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CasesIndian Cases

Tata Power Company Ltd. vs Adani Electricity Mumbai Ltd. on 2 May 2019

Supreme Court of India
Tata Power Company Ltd. vs Adani Electricity Mumbai Ltd. on 2 May, 2019
Equivalent citations: AIRONLINE 2019 SC 2337
Author: Arun Mishra
Bench: S. Abdul Nazeer, Arun Mishra









Arun Mishra, J.

1. The appellant – Tata Power Company (in short ‘the TPC’) is a distribution licensee supplying electricity to the entire city of Mumbai, whereas BSES/Reliance Energy Limited (in short ‘REL’) is a distribution licensee supplying electricity only in the suburbs of Mumbai. Prior to 1998, the TPC was the only generator of the electricity supplying electricity to BSES for further supply to BSES customers. The TPC had 108 customers in the entire city of Mumbai. The tariff payable by BSES to TPC included a component of standby charge. The entire standby charges paid by TPC to Maharashtra State Electricity Board (for short ‘the MSEB’) were being recovered by TPC from its customers through its tariff. Due to change in shareholding pattern, the BSES was changed to Reliance Energy Limited on 24.2.2004.

2. The brief facts indicate that TPC and MSEB met on 12.3.1985 to finalise the interconnection between representatives of TPC and MSEB with respect to demand charges. Following decision was arrived at:

“A) Demand Charges:
Effective 1­2­84 a monthly firmed demand of 300 MVA would be billed by MSEB. This would increase by 50 MVA each year effective 1­4­1985 to take care of TEC’s own load growth annually. This is irrespective of TEC’s actual net off­take recorded at the 4 interconnecting points of supply and also irrespective of MSEB’s total off­take from TEC system”
3. Prior to 1985, the TPC was supplying entire electricity generated by it to the distributors of electricity in Mumbai. Since the quantity generated by TPC was not sufficient to meet the entire demand, TPC used to buy electricity from MSEB. BSES/REL was purchasing its entire requirement of electricity from TPC in bulk to supply to its customers in suburban Mumbai.

4. With effect from 1985, TPC wanted to increase its generating capacity thereby reducing its offtake of electricity from MSEB to zero thereby causing loss of revenue to MSEB. In order to compensate MSEB for loss of revenue caused as a result of stoppage of purchase of electricity by TPC from MSEB, the TPC and MSEB entered into aforesaid arrangement whereby TPC was required to pay to MSEB standby facility initially for 300 MVA to be increased by 50 MVA every year, charges to be paid at the rate fixed by MSEB. The quantum of standby increased from 300 MVA to 550 MVA by the year 1990, whereafter the MSEB and the TPC agreed not to increase the said standby beyond 550 MVA. The standby facility was meant to enable TPC to draw upon the energy generated by MSEB in the event there was outage/failure of power in TPC’s generation capacity of 1777 MW consisting of multiple units of different sizes i.e., 500 MW, 180 MW, 150 MW, 72 MW, 75 MW and 300 MW, which is supplied to BSES/REL along with its own consumers and BEST, another distribution licensee in Mumbai. The standby facilities charges paid by TPC to MSEB were factored into tariff charged by TPC from its customers including BSES/REL. The BSES/REL was a purchaser of electricity from TPC to the extent of TPC’s generation between 29% to 37% from 1998 to 2006, thus the standby charges to the extent of aforesaid varying percentages for the respective years were borne by BSES/REL which in turn were factored into tariff and charged by BSES/REL to its retail customers.

5. Initially, BSES was permitted to set up its generating plant at Dahanu to generate 500 MW (550 MVA approximately). There was a condition that it would achieve interconnection with the supply of TPC at a point known as Borivali Interconnection Point in case there was any outage of BSES generation. It could draw upon the power supplied by the TPC. The charges for such interconnections were to be determined. On 30.5.1992, a notification was issued amending the BSES license. A new clause 7B was introduced for providing aforesaid interconnectivity. Provisions of clause 13A were also amended to authorise the State Government in the event of a dispute to decide the same. On 29.6.1992, a meeting was held between TPC and BSES and it was agreed that interconnection would be provided at Borivali GIS switching station to take care of emergencies in BSES 220 KV system. The TPC already have arrangements with MSEB wherein standby capacity is provided by MSEB to TPC in case of emergencies in TPC system. Standby capacity to BSES may be provided from the standby capacity reserved by TPC with MSEB and appropriate sharing of charges by BSES could be worked out as provided in clause 12.0. The BSES prior to September 1995 was purchasing its entire requirement of power from TPC and distributing it within its licensed area as TPC distributing licensee. After its two Dahanu generating units were commissioned in January/March 1995, BSES started bringing the power generated by Dahanu to supply to its consumers after September 1995 in the suburbs of Mumbai city. As supply was started from the Dahanu, TPC surplus capacity began to increase. The TPC after 1995 required only 275 MVA standby facility against the standby capacity of 550 MVA.

