Before the. CASE No. 69 of In the matter of. Petition of Century Rayon for amendment of Renewable Purchase Obligation.

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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: / www. merc.gov.in CASE No. 69 of 2016 In the matter of Petition of Century Rayon for amendment of Renewable Purchase Obligation Regulations, 2016 so as to exempt Captive Users of Fossil Fuel-based Co-Generation Plants M/s Century Rayon Petitioner Appearance For the Petitioner : Shri. Prakash Shah, Adv. Shri. Ajit M. Patil CASE No. 71 of 2016 Petition of Captive Power Producers Association for review of Renewable Purchase Obligation Regulations, 2016 so as to exempt Captive Users of Fossil Fuel-based Co- Generation Plants Captive Power Producers Association Petitioner Appearance For the Petitioner : Shri.Vikas Nevagi, Adv Shri. Vikas Patangia CASE No 73 of 2016 Petition of Uttam Galva Steels Ltd. for amendment of Renewable Purchase Obligation Regulations, 2016 so as to exempt Captive Users of Fossil Fuel-based Co-Generation Plants Uttam Galva Steels Limited Petitioner Appearance Order in Case Nos 69, 71, 73 of 2016 Page 1

2 For the Petitioner For Authorized Consumer Representative : Shri. Abhishek Khare, Adv. Shri. M.L. Agarwal : Dr. Ashok Pendse, TBIA Coram Shri. Azeez M. Khan, Member Shri. Deepak Lad, Member ORDER Date: 28 March, 2018 These Petitions essentially seek amendment of the MERC (Renewable Purchase Obligation (RPO), its Compliance and Implementation of Renewable Energy Certificate Framework) ( RPO Regulations ), 2016 so as to exempt captive users of power from fossil fuel-based Co- Generation Plants from applicability of RPO. Hence this common Order. CASE No. 69 of M/s Century Rayon (CR) (a Division of Century Textiles & Industries Ltd.) has filed a Petition on 27 April, 2016, citing Regulation 92 of the MERC (Conduct of Business) Regulations, 2004, with the following prayers: a. This Hon ble Commission be pleased to suitably modify the RPO Regulations to maintain status quo and exempt captive user(s) consuming power from grid connected fossil fuel based co-generation plants, from applicability of Renewable Purchase Obligation target and other related conditions as specified in these Regulations and make suitable and consequential modifications to the said Regulations; b. In the alternate, this Hon ble Commission be pleased to exercise the power under Regulation 16 to relax/waive Renewable Purchase Obligation for captive users consuming power from co-generation having capacity of more than 5 MW generating electricity based on conventional fossil fuel 2. The Petition states as follows: a) CR is engaged, inter alia, in diverse industrial sectors like Textiles, Cement, Tea, Tyres, etc. It owns a Co-generation Captive Generating Plant (CGP) based on conventional fossil fuel with installed capacity of more than 5 MW. This Cogeneration CGP is situated at Shahad, Distict Thane, Maharashtra. Order in Case Nos 69, 71, 73 of 2016 Page 2

3 b) The RPO Regulations, 2016 define the term Obligated Entity to mean a Distribution Licensee, a user owning a CGP and an Open Access (OA) Consumer in Maharashtra required to comply with the RPO subject to fulfillment of condition in Regulation 5. Regulation 3.2 provides that the Regulations shall apply to captive users and OA consumers in Maharashtra, subject to the conditions in Regulation 5. c) Regulation 7 provides the percentage of Obligated Entity to procure electricity from eligible Renewable Energy (RE) source. d) Regulation 5.1 provides that the percentage specified in Regulation 7.1 shall be applicable to all OA consumers and captive users subject to them owning a gridconnected CGP based on conventional fossil fuel with installed capacity of 5 MW and above and consuming electricity generated from such Plant for their own use. e) In view of the above, CR being the owner of a Co-generation CGP based on conventional fossil fuel with installed capacity of more than 5 MW is subjected to RPO, i.e. required to purchase electricity from eligible RE sources to the extent of the percentage of its consumption met through such fossil fuel-based captive source. f) This Petition seeks reconsideration of the RPO Regulations, 2016 to the extent that fossil fuel Co-generators are required to procure electricity generated from eligible RE sources. g) In the alternative and without prejudice to the above, this Petition may be treated as an Application under Regulation 16 of the RPO Regulations, 2016, and the obligation to procure electricity from the eligible RE sources be waived to the Cogeneration captive users using fossil fuel. h) The draft RPO Regulations published by the Commission provided for the exemption from any RPO on the captive users consuming power from grid-connected fossil fuel-based Co-generation Plants with installed capacity of 5 MW and above. The RPO Regulations, 2016 as finally published by this Commission on 30 March, 2016 provide for purchase of RE power by parties like CR, who is a captive user consuming power from its own grid-connected Co-generation CGP based on conventional fossil fuel with installed capacity of 5 MW and above. i) Proviso to Regulation 11.3 of the draft RPO Regulations provided that captive users consuming power from grid-connected fossil fuel-based Co-generation Plants are exempt from RPO targets and specified conditions. This proviso in the draft RPO Regulations was omitted in the finally notified RPO Regulation, 2016, apparently based on the revised Tariff Policy of However, the revised Tariff Policy of 2016 cannot override Section 86(1)(e) of the Electricity Act (EA), 2003 and the binding judicial orders of the Appellate Tribunal for Electricity (ATE). Order in Case Nos 69, 71, 73 of 2016 Page 3

4 j) In view of the above, CR did not file any submission in response to the draft RPO Regulations as there was complete exemption provided to CR. The final RPO Regulations as published by the Commission imposed RPO on CR without providing any opportunity to it to make suggestions / objections to the revised draft Regulations in which exemption proposed was withdrawn. CR is therefore entitled to maintain this Application. k) The RPO Regulations 2016,to the extent that they impose RPO on a captive user having Co-generation CGP based on conventional fossil fuel with installed capacity of 5 MW and above, are contrary and inconsistent with the provisions of the EA, 2003 and, in particular, Section 86(1)(e). l) The ATE, in its Judgment dated 26 April,2010 in CR s own case and in its subsequent Orders in other Cases, upon interpretation of Section 86(1)(e) of the EA, 2003 has held that: Under the Scheme of the Act, both renewable source of energy and cogeneration power plant, are equally entitled to be promoted by State Commission through the suitable methods and suitable directions, in view of the fact that cogeneration plants, who provide many number of benefits to environment as well as to the public at large, are to be entitled to be treated at par with the other renewable energy sources. m) It is a settled position in law that the Order of the ATE is binding on this Commission. This Commission rejected the contention of CR that it is not required to purchase the electricity from RE source on the ground that CRis using conventional fossil fuel. ATE has accepted the contention of CR held that it is not required to purchase electricity from RE sources. n) It is an admitted position that in view of the Order of ATE and in particular its interpretation of Section 86(1)(e) of the EA, 2003 in CR s own case, this Commission suitably modified the earlier Regulations to remove the RPO on Co-generators like CR. o) The impugned RPO Regulations are clearly contrary to not only the binding Orders of the ATE but also contrary to the provisions of the EA, p) This Commission did not invite any objections or suggestions from the affected party like CRnor afforded any opportunity of hearing before making the impugned RPORegulations, which affect all Co-generators like in this case. The purpose of publication of the draft RPO Regulations was to invite suggestions and objections. The purpose was defeated in so far as the Co-generators are concerned. q) Section 86 of EA, 2003, provides for the functions to be discharged by the State Commission. Section 86(1)(e) is interpreted by the ATE in CR s own case, Order in Case Nos 69, 71, 73 of 2016 Page 4

