Case No. 295 of Coram. Anand B. Kulkarni, Chairperson Mukesh Khullar, Member. Adani Power Maharashtra Limited (APML)

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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: Case No. 295 of 2018 Case of Adani Power Maharashtra Limited for approval of Carrying Cost in respect of relief granted in the Commission s Order dated 7 March, 2018 for domestic coal shortfall till 31 March, Coram Anand B. Kulkarni, Chairperson Mukesh Khullar, Member Adani Power Maharashtra Limited (APML)...Petitioner V/s Maharashtra State Electricity Distribution Co. Ltd.(MSEDCL)...Respondents Appearance For APML For MSEDCL : Shri. Saurabh Roy (Adv.) : Shri. Ashish Singh (Adv.) ORDER Dated: 18 December, M/s Adani Power Maharashtra Limited (APML), Adani House, Near Mithakali Six Road, Navrangpura, Ahmedabad , has filed a Petition on 16 October, 2018 for approval of Carrying Cost in respect of relief granted in the Commission s Order dated 7 March, 2018 for domestic coal shortfall till 31 March, APML s main prayers in Petition are as follows: a) Grant carrying cost in respect of relief granted under the order dated for Domestic coal shortfall till ; 3. APML in its Petition states as follows : 3.1 APML owns and operates a generating station of 3300 MW (660 MW x 5) at Tiroda in Maharashtra (Tiroda Project). APML and MSEDCL have entered into four Power Order _ Case No 295 of 2018 Page 1

2 Purchase Agreements (PPAs) being (a) PPA dated 08 September, 2008 for 1320 MW (b) PPA dated 31 March, 2010 for 1200 MW (c) PPA dated 09 August, 2010 for 125 MW and (d) PPA dated 16 February, 2013 for 440 MW from Tiroda Power Station. 3.2 PPAs provide for relief under Change in Law qua any events subsequent to Cut-off Date (i.e. 7 days prior to Bid Deadline) under the respective PPAs. Cut-off Date is 14 February, 2008 and 31 July, 2009 for the 1320 MW and for other PPAs respectively. 3.3 The Supreme Court vide its Judgment dated 11 April, 2017 in C.A. No of 2016 (Energy Watchdog v. CERC & Ors.), in effect, has held that any Policy issued by Government Instrumentality has force of Law and to the extent it results in cut down of domestic coal supply, it qualifies as Change in Law and the party affected will be compensated to restore it to the same economic position as if the Change in Law event had not occurred. 3.4 APML approached the Commission in Case No. 189 of 2013 and Case No. 140 of 2014 for adjudication of Change in Law claims under the aforesaid four PPAs on account of the domestic coal shortage faced by it. Following the judgment of the Supreme Court, the Commission has issued Order dated 07 March, 2018 whereby the Commission upheld the Change in Law claims of APML and held that NCDP 2007 is a commitment to supply coal upto 100% of the quantity as per the normative requirement and since the subsequent policy / changes led to deviation from the said commitment and also resulted in short supply of coal, it amounts to Change in Law in terms of the PPA provisions. However, in the said Order, the Commission has granted relief for domestic coal shortfall only till March As regards carrying cost, the Commission has ruled that interest is payable only from the date when the Change in Law claim was approved and the compensation determined by the Commission. 3.5 In view of ATE s decision in Appeal No. 150 of 2012 dated 21 December, 2012 and Appeal No.210 of 2017 dated 13 April, 2018 read with judgment of the Supreme Court in Energy Watchdog matter, APML filed a review Petition (under Case No. 167 of 2018) seeking continuation of relief for domestic coal shortfall under Change in Law after 31 March, 2017 and as well as associated Carrying Cost. The Commission vide its Order dated 01 October, 2018 gave liberty to APML for filing fresh Petition. 3.6 In the said Order dated 1 October, 2018, the Commission noted that the implications of the new policy (SHAKTI Policy) and the subsequent court Orders (ATE order dated 13 April,.2018 in Appeal No. 210 of 2017) would be heard afresh by Commission in the new context and granted liberty to file fresh Petition. 3.7 Accordingly, in this Petition, APML is seeking grant of the carrying cost in respect of relief granted under the Order dated 07 March, 2018 for Domestic coal shortfall till 31 March, PPAs provide for extensive provisions for qualifying any event as Change in Law and granting relief from effective date. As per Article 13.2 and 10.2 of the 1320 MW and Order _ Case No 295 of 2018 Page 2

