Case No. 206 of Coram. Shri Azeez M. Khan, Member Shri Deepak Lad, Member. Maharashtra State Electricity Distribution Company Limited

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1 Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai Tel /65/69 Fax Website: / www. merc.gov.in Case No. 206 of 2014 In the matter of Petition of Maharashtra State Electricity Distribution Co. Ltd. for refund of Rs crore paid to Sai Wardha Power Ltd. in pursuance of Tripartite Energy Purchase Agreements, and Rs crore towards the balance of Cross-Subsidy Surcharge for FY Coram Shri Azeez M. Khan, Member Shri Deepak Lad, Member Maharashtra State Electricity Distribution Company Limited..Petitioner V/s M/s Sai Wardha Power Ltd....Respondent Appearance For the Petitioner For the Respondent : Shri G. Saikumar (Adv.) : Shri Anand K. Ganesan (Adv.) ORDER Dated: 1 February, 2018 Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL) has filed a Petition on 19 November, 2014 citing Sections 86(1) (f), 142 and 146 of the Electricity Act (EA), 2003 seeking refund of Rs crore paid by it to Sai Wardha Power Ltd. (SWPL) in pursuance of the tripartite Energy Purchase Agreements (EPAs) and Rs.8.79 crore towards the balance of Cross-Subsidy Surcharge (CSS) for FY MERC Order in Case No. 206 of 2014 Page 1 of 20

2 2. MSEDCL s prayers are as follows: i) direct the Respondent to comply with the order dated passed by this Hon ble Commission in its letter and spirit; ii) take cognizance of (a) nonpayment of balance CSS for the FY and (b) refund of monies paid by the Petitioner in pursuance to EPAs on the premise that the Respondent would meet CGP qualifications for FY and pass appropriate orders under Section 142 and 146 of the Electricity Act, 2003; iii) direct the Respondent to pay the following to the Petitioner: Particular Amount paid by the Petitioner in pursuance of EPAs for purchase of over-injected electricity. Balance CSS payable by the Respondent for The FY Total Subtract (Amount paid by the Respondent in pursuance of the order dated passed by this Hon ble Commission) Balance Amount Rs Cr. Rs Cr. Rs Cr. Rs Cr. Rs Cr. In the alternative iv) permit the Petitioner to adjust / set off the claims of the Petitioner and the Respondent in the following manner: S. No. Particular Amount in Crs 1 Amount paid by the Petitioner in pursuance of EPAs Balance CSS payable by the Respondent for The FY Sub Total: (claim of the Petitioner) Amount payable by the Respondent 3 CSS Amount paid by Respondent s consumers for FY Amount deposited by the Respondent in pursuance of the order dated passed by this Hon ble Commission Sub Total: (claim of the Respondent) Net amount after adjustment/set off NIL v) Pass any other or further order (s) as this Hon ble Commission may deem fit and proper in the facts and circumstances of the present case. vi) To condone any error/omission and to give opportunity to rectify the same; MERC Order in Case No. 206 of 2014 Page 2 of 20

3 vii) To permit the Petitioner to make further submissions, addition and alteration to this Petition as may be necessary from time to time. 3. The revised prayers made by MSEDCL in its additional submission on 17 December, 2014 are as below: In view of the above, it is most respectfully submitted that this Hon'ble Commission may be please consider additional submission to the main petition and may please consider the revised summery of dues as submitted below: Particular Amount paid by the Petitioner in pursuance of EPAs for purchase of over-injected electricity. Balance CSS payable by the Respondent for the FY Total Subtract (Amount paid by the Respondent in pursuance of the order dated passed by this Hon'ble Commission) Balance Amount Rs Cr. Rs Cr. Rs Cr. Rs.2.45 Cr Rs Cr. in the alternative i. permit the Petitioner to adjust/set off the claims of the Petitioner and the Respondent in the following manner: S.No. Particular Amount in Crs 1 Amount paid by the Petitioner in Pursuance of EPAs 2 Balance CSS to be paid by the Respondent for FY Sub Total A: (Claim of the Petitioner) Amount payable by the Respondent CSS Amount paid by Respondent s consumers for FY Amount deposited by the Respondent in pursuance of the order dated passed by this Hon'ble Commission Sub Total B: (Claim of the Respondent) Net Amount after adjustment/setoff ii. pass any other or further order (s) as this Hon'ble Commission may deem fit and proper in the facts and circumstances of the present case. MERC Order in Case No. 206 of 2014 Page 3 of 20

4 iii. iv. To condone any error/omission and to give opportunity to rectify the same; To permit MSEDCL to make further submissions, addition and alteration to this Petition as may be necessary from time to time. v. direct the Respondent to comply with the order dated passed by this Hon'ble Commission in its letter and spirit; vi. vii. take cognizance of (a) nonpayment of balance CSS for the FY and (b) refund of monies paid by the Petitioner in pursuance to EPAs on the premise that the Respondent would meet CGP qualifications for FY and pass appropriate orders under Section 142 and 146 of the Electricity Act, 2003; direct the Respondent to pay the following to the Petitioner: 4. MSEDCL revised its prayers further on 29 February, 2016 as below: (i) (ii) (iii) Direct the Respondent to comply with the order dated passed by this Hon'ble Commission in its letter and spirit; Take cognizance of (a) nonpayment of balance CSS for the FY and (b) refund of monies paid by the Petitioner in pursuance to EPAs on the premise that the Respondent would meet CGP qualifications for FY and pass appropriate orders under Section 142 and 146 of the Electricity Act, 2003; Direct the Respondent to pay the following amount to the Petitioner: Particular Amount paid by the Petitioner in pursuance of EPAs for purchase of overinjected electricity. Balance CSS payable by the Respondent for the FY Total Cross adjustment the CSS of Rs Cr. to be recovered for the FY against the refund of advance CSS for FY Balance Amount Rs Cr. Rs Cr. Rs Cr. Rs Cr Rs Cr. (iv) (v) Direct the Respondent to pay 24 % per anum or at any other rate as this Hon'ble Commission may deem fit, on the aforesaid amount paid by the Petitioner in pursuance of EPAs for purchase of over-injected electricity from the date of payment of the said amount by the Petitioner till the date the same is paid by the Respondent; Direct the Respondent to pay 24 % per anum or at any other rate as this Hon'ble Commission may deem fit, on the aforesaid balance CSS payable by the Respondent for the FY from March, 2013 till the same is paid to the Petitioner; MERC Order in Case No. 206 of 2014 Page 4 of 20