5 holding that the co-generation and generation of electricity from RE sources are both required to be promoted by the State Commission. The distinction sought to be made by different State Commissions was negated by the ATE. r) On 26 April 2010, the ATE in Appeal No. 57 of 2009, passed a detailed Judgment laying down the duties of the Electricity Regulatory Commissions in the matter of promotion of co-generation and generation of electricity from renewable sources of energy by providing various measures under Section 86(1)(e). Portions of the Judgment, which have a vital bearing on the mandate of the Commission in making the RPO Framework and relevant for the purpose of the present Petition, are set out hereunder: (i) As per Section 86(1)(e), there are two categories of Generators, namely, (1) Co-generators (2) Generators of electricity through renewable sources of energy. It is clear from this Section that both these categories must be promoted by the State Commission; (ii) Under the scheme of the EA, 2003, both renewable sources of energy and Co-generation Plants are equally entitled to be promoted by State Commission through suitable methods and suitable directions, in view of the fact that Co-generation Plants, which provide many benefits to environment as well as to the public at large, are to be entitled to be treated at par with the other RE sources; (iii) The intention of the legislature is to clearly promote co-generation in this industry generally irrespective of the nature of the fuel used for such cogeneration and not co-generation or generation from RE sources alone. In conclusion, ATE, clearly held that the Appeal before it being generic in nature, its conclusions will be equally applicable to all co-generation based captive consumers who may be using any fuel. s) The ATE in its Judgment in Appeal Nos. 112, 130 and 136 of 2014, dated 1 October, 2014, in the matter of India Glycols Ltd V/s Uttarakhand Electricity Regulatory Commission (UERC), held that The Co-generation based Captive Power Plant/Captive user cannot be fastened with renewable purchase obligation as provided under UERC (Compliance of RPO) Regulations, 2010, as subsequently, amended by UERC (Compliance of RPO) (First Amendment) Regulations, ) The State Commission should have granted relief and exempted the Cogeneration based Captive Power Plants/Captive users as per the judgment, dated , of this ATE in Appeal No. 57 of 2009, immediately on coming to the knowledge of the same and without waiting for the amendment of the relevant State RPO Regulations, 2010 (Principal Regulations) it was Order in Case Nos 69, 71, 73 of 2016 Page 5

6 incumbent upon the State Commission to consider the submissions of the Appellants and other like co-generation based Captive Power Plants/Captive users and to grant relief to them. Since, the State Commission has failed in its duty to do the same; we are constrained to rectify the illegality committed by the State Commission without remanding the matter and again burden the State Commission with the same exercise. 26) ATE further ordered that the relief granted herein shall be applicable to all Co-generation based Captive Power Plants/Captive users as they are also covered by the newly amended definition of Obligated entity and shall not be confined to the Appellants before us. t) The aforesaid orders are valid, binding and in force on the State Electricity Regulatory Commissions. CASE No. 71 of Captive Power Producers Association (CPPA) has filed a Petition on 29 April, 2016 citing Regulation 85 of the MERC (Conduct of Business) Regulations, 2004 and Section 94 of EA, 2003 for review and amendment of Regulation 11.3 of the RPO Regulations, The prayers of CPPA are as follows: The Applicant humbly pray to the Hon ble Commission to Review the RPO Regulations 2016 dated 30 th March 2016 by retaining the proviso as mentioned in Regulation 11.3 of Draft RPO Regulations, 2016 provided further that the captive user(s) consuming power from grid connected fossil fuel based co-generation plants, are exempted from applicability of Renewable Purchase Obligation target and other related conditions as specified in these Regulations. in Regulation 11.3 of the RPO Regulation, 2016 In view of the facts and circumstances mentioned above and in interest of justice by exercising powers of Hon ble commission as per Regulation 85 of Maharashtra Regulatory Electricity Commission (Conduct of Business) Regulations 2004 and as per Section 94 of Electricity Act, 2003 to review the RPO Regulation, 2016 as prayed above. 5. The Petition states as follows: a) CPPA is an Association of Industries in Maharashtra having CGPs at their industries in the State fulfilling their energy requirements through captively produced power. In these Power Plants, which are coal, liquid fuel or gas based, heat is cogenerated as a by-product or industrial waste and is harnessed for further power, steam generation and other industrial uses. The heat co-generated is used for industrial purposes / running steam turbines which are in turn used for further power Order in Case Nos 69, 71, 73 of 2016 Page 6

7 generation. The CPPA members CGPs have been recognized as Co-generation Plants by the appropriate authorities. b) On 24 December, 2015 the Commission published draft RPO Regulations. In the interactive consultation held thereon, the Commission directed all the stakeholders to submit their objections/suggestions by 19 January, c) In Regulation no of the draft RPO Regulations, 2016, Commission retained the following exemption to Captive users consuming power from Cogeneration from applicability of RPO targets as given below- Captive user(s) consuming power from grid connected fossil fuel based cogeneration plants, are exempted from applicability of RPO target. Hence, Captive user(s) consuming power from Co-generation have not submitted any objections and suggestions on the draft Regulation. d) The Commission, on 30 March 2016, in exercise of powers conferred under Sections 61, 66, 86(1)(e) and 181 of the EA, 2003, notified the RPO Regulations, e) CPPA is presenting this Petition under Regulation 85 of the MERC (Conduct of Business) Regulations, 2004 as well as Section 94 of the EA, 2003 seeking review of the RPO Regulations 2016,as set out below. f) The EA, 2003 is passed to consolidate the laws relating to electricity for promotion of efficient and environmentally benign policies and for matters connected therewith or incidental thereto. The EA, 2003 provides for appointment of State Electricity Regulatory Commissions (SERCs) for carrying out various regulatory and advisory functions under the EA, The EA, 2003 requires SERCs to promote certain processes and sources of generation of energy and to draft Regulations for making suitable measures for such promotion. Section 86(1e) of the EA, 2003 provides as follows:- 86. Functions of State Commission:(1) The State Commission shall discharge the following functions, namely :- (e) promote cogeneration and generation of electricity from renewable resources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of distribution licensee; g) Co-generation is a process. It means generation of more than one form of energy (including electricity) from a single source of energy. It is not specific to any Order in Case Nos 69, 71, 73 of 2016 Page 7

8 particular source or any particular type of source. Co-generation has been defined in Section 2(12) of the EA, 2003 as a process which simultaneously produces two or more forms of useful energy (including electricity). h) The EA, 2003 clearly recognizes the importance of encouraging industries to use all the outputs from a co-generation process in an effective manner so as to lead to effective use of fossil fuels which are fast depleting and save energy. Undisputedly, it is an admitted fact that co-generation based on fossil fuel has tremendous scope and significant contribution to the benefit of environment by way of curtailing emissions and hence needs to be encouraged. The Co-generation Plants have thermal efficiency in excess of 70 % compared to conventional Plants having efficiency of 30 to 34 %, or combined cycle Power Plants having thermal efficiency of 50 to 55%. This is an extremely efficient way of meeting power and steam requirements of the industry with fuel saving capability of the order of 20 to 25 %. The scope of reducing emission into environment is much larger and more significant in case of co-generation than all renewable sources put together. In such a scenario, the Commission s proposal of overlooking promotion of co-generation or restrict promotion of co-generation to one particular process or feedstock lacks justification. i) The RPO Regulations were published on the website of the Commission on 30 March, There was no public hearing held on the revised RPO Regulations after getting suggestions/objections from the stakeholders by the Commission before such publication. j) On 26 April, 2010, the ATE, in Appeal No. 57 of 2009, in the matter of Century Rayon Vs. Maharashtra Regulatory Commission & Ors. passed a detailed Judgment and Order laying down the duties of SERCs in the matter of promotion of co-generation and generation of electricity from Renewable Sources of Energy by providing various measures under Section 86(1) (e) of the EA, [The relevant conclusions of the ATE and their implications cited by CPPA are along the lines already set out at para. 2(r) earlier in this Order.] k) In the ATE Full Bench Judgment in Appeal No 53 of 2012 dated in Lloyd Metal & Energy Ltd Vs. MERC& Ors., the limited question referred to the Full Bench of the tribunal was Whether the Distribution Licensee could be fastened with the obligation to purchase a percentage of its consumption from co-generation irrespective of the fuel used under Section 86(1)(e) of the EA, The Full Bench of ATE has not considered and disturbed the ratio of the ATE order dated 26 April, 2010 exempting RPO on Co-generation. The Rajasthan High Court also considered a related issue. The Petition in Rajasthan High Court was on applicability of RPO on CGP and was not on applicability of RPO to Co-generation CGPs. Co-generation CGPs are exempted from RPO according to Rajasthan Electricity Regulatory Commission (RERC) RPO Regulations. Order in Case Nos 69, 71, 73 of 2016 Page 8

