Report of the Committee

Report of the Committee constituted to study

the submissions made under Case No. 53 of

2012

(Petition filed by Maharashtra State Electricity Distribution Company Ltd. for approval of

PPA for additional quantum with Indiabulls Realtech Ltd. (Nashik) and Adani Power

Maharashtra Ltd. based on Competitive Bidding Process)

___________________________________________________________________________

__________________________________________________________________________ Report of the Committee constituted to study the submissions made under Case No. 53 of 2012 Page 2 of 99

Table of Contents

1. Background and Objectives of the Committee .......................................... 4

2. Proceedings of the Committee ..................................................................... 5

3. Facts of the case ............................................................................................ 7

4. Issues considered by the Committee ......................................................... 11

a. Case Precedents ............................................................................................................ 11

b. Demand supply situation of MSEDCL ......................................................................... 17

c. Competitiveness of the bids from APML/ IBRL .......................................................... 20

d. Possibility of going for the Swiss Challenge Methodology and merits & demerits

associated with Swiss Challenge Methodology ................................................................... 26

e. Present coal linkage policy & its implication on the projects under consideration ...... 27

5. Views of the Consumer Representatives .................................................. 28

6. Findings of the Committee ......................................................................... 30

Annexures .......................................................................................................... 32

Annexure 1: Notice for constitution of Committee to study the submissions made under

Case No. 53 of 2012 ............................................................................................................. 33

Annexure 2: Written submission of Consumer representatives ........................................... 34

Annexure 3: Minutes of Committee meetings ..................................................................... 65

Annexure 4: Copy of GoM‟s letter ...................................................................................... 70

Annexure 5: Copy of MSEDCL‟s Letter Dated – 6th

March 2011 ...................................... 72

Annexure 6: Copy of GoM‟s letter dated 1st December 2011.............................................. 76

Annexure 7: Demand supply projections of MSEDCL ....................................................... 79

Annexure 8: List of project not considered by MSEDCL in Demand-supply estimation ... 83

Annexure 9: Submission of IBRL and Adani on Tariff ....................................................... 85

Annexure 10: Note on Swiss Challenge Methodology ........................................................ 95

___________________________________________________________________________


List of Abbreviations

Abbreviation Expansion

APML Adani Power Maharashtra Limited

ATE Appellate Tribunal for Electricity

BSEB Bihar State Electricity Board

CERC Central Electricity Regulatory Commission

FSA Fuel Supply Agreement

GoM Government of Maharashtra

GERC Gujarat Electricity Regulatory Commission

GUVNL Gujarat Urja Vikas Nigam Limited

IBRL Indiabulls Realtech Limited

MSPGCL Maharashtra State Power Generation Company Limited

MERC Maharashtra Electricity Regulatory Commission

MoP Ministry of Power

MSEDCL Maharashtra State Electricity Distribution Company Limited

NPCL Noida Power Company Limited

PPA Power Purchase Agreement

RFP Request for Proposal

SBD Standard Bidding Documents

SERC State Electricity Regulatory Commission

TBIA Thane Belapur Industries Association

UPERC Uttar Pradesh Electricity Regulatory Commission

UPPCL Uttar Pradesh Power Corporation Limited

VIPL Vidarbha Industries Power Limited

___________________________________________________________________________


1. Background and Objectives of the Committee

The Maharashtra Electricity Regulatory Commission (MERC) set up a Committee on 25th

October, 2012, to study the submissions made under Case No. 53 of 2012, in the matter of

approval of PPA for additional quantum of power from Indiabulls Realtech Ltd. (IBRL),

Nashik and Adani Power Maharashtra Ltd (APML) based on competitive bidding

process.

The Committee was constituted with the following members, with Shri Rajendra

Ambekar, Director (Tariff), MERC, as the Convener.

Sl.No Name of the person

1 Shri Rajendra Ambekar, Director (Tariff), MERC Convener

2 Dr. Ashok Pendse, Consumer Representative (TBIA) Member

3 Ms. Ashwini Chitnis, Consumer Representative (Prayas Energy Group) Member

4 Shri Umesh Agrawal, PwC Member

5 Shri Ghanashyam Patil, Dy. Director (Technical), MERC Member

6 Shri Ravindra Sonawane, Dy. Director (Legal), MERC Member

7 Shri Suresh Shukla, Regulatory Expert, MERC Member

8 Shri Saurabh Gupta, Regulatory Officer, MERC Member

9 Shri Ketan Patil, Regulatory Officer, MERC Member

10 Ms. Gayatri Ramanathan, Consultant, MERC Member

The terms of reference of the Committee were to study the submissions made in Case No.

53 of 2012. A copy of the notice in this regard is attached at Annexure 1.

___________________________________________________________________________


2. Proceedings of the Committee

The Committee had the following meetings over the period of 5 weeks.

The Committee discussed various issues pertaining to the case and the submissions made

thereunder. The Committee analysed the submission in this case under five (5) broad

questions:

1) Is there any precedent to the present case under consideration (Case No. 53 of 2012)?

2) Is there a demand-supply gap for MSEDCL in the long-term?

3) Are the tariffs offered by APML/ IBRL competitive under the current market trends?

What are the factors that may affect the tariffs discovered in the fresh competitive

bidding process?

4) Is there a possibility of going for Swiss Challenge Methodology? Merits & demerits

associated with Swiss Challenge Methodology? and

5) Does the present coal linkage policy have implications on the projects under

consideration?

The first meeting was held on 1st November, 2012. Dr. Ashok Pendse of Thane Belapur

Industrial Association (TBIA) and Ms. Ashwini Chitnis of Prayas Energy Group could

not attend the meeting. However, they conveyed their opinions through e-mail to the

Committee. Copies of the said communications are attached at Annexure-2.

The second meeting was held on 7th

November, 2012, after the demand /supply data from

MSEDCL was received by the Committee. The Committee, however, did not receive the

information from APML/ IBRL regarding the actual tariff over the period of supply.

The third meeting was held on 21st November, 2012. The Committee further discussed

the issues pertaining to the case and went through the additional submissions of

MSEDCL pertaining to the change in tariff structure of IBRL.

The fourth meeting was held on 26th

November, 2012. The Committee further discussed

the identified issues.

The fifth meeting was held on 4th

December, 2012. The Committee further discussed the

identified issues and concluded its observation and findings.

The minutes of all the above meetings are attached at Annexure-3.

Meeting No. Date Time

First Meeting 1st November, 2012 03:00 PM

Second Meeting 7th November, 2012 12:30 PM

Third Meeting 21st November, 2012 03:00 PM

Fourth Meeting 26th November, 2012 02:30 PM

Fifth Meeting 4th December, 2012 04:30 PM

___________________________________________________________________________


Based on the deliberations of the Committee, the observation and findings of the

Committee are summarized in the following sections.

Facts of the case;

Issues considered by the Committee;

Views of the Consumer Representatives; and

Findings of the Committee.

___________________________________________________________________________


3. Facts of the case

MSEDCL initiated a competitive bidding process based on the Standard Bidding

Documents (SBD) notified by the Ministry of Power (MoP) for procurement of 2000 MW

(-20%/+30%) power on long-term basis under Case 1 Stage 2 process.

Thereafter, MSEDCL approached the Hon‟ble Commission to seek approval to

incorporate certain deviations in the SBD issued by MoP. Hon‟ble Commission in its

Order dated 23rd

July, 2009 in Case No. 28 of 2009 accepted some of the proposed

deviations.

On 19th

June, 2010, MSEDCL filed a Petition before the Hon‟ble Commission for

adoption of tariff for procurement of 2000 MW (-20% / +30%) power on long-term basis

under Case 1 Stage 2 competitive bidding process. In the said Petition, MSEDCL

submitted that total 17 bidders collected RfP documents and only 8 bidders submitted the

bids on 7th

August, 2009. The financial bids of 5 responsive bidders were opened on 24th

September, 2009.

Following is the list of responsive bidders.

Table 1: Quoted levelised tariff of responsive bidders

Sr.

No. Name of Bidding Company Capacity Offered

(MW) Levelised tariff

(Rs./ kWh) 1 Emco Energy Ltd. 200 2.879

2 Indiabulls Power Ltd. (Amravati) 450 3.270

3 Adani Power Maharashtra Ltd. 1200 3.295

4 Indiabulls Power Ltd. (Nashik) 950 3.450

5 Wardha Power Company Ltd. 675 3.620

Indiabulls Power Ltd. (Amravati) offered to provide additional 750 MW at negotiated

levelised tariff of Rs. 3.26 per unit and accordingly, order was issued for 1200 MW

against this offer.

The list of successful bidders (after negotiations) is as shown below.

Table 2: Successful bidders in Case 1 Stage 2 bidding process

Sl.No Bidder Capacity (MW) Levelised tariff

(Rs./kWh)

1 Emco Energy Ltd. 200 2.879

2 Indiabulls Power Ltd. (Amravati) 1200 (450 + 750) 3.26

3 Adani Power Maharashtra Ltd. 1200 3.28

In addition to the aforesaid quantum of power, additional 125 MW of power (from Adani)

at a levelised tariff of Rs. 3.28/kWh, was also approved by the Hon‟ble Commission vide

Order dated 19th

May, 2011 in Case No. 56 of 2010.

___________________________________________________________________________


In the above bidding process, though Indiabulls (Nashik) had also offered 950 MW of

power at Rs. 3.45/kWh, it was not selected under competitive bidding process.

On 15th

May, 2012, MSEDCL, filed a Petition before the Hon‟ble Commission (in Case

No. 53 of 2012) for approval of PPA (anticipating shortage of power and higher tariffs in

coming years) for additional quantum of power from Indiabulls Realtech Ltd. (Nashik)

and Adani Power Maharashtra Ltd. MSEDCL submitted that the power from IBRL shall

be used for meeting its base load requirement.

Table 3: Summary of additional quantum of power offered by IBRL & APML

Sl. no. Bidder Capacity (MW) Tariff (Rs./kWh)

1 APML (Tiroda) 440 3.28

2 IBRL, Nashik 650 3.42

MSEDCL in its Petition stated that, IBRL had offered 650 MW to MSEDCL at the tariff

of Rs. 3.45/ kWh. However, the Government of Maharashtra (GoM) negotiated the tariff

with IBRL to Rs. 3.42/ kWh. The Government letter in this connection is attached at

Annexure 4. Adani also offered additional 440 MW at a levelised tariff of Rs. 3.28/kWh

citing its bid in Case 1 Stage II bidding process.

In the said Petition, MSEDCL cited the following reasons for purchase of additional

quantum of power on long-term basis from APML and IBRL.

A. Shortfall in power considering a 10% annual growth in peak demand:

MSEDCL anticipates shortage of power from FY 2016-17 onwards considering a

10% annual growth rate in peak demand.

B. Uncertainty in power availability:

1. MSPGCL had withdrawn the units of Koradi Unit I to IV (4 x 115 MW),

Bhusawal unit I (55 MW), Paras unit I & II (92.5 MW) and Nashik unit I & II (2 x

140 MW), totalling 887.5 MW. This has added to shortage of power generation.

2. The Hon‟ble Commission vide Order dated 30th

March, 2011, in Case No.103 of

2010, had disapproved PPAs of 7260 MW (coal)/ 7440 MW (gas) between

MSPGCL and MSEDCL.

3. MSEDCL submitted that there is a shortfall in gas availability which is affecting

the supply of power from RGPPL and Uran gas based power stations.

4. Adani Power is yet to resolve the coal supply issue for Tiroda project (1320 MW

from units 2 & 3) after withdrawal of Lohara Coal Block. Therefore, Adani has

___________________________________________________________________________


requested for revision of tariff and if tariff cannot be revised, then termination of

PPA, due to high cost of fuel from alternate sources (Case No. 68 of 2012).

5. MSEDCL submitted that Lanco Teesta (500 MW) had raised certain

apprehensions in supplying power as per the committed schedule because of the

increase in project cost due to poor geological conditions and the earthquake, that

had occurred near the project site.

6. The Association of Independent Power Producers has filed a Petition before the

Hon‟ble CERC against NTPC signing PPAs for supply of 37,000 MW in an anti-

competitive manner. MSEDCL is one of the beneficiaries of the above mentioned

PPAs.

C. Possibility of discovery of higher price through competitive bidding process:

MSEDCL stated that the discovered tariff has been increasing over the years.

Therefore, MSEDCL believes that if it opts for a fresh bidding process, the tariffs

quoted by bidders would be higher than the levelised tariffs quoted by IBRL and

APML in this case.

D. Availability of transmission system facility :

For evacuation of power from Vidarbha to Western Maharashtra and Konkan,

transmission towers and sub stations are yet to be erected. To get Right of Way

(RoW) for the towers, there may be stiff opposition from the farmers. Since, the

power plant of IBRL is in Nashik i.e. at load centre, the plant would help in

improving system stability & IBPL‟s 400KV D/C Sinnar- Bableshwar line is almost

ready.

Direction of Government of Maharashtra (GoM) regarding the approval of the PPA

MSEDCL had submitted to GoM, vide letter dated 6th

March, 2011, (copy enclosed at

Annexure -5) a proposal for purchase of 440 MW power from APML at a tariff of Rs.

3.28/ kWh (negotiated rate) and 650 MW from IBRL at a tariff of Rs. 3.42/ kWh

(negotiated rate).

The GoM, vide letter dated 1st December, 2011 (copy enclosed at Annexure – 6)

forwarded the approval of Cabinet Sub-Committee for purchase of additional power from

APML-Tiroda for 440 MW at a tariff of Rs. 3.28/ kWh (escalable) and from IBRL-

Nashik for 650 MW at a tariff of Rs.3.42/ kWh (escalable). The Cabinet Sub-Committee

directed MSEDCL to obtain approval from the Hon‟ble Commission.

Prayers made in the Petition

The prayers made in the Petition are as follows:

___________________________________________________________________________


Approve the PPA between MSEDCL and Indiabulls Realtech Ltd. for 650

MW;

Approve the PPA between MSEDCL and Adani Power Maharashtra Ltd. for

440 MW; and

Approve the adoption of tariff for additional power procurement of 1090 MW

(650 MW from IBRL- Nashik @ Rs 3.42/kWh & 440 MW from APML-

Tiroda @Rs 3.28/kWh (levelised tariff))

___________________________________________________________________________


4. Issues considered by the Committee

The Committee considered the following issues, based on the decision taken during

the first meeting held 1st November, 2012.

a. Case Precedents The Committee observed that there have been a number of cases with respect to PPAs

in different States. The Committee analysed the following Orders/Judgements issued

by the respective State Electricity Regulatory Commissions (SERCs) and the Hon‟ble

ATE.

Table 4: List of Cases discussed by the Committee

S.No Case No./

Appeal No. Judgement/

Order Date Parties Issue(s)

1 Appeal No.

71 of 2008

& IA No.

102 of 2008

(ATE)

21st October,

2008

Lanco Amarkantak Power

Pvt. Ltd Vs MPERC and

Others

Termination of

PPA/jurisdiction of the

Commission.

2 Appeal No.

106 and 107

of 2009

(ATE)

31st March,

2010

BSES Rajdhani Power Ltd.

Vs Delhi Electricity

Regulatory Commission

and Others.

BSES Yamuna Power Ltd

Vs Delhi Electricity


and Others.

Whether DERC was right

in allowing NDPL to sign

a PPA with Maithon

Power Ltd. without going

through the process of

competitive bidding

3 Appeal No.

184 of 2010

(ATE)

7th

September,

2011

Adani Power Ltd Vs

Gujarat Electricity


(GERC), Gujarat Urja

Vikas Nigam Ltd

(GUVNL) and Others

Termination of PPA on the

basis of failure to execute

a Fuel Supply Agreement

(FSA)

4 R.P. No 6

of 2011 in

Appeal No.

184 of 2010

(ATE)

13th

February,

2012

Adani Power Ltd Vs

Gujarat Electricity


(GERC)

Review Petition on the

Judgement dated 7th

September, 2011

5 Petition No.

21 of 2010

(D)

(CSERC)

31st

December,

2011

Indiabulls CSEB

Bhaiyathan Power Ltd Vs

Chhattisgarh State Power

Holding Company Ltd. and

Chhattisgarh State Power

Generating Company Ltd.

Non-compliance of PPA

terms.

