A.A. Khan, Member (T)
1. The Appellant namely, Tamil Nadu Electricity Board ("TNEB" for short) has preferred appeals being Appeal Nos. 127, 200 and 201 of 2005, against the Impugned Orders passed by the Central Electricity Regulatory Commission (for brevity hereinafter called "Central Commission"). While appeal No. 127 of 2005 has been filed against CERC order dated 4th August, 2005 in petition No. 81/2005, the Appeal No. 200 of 2005 has been filed against the CERC order dated 21st April, 2005, passed in Review Petition No. 28/2005, and the Appeal No. 201 of 2005 has been filed to challenge the CERC order dated 1st February, 2005 in petition No. 194/2004. The matter relates to the determination of Tariff for the periods 1997-2002 and 2002-04 for the supply of energy by the Neyveli Lignite Corporation ("NLC" for brief) a central public sector undertaking to the Appellant from its Thermal Power Stations-I (TPS-I). TNEB is the sole beneficiary of the power supplied by TPS-I since its inception. The issue lies in a narrow compass. We are required to determine as to whether the Return-on-Equity (ROE) of 12 per cent is admissible as claimed by the Appellant or 16 per cent as insisted by the Respondent, NLC for the determination of Tariff.
Facts of the Case
2. Since the NLC is owned by the Government of India, in accordance with the Section 79(1)(a) of the Electricity Act, 2003, the Tariff of electricity generated by the Thermal Power Stations of the NLC is to be determined by the Central Commission. The Appellant and the Respondent, as in the past, entered into a mutually acceptable agreement for supply of power by the "NLC" from its TPS -I to TNEB for the period from 1st April, 1997 to 31st March, 2002 based on the preexisting Bulk Power Supply Agreement (hereinafter called as "BPSA") executed by the parties for the past period.
Accordingly, BPSA, an agreement for supply of electricity from NLCs TPS-I to TNEB applicable for the period from 1st April, 1997 to 31st March, 2002 was entered into on 9th March, 2001. It may be pertinent to observe that after expiry of the pre-existing agreement on 31st March, 1997, it has taken 4 years to execute the agreement for supply of electricity for the period 1st April, 1997 to 31st March, 2002.
3. Clause 10.2 of the aforesaid agreement dated 9th March, 2001 mentions the major parameters which also included ROE of 12 per cent considered for calculation of Tariff tabulated in Clause 10.1, Clause 10.3 of the said agreement, an extract of which is as mentioned hereunder, also stipulates that the rates are also subject to further revision based on the directives/ Notifications if any that may be issued by the Central Government in regard to Return-on-investment amongst others.
10.3 The quantity of energy supplied between 6000 hours to 6150 hours shall be computed as per the method described in Annexure -III which shall also form an integral part of this Agreement. The above rates for supply of power shall be inclusive of all escalations during the period of the agreement but shall be exclusive of any statutory tax, duty, royalty, cess or levy etc. which may be imposed by the Central and/or State Government and/or any local authority on production and/or consumption of lignite and/or generation and/or sale of electrical energy which shall be payable additionally through the monthly bills. The above rates are also subject to further revision based on the directives/notifications, if any, that may be issued by the Central/State Government or any other Central/State Regulatory Authorities competent to issued directives/guidelines in regard to Depreciation, Return on Investment or any other parameter. Foreign Exchange rate variation, Reimbursement of Income Tax shall be governed by Clauses 10.5 and Clause 16.
4. Further Clause 15 of the aforesaid agreement provides for retrospective application of the terms and conditions of the agreement, beside making some terms effective from the date of signing of the agreement. The Clause 15 of the agreement reads thus:
15. All the above provisions of the agreement excepting those relating to rebate and surcharges provided under Clauses 11.1, 11.3, and 11.4 shall be deemed to have come into effect from 1st April, 1997 and shall be effective for five years from 1st April, 1997 to 31st March, 2002. In respect of Clauses 11.1, 11.3 and 11.4 the effective dates shall be the date of this Agreement.