9 l) [CPPA has also cited the ATE its Judgment in Appeal No 112, 130 and 136 of 2014, dated in India Glycols Ltd V/s UERC, which is quoted at para. 2(s) earlier in this Order.] m) Gujarat Electricity Regulatory Commission (GERC) filed a Review Petition against ATE s order dated 26 April, 2010, which was rejected by ATE vide its Order dated 17 th April 2013 (IA 262 of 2012) holding that GERC is not the aggrieved party and there is delay in filing the Petition. GERC has filed appeal before the Supreme Court, which is pending (CA No 6797 of 2013). Hence, the ATE s Order dated 26April, 2010 is still valid and in force and is binding on SERCs. n) On 28 January, 2016, Ministry of Power (MoP), empowered under Section 3 of the EA, 2003, notified the amended National Tariff Policy. Clause 6.4 reads thus: Provided that cogeneration from sources other than renewable sources shall not be excluded from the applicability of RPOs. o) Even in the light of the law as enunciated by the ATE, the RPO Regulations, 2016 have withdrawn the exemption on Captive user(s) consuming power from cogeneration from applicability of RPO targets. The relevant provisions of the Regulations require review. The Judgment of the ATE could not be produced by CPPA with its objections/suggestions as the Regulation was passed after the objections /suggestions were submitted through the website since there was no hearing on the objections/suggestions before the Regulations were made by order dated 30 March, 2016 and in the draft RPO Regulations, the fossil fuel-based Cogeneration Plants were exempted from applicability of RPO targets. In any event, having regard to totality of the circumstances, there are sufficient reasons for a review of the order of the Commission making the said Regulations. p) Co-generation means a process which simultaneously produces two or more forms of useful energy (including electricity). The EA, 2003 encourages the industry, firstly, to captively produce electricity for its own use and, secondly, to produce such electricity through the process of co-generation since it leads to effective use of fossil fuels available in limited supply and thereby conserves energy. The EA, 2003, therefore, recognizes the need to promote co-generation by treating the same on par with renewable sources of energy. The State Commissions are required to accordingly promote both (1) co-generation and (2) generation of electricity through renewable sources and are empowered to frame Regulations for specifying suitable measures of such promotion. The EA, 2003 also requires that the State Commissions, in discharge of their functions, be guided by the National Electricity Policy (NEP) and Tariff Policy published under Section 3(2) of the EA, The NEP requires co-generation projects to be encouraged as much as RE sources. Inspite of the mandate of the EA, 2003 and the NEP, the Commission has omitted to encourage co-generation. The Regulations, to the extent they do not so provide, are ultra vires the EA, 2003 and also Order in Case Nos 69, 71, 73 of 2016 Page 9

10 violative of fundamental and constitutional rights of CPPA members who own CGPs in co-generation mode, on the following amongst other grounds:- A. (A1). That it is elementary principle of administrative law that any Regulations, rule etc. must be made after publishing the draft and inviting suggestions and objections of the interested persons. As a corollary, some new provisions in the final published Rule/ Regulations cannot be added which was not there in the draft nor can something which conferred substantial rights be deleted in the final version. This is precisely what is done in the instant case and the Commission has materially changed the provisions of the draft as published. This is gross violation of Administrative and Constitutional Law. (A2). That the process of rule/ Regulation-making and/or decision making by the Commission necessarily involves observance of principles of natural justice. The impugned Regulations are notified in breach of principles of natural justice, since no opportunity of being heard was given tocppa or any of its members. (A3). That it is cardinal principle of natural justice that any action or decision which entails civil consequences (here the entitlement of exemption from being an obligatory entity for RPO obligation is being withdrawn which is adverse and prejudicial to CPPA) must precede observance of natural justice. On this count also, the Regulations need to be relaxedin the terms under Regulations 11.3 and the status quo ante restored. (A4). The Regulations discriminate against co-generation generally in as much as they simply provide for measures of promotion of renewable sources of energy and do not have any provisions which would promote co-generation of electricity. The Commission ought to have promoted electricity generated from co-generation and given it similar treatment with RE in the Regulations. Section 86(1) (e) of the EA, 2003 places co-generation on equal footing with generation of electricity from renewable sources of energy. As provided in Section 86 (1) (e) of the EA, 2003, co-generation also needs to be promoted along with RE, which the Commission has overlooked and ignored. B. (B1) Section 86(1) (e) of the EA, 2003 mandates the State Commission to promote co-generation along with generation of electricity through Renewable Sources of Energy. Clearly the intention of the Legislature is to promote cogeneration in the industry without reference to the fuel used for such cogeneration. Section 2(12) of the EA, 2003 defines co-generation as a process, which simultaneously produces two or more forms of useful energy (including electricity). The definition does not refer to any fuel, or conventional or non-conventional source of energy. Order in Case Nos 69, 71, 73 of 2016 Page 10

11 (B2) The term cogeneration so defined generally is used only in Sections 61(h) and 86(1)(e) of the EA, 2003 providing for the functions of the State Commission, to promote cogeneration. (B3) The intention of the legislature is to clearly promote co-generation in the industry generally and not co-generation from RE Sources alone. If the intention of the legislature was to promote only co-generation from renewable sources of energy, there was no requirement to mention the word cogeneration at all in Section 86(1)(e), or indeed define it in Section 2(12) since generation includes cogeneration and the use of the word cogeneration separately in the Section would be redundant. C. (C1) The State Commission is enjoined upon to seek guidance from the NEP published under Section 3 of the EA, 2003 and others, all of which require encouragement of co-generation in the industry without reference to any type of fuel, or the nature of source of energy, namely, whether conventional or non-conventional, as may be seen from the following: The NEP, 2005 in Clause provides as follows:- Industries in which both process heat and electricity are needed are well suited for cogeneration of electricity. A significant potential for cogeneration exist in the country, particularly in the sugar industry. SERCs may promote arrangements between the co-generator and the concerned distribution licensee for purchase of surplus power from such plants. Cogeneration system also needs to be encouraged in the overall interest of energy efficiency and also grid stability. The Tariff Policy dated 28 January, 2016 published by MoP pursuant to Section 3 of the EA, 2003), in Clauses 4 (d), provides as follows:- 4 (d) Promote competition, efficiency in operations and improvement in quality of supply. D. (D1) There are many documents in the form of contemporanea expositio available on record to show the State s primary intention to promote all forms of co-generation. Some of the documents are referred to below (D2) MoP Resolution dated 6 November, 1996 provides as follows: 1.3 It is generally recognized that industry in general and a process industry in particular needs energy in more than one form and if the energy requirements and supply to the industrial units are carefully planned the overall efficiency of a very high order is possible to achieve. With the combined objectives of promoting better utilisation of precious energy resources in the industrial activities and creation of additional power generation capacity in the system, encouragement to co-generation plants in the country is being suggested. (D3) In the above context, it specifies the following definition of cogeneration. Order in Case Nos 69, 71, 73 of 2016 Page 11

