NARAYANPUR POWER COMPANY Vs. KARNATAKA ELECTRICITY

JUDGEMENT

(1.) THIS appeal has been filed by M/s. Narayanpura Power Company Private Ltd. against the order of Karnataka Electricity Regulatory Commission dated 19.08.2010 disallowing the claim of the appellant for payment against supply of power from its generating station to the respondent distribution company and holding that the PPA between the appellant and the Page 2 of 39 Appeal No. 195 of 2010 distribution company is binding and the parties are bound to perform their respective obligations as per the PPA.

(2.) THE appellant is a generating company which has established Mini hydro electric generating station in Karnataka. The Karnataka Electricity Regulatory Commission ('State Commission') is the first respondent. The Government of Karnataka and Gulbarga Electricity Supply Co. Ltd., a distribution company are the second and third respondents respectively. The State Load Despatch Centre operated by the State Transmission Company is the fourth respondent.

(3.) THE brief facts of the case are as under: 3.1. The appellant has established a 7.2 MW mini hydro electric generating station at Narayanapura Page 3 of 39 Appeal No. 195 of 2010 Right Bank Canal in Karnataka. The generating station is a renewable source of energy. 3.2. In the year 2004, Government of Karnataka accorded its sanction to the proposal of the appellant for the installation of the hydro project of 12 MW. It was decided that the project would be developed in two stages, with one Unit of 6 MW set up in the first stage and one more unit of 6 MW in the second stage. Subsequently, in April 2007, the Government of Karnataka accorded its approval for enhancement of capacity of the second stage to 7.2 MW. This case pertains to the sale of power from the second stage of the hydro -electric project of 7.2 MW capacity. 3.3. On 21.01.2004 the State Commission published its Regulation for procurement of power from renewable sources by distribution licensee. One of the Page 4 of 39 Appeal No. 195 of 2010 options under the Regulation available to the generating company for renewable sources was to enter a standard PPA with the distribution licensees in Karnataka. 3.4. On 18.08.2005, the State Commission passed an order in the matter of standardization of formats for Power Purchase Agreements in respect of the Non - Conventional Energy Projects and approved the draft Standard PPAs for each category of NCE projects. In the said order, it was stated that the distribution companies should obtain approval of the State Commission for the individual PPAs, even though they are in the approved format. 3.5. On 12.02.2008, the appellant signed a Power Purchase Agreement ('PPA') with the distribution licensee, the respondent no. 3 herein, in respect of the Page 5 of 39 Appeal No. 195 of 2010 second stage of the hydro electric project. Subsequently, the PPA was submitted to the State Commission for its approval. The State Commission approved the PPA subject to incorporating certain corrections and communicated the same to the respondent no. 3 on 21.04.2008. 3.6. The third respondent vide its letter dated 14.05.2008 informed the appellant about the observations made by the State Commission and requested the appellant to attend to the same at the earliest. 3.7. Subsequently, on 15.12.2008, the appellant sent an e -mail to the respondent no. 3 expressing that they had certain reservations to conclude the PPA and requested to treat the PPA as cancelled. Subsequently, Page 6 of 39 Appeal No. 195 of 2010 the appellant also sent similar e -mail on 23.12.2008 and 25.12.2008 to the respondent no.3. 3.8. Before sending a communication dated 15.12.2008 to cancel the PPA, the appellant wanted to sell power from its hydro -electric power station through power exchange to third parties and requested for 'No Objection Certificate' from the fourth respondent. On 22.09.2008 the appellant filed an application with the fourth respondent to seek its 'No Objection Certificate' for short -term open access for sale of power through the Power Exchange. The fourth respondent sought the comments of the third respondent about granting of open access vide its letter dated 3.12.2008. The third respondent, vide its letter dated 18.12.2008 objected against granting open access facility to the appellant in view of the PPA dated 12.02.2008 between the appellant and the respondent Page 7 of 39 Appeal No. 195 of 2010 no.3. Accordingly, the open access was denied to the appellant by the respondent no.4. 3.9. On 17.12.2008 the State Government issued direction dated 17.12.2008 under Section 11 of the Electricity Act to all co -generation projects in Karnataka directing them to maximize their generation and supply of electricity to the State Grid. The State Government also fixed price of purchase of electricity from the co -generation projects. 3.10. Thereafter, the State Government issued another direction dated 30.12.2008 under Section 11 of the Electricity Act directing all power generators to maximize their generation and supply electricity to the State Grid. However, the State Government did not fix any tariff for supply of electricity. Page 8 of 39 Appeal No. 195 of 2010 3.11. The appellant started supplying power generated in the Project to the respondent no. 3 and submitted invoices for power supplied based on the daily average rate adopted from Indian Energy Exchange rate, after deducting 10% as wheeling charges and transmission loss and the commission of the power exchange. However, the third respondent did not pay any amount against those invoices till 27.08.2009, after which they started making payment as per the rate agreed in the PPA. 3.12. The direction dated 30.12.2008 issued by the State Government under Section 11 was modified with effect from 1.06.2009 to the effect that all private power generators should supply power generated only to the extent of 50% of the exportable capacity to the State Grid. Consequently, on 6.6.2009 the State Government completely withdrew the directions given Page 9 of 39 Appeal No. 195 of 2010 to the private generators under Section 11. It was also clarified by the State Government vide order dated 1.9.2009 that it did not empower the private generators having subsisting Power Purchase Agreements with the Power Utilities in the State to sell power to third parties and the private generators having valid PPA were bound to supply power to the respective Power Utilities in the State in terms of its PPA. 3.13. The appellant filed a petition dated 1.7.2009 under Section 11(2) of the Act for offsetting adverse financial impact of the directions issued by the State Government under Section 11(1) of the Electricity Act, 2003 before the State Commission. After filing of the said petition, the third respondent started making payment to the appellant towards the power supplied at the rate agreed in the PPA. Page 10 of 39 Appeal No. 195 of 2010 3.14. The State Commission by its order dated 19.8.2010 rejected the claim of the appellant and held that the PPA dated 12.02.2008 signed between the appellant and the distribution licensee was legal and binding and the parties were bound to perform their respective obligations as per the PPA. The State Commission also held that appellant was not entitled to either open access during the agreement period or payment at rate higher than that provided in the PPA. Aggrieved by the said order, the appellant has filed this appeal.