5 (vi) Pass any other or further order (s) as this Hon'ble Commission may deem fit and proper in the facts and circumstances of the present case. 5. The Petition states that: (1) SWPL [formerly Wardha Power Company Ltd. (WPCL)] is a Generating Company with installed capacity of 540 MW (4 x 135 MW) at Warora, Dist. Chandrapur, out of which two Units i.e. Units 3 & 4 (2 x 135 = 270 MW) have been claimed to be a Captive Generating Plant (CGP). (2) MSEDCL had entered into EPAs with SWPL and its consumers for purchasing overinjected units of electricity on the basis that SWPL s Units would be able to meet the requirements of a CGP under rule 3 (2) of the Electricity Rules, (3) Purchasing of the over-injected units by entering into the EPAs was a promotional measure exclusively for CGPs, and that activity was undertaken by MSEDCL in terms of its Commercial Circular No. 170 dated 13 June, (4) In case of Independent Power Producers (IPPs), such over-injected units are treated as lapsed. During FY , MSEDCL had purchased over-injected units on the basis that SWPL would meet the CGP qualifications, and payment of Rs crore was made by MSEDCL. MSEDCL has filed copies of 10 EPAs with its Petition. (5) Vide Order dated 28 August, 2013, the Commission held that SWPL did not meet the requirements of CGP under Rule 3 (2) of the Electricity Rules in FY Therefore, the amount of Rs crore paid/adjusted by MSEDCL in pursuance of the EPAs in FY are required to be refunded to MSEDCL. Moreover, the Commission allowed MSEDCL to levy CSS on the consumers of SWPL for FY As such, the consumers of SWPL are bound by the consequences of the fact that it was found not to be a CGP in FY (6) Since, without the EPAs, all over-injected units would have lapsed and no payment/adjustment would have been given by MSEDCL, SWPL is liable to refund Rs crore that MSEDCL paid to SWPL for the over-injected electricity on the basis that SWPL would meet the CGP qualification requirements for FY The Commission vide its Order dated 28 August, 2013 held that SWPL did not meet the CGP qualifying criteria. However, despite demands raised by MSEDCL, SWPL did not refund this amount. (7) The amount payable by SWPL to MSEDCL is as under:- Sr.No. Particulars Amount 1 Amount paid by MSEDCL in pursuance of EPAs for purchase of over-injected electricity. 2 Balance CSS payable by SWPL for FY Rs Cr. Rs Cr. MERC Order in Case No. 206 of 2014 Page 5 of 20

6 Total Rs Cr. (8) After passing of the above Order, MSEDCL inadvertently levied CSS on SWPL s Open Access (OA) consumers in their monthly energy bills for some months during FY As soon as this inadvertent and bona fide mistake was discovered, the levy of CSS was stopped by MSEDCL in compliance of the said Order. The CSS amount inadvertently billed was around Rs crore, out of which Rs crore remained unpaid. Thus, the total CSS recovered was Rs crore during FY (now corrected as Rs crore). (9) SWPL has filed a Petition in Case No. 164 of 2013 for refund of CSS of Rs crore (now corrected as crore) paid for FY The Commission disposed of the Petition vide Order dated 17 January, 2014, and stated that the amounts paid in pursuance of the EPAs are required to be paid to MSEDCL and that Rs. 60 crore has been inadvertently recovered by MSEDCL. (10) A meeting was held between the Parties on 10 January, 2014, at which MSEDCL raised a counter claim for the balance CSS and over-injection payment (total of Rs crore). It proposed to adjust the claims of both Parties against each other, after which only a net balance of Rs crore would be payable by SWPL to MSEDCL. However, no consensus was reached between the Parties. (11) SWPL filed a Petition in Case No.74 of 2014 inter alia seeking processing of its OA application for renewal of OA w.e.f. 1 April, During those proceedings, MSEDCL again apprised the Commission about the non-recovery of money that it had paid for over-injection/underdrawal of electricity by SWPL during FY and outstanding CSS. It also apprised the Commission that, even if the amounts claimed by SWPL (i.e. Rs crore) are adjusted, a balance amount of Rs crore would remain unpaid. In view of the outstanding dues, it was submitted by MSEDCL that OA to SWPL ought not to be granted. (12) In pursuance of the Commission s Order in Case No. 74 of 2014, SWPL deposited Rs crore with MSEDCL. Accordingly, MSEDCL has granted OA permission for FY to SWPL. However, despite the liberty granted vide the Order dated 2 May, 2014 to approach the Commission for any remaining dispute between the Parties regarding settlement of dues, SWPL instead filed Writ Petition (WP) No.1859/2014 before the Bombay High Court, Nagpur Bench seeking refund of the CSS collected by MSEDCL in FY That Writ Petition is pending adjudication before the High Court. (13) The summary of dues payable by SWPL to MSEDCL and dues claimed by SWPL from MSEDCL are as under: S.No. Particulars Amount in Rs, crore 1 Amount paid by MSEDCL in pursuance of EPAs Balance CSS to be paid by SWPL for FY MERC Order in Case No. 206 of 2014 Page 6 of 20