12 2.1 A cogeneration facility is defined as one which simultaneously produces two ore more forms of useful energy such as electric power and steam, electric power and shaft (mechanical) power etc. Cogeneration facilities, due to their ability to utilize the available energy in more than one form, use significantly less fuel input to produce electricity, steam, shaft power or other forms of energy than would be needed to produce them separately. Thus by achieving higher efficiency, cogeneration facilities can make a significant contribution to energy conservation. (D4) The MoP Resolution further provides as follows: 3. Objectives of the Policy 3.1. As electricity and heat are fundamental inputs to most of the industrial activities the present policy strives to achieve the dual objectives of achieving higher efficiency in fuel use in the industry as well as the availability of surplus electricity to the State grid, by combining power and heat generation for industrial use. E. (E1) The report of the Working Group on Power for Eleventh Plan dated 15February, 2007 constituted by the MoP recommended the following in Section (B): Co-generation power is to be given Must Run status. Co-generation power should be treated at par with non-conventional energy sources such as wind energy. Therefore, no backing down of the co-generation power be resorted to by the off taking distribution utilities except in events of force majeure. F. ATE and various other State Commissions (six SERCs) have equated cogeneration (irrespective of the source of fuel) with RE and exempted Captive User (s) consuming power from Co-generation Plants from applicability of RPO targets. (q) The ATE has in Appeal No.57 of 2009 involving a similar Regulation of this Commission observed as follows:- 9. A plain reading of the section would provide for discharge of the following functions; (i)promote co-generation; (ii) Promote generation of electricity from the renewable sources of energy; (iii) Provide suitable measures for connectivity with the grid; (iv) For sale of electricity to any person; (v) Specify the percentage of total consumption of electricity in the area of the distribution licensee for purchase of electricity produced by the co-generator and generation through renewable source of energy. 19. According to the learned counsel for the State Commission, the intent of the Electricity Act with regard to section 86(1)(e) of the Act is to promote the production of electricity only from renewable sources and not from fossil fuel. As stated earlier, this cannot be the correct interpretation. Order in Case Nos 69, 71, 73 of 2016 Page 12

13 20. As a matter of fact, the reading of the section 86(1)(e) along with the other sections, including the definition Section and the materials placed on record by the Appellant would clearly establish that the intention of the legislature is to promote both co-generation irrespective of the usage of fuel as well as the generation of electricity from renewable source of energy. 21. It is no doubt true that the generation of electricity from renewable sources is to be promoted as per section 86(1)(e) of the Act. It is equally true that co-generation of electricity is also to be promoted as it gives several benefits to the society at large. Various records produced by the Appellant would also indicate that the co-generation produces both electricity and heat and as such it can achieve the efficiency of up to 90% giving energy saving between 15-40% when compared with the separate production of electricity from conventional power stations and production of steam from boiler. It is adopting most efficient way to use fuel. The benefits that are derived from cogeneration are many. Co-generation helps save energy costs, improves energy security of supply, and creates jobs. Co-generation can be based on a wide variety of fuels and individual installations may be designed to accept more than one fuel. Co-generation is the most efficient way of generating electricity, heat and cooling from a given amount of fuel. Co-generation helps reduce CO 2 emissions significantly. It also reduces investments into electricity transmission capacity, avoids transmission losses and ensures security of high quality power supply. Because of these benefits being derived from the production of electricity through co-generation plant, the legislature intended to use the word to promote both the co-generation as well as the generation from the renewable source of energy. a. It cannot be disputed that the energy efficiency of the co-generation plant is almost double than the normal power plants because normal power plants release residual energy in the atmosphere, whereas the co-generation plant utilizes the energy to the maximum possible. It is established, as mentioned earlier, that the energy efficiency of the normal power plant is about 50 to 60% whereas the energy efficiency of the co-generation plant is about 80-85%. b. Internationally, the Governments have been promoting co-generation of energy so that the precious fuel is not wasted and the environment is protected. Even the municipalities/local authorities have been encouraging the simultaneous use of the residual wastes. It is for this reason that the Electricity Act 2003 has cast obligation on the State Commissions to promote cogeneration as well as the generation of electricity through renewable energy sources. c. This aspect can be viewed from yet another angle also. As mentioned earlier, we are called upon to decide the question as to whether co-generation projects based on fossil fuel are not entitled to be treated at par with the eligible renewable energy sources for renewable projects obligation. To answer this question we have to see the scheme of the Electricity Act as well as the National Electricity Policy. Under the Act there are three categories of sources of energy each being accorded with a different treatment namely Order in Case Nos 69, 71, 73 of 2016 Page 13

14 (i) Conventional Power Plants such as Thermal, Hydro and Nuclear Power Plants; (ii) Renewal source of energy; (iii) Non-conventional plants including co-generation plants. d. Under the scheme of the Act and the policies framed thereunder, both renewable source of energy and co-generation power plant, are equally entitled to be promoted by suitable methods as provided under section 86(1)(e) of the Act. In other words, non-conventional power plants including co-generation plants are entitled to be treated at par with the other renewable energy sources for the RPS regime. e. In the light of the above, when we notice the meaning of the Section 86(1)(e) of the Act, it is clear that it mandates the State Commissions to promote both the categories (1) co-generation plant (2) generation of electricity through renewable source of energy. The perusal of this section in conjunction with section 2(12) of the Act clearly indicate that the intention of the legislature is to promote co-generation in the industry without reference to the fuel used for such co-generation. In other words, the intention of the legislature is to clearly promote co-generation in the industry generally and not co-generation from renewable energy sources alone. On the basis of these conclusions, the ATE has held as follows: 39. These documents as well as the relevant provisions of the Act and the National Electricity Policy and National Electricity Plan and Tariff Policy would make it clear that it is mandatory on the part of the State Commission to give encouragement to co-generation in the industry without reference to any type of fuel or the nature of source of energy whether conventional or non-conventional. 44. In this case, as discussed above, we find that in section 86(1)(e) as well as definition of section 2(12), the language is very clear and unambiguous and it gives out the manifold mandate to the State Commission to promote both the categories: one is co-generation as defined in section 2(12) irrespective of the fuel used and another is generation of the electricity from the renewable source of energy. The summary of the conclusions of the ATE relevant for the purpose of present application are quoted in paragraphs 13 hereinabove. As mentioned hereinabove, the Hon ble ATE had made it clear that their conclusions in the said Appeal will be equally applicable to all cogeneration based captive consumers who may be using any fuel. The Judgment of ATE dated 26 April, 2010 in case of Century Rayon interpreting Section 86(1)(e) has held that the co-generation and generation of electricity from renewable sources are two different things and they are to be separately promoted. As a corollary, on the Co-generation Plants, an obligation to purchase RE cannot be imposed. This Judgment was sought to be reviewed by GERC and that application has been dismissed and the matter is pending before the Supreme Court. G. ATE in another Judgment dated 1 October, 2014 had considered the same issue relating to enforceability of RPO obligation against Co-generation CGPs and has held that Co-generation CGPs cannot be fastened with RPO. Order in Case Nos 69, 71, 73 of 2016 Page 14

15 H. The RERC has categorized co-generation as RE without reference to the fuel used for such co-generation: Another submission is for promoting waste heat recovery based power project and prayed it to be classified as RE power project. The Commission states that waste heat recovery from the industrial plant has already been classified as cogeneration project and thus falls under the category of RE power projects. Any consumption of electricity from such cogeneration qualify to be of R.E. as part of obligation. Rajasthan Cement Manufacturers Association made their submission stating that since CPP is not a consumer as defined in the Act hence SERC is not empowered to cast such obligation and requested that the generation of electricity by waste heat recovery/cogeneration should qualify as RE. Similar submission was made by Birla Corporation Ltd. The Commission has held that as dealt in earlier para and further clarifies that the electricity generation of waste heat recovery/cogeneration has been considered and categorized as RE. The Industries may exploit this potential to meet their obligatory requirement in part or full. The RERC has provided that Co-generation CGPs are exempt from RPO and non-co-generation CGPs were not exempt, and this Order has been upheld by Rajasthan High Court. I. The mandate of Section 3(1) of the EA, 2003 requires Central Government to make the National Tariff Policy. The Tariff Policy is not binding and enforceable but only a guiding factor to be taken into account by SERCs. J. (J1) The interpretation of Section 86 (i) (e) by the ATE is binding on the Commission and it cannot take a contrary view or make Rules/ Regulations which are contrary to the Judgments/ Orders of ATE.The Judgment of ATE is binding upon this Commission with greater force since it is inter-parties and cannot be questioned or re-opened by the Commission in a collateral or indirect manner. (J2) The Judicial and Quasi-Judicial discipline mandates and Constitutional Scheme and Rule of Law require that the hierarchical institutions and bodies maintain the harmony and comity of decisions and jurisdictions. The Commission, therefore, could not have and ought not to take any decision or make Rules, Regulations in teeth of the ATE decisions. (J3) Considering the object sought to be achieved by the EA, 2003, which requires both co-generation (as defined under the EA, 2003) as well as generation of electricity by renewable sources to be grouped together for promotion, the classification of renewable sources on the one hand and captive users in cogeneration mode on the other made by the said Regulations is not based on intelligible differentia having rational relation to the said object and offends the mandate of Article 14 of the Constitution of India. Order in Case Nos 69, 71, 73 of 2016 Page 15

