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Maharashtra State Electricity Distribution Company Limited vs. Adani Power Maharashtra Limited & Ors. (with connected GMR appeal)

Civil Appeal · 2023 INSC 208Decided 3 Mar 2023
Civil Appeal No. 6927 of 2021
B.R. Gavai · Vikram Nath

Background

MSEDCL, Maharashtra's electricity distribution utility, had long-term Power Purchase Agreements with generating companies Adani Power Maharashtra (APML) and, in a connected appeal, GMR Warora Energy, entered into through competitive bidding under the Electricity Act. These agreements included a "Change in Law" clause allowing generators to be compensated if government policy changes affected their costs: here, the Central Government's 2013 revision of coal-supply policy (replacing the 2007 policy) forced generators to source a larger share of coal from costlier alternative sources. The regulators (CERC) and the Appellate Tribunal for Electricity (APTEL) ruled in the generators' favour on how to calculate this compensation, using technical fuel-efficiency parameters (Station Heat Rate and Gross Calorific Value) based on actual performance or regulatory norms rather than the values originally quoted in the companies' bids, and MSEDCL appealed to the Supreme Court arguing the bid-quoted figures should control.

Decision Breakdown

The Supreme Court sided with the generating companies and the regulators, holding that Station Heat Rate and Gross Calorific Value used for calculating "Change in Law" compensation should be based on actual performance or the applicable Tariff Regulations (whichever is lower), not on the technical figures originally declared in the competitive bid, because a bid figure reflects a bidder's risk estimate at the time of bidding, not the actual fuel cost impact of a later government policy change. It relied on its own earlier ruling in Energy Watchdog, which held that regulatory guidelines under Section 63 of the Electricity Act are binding on regulators even in competitively-bid tariffs, and criticized different arms of government (the DISCOMS and the Union) for taking contradictory positions on the same policy. In the connected GMR appeal, the Court also upheld the direction that MSEDCL pay a late-payment surcharge, since it had failed to pay generators' dues on time as required by the agreement. Decision Breakdown (continued: outcome): Both appeals were dismissed, upholding the compensation methodology and late-payment surcharge in favour of the generating companies, with no order as to costs.

Lesson Learnt

When a government policy change increases a power generator's costs, compensation under a "Change in Law" clause is meant to restore the real economic impact of that change. It is calculated using actual or regulator-prescribed technical benchmarks, not artificially frozen at the figures originally quoted in a competitive bid.

Official source (sci.gov.in)View Judgment (PDF)

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