7 Sub Total: Amount payable by SWPL 3 CSS Amount paid by SWPL s consumers for FY (14) M4 Amount deposited by SWPL in pursuance of Commission Order dated S EDCL vide letter dated 20 April, 2012 issued OA permission for wheeling of power for self-use in respect of WPCL. It stated that the OA permission is issued on the presumption that all criteria for captive user as specified under the Act, Rules, and Regulations are satisfied by the captive users. If, in future, it is observed that the captive users are not satisfying the legal requirements with regard to captive use/oa, then the OA permission shall be treated as granted under Section 10 of the EA, 2003 from the date of commencement of OA, upon which WPCL would be responsible for all consequences/liabilities. 6. In its additional submission dated 17 December, 2014, MSEDCL stated that the dues payable and claimed by SWPL and MSEDCL are as summarized by MSEDCL earlier [set out at para. 5(13) above]. These amounts pertaining to CSS paid by SWPL s consumers for FY were as on January, 2014 and were unaudited figures. For FY , the CSS was levied in the monthly energy bills up to November, 2013 and no separate bill for CSS was issued. MSEDCL stopped levy of CSS in the monthly energy bills as per the directives of the Commission in Case No.117 of The CSS levied in the monthly bills prior to November, 2013 gets clubbed with the energy bill and is reflected as arrears in the next bill if not paid by the consumer. Hence, as part payment was made by consumers, the balance CSS amount varied on monthly basis. As per the audited statements received from MSEDCL s Circle Offices, the CSS amount paid by SWPL for FY is crore instead of crore as submitted earlier, and MSEDCL has accordingly revised para. (3) of its prayer. 7. In its Reply dated 13 October, 2015, SWPL stated that: (1) As per the provisions of the EA, 2003 read with the Electricity Rules, 2005, 26% shareholders need to consume a minimum of 51% of the power, calculated on an annual basis, from the identified Generating Units to be considered as captive consumers for the respective years. (2) While the Generating Units were declared for commercial operation in 2011, MSEDCL unduly delayed grant of OA for the supply of electricity by SWPL to its captive consumers. (3) In the meantime, MSEDCL also started levying CSS on a monthly basis in its monthly invoices to SWPL and/or its consumers. This was contrary to the provisions of the Electricity Rules, 2005 which requires the captive status to be determined on an annual basis. Hence, SWPL had filed a Petition in Case No. 117 of 2012 regarding the levy of CSS by MSEDCL. MERC Order in Case No. 206 of 2014 Page 7 of 20

8 (4) By Order dated 28 August, 2013 in that Case, the Commission ruled that the Generating Units of SWPL did not fulfil the captive criteria for the year as 51% was not consumed by captive consumers. The primary case of SWPL was that the aggregate consumption by the captive consumers could not reach 51% due to the wrongful action of MSEDCL in delaying the grant of OA. (5) While noting the undue delay in grant of OA, the Commission held that, since it was the first time that OA was being granted, the delay could not be termed as malafide and, in the circumstances, the stipulation of 51% consumption could not be calculated on a proportional basis for the period when the OA was granted. The Commission clarified and reiterated that MSEDCL was not entitled to raise CSS invoices on monthly basis and only one single invoice can be raised after the year when the captive status of the generating units has been determined. (6) However, even after the above Order dated 28 August, 2013, MSEDCL continued to levy CSS on a monthly basis. For FY , MSEDCL has recovered CSS of Rs. 60 crore on a monthly basis. This is illegal and contrary to the specific direction and decision of the Commission and the provisions of the EA, 2003 and the Rules. (7) SWPL had filed a Petition in Case No. 164 of 2013 for action against MSEDCL under Sections 142 and 146 of the EA, In those proceedings, MSEDCL admitted that the CSS was incorrectly collected, but claimed that the amounts collected ought to be adjusted against the unilateral claims of MSEDCL. (8) Vide Order dated 17 January, 2014 in Case No. 164 of 2013, the Commission directed the Parties to mutually resolve the issues and did not express any opinion on the merits of the case. In the Review Petition filed by SWPL against that Order, the Commission vide Order dated 26 March, 2014 clarified that MSEDCL was not entitled to mix up the issues of over-injected units against the CSS collected, and that the two issues were to be treated separately. (9) Despite this, MSEDCL did not refund the excess amounts recovered from SWPL. In the circumstances, SWPL had approached the Bombay High Court in WP No of Vide Order dated 12 December, 2014, the High Court directed MSEDCL to refund the amounts within 8 weeks to SWPL. In the light of the above, MSEDCL has now initiated the present proceedings before the Commission seeking adjustment of the amounts claimed by it from SWPL, which are disputed, against the amounts which are admittedly due and payable by MSEDCL to SWPL in terms of the directions of the Commission and also the High Court. (10) In fact, contrary to the specific directions of the Commission and also the directions of the High Court, MSEDCL is now seeking to once again adjust the amounts unilaterally claimed against the dues admitted and payable by MSEDCL to SWPL. (11) Despite the specific directions of the Commission to refund the amount illegally collected from SWPL, MSEDCL sought to block OA to SWPL from 1 April, 2014 on the ground that there were amounts due and payable by SWPL to MSEDCL, after MERC Order in Case No. 206 of 2014 Page 8 of 20