16 K. The Commission has powers to review its decisions, orders, directions etc. with the same powers as vested in the Civil Court (as provided in Regulation 85 of the MERC (Conduct of Business) Regulations, 2004). The Commission therefore has powers u/s 114 of Code of Civil Procedure read with Order 47 of the Code. The Regulations are required to be reviewed in so far as RPO qua captive users consuming power from grid-connected fossil fuel-based Cogeneration Plants are concerned as there is a mistake/ error apparent on face of record in that it has overlooked the binding Judgment of ATE in case of Century Rayon Vs. MERC. L. In the Regulations relating to RPO obligation on captive users consuming power from grid-connected fossil fuel-based Co-generation Plants, there is clear error apparent on record and there is otherwise sufficient reason to review the same. M. The National Tariff Policy made by Central Government is only a guiding factor and not a binding charter against the Judgment of ATE, particularly an inter party Judgment which is binding on MERC, and the Regulation relating to RPO on CGP users consuming power from grid-connected fossil fuel-based Cogeneration Plants is clearly in teeth of such binding Judgment which is law declared for the Commission. 6. The Commission had issued notice to Maharashtra Energy Development Agency (MEDA), and asked the Petitioners to furnish their Petitions and submissions to MEDA also. In its response dated 13 July, 2016, MEDA has stated that, in the RPO Regulations, 2016, the Commission has excluded the clause exempting Captive Users consuming power from grid-connected fossil fuel-based Co-generation Plants from RPO based on the provisions of the National Tariff Policy, 2016 dated 28 January, Hence, MEDA is of the view that the RPO Regulations, 2016 are in line with the National Tariff Policy, 2016 and, accordingly, RPO may be applied to the Captive Users consuming power from grid-connected fossil fuel-based Co-generation Plants. CASE No. 73 of M/s Uttam Galva Steels Limited (UGSL) has filed a Petition on 10 May, 2016 under Regulation 85 of MERC (Conduct of Business) Regulations, 2004 for modification of the RPO Regulations, 2016 to exempt captive users consuming power from fossil fuel-based Co-generation Plants from applicability of RPO targets. 8. The Prayers of UGSL are as follows: This Hon ble Commission be pleased to exercise the power under Regulation 18 to suitably modify the RPO Regulations, 2016 to maintain status quo and exempt captive user(s) consuming power from grid connected fossil fuel based co-generation plants, from applicability of Renewable Purchase Obligation target and other related conditions as specified in these Regulations and make suitable and consequential modifications to the said Regulations; Order in Case Nos 69, 71, 73 of 2016 Page 16

17 9. The Petition states as follows: a) UGSL is engaged in processing of steel products. UGSL currently owns a Cogeneration CGP based on conventional fossil fuel with installed capacity of more than 5 MW at Village Donvat, Dist Raigad, Maharashtra. b) The RPO Regulations, 2016 define the term Obligated Entity to mean a Distribution Licensee, a user owning a CGP and an OA Consumer in Maharashtra required to comply with the RPO subject to fulfillment of conditions in Regulation 5. Regulation 3.2 provides that the Regulations shall apply to captive users and OA consumers Maharashtra, subject to the conditions in Regulation 5. c) Regulation 7 provides the percentage of Obligated Entity to procure electricity from eligible RE source. d) Regulation 5.1 provides that the percentage specified in Regulation 7.1 shall be applicable to all OA consumers and captive users within Maharashtra subject to such OA consumers and captive user owning a grid-connected CGP based on conventional fossil fuel with installed capacity of 5 MW and above and consuming electricity generated from such plant for its own use. e) In view of the above, UGSL, being the owner of a co-generation CGP based on conventional fossil fuel with installed capacity of more than 5 MW, shall be subjected to RPO i.e. required to purchase electricity from eligible RE sources to the extent of the percentage of its consumption met through such fossil fuel-based captive source. f) This Petition is filed by UGSL under Regulation 85 of the MERC (Conduct of Business) Regulations, 2004 and Regulation 18 of the RPO Regulations 2016 seeking to suitably modify the RPO Regulations, 2016 to the extent that fossil fuel Cogenerators are required to procure electricity /generated from eligible RE sources. In the alternative and without prejudice to the above, this Petition may be treated as an Application under Regulation 18 of the RPO Regulations and the obligation to procure electricity from the eligible RE sources be suitably modified for the captive users consuming power from fossil fuel-based Co-generation Plant in the circumstances below. g) The draft RPO Regulations published by this Commission provided for the exemption from any RPO on the captive user(s) consuming power from gridconnected fossil fuel-based Co-generation Plants with installed capacity of 5 MW and above. However, the final RPO Regulations, 2016 published in the Official Gazette on 30 March 2016 provides for purchase of RE power by parties like UGSL, who is a captive user consuming power from its own grid-connected Co-generation-based CGP based on conventional fossil fuel with installed capacity of 5 MW and above. Order in Case Nos 69, 71, 73 of 2016 Page 17

18 h) The proviso to Regulation 11.3 of the draft RPO Regulations provided that captive users consuming power from grid-connected fossil fuel-based Co-generation Plants are exempt from applicability of RPO targets and specified conditions. It appears that this proviso was omitted in the RPO Regulation, 2016 based on the revised Tariff Policy of The revised Tariff Policy of 2016 cannot override Section 86(1)(e) of the EA, 2003 and the binding judicial orders of the ATE. i) In view of the above, UGSL did not file any submission in response to the draft RPO Regulations as there complete exemption was provided to UGSL in the draft RPO Regulations, but the final RPO Regulations, 2016 imposed RPO on UGSL. There was no public hearing on the revised RPO Regulations after getting suggestions/objections from the stakeholders by the Commission before such publication. UGSL is therefore entitled to maintain this Application. j) The RPO Regulations, 2016, to the extent that they impose RPO on the captive users like UGSL having Co-generation CGP based on conventional fossil fuel with installed capacity of 5 MW and above, are contrary to and inconsistent with the provisions of the EA, 2003, and in particular Section 86(1)(e). In this regard, there are binding orders of the ATE. k) On 26 April, 2010, the ATE, in Appeal No. 57 of 2009, in the matter of Century Rayon Vs. Maharashtra Regulatory Commission & Ors. passed a detailed Judgment and Order laying down the duties of SERCs in the matter of promotion of co-generation and generation of electricity from Renewable Sources of Energy by providing various measures under Section 86(1) (e) of the EA, [The relevant conclusions of the ATE and their implications cited by CPPA are along the lines set out at para. 2(r) earlier in this Order.] It is an admitted position that, in view of the Order of the ATE and in particular its interpretation of Section 86(1)(e) of the EA, 2003 in the Century Rayon case, this Commission suitably modified the Regulations to remove the RPO on the Co-generators like UGSL. l) The impugned RPO Regulations are clearly contrary to not only the binding Orders of the ATE but also contrary to the provisions of the EA, m) This Commission did not invite any objections or suggestions from the affected parties like UGSL nor afforded any opportunity of hearing before making the impugned RPO Regulations, which affect all Co-generators like UGSL in this case. The purpose of publication of the draft RPO Regulations was to invite suggestion and objections, if any, to the draft RPO Regulations. The aforesaid purpose was defeated in so far as the Co-generators like UGSL are concerned. n) Section 86 of EA, 2003 provides for the function to be discharged by the State Commission. Clause (e) of Section 86(1) is interpreted by the ATE, which has held that the co-generation and generation of electricity from renewable sources are both Order in Case Nos 69, 71, 73 of 2016 Page 18