5. Ministry of Coal, Government of India, the administrative Ministry of NLC issued a Notification dated rd December, 1998 directing NLC to revise their power tariff to ensure a ROE of 16 per cent in respect of all their existing Thermal Power Stations and also for all their mines w.e.f. 1st November, 1998. The Notification further states that the rate of return is valid till 31st March, 2000 and thereafter any revision in tariff notification would be made by the Central Commission.
6. In the meanwhile, the Central Commission notified the Central Electricity Regulatory Commission (Terms and Conditions for Determination of Tariff) Regulations, 2001 (for brevity hereinafter called as "Regulations - 2001"), which came into effect from 1st April, 2001.
7. It is noted that the tariff based on the BPSA was charged @ 185.86 paise/ kWh as on 31st March, 2002, i.e., date of expiry of the agreement and based on the agreement between the parties the same Tariff continued beyond 31st March, 2002. Further, in order to operationalise the securitisation scheme to securitise the outstanding dues payable by TNEB to Central Power and Coal Sector Undertakings, TNEB acknowledged its dues including the outstanding on account of additional 4 per cent ROE towards NLC up to 30th September, 2001.
8. On 29th March, 2004 the NLC filed a Tariff Petition No. 33/2004 for the period 1st April, 2002 to 31st March, 2004 before the Central Commission. During the proceedings conducted by the Central Commission both parties agreed to opt out from the Regulations 2001 for Tariff determination and decided to follow the terms in pre-existing BPSA for the past period. The Central Commission by order dated 31st August, 2004 directed the parties to determine the tariff on the basis of terms and conditions of the BPSA considering the auxiliary consumption of 12 per cent instead of 12.5 per cent as agreed between them. The Tariff was calculated on this basis afresh by the NLC resulting into fixing the rate @ 185.45 paise/kWhr.
9. TNEB has been regularly making payment inclusive of additional 4 per cent ROE to NLC till August, 2004. However, when NLC intimated the aforesaid revised tariff and raised the bills based on it TNEB did not make full payment against the bills from September 2004 to November 2004 but paid only @ 174.71 paise/kWhr. This led to NLC filing a non-compliance petition No. 194 of 2004 dated 13th December, 2004 before the Central Commission seeking directions to TNEB for payment of charges at the revised rates. Replying the petition Applicant TNEB raised certain issues regarding the parameters taken for tariff calculation which, amongst others also included that the ROE taken would be 12 per cent instead of 16 per cent and the post-LEP (post-life Extension programme) capacity of Thermal Power Station -I would be taken as 600 MW instead of 540 MW.
10. The Central Commission by Order dated 1st February, 2005 in petition No. 194/2004 while rejecting the TNEBs claim that ROE was to be paid at 12 per cent and not 16 per cent upheld the TNEBs contention that the Tariff has to be determined taking capacity as 600MW. In the aforesaid order the Central Commission has also observed that there was nothing on record to support the claim of the TNEB that it was paying ROE at higher rate of 16 per cent under protest.
11. The Respondent, NLC, recalculated the tariff on the basis of 600 MW capacity and intimated the tariff of 182.05 paise/kWhr to the Appellant on 15th February, 2005.
12. The Appellant filed a Review Petition No. 28/2005 against the Order of CERC dated 1st February, 2005 before the Central Commission and the same was rejected by It on 21st April, 2005.
13. The Appellant filed a Petition No. 81 of 2005 before the Central Commission for determination of Tariff for the period 1st April, 2001 to 31st March, 2004 under Regulations, 2001 and the same was rejected on 4th August, 2005 at the admission stage on the ground of res judicata as the Order has already been passed for the determination of Tariff for the same period.
14. The NLC, filed a petition No. 97/2005 before the Central Commission seeking direction to TNEB for making payments of the Bills to NLC @ 182.05 paise/kWhr. In view of the undertaking of TNEBs representative to pay the Tariff @ 182.05 paise/kWhr the Order passed by the Central Commission dated 18th October, 2005 did not contain any direction for payment.
