Supreme Court Upholds State Commission’s Power to Reject Tariffs Misaligned with Market Prices

LI Network

Published on: January 10, 2024 at 16:40 IST

The Supreme Court recently emphasized the authority of the State Electricity Regulatory Commission to reject tariffs that do not align with prevailing market prices. In its decision, the Court underscored the Commission’s obligation to consider consumer interests while adopting tariffs.

Overturning the rulings of both the High Court and the Appellate Tribunal for Electricity (APTEL), Justices BR Gavai and Prashant Kumar Mishra reinstated the State Commission’s order.

The Court reinstated that the State Commission can only adopt tariffs if they are determined through a transparent bidding process aligned with Central Government guidelines.

The Court referenced Clause 5.15 of the Bidding Guidelines, highlighting that the committee evaluating bids holds the right to dismiss all price bids if they don’t match current market rates.

The case involved Rajasthan Rajya Vidyut Prasaran Nigam Limited (RVPN) seeking approval from the State Commission for procuring 1000 MW of power through a competitive bidding process. After preliminary evaluations and negotiations, the Board of RVPN decided on agreements with the lowest bidders for 500 MW instead of the initially planned 1000 MW.

The Supreme Court addressed three connected civil appeals related to this case, focusing on issues brought up during the APTEL hearing:

1. Whether the State Commission could reject the appellant’s bid in line with Section 63 of the Electricity Act, 2003 and Supreme Court directions.

2. Whether adequate evidence supported that the bid aligned with market rates.

3. Whether the argument for consumer interest was valid for Rajasthan Discoms in this case.

The Court clarified that the State Commission holds regulatory power to determine tariffs and can reject bids not aligning with market prices. It highlighted that protecting consumer interests should prevail over accepting bids that may adversely affect consumers.

In terms of the Bidding Guidelines, the Court criticized APTEL’s stance that the Commission lacked the power to assess if the bid aligned with market prices, considering it erroneous.

Regarding the interpretation of the Bidding Guidelines, the Court rejected a contention that limiting the Evaluation Committee to reject “all” price bids rather than “any” would be detrimental. It emphasized that the Act’s purpose should guide such interpretations, ensuring a balance between consumer and generator interests.

The Court ultimately concluded that the High Court’s judgment failed to consider larger consumer and public interests. It ruled in favor of maintaining rates aligned with market prices to prevent passing on excessive financial burdens to consumers.

In summary, the Appeals were allowed, setting aside the High Court’s judgment as it did not adequately consider broader consumer and public interests.

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