Analysis of Supreme Court Judgment on Applicability of Renewable Purchase Obligations

On May 13, 2015 the Supreme Court pronounced a landmark judgment on the applicability of Renewable Purchase Obligations (RPO) regulations. The case in question is Hindustan Zinc vs Rajasthan Electricity Regulatory Commission (RERC).
Background
In August 2012, the Rajasthan High Court had dismissed an appeal by Hindustan Zinc Ltd., Ambuja Cements Ltd., Grasim Industries Ltd. and 14 other companies that challenged RPO regulations enacted by the state regulator (Rajasthan Electricity Regulatory Commission; RERC).
The key points contested by captive (CPP) and open access (OA) users in the petition were:

• RERC did not have the authority to pass the order of RPO and impose surcharge (penalty) as CPP and OA were completely de-licensed activities under the Electricity Act 2003 (EA 2003)
• EA 2003 only allows RPO on the ‘total consumption in the area of the distribution licensee’ and therefore intends to apply RPO on distribution licensees only

The High Court rejected the petition stating:

• The word ‘total consumption’ has been used in the EA 2003, and should be considered as total consumption in the area of distribution licensee in all modes. Total consumption has to be seen by consumers of distribution licensee, captive power plants and on supply through distribution licensee. It cannot be inferred by mention of area of distribution licensee that only consumers of the distribution licensee are included.
• The objective behind imposition of RE obligation is in the greater public interest. The constitution casts duty on the Regulatory Commission to protect and improve the natural environment. This duty can be imposed on CPP and OA as well.

The above order of the Rajasthan High Court was challenged in the Supreme Court.
 
Order of the Supreme Court
In its order, the Supreme court dismissed the appeal of the petitioners, and upheld the RPO regulations made by RERC.
The court stated several important points in its judgment:

• Imposing RPO is desirable in the larger public interest. The court observed that:

“…The Right to live with healthy life guaranteed under Article 21 of the Constitution of India, it has also been interpreted by this Court. It includes the Right to live in a pollution free environment and laid down the law in a catena of cases…”
and
“The impugned Regulations fall within the four corners of the Act of 2003 as well as Electricity Policy, 2005. The object of imposing RE Obligation is protection of environment and preventing pollution by utilising Renewable Energy Sources as much as possible in larger public interest.”
And further:
“The Coal dominates the Thermal Power Generation which results in Green House Gases resulting in global warming. The said facts were brought to our notice that the same would certainly justify the case of the RERC in framing the impugned Regulation to achieve the object of the Act and the Constitution by imposing RE obligation on the captive gencos.”

• RPO applicability on captive and open access consumers is well within the ambit of the Electricity Act 2003.

“The High Court has considered the submissions of the appellants and has rightly rejected the same on the ground that the RE obligation imposed on the captive gencos under the impugned Regulations is neither ultra vires nor violative of the provisions of the Act of 2003 and cannot in any manner be regarded as a restriction on the fundamental rights guaranteed to the appellants under the Constitution.”

• Cost of fulfilling the obligation cannot be held above the larger public interest.

“The purchase of nominal quantum of energy from renewable resources cannot adversely affect the cost effectiveness of the Captive Power Plant. Moreover, the object being reduction of pollution by promoting renewable source of energy, larger public interest must prevail over the interest of the industry….”
As a result of the above findings, the court dismissed the appeal.
“Upon consideration of the rival submissions by the well-reasoned order, the High Court has rightly upheld the validity of the impugned Regulation and we do not find any reason to interfere with the impugned judgment. All the appeals are dismissed as the same are devoid of merit.”
Implications of the order
This order is likely to have far-reaching implications on the enforcement of RPO regulations.

• Stay by HC in various states may become redundant: Till date, the enforcement of RPO regulations has been lax due to various reasons. One of the reasons has been the stay granted by various High Courts like in the case of Gujarat (recently vacated), MP and Tamil Nadu, among others. With the Supreme Court now ruling in favour of imposition of RPO, the existing stay may become redundant.
• Enable stronger enforcement: Further, the order is likely to provide support to the state electricity regulators to impose RPO regulations more forcefully and effectively.

Media coverage: Bloomberg & Business Standard.
For recent APTEL order on RPO click here.