6 Case No. 12

of 2011

(MERC)

31st May,

2011

Reliance Infrastructure Ltd. Increase in quantum (MW)

after submission of bids

7 Case No. 9 16th JSW Energy Ltd Vs Decision on occurrence of

___________________________________________________________________________


S.No Case No./

Appeal No. Judgement/

Order Date Parties Issue(s)

of 2011

(MERC)

November,

2011

MSEDCL Force Majeure event on

cancellation of FSA by the

supplier of coal.

8 Case No. 56

of 2010

(MERC)

19th May,

2011

MSEDCLs Petition for PPA

with APML

Approval of additional

quantum of 125 MW after

completion of the bidding

process

9 Case No. 39

of 2009

(MERC)

27th

November,

2009

MSEDCL‟s PPA with JSW

Energy Ltd.

Approval of procurement

of 300 MW after

completion of the bidding

process and amendments

in PPA

After studying the above cases, the Committee observed that only four (4) cases,

those at Sl.No. 2, 6, 8 and 9 are relevant to the present matter. However, it should be

noted that the facts of each case and circumstances are different and hence, it would

not be possible to draw a parallel with the case which is under study by this

Committee.

1) Hon'ble ATE - Judgement in Appeal No. 106 and 107 of 2009 – Date of

Judgement: 31st March, 2010.

This Judgment was in the matter of Petition filed by BSES Rajdhani Power Limited

(BRPL) and BSES Yamuna Power Limited (BYPL) challenging the approval given

by Delhi Electricity Regulatory Commission (DERC) to the PPA entered between

New Delhi Power Limited (NDPL) and Maithon Power Limited. The basis for the

Appeal was that this PPA was entered in violation of Clause 5.1 of the National Tariff

Policy, which requires the distribution licensees to procure power through competitive

bidding process. The excerpts of the Judgement are as given below.

"In the light of the above discussions, the argument advanced by the Ld. Counsel for

the Appellants that resort to tariff determination under Section 62(1)(a) without

adopting the Competitive Bidding Process will render clause 5.1 of the NTP

redundant as the distribution licensees in the future will procure power from the

generating companies only through the negotiated route, cannot be accepted as it is

always open to the State Commission to direct the distribution licensee to carry out

power procurement through Competitive Bidding Process only in case where the

rates under the negotiated agreement are high. In other words, the State Commissions

have been given discretionary powers either to chose Section 62, 62(1)(a) to give

approval for the PPA or to direct the distribution licensee to resort to the Competitive

Bidding Process as per clause 5.1 of the NTP read with Section 63 of the Act....

___________________________________________________________________________


..

In view of the above discussions, our conclusion is that the approval of the State

Commission to the PPA entered into between NDPL (R-2) and MPL (R-3) by the

order dated 30.4.2009 passed by the State Commission subject to the various

conditions, is perfectly valid in law and it does not warrant any interference... "

In the above Judgement, the Hon'ble ATE has ruled that approval by State Electricity

Regulatory Commission to PPAs signed by distribution licensees at negotiated Tariff

(SERCs) is legally valid.

2) Maharashtra Electricity Regulatory Commission – Case No. 12 of 2011 – Date of

Order: 31st May, 2011.

This Order was in the matter of Petition filed by Reliance Infrastructure Limited for

adoption of tariff determined through transparent process of bidding under Section 63

of the Electricity Act, 2003 in respect of Power Purchase Agreement (PPA) signed

between Reliance Infrastructure Limited and Vidarbha Industries Power Limited

(VIPL).

The Hon‟ble Commission ruled as follows in the particular case.

“i. The Petitioner submitted that the PPA was signed with VIPL on 16th June 2010 as

well as they have signed the PPA with other two bidders, WPCL and AMNEPL. While

RInfra has filed a Petition for adoption of tariff in case of VIPL, they are silent on

adoption of tariff for other two bidders.

ii. The process of competitive bidding was initiated by RInfra in July 2009 for

procurement of power for medium term. M/s. Vidarbha Industries had participated

and offered the quantum of 134 MW for the period April 2012 to March 2014 .This

was against approved capacity of 1200 MW in RFP. Petitioner M/s. RInfra entered

into PPA also with VIPL for the quoted quantity in month of June 2010. However,

RInfra has amended the quantum to 404 MW in month of January 2011 which is far

more than quoted quantity i.e., more than 200 %. In competitive bidding process,

ordering of quantity much more than quantity quoted is inappropriate, as apparently

equal opportunity has not been provided to all players. Hence increase in quantum in

disproportionate ratio is incorrect & thus does not merit consideration. In order to

maintain sanctity of competitive bidding process, it is essential that the terms &

conditions such as quantum, price etc. of original bid is deliberated in order to

maintain transparency of the bidding process. The addendum to the PPA (dated June

16, 2010) for supply of an additional 270 MW of power from April 1, 2012 reads as

follows –

“(D) The following clause shall be inserted after Article 5.2.1 (Allocation of

Generation Capacity)

___________________________________________________________________________


5.2.2 The Seller shall make available further 270MW of Contracted Capacity to

the procurer as per the terms of this Agreement”.

This arbitrary increase of quantum amounts to vitiating the competitive bidding

process and the Commission does not approve the action of Petitioner and rejects the

addendum to PPA.

iii. The Commission also notes that several rounds of negotiations were held with

all the bidders at different stages. This is contrary to conditions of RFP which

restricts negotiations during the process of evaluation. The contention of RInfra

that the negotiations were held in the interest of consumers is also not acceptable as

the process of negotiations was not transparent. The Commission is of the view that

fair & equal opportunity was not given to all the bidders in process.

b) On Perusal of project activities and progress of VIPL units, Commission is of the

view that availability of power from April 2012 is unlikely. However, since the

quantum and rate etc., are finalized based on competitive bidding process and also

considering the PPA is for medium term till March 2014, the Commission approves

supply of 134 MW of power by VIPL to RInfra as per original PPA signed on 16th

June 2010.”

Aggrieved by the above Order, VIPL preferred an appeal before the Hon‟ble

Appellate Tribunal for Electricity (ATE), for approval of the original PPA and the

addendum dated 21st January, 2011 to the PPA for supply of total 404 MW of power

at the levelised tariff of Rs. 4.24/kWh.

Hon‟ble ATE delivered its Judgment dated 17th

February, 2012 in Appeal No. 106 of

2011, as given below.

“14. In the light of the above principles laid down in the above judgement and in the

light of the findings given by the State Commission in the impugned order the

Addendum is an afterthought and on that basis the State Commission should have

rejected the addendum in toto and approved the original PPA dated 16.6.2010 only.

On the other hand, the State Commission has passed the order approving the

quantum as per the original PPA dated 16.6.2010 and approving the rate as finalised

in the addendum dated 21.1.2011. The relevant finding is as follows: “On perusal of

project activities and progress of VIPL units, Commission is of the view that

availability of power from April 2012 is unlikely. However, since the quantum and

rate etc., are finalized based on competitive bidding process and also considering the

PPA is for medium term till March, 2014, the Commission approves supply of 134

MW of power by VIPL to RInfra as per original PPA signed on 16th

June, 2010.

However, the rate applicable shall be as finalized in January, 2011.

15. To sum-up, this finding in our view, is not valid as the State Commission, as

mentioned above, either should have approved the original PPA dated 16.6.2010 in

___________________________________________________________________________


toto or rejected the same on the grounds mentioned in Section 63 of the Act. Since

there are no valid reasons for the rejection of the PPA dated 16.6.2010 in respect of

the rate, the State Commission ought to have approved the original PPA in toto in

respect of both the quantum and rate.

16. In view of the our above conclusion, we direct the State Commission to approve

the PPA dated 16.6.2010 in respect of both the quantum and rate specified in the said

document and pass a consequential order in terms of our above findings.

17. The Appeal is allowed. The order impugned has been set aside only to the extent

indicated above.”

Based on the above Judgment of the Hon‟ble ATE, the Hon‟ble Commission suo-

moto issued an Order on 21st May, 2012. The Hon‟ble Commission ruled as under:

“As directed by the Hon’ble Appellate Tribunal in its judgment dated 17 February,

2012 in Appeal No. 106 of 2011, the Commission hereby accords its approval to the

adoption of tariff for procurement of power by RInfra from VIPL for supply of 134

MW at a levellised tariff of 4.80/kWh discovered through the transparent bidding

process and as per the PPA dated 16 June, 2010”

3) Maharashtra Electricity Regulatory Commission – Case No. 56 of 2010 - Date of

Order: 19th

May, 2009

This Order was in the matter of Maharashtra State Electricity Distribution Company

Limited‟s (MSEDCL) Petition for approval of Power Purchase Agreement (PPA) with

M/s. Adani Power Maharashtra Limited (APML) for 125 MW of long-term power

procurement and adoption of tariff.

The Hon‟ble Commission in Case No. 56 of 2010 approved the additional quantum of

125 MW and ruled as under:

“

As quantum of procurement of power is less and it is not advisable to start a fresh

process of procurement of power of 125 MW through Competitive Bidding process,

therefore, as a special case the Commission approves the adoption of tariff for

additional power procurement of 125 MW from Adani Power Maharashtra Ltd. at a

levelised tariff of Rs. 3.28/kWh within same terms and conditions as indicated in Case

I Stage 2 PPA entered by Adani Power Maharashtra Ltd. However, the present

process should not create precedence in the future power procurement for medium

term or long term for approval of tariff, above the Commission approved quantum for

Distribution Licensees in the State.”

The procurement of power under Case 1 Stage 2 was for the quantum of 2000 MW (-

20%/+30%), and MSEDCL has signed PPAs for 2725 MW, which exceeds 30% of

the quantum of 2000 MW.

___________________________________________________________________________


4) Maharashtra Electricity Regulatory Commission – Case No. 39 of 2009 - Date of

Order: 27th

November, 2011.

This Order was in the matter of Petition for approval of procurement of 300 MW

under Case 1 Stage I and approval of amendments in the Power Purchase Agreement

initialled between MSEDCL and JSW Energy Ltd.

The Hon‟ble Commission ruled in this Order as follows:

“

Based on the peak load estimates for MSEDCL after considering the 17th EPS report

and estimates for Mumbai and capacity addition by MSPGCL, allocated supply from

Central sector including the UMPP allocations and the proposed procurement of

2000 MW under Phase 1 of Case 1 scheme, MSEDCL has projected annual power

shortages as follows :

Year 2009: 4053 MW; Year 2010: 4233 MW; Year 2011 4449 MW; Year 2012: 2687

MW.

The Commission has noted that MSEDCL had initiated the process of procurement of

2000 MW power in October 2007 under Class I, Phase-I procurement in line with the

Competitive Bidding Guidelines made by the Ministry of Power.

......

The Commission directs MSEDCL to immediately initiate action as per the terms of

approved PPA to protect the economic interest of its consumers. Accordingly, the

Commission approves the procurement of 300 MW power by MSEDCL from M/s JSW

Energy as above on long term basis as proposed and directs MSEDCL to submit the

PPA signed with M/s JSW Energy Ltd.”

The procurement of power under Case 1 Stage I was for the quantum of 2000 MW

and MSEDCL has signed PPAs of 2304 MW, which exceeds by over 15% of the

quantum of 2000 MW.

Findings/Observations of the Committee

After studying the above four Judgements/Orders, the Committee has following

observation:

While approving/ disapproving the PPAs, the Hon‟ble Commission has

ensured that -

Sanctity of the bidding process and PPA is maintained;

Interest of the consumer is protected; and

___________________________________________________________________________


A fair and equal opportunity should be provided to the other bidders who

qualified in the bidding process.

b. Demand supply situation of MSEDCL

As per the direction of the Hon‟ble Commission, MSEDCL submitted its demand-

supply projections for the period from FY 2011-12 to FY 2019-20 on 13th

November,

2012. A copy of the revised submission is attached at Annexure 7.

Following is the estimated peak shortfall/ (surplus) projection made by MSEDCL for

the period FY 2011-12 to FY 2019-20.

Table 5: Estimated peak shortfall/ (surplus) of MSEDCL

Financial year Peak Demand

(MW)

Peak Availability

(MW)

Peak shortfall/

(surplus) (MW)

2011-12 14,043 11,588 2,455

2012-13 Apr12-

Dec12 14,396 12,977 1,419

2012-13 Dec12 -

Mar13 14,747 13,688 1,059

2013-14 16,222 17,837 (1,615)

2014-15 17,844 19,065 (1,221)

2015-16 19,628 20,311 (683)

2016-17 21,591 21,787 (196)

2017-18 23,750 22,304 1,447

2018-19 26,125 22,304 3,822

2019-20 28,738 22,304 6,434

The Committee observed that MSEDCL has not considered supply of power from

certain projects, while arriving at the estimated peak shortfall/ surplus. List of such

projects, which have not been considered by MSEDCL, is attached at Annexure 8

Based on the projections of MSEDCL, the Committee observes that the shortfall is

increasing from FY 2017-18 to FY 2019-20 and is projected to be 6,434 MW in FY

2019-20. Given such a situation, it would be in the interest of MSEDCL to enter into a

long-term PPA to ensure availability of power to the consumers of Maharashtra.

Demand projections based on draft 18th Electric Power Survey (EPS)

The Committee estimated the demand of MSEDCL over the period of FY 2012-13 to

FY 2019-20 using the peak demand growth rate estimated in the draft 18th

EPS for

Maharashtra. The Committee has considered the power availability as submitted by

MSEDCL. Based on the analysis, the Committee observed that there would be a

shortfall of 1,078 MW in FY 2018-19 and 2,631 MW in FY 2019-20.

___________________________________________________________________________


Table 6: Estimated peak shortfall/ (surplus) of MSEDCL based on the draft 18th

EPS growth rate

Particular FY

2012-13

FY

2013-

14

FY

2014-

15

FY

2015-

16

FY

2016-

17

FY

2017-

18

FY

2018-

19

FY

2019-

20

Demand for

Maharashtra (as

per draft 18th

EPS) (MW)

19,714* 21,364 23,174 25,167 27,949 29,328 31,258 33,333

Growth rate as

per 18th EPS

draft

8.3% 8.4% 8.5% 8.6% 11.1% 4.9% 6.6% 6.6%

Demand (as

submitted by

MSEDCL)

(MW)

14,747 16,222 17,844 19,628 21,591 23,750 26,125 28,738

MSEDCL

Demand (based

on the growth

rate of draft 18th

EPS) (MW)

14,747 15,981 17,335 18,826 20,907 21,939 23,382 24,935

Supply (as

considered by

MSEDCL)

(MW)

13,688 17,837 19,065 20,311 21,787 22,304 22,304 22,304

Gap as per

MSEDCL

(MW)

1,059 (1,615) (1,221) (683) (196) 1,446 3,821 6,434

% shortfall 7.2% -10.0% -6.8% -3.5% -0.9% 6.1% 14.6% 22.4%

Gap

(considering

EPS demand)

(MW)

1,059 -1,856 -1,730 -1,485 -880 -365 1,078 2,631

% shortfall 7.2% -11.6% -10.0% -7.9% -4.2% -1.7% 4.6% 10.6%

* Includes demand from open access consumers.


The Committee has the following observations on the data submitted by MSEDCL

regarding the estimated peak (shortfall) / surplus.

The demand-supply gap projected by MSEDCL is not supported by any back

up data;

MSEDCL has assumed a 10% growth in peak demand going forward from FY

2011-12;

MSEDCL has estimated that the open access would increase by 10% every

year from FY 2011-12;

___________________________________________________________________________


For FY 2016-17, MSEDCL has shown addition in capacity (worst case) as

1,888 MW. However, on verifying the excel sheet provided by MSEDCL,

addition in capacity (worst) case was found out to be 1,660 MW;

MSEDCL has proposed to use power requirement from IBPL- Nashik plant

for base load requirement but it has not submitted the base load shortfall

scenario; and The shortfall projected is for the worst case scenario for MSEDCL which

assumes that, Latur (1320MW), Dhopave (1980 MW), Dondaicha (3300

MW), Krishnapatanam UMPP (792 MW), Surguja UMPP (997 MW), Tilaiya

UMPP (300 MW), Cheyyur UMPP (400 MW), NTPC projects (720 MW),

etc., will not be getting commissioned as per schedule.