3 1200/125/440 MW PPAs respectively, Change in Law relief is based on the Restitution Principle and requires the affected party to be restored to the same economic position as if the Change in Law event had not occurred. One of the key ingredients for such restitution as contemplated under the PPAs would be payment of 'carrying cost'. Thus, payment of carrying cost is imperative to achieve the true objective of restitution. This aspect was also recognized by the Supreme Court of India in the Energy Watchdog v. CERC & Ors. Judgment. 3.9 As per Article and of the 1320 MW and 1200/125/440 MW PPAs, respectively, the impact of Change in Law event is to be passed on by way of tariff adjustment effective from the date of adoption, promulgation, amendment, re-enactment or repeal of the Law or Change in Law. This can be achieved only if carrying cost is considered The payment towards Change in Law events results in additional burden to APML and if not reimbursed immediately by the procurer (MSEDCL), results in increase in working capital interest. On the other hand, MSEDCL has enjoyed free working capital without any interest till the time it is not paid. Grant of carrying cost is in line with Section 61(b), (c) and (d) of the Electricity Act, 2003 to conduct generation, transmission and distribution on commercial principles. Carrying cost is also a well-established concept which has been re-emphasized by the GoI in Clause of the Tariff Policy, The ATE in its Order dated 13 April, 2018 in the matter of Adani Power Ltd Vs CERC & Others (Appeal No. 210 of 2017) has held that the impact of Change in Law is to be done in the form of adjustment to the tariff which is nothing less then re-determination of the existing tariff and that interest (i.e. carrying cost) is payable till re-determination of tariff. The ATE has held that the provisions of Change in Law i.e. restoring the Appellant to the same economic position as if Change in Law has not occurred is in consonance with the principle of restitution i.e. restoration of some specific thing to its rightful status. Referring to the judgment of the Supreme Court of India in the matter of Indian Council for Enviro-Legal Action vs. Union of India &Ors. [(2011) 8 SCC 161] on the principle of restitution and time value of money, the ATE has observed that so long the derivation of other party is not fully compensated for, injustice to that extent remains and to do complete justice the convenient approach is to calculate interest ATE in its Order dated 20 December, 2012 in Appeal no. 150 of 2012 in the matter of SLS Power had recognized the principle of carrying cost. A bare perusal of the ATE Judgment in Appeal No. 210 of 2017 as decided on 13 April, 2018 would reveal that the said judgment is merely upholding the Law as laid down in the above SLS Case. Recently, based on above referred Order of the ATE, this Commission vide Order dated 19 April, 2018 has allowed carrying cost while approving Change in Law compensation in Case No. 102 of 2016 at the rate applicable for working capital interest calculation as per MYT Regulations, Accordingly, APML requests the Commission to grant carrying cost from the date the Change in Law events have affected APML to the date of Order by the Commission (in Order _ Case No 295 of 2018 Page 3

4 the present case in respect of relief granted under the Order dated 189 of 2013 & 140 of 2014 dated 07 March, 2018). 4. MSEDCL in its submission dated 3 December, 2018 has stated that: 4.1 The carrying cost sought by APML is not justifiable in as much as the Parties had never specifically agreed to compensate towards carrying cost on account of the impact of the Change in Law, more particularly not contemplating the inclusion of the same in Clause 10.3 (for 1200MW,125MW,440MW PPA)/13.4( for1320 MW) of the PPAs. 4.2 As no provision or clause was specifically so stipulated under the PPAs by the Parties, thereby making the intention abundantly clear regarding non-entitlement in the said eventuality i.e., non-inclusion of the provision/clause regulating the carrying cost, cannot be under any circumstance by now overturned and granted, as against the clear will of the parties of PPAs. 4.3 The ATE in the case of SLS Power Ltd. Vs. APERC & Ors., Appeal No. 150 of 2011 has specifically rejected the similar relief, as sought by the Applicant/Petitioner herein qua claim of carrying cost de hors the terms of the PPA. 4.4 Further as per Clause of PPA, the Commission is the final authority for determination of the compensation and unless and until such compensation is not being determined by the Commission, MSEDCL cannot be compelled to make any payment towards the alleged demand of compensation, which otherwise has been rejected by the Commission. 4.5 The carrying cost is recognized normally in cases of monies being denied at the appropriate time. There is no dispute on the fact that the amount payable gets determined and becomes payable only after such determination, and thus there is no liability to make payment until the decision of the Appropriate Commission on Change in Law. Therefore, amounts do not become legally due and payable until the decision of the Appropriate Commission. 5. At the hearing held on 4 December, 2018: 5.1 APML stated that a) As per directives in Case No 167 of 2018, it has filed this Petition for approval of grant of Carrying Cost in respect of relief granted under the Order dated 07 March, 2018 for domestic coal shortfall till 31 March, 2017.Supreme Court of India has already held the principle of restitution to the same economical position due to Change in Law events in its Judgment dated 11 April, 2017 in the Energy Watchdog v. CERC & Ors. b) ATE in its Judgment in the matter of Adani Power Ltd Vs CERC & Others (Appeal No. 210 of 2017) dated 13 April, 2018 and the Commission s Order in Case No. 102 of 2016 dated 19 April, 2018 has allowed carrying cost on account of the Change in Order _ Case No 295 of 2018 Page 4