6. The MSEB issued notice on 28.6.1996 revising its tariff to TPC effective from 1.10.1996. The MSEB raised its maximum demand charges per month with respect of standby facility/supply from Rs.190/­ per KVA to Rs.450/­ per KVA. Consequently, MSEB gave notice to TPC, inter alia, revising its standby charges with effect from 1.10.1996 recoverable from TPC to Rs.24.75 crores per month i.e., Rs.297 crores per year.

7. TPC had issued a notice on 30.7.1996 to the Government of Maharashtra and MSEB under Schedule VI to the Electricity (Supply) Act, 1948, showing its intention to enhance tariff charges with effect from 1.10.1996 which included maximum demand charges and energy charges to various consumers. It also provided for payment of maximum demand charges and energy charges by BSES for standby facility. With effect from 1.1.1997, TPC revised its tariff inter alia to BSES, thereby factoring in the monthly demand charges of Rs.24.75 crores payable by TPC to MSEB for standby supply. In order to resolve the issue of quantum of standby charges to be paid by BSES to TPC, the Government of Maharashtra appointed a Committee and an order dated 19.1.1998 was passed whereby the Government of Maharashtra, based on the recommendation of the Committee, stipulated that a sum of Rs.3.5 crores per month should be paid by BSES/REL to TPC by way of standby facility for the period 1998­1999. This sum of Rs.3.5 crores per month i.e., Rs.42 crores per annum was over and above the sum Rs.24.75 crores per month i.e., Rs.297 crores per annum which TPC used to recover in the form of its tariff from its customer. In fixing the aforesaid amount, the following factors were taken into consideration by the said Committee:

“(i) the generation of TPC and MSEB;
(ii) the electricity supplied by TPC on BSES/ REL as a consumer.
(iii) TPC’s standby supply from MSEB;
(iv) Charges paid thereof by TPC;
(v) TPC’s and BSES/REL’s financial position;
(vi) That standby was being supplied for the stability of the Greater Mumbai

8. On 17.12.1997, TPC contended that it was fully capable and willing to supply standby to BSES for its Dahanu plant and TPC should, therefore, be billed only for 275 MVA standby facility for their consumers other than BSES. The Government of Maharashtra issued an order on 19.1.1998, following is the relevant portion of the said order:

“it has come to the notice of the Government that due to dispute on commercial terms between BSES and TEC, interconnection is not established at Borivali even though technical arrangements are ready. Similarly, additional electricity generated at Dahanu is being sold to the Western Regional Grid through MSEB’s Biosar Interconnection. As a result, the government’s main objective that electricity generated at Dahanu should be used within the BSES area of supply has not been met and BSES license conditions are violated. For this Government had appointed a Committee under the Chairmanship of the Principal Secretary, Energy. In this committee, representatives of MSEB, TEC, and BSES were members. This Committee has examined the total situation and has submitted its report to the Government.
GOM thereafter ordered as follows:
“Taking into account the recommendations of the Committee, following are orders of the Government. BSES should complete interconnection at Borivli by January 26, 1998.
BSES should take 275 MVA standby power supply from TEC for Dahanu generating station.
For taking above standby supply, BSES should pay standby charges to TEC.
After the interconnection is commissioned, BSES should stop selling electricity through MSEB’s Boisar sub­station to Western Regional Grid.
TEC may charge stand­by charges for 275 MVA supply to BSES.
Whenever required during an emergency, additional electricity may be taken for areas outside Mumbai region through MSEB’s Boisar sub­station. For this purpose, MSEB should take proper arrangements.
As per Committee’s recommendations and taking into account, TEC’s electricity supply to BSES, TEC’s standby supply from MSEB, charges thereof and TEC’s and BSES’s financial conditions, BSES should make a payment of Rs.3.5 crores every month for standby supply. On this basis, the rate per KVA should be fixed and commercial arrangement finalized. The above standby charges are passed on TEC’s & BSES’s existing electricity supply tariff. The standby charges may be reviewed during tariff revision in the future.”
9. Since the agreement was to be finalised as per the Government’s order, the Government had no power to give directions to generators and distributors, TPC and BSES had entered into Principles of Agreement on 30.1.1998, the clauses 2 to 9 are extracted hereunder:

