1. Challenge to the validity of a tariff regulation prescribing a more stringent Station Heat Rate for a specific thermal power station under the Electricity Act 2003. (Para 2 , 3 , 4 , 7 , 9 )
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2019 Supreme(SC) 46
SUPREME COURT OF INDIA
Dhananjaya Y. Chandrachud, Hemant Gupta, JJ.
Reliance Infrastructure Limited - Appellant
Versus
State of Maharashtra & Ors. - Respondents
Civil Appeal No. 879 of 2019 (@ Special Leave Petition (C) No. 15754 of 2016)
Decided On : 21-01-2019
Important Points
IMPORTANT POINTS
Validity of Regulations could not be challenged before Tribunal but only before Court.
Regulation framed on basis of CPRI report following statutory procedures; taking into account factors to be considered mandated by statute, Electricity act, 2003, section 181; National tariff policy and duly considering suggestions of stakeholders does not warrant interference.
Validity of Regulations could not be challenged before Tribunal but only before Court.
Regulation framed on basis of CPRI report following statutory procedures; taking into account factors to be considered mandated by statute, Electricity act, 2003, section 181; National tariff policy and duly considering suggestions of stakeholders does not warrant interference.
Subject
Energy Law - Electricity Tariff Regulation
Act Referred
Headnote
(a) Constitution of India – Article 226 – Appellant filing appeal before Tribunal for relaxation of the SHR norms – Before the high court the Regulation fixing SHR was challenged being discriminatory and ultra vires – Pendency of appeal before Tribunal disclosed – Appeal before Tribunal disposed of which was brought to the notice of High court – High Court holding the writ petition not maintainable in view of appeal before Tribunal – Approach of High Court held not correct inasmuch as validity of Regulations could not be challenged before Tribunal but only before Court. (Para 18)
(2010) 4 SCC 603 – Relied upon
(b) MERC (Multi Year Tariff) Regulations, 2011 – Regulation 44 r/w Regulation 44, MERC (Multi Year Tariff) Regulations 2015 – MERC framing the Regulation on basis of CPRI report following statutory procedures and taking into account factors to be considered mandated by statute, Electricity act, 2003, section 181 – National tariff policy and suggestions of stakeholders duly considered – A body entrusted with task of framing subordinate legislation has a range of options including policy options – No manifest unreasonableness or arbitrariness to warrant interference – Held, regulation 44.2(d) of the MERC (Multi Year Tariff) Regulations, 2011 does not suffer from any constitutional or statutory infirmity. (Para 31, 32)
(2002) 3 SCC 711 – Relied upon
Facts of the case:
The validity of a tariff regulation framed by the Maharashtra Electricity Regulatory Commission (MERC) was questioned before the High Court. The plea of the appellant is of discrimination. The discrimination, according to the appellant, lies in a statutory regulation determining the Station Heat Rate. According to the appellant, its thermal power station at Dahanu has been subjected to a more stringent norm than other comparable units. MERC, it is asserted, breached the National Tariff Policy 2006. The High Court held against the appellant both on the maintainability of its writ petition under Article 226 of the Constitution and on the merits of the challenge to the validity of the statutory regulation.
Finding of the Court:
Validity of the Regulations could not be challenged before Tribunal but only before Court.
Result:
Appeal disposed of. View of the High Court that the writ petition under Article 226 was not maintainable disapproved and the direction on the imposition of costs set aside. The ultimate conclusion of the High Court to dismiss the writ petition under Article 226 approved.
Legal Category Hierarchy
Table of Contents
2. Appellant alleged discrimination and breach of National Tariff Policy; Respondent argued norms were based on historical performance and expert technical assessments. (Para 19 , 20 )
3. Tariff fixation is a complex expert function; the Commission balanced consumer interests and efficiency using technical data and historical performance without manifest arbitrariness. (Para 23 , 24 , 25 , 26 , 28 , 29 , 30 , 31 )
4. Validity of delegated legislation cannot be tested before the Appellate Tribunal for Electricity but only through judicial review under Article 226 of the Constitution. (Para 18 )
5. Writ petition held maintainable and costs set aside, but the challenged tariff regulation was upheld as valid and the petition dismissed. (Para 32 )
6. Does the Appellate Tribunal for Electricity have jurisdiction to decide the validity of regulations framed by a Regulatory Commission?