9 adjustment of the amounts illegally retained by MSEDCL. In the circumstances, SWPL was once again constrained to approach the Commission in Case No. 74 of That Petition was disposed of by the Commission vide Order dated 2 May, 2014 whereby SWPL had deposited an amount of Rs crore under protest. This was in view of the extreme urgency to get OA and was without prejudice to the rights and obligations of the Parties. (12) The claim of MSEDCL in the present proceedings is that it has paid Rs crore to SWPL for electricity injected by SWPL from its Generating Station and actually consumed by MSEDCL, for which MSEDCL had agreed to pay the tariff to SWPL as agreed in the Tripartite EPAs. The electricity injected was over and above the actual consumption by the consumers of SWPL. (13) It is claimed by MSEDCL that the above tariff was agreed to be paid only on the condition that the Generating Station of SWPL was a CGP and that, in case the Generating Station did not fulfil the captive power requirements in a particular year, the amounts paid were to be refunded to MSEDCL. (14) The rights and obligations of the Parties are governed by the terms and conditions of the tripartite EPAs entered into by MSEDCL, SWPL and its consumers and subject to the provisions of the EA, 2003 and the Rules. (15) There is no provision whatsoever to the effect that, in case at the end of the year the Generating Station does not fulfil the captive power requirements, the amounts paid for the electricity consumed by MSEDCL would be required to be refunded to MSEDCL and the electricity would be taken free of cost by it. (16) The Agreement between the Parties was to the effect that, when there was excess generation by SWPL which was not consumed by the consumers, such excess generation of electricity supplied to the grid and to the account of MSEDCL and which was actually consumed by MSEDCL for supply to its consumers would be paid for at the agreed tariff. This was particularly when Maharashtra was under a power deficit and all available sources of electricity were to be tapped and electricity was to be procured by MSEDCL to meet the demand of the consumers. (17) The Agreement was for procurement of excess electricity which was generated and supplied by SWPL over and above the supply made to its captive consumers. It is irrelevant whether SWPL at the end of the year fulfils the captive criteria or not with regard to the electricity consumed by MSEDCL. The captive status is between SWPL and the consumers and the non-fulfilment of the captive criteria would entail the consequences provided for in law, namely the levy of CSS on the power supplied to the captive consumers. (18) The claim of MSEDCL also runs contrary to the objective of generation being promoted and MSEDCL as a Distribution Licensee procuring electricity to fulfil the demand of the consumers in the State. To the extent that electricity is procured by MSEDCL for meeting the demand in the State, there is no distinction between power MERC Order in Case No. 206 of 2014 Page 9 of 20

10 procured from a CGP or non-captive Power Plant. It cannot be that the same electricity procured during the year would be deemed as free supply if at the end of the year the Plant does not fulfil the captive status qua its consumers. (19) Under the MSEDCL Commercial Circular No. 170 dated 13 June, 2012, the only consequence of not fulfilling the criteria under the Electricity Rules shall be as provided in law. Even under the Circular, there is no provision for refund of any tariff amounts paid by MSEDCL to the Generating Stations. (20) The Commission had in its Order dated 28 August, 2013 held that the conduct of MSEDCL in the facts of the case could not render the consequence of law in the payment of CSS being inapplicable. However, the present claim of MSEDCL is for enforcement of its alleged contractual right. Such contractual right claimed by MSEDCL is misconceived. In any event, MSEDCL having delayed the grant of OA due to which captive status could not be achieved during FY , the question of MSEDCL claiming a contractual right (assuming such a right exists) would amount to MSEDCL seeking to take advantage of its own right. (21) The power bought by MSEDCL from SWPL had been sold by MSEDCL to its consumers and the tariff realized. Hence, there is no equity on the part of MSEDCL to seek refund of the purchase price for the units already consumed by MSEDCL by means of sale to its consumers. Any purchaser ought to pay the purchase price to the seller in respect of the goods. In this case, the purchaser has received the goods and consumed it and paid the purchase price. There is no dispute on the quantity or quality of the goods. Hence, the purchaser, MSEDCL, is not entitled to seek refund of the purchase price from the seller. (22) The only other contention of MSEDCL is that there is a balance amount of Rs crore to be recovered as CSS for FY MSEDCL adjusted the receivable amounts from the amounts payable to SWPL from the subsequent financial year. While making the payments as per the direction of the High Court towards CSS for FY , MSEDCL has retained Rs.8.42 crore towards the balance CSS recoverable for FY and is still claiming the amounts, hence the contention of MSEDCL that Rs.8.42 is to be paid by SWPL is untenable. (23) MSEDCL has sought to wriggle out of the consequences of the Order dated 28 August, It has acted in complete violation of the Order, continuing to raise monthly invoices for CSS and not refunding the amounts illegally collected and retained. In fact, for FY , the Commission has already held the Power Plant of SWPL to be captive under the provisions of the EA, 2003 and the Electricity Rules, (24) While making the payments as per the direction of the High Court towards CSS for FY 13-14, MSEDCL has retained Rs crore towards balance CSS recoverable for FY and still claiming the amounts. Hence, the contention of MSEDCL that Rs is to be paid by SWPL is untenable. MERC Order in Case No. 206 of 2014 Page 10 of 20

