1

ANDHRA PRADESH ELECTRICITY REGULATORY COMMISSION

(Regulatory Commission for the States of Andhra Pradesh and Telangana) 4th & 5th Floors, Singareni Bhavan, Red Hills, Hyderabad 500 004

O.P.No.22 of 2011

Dated 20.09.2014

Present Dr. V.Bhaskar, Chairman

Sri R.Ashoka Chari, Member Sri P.Rajagopal Reddy, Member

Between

Transmission Corporation of Andhra Pradesh Ltd. … Petitioner

AND

M/s. GVK Industries Ltd (Phase-I) …Respondent

This petition has come up for hearing on 08.01.2014 in the presence of

Sri.P.Shiva Rao, Advocate for the petitioner, Sri M.Sodekar, Manager/Legal for the

respondent and the Commission having considered the submissions and material

available on record passed the following:

ORDER

CHAPTER – I: INTRODUCTION

2. This petition is filed on 28.08.2004 u/s 86(1)(b) of the Electricity Act, 2003

(for short, the Act 2003) r/w Section 11(a), (e) of the A.P. Electricity Reform Act,

1998 (for short, the Reform Act) and Clauses 8 & 9 of the A.P. Electricity

Regulatory Commission (Conduct of Business) Regulations for issuing suitable

directions to amend the Power Purchase Agreement (for short, PPA) and to delete

the provision of Naphtha as supplementary fuel and other fuels (LSHS, Furnace oil

and like) as alternate fuels.

2

The averments mentioned by the petitioner in the above mentioned petition, in brief, are as follows:

3. PPA with the respondent was signed on 19.04.1996 for purchase of power

from its 216 MW gas power plant at Jegurupadu. As per the provisions of the said

PPA, Naphtha constitutes approximately 26% of the project’s fuel in normal

operations, as supplementary fuel. Naphtha, LSHS and Furnace Oil and the like can

be used as alternate fuel in substitution of gas.

4. The definition of supplementary and alternate fuels are as follows:

Alternate fuel means Naphtha and, to the extent naphtha is not available, any fuel other than gas or naphtha, such as low sulphur heavy stock, furnace oil and the like, that can be used by one or more units of the Project to generate power from the project, in substitution of gas.

Supplementary fuel, means naphtha which is expected to constitute approximately 26% of the Project’s fuel in normal operations.

5. At the time of entering into PPA with the respondent, gas allocation to the

project was 0.75 million cubic meters per day (mcmd). It was envisaged in the PPA

that two turbines shall be operated with gas and third turbine shall be operated

with balance gas (if any) and supplementary fuel. As per Article 1.1(lxxxix) of the

PPA, supplementary fuel means Naphtha which constitute approximately 26% of

the projects fuel in normal operations.

6. As the allocated gas of 0.75 mcmd was not sufficient to operate three

turbines at full capacity, the provision for operation of 3rd turbine with mixed fuel

(i.e., gas + supplementary fuel i.e., Naphtha) was incorporated in the PPA.

7. Subsequently 0.3 mcmd of gas was allocated to the respondent on

temporary basis during 1998. Consequent to the allocation of additional gas,

Naphtha is not being used by the respondent for the past 5 years. Further,

temporary allocation of 0.3 mcmd of gas was converted to firm allocation of

0.15 mcmd and fall back allocation of 0.15 mcmd during the month of March 2003.

Thus, the firm allocation of gas to the respondent is 0.9 mcmd, in addition to fall

back allocation of 0.15 mcmd.

8. With 0.9 mcmd of gas, the 216 MW Jegurupadu power project of the

respondent can be operated at a PLF of 85% on annual basis.

3

9. In view of the above, usage of Naphtha may not be required in future. It is

also to submit that in view of the high cost of Naphtha, the petitioner is not

permitting the respondent to utilize Naphtha, even when there is a shortage of

gas. Energy charges using Naphtha (@ 24/Kg) works out to Rs.4.4181/kWh and that

of with Natural Gas (@ Rs.4525/1000 cum) to Rs.0.9728/kWh.

10. With the inclusion of expensive fuel (like Naphtha) as supplementary and

alternate fuel in the PPA, the risk is entirely mitigated and passed on to the end

consumer, which is unjustified. It is the developer / respondent, who has signed

the agreement, with the Gas supplier and it is wholly its responsibility to ensure

the availability of required fuel for its power plant operation. In any case, the

respondent has already got fuel linkage for 85% operation. Therefore, the inclusion

of supplementary fuel and alternate fuel in the PPA is unwarranted.

11. In view of the above, it is to submit that, due to high cost of Naphtha, the

petitioner would not like to permit IPPs to utilize Naphtha, even when there is a

shortage of gas.

12. The respondent is claiming minimum fuel off take charges for non drawal of

Naphtha and also claiming notional generation, for not using Naphtha during the

period of short supply of gas. As per Article 3.10.2, Notional generation upto PLF

of 85% shall be considered for payment of incentives.

13. The petitioner further submits that in pursuit of its intention to get the

alternate fuel deleted, petitioner has requested the Ministry of Power through a

letter dated 27.03.2004 to prevail upon the GAIL to change the Gas supply

Agreement with respondent (Clause 5.01) and awaiting for result.

Events subsequent to filing the petition u/s 86 (1)(b) of the Act by the petitioner:

14. In the year 2004 itself, the respondent herein filed W.P.No.7484 of 2004

challenging the jurisdiction of the Commission to entertain the above mentioned

petition filed by the petitioner and obtained stay of further proceedings by the

Commission. However, on 21-04-2008, the respondent withdrew the said writ

petition. Thereafter, on 22-02-2010 on behalf of the petitioner, a petition is filed

before the Commission stating that in view of withdrawing W.P.No.7484 of 2004 by

4

the respondent herein, the petitioner decided to prosecute further the above

mentioned petition filed by it. Consequently, the petition filed by the petitioner

u/s 86(1)(b) of the Act 2003 mentioned supra is taken on the file of the

Commission as O.P.No.22 of 2011.

Order dt.27-07-2013 passed by the Commission in O.P.Nos.22, 23 & 24 of 2004:

15. During the pendency of proceedings in this case i.e., in O.P.No.22 of 2011,

the Commission passed (common) order dt.27-07-2013 in O.P.Nos.22, 23 & 24 of

2004, wherein the issue relating to amending the PPAs entered into by APTRANSCO

with M/s.GVK Industries (Phase–II), M/s.Konaseema EPS Oakwell Power and

M/s.Gautami Power Limited respectively and deleting the provision of Naphtha and

LSHS as alternate fuels in the said PPAs was examined by the Commission. In the

light of facts and circumstances of the said cases mentioned in detail in its above

mentioned order dt.27-07-2013, the Commission came to the conclusion that the

petitions filed by the then APTRANSCO, in O.P.Nos.22, 23 & 24 of 2004 have lost

their relevance. Therefore, the Commission dismissed the said petitions without

prejudice to the rights and interests of the parties therein.

16. On 01-08-2013, the respondent herein filed a ‘Memo’ stating that the issues

involved in the above mentioned petitions O.P.Nos.22, 23 & 24 of 2004 are similar

to that of the respondent herein and in view of the fact that the Commission

dismissed the said petitions in its order dt.27-07-2013 as mentioned supra, the

present petition in O.P.No.22 of 2011, is also liable to be dismissed based on the

ratio observed by the Commission therein.

On 26-11-2013, ‘Counter’ is filed on behalf of the respondent, wherein it is reiterated that based on the rationale observed by the Commission in its order dt.27-07-2013, the present petition is liable to be dismissed and further stated that:

17. The respondent claimed that the petition had become infructuous as the

acts of the petitioner subsequent to filing the petition in O.P.No.22 of 2011, by

way of (i) accepting the availability declarations on Naphtha, (ii) accepting the

power so generated using Naphtha, and (iii) procuring Naphtha on its own; are

contradict to the relief sought by the petitioner. Thus, the petition has lost its

maintainability and is liable to be dismissed.

5

18. Along with the counter filed on 26-11-2013, the respondent also filed few

copies of availability declarations given by the respondent, the acceptance of such

declarations by the petitioner and instructions given to the respondent for lifting

Naphtha procured by the petitioner itself for the purpose of generation.