15. Aggrieved by the Orders passed by the Central Commission the Appellant has challenged the Impugned Orders dated 4th August, 2005, 21st April, 2005 and 1st February, 2005 before this Tribunal.
Discussions
16. The disputes fundamentally hinges on the interpretation of terms of BPSA executed between the parties on 9th March, 2001 and more particularly the Clause 10.3 of the agreement and whether or not the Appellant, TNEB, had raised objections/protests prior to 2003 against the inclusion of additional 4 per cent ROE in the invoice dated 15th June, 2001 preferred by the Respondent, NLC. It may be pointed out that the Appellant in its memo of appeal has submitted that the Respondent has been charging ROE @ 16 per cent which the Appellant has been paying under protest to avoid an additional surcharge of 15 per cent per annum to which the Respondent would be entitled if the Appellant does not clear the bills of the Respondent as per the penal provisions of tripartite agreement. The tripartite agreement refers to the securitisation scheme under which the outstanding dues payable by TNEB to Central Power Sector and coal entities are securitized and in the process of its implementation TNEB acknowledged its dues including the outstanding arrears on account of additional 4 per cent ROE towards NLC up to 30th September, 2001. TNEB availed the benefit of up to 60 per cent write-off of surcharge and interest payable on the over dues to the Respondent, NLC. At a later stage for the subsequent one-time settlement the TNEB also acknowledged the dues payable to NLC arrived at by considering the additional ROE of 4 per cent for the period from 1st October, 2001 to 30th November, 2003.
17. The TNEBs stated intent, on the one hand, is to acknowledge the dues inclusive of increased ROE from 12 per cent to 16 per cent for securing the benefit of securitization scheme and attempt to avoid additional surcharge under the penal provision but, on the other, to remain impervious to NLCs claim of 16 per cent ROE for Tariff determination. It is not only unreasonable but also against business ethics for TNEB to adopt ROE of 16 per cent in so far as it helps to secure benefit for itself but deny the same dispensation in determination of Tariff for the supply of power by the NLC.
18. The Appellant was asked by this Tribunal to submit the relevant documentary evidence in support of its claim of having raised the objections/ protests against Inclusion of additional 4 per cent ROE in the Invoice dated 15th June, 2001 prior to 2003. It may be pertinent to mention here that the Central Commission after undertaking similar exercise has concluded in the Impugned Order dated 1st February, 2005 that nothing was placed before it to show that the payments by the Appellant, TNEB to Respondent, NLC were made under protest even though a submission to that effect was made by the Appellant before it.
19. The Appellant has submitted an affidavit dated 24th April, 2006 wherein, it states that the amount released for the period 1st October, 2001 to 30th November, 2003 was under protest as per the minutes of meeting held on 22nd December, 2003 and placed at pages 374 to 379 of Volume -I of the appeal paper-book. It is to be noted that the securitisation scheme provided one time settlement of outstanding dues payable by the TNEB to NLC up to 30th September, 2001 and was worked out based on ROE of 16 per cent. The aforesaid minutes of the meeting pertains to the negotiation for subsequent one-time settlement of dues for the period 1st October, 2001 to 30th November, 2003 and that too was computed based on additional ROE of 4 per cent, both for TPS and Mine assets. The NLC, on the request made by TNEB, provided the similar concessions/incentive as for securitization of dues up to 30th September, 2001 for the aforesaid period also and net amount payable by the TNEB to NLC of Rs. 191.62 crores was reconciled and the agreement was reached between the parties that the amount will be paid in 10 installments from January, 2004.
20. Further, the pending Court cases against the Orders of CERC, referred to in the minutes of the meeting, which both parties were at liberty to pursue, have no bearing on NLCs claim of 16 per cent ROE based on the terms of BPSA. As a matter of fact the pending Court cases relate to appeal against the Order of the Central Commission dated 21st December, 2000 passed in Petition Nos. 4/2000; 31/2000; 32/2000; 34/2000; 85/2000; 86/2000 and 88/2000 for determining the norms leading to order for availability-based Tariff and Regulations 2001. It is not appropriate to link it with the terms and conditions of the BPSA. The Appellants reliance on the aforesaid minutes of the meeting to substantiate its claim of protests before release of payment of invoice inclusive of additional 4 per cent ROE is, therefore, misplaced and rejected.
