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December 17, 2012

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Captive Power Generation and Grid Support Charges


- Ankit Sibbal, Associate Archer [ Jurists LLP ]

Ankit Sibbal

"While numerous incentives are being provided for promotion of captive generation of electricity, State Electricity Boards are filing applications for the imposition of a special levy upon captive generators connected to the grid."

In the year 1991, the Government of India determined and notified a Policy to allow private sector companies to participate in full generation of electricity in the background of various facts and circumstances including deficit in electricity power supply and deterioration of health of the State Electricity Board. In 1995, the government laid down a Policy in furtherance of the Policy notified in the year 1991 and decided to permit private sector participants in generating electricity power through Captive Power Generation/Co-Generation.

Section 9 of the Electricity Act, 2003 deals with Captive Generation Plant (CGPs). The Section was introduced to encourage the generation of power with the twin motives of privatisation and removal of deficiency in power. The Government of India accordingly decided to invite private participants in the field of Electricity to meet the increasing demand of power. The Government, to lure the industrial units to set up their own Captive Power Plant (CPPs), introduced various incentives in order to promote more and more generation of electricity. The Electricity Act, 2003 encouraged captive power generation in India by virtue of which its provisions took captive power to the competitive market by opening the market for players to invest in captive power generation.

Open access allows captive generators to sell power to any buyer irrespective of the location. Industrial consumers, who are suffering from inadequate power supply and high tariff rates charged by State Electricity Boards (SEBs), find captive generation the best alternative for meeting their demands.Where on the one hand, numerous incentives are being provided for promotion of Captive Generation of Electricity, on the other hand, various State Electricity Boards are filing applications before their respective commissions for the imposition of a special levy upon the Captive Generators that are connected to the Grid. The said special levy which is being named as ‘Grid Support Charges’ (GSC) or ‘Parallel Operation Charges’ is being charged upon the Captive Power Generators which are connected to the grid or in other words they are operating in parallel to the grid.

By parallel operation, one electrical system operates with connectivity to another system in similar operating conditions. In this process, the power system operates in tandem with all the connected generators for better operational efficiency and ease of the generators.The Captive Power Generators also have an option to operate in isolation not being connected to the Grid which is called operating in ‘Islanding Mode’.As per the various State Electricity Boards, when a Captive Generator operates in parallel with the grid, they get support from the grid and to an extent, they also provide support to the grid. But they provide lesser base MVA support in comparison to the support they receive, in addition to the ancillary services which are enjoyed by CGP.

The support/services which are being referred to by the State Electricity Boards are the fluctuations in the load that are absorbed by the utility grid in the parallel operation mode, fluctuating loads of the industries connected in parallel with the grid which inject harmonics into the grid, the reduction of stress of the negative phase sequence current which is generated by unbalance loads, higher fault level support when they are running in parallel with the grid supply, fault back-up support, stability to the plant to start heavy loads like HT motors, reduction in variation in the voltage and frequency at the time of starting large motors and heavy loads, reduction in the impact created by sudden load throw off and consequent tripping of Captive Generators on overspeeding, absorption of transient surges which may reduce the life of the equipment.

It has, however, failed to be considered that the above mentioned facilities are in fact in the nature of incentives and therefore, were part of the promotion policy adopted by the Government. What is being attempted to be canvassed, at this stage, is that the industrial houses were invited to invest in CPP by providing the said support system and thus is now being put to charge. The intention of the Parliament was abundantly clear when Section 9 of the Electricity Act, 2003 was introduced, where it had been mentioned that the CPP shall have the right to open access for the purpose of carrying power from his CGP to the destination of its use.

Any levy which does not fall in the category of any of the charges that can be levied as per the scheme of Central or State Act cannot be imposed and therefore such charge that could not be levied upon CPP merely because State Boards wish to impose a levy in the garb of grid support. The provision of the alleged services is a statutory obligation which the utility is duty bound to provide.The justification given in support of the said impost is not tenable at all. Firstly, it is an admitted fact that the grid is also deriving support from the Captive Generators. Secondly, it is also not clear as to under which provision of the Act, the said imposition has been levied. The language of Section 61 and Section 62 of the Electricity Act, 2003 is clear and does not support such imposition in the nature of GSC.

