Supreme Court Clarifies Tariff Determination Under Electricity Act

Summary

The Supreme Court has recently held that industrial tariffs do not rest as a matter of a private contract; rather, they must be determined as a matter of law by the Appropriate Electricity Regulatory Commission (ERC) as per the Electricity Act, 2003. While dismissing the appeals filed by Gujarat Urja Vikas Nigam Limited (GUVNL), the Court held that wind energy producers who, under the Income Tax Act, did not avail of the accelerated depreciation (AD) benefit were entitled to case-specific tariff determination, even though they executed PPAs at ₹3.56/kWh.

The Court also stressed that state instrumentalities like GUVNL must act as “model citizens” and not pursue purely commercial interests contrary to renewable energy policies.

Case Timeline

• 2010: GERC issues Tariff Order No. 1/2010 – ₹3.56/kWh for wind projects availing accelerated depreciation.
• PPAs Signed: Respondent wind producers sign PPAs with GUVNL at ₹3.56/kWh.
• Petition before GERC: Producers seek project-specific tariff, claiming they did not avail AD benefits.
• GERC Decision: Rules in favour of producers.
• APTEL Appeal: GUVNL’s appeal dismissed.
• Supreme Court (2025): Upholds GERC & APTEL, rejects GUVNL’s appeals.

Issues Raised

1. Can electricity tariffs under PPAs override statutory tariff orders of the Commission?
2. Are wind power producers who did not avail accelerated depreciation entitled to a different tariff?
3. Does signing of a PPA estop producers from seeking case-specific tariff determination?

Appellant’s Arguments

• The PPAs fixed tariff at ₹3.56/kWh, which should be binding.
• Once agreements are signed, producers cannot later claim higher tariffs.
• Allowing case-specific tariffs would disrupt commercial certainty in power procurement.

Respondents’ Arguments

• The 2010 GERC Tariff Order clearly limited ₹3.56/kWh to projects availing accelerated depreciation.
• Since they did not claim AD benefits, the PPA tariff was inapplicable.
• Tariff fixation is a statutory matter, not merely contractual.
• GUVNL failed to obtain commitments regarding AD benefits at the time of PPAs.

Judgment

• Tariff is statutory, not contractual: Under the Electricity Act, tariff determination rests with the Commission (Sections 62 & 86).
• GUVNL bound by State policy: As a State entity, it cannot act like a private profit-seeker; it must further renewable energy goals.
• No estoppel: Since GUVNL did not secure commitments on AD at the time of PPAs, it cannot bind producers to an inapplicable tariff.
• Appeals dismissed as devoid of merit.

Analysis

This decision strengthens the principle that tariff-setting in the power sector is regulatory in nature and cannot be freely agreed upon in private contracts. The Court’s focus on the role of state-owned enterprises in fostering renewable energy has furthered India’s shift towards cleaner energy.

For distribution licensees, the judgment is a reminder of the need to ensure that PPAs are aligned with regulatory tariff frameworks and to obtain proper firm commitments at the contract stage. For renewable energy developers, the ruling establishes that statutory guarantees take precedence over contractual conflicts, thereby reinforcing investor confidence in the sector.