___________________________________________________________________________


c. Competitiveness of the bids from APML/ IBRL

There are number of developments since the Case-1 Stage-2 bid process carried out

by MSEDCL, which need to be considered while determining the competitiveness of

the tariff at which the additional power of 1090 MW has been offered by IBRL and

APML. These factors are described below.

1. Factors impacting capacity charge -

a. Mega power project benefits withdrawn by Government of India and

hence the power equipments will become costlier;

b. Due to the upward movements in exchange rate, the cost of procurement

of imported equipments used in power projects has gone up; and

c. Change in interest rate scenario will impact the tariffs.

2. Factors impacting energy charge -

a. Increased incidence of natural resources tax by the Governments across

the globe (Indonesia, Australia, African countries);

b. Upward movements of exchange rate will impact energy charge for

imported fuel components; and

c. The coal block auctioning is likely to impact the competitiveness of

supply from captive coal sources.

Keeping the above things in view, the Committee sought to find out whether the price

of supply from APML and IBRL would be competitive given the current market

trends. For this, the Committee sought the year-wise price of supply from APML and

IBRL, taking into account the effect of escalation based on the provisions mentioned

in the PPA and revised levelised tariff.

The submission of IBRL & APML in this regard is attached at Annexure 9.

The Committee examined recently opened bids in various States to assess the

competitiveness of the quoted tariff. The Committee analysed the long-term Case-1

bids & price discovered over the last 2 years and did not consider the medium-term

bids, as they would not be reflective of the long-term prices.

1) State: Uttar Pradesh (UPPCL)

Quantum: 3000 MW

Type: Long-term/ Case-1 bid

RfP submission date: 2011

Period of supply: 2014 onwards

S. no. Name of bidder Price offered

(Rs./ kWh) Quantity offered

(MW)

1 Athena Energy Ventures Private Ltd. 3.32 300

2 Reliance Power Ltd. 3.70 2,456

3 Jaiprakash Power Ventures Ltd. 3.90 200

___________________________________________________________________________


S. no. Name of bidder Price offered

(Rs./ kWh) Quantity offered

(MW) 4 Lanco Limited 4.28 680

5 KVK Nilachal Power 4.41 160

6 RKM Powergen 4.59 400

7 Vandana Vidyut 4.68 100

8 Adani Power 4.73 300

9 Ind-Barath Powergencom 4.81 200

10 Lanco Infratech 5.56 120 Source: Powerline, October, 2011

2) State: Maharashtra (RInfra)

Quantum: 1000 MW


RfP submission date: 23rd

August, 2011

S. no. Name of bidder Price offered (Rs./

kWh) Quantity offered

(MW)

1 Dhariwal Infra 3.513 200

2 Reliance Power 4.311 1000

3 Vandana Vidyut 4.493 150

4 PTC (Moserbaer) 4.590 200

5 RKM Powergen 4.670 300

6 Indiabulls Power Ltd. 4.800 490

7 PTC (DB Power) 5.593 150 Source: Presentation by Indiabulls Power Limited before the Hon’ble Commission on 17

th October,

2012

3) State: Bihar (BSEB)

Quantum: 1050 MW


RfP submission date: March, 2011


kWh) Quantity

offered (MW)

1 Essar Power 3.691 300

2 Jaypee Power Ventures 3.878 100

3 National Energy Trading (Lanco) 3.902 250

4 GMR 4.030 260

5 PTC (KVK Nilanchal) 4.076 370

6 PTC (DB Power) 4.088 100

7 PTC (Moser Baer) 4.411 200

8 Indiabulls Power Ltd. 4.415 1050

9 PTC (Ind Barath) 4.591 150



12 Reliance Power 12.445 1050 Source: Presentation by Indiabulls Power Limited before the Hon’ble Commission on 17

th October,

2012

___________________________________________________________________________


4) State: Uttar Pradesh (NPCL)

Quantum: 200 MW



Period of supply: 2014 onwards


kWh) Quantity offered

(MW)

1 Essar Power 4.09 240

2 Visa Power 4.19 200

3 Jaiprakash Power Ventures

Ltd.

4.23 50

4 Lanco-Videocon Industries

consortium

4.31 200

5 Adani Power 4.49 200

6 Dans Energy Private Limited 5.41 50 Source: UPERC Order dated 4 September, 2012 in Petition No. 741 of 2011, Powerline, October, 2011

5) State: Andhra Pradesh

Quantum: 2000 MW



Period of Supply: 4 years from the signing of the PPA


kWh) Quantity

offered (MW)

1 Hinduja National Power Corporation 3.44 580

2 East Coast Energy Private Limited 3.47 620

3 Athena Energy Ventures Private Limited 3.66 200

4 NCC Power Projects Limited 3.68 500

5 Thermal Powertech 3.68 500 Source: Powerline, October, 2011

Levelised Tariff of IBRL

As per the direction of the Hon‟ble Commission, IBRL submitted the tariff over the

period of supply. However, it did not provide the levelised tariff for the same period.

IBRL informed that it had followed the following methodology to calculate the year

wise tariff.

Annual escalation rates till September 2012 have been applied based on the

Hon‟ble CERC notified annual escalation rate for payment.

And from September 2012 onwards, escalation rates for evaluation have been

applied for calculation of the tariff.

Following is the summary of the tariff computation submitted by the IBRL.

Table 6: Tariff over the 25 year period as submitted by IBRL

Period Annual Escalation Rates Tariff Component (Rs/kWh}

___________________________________________________________________________


Ending on For

Quoted

Escalabl

e

Energy

Charges

For Quoted

Escalable

Inland

Transportatio

n Charges

Escalabl

e

Energy

Charges

Escalable

Inland

Transportatio

n Charges

Non

Escalabl

e

Energy

Charges

Non

Escalabl

e

Capacity

Charges

Total

Tariff

(Rs/kWh

)

Bid rate

0.708 0.676 0.430 0.937 2.751

30-Sep-09 0.00% 2.38% 0.708 0.678 0.430 0.937 2.753

31-Mar-

10 0.00% 11.77% 0.708 0.718 0.430 0.937 2.793

30-Sep-10 4.92% 0.00% 0.725 0.718 0.430 0.937 2.811

31-Mar-

11 18.00% 0.00% 0.789 0.718 0.430 0.937 2.874

30-Sep-11 0.00% 0.21% 0.789 0.719 0.430 0.937 2.875

31-Mar-

12 38.21% 7.77% 0.940 0.747 0.430 0.937 3.054

30-Sep-12 13.10% 0.00% 1.001 0.747 0.430 0.937 3.115

31-Mar-

13 6.12% 1.91% 1.030 0.754 0.430 0.937 3.151

31-Mar-

14 6.12% 1.91% 1.093 0.768 0.440 0.937 3.239

31-Mar-

15 6.12% 1.91% 1.160 0.783 0.374 0.937 3.254

31-Mar-

16 6.12% 1.91% 1.231 0.798 0.307 0.937 3.273

31-Mar-

17 6.12% 1.91% 1.307 0.813 0.247 0.937 3.304

31-Mar-

18 6.12% 1.91% 1.386 0.829 0.185 0.937 3.337

31-Mar-

19 6.12% 1.91% 1.471 0.845 0.440 0.661 3.417

31-Mar-

20 6.12% 1.91% 1.561 0.861 0.380 0.661 3.463

31-Mar-

21 6.12% 1.91% 1.657 0.877 0.320 0.661 3.515

31-Mar-

22 6.12% 1.91% 1.758 0.894 0.255 0.661 3.568

31-Mar-

23 6.12% 1.91% 1.866 0.911

0.661 3.438

31-Mar-

24 6.12% 1.91% 1.980 0.928 - 0.661 3.570

31-Mar-

25 6.12% 1.91% 2.101 0.946

0.661 3.708

31-Mar-

26 6.12% 1.91% 2.230 0.964 - 0.661 3.855

31-Mar-

27 6.12% 1.91% 2.366 0.983 - 0.661 4.010

31-Mar-

28 6.12% 1.91% 2.511 1.001 - 0.661 4.174

31-Mar-

29 6.12% 1.91% 2.665 1.020 - 0.661 4.346

31-Mar-

30 6.12% 1.91% 2.828 1.040 - 0.661 4.529

31-Mar-

31 6.12% 1.91% 3.001 1.060 - 0.661 4.722

31-Mar-

32 6.12% 1.91% 3.185 1.080

0.661 4.926

___________________________________________________________________________


Period

Ending on

Annual Escalation Rates Tariff Component (Rs/kWh}

For

Quoted

Escalabl

e

Energy

Charges

For Quoted

Escalable

Inland

Transportatio

n Charges

Escalabl

e

Energy

Charges

Escalable

Inland

Transportatio

n Charges

Non

Escalabl

e

Energy

Charges

Non

Escalabl

e

Capacity

Charges

Total

Tariff

(Rs/kWh

)

31-Mar-

33 6.12% 1.91% 3.380 1.101 - 0.661 5.141

31-Mar-

34 6.12% 1.91% 3.587 1.122

0.661 5.369

31-Mar-

35 6.12% 1.91% 3.806 1.143 - 0.661 5.610

31-Mar-

36 6.12% 1.91% 4.039 1.165 - 0.661 5.865

31-Mar-

37 6.12% 1.91% 4.286 1.187

0.661 6.134

31-Mar-

38 6.12% 1.91% 4.548 1.210

0.661 6.419

• The Committee observed that when reducing the levelised tariff from Rs. 3.45/kWh to

Rs. 3.42/kWh, Indiabulls Nashik has changed the risk profile of the bid, shifting a

major portion of the tariff to “escalable energy charge” thereby passing more risk to

MSEDCL with respect to energy charge. MSEDCL has requested Indiabulls Nashik

to proportionately re-adjust the tariff components as per the original bid submission

(in 2009).

Table 7: Change in bid components of Indiabulls Nashik

Levelised

tariff

(Rs./kWh)

Levelised

non-escalable

capacity

charge

(Rs./kWh)

Levelised non-

escalable

energy charge

(Rs./kWh)

Levelised

escalable

energy charge

(Rs./kWh)

Levelised

escalable

inland

transportatio

n charge

(Rs./kWh)

3.45 - (As per

bid) 1.074 0.595 0.762 1.019

3.42 -

(Proposed by

Indiabulls)

0.793 0.235 1.542 0.851

3.42 -

(Proposed

revision by

MSEDCL)

1.065 0.590 0.756 1.010

___________________________________________________________________________


• However, Indiabulls Nashik has submitted that the revised tariff stream would result

into a saving of Rs. 272 Crore for MSEDCL, and hence, is in the best interest of the

consumers.

Table 8: Savings for MSEDCL as per the revised tariff stream (as submitted by Indiabulls)

Discount rate Cost of capital

(14.50%)

CERC rate as on date

(11.08%)

Tariff stream Cash outgo for

MSEDCL (Rs. Crore)

Cash outgo for

MSEDCL (Rs. Crore)

A

Rs. 3.42/kWh –

Submitted Tariff

stream

10,715 13,853

B

Rs. 3.42/kWh – Pro-

rata Tariff stream

proposed by MSEDCL

10,987 13,931

Difference (A-B) (272) (78)

Levelised Tariff of APML

APML submitted that the computation of levelised tariff are indicative numbers and

does not represent the tariff which will be borne by the utility. APML further stated

that the hypothetical calculation for computing levelised tariff may mislead the

decision making process. Citing above reason APML didn‟t submit the revised

levelised tariff considering the revised supply period and rather sought a meeting with

the commission.


After studying the submission made by MSEDCL, APML & IBRL, the Committee

has following observations.

Tariff discovered in bidding process in other States relates to different time period

(for which the escalation indices approved by the Hon‟ble CERC are different)

and therefore, the same are not comparable. Also, the tariffs being compared and

the Tariffs offered by APML and IBRL for additional power of 1050 MW need to

be seen in the light of certain factors which have changed since the Case-1 Stage-2

bid process conducted by MSEDCL.

Also, the financial health (creditworthiness) of the utility (buyer) needs to be

considered to assess the risk associated with each bidding process.

___________________________________________________________________________


While reducing the levelised tariff from Rs.3.45/kWh to Rs.3.42/kWh, Indiabulls,

Nashik has changed the risk profile of the bid, shifting a major portion of the tariff

to “escalable energy charge”.

The levelised tariff need to be computed based on the actual period of supply

which has not been provided by IBRL and APML. According to the initialled PPA

provided, schedule delivery date is 48 months from the effective date.

Since the actual escalation rates over the last 3 years (August 2009 to September

2012) have been applied, the levelised tariff would undergo a change as against

Rs. 3.42/ kWh and Rs. 3.28/ kWh mentioned by IBRL and APML.

d. Possibility of going for the Swiss Challenge Methodology and merits &

demerits associated with Swiss Challenge Methodology

The Committee tried to find out whether Swiss Challenge Methodology (SCM) has

ever been used in power sector in India, particularly in case of power purchase. The

Committee observed that in India, SCM has rarely been used in power sector, except

in Uttar Pradesh Power Transmission Corporation Limited, wherein the RfP, there

were certain guidelines given to follow the SCM.

The SCM is not widely adopted in power sector in India at this stage. However, the

Hon‟ble Commission may consider the SCM in this case. The merits and demerits of

adopting the SCM in the present case are described below.

Merits:

1. It will help procurement at competitive prices already discovered in the process.

2. It also provides opportunity for the market to participate in the process.

Demerits:

1. Frivolous bids can potentially derail the process, especially if the parameters of

the challenge are not defined very well.

In case SCM is to be adopted, the following parameters need to be clearly addressed

before going forward with the process:

1. Define the process of challenge – process to be similar to that of the normal

procurement process with detailed guidelines;

2. Parameters for challenge – timeline for supply; tariffs including/excluding tariff

profiles; and

3. Process to ensure that frivolous bids are not entertained.

A detail note on Swiss Challenge Methodology, prepared by the Committee, is

attached at Annexure 10.

___________________________________________________________________________



A Swiss Challenge Methodology may be adopted considering the merits and demerits

described in the above section. If a SCM is adopted, certain parameters highlighted in

the above section need to be clearly addressed before initiating the process.

e. Present coal linkage policy & its implication on the projects under

consideration The Committee studied the coal linkage policy for the 12

th plan period and the

subsequent amendments thereto. As per the amendment made by MoP on 17th

June

2011, following criteria has been added to the qualifying criteria for getting the coal

linkage;

“Actual drawal of coal will be subject to 85% of power being tied up through long

term PPA with DISCOMS through Tariff based competitive bidding (Except for PSU

projects where PPAs were signed by 5.1.2011”

The Committee further observed that the as per the directives of the PMO issued on

15th

February, 2012, power plants need to have a PPA signed with the distribution

companies to get the Fuel Supply Agreement (FSA) signed with Coal India Limited.

“...Coal India Limited will sign FSAs with power plants that have entered into long-

term PPAs with power distribution utilities/ have been commissioned/ would get

commissioned on or before 31st March, 2015.....”


Based on the above study, the Committee has following observation;

To avail supply of coal from Coal India Limited, the generator needs to have a

PPA signed with the distribution company.

___________________________________________________________________________


5. Views of the Consumer Representatives

Both the Consumer Representatives, who are members of the Committee, have made

written submissions to the Committee stating their stand on the matter under

consideration.

A brief summary of their submissions is as below:

Submission by Dr. Ashok Pendse, Consumer Representative (TBIA)

Comparison of process followed for procuring 2600 MW under Case-1 Stage-2 and

the present case of 1090 MW

Dr. Ashok Pendse submitted that under the Case 1 Stage 2 bidding process, the following

process was followed:

1. Approval of demand forecast;

2. Request for Quotation;

3. Request for Proposal;

4. Evaluation by a Committee; and

5. Approval of PPA.

However, in the present case (Case No. 53 of 2012), such a process is not being followed.

Views on other issues

Dr. Ashok Pendse submitted his views on certain issues as follows:

a) Point: The rate offered is lower than that discovered in other States in medium-

term power purchase. Hence, they are in consumer interest.

Counter point: The rates discovered in short-term power purchase by MSEDCL

are much lower than medium-term power purchase projected by M/s. Adani. A

simple principle needs to be adopted that the long-term power purchase rates will

have to be lower than medium-term. And medium-term will have to be lower than

short-term. Also it is pertinent to note the Hon‟ble Commission‟s opinion in Case

No.29 of 2011 dated 23rd

September, 2011, which is as follows:

“It is not only a question of procuring power at negotiated lower rates for the

benefit for consumers, but it is also a question of upholding the sanctity of Section

63 of the 2003 Act which lays down the requirement of transparent process of

bidding in accordance with the guidelines issued by the Central Government.”

b) Point: If this power is not purchased then, both the projects will become stranded

assets.

