SC bars discoms from recovering depreciation on idle assets
The Supreme Court of India has set aside an order of the Appellate Tribunal for Electricity (APTEL), ruling that Tata Power Delhi Distribution Limited (TPDDL) cannot recover depreciation costs for the decommissioned Rithala Combined Cycle Power Plant after it stopped supplying electricity. The judgment restores the 2019 order of the Delhi Electricity Regulatory Commission (DERC) and reinforces that consumer interest remains central to tariff determination.
A bench led by Justice Alok Aradhe allowed the appeal filed by DERC and examined whether a generating utility has an unconditional right to recover the full capital cost of an asset over its technical useful life, even when the approved operational and tariff recovery period is limited by contract and regulation.
TPDDL had established the 108 MW gas-based Rithala plant ahead of the 2010 Commonwealth Games with an approved operational tenure of five to six years. After operations ended in March 2018, the discom sought recovery of the remaining undepreciated capital cost of about Rs 94.59 crore through tariff.
APTEL had earlier ruled in favour of TPDDL, holding that DERC’s Generation Tariff Regulations, 2011 allowed depreciation recovery over the plant’s certified 15-year useful life instead of the shorter operational period.
The Supreme Court, however, rejected this interpretation, observing that tariff determination is a “regulatory balancing act” rather than a “merely mathematical exercise.” The Court said Regulation 6.32 of the DERC Generation Tariff Regulations, dealing with depreciation over useful life, cannot be interpreted independently.
The judgment stated that the provision has to be read together with Regulation 4.1, which limits tariff entitlement to the duration approved under the Power Purchase Agreement (PPA), as well as Section 61(d) of the Electricity Act, 2003. The Court observed, “The consumers cannot be required to pay for a service which they no longer received.”
The apex court also noted that permission granted by the Government of the National Capital Territory of Delhi for the project was temporary in nature. It further observed that TPDDL had the option to operate the plant as a merchant generator to recover its investment but did not challenge the six-year operational cap imposed by DERC in 2017.
With this ruling, the Supreme Court has drawn a distinction between the technical useful life of an asset and the regulatory recovery period for tariff purposes. The judgment is expected to influence future cases involving stranded thermal and gas-based assets facing early retirement during the energy transition.
The featured photograph is for representation only.
