The Supreme Court has decisively ruled that the tariff at which power is procured by a distribution licensee from a generating company is not a matter to be settled by private agreement between the parties but must instead be fixed by the Appropriate Commission under statutory authority. The judgment arose from appeals filed by Gujarat Urja Vikas Nigam Limited (GUVNL) challenging findings to the contrary. The Court observed that GUVNL, as a state instrumentality, cannot conduct itself like a private commercial entity or a “Shylock,” imposing its commercial interests on wind energy producers contrary to the state’s own renewable energy policy and the determinations of the State Electricity Regulatory Commission (GERC).
The underlying dispute pertained to wind energy project developers who did not avail the benefit of accelerated depreciation under the Income Tax laws. The tariff order issued by the GERC in 2010 had clearly stated that the levelized price of ₹3.56 per kWh was meant only for wind energy projects that had claimed accelerated depreciation. Projects that did not avail such tax benefits were not covered by that tariff. Despite this clear stipulation, GUVNL attempted to enforce the same tariff for wind energy firms that had expressly not availed of accelerated depreciation. The wind producers contested this imposition, and appellate adjudicators upheld that GUVNL had no indefeasible right to bind them to that tariff rate.
The Supreme Court agreed with the appellate view, emphasising that the tariff fixed by the Regulatory Commission under Section 62 of the Electricity Act was not subject to unilateral inclusion in power purchase agreements when it clearly did not apply to a category of producers. GUVNL had failed to secure commitments from the developers at the time of executing Power Purchase Agreements to avail of accelerated depreciation; therefore it could not later insist that the tariff that applied only to such cases be applied to all contractors. The Court held that absence of such formal tax-status commitments by the respondents meant that GUVNL had no power to enforce that tariff upon them.
The Court reiterated the established regulatory principle that tariff fixation is a statutory function resting with Regulatory Commissions, not the contracting parties. Even where a tariff is incorporated into a PPA, it remains susceptible to amendment by the Commission under Section 64(6) if circumstances warrant it. The Court referenced earlier rulings, particularly the judgment in Gujarat Urja Vikas Nigam Limited v. Tarini Infrastructure Ltd., which laid down that the Commission retains revisional powers notwithstanding incorporation of tariff in a contract. The Court reaffirmed that rate determination cannot be frozen merely because it finds mention in an agreement as it is ultimately derived from statutory powers.
Significantly, the Court held that GUVNL’s failure to secure an upfront commitment on tax status constituted a substantial oversight, and this fault could not be imposed on the producers, who had no contractual obligation to adopt accelerated depreciation. The developers, which had consciously chosen not to avail that benefit, could not be compelled to accept a tariff aligned to projects that did. The appellate bodies and the Supreme Court both found that GUVNL’s conduct in seeking to enforce the tariff was neither justified nor supported by the statutory scheme.
In conclusion, the Supreme Court dismissed the appeals presented by GUVNL, finding them devoid of merit. The Court upheld the orders of the State Commission and appellate tribunals, holding that GUVNL lacked legal entitlement to compel wind energy developers to adhere to a tariff that was statutorily applicable only under certain tax conditions. The Court underscored that while contractual agreements reflect consent, the underlying tariff determination remains a statutory exercise and binding on the parties only as determined by lawfully empowered authorities. By rejecting GUVNL’s appeals, the Court affirmed that unfettered power cannot be exercised by a state entity contrary to clearly worded tariff orders and the legislative framework governing rates in the power sector.
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