Rajasthan High Court judgment will strengthen RPO enforcement

Rajasthan High Court Rules in Favour of RPO Regulations
 
Rajasthan High Court 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 petitioners supported their statement by stating that

“the National Electricity Policy as well as Tariff Policy was framed to promote production of energy and utilization. Under the Policy neither any license nor any approval from any authority is required to install a captive power plant thus, the Regulatory Commission had no jurisdiction to impose any obligation. Penalty in the form of surcharge cannot be imposed unless there is a direct provision enabling the Regulatory Commission to do so and since there is no such provision in the Act of 2003, penalty cannot be said to be within the authority of the Regulatory Commission and thus, imposition of surcharge is bad in law.”

 
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.

Impact of the order
 
This order will have far reaching implications for the RPO/ REC markets:

• It will strengthen the hand of the regulator to enforce RPOs in Rajasthan and in other states
• It will act as a precedent for similar court cases in other states – notably Gujarat and Tamil Nadu
• It will result in demand from CPP and OA for RECs

RE obligation on CPP and OA in Rajasthan:

*Assuming CEA data does not include captive and OA consumption
**Assumed to be 3% of total as per data provided in the High Court Order
Source: CEA data; REConnect Energy projections
 
Based on the above, the requirement of RE for meeting CPP and OA RPO is likely to be 200 MUs. A significant portion of this is likely to access the RECs market at least in the short to medium term. An important point to note is that the petitioners are likely to have options to pursue this case further in higher court.
 
Contributed by Rahul Tyagi