Decided on: August 29, 2025
Corum: Justice Sanjay Kumar, Justice N.V. Anjaria
Citation: 2025 SCC OnLine SC 1847
Supreme Court Reaffirms Commission’s Exclusive Authority Over Tariff Fixation and PPA Approval
Facts
KKK Hydro Power Limited (Appellant) initially established a 3 MW Baragran Hydro Electric Power Project under an Implementation Agreement (IA) and Power Purchase Agreement (PPA) dated 30.03.2000, with a fixed tariff of Rs. 2.50/- per kWh.
The Himachal Pradesh Electricity Regulatory Commission (Commission) was constituted on 30.12.2000, and the 3 MW project was commissioned on 05.08.2004. The Appellant later sought to augment the project capacity to 4.90 MW, leading to a supplementary IA on 05.07.2007.
On 04.12.2007, the Commission conditionally approved a draft PPA for the 4.90 MW capacity, explicitly stating that the tariff and other terms would be subject to the Himachal Pradesh Electricity Regulatory Commission (Power Procurement from Renewable Sources and Cogeneration by Distribution Licensee) Regulations, 2007 (Regulations of 2007). A PPA dated 11.03.2008 was subsequently executed, maintaining the Rs. 2.50/- per kWh tariff but acknowledging its subservience to the Regulations of 2007.
Following a tariff redetermination process, the Commission issued orders on 09/10.02.2010, enhancing the tariff for small hydel projects to Rs. 2.95/- per kWh, specifically for PPAs that had stipulated Rs. 2.87/- per kWh. Despite its PPA having a Rs. 2.50/- per kWh tariff, the Appellant and HPSEB unilaterally executed a supplementary PPA on 10.09.2010, raising the tariff to Rs. 2.95/- per kWh, without seeking the Commission’s prior review and approval.
The Appellant filed a petition with the Commission for arrears at the enhanced tariff, while HPSEB sought recall/modification of the Commission’s earlier approval. The Commission dismissed both petitions by a common order dated 05.07.2013, holding that the supplementary PPA of 10.09.2010 was not in conformity with the Regulations of 2007 and that parties could not unilaterally modify the tariff without Commission approval.
It determined the Appellant was entitled to Rs. 2.50/- per kWh for the entire 4.90 MW project.
Aggrieved, the Appellant approached the Appellate Tribunal for Electricity (APTEL), which partly allowed the appeal on 17.10.2014. APTEL distinguished between the original 3 MW plant (whose tariff was not subject to redetermination) and the augmented 1.90 MW capacity (which was subject to the Regulations of 2007).
APTEL directed that a common tariff, based on a weighted average of the respective tariffs for the 3 MW and 1.90 MW plants, should be determined for the entire project. Pursuant to APTEL’s direction, the Commission determined the weighted average tariff as Rs. 2.60/- per kWh on 11.06.2015, which was incorporated into a supplementary PPA dated 03.11.2015. The Appellant then filed an appeal before the Supreme Court.
Issues
Whether the supplementary PPA dated 10.09.2010, unilaterally executed by the parties without the Commission’s approval, was legally valid, especially concerning the enhanced tariff.
Whether the Appellant was entitled to the enhanced tariff of Rs. 2.95/- per kWh for the entire 4.90 MW project.
Court Analysis
The Supreme Court clarified that Section 86(1)(b) of the Electricity Act, 2003, mandates that the price and Power Purchase Agreement for electricity supply within a State must be reviewed and approved by the State Electricity Regulatory Commission. Private negotiations and unilateral agreements are insufficient.
The Court found that the Commission’s order increasing the tariff to Rs. 2.95/- per kWh was specifically for PPAs already stipulating Rs. 2.87/- per kWh, not for the Appellant’s PPA which had a Rs. 2.50/- per kWh tariff. Therefore, the Appellant and HPSEB were bound to seek the Commission’s approval before implementing any tariff enhancement.
While acknowledging APTEL’s error in allowing the unapproved supplementary PPA dated 10.09.2010 to take effect for the 1.90 MW plant, the Supreme Court chose not to interfere with APTEL’s directive to apply a weighted average tariff (which resulted in Rs. 2.60/- per kWh).
This decision was based on the fact that HPSEB had not appealed APTEL’s order, and the revised tariff had been acted upon for a significant period, making it impractical to “upset the apple cart” at this late stage.
However, the Court strongly clarified the legal position for future cases, affirming the mandatory nature of Commission approval under Section 86(1)(b) for all tariff and PPA modifications. The Appellant’s plea for the enhanced tariff of Rs. 2.95/- per kWh for the entire project, including the original 3 MW plant, was dismissed as being “bereft of merit”. The Court also noted that the Appellant could seek appropriate relief regarding royalty on water usage under the amended Regulation 6 of the 2007 Regulations.