Thirdly, the local grid is not paying any such charges to the National Grid, therefore, the demand of such charges in the name of Grid Support is nothing but an unjust enrichment. Fourthly, charges if any, are to be levied only in accordance with such tariffs as fixed from time to time by any Commission in the State. As per Section 62 of the Electricity Act, 2003, a Commission has power to fix tariff only with respect to the following: (i) supply of electricity by a generating company to a distribution licensee; (ii) transmission of electricity; (iii) wheeling of electricity; and (iv) retail sale of electricity. The ‘grid support charges’ being proposed to be levied for the purported grid support provided by the STU (State Transmission Utility) to the CGPs connected to it and running parallel to it is clearly outside the purview of Section 62 and hence such levy would be contrary to the Act, 2003.

The proposed grid support charge is clearly not a subject matter of either generation, supply, transmission or wheeling of electricity as there is no element of generation, supply, transmission and wheeling of electricity in the purported services for which the same is sought to be levied and thus it is beyond the purview of any Commission to levy such charges under the Electricity Act, 2003.The functions of the State Commission are described in Section 86 of the Electricity Act, 2003, which inter alia include that the State Commission shall discharge the functions, namely to determine the tariff for generation, supply, transmission and wheeling of electricity, wholesale bulk or retail as the case may be within the State.

The said provision does not authorise the imposing of the GSC or any such charges. The scheme of Section 39 of the Act is very clear and stipulates that transmission utility and the functions contemplated in the Section also confer an obligation on the State Transmission Utility and has to undertake certain obligations including transmission of electricity through Intra-State Transmission System, to decide all functions of planning and coordination relating to intra-state transmission system with various agencies like CTU etc. Transmission Utilities are bound to provide non-discriminatory open access.

As per Section 61(i) read with 86(4) of the Electricity Act, 2003, while discharging its function of tariff regulation, a Commission shall be guided by the National Electricity Policy, National Tariff Policy published under Section 3 of the Act, 2003. The mandate of the National Electricity Policy as well as the Tariff Policy is to encourage Captive Power Generation.The attempt to impose a GSC has been made by considering various Judgements such as one of the Hon’ble APTEL in Urla and a Judgement of the Gujarat High Court in case of Hindalco. It is pertinent to submit that the issue in Urla was little different and was not canvassed in a proper manner since the Hon’ble APTEL was considering mainly its power of second review. In such circumstances, the issue of Parallel Operaton Charges, which was the subject matter of Urla could not get proper attention and therefore, could not be considered as a binding law.

The Judgement in Hindalco initially passed by the Regulatory Commission and then in the High Court was not a binding law for the reason the said Judgement lost its impact as subsequently in a review petition, the said Judgement got modified and lost its entire thrust. The Hon’ble High Court of Andhra Pradesh in Vishnu Cement Vs Central Power Distribution Company of Andhra Pradesh Limited, has declared imposition of grid support charges as violative of Electricity Act. The Hon’ble High Court has held that such a charge manifests the intent to force the industry to increase the contracted maximum demand, which is an improper purpose and arbitrary exercise of power.

The Judgement on the GSC as delivered by the Hon’ble Andhra Pradesh High Court is at present sub-judice before the Hon’ble Supreme Court, where the A.P. TRANSCO was not satisfied for the quashing of the grid support charges, preferred an appeal. The said matter has now been connected to various other similar cases and has been posted to be heard by a Three Judge Bench of the Hon’ble Supreme Court. During the pendency of the said decision, introduction of an imposed charges in the nature of GSC, amounts to an interference with the administration of justice and therefore, is improper and un-warranted.

Conclusion

A combined reading of Section 7, Section 30, National Electricity Policy and the Tariff Policy framed under Section 3 of the Act, 2003 would clarify that CGP is obligated to connect to the grid and comply with the grid connectivity standards. Therefore, when under the applicable realm of legislation, CGPs are obligated to connect to the grid, it would be unjust, improper and arbitrary to impose grid support charges on the CGPs on the guise of providing additional service to them.

Disclaimer–This is purely an informational note that is meant only for private circulation and intended solely for the use of the individual or entity to whom it is addressed. It is not an advertisement or any form of solicitation. It may not be quoted or referred to in any public document or shown to or shared with any third party, including any government authority, agency or other official body, without our consent. The information contained in this document is for information purposes only. The author provides no warranty about the content or accuracy of content enclosed. Information provided is subjective. This document is not a legal opinion and we strongly recommend that the recipients should seek legal advice for specific situations and not act solely on the basis of anything stated herein.

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