CHAPTER – II: SUBMISSIONS OF THE PARTIES

On 08-01-2014, Commission heard the arguments of counsel for the petitioner. Apart from reiterating the facts of the case, the counsel for the petitioner

submitted that:

19. After entering into PPA on 19-04-1996, the respondent has been supplying

power generated by it to the petitioner from the year 1997. As per Government of

India policy in vogue then, such generation of power was based on dual fuel

system; primary fuel being liquid fuel and secondary fuel being gas based.

However, in the year 2001, the situation changed, whereas gas became the

primary fuel and liquid fuel as secondary / alternate fuel. There is no dispute that

ever since 2001, primary fuel is gas based and secondary / alternate fuel is liquid

based. However, due to shortage in supply of gas by GAIL, its supply to the

respondent was reduced from the year 2004. Thus, seven years after entering into

PPA, circumstances under which the parties herein entered into PPA on 19.04.1996

have changed substantially. As the fault lies with GAIL, but not with it, the

petitioner had to review the situation and decided to file the above mentioned

petition seeking deletion of alternate fuel clause from the PPA entered by it with

respondent. Inclusion of expensive fuel like Naphtha as supplementary and

alternate fuel mitigates the risk of the developer / respondent and burden is

passed on to the end consumer. It is the developer / respondent herein who has

signed agreement with the Gas supplier and it is wholly its responsibility to ensure

that required gas for its power plant. There is no denying the fact that fuel risk is

with the developer / respondent herein.

20. The import of words “regulate electricity purchase” u/s 86(1)(b) of the Act

2003, mean that from time to time, the Commission has to monitor how

agreements are working. The Commission has enormous responsibility of balancing

the interests of both the parties to the PPA and ensure that only one part to such

6

agreement is not forced to bear the financial burden. The PPA entered between

the parties herein is an executable contract, but not an executed contract, where

under once goods are supplied, the contract is performed / executed. Even

according to the Contract Act, when circumstances change, contract need not be

performed.

21. For the said reasons, the counsel for the petitioner argued that this is a

case, where for no fault of it or the DISCOMs, they are exposed to high costs and to

avoid them the petition may be allowed.

Similarly, on 08.01.2014, the Commission also heard the arguments of the respondent which were subsequently also submitted in writing on 23.01.2014. Apart from reiterating the contentions mentioned in the counter, it was submitted on behalf of the respondent that;

22. Ever since the date of commercial operation, the respondent has been

supplying / selling power generated either by using Natural Gas as a primary fuel

or Naphtha as a Supplementary or as an Alternate Fuel, as the case may be, to the

petitioner. The project is base load station. Entire power generated is to be sold

exclusively to the petitioner herein as contemplated in the PPA.

23. At the time of entering into the PPA, parties to the PPA as well as the

Government authorities concerned were well aware of the fact that the gas

supplies available in the country are inadequate to meet the requirement to

operate the project of the respondent at rated capacity. As such, conditions were

imposed under the Gas Supply Contract to compulsorily have dual fuel firing

facilities and to enter into agreements for procuring alternate fuel. As per Article

1.1(lxiii) of the PPA, Naphtha Sales Agreement (NSA) has been entered into by the

respondent herein with BPCL, a GoI undertaking, for procuring required quantities

of Naphtha to generate power at its project. The said NSA was in force till

29.01.2012. Subsequently, the petitioner had not consented for renewing the said

NSA, but at the same time accepted the availability declarations given by the

respondent basing on Naphtha, as well as paid all bills raised by the respondent

towards the cost of Naphtha and towards the energy so generated using Naphtha.

Thus, even after rejecting consent for renewing the NSA, the petitioner had

procured Naphtha from a different source and directed the respondent to generate

power using the said Naphtha.

7

24. Further, Article 2.2(b) of the PPA obligates the respondent herein to

generate power using Alternate Fuel, as and when gas is not available in sufficient

quantities for generating power / energy. As the availability of Natural Gas has

drastically come down since the year 2011, the project of the respondent operated

on Natural Gas and on Naphtha also whenever dispatch was given by SLDC.

Naphtha is being used both as an Alternate Fuel as well as a Supplementary Fuel,

depending upon the situation of gas availability and depending upon the Dispatch

Instructions given by the petitioner. Therefore, the respondent submits that the

petitioner had expressly and impliedly had agreed for using Naphtha as a

Supplementary Fuel and / or Alternate Fuel for generating power / energy from its

project.

