Supreme Court reinforces commission’s overarching power to ‘fix’ tariff under the Electricity Act 2003 and holds that a Discom cannot be guided by its own interest

On August 4, 2025, Hon’ble Supreme Court of India (“Supreme Court”) examined the validity of Gujarat Electricity Regulatory Commission’s (“GERC”) orders determining project specific tariff of certain Wind Power Developers (“WPDs”) in the State of Gujarat. Such WPDs had already executed Power Purchase Agreements (“PPAs”) with Gujarat Urja Vikas Nigam Ltd. (“GUVNL”) providing for a fixed tariff. While GERC’s Wind Tariff Order dated January 31, 2010 (“WTO”) (passed under Section 62 of the Electricity Act 2003 (“Electricity Act”) provided WPDs with a right to seek project wise tariff, GUVNL opposed it on the ground that they cannot deviate from the fixed tariff as agreed in the PPAs. However, dismissing GUVNL’s contentions, Supreme Court upheld the validity of GERC’s orders in favour of the WPDs and:

held that tariff under Electricity Act is not a matter of private agreement between parties as it is to be fixed statutorily by the Appropriate Commission;
held that GERC’s WTO clearly reserved the rights of the WPDs to obtain project specific tariff;
castigated GUVNL for acting like a private business entity and furthering its own commercial interest by thrusting PPA tariff on the WPDs, which was not applicable to them.

Brief facts

On January 31, 2010, GERC passed its WTO specifying a levelized tariff of INR 3.56/kwh.
The tariff was determined considering that all WPDs availed the benefit of ‘Accelerated Depreciation’ in their projects. For WPDs who did not avail such benefit, the WTO reserved their rights to submit individual petitions for determining project specific tariff.
Control period of the WTO was 3 (three) years. During such period, the WPDs commissioned their projects and entered into separate PPAs with GUVNL.
Clause 5.2 of each PPA provided for a fixed tariff of Rs. 3.56/kwh.
Having executed the PPAs with GUVNL, the WPDs approached GERC seeking project wise tariff determination on the ground that they did not avail ‘Accelerated Depreciation’.
GUVNL’s main objections were:
- WPDs having willingly agreed to the PPA tariff, and PPA being a binding contract, such WPDs have no liberty to seek separate project-wise tariff determination; and
- if the WPDs were willing to opt for project specific tariff, they ought not to have executed the PPAs with GUVNL.

Issue

Whether the WPDs were entitled to approach GERC for project specific tariff determination even though they had previously signed PPAs with GUVNL providing for a fixed tariff?

Findings

The Supreme Court declined to interfere with the impugned judgment wherein the Appellate Tribunal for Electricity affirmed GERC’s statutory power to fix tariff even after execution of PPAs between WPDs and GUVNL. Supreme Court held that:

tariff fixation is a statutory function of the Commission, not a matter of private agreement between parties.
WPDs’ right to obtain project specific tariff is derived from GERC’s WTO (passed under Section 62 of the Electricity Act): In its WTO, GERC clearly stipulated that the levelized tariff (i.e. PPA tariff) shall ONLY apply to those WPDs who availed the benefit of ‘Accelerated Depreciation’ under Income Tax Act, 1961. Other WPDs who did not avail such benefit, were entitled to file individual petitions for project specific tariff. Since WPDs did not avail such benefit, they were entitled to project specific tariff and PPA tariff was not applicable to them.
GUVNL abused its dominant position by binding the WPDs with the PPA tariff:
- since the PPA tariff was inapplicable to WPDs, GUVNL could not have thrust the PPA tariff over them, contrary to GERC’s dictum; and
- by doing so, GUVNL acted unfairly and took unfair advantage of its dominant position.
GUVNL being a state instrumentality is bound to advance State policy promotion of renewable energy generation. It cannot advance its own commercial consideration in isolation on par with a private party, divorced from its responsibility to abide by and further the policy objectives of the State.
GUVNL’s reprehensible conduct:
- by imposing PPA tariff on the WPDs for entire life of the project, GUVNL acted contrary to the state policy of promoting renewable energy generation; and
- GUVNL could not have been solely guided by its own commercial interests, like a private business entity. GUVNL’s conduct as a state instrumentality must be of the standard of a model citizen. Such conduct akin to a shylock, does not reflect positively upon GUVNL.
The decision of whether to avail benefit of ‘Accelerated Depreciation’, could NOT have been taken by WPDs without executing PPA with GUVNL:
As per Income Tax Act 1961, ‘Accelerated Depreciation’ is a tax benefit which the WPDs can only avail after they have commenced power generation; and
WPDs could not have commenced power generation unless they signed a PPA with Discom (here GUVNL). Thus, the respondent WPDs could not be tied with PPA tariff on account of availing ‘Accelerated Depreciation’ after executing PPAs with GUVNL.

Conclusion

This judgment is a testament to the fact that Discoms cannot unilaterally dictate terms of supply of power to generators. Affirmation of commission’s overarching powers in matters of tariff fixation ensures that there remains a commercial equilibrium between generators and Discoms, thereby instilling confidence in generators and consumers across the country. The judgment also serves as a reminder to all Discoms across the country that they do not have a self-interest ‘of their own’ i.e. they are not an end unto themselves, but only a means to an end, the end being ‘policy objectives of the state’.

This Prism has been prepared by: