Supreme Court affirms state regulators’ role in setting power tariffs

The Supreme Court has ruled that electricity tariffs under the Electricity Act, 2003 must be fixed by the relevant State Electricity Regulatory Commission, not through private arrangements between distribution companies and project developers.

The judgment concludes a prolonged dispute between Gujarat Urja Vikas Nigam Limited (GUVNL) and several wind energy firms over tariffs in their Power Purchase Agreements (PPAs).

The matter began when four wind energy companies, which had earlier signed PPAs with GUVNL at a fixed rate of INR 3.56 per unit, sought tariff determination from the Gujarat Electricity Regulatory Commission (GERC) on a project-specific basis. They argued they were entitled to a different rate because they had not claimed Accelerated Depreciation (AD) benefits under the Income Tax Act, which influences tariff calculations.

GUVNL maintained that all developers, including those not using AD benefits, should receive the INR 3.56 per unit tariff designed for AD beneficiaries. The developers contested this, seeking higher rates permitted under regulations.

GERC ruled in favour of the developers, and the Appellate Tribunal for Electricity upheld that decision. GUVNL challenged the orders in the Supreme Court, asserting that the tariff terms in a signed PPA were binding.

The Supreme Court rejected GUVNL’s position, stating that tariff determination is a statutory process overseen by expert regulatory bodies and not a matter for commercial negotiation. It said state distribution companies cannot operate as private traders, prioritising profit over public interest.

The Court found GUVNL had no written assurance from the developers about claiming AD benefits and therefore could not lawfully impose the lower tariff. The bench described GUVNL’s approach as unfair and criticised its attempt to apply an inapplicable rate for the full project term.

The verdict reinforces the statutory authority of State Electricity Regulatory Commissions and limits the scope for distribution companies to enforce commercial terms that conflict with regulated tariff processes.