25. The respondent was declaring availability of its project to generate power

using Naphtha, as and when there was insufficiency in quantities of Natural Gas

supplied to its project. The petitioner had accepted all such declarations and

issued Dispatch Instructions accordingly. Copies of Dispatch Instructions given by

the petitioner filed along with its counter reveal that the petitioner had instructed

the respondent to generate power up to 205 MW using Naphtha. Similarly, copies

of letters Dy CCA (PP&S) / APPCC addressed to the respondent, in respect of power

purchase bills submitted by the respondent also reveal that the petitioner had duly

paid to the respondent all bills towards the cost of Naphtha procured by it, as well

as towards the energy generated using Naphtha. The petitioner not only instructed

the respondent to generate power using Naphtha, but also procured Naphtha on its

own and directed the respondent to lift the same from the port and to generate

power with immediate effect, using the Naphtha so procured by it. As such, the

petitioner is estopped both contractually as well as by implication to contend

otherwise. Thus, the petition in O.P.No.22 of 2011 has become infructuous.

26. When there is no consensus between the parties to a concluded PPA, the

Commission is barred from amending the same or to direct the parties thereto to

amend the PPA. The respondent is not agreeable for the amendment of the PPA or

to delete Naphtha as an Alternate Fuel and/or Supplementary Fuel from the said

PPA. The Commission has no jurisdiction to either amend PPA on its own or to pass

8

directions to the parties to amend the PPA. Under these circumstances, the

respondent requests the Commission to dismiss the petition.

CHAPTER – III: COMMISSION ANALYSIS

27. The issue that arises for consideration of the Commission is whether

direction is to be given to the parties herein to amend the PPA entered between

them to delete the provision of Naphtha as supplementary fuel and other alternate

fuels (LSHS, Furnace Oil and the like), as prayed for by the petitioner in its

petition filed on 28-08-2004.

28. As can be seen from the averments/submissions made, the essential request

of the petitioner herein is to give direction to the respondent to amend the

executed and subsisting PPA dated 19-04-1996 with regard to fuel, on various

grounds. On the other hand, the contention of the respondent is that such a

request of the petitioner to amend the PPA cannot be conceded by the

Commission. The respondent has based its objection for such amendment of PPA

on various grounds narrated supra.

29. The thrust of arguments of the respondent are that (i) the issue in

O.P.Nos.22, 23 & 24 of 2004 are similar to that of petition on hand and therefore,

the said petition in O.P.No.22 of 2011 is liable to be dismissed on the ratio

observed by the Commission in its order dt.27.07.2013 passed in the said

O.P.Nos.22, 23 & 24 of 2004, and (ii) the petition in O.P.No.22 of 2011 had become

infructuous as the acts of the petitioner subsequent to filing of the said petition

contradict the relief sought by it therein and therefore, it has lost its

maintainability. According to the respondent, for the said reason also, the petition

is liable to be dismissed.

30. After perusal of the entire record, the Commission is of the opinion that the

facts and circumstances of the petitions in O.P.Nos.22, 23 & 24 of 2004 are

altogether different from those of the present petition. Therefore, even if the

issue relating to the said batch of petitions and the present petition are similar to

some extent, the rationale observed by the Commission in its order dt.27.07.2013

9

cannot be made applicable in the case on hand. Therefore, the present petition

cannot be dismissed on the said ground canvassed by the respondent.

31. In this context, it is necessary to test the contention of the petitioner that

due to high cost of Naphtha, it would not like the respondent to utilize Naphtha

even when there is shortage of gas, which contention is pivotal to the relief

claimed by the petitioner. Along with counter filed on 26.11.2013, the respondent

filed few copies of dispatch instructions issued by the petitioner based on Naphtha

for generation of electricity, details of which are shown hereunder:

Statement showing the details of Despatch Instructions issued by SE/Grid Operation (Petitioner) to M/s. GVK Industries Limited (Respondent)

Sl. No.