___________________________________________________________________________


Counter point: The investment policy in the State is a subject matter of the State.

It cannot be that of MSEDCL and also its consumers. Any benefits given for the

development will have to come from the State and not at the cost of consumers.

As such if the assets are stranded then the remedy lies with the State and not the

Hon‟ble Commission.

M/s. Adani had not offered 440 MW which they are offering now in Case No. 53

of 2012.

It is essential to note that M/s. Indiabulls Nashik was not in the list of winning

bidders in the purchase of 2600 MW due to higher tariff during the Case 1 Stage 2

process. They are offering the same 1200 MW once again. Hence, M/s. Indiabulls

Nashik and M/s. Adani Power already knew about likely stranded assets even

three years back i.e 2009 and hence such a reason does not hold valid today.

c) Point: The generated power from the projects is near the load centre.

Counter point: Of its requirement of 13,000 MW, about 5,000 MW is procured

from outside the State. Hence, power generation near the load centre certainly

helps. But that cannot be the sole criteria of power purchase from these projects.

d) Point: Cabinet Sub-Committee of State Government has approved the purchase of

this power.

Counter point: Competitive bidding guidelines have clearly stated the role of the

evaluation committee. This committee will consist of one external member. The

evaluation is to be done after following the due process of the guidelines. Cabinet

Sub-Committee cannot substitute the prevailing guidelines. The approval of

Cabinet Sub-Committee is an internal matter of MSEDCL, since it is owned by

Government. Hon‟ble Commission cannot subjugate this role to Cabinet Sub-

Committee.

Recently, Coal India has specifically said that they will sign FSA if the generating

company has PPA with the utility. This has been further modified to the extent

that they will sign FSA, but the PPA should be in place when actual delivery of

coal starts. In the absence of FSA, the only choice for procurement of coal by

generators is through e-auction and/or procurement of imported coal. Hence, it

appears that this attempt to sign PPA is being used as a back door entry to achieve

FSA.

Submission of Ms. Ashwini Chitnis, Consumer Representative (Prayas)

a) Need for a comprehensive approach towards power purchase planning

___________________________________________________________________________


It was suggested that MSEDCL‟s approach towards power purchase was very ad-

hoc and the same is evident from the following issues:

a) Lack of demand forecast analysis; and

b) No clarity regarding capacity addition in pipeline

b) Other developments that have a direct bearing upon this case.

It was submitted that two other cases pending before the Hon‟ble Commission,

which are Case No. 68 of 2012, in the matter of APML and Case No. 105 of 2012,

in the matter of Lanco Teesta Hydro project, have direct impact on the present

case.

c) Need for suo-motu public process to assess power purchase planning.

It was suggested that the Hon‟ble Commission should undertake a suo-motu

public process to assess power purchase planning of MSEDCL with emphasis on

demand forecast and assessment of capacity addition.

d) Hon‟ble Commission‟s opinion regarding maintainability of the present Petition

It was submitted that it should first be decided whether this Petition can be

considered to be compliant with the letter and spirit of competitive bidding.

During the Committee meeting the letters were read and discussed in detail. The opinions of

the Consumer Representatives have been considered while drafting the Committee report.

6. Findings of the Committee

The Committee has studied various Orders/Judgements similar to the present case.

However, the facts and circumstances of each case are different and hence, it would

not be possible to draw a parallel with the present case under consideration.

In the past, while approving/disapproving the PPAs, the Hon‟ble Commission has

ensured that;

Sanctity of the bidding process is maintained; and

Interest of the consumer is protected

A fair and equal opportunity should be provided to the other bidders who qualified in

the bidding process.

___________________________________________________________________________


Based on the submissions of MSEDCL, there is a peak shortfall of power from FY

2017-18 onwards. However, the Committee has presented its observations on the data

submitted by MSEDCL.

Though the bids submitted by APML/ IBRL look more competitive than the recent

Case-1 long-term bids in other States, the competitiveness of the bids need to be

compared for the same period of supply and also looking at other parameters, such as,

financial health of the utility (buyer).

The revised levelised tariff required to be computed based on the actual period of

supply has not been provided by IBRL and APML. According to the initialled PPA

provided, the schedule delivery date is 48 months from the effective date.

A Swiss challenge may be considered after taking into account, the merits and

demerits associated with it. If a Swiss challenge is adopted, certain parameters

highlighted by the Committee must be clearly addressed before initiating the process.

Coal India Limited will supply coal to the power generators only if they have signed

PPA with the distribution utility.

Sd/- Sd/- Sd/- Sd/-

(Ms. Gayatri Ramanathan)

Consultant, MERC

(Shri. Ketan Patil)

Regulatory Officer,

MERC

(Shri. Saurabh Gupta)

Regulatory Officer,

MERC

(Shri. Suresh Shukla)

Regulatory Expert,

MERC

Sd/- Sd/ Sd/ Sd/

(Shri. Ravindra Sonawane)

Dy. Director (Legal),

MERC

(Shri. G.D. Patil)

Dy. Director (Tec),

MERC

(Shri. Umesh Agrawal)

Associate Director, PwC

(Rajendra Ambekar)

Director (Tariff), MERC

___________________________________________________________________________


Annexures

___________________________________________________________________________


Annexure 1: Notice for constitution of Committee to study the submissions

made under Case No. 53 of 2012

___________________________________________________________________________


Annexure 2: Written submission of Consumer representatives

___________________________________________________________________________


Submissions in respect of Case No:53 of 2012 of MSEDCL for approval of 1090MW

long term power purchase PPA from M/s.Adani & M/s.India Bulls

Commission had approved 2600MW long term PPA. MSEDCL is once again before

commission for 1090MW long term PPA approval. Hence, it is essential to compare the

process which was followed for 2600MW V/s which is being followed for 1090MW. Both

the PPA‟s are for 25 years and hence crucial for state. During the earlier PPA following

stages were followed:-

1. Approval of demand forecast.

2. Request for quotation.

3. Request for proposal.

4. Evaluation by a committee.

5. Approval of PPA.

1. Approval of demand forecast:-

MSEDCL came before the commission for approval of demand forecast. The approval was

accorded in Case No.28 of 2009 on 23rd

July, 2009. Commission said the following:-

A. Approval of Quantum to be procured

14. As regards the approval for the quantum of power to be procured, the Commission

observes that Clause 3.1 (iii) (b) of the CBG stipulates as follows:

“Approval of the Appropriate Commission shall be sought prior to initiating the bidding

process in respect of the following aspects:

…For the quantum of capacity / energy to be procured, in case the same is exceeding the

projected additional demand forecast for next three years following the year of expected

commencement of supply proposed to be procured. Such demand forecast shall be based on

the latest available (at the time of issue of RFQ) Electric Power Survey published by Central

Electricity Authority. (Both for Case 1 and Case 2)…”

15. The Commission observes that the EPS Report published by CEA provides the demand

forecasts for the entire State and not for each Distribution Licensee separately. During the

hearing, MSEDCL provided the comparison of peak load as per EPS Report and subtracted

the peak load of Mumbai region and compared with the capacity available and expected to be

commissioned in next five years. The actual peak shortfall during FY 2008-09 amounted to

4053 MW. Considering the expected capacity addition during next four years, MSEDCL has

projected a shortfall of around 2500 MW during FY 2012-13. Accordingly, the Commission

___________________________________________________________________________


approves the quantum as proposed by MSEDCL for procurement through the competitive

bidding process.

B. In the present process MSEDCL has not come before commission for approving 1090MW

of power. They have been forecasting different demand figures in various pleadings. The

simplest method adopted is to increase demand forecast is to increase demand to 10% instead

of 8%.

Also, a concept of spinning reserves has been suggested for showing higher demand.

However, spinning reserves will add to the average cost of power. Even Mumbai which has

been having 24x365 power supply does not have spinning reserves. As such to support the

additional demand 10% forecast and spinning reserves concepts seems to have been used.

2. Request for quotation:-

MSEDCL did advertise for procurement. The advertisement gave the full background of

power purchase including qualifying criteria etc. It is pertinent to note 18 numbers of

organizations had picked up the documents for purposes of submission of proposal. Eight

organizations submitted the proposal.

Presently other than M/s.Adani and M/s.India Bulls there are other private generators such as

JSW, Abhijeet, VIPL, etc. Also, MAHAGENCO is in the process of setting up other power

plants. Only seven plants have been approved for PPA between MSEDCL and

MAHAGENCO. The rest of the plants will have to go via competitive bidding method only.

Also, NTPC‟s matter of PPA‟s before CERC. If lost by NTPC they will have to follow the

competitive bidding route only.

As such, accepting the proposal of MSEDCL effectively means denying the opportunity to

three sets of players for long term power purchase namely:-

1) Private Players such as JSW, VIPL, etc

2) MAHAGENCO

3) NTPC

Please find attached herewith CERC draft notification regarding "Prevention of Adverse

effect on competition". The last date of submission of comments is on 20th Sept, 2012 which

will be notified subsequently.

3. Some of the clauses are as follows:-

___________________________________________________________________________


a) The Central Commission may issue appropriate directions to any licensee or generating

company if such licensee or generating company enters into an agreement which causes or is

likely to cause an adverse effect on competition in the electricity industry.

b) Have due regard to all or any of the following factors, namely: -

-creation of barriers to new entrants in the market;

-foreclosure of competition in the market;

c) The Central Commission may issue appropriate directions to a licensee or generating

company which on its own or jointly with other licensee or generating company abuses its

dominant position causing an adverse effect on competition in the electricity industry.

d) Abuse of dominant position having an adverse effect on competition in the electricity

industry under sub-regulation (1), means and includes a situation where a licensee or

generating company, singly or jointly with another licensee or generating company:-directly

or indirectly, imposes unfair or discriminatory price in purchase or sale (including predatory

price) of electricity or services related thereto indulges in practice or practices resulting in

denial of market access including denial to any infrastructural facility in any manner; or

e) Have due regard to all or any of the following factors, namely -relative advantage, by

way of the contribution to the economic development, by the licensee or generating company

enjoying a dominant position having or likely to have an adverse effect on competition;

The Central Commission may issue appropriate directions to a licensee or generating

company which enters into a combination which causes or is likely to cause an adverse effect

on competition in the electricity industry. Commission shall have due regard to all or any of

the following factors, namely:- extent to which alternative sources of supply are available or

are likely to be available in the market; likelihood that the combination would result in the

removal of a vigorous and effective competitor or competitors in the market; impact on long

term power system planning;

It is important to note that CERC is coming out with anti- competition notification.

Hence, it is not advisable to shut out the competition.

3. Request for proposal:-

Eight numbers of proposals were submitted. However, four qualified. Yet only three formed

the merit order purchase and the fourth one could not fall in line.

___________________________________________________________________________


Presently the fourth, which could not fall in line, is being accepted for to supply power.

4. Evaluation by a committee:-

Refer competitive bidding guideline point (5.9) which reads as follows:-

The procurer shall constitute a committee for evaluation of the bids with a least one member

external to the procurer‟s organization and affiliates. The external member shall have

expertise in financial matters / bid evaluation. The procurer shall reveal past associations with

the external member – directly or through its affiliates – that could create potential conflict of

interest.

In the present case no bids have been called for. Hence, constitution of the committee has not

been done. As such external member with expertise in financial matters / bid evaluation is

totally absent. However, it is been argued that a cabinet sub-committee has negotiated and

accepted the rate extension offered by the earlier bidders. The evaluation committee cannot

be substituted by cabinet sub-committee and MSEDCL.

5. Approval of PPA:-

After the first four stages are complete then only the question of approval of PPA comes into

picture. However, without following the first four stages MSEDCL has come before the

commission for approval.

Two earlier similar cases where commission has already passed orders

Case A of MSEDCL

MSEDCL had come before the commission for additional 125MW approval, after 2600MW

of power was decided.

Case No.56 of 2010, Dated: 19th

May, 2011. Commission stated as follows:-

In point no: 27

As regards the process of procurement of additional quantum of 125 MW from Adani Power

Maharashtra Ltd. on the basis of recently concluded Competitive Bidding process for

procurement of 2600 MW power on Long term basis under Case 1 Stage 2, the Commission

is of the view that procurement of additional quantum on the same terms and

___________________________________________________________________________


conditions is not emphasized in the Guidelines and tariff discovered should be on the

market conditions prevailing at that point of time.

In point no: 30

As quantum of procurement of power is less and it is not advisable to start a fresh

process of procurement of power of 125 MW through Competitive Bidding process,

therefore, as a special case the Commission approves the adoption of tariff for additional

power procurement of 125 MW from Adani Power Maharashtra Ltd. at a levellised tariff of

Rs. 3.28/kWh within same terms and conditions as indicated in Case I Stage 2 PPA entered

by Adani Power Maharashtra Ltd. However, the present process should not create

precedence in the future power procurement for medium term or long term for

approval of tariff, above the Commission approved quantum for Distribution Licensees in

the State.

It can be seen that commission has observed that there is no provision of additional quantum

of energy on the same terms and conditions in competitive bidding guidelines. Also, though

commission approved 125MW additional quantum of power it has made amply clear that this

should not create precedence for future medium term and long term approval.

Case B of M/s. Reliance

M/s. Reliance had come before the commission for additional 550MW approval, after

449MW of power was decided.

Case No.29 of 2011, Dated: 23rd Sept, 2011. Commission stated as follows:-

In point no: 28

By Order dated July 21, 2009 in Case No.94 of 2008, the approval was granted by the

Commission on the quantum to be procured through competitive bidding process under Case-

I bidding for FY 2010-11 to FY 2013-14. Thereafter, a request for proposal document was

issued by RInfra on July 30, 2009. A total quantum of 260 MW + 55 MW + 134 MW = 449

MW was contracted for by RInfra with WPCL, AMNEPL and R-Power (VIPL) respectively.

These parties were selected through the competitive bidding process. Thereafter, the

aforesaid quantum contracted with the aforesaid parties also came to be upheld by the

Commission in its various Orders. As against its total quantum requirement vis-à-vis 449

MW as contracted with different parties, there remained a gap of around 550 MW. To

bridge this gap RInfra directly approached GEPL as well as JSWEL for additional

quantum. This petition, however, is only concerned with procurement from GEPL.

In point no: 29

___________________________________________________________________________


Admittedly, the offer from GEPL did not come through competitive bidding process

despite the total quantum requirement having been approved by the Commission on an

earlier occasion on a petition filed by RInfra for procurement through competitive

bidding process. A question would, therefore, arise as to whether a direct bilateral off-take

contract could be permitted, particularly when the overall quantum to be procured under

medium term through competitive bidding process in accordance with the guidelines issued

by the Central Government, has been approved by the Commission vide Order dated July 21,

2009 in Case No. 94 of 2008? In these circumstances, an approval under section 86 (1) (b)

cannot be granted in isolation. There has to be a fair play in action. If a gap arises, vis-à-vis

the total power procurement quantum approved by the Commission to be contracted through

competitive bidding, the gap must be met through competitive bidding only. The efforts to

procure power through competitive bidding cannot be a sham. There is no question of

granting in-principle approval as sought for under the present petition in the aforesaid

circumstances. It is not only a question of procuring power at negotiated lower rates for the

benefit for consumers, but it is also a question of upholding the sanctity of Section 63 of the

2003 Act which lays down the requirement of transparent process of bidding in accordance

with the guidelines issued by the Central Government.

Commission has categorically stated that GEPL did not come through competitive bidding

process. The case is identical in respect of M/s. Adani and M/s. India Bulls.

Commission cannot adopt two different set of rules, one for MSEDCL and another for

Reliance. Commission has used the word sham for direct approach instead of via competitive

bidding.

Other points argued

1. The rate offered is lower than discovered in other states in medium term power purchase.

Hence, they are in consumer interest.

2. If this power is not purchased then both the projects will become stranded assets.

3. The generated power is near the load centre.

4. Cabinet sub-committee of state govt. has approved the purchase of this power.

The Counter points for the above are as follows:-

1. The rates discovered in short term power purchase by MSEDCL are much lower than

medium term power purchase projected by M/s. Adani. A simple principle needs to be

adopted that the long term power purchase rates will have t be lower than medium term. And

medium term will have to be lower than short term. Also it is pertinent to note the

___________________________________________________________________________


commissions opinion in M/s. Reliance Case No.29 of 2011, Dated: 23rd

Sept, 2011 as

follows:-

Point No: 29

―It is not only a question of procuring power at negotiated lower rates for the benefit for

consumers, but it is also a question of upholding the sanctity of Section 63 of the 2003

Act which lays down the requirement of transparent process of bidding in accordance

with the guidelines issued by the Central Government.‖

2. The investment policy in the state is a subject matter of the state. It cannot be that of

MSEDCL and also its consumers. Any benefits given for the development will have to come

from the state and not at the cost of consumers. As such if the assets are stranded then the

remedy lies with the state and not commission.

M/s. Adani had not offered 440MW which they are offering now in Case no.53.

It is essential to note that M/s. India bulls Nasik could not appear in merit order purchase of

2600MW due to higher cost. They are offering same 1200MW once again.

Hence, M/s. India bulls and M/s. Adani both the parties already knew about likely stranded

assets even three years back i.e 2009. As such this being stranded asset does not hold water

today.

3. Maharashtra gets of its 13000MW requirement about 5000MW from outside the state.

Hence, power generation near the load centre certainly helps. But that can be the sole criteria

of power purchase.

4. Competitive bidding guideline have clearly stated about evaluation committee. This

committee will consist of one external member. The evaluation is done after following the

due process of the guideline. As such cabinet sub-committee cannot substitute the prevailing

guidelines. The approval of cabinet sub-committee is an internal matter of MSEDCL since it

is govt. owned. Commission cannot subjugate this role to cabinet sub-committee.

Recently Coal India has specifically said that they will sign FSA if the generating company

has PPA with the utility. This has been further modified as they will sign FSA but PPA

should be in place when actually delivery of coal starts. In the absence of FSA only choice

for generators is E-auction and or Imported coal. Hence it appears this is the back door entry

to achieve FSA.

Case No: Civil Appeal No(s).7600 of 2012

Date of Decision (mm/ dd / yy): 10/19/2012

___________________________________________________________________________


Appearing Advocate(s): For the Appearing Parties: L. Nageswara Rao and Ravindra

Shrivastava, Sr. Advocates, Gaurav Bhatia, AAG, Shail Kr. Dwivedi, Gunna Venkateswara

Rao, Sanjay Kumar Visen, Santhosh Krishnan, Prashant Bhushan, Devvrat, C.D. Singh, Ms.

Ayesha Chaudhry, Prashant Chaudhary, Anoop Jain and Anshuman Srivastava, Advocates

Our Citation: 2012 SCCL.COM 532

The issue before Supreme Court was section 85(5) which states as, ―The selection

Committee shall satisfy itself that such person does not have financial or other

interest…….‖ The onus was on selection Committee; however selection committee left this

function to the govt. to decide. When the responsibility is with the Committee, it has to play

the role. It cannot subjugate this role to the govt. The judgment is as follows:-

21. We are of the view that non-compliance of sub-section (5) of Section 85 of the Act is not

a procedural violation, as it affects the very substratum of the appointment, being a

mandatory requirement to be complied with, by the Selection Committee before

recommending a person for the post of Chairperson. We are of the view that non-compliance

of sub-section (5) of Section 85 of the Act will vitiate the entire selection process since it is

intended to be followed before making the recommendation to the State Government. Non-

compliance of mandatory requirements results in nullification of the process of selection

unless it is shown that performance of that requirement was impossible or it could be

statutorily waived. The expression “before recommending any person” clearly indicates that

it is a mandatory requirement to be followed by the Selection Committee before

recommending the name of any person for the post of Chairperson. The expression “before”

clearly indicates the intention of the Legislature. The meaning of the expression “before”

came for consideration before this Court in State Bank of Travancore v. Mohammad (1981) 4

SCC 82 where the words “any debt due at and before the commencement of this Act to any

banking company” as occurring in section 4(1) of the Kerala Agriculturist Debt Relief Act,

1970, were construed by the Supreme Court to mean “any debt due at and before the

commencement of this Act”. We, therefore, find it difficult to accept the contention of

learned senior counsel that this, being a procedural provision and non- compliance of sub-

section (5) of Section 85 of the Act, is a defect curable by sending the recommendation back

to the Selection Committee for compliance of sub-section (5) of Section 85 of the Act.

Justice: Deepak Mishra stated as follows:-

12. On a plain reading of the provision it is clear as crystal that the Selection Committee is

obliged in law to satisfy itself with regard to various aspects as has been stipulated under sub-

section (5) of Section 85 of the Act. It is perceptible that the said exercise has not been

undertaken. It is worthy to note that the Act has a purpose. It has been enacted to consolidate

the laws relating to generation, transmission, distribution, trading and use of electricity and

generally for taking measures conducive to development of electricity industry, promoting

competition therein, protecting interest of consumers and supply of electricity to all areas,

rationalization of electricity tariff, ensuring transparent policies regarding subsidies,

___________________________________________________________________________


promotion of efficient and environmentally benign policies, constitution of Central Electricity

Authority, Regulatory Commissions and establishment of Appellate Tribunal and for matters

connected therewith or incidental thereto. Ergo, the provisions engrafted in the Act have

their sacrosanctity.

18. I have referred to the aforesaid pronouncements only to highlight that Section 85(5) of the

Act has inherent inviolability and every word used therein has to be understood in the context

regard being had to the legislative intendment. There has to be concentrated focus on the

purpose of legislation and the text of the language, for any deviation is likely to bring in

hazardous results.

24. It is necessary to state here that in many an enactment the legislature has created

regulatory bodies. No one can be oblivious of the fact that in a global economy the trust on

the regulators has been accentuated. Credibility of governance to a great extent depends on

the functioning of such regulatory bodies and, therefore, their selection has to be in total

consonance with the statutory provisions. The same inspires public confidence and helps in

systematic growth of economy. Trust in such institutions helps in progress and distrust

corrodes it like an incurable malignancy. Progress is achieved when there is good governance

and good governance depends on how law is implemented. Keeping in view the objects and

reasons and preamble of the Act and the functions of the Commission, it can be stated with

certitude that no latitude can be given and laxity can have no allowance when there is total

violation of the statutory provision pertaining to selection. It has been said long back “a

society is well governed when the people who are in the helm of affairs obey the command of

the law”. But, in the case at hand the Selection Committee has failed to obey the mandate of

the law as a consequence of which the appellant has been selected and, therefore, in the

ultimate eventuate the selection becomes unsustainable.

25. It is manifest in the selection of the appellant that there is absence of “intellectual

objectivity” in the decision making process. It is to be kept in mind a constructive intellect

brings in good rationale and reflects conscious exercise of conferred power. A selection

process of this nature has to reflect a combined effect of intellect and industry. It is because

when there is a combination of the two, the recommendations as used in the provision not

only serves the purpose of a “lamp in the study” but also as a “light house” which is shining,

clear and transparent.

27. In view of the aforesaid analysis, I conclude that there has been total non-compliance of

the statutory provision by the Selection Committee which makes the decision making process

vulnerable warranting interference by the constitutional courts and, therefore, the High Court

is justified in holding that the appointment is non est in law.

As such the pertinent question arises of section 63 in the light of above Judgment is regarding

observation of statutory provisions. Justice Mishra states in the above Judgment as follows:-

the provisions engrafted in the Act have their sacrosanctity.

___________________________________________________________________________


Section 63 reads:-

The appropriate commission shall adopt the tariff if such tariff has been determined

through transparent process of bidding in accordance with the guidelines issued by the

central govt.

The emphasis is on the word if. It is for the appropriate commission to oversee, conditions

after “IF” have been complied with. This role commission cannot subjugate neither to govt

nor to sub-committee of the cabinet nor to utility ( MSEDCL). It is for the commission to

certify that transparent process of bidding in accordance with the guidelines issued by

the central govt has been observed. Then and only then adoption of such tariff comes into

existence.

It is necessary to evaluate the same.

1. Was the process transparent?

2. Was it a bidding?

3. Were the guidelines issued by central govt observed?

1. Was the process transparent?

The demand of 2600MW was met. MSEDCL wants additional 1090MW. This demand has

not been approved by the commission. Neither advertised nor bidding taken place. As such

no other organization is aware and hence in a position to participate in this process. Thus, this

process cannot be called transparent.

2. Was it a bidding?

3. Were the guidelines issued by central govt observed?

The bids were not called for. Hence the question of following guidelines does not arise. As

such answer to both the questions is emphatic “NO”.

The mandate of Section 63 for commission is to verify that transparent process of bidding

in accordance with the guidelines issued by the central govt has been observed. There is

no provision that this mandate can be given to govt or cabinet sub-committee or MSEDCL.

From the earlier quoted Supreme Court Judgment the role of the commission comes out very

prominently. If the answer to the question is NO then the question of adopting tariff doesn‟t

arise, Also it does not mandate signing of PPA.

Hence, the Prayer:-

1. The mandatory observance of Section 63 , conditions have not been fulfilled. It is for the

Commission to certify that conditions after the word „IF‟ are fulfilled. So if 63 is not

fulfilled, then signing of PPA with adopted Tariff can not be undertaken.

___________________________________________________________________________


2. Commission should reject the petition in Case No.53 of 2012 of MSEDCL in respect of

approval of additional power from M/s. Adani and M/s. India bulls.

Ashok Pendse,,TBIA.

2012 SCCL.COM 532

SUPREME COURT OF INDIA

Hon'ble Mr. Justice K.S. Radhakrishnan and Hon'ble Mr. Justice Dipak Misra

Rajesh Awasthi Appellant

versus

Nand Lal Jaiswal & others Respondents

Case No: Civil Appeal No(s).7600 of 2012 Date of Decision(mm/dd/yy):10/19/2012

Appearing Advocate(s): For the Appearing Parties : L. Nageswara Rao and Ravindra

Shrivastava, Sr. Advocates, Gaurav Bhatia, AAG, Shail Kr. Dwivedi, Gunna

Venkateswara Rao, Sanjay Kumar Visen, Santhosh Krishnan, Prashant Bhushan,

Devvrat, C.D. Singh, Ms. Ayesha Chaudhry, Prashant Chaudhary, Anoop Jain and

Anshuman Srivastava, Advocates

Our Citation: 2012 SCCL.COM 532

Subject Index

Electricity Act, 2003 — section 85(5) — whether the High Court was justified in

issuing a writ of quo warranto holding that the appellant has no authority in

continuing as Chairperson of U.P. State Electricity Regulatory Commission on the

ground that the Selection Committee had not complied with sub-section (5) of

Section 85 of the Act, 2003 — yes — the powers conferred under sub-section (5) of

Section 85 of the Act has to be exercised by the Selection Committee alone and not

by the Government. The Selection Committee has given a complete go-by to that

provision and entrusted that function to the State Government which is legally

impermissible. The State Government also, without application of mind and

overlooking that statutory provision, appointed the appellant — the Supreme

Court held that non-compliance of mandatory requirements results in nullification

of the process of selection and, therefore, the High Court is justified in holding that

the appointment is non est in law — appeal dismissed.

JUDGMENT / ORDER

J U D G M E N T

K. S. RADHAKRISHNAN, J. 1. Leave granted.

2. We are, in this case, concerned with the question whether the High Court was justified

in issuing a writ of quo warranto holding that the appellant has no authority in

___________________________________________________________________________


continuing as Chairperson of U.P. State Electricity Regulatory Commission (for short

„the Commission‟) on the ground that the Selection Committee had not complied with

sub-section (5) of Section 85 of the Electricity Act, 2003 (for short „the Act‟).

3. The post of the Chairperson of the Commission fell vacant on 21.10.2008. The

government of Uttar Pradesh, in exercise of its powers conferred under Section 85(1) of

the Act, constituted a Selection Committee vide notification dated 22.12.2008 consisting

of three members headed by a retired judge of the High Court and two other members

i.e. Chief Secretary of the State of U.P. and Chairman of the Central Electricity

Commission for finalizing the selection of the Chairperson. Applications were invited

intimating various authorities including Ministry of GOI, CAG, CEA, all the Secretaries

of Power working in different States in the country, CBDT, PSUs power sectors etc.

Thirty persons applied for the post including the appellant. The meeting of the Selection

Committee was held on 26.12.2008 and Selection Committee selected two persons on

merit, namely, the appellant and one Mr. Amit Kumar Asthana. Panel of two names was

forwarded by the Selection Committee to the government of U.P. with an asterisk

against the name of the appellant stating that if he was appointed, the government would

ensure first that the provisions of sub-section (5) of Section 85 of the Act would be

complied with. The government appointed the appellant as the Chairman of the

Commission on 29.12.2008. The appellant on that date sent a letter to the State

Government stating that he had resigned from his previous assignments on 27.12.2008

and severed all his links with the private sector as required under Section 85 of the Act.

4. The first respondent herein who was the General Secretary, Jal Vidyut Unit, filed a

writ petition before the High Court of Allahabad, Lucknow Bench seeking a writ of quo

warranto, challenging the appointment of the appellant on various grounds. Apart from

the contention that the Selection Committee had not followed the provisions contained in

sub-section (5) of Section 85 of the Act, it was also alleged that the appellant could not

have been selected since he was working as the Joint President of the J.P. Power

Ventures Ltd at the time of selection, hence he had financial and other interests in that

company which would prejudicially affect his functions as the Chairperson of the

Commission. Further, it was also pointed out that the procedure laid down in U.P.

Electricity Regulatory Commission (Appointment and Conditions of Service of the

Chairperson and Members) Rules, 1999 (for short „the 1999 Rules‟) were also not

complied with before initiating the selection process. The appellant questioned the locus

standi of the first respondent and contended that he was not an aspirant for the post and

that the writ petition was filed after a period of more than two years after his assumption

of charge as Chairperson of the Commission. Referring to the minutes of the Selection

Committee dated 26.12.2008, it was pointed out that the selection was validly made and

the appellant was ranked first in panel on merit and sub-section (5) of Section 85 was

also complied with. Further, it was stated that the appellant had no financial or other

interests in J.P. Power Venture Ltd. so as to prejudicially affect his functions as

Chairperson. In any view, it was pointed out that he had resigned from that post on

___________________________________________________________________________


27.12.2008.

5. The High Court after considering the rival contentions came to the conclusion that the

Selection Committee had failed to follow the provisions of sub-section (5) of Section 85

of the Act, hence the appointment was vitiated and the appellant had no authority to hold

the post of Chairperson. Further, it was also found that the Selection Committee had no

power to delegate the powers conferred on it under Section 85(5) of the Act to the State

Government. The court also held that the first respondent had sufficient locus standi to

move the writ petition and the delay in approaching the court was not a ground, since a

person who had been appointed contrary to a statutory provisions had no legal right to

hold on to that post. The High Court, therefore, allowed the writ petition, issued a writ of

quo warranto and quashed the appointment of the appellant declaring the same as illegal

and void.

6. Shri L. Nageswara Rao, learned senior counsel appearing for the appellant submitted

that the High Court has committed an error in holding that the appointment of the

appellant was in violation of sub-section (5) of Section 85 of the Act. Learned senior

counsel took us through the minutes of the Committee meeting held on 26.12.2008 and

pointed out that the Selection Committee, after examination of the bio-data of 30

candidates, prepared a panel in which the appellant‟s name was shown as first in the

order of merit. The Selection Committee, according to learned counsel, was very much

aware of the fact that the appellant was the joint Vice President of J.P. Power Venture

Ltd. and hence had put an asterisk against his name and reminded the State Government

that if he was to be appointed, the provisions of sub-section (5) of Section 85 of the Act

be first ensured. Learned senior counsel, therefore, submitted that there was substantial

compliance of that provision and in any view it is only a curable defect, procedural in

nature and a writ of quo warranto be not issued, being a discretionary remedy. Referring

to the judgment of this Court in University of Mysore & Anr. v. C.D. Govinda Rao &

Anr. (1964) 4 SCR 575, learned senior counsel submitted that the suitability arrived at

by the Committee is not a matter amenable to proceedings under quo warranto. Learned

senior counsel also referred to the judgments of this Court in Mahesh Chandra Gupta

vs. Union of India (2009) 8 SCC 273 , Hari Bansh Lal v. Sahodar Prasad Maht and

others (2010) 9 SCC 655.