11 (25) Even the OA permission does not provide that there shall be refund of tariff actually paid for by MSEDCL to SWPL for the electricity consumed in case the captive status is not achieved in a particular year. (26) It is denied that the fulfilment or non-fulfilment of the captive status in a particular year has any relation with the tariff paid for the electricity injected into the grid and actually utilised by MSEDCL. It is denied that, in the absence of captive status being fulfilled, the electricity is to be supplied free of cost by SWPL. It is denied that the Commission has held that the amount of Rs crore is liable to be paid by SWPL to MSEDCL vide Order dated 28 August, On the other hand, the issue was never raised by MSEDCL in those proceedings. The only claim of MSEDCL in the earlier proceedings before the Commission was that SWPL was liable to pay the CSS for FY (27) This is established by the fact that MSEDCL is till date in violation of the Orders of the Commission and also the High Court to refund the amounts wrongfully collected. In fact, even after the Order dated 28 August, 2013 passed by the Commission whereby it was directed that MSEDCL is not entitled to raise monthly invoices for CSS, MSEDCL continued to raise monthly invoices for CSS and recover it on the threat of disconnection. MSEDCL also used coercive measures of not granting OA for FY on the basis that amounts admittedly due and payable by MSEDCL to SWPL shall be adjusted against the unilateral claims of SWPL, which claims have been raised in the present Petition. (28) MSEDCL is seeking to enforce its unilateral claim against the total admitted dues payable by it to SWPL. MSEDCL in fact used coercive measures to require SWPL to deposit Rs crore by blocking the OA. The Commission by Order dated 26 March, 2014 directed MSEDCL to comply with its directions, of which MSEDCL is in default and in violation till date. (29) The entire issue has been raised only to illegally withhold the amounts due and payable to SWPL and somehow adjust them. The amounts were illegally recovered and retained despite the specific Order of the Commission. In fact the Commission had specifically directed MSEDCL not to make any adjustments against the amounts admittedly due and payable in terms of its Order. Despite the above, MSEDCL has not refunded the amount and has acted in blatant violation of the directions of the Commission. While making the payments as per the direction of High Court towards CSS for FY , MSEDCL has retained Rs.8.42 crore towards the balance CSS recoverable for FY At the hearing held on 13 October, 2015, the Parties were informed about the Commission s decision to a constitute a two-member Bench to hear and decide this Case, and the Parties consented to further hearing of the matter as being in continuation of the earlier proceedings. MSEDCL stated that it had made minor amendments to the Petition due to changes in the CSS figure for FY after audit and submitted them to the Commission in December, The Commission took the amendments on record. Since SWPL had filed its Reply late, four weeks were given to MSEDCL to submit its Rejoinder, if any. MERC Order in Case No. 206 of 2014 Page 11 of 20

12 9. In its Rejoinder dated 29 February, 2016, MSEDCL stated that: (1) Based on the final audited statements, the following amendments are sought in the Petition: a) The amount payable by SWPL to MSEDCL towards balance CSS for FY mentioned in the Petition may be read as Rs crore instead of Rs crore. b) The CSS amount paid by SWPL s consumers for FY mentioned in the Petition may be read as Rs crore instead of Rs crore. (2) In WP No.1859/2014 filed by SWPL before the Bombay High Court, SWPL had agreed to make payment of the CSS that has been collected from its consumers for FY (3) Thereafter, on 17 December, 2014, MSEDCL filed an application seeking amendment of the Petition stating that, in view of the agreement, the prayer for adjustment of dues of MSEDCL against the dues originally sought in the Petition now does not survive. (4) In pursuance of the above, MSEDCL has already paid a total of Rs. 47,74,62,771 to SWPL between 18 and 31 May, After the final audited statement, it is also observed that MSEDCL has refunded Rs. 2,30,89,182/- excess to SWPL. That has also been intimated to SWPL vide letter dated 16 November, (5) MSEDCL had entered into EPAs with SWPL and its consumers for purchasing overinjected units of electricity on the basis that SWPL will meet the CGP requirements as provided in Rule 3 (2) of the Electricity Rules, The purchasing of over-injected units by entering into the EPA was a promotional measure exclusively for CGPs. It was undertaken in terms of MSEDCL s Commercial Circular No. 170 dated 13 June, In case of IPPs, such over-injected units are treated as lapsed. During FY , MSEDCL had purchased over-injected units from SWPL on the basis that it will meet the CGP qualifications and the payment of Rs crore was made by MSEDCL. (6) Clause 1.1 read with Clause 1.0 of the EPAs provides that SWPL is:- a) Obliged to meet the CGP qualifications envisaged in the Electricity Rules, 2005 and the EA, 2003; and b) Liable for all consequential actions including but not limited to payment of CSS with retrospective effect. (7) Clause 9.4 of the EPAs provides that purchase of over-injected units shall be subject to the commercial interests of the Petitioner. (8) MSEDCL had agreed to purchase the over-injected electricity under the EPAs subject to SWPL meeting the criteria for being a CGP in FY However, as SWPL failed to meet the criteria, the electricity over-injected by SWPL would have lapsed. (9) MSEDCL never illegally blocked grant of OA, and there is no finding of the Commission that MSEDCL deliberately delayed OA to SWPL. Similar allegations of MERC Order in Case No. 206 of 2014 Page 12 of 20

