India: Projects, Energy & Infrastructure Monthly Newsletter | October-November 2022

Guidelines under Section 63 of the Electricity Act, 2003 for procurement of power on FOO basis the SHAKTI Policy

On October 20, 2022, the Ministry Of Power issued guidelines under Section 63 of the Electricity Act, 2003 for procurement of power on Finance, Own and Operate (FOO) basis under para B(v) of the SHAKTI Policy, with the objective of facilitating the procurement of power on long-term and medium-term basis by the Nodal Agency through transparent bidding to meet power requirement of group of states with coal linkage.

Key aspects

• Power requirement of group of States can also be aggregated and procurement of such aggregated power can be made by an agency designated by Ministry of Power or authorized by such States on the basis of tariff-based bidding.
• Coal linkages will be earmarked for such agencies by pre-declaring the availability of coal linkage with description, based on which such agency will undertake tariff based competitive bidding for long-term and medium-term procurement of power and recommend grant of these linkages to successful bidders. The methodology in this regard shall be formulated by Ministry of Power.
• These guidelines are being issued under the provisions of Section 63 of the Electricity Act, 2003 for procurement of electricity by States/ distribution licensees (Procurer) for:
  • Long-term procurement of electricity for a period of 12 years to 15 years
  • Medium term procurement for a period of up to 7 years but exceeding 1 year
• For procurement of electricity under these guidelines, the tariff shall be paid and settled for each payment period (not exceeding one month).
• A multi-part tariff structure with separate Fixed Charge and Variable Charge components of tariff shall form the basis for bidding.
• The Base Fixed Charge and the Base Variable Charge specified in the bid shall each be at least 35% of the quoted Tariff.
• The Responsibility for arranging access, payment of transmission charges and for bearing losses in respect of intra-state transmission shall be that of the supplier.

CERC notifies the effective date of operation of CERC (Connectivity and General Network Access to the inter-State Transmission System) Regulations, 2022

• CERC has notified the effective date of operation of CERC (Connectivity and General Network Access to the inter-State Transmission System) Regulations, 2022 (GNA Regulations) in exercise of powers conferred on it by Regulation 1.2 of the GNA Regulations.
• The GNA Regulations shall come into operation with effect from October 15, 2022, except the provisions of Regulations 23 to 24, 26 to 36, 37.9, 38, 40, and 43, whose date of commencement shall be notified by CERC separately.
• Fresh Applications for Connectivity and GNA and their processing and grant under GNA Regulations shall be made effective from a date to be notified by CERC separately.
• Scheduling and Despatch of electricity, and Billing, Collection and Disbursement of the inter-State Transmission Charges and Losses, shall continue to be based on the quantum of Long-Term Access (LTA), Medium-Term Open Access (MTOA) and Short-Term Open Access (STOA) of each of the Designated ISTS Customers (DICs) and other users of the grid in accordance with the provisions of the CERC (Indian Electricity Grid Code) Regulations, 2010, and CERC (Sharing of inter-State Transmission Charges and Losses) Regulations, 2020, respectively as amended from time to time, till further notification.
• STOA shall continue to be granted under the CERC (Open Access in inter-State Transmission) Regulations, 2008, as amended from time to time and the Detailed Procedures issued thereunder, till further notification.

BSES Rajdhani Power Ltd v. Delhi Electricity Regulatory Commission And BSES Yamuna Power Ltd v. Delhi Electricity Regulatory Commission

Background facts

• The Appellants challenged the findings of APTEL in the Impugned Order on the following issues:
  • Change in methodology in computation of Aggregate Technical and Commercial (AT&C) losses
  • Change in methodology for computation of Depreciation:
  • Disallowance of salary for Fundamental Rules and Supplementary Rules (FR/SR) structure (this issued raised only by BSES Rajdhani Power Ltd
  • Disallowance of interest incurred on Consumer Security Deposit by DPCL
  • Disallowance of Fringe Benefit Tax
  • Reduction in Million Units (Mus) in relation to Enforcement sale for the purpose of calculation of AT&C Loss

Decision of the Court

• In view of the submissions made by the parties, Supreme Court, while allowing the Acquisition Price as a Change in Law, determined the first issue under:
  • While truing up for the year in question, the DERC has retrospectively sought to take away part of the LPSC revenue by deducting the Financing Cost on LPSC in comparing the actual Collection Efficiency with the projected Collection Efficiency.
  • Allowing the Financing Costs on LPSC revenue and then deducting it from the LPSC revenue would be tantamount to giving by one hand and taking it away by the other. This order of the DERC is contrary to the original MYT determination.
• On the second issue, the Supreme Court reiterated that it is not permissible to amend the tariff order during true up exercise. On the pretext of prudence check and truing up, DERC could not have amended the tariff order.
• On the third issue, the Supreme Court has held that DERC in Tariff Order dated August 26, 2011 has erroneously changed its own methodology at the stage of truing up, by not allowing employee expenses of FR/SR employees as per actuals. The DERC, at the stage of truing up, has changed the methodology and disallowed the actual salary of FR&SR employees, which is impermissible. The DERC in the Tariff Order dated August 26, 2011 has acted contrary to its own undertaking of truing up the impact of employee expenses on account of the Sixth Central Pay Commission Report.
• On the fourth issue, the Supreme Court has held as under:
  • Disallowing interest paid by the Appellants towards Consumers Security Deposit held by DPCL in the ARR of the Appellants is wholly misconstrued. Interest on consumers' deposit which is being paid by the Appellants is a legitimate expense. It is not in dispute that the security deposit was not transferred by the DPCL to the Appellants. However, the Appellants were required to bear the costs of the same. In case, the principal sum on Consumers Security Deposit held by DPCL is transferred to the Appellants with interest, the Appellants would, subject to their legitimate expenditures, retain such interest and benefit of any balance of excess interest received by the Appellants would be passed on to the consumers in tariff. Therefore, there is no merit in the contention of the Respondents that if the interest burden is passed on to the consumers presently, the Appellants would, in effect, receive a double benefit in case they succeed in the writ petition pending before the Court.
  • Appellants are entitled to recover interest on Consumers Security Deposit as held by the DPCL. The Supreme Court directed the DERC to allow the interest on Consumers Security Deposit held by the DPCL and impact thereof to the Appellants.
• On the fifth issue, the Supreme Court reiterated that DERC cannot re-open the basis of determination of tariff at the stage of truing up. Revision or redetermination of the tariff already determined by DERC on the pretext of prudence check and truing up would amount to amendment of tariff order, which is not permissible in law. Truing up stage is not an opportunity for DERC to re-think de novo the basic principles, premised and issues involved in the initial projection of the revenue requirements of the licensee.
• On the sixth issue, the Supreme Court has held that the methodology adopted by DERC is contrary to the settled principles of law that when the law deems a certain imaginary state of affairs as real, DERC would not let its imagination boggle at treating the 100 units as sales. That such imaginary state of affairs must be taken to its logical end and commend the treatment of 100 units as 'sales'. The assessed energy has to be considered as supply by the Appellants in enforcement cases.

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