Dispute over Electricity Tariffs between DISCOMS and Hinduja National Power Corporation Ltd.

The present appeal filed by the appellants – Distribution Companies (hereinafter referred to as ‘the appellants­DISCOMS’) challenges the judgment and order passed by the Appellate Tribunal for Electricity (APTEL) in Appeal No. 41 of 2018. The APTEL allowed the appeal filed by the respondent No. 1 – M/s Hinduja National Power Corporation Limited (hereinafter referred to as ‘HNPCL’). The APTEL directed the Andhra Pradesh Electricity Regulatory Commission (State Commission) to dispose of O.P. No. 21 of 2015 filed by HNPCL for determination of capital cost and O.P. No. 19 of 2016 filed by the appellants–DISCOMS for approval of amended and restated Power Purchase Agreement (PPA) (Continuation Agreement) on merits.

The facts, in brief, giving rise to the present appeal are as under: The erstwhile Andhra Pradesh State Electricity Board (APSEB) entered into a Memorandum of Understanding (MoU) with HNPCL on 17th July, 1992, for the establishment of a power project at Visakhapatnam. An initial PPA was entered into between APSEB and HNPCL on 9th December, 1994. Subsequently, the parties agreed to amend the initial PPA, and the Amended and Restated PPA was entered into on 15th April, 1998. Due to certain changes in conditions, the parties entered into negotiations for a continuation agreement to implement the project. Despite the state’s interest in purchasing power, the DISCOMS challenged aspects of the capital cost and power procurement under the PPA.

In 2014, HNPCL filed a petition for determination of capital cost under O.P. No. 21 of 2015 and the appellants filed a petition for approval of the Continuation Agreement under O.P. No. 19 of 2016. However, following several procedural complications, the State Commission dismissed both petitions in January 2018, leading to HNPCL filing an appeal with the APTEL. The APTEL allowed the appeal, directing the State Commission to reconsider both petitions.

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The appellants argue that the APTEL erred in its decision, particularly in allowing HNPCL to proceed with the continuation of the agreement despite the increased capital costs. They also contend that the initial agreements violated various statutory provisions, and thus, the APTEL’s direction was inappropriately made without proper legal backing. On the other hand, HNPCL argues that the orders passed by the APTEL were justified and necessary for the fair resolution of the dispute, highlighting that the project had been developed in reliance on the assurances provided by the State and that discontinuing it would harm public interest.

The central issue in the appeal revolves around the validity and appropriateness of the capital cost determined by the State Commission, and whether it was in line with regulatory norms. The DISCOMS contend that the capital cost approved by the State Commission was unreasonable and excessive, leading to an increased tariff burden for consumers. HNPCL, on the other hand, asserts that the costs incurred during the project’s implementation were legitimate and should be reflected in the tariff structure.

The Court examined several aspects, including the procedural fairness of the proceedings before the State Commission, the regulatory framework governing power procurement, and the legal standards applicable to tariff determinations in the power sector. The petitioners also sought to highlight discrepancies in the way costs were allocated between the parties and the impact these costs would have on the public utility and end consumers.

In its judgment, the Court expressed concern about the impact of the decision on the broader public interest. The ruling took into account the extensive financial commitments of HNPCL and the public interest in ensuring that the power project could continue to supply electricity at competitive rates. At the same time, the Court also emphasized the importance of transparency and fairness in tariff setting, ensuring that consumer interests were not unduly harmed by inflated capital costs.

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The judgment ultimately sought to strike a balance between the commercial interests of the power producers and the need to protect consumers from unjustified price hikes. The Court clarified that while regulatory bodies must be given the flexibility to make determinations based on the market dynamics and operational realities of power generation, their decisions must be well-founded and transparent.

This case sets an important precedent for the regulation of power tariffs and the application of regulatory principles in the energy sector. It reinforces the responsibility of regulatory bodies to act in the public interest while ensuring that all stakeholders, including consumers and producers, are treated fairly and equitably. The Court also emphasized the importance of following due process in the determination of capital costs, and ensuring that all financial claims by producers are justified and supported by relevant data and documentation.

Petitioner Name: Southern Power Distribution Power Company Limited of Andhra Pradesh.
Respondent Name: Hinduja National Power Corporation Limited.
Judgment By: Justice B.R. Gavai, Justice L. Nageswara Rao.
Place Of Incident: Visakhapatnam, Andhra Pradesh.
Judgment Date: 02-02-2022.

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