Power purchase agreements must be aligned with regulatory frameworks and cannot be enforced if unapproved, particularly regarding classifications impacting fixed charges.

JUDGMENT :

K.V. Viswanathan, J.

1. The present appeal calls in question the correctness of the judgment and order dated 10.07.2013 passed by the Appellate Tribunal for Electricity (for short ‘APTEL’) in Appeal No.112 of 2012.

2. The Tamil Nadu Electricity Regulatory Commission (for short ‘TNERC’) and the APTEL have concurrently found in favour of the respondent. It has been held that the power generated by the respondent by the open cycle gas turbine for the period from 29.10.2005 to 30.06.2006 (hereinafter called as ‘Relevant Period’) and supplied to the appellant could not be termed as “infirm power” and that it could only be treated as “firm power”. The consequence of the said finding was that the Commercial Operation Date (for short the ‘COD’) for the Gas Turbine in Open Cyc006Ce was held to be 29.10.2005 (i.e. the synchronization date) and since power was delivered on a continuous basis, the appellant was ordered to pay fixed charges for the relevant period.

3. Aggrieved, the appellant is in appeal. The principal argument is that any sale of electricity prior to “COD” would be infirm power and would entail the supplier only to variable charges i.e., the cost of the fuel. To support this, the appellant relies on the clause in the Power Purchase Agreement (for short ‘PPA’) originally entered on 29.04.1998 and undisputedly amended on 25.08.2004. According to the appellant, under the PPA, as amended, date of commercial operation was the day on which the project achieved entry into commercial operation i.e., 01.07.2006.

4. The relevant clauses under the PPA dealing with Date of Commercial Operation are as under: -

“Date of Commercial Operation “means the Day on which Project achieves Entry into Commercial Operation”” “4.2 Entry into Commercial Operation

(a) The Project shall be deemed to have achieved Entry into Commercial Operation on the date of issue by the Company to the Board of the Certificate of Project Completion, provided that the Company shall not be entitled to issue such a certificate unless during the Capacity Test to establish Entry into Commercial Operation conducted pursuant to the provisions of Section 4.1, the Project achieves a Tested Capacity of at least 47.52 MW.

(b) If the Tested Capacity at the time of Entry into Commercial Operation is more than 55.44 MW then any revision in the Contracted Capacity, and the adjustment in the Fixed Charges shall be mutually decided between the Parties.”

Attention is also drawn to the definition of “infirm power” under the PPA which reads as follows: -

“"Infirm Power" means the Electricity produced by the Project and delivered to the Board prior to the Date of Commercial Operation at the Supply Point, not on any request or Despatch Instruction of the Board, in respect of which the Board shall pay to the Company, Variable Charges calculated as per the formula pursuant to Section 7.3.”

FINDINGS OF THE TNERC:-

5. The TNERC recorded the following findings: -

a) Any PPA executed after the enactment of the ELECTRICITY ACT , 2003, (for short ‘2003 Act’) should have been placed before the TNERC for approval under Section 86(1)(b) of the 2003 Act, but both the parties in this case have failed to do so.

b) That the original PPA dated 29.04.1998 and the amended PPA dated 25.08.2004 which incorporated the requirements of combined cycle power project were not placed before the TNERC especially when the amended PPA was executed after the enactment of the 2003 Act.

c) Though the original PPA was dated 29.04.1998 and was based on