Supreme Court Upholds MERC’s Heat Rate Norms Despite Reliance’s Discrimination Claim

Introduction

In Reliance Infrastructure Ltd. v. State of Maharashtra & Ors., Civil Appeal No. 879 of 2019 (decided on 21 January 2019), the Supreme Court examined a challenge to Regulation 44.2(d) of the Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulations, 2011, which had prescribed a more stringent Station Heat Rate (SHR) for Reliance Infrastructure’s Dahanu Thermal Power Station (DTPS). While upholding the Bombay High Court’s dismissal of the challenge on merits, the Supreme Court set aside the cost imposed and clarified that the writ petition was indeed maintainable since the validity of regulations framed under Section 181 of the Electricity Act, 2003, could be questioned only through judicial review before the High Court.

Issues

The central issues before the Supreme Court were whether Regulation 44.2(d) suffered from arbitrariness or discrimination by prescribing a stricter SHR norm for Reliance Infrastructure’s DTPS compared to other similarly placed thermal power plants, whether such regulation violated the tariff policy stipulated under Section 61 of the Electricity Act, and whether the High Court was correct in holding that Reliance abused the process of law by invoking Article 226 when an appeal before APTEL was pending.

Facts

Reliance Infrastructure brought a challenge against Regulation 44.2 (d) to the Bombay High Court, arguing that its Dahanu plant was subject to a lower SHR norm than other similar plants that had similar designs. It asserted that MERC had diverged from the normative standards, which were set out in the National Tariff Policy, and unfairly punished efficiency. MERC had followed a detailed study conducted by Central Power Research Institute (CPRI) as well as input from stakeholders and data from previous performance to frame the Regulation. The High Court rejected the challenge, ruling the Regulation was the product of the experts’ legislative judgment, and imposed a cost of ₹1 lakh, and also ruled that the writ petition was unmaintainable due to an appeal underway at APTEL. Reliance appealed to the Supreme Court, claiming both discrimination and an error in the High Court ruling on maintainability.

Arguments

Reliance contended before the Supreme Court that MERC’s fixation of a lower SHR for DTPS was arbitrary and violated Article 14 since comparable plants such as MSPGCL’s Paras and Parli units and Tata Power’s Trombay unit had similar design specifications. It relied on observations in the CPRI report suggesting technical similarity. Senior counsel P. Chidambaram argued that the tariff policy mandates norms to be fixed at “normative levels” and that MERC had wrongly pegged the SHR at levels reflecting actual high efficiency rather than sector-wide normative standards.

It was also urged that the writ petition could not have been dismissed on grounds of maintainability since APTEL had no jurisdiction to test the validity of regulations. MERC countered that similarity in design does not equal similarity in performance, and that the actual SHR achieved by DTPS over the years showed superior efficiency justifying a different trajectory. It argued that technical studies, age of units, and consumer interest required a differentiated approach and that judicial intervention should be minimal unless the regulation suffered from manifest arbitrariness.

Judgment

The Supreme Court determined that the writ petition was allowable, rejecting the High Court’s conclusion that Reliance engaged in an abuse of process of law. In its reference to PTC India Ltd. v. CERC, the Court reiterated the position that the validity of a regulation made under Section 178 or under Section 181 could only be the subject of a judicial review proceeding, not before APTEL. On the merits, however, the Supreme Court upheld Regulation 44.2(d), concluding that MERC had applied evidential/statutory principles, taken note of expert input in the field, complied with tariff policy guidelines, and implemented a reasonable policy-based approach. There was no evidence of arbitrary or discriminatory conduct in the process of MERC, considering the tariff process required complex and expert review as part of the legitimate exercise of discretion and that it should not be intervened by a reviewing authority in the case that regulations were manifestly unreasonable. Accordingly, the Supreme Court set aside the costs imposed, while affirming the High Court’s dismissal of the writ petition.

Analysis

The Supreme Court recognized that High Courts specifically have jurisdiction to examine the validity of subordinate legislation but nevertheless the Courts will use a narrow lens surrounding expert tribunals when acting within jurisdiction. The Court examined the tariff policy under section 61, including the fact that the operating norms must be efficient, considering previous performance in the operating norms and eventually show increased efficiencies.

The Court examined MERC’s reliance on CPRI’s findings and noting while technology may be similar, identical SHR norms are not warranted when units differ in year vintage, actual performance and efficiencies. The Court’s determination that a higher efficiency level may appropriately impose a stricter norm acknowledges the tariff policy’s objective of advancing performance that consumers benefit from efficiencies. The Court’s recognition that tariff fixing is a legislative function assigned to experts is also significant with respect to balancing consumer interests, the need to promote efficiency, and the viability of costs.

Conclusion

This ruling confirms the validity of Regulation 44.2(d) while affirming the maintainability of writ petitions regarding regulatory legislation. This represents a measured choice in which the Court maintains judicial review and respects the functional autonomy of expert regulators.