Despatch Instructions with Date

Capacity despatched

in MWs

Type of Fuel Duration of Despatch instructions with Date

1 01-04-2009 205 In all using Naphtha also

From 00:00 hrs to 24:00 hrs on 02-04-2009

2 02-04-2009 205 In all using Naphtha also

From 00:00 hrs to 24:00 hrs on 03-04-2009

3 03-04-2009 205 In all using Naphtha also

From 00:00 hrs to 24:00 hrs on 04-04-2009

4 04-04-2009 205 In all using Naphtha also

From 00:00 hrs to 24:00 hrs on 05-04-2009

5 08-04-2013 at 19:00 hrs

135 In all (as per the availability declared for 08-04-2013) with Naphtha also

From 20:30 hrs to 24:00 hrs on 08-04-2013

6 09-04-2013 at 16:00 hrs

135 In all using Naphtha also

From 00:00 hrs to 24:00 hrs on 10-04-2013

7 10-04-2013 at 19:00 hrs

135 In all using Naphtha also

From 00:00 hrs to 24:00 hrs on 11-04-2013

8 17-10-2013 at 12:50 hrs

205 As per your declared capacity, with available gas and Naphtha also

From 15:00 hrs to 24:00 hrs on 17-10-2013

9 17-10-2013 at 18:50 hrs

205 In all using Naphtha and available gas also

From 00:00 hrs to 24:00 hrs on 18-10-2013

10 19-10-2013 at 17:10 hrs

205 In all using Naphtha and available gas also

From 00:00 hrs to 24:00 hrs on 20-10-2013

32. As seen from the table above, the petitioner directed the respondent to

generate electricity using Naphtha and very sparingly for 4 days in the month of

April 2009 (i.e., from 1st to 4th). In the second instance 3 days in the month of April

2013 which is a peak month. In the third instance 2 days in the month of October

2013. The petitioner being a licensee and an obligated entity has to maintain the

10

supply of power to meet the rising demand during peak months in the absence of

supply of gas. The sparing usage of Naphtha by the petitioner only for 9 days in a

span of 5 years clearly shows that they are not inclined to use Naphtha due to its

high cost. But due to unavoidable circumstances it has dispatched the station to

generate with Naphtha as and when there is shortage of gas only in public interest.

33. However, since there is a binding and subsisting contract between the

parties herein and any relief claimed by either of the parties has to be within the

framework of law, including the relevant provisions of such PPA. In this context, it

is necessary to refer to Article 16.1 of the PPA and the same is extracted

hereunder for each reference:

Article 16

SPECIAL PROVISIONS

“16.1 Variations, Waivers and modifications: No variation, waiver or modification of any of the terms of this Agreement shall be valid unless communicated in writing and signed by or on behalf of the Parties.”

34. As seen from the above, variation or modification of any of the terms of the

PPA entered between the parties herein is valid only when communicated in

writing and finally signed by or on behalf of the parties. In this regard, even

though the petitioner has proposed an amendment to the PPA dated 19-04-1996

with regard to change of fuel, the respondent is not agreeable to the said proposal

and pleads for continuation of the existing PPA without any change.

CHAPTER – IV: CONCLUSION

35. For the foregoing reasons, the Commission is of the opinion that the ratio

observed by the Commission in its order dt.27.07.2013 passed in O.P.Nos.22, 23 &

24 of 2004 cannot be applied to the facts of this case, as the same are different

from those of the said batch of petitions already disposed of by the Commission.

However, there is force in the contention of the respondent that acts of the

petitioner subsequent to the filing of the petition in O.P.No.22 of 2011 contradict

relief claimed by it, in the said petition. Further, the PPA does not allow for

unilateral amendment which is being sought by the petitioner.

11

36. As such, the Commission cannot entertain the petition and grant relief to

the petitioner with regard to deletion of provision of Naphtha as supplementary

fuel and other fuels (LSHS, Furnace Oil and like) as alternate fuels, which deletion

is not acceptable to the respondent as it goes contrary to the terms and conditions

of the concluded PPA entered between the parties herein. Accordingly, the

petition filed by the petitioner in O.P.No.22 of 2011 is dismissed.

This order is corrected and signed on this 20th day of September, 2014.

Sd/- Sd/- Sd/-

(P.RAJAGOPAL REDDY) (R.ASHOKA CHARI) (Dr. V.BHASKAR) MEMBER MEMBER CHAIRMAN