21. It is pointed out that the BPSA signed between the parties having expired on31st March, 1997, the new BPSA to be effective from 1st April, 1997 for a period of 5 years could only be executed between the parties nearly 4 years later on 9.023.2001. Further the Ministry of Coal, Government of India, issued a notification dated rd December, 1998 directing NLC to revise its power tariff to ensure a return on equity of 16 per cent in respect of its TPSs and Lignite Mines with effect from 1st November, 1998. Further as per Section 43A(2) of the Electricity Supply Act, 1948 applicable on the relevant time provides as follows:
43A(2). Terms, conditions and Tariff for sale of electricity by Generating Company:
(2) The tariff for the sale of electricity by a Generating Company to the Board shall be determined in accordance with the norms regarding operation and the plant load factor as may be laid down by the Authority and in accordance with the rates of depreciation and reasonable return and such other factors as may be determined, from time to time, by the Central Government, by notification in the Official Gazette. Provided that the terms, conditions and tariff for such sale shall, in respect of a generating company, wholly or partly owned by the Central Government, be such as may be determined by the Central Government and in respect of a generating company wholly or partly owned by one or more State Governments be such as may be determined, from time to time, by the government or governments concerned. Also Sections 62 and 79 of Electricity Act, 2003 provide that Tariff determinations and regulations thereto of generating companies owned or controlled by the Central Government are to be done by the Central Commission. Thus, at the relevant time, the Respondent being a generating company, wholly owned and controlled by the Government of India, statutorily was obliged to effect sale of electricity to the Appellant only on the terms and conditions and tariff as may be determined by the Central Government. We are of the opinion that the aforesaid direction is binding on NLC and it, being wholly owned by the Government of India, is not competent to negotiate the parameter of 16 per cent of ROE with its bulk power purchaser for which specific statutory direction under special notification was issued by the Government of India. Any deviation from it, in our opinion, would vitiate BPSA rendering it unlawful under Section 23 of the Contract Act, 1872.
22. As the date (i.e., 1st April, 1997) from which the newly executed BPSA was to be made effective was earlier than the date (i.e., 1st November, 1998) from which ROE of 16 per cent was applicable, it necessarily required computation of Tariff schedule separately based on 12 per cent ROE and 16 per cent ROE along with the associated financial parameters, effective for the periods 1st April, 1997 to 31st October, 1998 and 1st November, 1998 to 31st March, 2002 respectively, and its amalgamation into a single BPSA would have not only made documentations for the agreement avoidably cumbersome but also vulnerable to mis-interpretation.
23. The Appellant has submitted that the first Tariff proposal dated 30th April, 1998 based on 16 per cent ROE was submitted by the NLC which allegedly, sequel to negotiations, was re-worked on the basis of 12 per cent ROE and re-submitted subsequently. The examination of the documents furnished has revealed that firstly, the ground for resubmission of Tariff proposals was on account of factors other than the increased ROE and secondly, in any event it was required to be done as admittedly the applicable ROE on the commencement date of the Tariff period (i.e. 1st April, 1997) was 12 per cent and not 16 per cent. The ROE of 16 per cent was to come into effect only from 1st November, 1998. The reason advanced by the Senior Counsel for the Respondent that the Tariff rates were fixed on the basis of 12 per cent ROE since, on the one hand, Clause 15 of the BPSA provided that the agreement would be deemed to come into effect from 1st April, 1997 and, on the other, Immediately after executing BPSA Clause 10.3 of the agreement enabled raising of supplementary bills for the arrears of additional ROE, sounds plausible. The Senior Counsel has further submitted that after execution of the BPSA documents, the NLC raised the supplementary Invoice on account of additional 4 per cent ROE, and no objection was raised by the TNEB for Increased rate of ROE and the payment was made against the Invoice. He further averred that the Appellant also paid subsequent bills on higher rates of ROE up to August, 2004 without raising any objections.