7. Learned senior counsel submitted that, in any view of the matter, writ of quo warranto

will not lie where the breach in question is curable, hence procedural in nature.

Assuming there is non-compliance of sub- section (5) of Section 85 of the Act, the

matter can be relegated back to Selection Committee for due compliance of that

provision. Learned senior counsel also submitted that the writ of quo warranto is a

discretionary remedy and hence such a course can be adopted by this Court. Reference

was also made to the judgment of this Court in B. Srinivasa Reddy v. Karnataka Urban

Water Supply & Drainage Board Employees Associaition (2006) 11 SCC 731.

8. Mr. Prashant Bhushan, learned counsel appearing for the first respondent submitted

___________________________________________________________________________


that the High Court has rightly issued the writ of quo warranto after having found that

the appointment was made in gross violation of sub-section (5) of Section 85 of the Act.

Learned counsel submitted that even the procedure laid down in 1999 Rules was also not

complied with. Learned counsel referring to the bio-data of the applicants for the post of

Chairperson tried to make a comparison of the merit of other candidates and submitted

that many of the candidates who had applied were far superior to the appellant. Learned

counsel also submitted that the appellant was appointed due to extraneous reasons and

the merit was not properly assessed, leave aside, the non-compliance of sub-section (5)

of Section 85 of the Act and 1999 Rules. Learned counsel also pointed out that since the

appellant was Joint President of the J.P. Power Venture Ltd. - a private company at the

time of selection, he was disqualified in occupying the post of Chairperson since he had

financial and other interest which would prejudicially affect his functions as

Chairperson. Mr. Ravindra Shrivastava, learned senior counsel appearing for the state of

U.P. submitted that the appointment of the appellant was in violation of sub-section(5) of

Section 85 of the Act and the 1999 Rules and the State is taking steps to conduct fresh

selection after complying with the provisions of the Act and 2008 Rules, which is in

force.

9. We heard learned counsel appearing on either side. The locus standi of the first

respondent or the delay in approaching the writ court seeking a writ of quo warranto was

not seriously questioned or urged before us. The entire argument centered around the

question whether there was due compliance of the provisions of sub-section (5) of

Section 85 of the Act. Section 85 is given for ready reference:

―SECTION 85: Constitution of Selection Committee to select Member of the State

Commission :

(1) The State Government shall, for the purposes of selecting the Members of the State

Commission, constitute a Selection Committee consisting of –

(a) a person who has been a Judge of the High Court… . Chairperson;

(b) the Chief Secretary of the concerned State… .Member;

(c) the Chairperson of the Authority or the Chairperson of the Central Commission … …

… … .. Member:

Provided that nothing contained in this section shall apply to the appointment of a

person as the Chairperson who is or has been a Judge of the High Court.

(2) The State Government shall, within one month from the date of occurrence of any

vacancy by reason of death, resignation or removal of the Chairperson or a Member and

six months before the superannuation or end of tenure of the Chairperson or Member,

make a reference to the Selection Committee for filling up of the vacancy.

___________________________________________________________________________


(3) The Selection Committee shall finalise the selection of the Chairperson and Members

within three month from the date on which the reference is made to it.

(4) The Selection Committee shall recommend a panel of two names for every vacancy

referred to it.

(5) Before recommending any person for appointment as the Chairperson or other

Member of the State Commission, the Selection Committee shall satisfy itself that such

person does not have any financial or other interest which is likely to affect prejudicially

his functions as Chairperson or Member, as the case may be.

(6) No appointment of Chairperson or other Member shall be invalid merely by reason

of any vacancy in the Selection Committee.”

10. The Electricity Act, 2003 is an Act enacted to consolidate the laws relating to

generation, transmission, distribution, trading and use of electricity and generally for

taking measures conducive to development of electricity industry, promoting

competition therein, protecting interest of consumers and supply of electricity to all

areas, rationalization of electricity tariff etc. The Act also envisages the constitution of

Central Electricity Authority, Regulatory Commission and establishment of Appellate

Tribunal etc. The State Electricity Regulatory Commission (for short „the State

Commission‟) is constituted under sub-section (1) of Section 82 of the Act. Sub-section

(5) of Section 85 of the Act states that the Chairperson and Members of the State

Commission shall be appointed by the State Government on the recommendation of a

Selection Committee as per Section 85 of the Act. Section 84 of the Act deals with the

qualifications for appointment of Chairperson and Members of the State Commission

which reads as follows:

―84. Qualifications for appointment of Chairperson and Members of State

Commission:

(1) The Chairperson and the Members of the State Commission shall be persons of

ability, integrity and standing who have adequate knowledge of, and have shown

capacity in, dealing with problems relating to engineering, finance, commerce,

economics, law or management.

(2) Notwithstanding anything contained in sub-section (1), the State Government may

appoint any person as the Chairperson from amongst persons who is, or has been, a

Judge of a High Court.”

11. The Chairperson, therefore, shall be a person of ability, integrity and standing and

has adequate knowledge of, and has shown capacity in, dealing with problems relating to

engineering, finance, commerce, economics, law or management. The Selection

Committee, as per Section 85, has to recommend a panel of two names for filling up the

___________________________________________________________________________


post of the Chairperson, but before recommending any person for appointment as the

Chairperson, the Selection Committee has to satisfy itself that such person does have any

financial or other interest which is likely to affect prejudicially his functions as

Chairperson. The State Government under Section 82(5) of the Act has to appoint the

Chairperson on the recommendation of the Selection Committee.

12. We have gone through the minutes of the Selection Committee meeting dated

26.12.2008 and also the bio-data of the applicants for the post of Chairperson of the

State Commission. Reference to the bio data of some of the candidates is useful, hence

given below:

Bio-data of applicants for the post of Chairperson

U.P.E.R.C.

S.No.a

nd

name

Dat

e of

Birt

h

Educational Qualification

Retd.

From Post Holding Experience Academ

ic

Professiona

l specialization

1. S.K.

Shukla

01-

01-

195

0

BE

(Mech.Eng

g.

ME

(Prod.Engg.)

Director

(Technical) Tehri

Hydro Devpt.

Corporation

33 years in

T.H.D.C.

3. Anil

Kumar

Asthan

a

29-

07-

195

2

B.

Tech.(Elect

rical)

M.Tech

(Power App.

& Systems)

Chief Engr.

System planning

& Project

appraisal CEA

33 Years in

CEA

Transmission

and grid

opration

18.

U.C.

Misra

31-

07-

194

9

B.E.

(Electri-

cal

Engg.)

Chairman Bhakra

Beas

Management

Board

4.5 Years

UPSEB, 15

Years NHPC,

16 Years

PGCIL, 2 Years

Chairman

BBMB

20.Raje

sh

Awasth

i

19-

01-

195

0

Civil &

Munici

pal

Engg.

Graduat

e

Joint President

J.P.Power

Ventures

3 Years Central

Designs

Organization

Government of

Maharashtra,

7.5 Years

Mining

& Allied

Machinery Co.

Ltd., W.B., 24.5

Years NTPC,

___________________________________________________________________________


Joint

President J.P.

Power Ventures

Ltd. from

17.11.08

21.

S.M.

Agarwa

l

15-

06-

194

9

B.Sc.(E

lec.Eng

g.)

M.Sc.(Elec

Engg.)

D.G.

(Trg.&HRD)

UPPCL

36 Years

UPSEB /

UPPCL

24.

Dr.Man

Mohan

01-

08-

194

6

B.E.(El

ect.)

M.E.(Powe

r System)

Ph.D.

(Commercial

Availability

Index of

Power Plant)

Member

(Technical)

Gujarat ERC

29.5 Years in

CEA,

3 Years NTPC,

2 Years

as Engr, Grade-

I, Govt. of

Libya, 4 Years

in Gujrat ERC.

13. Illustrative bio-data of some of the candidates would indicate their academic

qualifications, professional experience including the area of specialization. Appellant‟s

qualification, experience and the fact that he was the Joint President of J.P. Power

Ventures Ltd., was also indicated. The Selection Committee has put an asterisk against

his name and then left it to the government to ensure the compliance of sub-section (5)

of Section 85 of the Act.

14. We will examine the meaning and content of Section 85(5) and whether it calls for

any interpretation. Lord Brougham in Crowford v. Spooner (1846) 6 Moore PC 1 has

stated that “one has to take the words as the Legislature has given them, and to take the

meaning which the words given naturally imply, unless where the construction of those

words is, either by the preamble or by the context of the words in question controlled or

altered”. Viscount Haldane in Attorney General v. Milne (1914-15) All England Report

1061 has held that the language used “has a natural meaning, we cannot depart from that

meaning unless, reading the statute as a whole, the context directs us to do so”. Viscount

Simon, L.C. in Nokes v. Dancaster Amalgamated Collieries Ltd. (1940) 3 All England

Report 549 has held “the golden rule is that the words of a statute must prima facie be

given their ordinary meaning”. Above principles have been repeated umpteen times by

the House of Lords and this Court and hence, calls for no further elucidation.

15. We are clear in our mind about the language used in sub-section (5) of Section 85 of

the Act, which calls for no interpretation. Words are crystal clear, unambiguous and

___________________________________________________________________________


when read literally, we have no doubt that the powers conferred under sub-section (5) of

Section 85 of the Act has to be exercised by the Selection Committee and the Committee

alone and not by the Government. Some of the words used in sub-section (5) of Section

85 are of considerable importance, hence, we give some emphasis to those words such as

“before recommending”, “the Selection Committee shall satisfy” and “itself”. The

Legislature has emphasized the fact that „the Selection Committee itself has to satisfy‟,

meaning thereby, it is not the satisfaction of the government what is envisaged in sub-

section (5) of Section 85 of the Act, but the satisfaction of the Selection Committee. The

question as to whether the persons who have been named in the panel have got any

financial or other interest which is likely to affect prejudicially his functions as

Chairperson, is a matter which depends upon the satisfaction of the Selection Committee

and that satisfaction has to be arrived at before recommending any person for

appointment as Chairperson to the State Government. The government could exercise its

powers only after getting the recommendations of the Selection Committee after due

compliance of sub-section (5) of Section 85 of the Act. The Selection Committee has

given a complete go-by to that provision and entrusted that function to the State

Government which is legally impermissible. The State Government also, without

application of mind and overlooking that statutory provision, appointed the appellant.

16. A writ of quo warranto will lie when the appointment is made contrary to the

statutory provisions. This Court in Mor Modern Coop. Transport Coop. Transport

Society Ltd. v. Govt. of Haryana (2002) 6 SCC 269 held that a writ of quo warranto can

be issued when appointment is contrary to the statutory provisions. In B. Srinivasa

Reddy (supra), this Court has reiterated the legal position that the jurisdiction of the High

Court to issue a writ of quo warranto is limited to one which can only be issued if the

appointment is contrary to the statutory rules. The said position has been reiterated by

this Court in Hari Bans Lal (supra) wherein this Court has held that for the issuance of

writ of quo warranto, the High Court has to satisfy that the appointment is contrary to the

statutory rules.

17. We are of the view that the principle laid down by this Court in the above-mentioned

judgment squarely applies to the facts of this case. The appointment of the first

respondent, in our considered view, is in clear violation of sub-section (5) of Section 85

of the Act. Consequently, he has no authority to hold the post of Chairperson of the U.P.

State Electricity Regulatory Commission.

18. We express no opinion with regard to the contentions raised by the first respondent

that the appellant had links with J.P. Power Ventures Ltd. According to the first

respondent, the appellant had approved the higher tariff right to favour M/s J.P. Power

Ventures Ltd., vide his order dated 27.8.2010. We have already found that the question

as to whether, being Vice President of the J.P. Power, the appellant had any financial or

other interest which would prejudicially affect his function as chairperson was an issue

which the Selection Committee ought to have considered. We may point out that when

the Selection Committee was constituted, 1999 Rules were in force and the present 2008

___________________________________________________________________________


Rules came into force only on 1.1.2009. By virtue of Section 85 of the Act, the then

existing Rules 1999 were also safeguarded. Section 3 of the 1999 Rules deals with the

selection process for the post of Chairperson, which is almost pari-materia to the 2008

Rules. Sub-section (3) of Rule 3 is of some relevance, hence we extract the same:

“3 (3) The convener shall sand requisition for the selection of any member for the

aforesaid posts to different departments of State Governments and Central Govt., Public

and Private Undertakings, Industrial Enterprises and to Organisation engaged in

generation, distribution and supply of electricity, financial institutions, educational

institutions and to the High Court and shall also invite applications directly from eligible

persons by notifying the vacancy in the Government Gazette. The eligible persons may

send their applications directly or through an officer or authority under whom he is for

the time being working.”

19. The above-mentioned statutory requirements were also not followed in the instant

case, over and above, the non-compliance of sub-section (5) of Section 85 of the Act.

20. We fully agree with the learned senior counsel for the appellant that suitability of a

candidate for appointment does not fall within the realm of writ of quo warranto and

there cannot be any quarrel with that legal proposition. Learned senior counsel also

submitted that, assuming that the Selection Committee had not discharged its functions

under sub-section (5) of Section 85 of the Act, it was only an omission which could be

cured by giving a direction to the Selection Committee to comply with the requirement

of sub-section (5) of Section 85 of the Act. Learned senior counsel submitted that since

it is a curable irregularity, a writ of quo warranto be not issued since issuing of writ of

quo warranto is within the discretion of the Court. Learned senior counsel made

reference to the judgment of Court in R. v. Speyer (1916) 1 K.B. 595.

21. We are of the view that non-compliance of sub-section (5) of Section 85 of the Act is

not a procedural violation, as it affects the very substratum of the appointment, being a

mandatory requirement to be complied with, by the Selection Committee before

recommending a person for the post of Chairperson. We are of the view that non-

compliance of sub-section (5) of Section 85 of the Act will vitiate the entire selection

process since it is intended to be followed before making the recommendation to the

State Government. Non-compliance of mandatory requirements results in nullification of

the process of selection unless it is shown that performance of that requirement was

impossible or it could be statutorily waived. The expression “before recommending any

person” clearly indicates that it is a mandatory requirement to be followed by the

Selection Committee before recommending the name of any person for the post of

Chairperson. The expression “before” clearly indicates the intention of the Legislature.

The meaning of the expression “before” came for consideration before this Court in

State Bank of Travancore v. Mohammad (1981) 4 SCC 82 where the words “any debt

due at and before the commencement of this Act to any banking company” as occurring

in section 4(1) of the Kerala Agriculturist Debt Relief Act, 1970, were construed by the

___________________________________________________________________________


Supreme Court to mean “any debt due at and before the commencement of this Act”.

We, therefore, find it difficult to accept the contention of learned senior counsel that this,

being a procedural provision and non- compliance of sub-section (5) of Section 85 of the

Act, is a defect curable by sending the recommendation back to the Selection Committee

for compliance of sub-section (5) of Section 85 of the Act.

22. We are, therefore, in agreement with the High Court that the appointment of the

appellant was in clear violation of sub-section (5) of Section 85 of the Act and,

consequently, he has no authority to hold the post of the Chairperson of the Commission

and the High Court has rightly held so. This appeal, therefore, lacks merits and the same

is dismissed with no order as to costs.

J U D G M E N T

Dipak Misra, J I have my respectful concurrence with the conclusion and the views

expressed by my learned Brother Radhakrishnan, J. However, regard being had to the

importance of the matter, I propose to record my views in addition.

2. As is evincible from the factual exposition, a writ of quo warranto has been issued by

the High Court of Allahabad, Bench at Lucknow declaring that the appellant is not

entitled to continue as the Chairperson of U.P. State Electricity Regulatory Commission

(for short „the State Commission‟) on the foundation that there had been total non-

compliance of the statutory provision enshrined under sub-section (5) of Section 85 of

the Electricity Act, 2003 (for brevity „the Act‟).

3. As the facts have been stated in detail by my learned Brother, it is not necessary to

repeat the same. Suffice it to state that the pleas of locus standi and delay and laches

have not been accepted and a finding has been returned by the High Court that the

selection of the appellant was in flagrant violation of the provisions of the Act and,

therefore, his continuance in law is impermissible.