13 delay in grant of OA were raised by SWPL in Case Nos. 117 of 2012 and 161 of In fact, in its Order dated 16 August, 2013 in Case No. 161 of 2011, the Commission noted that there was no willful delay in grant of OA. 10. At the hearing held on 18 October, 2016, a) MSEDCL stated that: (1) The Commission vide Order dated 28 August, 2013 in Case No. 117 of 2012 held that SWPL had not fulfilled the CGP criteria as per Rule 3 (2) of the Electricity Rules, 2005 in FY The same was also upheld by the Appellate Tribunal for Electricity (APTEL) in its Judgement dated 17 May, 2016 in Appeal No. 316 of Hence, the amount of Rs crores paid to SWPL by MSEDCL towards purchase of surplus energy in pursuance of the EPAs in FY needs to be refunded. (2) MSEDCL had wrongly levied Rs crore on the captive consumers of SWPL towards CSS for FY , which was objected to by SWPL which filed a Petition in Case No. 164 of 2013 for its refund. In its Order dated 17 January, 2014, the Commission held that the matter may be resolved by mutual discussion amongst the Parties. (3) SWPL thereafter filed a Review Petition in Case No. 34 of 2014 seeking refund of Rs crore. That Petition was disposed of vide Order dated 26 March, 2014, which held that the Order dated 17 January, 2014 in Case No 164 of 2013 is very specific, and directed MSEDCL to stop levying CSS monthly and to mutually discuss the issue of inadvertently recovered CSS and to treat the issues of over- injected units and CSS separately. (4) The Commission s Order dated 20 August, 2014 in Case No. 101 of 2014 held that SWPL had met the CGP criteria in FY The APTEL Judgment in Appeal No.252 of 2014 has also upheld that, in FY , SWPL qualified as a CGP and hence CSS was not applicable to its consumers in that year. (5) SWPL filed a Petition in Case No.74 of 2014 seeking renewal of OA w.e.f. 1 April, In pursuance of the Order of the Commission in that Case, SWPL deposited Rs.2.45 crore with MSEDCL. Accordingly, MSEDCL had granted OA permission for FY to SWPL. (6) The present Petition has been filed by MSEDCL in pursuance of the Commission s direction in its Order dated 2 May, 2014 in Case No. 74 of 2014 for adjustment of the amount paid towards purchase of surplus energy for FY against the CSS amount recovered from SWPL s consumers inadvertently for FY (7) Subsequently, SWPL had filed a Writ Petition before the High Court of Bombay, Nagpur Bench, seeking refund of the CSS collected by MSEDCL in FY MSEDCL had subsequently refunded that amount. MERC Order in Case No. 206 of 2014 Page 13 of 20

14 (8) Hence, only the issue of refund of the amount paid by MSEDCL against purchase of surplus energy needs to be adjudicated. (9) MSEDCL had entered into EPAs with SWPL for purchase of surplus energy on the basis that SWPL would meet the CGP requirements as provided in Rule 3 (2) of the Electricity Rules, Purchase of surplus energy by entering into EPAs was a promotional measure exclusively for CGPs. This promotional activity was undertaken by MSEDCL in terms of its Commercial Circular No. 170 dated 13 June, In case of IPPs, such over-injected units are treated as lapsed. (10) Clause 1.1 read with Clause 1.0 of the EPAs provides that SWPL is obliged to meet the CGP qualifications envisaged in the Electricity Rules, 2005 and the EA, 2003, and is liable for all consequential actions including but not limited to payment of CSS with retrospective effect. (11) Clause 9.4 of the EPAs provides that purchase of over-injected units shall be subject to the commercial interests of MSEDCL. (12) In the OA permission letter for FY , it is also specifically mentioned that the permission was issued on the presumption that all criteria for captive user as specified under the Act, Rules, and Regulations are satisfied by the user. If, in future, it is observed that the captive user is not satisfying any of the requirements with regard to captive use, the OA permission shall be treated as granted as per Section 10 of the EA, 2003 from the date of its commencement. (13) The Commission, vide its Order dated 28 August, 2013 in Case No. 117 of 2012, held that SWPL did not fulfil the requirements of a CGP in FY Thus, the amount of Rs crores paid by MSEDCL in pursuance of the EPAs in FY is required to be refunded since, without these EPAs, all over-injected units would have lapsed and no payment/adjustment would have been given by MSEDCL to SWPL. Thus, SWPL is liable to refund a sum of Rs crore. b) SWPL stated that : (1) Neither the EA, 2003 nor the Electricity Rules, 2005 nor the EPAs have any specific provision for the refund of the amount paid for the over-injected units, if the criteria stipulated in the Electricity Rules, 2005 for a CGP are not fulfilled. (2) MSEDCL had levied CSS on the captive consumers of SWPL on monthly basis in FY considering them as non-captive. Article 1.1 of the EPAs provides that SWPL is obliged to meet the CGP qualifications envisaged in the Electricity Rules, 2005 and is liable for consequential actions of payment of refund of CSS only. (3) Article 9 of the EPAs stipulates the provisions for events of defaults and terminations. However, it does not have any provisions for the refund of the payment for over-injected units. MERC Order in Case No. 206 of 2014 Page 14 of 20

15 (4) Clauses and of Commercial Circular No. 170 also do not have any provision for the refund of amount paid for over-injected units. (5) The status of a party changes at the end of year. In respect of such changes, the Contract Act does not provide any relief. The captive arrangement is between the Generator and consumer. The surplus energy has been injected into the grid and has been utilised by MSEDCL. Hence MSEDCL has paid for it. (6) The Supreme Court in its Judgment in Civil Appeal No. 321 and 322 of 1956 ruled that, if a party to a contract has rendered service to the other not intending to do so gratuitously and the other person has obtained some benefit, the former is entitled to compensation for the value of the service rendered by him. c) MSEDCL responded that the Supreme Court Judgments cited by SWPL are not relevant in this Case as the Commercial Circular No.170 and the OA permission stated that SWPL is obliged to meet the CGP criteria envisaged in the Electricity Rules, 2005 and is liable for all consequential actions if they are not fulfilled. d) Upon the request of SWPL, the Commission allowed it to submit a list of Judgments issued by various courts within a week. 11. On 26 October, 2016, SWPL submitted a list of Judgments of various Courts: (1) Rajasthan State Industrial Development and Investment Corporation Vs. Diamond & Gem Development Corporation Ltd. (2013) 5 SCC 470 [Allotment of land made to the Respondent Company by the Appellant State Corporation was cancelled by the State Corporation in exercise of its power under relevant statutory Rules read with the terms of Lease Agreements. Hence, challenging the cancellation order without resorting to the remedy of statutory review or appeal could not have been entertained by the High Court.] (2) Larsen & Turbo Ltd. Vs. Mohan Lal Harbans Lal (2015) 2 SCC 461 [Non-survival of arbitration clause in the original agreement, when that clause is subsequently modified held that, if the arbitration clause and procedure for appointment of arbitrator in the original agreement is novated and parties acted accordingly, the clause in the original agreement for appointment of arbitrator cannot be invoked.] (3) Satlaj Jal Vidyut Nigam Ltd. Vs. R.J. Shah (2007) 99 DRJ 685 [The matter was in respect of interference by the Court with the Award granted by three technical persons appointed as arbitrators.] (4) Delhi Development Authority Vs. Joint Action Committee (2008) 2 SCC 672 [It is only those components which fall within the offer documents / allotment letter or within the purview of statutory requirements that can be included in the exercise of price MERC Order in Case No. 206 of 2014 Page 15 of 20