24. In order to support the plea that the dispute over the Increased ROE existed since the beginning phase of the negotiations for BPSA, the Appellant has also made reference to an Internal office note of 27th August, 2001 seeking TNEBs Internal approval of the recommendations made by the securitisation Expert Group headed by Dr. M.S. Ahluwalia, Member (Energy) Planning Commission on liquidation of arrears to Central Power Sector Undertakings at pages 87 to 103 of the Volume-II of the appeal paper-book. It is true that it contained increase of ROE from 12 per cent to 16 per cent w.e.f. 1st November, 1998 as a disputed item but the objection was limited to ROE not being linked to Debt-Equity ratio and has nothing to do with the terms and conditions of the BPSA governing the determination of Tariff.
25. In order to further establish the veracity of the claim made by the Appellant brought out in para 23 above that the Respondent had first submitted its tariff proposal dated 30th April, 1998 based on 16 per cent ROE and after alleged negotiations it had re-submitted the proposal dated 7th January, 1999 based on 12 per cent ROE, it may be pointed out that the letter of revised proposal dated 7th January, 1999 contained the following paragraph:
The rates have been worked out at 12 per cent ROE and Internal Resources (IR) for both Mines and Thermal Power Station. As per the Govt. of India, Ministry of Coal direction (Copy enclosed for reference), rate of return has been increased to 16 per cent from 12 per cent for both Mines and Thermal effective from 1st November, 1998. Consequently, the power cost will increase by 5.45 paise/kWhr.
The proposal contrary to the claim, mentioned that while it is based on ROE of 12 per cent, the same has since been increased to 16 per cent by the directions of the Ministry of Coal, Government of India effective from 1st November, 1998 and also indicated that the power cost on account of that will increase by 5.45 paise/kWhr. Subsequently, NLCs letter dated 31st May, 1999 while making reference to the NLCs earlier letter dated 7th January, 1999 also makes a reference to TNEBs letter dated 18th February, 1999 seeking reduction in the rates and certain clarifications. The examination of the TNEBs letter dated 18th February, 1999 to NLC does not make any reference to the issue of ROE. It only indicates how the rate has been linked. The letter states that:
the above rates are worked out at 12 per cent ROE/IR. As already pointed out in our letter dated 7th January, 1999 for some of the assets, cost, return etc. are proposed to be claimed by NLC as and when commissioned basis (reference Annexure-I to the letter dated 7th January, 1999).
The letter also indicated that there was no avenues left for reduction in the rates. A letter dated 2rd June, 1999 was sent by NLC to TNEB for expediting the approval of the proposal. The aforesaid exchange of correspondences prior to signing of BPSA on 9th March, 2001, indicate that on being intimated by NLC, the TNEB had not raised any objection to computation of Tariff based on ROE of 16 per cent from 1st November, 1998 as directed by the Government of India. The conduct of the parties demonstrated their understanding of the terms and conditions of BPSA and the Respondent NLC appeared assured that the impact of the increased ROE on the tariff shall be taken care of by the Clauses 10.3 and 15 of the BPSA.
26. In summary, it appears to us that the strategy adopted for signing of the new BPSA by the parties has been to first negotiate and finalise items of capital base, operating parameters and elements of fuel pricing effecting the tariff of the Thermal Power Station-I, while at the same time adopt the parameters such as depreciation, return on equity etc. regulated by the Notifications/directives of the concerned Statutory Authorities as base parameters, implemented in the pre-existing BPSA for Tariff computation. Subsequent to the signing of the new BPSA the adjustments in the Tariff on the basis of the validly modified parameters contained in Clause 10.3 is allowed in terms of Clause 15 of the BPSA.
27. In view of the above, we dismiss the Appeal Nos. 127, 200 and 201 of 2005.