No. Regulations are delegated legislation; their validity can only be tested through judicial review proceedings before the courts under Article 226 of the Constitution, not via appeal under Section 111 of the Electricity Act. (Para 18 )
7. What is the scope of judicial review regarding the fixation of electricity tariffs by an expert regulatory body?
Courts will not substitute their own determination for that of an expert body unless the decision is manifestly unreasonable, arbitrary, illegal, or founded on extraneous considerations, as tariff fixation is primarily a policy matter. (Para 30 , 31 )
8. How should operating norms for electricity tariffs be determined according to the National Tariff Policy?
Norms must be efficient, relatable to past performance, capable of achievement, and progressively reflect increased efficiencies, while balancing the need for reasonable consumer rates with the financial viability of the sector. (Para 24 , 25 )
JUDGMENT :
Dhananjaya Y. Chandrachud, J.
Leave granted.
2. The validity of a tariff regulation framed by the Maharashtra Electricity Regulatory Commission (MERC) was questioned before the High Court of Judicature at Bombay. Bereft of jargon – both legal and scientific – the plea of the appellant is of discrimination. The discrimination, according to the appellant, lies in a statutory regulation determining the Station Heat Rate. According to the appellant, its thermal power station at Dahanu has been subjected to a more stringent norm than other comparable units. MERC, it is asserted, breached the National Tariff Policy 2006. The High Court held against the appellant both on the maintainability of its writ petition under Article 226 of the Constitution and on the merits of the challenge to the validity of the statutory regulation. The case has thus travelled to this Court.
3. The Electricity Act 2003 came into force on 10 June 2003. Electricity Regulatory Commissions constituted under Section 82 are empowered to frame regulations under Section 181, including the terms and conditions for determination of tariff under Section 61 [Section 181(2)(zd)]. The MERC framed the MERC (Terms and Conditions of Tariff) Regulations 2005 [Tariff Regulations 2005] for a period of five years, upto financial year 2010-11. The regulations, in so far as the appellant is concerned were extended for a further period of one year upto financial year 2011-12.
4. Regulation 33.1.3 prescribed the Station Heat Rate (SHR). The SHR is the heat energy required to generate one unit of electrical energy. The SHR is significant because it represents the ratio between heat input and the energy output. SHR has a co-relationship with efficiency: a higher SHR reflects comparative inefficiency while a reduction in the SHR is associated with increasing levels of efficiency. In the Tariff Regulations 2005, the gross SHR was defined in the following terms:
“33.1.3. Gross station heat rate
(a) Gross station heat rate for coal-based generating stations
200/210/250 MW sets
500 MW and above sets
During stabilization Period
2600 kCal/kWh
2550 kCal/kWh
Subsequent period
2500 kCal/kWh
2450 kCal/kWh
Note 1:
In respect of 500 MW and above units where the boiler feed pumps are electrically operated, the gross station heat rate shall be 40 kCal/kWh lower than the station heat rate indicated above.
Note 2:
For generating stations having combination of 200/210/250 MW seats and 500 MW and above sets, the normative gross station heat rate shall be the weighted average station heat rate.”
In the above regulations, uniform norms were fixed for all coal based thermal generating stations, without any distinction between individual generating stations. The norm applicable to the Dahanu Thermal Power Station of the appellant was 2500 kCal/kWh. This norm also applied to other generating stations in the State of Maharashtra.
5. On 6 January 2006 the Union of India in the Ministry of Power notified the National Tariff Policy under Section 3 of the Electricity Act 2003. The policy, inter alia, spelt out the general approach to be followed for the purpose of determining tariffs including operating norms for generating stations. Clause 4 of the policy laid out its objectives in the following terms:
“(a) Ensure availability of electricity to consumers at reasonable and competitive rates;
(b) Ensure financial viability of the sector and attract investments;
(c) Promote transparency, consistency and predictability in regulatory approaches across jurisdictions and minimise perceptions of regulatory risks;
(d) Promote competition, efficiency in operation and improvement in quality of supply.”
Clause 5.0 spells out the “general approach to tariff”. Clause 5(f) stipulates operating norms:
“(f) Operating Norms
Suitable performance norms of operations together with incentives and disincentives would need be evolved along with appropriate arrangement for sharing the gains of efficient operations with
