Recently, the Supreme Court examined a tariff dispute involving a small hydropower project in Himachal Pradesh. The main issue before the Court was whether the appellant, a private sector company, could claim the benefit of a higher tariff for its entire 4.90 MW project, or whether it was bound by the earlier contractual rate fixed long before the regulatory framework came into existence.
Brief Facts:
The case arose from a Power Purchase Agreement (hereinafter referred to as “PPA”) entered into in the year 2000 between the appellant, a private hydropower company, and the Himachal Pradesh State Electricity Board (hereinafter referred to as “HPSEB”) for a 3 9MW hydro project. Under this agreement, the tariff was fixed at ₹2.50 per unit for forty years, described as “firm and fixed and shall not be changed due to any reason whatsoever.” The project was commissioned in 2004. Subsequently, the company decided to enhance the capacity to 4.90 MW by adding another 1.90 MW unit. For this purpose, a supplementary PPA was executed in 2008, again fixing the tariff at ₹2.50, but this time making it subject to the Himachal Pradesh Electricity Regulatory Commission (hereinafter referred to as “HPERC”) Regulations of 2007. In 2010, HPERC revised the tariff for small hydro projects to ₹2.95 per unit. On this basis, the appellant and HPSEB signed another supplementary PPA in September 2010 fixing tariff at the revised rate. However, this supplementary agreement was never submitted to HPERC for approval. Later, the appellant demanded arrears at the higher rate and claimed that the revised tariff should apply to the entire 4.90 MW project.
Contentions of Appellant:
The appellant stated that it was entitled to the enhanced tariff of ₹2.95 for the whole 4.90 MW project, arguing that the tariff orders issued by HPERC were binding on all projects of similar capacity. It also claimed arrears for the period between April 2008 and August 2010, when payments had only been made at the lower rate.
Contentions of Respondent:
The respondents, however, argued that the original 3 MW project was governed by the 2000 PPA, which fixed tariff at ₹2.50, and that this could not be altered because it was concluded before the Commission was even set up. They further submitted that the supplementary PPA of 2010 was invalid since it had not been approved by HPERC, as required under Section 86(1)(b) of the Electricity Act, 2003. While they conceded that the additional 1.90 MW unit, commissioned in 2008, could fall within the 2007 Regulations, they opposed any attempt to extend the higher tariff to the original 3 MW unit.
Observations of the Court:
The Court observed that tariff determination is not a matter of private negotiation but a statutory function exclusively vested in the State Electricity Regulatory Commission. Quoting Section 86(1)(b), the Court noted, “This provision puts it beyond the pale of doubt that fixing of the price for the purchase of electricity is not a matter of private negotiation and agreement between a generating company and a distribution licensee. The price as well as the agreement, i.e., PPA, incorporating such price and providing for purchase of electricity at that price necessarily have to be reviewed and approved by the State Commission under this provision.”
Further, the Court held that the 3 MW unit was rightly bound by the 2000 PPA and therefore no enhanced tariff could be claimed for it. The 1.90 MW extension, having been commissioned after the 2007 Regulations, could be considered under the regulatory framework, but even then, the supplementary PPA of 2010 could not be enforced. As the Court explained, “…no draft PPA was ever submitted to the Commission for its approval and it appears that the supplementary PPA dated 10.09.2010 was executed independently and unilaterally by the parties themselves, incorporating a tariff which was never subjected to the review and approval of the Commission.”
The Court also criticised the Appellate Tribunal for Electricity (hereinafter referred to as “APTEL”) for treating the 2010 agreement as valid for the additional unit, stating, “The observation of the APTEL that no adverse inference could be drawn against the appellant for not obtaining the approval of the Commission for the tariff agreed to by the parties under this supplementary PPA 10.09.2010 completely overlooked the binding mandate of Section 86(1)(b) of the Act of 2003.”
Despite finding these flaws, the Court chose not to interfere with the tariff arrangement already in place. It noted that HPERC had fixed a weighted average tariff of ₹2.60 for the entire project, which had been acted upon since 2015 pursuant to APTEL’s directions.
The decision of the Court:
The Supreme Court rejected the appeal and made it clear that the company’s request to apply the higher tariff of ₹2.95 per unit to the entire project, including the original 3 MW covered by the 2000 PPA, had no merit. The Court emphasized that such a claim could not be sustained under law. It further laid down an important clarification for the future, a generating company and a distribution licensee cannot privately agree on tariff rates or sign PPAs on their own terms. Any such agreement must first be reviewed and approved by the State Electricity Regulatory Commission under Section 86(1)(b) of the Electricity Act, 2003.
Case Title: M/s. KKK Hydro Power Limited versus Himachal Pradesh State Electricity Board Limited and others
Citation: 2025 Latest Caselaw 843 SC
Case No.: Civil Appeal No. 3005 OF 2015
Coram: Hon’ble Mr. Justice Sanjay Kumar and Hon’ble Mr. Justice N.V. Anjaria
Counsel for Appellant: Sr. Adv. M.G. Ramachandran, AOR Raj Kumar Mehta, Adv. Himanshi Andley, Adv. Srishti Khindaria,
Counsel for Respondent: AOR Pradeep Misra, Adv. Daleep Dhyani, Adv. Suraj Singh, Adv. Anand K. Ganesan, AOR Nikunj Dayal, Adv. Amal Nair, Adv. Shivani Verma, Adv. Pramod Dayal.
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