SC dismisses Tata Power's appeal against MERC awarding project to Adani

In a setback to Tata Power, the Supreme Court on Wednesday dismissed the company’s challenge to the Maharashtra Electricity Regulatory Commission’s (MERC’s) decision to award a Rs 7,000-crore transmission project near Mumbai on a nomination basis to Adani Electricity.

The court upheld the order by the Appellate Tribunal for Electricity (APTEL) in this case and directed all State Electricity Regulatory Commissions (SERCs) to frame guidelines on tariff determination in accordance with Section 61 of the Electricity Act and the national policy.

The verdict has implications for the Mumbai power market, said Ashok Pendse, an energy expert based in the city.

“Mumbai's peak power demand is around 3,500 Mw. Adani Group, through its Dahanu unit, supplies 500 Mw to Mumbai and Tata Group supplies 1,700 Mw. The rest of the power comes from outside Mumbai. With the Supreme Court verdict, Adani Group can now set up its Aarey-Kudus transmission project on the western corridor. This will make available 1,000 Mw,” Pendse said.

After several power outages in Mumbai, the MERC in 2013 gave its approval to the detailed project report of the Aarey-Kudus electricity transmission project of Reliance Energy. However, the state transmission utility (nodal agency for all transmission projects within the state) decided to change the scope of the project, which went back to the drawing board and stayed there till 2018.

After taking over Mumbai’s suburban power distribution business of Reliance Energy from Anil Ambani Group, Adani Electricity revived the transmission line project and secured licence from the MERC in March last year. Under this project, Adani will develop the direct current link between the Kudus and Aarey Colony power stations.

However, Tata Power, which supplies electricity to South Mumbai, opposed the MERC’s proposal to grant the licence, saying it should be awarded through new tariff-based competitive bidding.

Tata Power said the MERC had not stated the reasons for awarding the project to Adani without the competitive bidding process.

Rejecting Tata Power’s contention, the MERC awarded the project to Adani Electricity.

The project was then challenged by Tata Power at APTEL. After APTEL upheld the MERC’s decision in February this year, Tata Power moved the Supreme Court.

The question before the apex court was whether a large infrastructure project could be awarded to a party simply on a “nomination basis” under Section 62 (Commission empowered to determine tariff) of the Electricity Act by departing from competitive bidding under Section 63 (determination of tariff by bidding process) of the Act. 

A Bench comprising Chief Justice of India DY Chandrachud, Justice A S Bopanna, and Justice J B Pardiwala said the Electricity Act 2003 provided the states sufficient flexibility to regulate intra-state transmission systems.

“The Electricity Act, 2003, seeks to distance the State Governments from the determination and regulation of tariff, placing such power completely within the ambit of the Appropriate Commissions,” the judgment read.

The court observed the Act did not say there was one dominant method to determine tariffs and that Section 63 could not take precedence over Section 62.

The judges said tariffs had to be determined by the MERC by exercising general regulatory powers.

“Section 63 operates after the bidding process has been conducted. Where the tariff has already been determined through bidding, the Appropriate Commission has to adopt such a tariff that has been determined. The Appropriate Commission cannot negate such tariff determined through bidding by using its powers under Section 62.

The tariff determined through the bidding process may not be adopted by the Appropriate Commission only if the bidding process was not transparent (undertaking a substantive review) or the procedure prescribed by the Central Government guidelines under Section 63 was not followed (undertaking a procedural review),” the court said.

Through this judgment, the court has clarified that the options of both cost- and tariff-based competitive bidding are available to a Commission while setting up transmission projects. “Competitive bidding is not a dominant route,” the court said.

It held that in exercise of appellate powers, it could not interfere with the factual findings of MERC because it was an independent body to determine tariffs.

“This case has brought to notice the ad hoc nature of state electricity transmission,” the Court said while asking all the SERCs to frame guidelines within three months.

- With inputs from Viveat Susan Pinto

How Things Unfolded

2013: Maharashtra Electricity Regulatory Commission (MERC) gives approval to Aarey-Kudus project, near  Mumbai

2021: MERC gives licence to Adani Electricity for the project

Tata challenges grant of licence before Appellate Tribunal For Electricity (APTEL)

2022: APTEL rules in favour of MERC 

SC upholds APTEL judgement

How SC decided the question of law?
 

Can a large infra project can be awarded to a party on a nomination basis, departing from competitive bidding?

SC said that both cost and tariff-based competitive bidding are available to a Commission while setting up transmission projects under the Electricity Act. “Competitive bidding is not a dominant route,” the court said. Hence, the appeal was dismissed.