Declining to interfere with the Appellate Tribunal for Electricity’s (APTEL) judgment, the Supreme Court has upheld APTEL’s decision to sustain only the liquidated damages for short supply while reversing the Karnataka Electricity Regulatory Commission’s (KERC) findings on gaming compensation, Unscheduled Interchange charges, and open access charges.
A Two-Judge Bench comprising Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe effectively confirmed the propositions laid down by APTEL, that Karnataka Electricity Regulatory Commission (KERC) travelled beyond the pleadings in adjudicating gaming and granting consequential compensation and open access charges, thereby curtailing the breadth of adjudicatory jurisdiction under Section 86(1)(f) of the Electricity Act, 2003.
The Bench also confirmed the APTEL’s proposition that a trading licensee, as an intermediary between the generator and the distribution licensee, cannot be held liable for gaming compensation or treated as the primary bearer of UI consequences under the PPA merely on the strength of ‘extraordinarily high’ and ‘abnormal’ deviations between scheduled and actual energy. Further, the Apex Court confirmed that equitable set-off cannot be invoked between cross-demands arising under successive but legally distinct short-term PPAs unless the demands spring from the same transaction.
Briefly, the dispute originates from a short-term Power Purchase Agreement (PPA) dated Sep 06, 2013, under which Tata Power Trading Company Limited (TPTCL) agreed to supply power to the Karnataka distribution licensees (ESCOMs) for the period November 2013 to March 2014. TPTCL was the seller of electricity, while the ultimate generator was M/s Bhadrashree Steel and Power Limited (previously Shantha Projects), which supplied power to TPTCL under a back-to-back arrangement.
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During the term of the PPA, TPTCL fell substantially short of supplying the contracted quantum of electricity. Worse, it was also diverting and supplying power to the power exchanges in violation of the PPA terms. When the ESCOMs raised claims on account of such short supply, TPTCL pointed at the generator’s default, invoked force majeure for November-December 2013, and refused to revise its schedule in case of short supply – thereby allegedly indulging in ‘gaming’ and failing to provide the contracted quantum through alternative sources as the PPA required. The ESCOMs responded by making recoveries through monthly invoices, including deductions towards Liquidated Damages, Unscheduled Interchange (UI) Charges, and other charges. A portion of the deductions was also made from two subsequent short-term PPAs, on the principle of equitable set-off.
TPTCL then approached the Karnataka Electricity Regulatory Commission (KERC) under Section 86(1)(f) of the Electricity Act, 2003, seeking declarations that the recoveries were illegal and a direction for refund of the amounts along with carrying cost @ 15% per annum. The KERC dismissed TPTCL’s petition, holding it liable to pay a total compensation of Rs. 4.88 crores. The KERC also upheld the legality of the deductions made by BESCOM from the subsequent PPAs and directed the parties to settle their accounts in accordance with its findings.