5 Law compensation. Based on these judgments, APML requested the Commission to approve the carrying cost. APML is seeking relief under NCDP 2013 up to and it is not related to the matter as was pleaded under Case No 290 of 2015 seeking relief under SHAKTI Policy. 5.2 MSEDCL stated that APML has also filed the Petition under Case No 290 of 2018 seeking approval for Change in Law events along with carrying cost under SHAKTI Policy. The present matter is dependent upon the outcome of that Case No 290 of The Commission allowed both the Parties to file their replies, if any, within 7 days and reserved the matter for final Orders. 6. APML in its submission dated 10 December, 2018 has stated that: 6.1 MSEDCL in its reply dated 03 December, 2018 to the instant Petition has referred to the ATE Judgment dated 20 December, 2012 in Appeal No. 150 of 2011 (SLS Power Ltd. Vs APERC and Ors.) and has submitted that the Tribunal has rejected the similar relief as sought by APML herein. However, it is observed the Tribunal in the said judgment has allowed carrying cost. The relevant para is extracted hereunder: 35.5 The principle of carrying cost has been well established in the various judgments of the Tribunal. The carrying cost is the compensation for time value of money or the monies denied at the appropriate time and paid after a lapse of time. Therefore, the developers are entitled to interest on the differential amount due to them as a consequence of re- determination of tariff by the State Commission on the principles laid down in this judgment. We do not accept the contention of the licensees that they should not be penalized with interest. The carrying cost is not a penal charge if the interest rate is fixed according to commercial principles. It is only a compensation for the money denied at the appropriate time. 6.2 Therefore, it is prayed to allow carrying cost at the rate applicable for working capital interest calculation as per MYT Regulations, Commission s Analysis and Ruling 7. The Commission notes that APML had approached the Commission under Case No. 189 of 2013 and Case No. 140 of 2014 for adjudication of Change in Law claims under its four PPAs with MSEDCL on account of the domestic coal shortage faced by it. Following the judgment of the Supreme Court dated 11 April, 2017 in C.A. No of 2016 (Energy Watchdog v. CERC & Ors.), the Commission has issued Order dated 07 March, 2018 in the above said Cases whereby the Commission upheld the Change in Law claims of APML. However, in the said Order, the Commission has not allowed any carrying cost. 8. Subsequently, APML filed a review Petition under Case No. 167 of 2018 (for review of the above said Order dated 07 March, 2018) before the Commission seeking continuation Order _ Case No 295 of 2018 Page 5