“(2) BSES shall pay to TEC for the 220 KV interconnection at Borivali Rs.3.5 crores per month as standby charges for 275 MVA as per Government orders.
(3) BSES offtake of energy at 220 KV Borivli interconnection will be billed at Rs.2.09 per kWh plus F.A.C. (which is presently at Rs.0.45) as applicable from time to time at other points of supply. This average energy charge is based on an estimated annual flow of 250 million units of energy through Borivli interconnection.
(5) As soon as the interconnection between TEC and BSES at 220 KV Borivli is established.
(6) The interconnection between MSEB and BSES at Boisar will be opened out.

(7) BSES shall use this interconnection at Borivali fully for the standby type of service.

(8) Both the parties have agreed to cooperate in order to ensure that the orders of the Government dated 19­01­1998 are implemented in the spirit of it.

(9) A detailed Power Supply Agreement on a mutually agreed basis incorporating the above will be executed by 21 st of April, 1998.” (emphasis supplied) Though the aforesaid principles of the agreement were entered into between the parties, for one reason or the other, no agreement has been executed between them.

10. The TPC under the Principles of Agreement dated 31.1.1998 was bound to supply standby power as and when required by BSES/REL. Whether the TPC was drawing from MSEB or not is immaterial. The agreement of BSES was with TPC, not with MSEB. The agreement between TPC and BSES was independent than the agreement between TPC and MSEB.

11. Even after providing the standby facility of 275 MVA to BSES/REL, TPC still enjoyed the standby facility of 550 MVA from MSEB. The TPC entitlement to avail 550 MVA standby facility from MSEB did not change.

12. The standby facility that has been availed of by BSES/REL through TPC since then it actually drew on about 119 occasions till May 2004, of which 57 occasions in excess of 275 MVA. It has been observed by the Appellate Tribunal for Electricity (in short ‘the APTEL’) that TPC in 90 percent of the above occurrences has supplied standby powers from its own generation and never drawn back the power from MSEB. The TPC has actually drawn standby from MSEB on a large number of occasions and on several occasions far in excess of 275 MVA. The standby drawn by TPC from MSEB is as under:

“439 MVA highest in 1998­1999 271 MVA highest in 1999­2000 358 MVA highest in 2000­2001 325 MVA highest in 2002­2003 415 MVA highest in 2002­2003 763 MW highest in 2004”
13. It is also pertinent to mention that even after BSES/REL started drawing power from its Dahanu generation station, BSES/REL continued to purchase approximately 35 percent of TPC’s generation from TPC to supply energy to BSES/REL consumers. With effect from 1.2.1998, the BSES/REL paid a sum of Rs.3.5 crores per month to TPC as charges for standby. The TPC objected and sought the revision of standby charges, which was fixed at Rs.3.5 crores per month, by writing a letter to the Government of Maharashtra on 8.7.1998. With effect from 1.12.1998, the MSEB revised its tariff by issuing a notice under the agreement between the MSEB and TPC. The charges for standby facility were also increased from Rs.450 KVA per month to Rs.550 KVA per month i.e., Rs.363 crores per annum equal to Rs.30.250 crores per month. These standby charges enhanced from Rs.24.75 crore per month to Rs.30.25 crores per month with effect from 1.12.1998 i.e., from Rs.297 crores to Rs.363 crores annually. The TPC instead of requiring a pro­rata share of the incremental standby charges from BSES/REL purported to divide the amount of Rs.30.25 crores in the ratio of 50:50 and demanded a sum of Rs.15.125 crores per month i.e., Rs.181.5 crores per annum by way of standby charges from BSES/REL. The TPC was already recovering Rs.24.75 crores per month through its tariff as said amount was factored in tariff from its customers and additional recovery of Rs.3.5 crores was also being made from BSES/REL under the Principles of Agreement. Thus, the total recovery of Rs.28.25 crores per month by way of standby charge was already made by TPC from its customers as on September 1998. By demanding a sum of Rs.15.125 crores per month from BSES/REL, TPC was attempting to demand an additional sum of approximately Rs.11.625 crores per month from BSES/REL under the guise of standby charges instead of demanding a pro­rata amount of the incremental standby charges of Rs.2 crores.