16 fixation. No additional factor can be taken into consideration other than the ones on the basis of which the offer was originally made.] (5) BSNL Vs. BPL Mobile Cellular Limited (2008) 13 SCC 597 [Once a concluded contract was arrived at between the parties concerned, they were bound thereby.] (6) Citi Bank N.A. Vs. Standard Charted Bank (2004) 1 SCC 12 [Novation, rescission and alteration of contract can be done only with the agreement of both the parties and not unilaterally.] (7) Gedela Satchidananda Murty Vs. Deputy Commercial Endowment Department, AP, (2007) 5 SCC 677 [If parties to a contract, by their course of dealing, put a particular interpretation on the terms of it on the faith of which each of them to the knowledge of the others acts and conducts their mutual affairs, they are bound by that interpretation.] (8) Unikol Bottlers Limited Vs. Dhillon Kool Drinks ILR (1994) 2 DEI 516 [Even assuming that non-achievement can be treated as fundamental breach, it can only result in termination of the Agreement. Contract is not treated as illegal or void.] (9) V.R Subramanyam Vs. B. Thayappa (1961) 3 SCR 663 [If a party to a contract has rendered the service to other not intending to do so gratuitously and the other person obtained some benefit, the former is entitled to compensation for the value of the services rendered by him.] (10) Food Corporation of India Vs. Vikas Majdoor Kamdar Shahkari (2007) 13 SCC 544 [The contractor has done extra work at the request of the employer and claimed extra remuneration therefor, and hence is entitled for it]. Commission s Analysis and Ruling 12. In its Order dated 17 January, 2014 in Case No. 164 of 2013, the Commission had concluded as follows: The Commission in its Order dated 28 August, 2013 in Case No.117 of 2012 has determined that the Petitioner did not meet the requirements of being a Captive Power Plant for FY For this period the amount paid/adjusted to the tune of Rs Crore in pursuance of the said Energy Purchase Agreement are required to be paid to Respondent No.1. However the Respondent No.1 has inadvertently Order in Case No. 164 of 2013 recovered the bills to the tune of Rs.60 Crore. The Commission without expressing any MERC Order in Case No. 206 of 2014 Page 16 of 20

17 view on the merits of the submission is of the view that such matter can be resolved by mutual discussion amongst the parties. During those proceedings, in its Daily Order dated 7 January, 2014, the Commission had also directed MSEDCL and SWPL to meet to resolve the matter. The Minutes of the Meeting held on 10 January, 2014 record, inter alia, as follows: M/s WPCL s stand 1. The MERC case No. 164 of 2013 is pertaining to the advance monthly levy of CSS and therefore the discussion should be confined to the issue of CSS only and the refund thereof. 2. The issue of refund of amount of over-injection units is a separate issue and should be dealt separately On the issue of refund of over-injected energy MSEDCL has made claim in Nov. 13 and WPCL has disputed the said claim as not payable. As per the terms of the Tripartite agreement, we have to go through the dispute resolution mechanism and as such the refund on over injected energy is only a claim and not an issue adjudicated. In its Order dated 2 May, 2014 in Case No. 74 of 2014 also, the Commission directed MSEDCL and SWPL to resolve their dispute of amount amicably and gave liberty to them to come before the Commission with separate Petition, if dispute is not resolved. The present proceedings are in this background. 13. MSEDCL had entered into tripartite EPAs with SWPL (Units 3 and 4, claimed to be Group Captive Units) and its captive consumers for purchasing over-injected units of electricity (i.e. the surplus power scheduled but not credited to the OA Users). In FY , MSEDCL had purchased over-injected units accordingly from SWPL (then known as WCPL) for which it claims to have paid Rs crore. 14. Vide its Order dated 28 August, 2013 in Case No. 117 of 2012, the Commission held that SWPL had not fulfilled the CGP criteria under Rule 3 (2) of the Electricity Rules, 2005 in FY This was also upheld by the APTEL in its Judgement dated 17 May, 2016 in Appeal No. 316 of The fact that SWPL did not meet the CGP criteria in FY is relevant to the consequential liabilities for SWPL and the tripartite EPA consumers inasmuch as the purchase of over-injected units under those EPAs was predicated on SWPL s Plant (Units 3 and 4) meeting the CGP criteria under Rule 3 (2) of the Electricity Rules, 2005, as explained further below. MERC Order in Case No. 206 of 2014 Page 17 of 20