19 required to be promoted by the State Commission. The distinction sought to be made by different State Commissions was negated by the ATE. o) The term co-generation so defined generally is used only in Sections 61(h) and 86(1)(e) of the EA, 2003 providing for the function of the State Commission, inter alia, to promote co-generation. p) The intention of the legislature is to clearly promote co-generation in the industry generally and not co-generation from RE Sources alone. If the intention was to promote only co-generation from renewable sources of energy, there was no requirement to mention the word co-generation at all in Section 86(1)(e) of the EA, 2003, or indeed define the same in Section 2(12) since generation includes cogeneration and the use of the word co-generation separately in the Section would be redundant. q) The ATE Full Bench in Appeal No 53 of 2012, dated in the matter of Lloyd Metal & Energy Ltd Vs. MERC& Ors. passed a detailed Judgment and Order. The limited question which was referred to the Full Bench was Whether the Distribution Licensee could be fastened with the obligation to purchase a percentage of its consumption from co-generation irrespective of the fuel used under Section 86(1)(e) of the EA, Full Bench of ATE has not considered and disturbed the ratio of the ATE Order dated 26 April, 2010 exempting RPO on Co-generation. r) [UGSL has also cited the ATE Judgment in Appeal No 112, 130 and 136 of 2014, dated in India Glycols Ltd V/s UERC, which is quoted at para. 2(s) earlier in this Order and is hence not repeated here.] s) The Judgment of ATE dated 26 April, 2010 in case of Century Rayon interpreting Section 86(1)(e) has clearly held that the co-generation and generation of electricity from renewable sources are two different things and they are to be separately promoted. As a corollary, on the Co-generation Plants an obligation to purchase RE cannot be imposed. t) ATE Judgment dated 1 October, 2014 had considered the same issue relating to enforceability of RPO obligation against Co-generation CGPs and has held that Co-generation CGPs cannot be fastened with RPO. The National Tariff Policy is not binding and enforceable but only a guiding factor to be taken into account by SERCs. However, the aforesaid ATE Orders are valid, binding and in force on the SERCs. 10. At the hearing held on 10 November, 2016 the Commission heard the Petitioners together since similar issues have been raised in these Cases Case No. 69 of 2016 a) CR sought that the RPO Regulations, 2016 be modified to bring them in line with the earlier Regulations of 2010, or that the requirement that fossil fuel-based Co- Order in Case Nos 69, 71, 73 of 2016 Page 19

20 generators procure electricity from eligible RE sources be relaxed by the Commission invoking its powers under Regulation 16 to waive such requirement. The proviso to Regulation 11.3 of the draft RPO Regulations published by the Commission for public comments provided for such exemption from RPO for captive users consuming power from grid-connected fossil-fuel-based Co-generation Plants with installed capacity of 5 MW and above. However, the final RPO Regulations, 2016 notified on 30 March 2016 removed this exemption. b) CR referred to the Judgment of the ATE dated 26 April, 2010 in Appeal No 57 of 2009, which held that Co-generation Plants were entitled to be promoted by the State Commissions. In the operative paras. 44 and 45, the ATE stated that, under the scheme of the EA, 2003, both RE and Co-Generation (even if not based on RE or non-fossil fuels) are equally entitled to be promoted by the State Commissions through suitable methods and directions, and that Co-generation Plants provide several benefits for the environment as well as to the public at large and are entitled to be treated at par with other RE sources. Following that Judgment, the Commission accordingly incorporated an exemption from RPO in its RPO Regulations, 2010 in June, The GERC filed a Petition No 1311 of 2012 for review of this Judgment. However, in its Judgment dated 17 April, 2013, the ATE did not condone the delay in filing the Review Petition. It also held that GERC was not an aggrieved person and that, therefore, the Review Petition was not maintainable. GERC has filed an appeal before the Supreme Court, which is pending. There is no stay on the Judgment of the ATE dated 26 April, 2010, and hence it is still valid, in force and is binding on the State Commissions. c) CR stated further that, in its full-bench Judgment dated 2 December, 2013 in Appeal No 53 of 2012 (filed by Lloyds Metal against the Commission s interim Order dated 26 December, 2011), the ATE held that the State Commission may promote fossil fuel-based Co-Generation by other means such as facilitating sale of surplus energy, in the interest of promoting energy efficiency and grid security. The ATE did not disturb its earlier ruling regarding RPO not being applied to Co-generation Plants. Hence, the present RPO Regulations, 2016 imposing RPO on Co-generation Plants is in conflict with the ATE Judgment dated 26 April, 2010 in Appeal No. 57 of CR stated that most of the State Commissions are following the ATE Judgment in Appeal No 57 of d) CR stated that the exemption from RPO was removed in the final RPO Regulations, 2016 based on the revised Tariff Policy notified by Govt. of India in January, However, the Tariff Policy 2016 cannot override Section 86(1)(e) of the EA, 2003 and the various judicial Orders of the ATE. e) To a query of the Commission, CR stated that, in a recent Bombay High Court Judgment, it has been held that, while notifying final Regulations, the State Commission is not bound to hear the parties again if they differ from the previously published draft Regulations. However, where the Tariff Policy, which is only one of Order in Case Nos 69, 71, 73 of 2016 Page 20

21 the guiding elements for a Commission under the EA, 2003, differs from a judicial Order of the ATE, the latter has to be given preference. If any Regulations are framed which are in conflict with the Judgments of ATE and notwithstanding the powers of the ATE under the EA, 2003, then there is a clear error of law. The appeal filed by GERC is pending before the Supreme Court in CA No 6797 of There is no stay on the Judgment of ATE dated 26 April, 2010 in Appeal No 57 of 2009 and hence it is still valid and in force. Therefore, under the doctrine of precedence, the ATE s decision is to be followed. f) CR also cited the RERC s RPO Regulations, 2010 and amendment dated 30 May, 2014 excluding CGPs based on fossil fuel-based Co-Generation from RPO. The Rajasthan High Court, by Order dated 31 August, 2012, had dismissed various Writ Petitions challenging RPO on Captive users. However, that matter was in respect of CGPs, and the High Court did not look into the issue of applicability of RPO targets on fossil fuel-based Co-Generation, because RERC itself had excluded them from RPO targets. Hence, there is no conflict between the High Court and ATE Judgments. In any case, the Rajasthan High Court Judgment does not constitute a precedent, considering the Supreme Court Judgments (on the nature and how precedents are to be applied) in the Cases of Bhavnagar University and Bharat Petroleum (copies submitted to the Commission). The ATE had expressly examined the issue, and that issue was not before the Rajasthan High Court. Therefore, the ATE Judgment is still valid in law. g) CR submitted that, in the alternative, the Commission may invoke its power under Regulation 16 of the RPO Regulations, 2016 to relax or waive any provision suo moto or on an application to exempt its Plant from RPO. h) As regards the issue of Regulations vis-à-vis ATE Judgments, Dr. Ashok Pendse of Thane-Belapur Industries Association (TBIA), an Authorised Consumer Representative, stated that the Supreme Court, in the Case of Power Trading Corporation on an Order of the Central Electricity Regulatory Commission (CERC), had held that the Regulations would supersede such Judgments. CR responded that he was making the point that the ATEJudgment should be reflected while framing the Regulations Case No. 71 of 2016 a) While broadly agreeing with the contentions in Case No. 69 of 2016, CPPA stated that, unlike the other Petitioners, he was seeking review of the RPO Regulations, 2016 under Regulation 85 of the Conduct of Business Regulations, 2004 and Section 94 of the EA, 2003 so as to restore the proviso to Regulation 11.3 which was contained in the draft Regulations. That proviso retained the exemption to captive users of power from grid-connected fossil fuel-based Co-generation Plants from RPO. However, the final RPO Regulations, 2016 were notified on 30 March, 2016 without this exemption considering Clause 6.4 of the Tariff Policy dated 28 January, Order in Case Nos 69, 71, 73 of 2016 Page 21