4. Before I proceed to deal with the justifiability of the order passed by the High Court, it

is thought apposite to refer to certain authorities that fundamentally deal with the

concept of writ of quo warranto. In B.R. Kapur v. State of Tamil Nadu and another

AIR 2001 SC 3435 , in the concurring opinion Brijesh Kumar,J., while dealing with the

concept of writ of quo warranto, has referred to a passage from Words and Phrases

Permanent Edition, Volume 35, at page 647, which is reproduced below: -

“The writ of “quo warranto” is not a substitute for mandamus or injunction nor for an

appeal or writ of error, and is not to be used to prevent an improper exercise of power

lawfully possessed, and its purpose is solely to prevent an officer or corporation or

persons purporting to act as such from usurping a power which they do not have. State

ex inf. Mc. Kittrick v. Murphy, 148 SW 2d 527, 529, 530, 347 Mo. 484.

___________________________________________________________________________


(emphasis supplied)

Information in nature of “quo warranto” does not command performance of official

functions by any officer to whom it may run, since it is not directed to officer as such,

but to person holding office or exercising franchise, and not for purpose of dictating or

prescribing official duties, but only to ascertain whether he is rightfully entitled to

exercise functions claimed. State Ex. Inf. Walsh v. Thactcher, 102 SW 2d 937, 938, 340

Mo. 865.”

(Emphasis supplied)

5. In The University of Mysore v. C.D. Govinda Rao and another AIR 1965 SC 491,

while dealing with the nature of the writ of quo warranto, Gajendragadkar,J. has stated

thus: -

“Broadly stated, the quo warranto proceeding affords a judicial enquiry in which any

person holding an independent substantive public office, or franchise, or liberty, is called

upon to show by what right he holds the said office, franchise or liberty; if the inquiry

leads to the finding that the holder of the office has no valid title to it, the issue of the

writ of quo warranto ousts him from that office. In other words, the procedure of quo

warranto confers jurisdiction and authority on the judiciary to control executive action in

the matter of making appointments to public offices against the relevant statutory

provisions; it also protects a citizen from being deprived of public office to which he

may have a right. It would thus be seen that if these proceedings are adopted subject to

the conditions recognised in that behalf, they tend to protect the public from usurpers of

public office; in some cases, persons not entitled to public office may be allowed to

occupy them and to continue to hold them as a result of the connivance of the executive

or with its active help, and in such cases, if the jurisdiction of the courts to issue writ of

quo warranto is properly invoked, the usurper can be ousted and the person entitled to

the post allowed to occupy it. It is thus clear that before a citizen can claim a writ of quo

warranto, he must satisfy the court, inter alia, that the office in question is a public office

and is held by usurper without legal authority, and that necessarily leads to the enquiry

as to whether the appointment of the said alleged usurper has been made in accordance

with law or not.”

6. From the aforesaid pronouncements it is graphically clear that a citizen can claim a

writ of quo warranto and he stands in the position of a relater. He need not have any

special interest or personal interest. The real test is to see whether the person holding the

office is authorised to hold the same as per law. Delay and laches do not constitute any

impediment to deal with the lis on merits and it has been so stated in Dr. Kashinath G.

Jalmi and another v. The Speaker and others AIR 1993 SC 1873 .

7. In High Court of Gujarat v. Gujarat Kishan Mazdoor Panchayat (2003) 4 SCC 712

it has been laid down by this Court that a writ of quo warranto can be issued when there

___________________________________________________________________________


is violation of statutory provisions/rules. The said principle has been reiterated in Retd.

Armed Forces Medical Association and others v. Union of India and others (2006) 11

SCC 731 (I) .

8. In the case of Centre for PIL and another v. Union of India and another (2011) 4

SCC 1 a three-Judge Bench, after referring to the decision in R.K. Jain v. Union of

India (1993) 4 SCC 119 , has opined thus: -

“Even in R.K. Jain case, this Court observed vide para 73 that judicial review is

concerned with whether the incumbent possessed qualifications for the appointment and

the manner in which the appointment came to be made or whether the procedure adopted

was fair, just and reasonable. We reiterate that the Government is not accountable to the

courts for the choice made but the Government is accountable to the courts in respect of

the lawfulness/legality of its decisions when impugned under the judicial review

jurisdiction.”

It is also worth noting that in the said case a view has been expressed that the judicial

determination can be confined to the integrity of the decision making process in terms of

the statutory provisions.

9. Regard being had to the aforesaid conception of quo warranto I may proceed to

scrutinize the statutory provisions. Section 84 of the Act deals with qualifications for

appointment of Chairperson and Members of State Commission. Section 85 provides for

constitution of Selection Committee to select Members of the State Commission. Sub-

sections (4) and (5) of Section 85 which are relevant for the present purpose read as

follows: -

“(4) The Selection Committee shall recommend a panel of two names for every vacancy

referred to it.

(5) Before recommending any person for appointment as the Chairperson or other

Member of the State Commission, the Selection Committee shall satisfy itself that such

person does not have any financial or other interest which is likely to affect prejudicially

his functions as such Chairperson or Member, as the case may be.”

10. On a perusal of the report of the Selection Committee it is manifest that the

Committee has not recorded its satisfaction with regard to ingredients contained in

Section 85(5) of the Act and left it to the total discretion of the State Government.

11. On a scanning of the anatomy of Section 85(5) it is limpid that the Selection

Committee before recommending any person for appointment as a Chairperson or a

Member of the State Commission shall satisfy itself that the person does not have any

financial or other interest which is likely to affect prejudicially his functions as such

Chairperson or Member, as the case may be. As the proceedings of the Selection

___________________________________________________________________________


Committee would reveal, it had not recorded its satisfaction prior to recommending the

names of the two candidates. It is vivid that the Selection Committee abandoned its

function and simply sent the file to the State Government. It has been argued with

vehemence by Mr. Nageswara Rao, learned senior counsel for the appellant that when

two names were chosen from amongst certain persons it has to be inferred that there was

recommendation after due satisfaction as per statutory requirement.

12. On a plain reading of the provision it is clear as crystal that the Selection Committee

is obliged in law to satisfy itself with regard to various aspects as has been stipulated

under sub-section (5) of Section 85 of the Act. It is perceptible that the said exercise has

not been undertaken. It is worthy to note that the Act has a purpose. It has been enacted

to consolidate the laws relating to generation, transmission, distribution, trading and use

of electricity and generally for taking measures conducive to development of electricity

industry, promoting competition therein, protecting interest of consumers and supply of

electricity to all areas, rationalization of electricity tariff, ensuring transparent policies

regarding subsidies, promotion of efficient and environmentally benign policies,

constitution of Central Electricity Authority, Regulatory Commissions and establishment

of Appellate Tribunal and for matters connected therewith or incidental thereto. Ergo,

the provisions engrafted in the Act have their sacrosanctity.

13. Presently, it is requisite to survey some of the statutory provisions. Section 82 of the

Act provides for constitution of the State Commission. Section 2(64) defines the State

Commission. It is as follows: -

“(64) “State Commission” means the State Electricity Regulatory Commission

constituted under sub-section (1) of section 82 and includes a Joint Commission

constituted under sub-section (1) of section 83;”

Section 86 deals with the functions of the State Commission. Keeping in view the

functions attributed to the State Commission by the legislature I think it condign to

reproduce the said provision in entirety: -

―86. Functions of State Commission. – (1) The State Commission shall discharge the

following functions, namely: -

(a) determine the tariff for generation, supply, transmission and wheeling of electricity,

wholesale, bulk or retail, as the case may be, within the State:

Provided that where open access has been permitted to a category of consumers under

section 42, the State Commission shall determine only the wheeling charges and

surcharge thereon, if any, for the said category of consumers;

(b) regulate electricity purchase and procurement process of distribution licensees

including the price at which electricity shall be procured from the generating companies

___________________________________________________________________________


or licensees or from other sources through agreements for purchase of power for

distribution and supply within the State;

(c) facilitate intra-State transmission and wheeling of electricity;

(d) issue licences to persons seeking to act as transmission licensees, distribution

licensees and electricity traders with respect to their operations within the State;

(e) promote cogeneration and generation of electricity from renewable sources of energy

by providing suitable measures for connectivity with the grid and sale of electricity to

any person, and also specify for purchase of electricity from such sources, a percentage

of the total consumption of electricity in the area of a distribution licensee;

(f) adjudicate upon the disputes between the licensees and generating companies and to

refer any dispute for arbitration;

(g) levy fee for the purposes of this Act; (h) specify State Grid Code consistent with the

Grid Code specified under clause

(h) of sub-section (1) of section 79;

(i) specify or enforce standards with respect to quality, continuity and reliability of

service by licensees;

(j) fix the trading margin in the intra-State trading of electricity, if considered, necessary;

(k) discharge such other functions as may be assigned to it under this Act.

(2) The State Commission shall advise the State Government on all or any of the

following matters, namely: -

(i) promotion of competition, efficiency and economy in activities of the electricity

industry;

(ii) promotion of investment in electricity industry;

(iii) reorganization and restructuring of electricity industry in the State;

(iv) matters concerning generation, transmission, distribution and trading of electricity or

any other matter referred to the State Commission by that Government;

(3) The State Commission shall ensure transparency while exercising its powers and

discharging its functions.

(4) In discharge of its functions, the State Commission shall be guided by the National

___________________________________________________________________________


Electricity Policy, National Electricity Plan and Tariff Policy published under section 3.”

14. On an x-ray of the Preamble of the Act and the important functions ascribed to the

State Commission I have no scintilla of doubt that the selection of Chairperson or a

member is extremely important, more so, when there is a statutory prescription about the

manner in which the Selection Committee is required to act. I may state here that though

the language is plain, unambiguous, clear and leads to a singular construction, yet I think

it apt to reproduce a passage from Utkal Contractors Joinery Pvt. Ltd. and others etc. v.

State of Orissa and others AIR 1987 SC 1454 wherein Chinnappa Reddy, J. has

observed thus: -

“A statute is best understood if we know the reason for it. The reason for a statute is the

safest guide to its interpretation. The words of a statute take their colour from the reason

for it. How do we discover the reason for a statute? There are external and internal aids.

The external aids are Statement of Objects and Reasons when the Bill is presented to

Parliament, the reports of Committees which preceded the Bill and the reports of

Parliamentary Committees. Occasional excursions into the debates of Parliament are

permitted. Internal aids are the preamble, the scheme and the provisions of the Act.

Having discovered the reason for the statute and so having set the sail to the wind, the

interpreter may proceed ahead. No provision in the statute and no word of the statute

may be construed in isolation. Every provision and every word must be looked at

generally before any provision or word is attempted to be construed. The setting and the

pattern are important.”

(emphasis supplied)

15. In Atma Ram Mittal v. Ishwar Singh Punia (1988) 4 SCC 284, Sabyasachi

Mukherji, J. (as his Lordship then was) emphasizing on the intention of the legislature,

stated thus: -

“Blackstone tells us that the fairest and most rational method to interpret the will of the

legislator is by exploring his intentions at the time when the law was made, by signs

most natural and probable. And these signs are either the words, the context, the subject

matter, the effects and consequence, or the spirit and reason of the law.”

16. In the said case reference was made to the decision in Popatlal Shah v. State of

Madras 1953 SCR 677 : AIR 1953 SC 274 wherein it has been laid down that each

word, phrase or sentence is to be construed in the light of purpose of the Act itself. A

reference was made to the observations of Lord Reid in Black-Clawson International

Ltd. v. Papierwerke Waldhof-Aschaffenburg A G 1975 AC 591 wherein the Law Lord

has observed as under: -

“We often say that we are looking for the intention of the Parliament, but this is not quite

accurate. We are seeking the meaning of the words which Parliament used. We are

___________________________________________________________________________


seeking not what Parliament meant but the true meaning of what they said.”

17. In Sangeeta Singh v. Union of India and others (2005) 7 SCC 484 emphasis was

laid on the language employed in the statute and in that context it has been opined as

follows: -

―5. It is well-settled principle in law that the court cannot read anything into a statutory

provision or a stipulated condition which is plain and unambiguous. A statute is an edict

of the legislature. The language employed in a statute is the determinative factor of

legislative intent. Similar is the position for conditions stipulated in advertisements.”

18. I have referred to the aforesaid pronouncements only to highlight that Section 85(5)

of the Act has inherent inviolability and every word used therein has to be understood in

the context regard being had to the legislative intendment. There has to be concentrated

focus on the purpose of legislation and the text of the language, for any deviation is

likely to bring in hazardous results.

19. At this juncture I may profitably refer to Uttar Pradesh Power Corporation Limited

v. National Thermal Power Corporation Limited and others (2011) 12 SCC 400

wherein, after referring to the decision in W.B. Electricity Regulatory Commission v.

CESC Ltd. (2002) 8 SCC 715 , this Court has stated thus: -

―12. Looking to the observations made by this Court to the effect that the Central

Commission constituted under Section 3 of the Act is an expert body which has been

entrusted with the task of determination of tariff and as determination of tariff involves

highly technical procedure requiring not only working knowledge of law but also of

engineering, finance, commerce, economics and management, this Court was firmly of

the view that the issues with regard to determination of tariff should be left to the said

expert body and ordinarily the High Court and even this Court should not interfere with

the determination of tariff.”

20. Be it noted, emphasis has also been laid on functioning of regulatory bodies in ITC

Limited v. State of Uttar Pradesh and others (2011) 7 SCC 493 .

21. I have referred to the aforesaid authorities singularly for the purpose that regulatory

commission is an expert body and in such a situation the selection has to be absolutely in

accord with the mandatory procedure as enshrined under Section 85 of the Act.

22. In the present context, it has become necessitous to dwell upon the role of the

Selection Committee. Section 85(1) of the Act provides for constitution of Selection

Committee to select Members of the State Commission. The said Committee, as the

composition would show, is a high powered committee, which has been authorised to

adjudge all aspects. I may hasten to add that I am not at all delving into the sphere of

suitability of a candidate or the eligibility, for in the case at hand the issue in singularity

___________________________________________________________________________


pertains to total non-compliance of the statutory command as envisaged under Section

85(5).

23. It is seemly to state the aforementioned provision employs the term

“recommendation”. While dealing with the concept of recommendation, a three- Judge

Bench of this Court in A. Pandurangam Rao v. State of Andhra Pradesh and others

AIR 1975 SC 1922 has stated that the literal meaning of the word “recommend” is quite

simple and it means “suggest as fit for employment”. In the present case the Selection

Committee as per the provision was obliged to satisfy itself when the legislature has

used the word “satisfied”. It has mandated the Committee to perform an affirmative act.

There has to be recording of reasons indicating satisfaction, may be a reasonable one.

Absence of recording of satisfaction is contrary to the mandate/command of the law and

that makes the decision sensitively susceptible. It has to be borne in mind that in view of

the power conferred on the State Commission, responsibility of selection has been

conferred on a high powered Selection Committee. The Selection Committee is legally

obliged to record that it has been satisfied that the candidate does not have any financial

or other interest which is likely to affect prejudicially his functions as Chairman or

Member, as the case may be. The said satisfaction has to be reached before

recommending any person for appointment. It would not be an exaggeration to state that

the abdication of said power tantamounts to breach of Rule of Law because it not only

gives a go by to the warrant of law but also creates a dent in the basic index of law.

Therefore, the selection is vitiated and it can never come within the realm of curability,

for there has been statutory non-compliance from the very inception of selection.

24. It is necessary to state here that in many an enactment the legislature has created

regulatory bodies. No one can be oblivious of the fact that in a global economy the trust

on the regulators has been accentuated. Credibility of governance to a great extent

depends on the functioning of such regulatory bodies and, therefore, their selection has

to be in total consonance with the statutory provisions. The same inspires public

confidence and helps in systematic growth of economy. Trust in such institutions helps

in progress and distrust corrodes it like an incurable malignancy. Progress is achieved

when there is good governance and good governance depends on how law is

implemented. Keeping in view the objects and reasons and preamble of the Act and the

functions of the Commission, it can be stated with certitude that no latitude can be given

and laxity can have no allowance when there is total violation of the statutory provision

pertaining to selection. It has been said long back “a society is well governed when the

people who are in the helm of affairs obey the command of the law”. But, in the case at

hand the Selection Committee has failed to obey the mandate of the law as a

consequence of which the appellant has been selected and, therefore, in the ultimate

eventuate the selection becomes unsustainable.