18 15. In its Order dated 8 September, 2004 in Case Nos. 55 and 56 of 2003 ( 2004 CGP Order ), the Commission had stipulated as follows: 2.70 Given the existing demand-supply gap prevailing in the State and in the absence of any substantial capacity addition in the State in the near future, the Commission is of the opinion that the excess capacity from Captive Power Plants should be gainfully utilised to partially meet the demand supply gap in the short-term Analysis of the current demand and planned future additions in generation capacity, the Commission anticipates a demand-supply gap of about 1,850 MW in the year In this scenario, purchase of (both Firm and Infirm) power from Fossil Fuel based CPPs is expected of Distribution Licensees- especially when some of the Distribution Licensee incur considerable expenditure on Unscheduled Interchange (UI) charges even after resorting to load shedding in order to partially bridge the prevalent demandsupply gap In such a scenario the Commission is of the opinion that the Distribution Licensees should purchase excess saleable power available with CPPs, and more so if such power is cheaper than other sources tapped to bridge the demand-supply gap, for example power purchases in terms of Unscheduled Interchanges The Commission appreciates the concern expressed regarding the basis of calculation for the rate of purchase of power and also understands that the feasibility of the CPP is linked to a great extent to effective utilisation of the CPP and rate realised on the excess saleable power. The Commission is aware of the cost of generation of the CPPs but at the same time it also feels that the commercial interests of the Distribution Licensees should be protected. Keeping the above in mind, the Commission has prescribed the upper limit and floor rate for purchase of Firm power as well as Infirm power. Based on the Commission s analysis of the variable cost of generation and average realisation of the MSEB, the Commission has prescribed a floor rate of Rs per unit for Firm power sold by the non-co-generation based CPP so that the CPP Holder is fairly compensated for the power sold even during the period when grid frequency is close to 50.5 Hz Keeping in mind Section 86 (1)(e) of the Electricity Act 2003 mandating promotion of cogeneration, the Commission has prescribed a 10% premium in the rate of purchase of the co-generation based fossil fuel Captive Power Plants Also the Commission rules that the Distribution Licensee shall purchase Firm as well as Infirm power from any CPP Holder on application by him for this purpose. 16. The relevant Clauses of one of the sample EPAs (between MSEDCL, SWPL (then WPCL) and Viraj Profiles Ltd. (the consumer)) read as follows: 1.0 M/s WPCL (Party 1) shall abide by the Law, the Rules, Regulations or any notification or order issued there under for sale of power up to a MERC Order in Case No. 206 of 2014 Page 18 of 20

19 maximum of MW per Month but subject to the mandatory provisions of the Electricity Rules (Amendment) M/s Viraj Profiles Ltd. (Party 2) shall comply the CPP criterion as per Electricity Rule, 2005 i.e. Captive consumption by all captive users shall not be less than 51% of aggregate electricity generated on an annual basis. In case of non compliance of Electricity Rules in respect of captive power plant the project holder will be liable for all consequential actions including but not limited to payment of Cross Subsidy Surcharge (CSS) with retrospective effect 2.2 During the currency of Agreement the supply of power shall be up to a maximum of MW per 15 minutes time block but subject to the mandatory provisions of Electricity Rules (Amendment) The relevant provisions of MSEDCL s Commercial Circular No. 170 dated 13 June, 2012 read as follows: 2. Captive Power Plants: 2.3 Electricity Rules 2005 defined the eligibility criteria for Captive Power Plants (CPP) (1) No power plant shall qualify as a captive generating plant under section 9 read with clause (8) of section 2 of the Act unless- (a) in case of a power plant (i) not less than twenty six percent of the ownership is held by the captive user(s), and (ii) not less than fifty one percent of the aggregate electricity generated in such plant, determined on an annual basis, is consumed for the captive use: Thus, any generator not complying with the above mentioned Electricity Rule shall not be treated as CPP and will be governed by action / punitive action as per the Law. 18. The OA permissions given by MSEDCL for FY also stipulated that: 25. This open access permission is issued on the presumption that all criteria for captive user as specified under the Act, Rules, and regulations are satisfied by the captive user. If, in future, it is observed that captive user is not satisfying any of the legal requirements with regard to captive use/open access, then the open access permission shall be treated as granted as per section 10 of the Electricity Act, 2003 from the date of commencement of open access, which may please be noted and M/s WPCL will be responsible for all consequences/liabilities. 19. Thus, under the EPA provisions, SWPL was obliged to meet the CGP qualifying criteria stipulated in the Electricity Rules, 2005, and SWPL and its consumers were liable for all consequential actions, including but not limited to the payment of CSS, with retrospective effect, if the concerned SWPL Units were found not to qualify for CGP status. The OA permissions for FY also expressly stated that they are based on a presumption of the CGP status of SWPL, failing which the consequential liabilities MERC Order in Case No. 206 of 2014 Page 19 of 20

20 would be attracted. It is evident from both a conjoint and an independent reading of these documents that MSEDCL had entered into EPAs with SWPL and its consumers for purchasing over-injected units of electricity entirely on the basis that SWPL would meet the CGP requirements stipulated in Rule 3 (2) of the Electricity Rules, The purchase of over-injected units by entering into the EPAs was intended only from CGPs, in the background of the Commission s 2004 CGP Order and in terms of MSEDCL s Commercial Circular No. 170 dated 13 June, This is also clear from the fact that, ordinarily, EPAs are bilateral agreements between the Procurer (the Distribution Licensee) and the Seller of power (the Generator); the present EPAs, however, are tripartite arrangements which include the consumers since they hinge on the CGP matrix. The case laws cited by SWPL do not impinge on this position considering the jurisdiction of the Commission under Section 86(1) (f) of the EA, 2003, and the provisions and context of the EPAs. The Commission also notes that, in the normal course, MSEDCL would not have entered into EPAs for purchase of such varying and uncertain quantum of surplus power were it not for the particular context and background set out above. 21. In view of the foregoing, the Commission concludes that, since it has not met the CGP criteria in FY , SWPL has to refund the amounts paid by MSEDCL for the over-injected units under the EPAs, along with applicable interest from a month after the claim was first made till the date of such refund. The Petition of Maharashtra State Electricity Distribution Company Limited in Case No. 206 of 2014 stands disposed of accordingly. Sd/- (Deepak Lad) Member Sd/- (Azeez M. Khan) Member MERC Order in Case No. 206 of 2014 Page 20 of 20