Supreme Court on Electricity Tariffs: Not a Matter of Private Agreement—Must Be Statutorily Fixed by the Commission; GUVNL Appeals Dismissed

Supreme Court on Electricity Tariffs: Not a Matter of Private Agreement—Must Be Statutorily Fixed by the Commission; GUVNL Appeals Dismissed

Table of Contents

Overview

The Supreme Court of India has categorically held that the price at which a distribution licensee procures electricity from a generating company is not governed by private contractual bargains but is a statutory matter to be determined by the appropriate Electricity Regulatory Commission under the Electricity Act, 2003. Dismissing appeals filed by Gujarat Urja Vikas Nigam Limited (GUVNL), the Court upheld orders of the Gujarat Electricity Regulatory Commission (GERC) and the Appellate Tribunal for Electricity (APTEL) which allowed four wind generators to seek project-specific tariff determinations because they had not availed Accelerated Depreciation (AD) under the Income Tax Act.

The Court underscored that GUVNL, as a state-owned utility, must act as a “model citizen” and cannot overreach the regulatory framework or behave like a private trader to bind generators to tariffs not applicable to them.

Case Background

The dispute centered on whether wind generators that signed PPAs during the currency of GERC’s 2010 Tariff Order could be compelled to accept a uniform tariff of ₹3.56/kWh (the “AD tariff”) even though they did not actually avail Accelerated Depreciation benefits. GERC’s 2010 order expressly set ₹3.56/kWh for projects availing AD and permitted a separate, project-specific tariff determination pathway for projects that did not avail AD.

Four wind companies—Green Infra Corporate Wind Pvt. Ltd., Vaayu (India) Power Corporation Pvt. Ltd., Green Infra Wind Power Ltd., and Tadas Wind Energy Pvt. Ltd.—approached GERC asserting they had not opted for AD and sought case-specific tariff determinations as contemplated in the 2010 order. GERC ruled in their favor, APTEL affirmed, and GUVNL appealed to the Supreme Court.

Supreme Court’s Core Holdings

  • Tariff setting is a statutory function: The price at which a discom procures power from a generator is to be fixed by the appropriate commission, not by “free bargain in a commercial sense” within PPAs.
  • Public interest and regulatory scheme prevail: Contractual clauses cannot curtail the commission’s power or the statutory tariff architecture; a PPA cannot override the commission’s regulatory design, including differentiated treatment for AD and non-AD projects.
  • No estoppel against statutory rights: Generators who did not avail AD are not estopped from seeking case-specific tariffs simply because a PPA referenced the AD-linked tariff; GUVNL’s failure to obtain binding commitments on AD choice cannot be visited upon generators.
  • AD choice arises at tax return stage: The option to choose AD or normal depreciation arises only when filing returns for the relevant assessment year after generation starts, making it untenable to bind a generator to an AD-linked tariff at PPA execution if AD is later not availed.

The Court’s Reasoning

1) Tariff under the Electricity Act is statutory, not purely contractual

The Court reaffirmed that the tariff embedded in a PPA is the product of statutory determination by the commission and cannot be treated as an immutable commercial price term when the regulatory framework provides otherwise. The scheme of the 2003 Act—particularly Section 86—requires leaning toward flexibility where public interest and regulatory consistency demand tariff review or case-specific determinations envisaged by a tariff order.

2) GERC’s 2010 order created two distinct pathways

GERC’s 2010 wind tariff order explicitly tied ₹3.56/kWh to projects availing AD and provided a route for non-AD projects to seek separate tariff determinations; this bifurcation was integral to the pricing framework and could not be dissolved by contractual assertion alone.

3) No “indefeasible right” for GUVNL to enforce AD-only tariff

The Court held that GUVNL lacked any indefeasible right to enforce an AD-linked tariff upon generators that did not avail AD when the regulatory order itself excluded such application and allowed individualized determination. GUVNL’s failure to secure formal AD commitments at the relevant time undermined its position.

4) State utility must act as a model public entity

Rebuking attempts to enforce an inapplicable tariff, the Court said a state discom must not behave like a private trader and must align with public interest, policy goals, and the commission’s statutory framework. The Court used unusually sharp language to censure the approach, signaling intolerance for regulatory overreach or unfair bargaining by a public utility.

5) EMCO distinguished; regulatory primacy affirmed

Addressing reliance on earlier case law, the Court distinguished EMCO on facts, noting the generator there sought tariff under a wholly inapplicable order rather than the appropriate pathway set out in the governing tariff order and PPA context. Here, by contrast, the 2010 order itself contemplated case-specific tariff determination for non-AD projects.

Practical Implications

  • For generators: If a tariff order distinguishes between AD and non-AD projects and offers case-specific determination for non-AD, generators retain the right to seek such determination notwithstanding PPA references to the AD tariff.
  • For discoms: PPAs cannot displace or narrow commission-set frameworks; utilities should secure timely, written commitments on fiscal choices (like AD) if they intend to rely on them, and must adhere to the commission’s design and public interest obligations.
  • For regulators: The ruling reinforces commissions’ primacy over tariff setting, including nuanced regimes that hinge on tax treatment or other policy levers, and supports flexible, welfare-centric electricity pricing under the Act.
  • For sectoral policy: The judgment strengthens confidence in renewable procurement frameworks by ensuring statutory and policy intent are not undermined by rigid or one-sided contractual assertions

Key Excerpts and Notable Observations

  • “Electricity tariff is not a matter of free bargain in a commercial sense. It is governed by statute and determined by an expert regulatory body.”
  • “GUVNL cannot… bind a generating company to such price, contrary to the dictum of the GERC.”
  • GUVNL had “no indefeasible right” to enforce the AD-linked tariff against projects that did not avail AD, particularly given its failure to obtain formal commitments on AD at the appropriate time.
  • The Court criticized conduct akin to acting as a private merchant and emphasized the discom’s role as a model public entity under the regulatory umbrella.

Timeline

  • 2010: GERC issues tariff order setting ₹3.56/kWh for AD projects and allowing case-specific determinations for non-AD projects.
  • 2010–2012: Generators sign PPAs during the 2010 order’s currency; later they opt not to avail AD and seek case-specific tariffs before GERC.
  • GERC and APTEL: Rule for generators; allow project-specific tariff determinations for non-AD projects.
  • Aug 4–6, 2025: Supreme Court dismisses GUVNL’s appeals; upholds primacy of statutory tariff determination and GERC/APTEL orders.

What Stakeholders Should Do

  • Generators: Document tax depreciation choices and timelines; where tariff orders create differentiated pathways, consider timely petitions for case-specific determinations if non-AD is chosen.
  • Discoms: Align PPAs with applicable tariff orders; obtain explicit declarations on AD where relevant; avoid asserting contract supremacy against statutory commission designs.
  • Advisors and lenders: Underwrite projects with close attention to tariff orders that integrate tax treatment; ensure PPAs reflect and defer to commission frameworks to mitigate risk.

Bottom Line

The Supreme Court has reasserted a clean rule: electricity procurement tariffs are regulated, statutory prices—set and supervised by expert commissions—and cannot be locked in or constrained by private PPA bargains when the commission’s tariff architecture provides otherwise. For renewable energy markets, the decision bolsters regulatory certainty and public interest primacy over rigid contractual enforcement where it conflicts with statutory frameworks and policy objectives.

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