22 b) CPPA stated that the ATE Judgment dated 26 April, 2010 in Appeal No 57 of 2009 is binding under S. 121 of the EA, Under S. 121, subordinate legislation (such as Regulations) or policies (such as the Tariff Policy, 2016) cannot override such Judgments. In the well-known Shah Bano case, the law was amended. CPPA also submitted a chronology and compilation in this connection. The ATE ruling can be appealed against in the Supreme Court, but there is no Supreme Court finding against the ATE Judgment in Case No. 57 of The Tariff Policy, 2016 does not state that it has considered the ATE Judgment, nor has the law been amended. In Appeal No. 103 of 2015 (Maruti Suzuki), the ATE also held that the provisions of the Tariff Policy are not mandatory or binding on the State Commissions. The Commission observed that this position had been settled long back. c)in light of the above, CPPA submitted that review of the exclusion of the exemption contained in the draft Regulations was an error apparent justifying review. The notified Regulations excluding the exemption was a major deviation from the draft published earlier, and an opportunity to respond ought to have been given before doing so. Even then, the ATE Judgment would prevail. d) To the Commission s query as to what stand might have been taken had the new Tariff Policy provision been in force at the time of the ATE Judgment, CPPA stated that it was open to the Commission to approach the ATE for directions in the light of the new Tariff Policy. CPPA stated that it would circulate other Judgments also and place on record the legal points. e) Dr. Ashok Pendse of TBIA pointed out that, while Case No. 69 of 2016 concerns Co-Generation CGPs, Case No. 71 of 2016 refers to all CGPs. That distinction may be kept in mind Case No. 73 of 2016 a) UGSL also broadly agreed with the contentions made in the earlier two Cases. UGSL stated that the issue raised in the ATE Appeal No. 57 of 2009 was whether, as a Co-Generation CGP, Century Rayon is required to purchase power from a RE Cogenerator. The ATE held that co-generation in this context of the EA, 2003 was not limited to RE co-generation alone, and hence that fastening of RPO on a Co-generator (based on RE or otherwise) would defeat the purpose of Section 86(1)(e). The ATE Full Bench on the Appeal against the Commission s Order in the Lloyds Metal Case had ruled against a Distribution Licensee having to purchase power from fossil fuelbased Co-Generation. b) UGSL also referred to the ATE Judgment dated 1 October, 2010 (India Glycols Ltd. v/s UERC) in Appeal Nos. 112, 130 and 136 of 2014, in which the ATE had relied entirely on its Judgment in Case No. 57 of 2009 and had reiterated it with regard to the UERC Regulations. That seems to be the latest Judgment on this subject. Order in Case Nos 69, 71, 73 of 2016 Page 22

23 Commissions Analysis and Rulings: 11. The Petitioners seek amendment of the RPO Regulations, 2016 to restore the provision in the previous RPO Regulations, 2010 exempting captive users of grid-connected fossil fuel-based Co-generation CGPs from RPO. 12. The Petitioners have referred to the following among other ATE Judgments in these proceedings: 12.1 ATE Judgment dated 26 April, 2010 in Appeal No. 57 of 2009 (Century Rayon vs. MERC): 45. Summary of our conclusions is given below:- (I) The plain reading of Section 86(1)(e) does not show that the expression co-generation means cogeneration from renewable sources alone. The meaning of the term co- generation has to be understood as defined in definition Section 2 (12) of the Act. (II) As per Section 86(1)(e), there are two categories of generators namely (1) Co-generators (2) Generators of electricity through renewable sources of energy. It is clear from this Section that both these categories must be promoted by the State Commission by directing the distribution licensees to purchase electricity from both of these categories. (III) The fastening of the obligation on the co-generator to procure electricity from renewable energy procures would defeat the object of Section 86 (1)(e). (IV) The clear meaning of the words contained in Section 86(1)(e) is that both are different and both are required to be promoted and as such the fastening of liability on one in preference to the other is totally contrary to the legislative interest. (V) Under the scheme of the Act, both renewable source of energy and cogeneration power plant, are equally entitled to be promoted by State Commission through the suitable methods and suitable directions, in view of the fact that cogeneration plants, who provide many number of benefits to environment as well as to the public at large, are to be entitled to be treated at par with the other renewable energy sources. (VI) The intention of the legislature is to clearly promote cogeneration in this industry generally irrespective of the nature of the fuel used for such cogeneration and not cogeneration or generation from renewable energy sources alone ATE Judgment dated 2 December, 2013 in Appeal No. 53 of 2012 (Lloyds Metal & Energy Ltd. v MERC): 39. Summary of our findings: Order in Case Nos 69, 71, 73 of 2016 Page 23

24 Upon conjoint reading of the provisions of the Electricity Act, the National Electricity Policy, Tariff Policy and the intent of the legislature while passing the Electricity Act as reflected in the Report of the Standing Committee on Energy presented to Lok Sabha on , we have come to the conclusion that a distribution company cannot be fastened with the obligation to purchase a percentage of its consumption from fossil fuel based co-generation under Section 86(1)(e) of the Electricity Act, Such purchase obligation 86(1)(e) can be fastened only from electricity generated from renewable sources of energy. However, the State Commission can promote fossil fuel based co-generation by other measures such as facilitating sale of surplus electricity available at such co-generation plants in the interest of promoting energy efficiency and grid security, etc ATE Judgment dated 1 October, 2014 in Appeal Nos. 112, 130 and 136 of 2014 (India Glycols Ltd. etc. vs. UERC): 23. SUMMARY OF OUR FINDINGS The Co-generation based Captive Power Plant/Captive user cannot be fastened with renewable purchase obligation as provided under UERC (Compliance of RPO) Regulations, 2010, as subsequently, amended by UERC (Compliance of RPO) (First Amendment) Regulations, The judgment, dated of this Appellate Tribunal in Appeal No. 57 of 2009 in the case of Century Rayon vs. MERC, whereby the provisions of Section 86(1)(e) of the Electricity Act, 2003 were interpreted and in compliance of which the learned State Commission has amended the definition Obligated entity as was then existing in UERC (Compliance of RPO) Regulations, 2010 by UERC (Compliance of RPO) (First Amendment) Regulations, 2013, shall be held to be applicable from the date of the judgment itself. Though, in compliance of the said judgment, dated , the Regulations were amended in the year 2013 by the State Commission. It was a fit case where the State Commission should have exercised its power to relax according to its own Regulations in order to give effect to the judgment, dated , passed by this Appellate Tribunal in Appeal No. 57 of 2009, in the case of Century Rayon vs. MERC in letter and spirit, in order to give relief to the Co-generation based Captive Power Plants/Captive users entitled to it. 13. The earlier RPO Regulations, 2010 were notified on 7 June, 2010, subsequent to the ATE Judgment dated 26 April, 2010 in Appeal No. 57 of 2009 (Century Rayon). The proviso to Regulation 11.3 exempted captive users of grid-connected fossil fuel-based Co-generation Plants from RPO: 11.3 If the Captive User(s) and Open Access consumer(s) are unable to fulfil their obligation, they shall be liable to pay RPO Regulatory Charges as specified in Regulation Provided further that captive user(s) consuming power from grid connected fossil fuel based co-generation plants, are exempted from applicability of RPO target and other related conditions as specified in these Regulations. Order in Case Nos 69, 71, 73 of 2016 Page 24

25 14. On 24 December, 2015, the Commission issued a Public Notice inviting comments on the draft of the new RPO Regulations proposed for FY to FY The draft Regulations retained the RPO exemption provided in the 2010 Regulations to captive users of grid-connected fossil fuel-based Cogeneration CGPs. 15. Comments on the draft Regulations were invited by 19 January, and then upto 15 February, In the meantime, the MoP, Govt. of India, vide Resolution dated 28 January, 2016, notified the revised Tariff Policy, 2016 in pursuance of Section 3(3) of the EA, With regard to RPO, the Proviso to Clause 6.4 (1) reads as follows: Provided that cogeneration from sources other than renewable sources shall not be excluded from the applicability of RPOs. 16. Section 86(4) of the EA, 2003 requires that, in the discharge of its functions, the Commission shall be guided, inter alia, by the Tariff Policy. Under Section 61 (h) also, the Commission is to be guided by the Tariff Policy, among others, while specifying the terms and conditions for the determination of tariff. Thus, while finalizing the draft Regulations following the public consultation process, the Commission took into consideration the above provision of the revised Tariff Policy, 2016 which was notified after the draft Regulations and was already in the public domain for some time during the period of public consultation. The final RPO Regulations, 2016, notified on 30 March, 2016 do not exempt captive users of fossil-fuel based CGPs from RPO. The Statement of Reasons published by the Commission expressly refers to the above provision of the revised Tariff Policy, 2016 in this regard. 17. The RPO Regulations, 2016 as finally notified also included some other changes to the draft, such as a steeper Solar RPO trajectory. The Commission also notes that the new Regulations increase the minimum limit for application of RPO from 1 MW to 5 MW for fossil fuel-based Captive Generators, among others. Composite RPO targets (without segregation between Solar and non-solar) have also been introduced in case of captive users of such CGPs upto to 10 MW capacity. 18. The Petitioners have argued that the ATE Judgment in Appeal 57 of 2009 (Century Rayon) (quoted at para above) is applicable, in particular with regard to their claim for exemption from RPO to captive users of non-fossil fuelbased Co-generation. According to the Petitioners, the Full Bench Judgment of ATE in Appeal no. 53 of 2012 (Lloyds Metal) (quoted at para. 12(2) above), while holding that the State Commission may promote fossil fuel based co-generation by other means such as facilitating the sale of surplus energy, did not disturb its earlier ruling in the Century Rayon case that RPO not be applied to Cogeneration Plants. Hence, the Petitioners contend that the imposition of RPO on Order in Case Nos 69, 71, 73 of 2016 Page 25