6 of relief for domestic coal shortfall under Change in Law after 31 March, 2017 and as well as associated Carrying Cost. The Commission vide its Order dated 01 October, 2018 in that Review Case, gave liberty to APML for filing fresh Petition. In view of the above, APML has approached the Commission through this present Petition seeking grant of the carrying cost in respect of relief granted under the Order dated 07 March, 2018 in Case No. 189 of 2013 and Case No. 140 of 2014 for domestic coal shortfall till 31 March, The Commission notes that the ATE in its Judgment in the matter of Adani Power Ltd Vs CERC & Others in Appeal No. 210 of 2017 dated 13 April, 2018 has held as below: x. Further, the provisions of Article 13.2 i.e. restoring the Appellant to the same economic position as if Change in Law has not occurred is in consonance with the principle of restitution i.e. restoration of some specific thing to its rightful status. Hence, in view of the provisions of the PPA, the principle of restitution and judgement of the Hon ble Supreme Court in case of Indian Council for Enviro-Legal Action vs. Union of India &Ors., we are of the considered opinion that the Appellant is eligible for Carrying Cost arising out of approval of the Change in Law events from the effective date of Change in Law till the approval of the said event by appropriate authority In line with above said ATE Judgment in Appeal No. 210 of 2017 dated 13 April, 2018 the Commission s in its Order in Case No 102 of 2016 dated 19 April, 2018 has allowed carrying cost on account of the Change in Law compensation and ruled as below: VI. CARRYING COST.. The Commission notes that the provision for payment for Change in Law events in Article 13.4 of the APML s 2008 PPA is similar to that in the PPA quoted by APTEL, and the Change in Law provisions in the 2008 PPA are also based on the principle of restitution referred to by APTEL. Hence, APML shall be entitled to the carrying cost from the effective dates from which it was affected and incurred expenditure on account of the approved Changein Law events till the date of this Order. Such carrying cost shall not, however, be applicable on any amounts or interest arising from delays on its part in making payments. The rate of interest for the payment of carrying cost shall be as specified for the interest on working capital in the MYT Regulations applicable to the relevant periods. 11. Similarly, the Commission in its Order dated 03 August, 2018 in Case No. 124 of 2018 on the issue of Carrying Cost, has held as below: E. CARRYING COST Order _ Case No 295 of 2018 Page 6

7 39. APML has claimed carrying cost for the period when the approved Change in Law impacts became effective and till the compensation is paid. MSEDCL has opposed such payment of Carrying Cost stating that there is no provision in PPA for carrying cost as compensation for Change in Law become payable only when the Commission approves it. 40. The Commission note that APTEL in its Judgment dated 13 April, 2018 in Appeal No. 210 of 2017 (filed by APML) against another CERC Order (No. 235/MP/2015) has held that carrying cost is payable on the compensation for Change in Law events. Subsequent to this Judgment, the Commission in its Order dated 19 April, 2018 in Case No. 102 of 2016 has also allowed carrying cost on Change in Law compensation to APML. 41. Hence, in present case also, the Commission allows APML to levy the carrying cost from the effective dates from which it was affected and incurred expenditure on account of the approved Change in Law events till the date of this Order. Such carrying cost shall not, however, be applicable on any amounts or interest arising from delays on its part in making payments. 42. The rate of interest for the payment of carrying cost shall be as specified for the interest on working capital in the MYT Regulations applicable to the relevant periods. 12. As against, MSEDCL s claim that the ATE in the case of SLS Power Ltd. Vs. APERC & Ors., Appeal No. 150 of 2011 has specifically rejected the similar relief, the Commission finds that in the said Judgment dated 20 December, 2012 in Appeal No. 150 of 2011, the ATE has in fact upheld the principle of time value of money and carrying cost as follows: 35.5 The principle of carrying cost has been well established in the various judgments of the Tribunal. The carrying cost is the compensation for time value of money or the monies denied at the appropriate time and paid after a lapse of time. Therefore, the developers are entitled to interest on the differential amount due to them as a consequence of re- determination of tariff by the State Commission on the principles laid down in this judgment. We do not accept the contention of the licensees that they should not be penalized with interest. The carrying cost is not a penal charge if the interest rate is fixed according to commercial principles. It is only a compensation for the money denied at the appropriate time. [Underline added] 13. In view of above and considering settled position of Law regarding carrying cost, the Commission allows APML to claim carrying cost from the date the Change in Law events have affected it to the date of Order in Case No. 189 of 2013 and 140 of 2014 i.e. dated 07 March, The rate of interest for the payment of carrying cost shall be as specified for the interest on working capital in the MYT Regulations applicable to the relevant periods. Order _ Case No 295 of 2018 Page 7

8 15. Hence the following Order. ORDER 1. The Case No.295 of 2018 is allowed. 2. The Commission allows APML to claim the carrying cost in respect of relief granted earlier under the Order dated 07 March, 2018 in Case No. 189 of 2013 and 140 of 2014 for domestic coal shortfall till 31 March, 2017, at the rate applicable for working capital interest calculation as per the MYT Regulations applicable to the relevant periods. Sd/- (Mukesh Khullar) Member Sd/- (Anand B. Kulkarni) Chairperson Order _ Case No 295 of 2018 Page 8