25. It is manifest in the selection of the appellant that there is absence of “intellectual

objectivity” in the decision making process. It is to be kept in mind a constructive

intellect brings in good rationale and reflects conscious exercise of conferred power. A

___________________________________________________________________________


selection process of this nature has to reflect a combined effect of intellect and industry.

It is because when there is a combination of the two, the recommendations as used in the

provision not only serves the purpose of a “lamp in the study” but also as a “light house”

which is shining, clear and transparent.

26. I emphasize on the decision making process because in such a case there is exercise

of power of judicial review. In Chief Constable of the North Wales Police v. Evans

(1982) 1 W.L.R. 1155, Lord Brightman observed thus: -

“....Judicial review, as the words imply, is not an appeal from a decision, but a review of

the manner in which the decision was made....”

27. In view of the aforesaid analysis, I conclude that there has been total non-compliance

of the statutory provision by the Selection Committee which makes the decision making

process vulnerable warranting interference by the constitutional courts and, therefore, the

High Court is justified in holding that the appointment is non est in law.

28. Consequently, the appeal, being sans substratum, stands dismissed without any order

as to costs.

___________________________________________________________________________


___________________________________________________________________________


Annexure 3: Minutes of Committee meetings

___________________________________________________________________________


___________________________________________________________________________


Minutes of the Third Meeting of the Committee for study under Case No 53 of 2012

Venue: 12th

Floor Conference Room, MERC, Mumbai

Date: 21 November 2012, 03:00 PM

The third meeting of the Committee was held on 21 November, 2012 in the office of the

Commission. The following representatives of the Committee attended the meeting.

1. Shri Rajendra Ambekar, Dir (Tariff), MERC

2. Shri Umesh Agrawal, PwC

3. Shri G D Patil, Dy. Dir (Tech), MERC

4. Shri Ravindra Sonawane, Dy. Director (Legal), MERC

5. Shri Suresh Shukla, Regulatory Expert, MERC

6. Shri. Saurabh Gupta, Regulatory Officer, MERC

7. Shri Ketan Patil, Regulatory Officer, MERC

Director (Tariff), MERC extended a warm welcome to all Members/ Representatives of

the Committee.

The Committee discussed the following points during the meeting

Demand-supply projections submitted by MSEDCL.

Demand projected by 18th

EPS for Maharashtra

Competitiveness of the Tariff quoted by the APML & IBPL.

A vote of thanks was extended by Director (Tariff), MERC to all the Representatives/

Members present in the meeting.

___________________________________________________________________________


Minutes of the Fourth Meeting of the Committee for study under Case No 53 of 2012

Venue: 12th


Date: 26 November 2012, 02:30 PM

The fourth meeting of the Committee was held on 26 November, 2012 in the office of the





4. Shri Ravindra Sonawane, Dy. Director (Legal), MERC

5. Shri Suresh Shukla, Regulatory Expert, MERC



8. Ms. Gayatri Ramanathan, Consultant, MERC


the Committee.

The Committee discussed following points during the meeting:

Recent development in Coal Linkage policy and its impact on the APML and IBPL

generating plants

Impact of the Mega Power Policy on the tariff of new plants

Pros and Cons of Swiss Challenge Methodology and it‟a application in Indian power

Sector.



___________________________________________________________________________


Minutes of the Fifth Meeting of the Committee for study under Case No 53 of 2012

Venue: 12th


Date: 4 December 2012, 04.30 PM

The fifth meeting of the Committee was held on 4 December, 2012 in the office of the








the Committee and informed that a copy of the decision made by the Cabinet Sub

Committee on Energy procurement of 2600 MW power has been received. He shared the

copy of the said letter with Committee members

The Committee discussed following points during the meeting:

Possibility of going for a Swiss Challenge Methodology:

Coal linkage policy issued by MoP



___________________________________________________________________________


Annexure 4: Copy of GoM’s letter

___________________________________________________________________________


___________________________________________________________________________


Annexure 5: Copy of MSEDCL’s Letter Dated – 6th March 2011

___________________________________________________________________________


___________________________________________________________________________


Annexure 6: Copy of GoM’s letter dated 1st December 2011

___________________________________________________________________________


___________________________________________________________________________


Annexure 7: Demand supply projections of MSEDCL

___________________________________________________________________________


___________________________________________________________________________


Annexure 8: List of project not considered by MSEDCL in Demand-supply

estimation

Financial

year

Capacity

addition

(MW)

Total

capacity

not

considered

(MW)

Net

addition

in

capacity

(MW)

List of projects considered

(Project – Allocated

Capacity)

List of projects not

considered (Project – MW)

FY 2012-

13 4,205 1,725 2,480

1. Khaparkheda U-5 - 500

MW

2. Bhusawal U-4 - 500

MW

3. Bhusawal U-5 - 500

MW

4. Sipat I U-2 - 170 MW

5. Sipat I U-3 - 170 MW

6. Mauda I U-1 - 185 MW

7. Vindhyachal IV U-1 -

135 MW

8. Mundra UMPP U-2 -

160 MW


160 MW

1. Vindhyachal IV U-2 - 135

MW

2. Adani U-2 - 660 MW

3. Adani U-3 - 660 MW

4. Indiabulls Amravati U-1 -

270 MW

FY 2013-

14 5,701 396 5,305

1. Parli Rep U-8 - 250

MW

2. Chandrapur U-8 - 500

MW

3. Koradi U-8 - 660 MW

4. Chandrapur U-9 - 500

MW

5. Barh II U-1 - 33 MW

6. Mauda I U-2 - 185 MW

7. Barh II U-2 - 33 MW

8. North Karanpura - 33

MW

9. Barh I U-1 & 2 - 66

MW

10. Adani U-1 - 125 MW

11. Adani U-4 - 660 MW

12. Adani U-5 - 660 MW

13. Indiabulls Amravati U-

2 - 270 MW


160 MW


3 - 270 MW


4 - 270 MW


160 MW

18. Emco (Case-I Stage-II)

- 200 MW


5 - 270 MW

1. Krishnapatnam UMPP U-

1 - 132 MW


2 - 132 MW


3 - 132 MW

FY 2014-

15 1,967 396 1,571

1. Koradi U-9 - 660 MW

2. Vindhyachal V - 165

MW

3. North Karanpura - 66


4 - 132 MW


5 - 132 MW

___________________________________________________________________________


Financial

year

Capacity

addition

(MW)

Total

capacity

not

considered

(MW)

Net

addition

in

capacity

(MW)

List of projects considered

(Project – Allocated

Capacity)

List of projects not

considered (Project – MW)

MW

4. Lanco Case-I shifted to

Wardha from

Chattisgarh - 680 MW


6 - 132 MW

FY 2015-

16 1,707 114 1,593

1. Koradi U-10 - 660 MW

2. Paras U-5 - 250 MW

3. Mauda II U-1 & 2 - 500

MW

4. Subansiri Hydro

Project - 183 MW

1. NTPC Lara U-1 - 114

MW

FY 2016-

17 6,331 4,443 1,888

1. Bhusawal VI- 660 MW

2. NTPC Lara U-2 & 3 -

228 MW

3. NTPC Solapur - 500

MW

4. Bhivkund Case-I - 500

MW

1. Dondaicha U-1 - 660 MW

2. Dhopave U-I - 660 MW

3. Uran B1 - 814 MW

4. Uran B2 - 406 MW

5. Latur - 1,320 MW

6. NTPC Gadarwara I U-1 -

25 MW

7. NTPC Khargone - 50

MW

8. NTPC Dhuvaran - 25

MW

9. Surguja UMPP – 333

MW

10. Tilaiya UMPP U- 1, 2 & 3

- 150 MW

FY 2017-

18 4,309 3,649 660

1. Nashik VI - 660 MW


2. Dhopave U-2 - 660 MW

3. Dhopave U-3 - 660 MW


5. NTPC Gadarwara I Unit-2

- 25 MW

6. NTPC Dhuvran - 25

MW

7. NTPC Lara U-4 & 5 - 228

MW

8. Tilaiya UMPP U-4 & 5 -

100 MW

9. Surguja UMPP - 498 MW

10. Cheyur UMPP - 133 MW

FY 2018-

19 1,873 1,873 0




4. Tilaiya UMPP U-6 - 50

MW

5. Surguja UMPP - 166 MW

6. Titaya UMPP (Andhra) -

137 MW

FY 2019-

20 705 705 0

1. Jaitapur Nuclear Project –

500 MW


3. Titaya UMPP (Andhra) -

138 MW

___________________________________________________________________________


Annexure 9: Submission of IBRL and Adani on Tariff

___________________________________________________________________________


___________________________________________________________________________


Annexure 10: Note on Swiss Challenge Methodology

Swiss Challenge Method

1. Introduction

Swiss Challenge is a form of public procurement in some jurisdictions which requires

a public authority (usually an agency of government) which has received an

unsolicited bid for a public project (such as a port, road or railway) or services to be

provided to government, to publish the bid and invite third parties to match or exceed

it

Under the Swiss Challenge Method, the party that had first submitted the proposal for

the development of the project, based on which the project was conceived and

developed, is given the first right of refusal to match the highest bid received in the

competitive bid process for the said project.

In case the original project Proponent is not able to match the more attractive and

competing counter proposal, the Project is awarded to the Private Sector Participant,

submitting the more attractive competing counter proposal.

2. The Andhra Pradesh Infrastructure Development Enabling Act, 2001

The Swiss Challenge approach is defined in the Andhra Pradesh Infrastructure

Development Enabling Act, 2001 as follows:

"Swiss Challenge Approach” means when a Private Sector Participant (Original Project

Proponent) submits an Unsolicited or Suo-Motu proposal and draft contract principles

for undertaking a category II Project, not already initiated by the Government Agency or

the Local Authority and the Government Agency or the Local Authority then invites

competitive counter proposals in such manner as may be Prescribed by the Government.

The proposal and contract principles of the Original Project Proponent would be made

available to any interested applicants; however, proprietary information contained in the

original proposal shall remain confidential and will not be disclosed. The applicants then

will have an opportunity to better the Original Project Proponent's proposal. If the

Government finds one of the competing counter proposals more attractive, then the

Original Project Proponent will be given the opportunity to match the competing counter

proposal and win the Project. In case the Original Project Proponent is not able to match

http://en.wikipedia.org/wiki/Procurement

http://en.wikipedia.org/wiki/Bidding

___________________________________________________________________________


the more attractive and competing counter proposal, the Project is awarded to the

Private Sector Participant, submitting the more attractive competing counter proposal;

a) Applicability

As per the Act (AP IDE Act 2001) Swiss challenge is applicable to following projects

where;

(i) Government or Government Agency will be required to provide asset support;

(ii) Financial incentives in the form of contingent liabilities or direct financial support

are required to be provided;

(iii) Exclusive rights are conferred on the Developer;

(iv) Extensive linkages i.e. support facilities for the project such as water connection

etc. are needed.

b) Procedure

The Swiss Challenge approach will be followed for projects initiated by a Private

Sector Participant (Original Project Proponent), by a suo-motu proposal.

The Original Project Proponent must submit to the Government Agency or local

authority:

details of his technical, commercial, managerial and financial capability;

technical, financial and commercial details of the proposal;

principles of the Concession Agreement

The Government Agency or the Local Authority would first evaluate the Original

Project Proponent‟s technical, commercial, managerial and financial capability as

may be Prescribed and determine whether the Original Project Proponent‟s

capabilities are adequate for undertaking the project.

The Government Agency or the Local Authority shall forward such suo-motu

proposal to the Infrastructure Authority along with its evaluation within prescribed

time for the approval of the Infrastructure Authority;

If the Infrastructure Authority finds merit in such suo-motu proposal the Infrastructure

Authority will then require the Government Agency or the Local Authority to invite

competing counter proposals using the Swiss Challenge Approach giving adequate

notice as may be prescribed.

The Original Project Proponent will be given an opportunity to match any competing

counter proposals that may be superior to the proposal of the Original Project

___________________________________________________________________________


Proponent. In case the Original Project Proponent matches or improves on the

competing counter proposal, the Project shall be awarded to the Original Project

Proponent; other-wise bidder making the competing counter proposal will be selected

to execute the project.

3. Swiss Challenge Method – Indian Power sector experience

Uttar Pradesh Power Transmission Corporation Limited (UPPTCL) used this method for

selection of transmission service provider through tariff based competitive bidding

process to establish transmission system for Package 1: 765 kV S/C Mainpuri-Bara Line

with 765 kV/400 kV AIS at Mainpuri and Associated Schemes/Work. The following is

the process as described as per the “Request for Proposal” dated 2 July, 2010. UPPTCL

was the Bid Process Coordination (BPC).

a) Process followed for selection of bidder

b) Process followed under the Swiss challenge method

If the Government does not find the bids competitive then the Govt. of UP may apply

Swiss Challenge Method. The lowest original financial bid, received by the BPC

would continue to remain valid till the conclusion of Swiss Challenge Method

process.

The BPC under this process would issue a public notice inviting challenge in the

nature of fresh bids with same terms of eligibility under the relevant condition as were

applicable under the original bid except the amount of Bid Bond that would be double

the amount as per original bidding process.

The lowest financial bid received shall be disclosed and a period of 30-45 days would

be given for due-diligence and submission of fresh bids. The fresh bids under this

Bid Evaluation

• Bidders submit their bids as per the conditions specified in the RFP

Bidder Selection

• The lowest bidder (lowest levelised tariff) is selected and issued a Letter of Intent (LoI)

Swiss challenge

• If the Bid process committee does not find the quoted tariffs to be competitive as the the prevailing market conditions, the Swisss challenge method is followed

___________________________________________________________________________


process must be less than the disclosed lowest original financial bid received. All

bidders excluding the original lowest bidder shall be eligible to submit the fresh bid

under this process.

As per Swiss Challenge Method, the original lowest bidder shall have the right of

first refusal by matching the lowest financial bid received in the fresh bidding process

under Swiss Challenge Method.

In case the right of first refusal is not exercised by the original lowest bidder, the

lowest bidder in the fresh bidding process under Swiss Challenge Method shall have

the right to award of the contract / assignment. The original lowest bidder would have

to exercise the right of first refusal within a period of 15 days from the date of receipt

of notice from BPC.

In case no fresh bid is received under this process; The Govt. of UP may consider the

bid of original lowest bidder even though it was higher than the expected price.

4. Swiss Challenge Method Used in Maharashtra

Maharashtra Housing and Area Development Authority (MHADA)

Ravi Developers presented a suo motu proposal to the Maharashtra Housing and Area

Development Authority (MHADA) to develop certain plots of land in the Mira Road area

in Thane, Maharashtra. The MHADA decided to use the Swiss Challenge method on a

pilot basis with respect to this project.

The project, in this case, was awarded to Ravi Development which decided to exercise its

right of first refusal and match the winning bid.

5. Supreme Court guidelines on Swiss Challenge Method (Arising out of S.L.P. (C)

No. 13149 of 2008) (http://judis.nic.in/supremecourt/helddis.aspx)

Supreme Court of India has given following guide lines for Swiss Challenge Method in

SLP No 13149 of 2008 between Ravi Development & MHADA.

1) The State/Authority shall publish in advance the nature of Swiss Challenge Method

and particulars;

2) Publish the nature of projects that can come under such method;

3) Mention/notify the authorities to be approached with respect to the project plans;

4) Mention/notify the various fields of the projects that can be considered under the

method;

5) Set rules regarding time limits on the approval of the project and respective bidding:

___________________________________________________________________________


6) The rules are to be followed after a project has been approved by the respective

authorities to be considered under the method.

7) All persons interested in such developmental activities should be given equal

and sufficient opportunity to participate in such venture and there should be healthy

inter se competition amongst such developers.

Reference:

1) Supreme Court of India - http://judis.nic.in/supremecourt/helddis.aspx)

2) World Bank report on Unsolicited Proposal -

http://rru.worldbank.org/documents/publicpolicyjournal/258hodge-031103.pdf

3) UPPTCL : http://upptcl.org/projects.htm

http://judis.nic.in/supremecourt/helddis.aspx

http://rru.worldbank.org/documents/publicpolicyjournal/258hodge-031103.pdf

http://upptcl.org/projects.htm