26 captive users of fossil fuel-based CGPs in the RPO Regulations, 2016 is in conflict with the ATE Judgement in the Century Rayon case (Appeal No. 57 of 2009). A challenge to that Judgment is pending before the Supreme Court, but it has not been stayed. 19. While the Rajasthan High Court, on 31 August, 2012, had dismissed challenges to the imposition of RPO by RERC on captive users, the Petitioners have stated that the matter pertained to CGPs in general. The High Court did not look into the issue of application of RPO to fossil fuel-based Co-generation Plants because RERC had itself excluded them from RPO. Hence, there is no conflict between the Rajasthan High Court and the ATE Judgments cited earlier. 20. However, the Commission notes that the Petitioners have not referred in these proceedings to the more recent Gujarat High Court Judgment dated 12 March, 2015 in Special Civil Application No. 171 of 2011 with Civil Application no of 2011 (Hindalco and others). That Judgment dealt with various issues, including the applicability of the various ATE Judgments which have been cited. The Gujarat High Court has held as follows: 22. That contention of Mr. S.N. Soparkar that co generation plant of petitioners of Special Civil Application No.791 of 2011 that it is based on fossil fuel and is non conventional in view of decision in the case of Lloyds Metal & Energy Ltd. [supra] of APTEL, though appears to be attractive on first blush but non conventional energy cannot be equated always with renewable source of energy. That co generation is a process simultaneously producing two or more forms of useful energy though never defines type of input or source of fuel to be used, but co generation provided under Section 86(1)(e) of the Act, 2003 is not co generation stand alone, but it is co generation and generation of electricity from renewable sources of energy. Thus, a source or input of energy may be non conventional in the sense that CGP or co generation following innovative or advanced technology, which may be eco friendly and reducing carbon credit, but only on that ground is not the same renewable source of energy like hydro, wind, solar, biomass, bagasse, etc.that non conventional energy always and for all purposes cannot be equated with non renewable sources of energy That the judgment dated of the APEL in Appeal No. 57 of 2009 in the matter of Century Rayon Ltd. vs. Maharashtra Electricity Regulatory Commissioner & Ors. fell into consideration in Appeal No. 53 of 2012 and by order dated interim relief to enable sale of electricity from co- generation plant based on industrial waste heat generated by the sponge iron plant with the use of fossil fuel [coal] and directions to be issued to the distribution licensee came to be rejected, but the issue that whether the distribution licensee would be fastened with the obligation to purchase a percentage of its source from co generation irrespective of fuel use being important issue came to be re examined by the Full Bench and accordingly, upon an exercise undertaken about finality of the judgment dated in Appeal No.57 of 2009, it appears that the Full Bench of Appellate Tribunal for Electricity [Appellate Jurisdiction] in the case of Order in Case Nos 69, 71, 73 of 2016 Page 26

27 Lloyds Metal & Energy Ltd. vs. Maharashtra State Electricity Distribution Company Limited in Appeal No.53 of 2012 considered the order dated rendered by the Division Bench of APTEL in Appeal No.57 of 2009 in the matter of Century Rayon Ltd. vs. Maharashtra Electricity Regulatory Commission and others and framed the following question: "Whether the Distribution Licensees could be fastened with the obligation to purchase a percentage of its consumption from co generation irrespective of the fuel used under Section 86(1)(e) of the Act 2003". The Full Bench of APTEL vide order dated passed in Appeal No.53 of 2012, held in para 39, as under: "39. Summary of our findings: Upon conjoint reading of the provisions of the Electricity Act, the National Electricity Policy,Tariff Policy and the intent of the legislature while passing the Electricity Act as reflected in the Report of the sanding Committee on Energy presented to Lok Sabha on , we have come to the conclusion that a distribution company cannot be fastened with the obligation to pursue a percentage of its consumption from fossil fuel based co generation under Section 86(1)(e) of the Electricity Act, Such purchase obligation 86(1)(e) can be fastened only from electricity generated from renewal sources of energy. However, the State Commission can promote fossil fuel based co generation by other measures such as facilitating sale of surplus electricity available at such co generation plants in the interest of promoting energy efficiency and grid security, etc.". Thus, judgment dated in Century Rayon [supra] [Appeal No.57 of 209]; judgment dated in IA 262 of 2012 in RP (DFR) No.1311 of 2012 in Appeal NO.57 of 2009 filed by Gujarat Electricity Regulatory Commission; judgment dated in Appeal No.54 of 2012 filed by M/s. Emami Paper Mills; judgment dated in Appeal no.59 of 2012 filed by M/s. Vedanta Aluminium Ltd. [VA]; and judgment dated in Appeal NO.125 of 2012 filed by M/s. Hindalco Industries Limited, all delivered by the APTEL have no significance and force of law in view of judgment dated rendered by the Full Bench of the APTEL in Appeal No. 53 of The GERC did keep in mind all the representations submitted by the objectors before determining renewable purchase obligation [RPO] and, while doing so, the GERC also provided production capacity of electricity of CPPs and only those CPPs, who produce more than 5 MV of electricity, are brought within the purview of the RPO and, therefore, it would not hit or create imbalance in the functioning of the CPPs. The Commission also applied all the criteria including technical parameters and functioning capacity of CPP vis à vis interest of power generating plant in renewable source of energy and their survival in consonance with National Electricity Plan and Tariff Policy. That, Section 86(1)(e) of the Act is not only for Order in Case Nos 69, 71, 73 of 2016 Page 27

28 promoting co generation stand alone system, but, it is for promotion of co generation and generation from renewable source of energy. In this context, if the definition contained in Section 2(12) of the Act is seen, it is clear that 'co generation' means a process which simultaneously produces two or more forms of useful energy (including electricity). In the above process, excess energy is harnessed by a particular process and electricity is generated. 21. Thus, the Commission is of the view that the mandate under Section 86(1)(e) of the Electricity Act, 2003 for the specification of RPO targets does not exempt the consumption by captive users of CGPs based on fossil fuel-based co-generation notwithstanding the fact that such co-generation may be more efficient than other conventional generation or have other merits. 22. In view of the foregoing discussion, the Commission concludes that the claim of the Petitioners for amendment of the RPO Regulations, 2016 so as to restore the earlier exemption from RPO to captive users of non-fossil fuel-based Cogeneration Plants has no merit. 23. However, having due regard to the pendency of these Petitions, the circumstances of the matter and the issues involved, the Commission may consider any consequent shortfall of such captive users of non-fossil fuel-based CGPs in meeting their RPO targets in FY and FY to be met in FY in its compliance verification proceedings for those years. The Petitions of M/s Century Rayon, Captive Power Producers Association and M/s Uttam Galva Steels Ltd. in Case Nos. 69, 71 and 73 of 2016, respectively, stand disposed of accordingly. Sd/- (Deepak Lad) Member Sd/- (Azeez M. Khan) Member Order in Case Nos 69, 71, 73 of 2016 Page 28