1. Dispute over tariff enhancement for a hydel power project — validity of a supplementary power purchase agreement executed without regulatory commission approval under the Electricity Act, 2003. (Para 1 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 )
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2025 Supreme(SC) 1284
SUPREME COURT OF INDIA
SANJAY KUMAR, N.V. ANJARIA, JJ.
M/s. KKK Hydro Power Limited – Appellant
Versus
Himachal Pradesh State Electricity Board Limited and others – Respondents
Civil Appeal No. 3005 of 2015
Decided On : 29-08-2025
Important Points
Tariff modifications in power purchase agreements must comply with regulatory approvals as per Section 86(1)(b) of the Act, ensuring valid determination of electricity purchase prices.
Subject
Energy Law - Power Purchase Agreements
Act Referred
ELECTRICITY ACT: S.125, S.86(1)(b)
Himachal Pradesh Electricity Regulatory Commission Power Procurement from Renewable Sources and Cogeneration by Distribution Licensee Regulations: Reg.6
Himachal Pradesh Electricity Regulatory Commission Power Procurement from Renewable Sources and Cogeneration by Distribution Licensee Regulations: Reg.6
Headnote
(A) Electricity Act, 2003 - Section 125 - Appeal against judgment of Appellate Tribunal for Electricity - Appellant claimed enhanced tariff under Power Purchase Agreement; APTEL partly allowed claim, determining a common tariff for 3 MW and 1.90 MW plants. (Paras 1-4, 22)
(B) Regulatory Framework - Power Purchase Agreements must receive approval from Electricity Regulatory Commission to determine valid tariffs; Unilateral modifications do not hold legal weight. (Paras 26-32)
Facts of the case:
Dispute arose from an appeal against a Commission's decision rejecting payments at an enhanced tariff for electricity supplied by a hydro project. The appellant sought payment differences based on an unapproved supplementary PPA.
Findings of Court:
APTEL's findings modifying tariff challenges regulation provisions were misplaced; A new tariff could not apply to the original PPA established prior to the Commission's existence.
Issues: The main issues involved the authority of the Commission over existing contracts and the legitimacy of a supplementary PPA executed without regulatory approval.
Ratio Decidendi: The court clarified that regulatory compliance was mandatory for tariff adjustments, and agreements made without the Commission's approval were invalid, affirming APTEL's initial error.
Result: Appeal dismissed.
(B) Regulatory Framework - Power Purchase Agreements must receive approval from Electricity Regulatory Commission to determine valid tariffs; Unilateral modifications do not hold legal weight. (Paras 26-32)
Facts of the case:
Dispute arose from an appeal against a Commission's decision rejecting payments at an enhanced tariff for electricity supplied by a hydro project. The appellant sought payment differences based on an unapproved supplementary PPA.
Findings of Court:
APTEL's findings modifying tariff challenges regulation provisions were misplaced; A new tariff could not apply to the original PPA established prior to the Commission's existence.
Issues: The main issues involved the authority of the Commission over existing contracts and the legitimacy of a supplementary PPA executed without regulatory approval.
Ratio Decidendi: The court clarified that regulatory compliance was mandatory for tariff adjustments, and agreements made without the Commission's approval were invalid, affirming APTEL's initial error.
Result: Appeal dismissed.
Legal Category Hierarchy
Advocates appeared:
For the Appellant(s) : Mr. M.G. Ramachandran, Sr. Adv. Mr. Raj Kumar Mehta, AOR Ms. Himanshi Andley, Adv. Ms. Srishti Khindaria, Adv.
For the Respondent(s): Mr. Pradeep Misra, AOR Mr. Daleep Dhyani, Adv. Mr. Suraj Singh, Adv. Mr. Anand K Ganesan, Adv. Mr. Nikunj Dayal, AOR Mr. Amal Nair, Adv. Ms. Shivani Verma, Adv. Mr. Pramod Dayal, Adv.
For the Appellant(s) : Mr. M.G. Ramachandran, Sr. Adv. Mr. Raj Kumar Mehta, AOR Ms. Himanshi Andley, Adv. Ms. Srishti Khindaria, Adv.
For the Respondent(s): Mr. Pradeep Misra, AOR Mr. Daleep Dhyani, Adv. Mr. Suraj Singh, Adv. Mr. Anand K Ganesan, Adv. Mr. Nikunj Dayal, AOR Mr. Amal Nair, Adv. Ms. Shivani Verma, Adv. Mr. Pramod Dayal, Adv.
Table of Contents
2. Whether a supplementary power purchase agreement modifying tariffs by mutual consent is binding despite lack of regulatory approval and whether augmented capacity warrants a higher tariff. (Para 17 , 21 )
3. The court observed that fixing electricity purchase prices is a statutory function of the State Commission and cannot be determined through private negotiations between parties. (Para 14 , 15 , 16 , 18 , 19 , 20 , 22 , 23 , 24 , 25 , 26 , 27 , 29 )
4. Under Section 86(1)(b) of the Electricity Act, 2003, power purchase agreements and tariffs must be reviewed and approved by the State Commission. (Para 31 )
5. Appeal dismissed — the court declined to interfere with the weighted average tariff already implemented, while affirming the necessity of regulatory approval for tariff modifications. (Para 28 , 32 , 33 )
6. Can a generating company and a distribution licensee privately agree on a tariff for electricity supply?
No. Under Section 86(1)(b) of the Electricity Act, 2003, the State Commission is mandated to regulate the electricity purchase and procurement process, including the price. Therefore, tariffs and power purchase agreements cannot be stipulated by private negotiation without the Commission's review and approval. (Para 25 , 26 , 31 )
7. Does a general tariff order for a class of projects automatically apply to all existing agreements?
Not necessarily. The court held that a general direction to modify agreements to reflect an increased tariff only applies to those existing agreements that stipulated the specific lower tariff mentioned in the order, rather than applying universally to all existing agreements. (Para 23 , 24 , 26 )
8. Can a regulatory commission modify a power purchase agreement due to changes in state policy?
Yes. Under the amended proviso to Regulation 6 of the Regulations of 2007, the Commission may review or modify a power purchase agreement if there is a change in statutory laws, rules, or State Government Policy to promote co-generation or generation of electricity from renewable sources. (Para 30 )
JUDGMENT :
SANJAY KUMAR, J.
1. By way of this appeal filed under Section 125 of the ELECTRICITY ACT , 20031[for short, ‘the Act of 2003’], M/s. KKK Hydro Power Limited, Faridabad, Haryana, calls in question the judgment dated 17.10.2014 passed by the Appellate Tribunal for Electricity, New Delhi2[for short, ‘the APTEL’], in Appeal No. 198 of 2013. In turn, Appeal No. 198 of 2013 was also filed by M/s. KKK Hydro Power Limited, the appellant herein, against the order dated 05.07.2013 of the Himachal Pradesh Electricity Regulatory Commission3[for short, ‘the Commission’], rejecting its petition for payment of arrears at an enhanced tariff for the electricity supplied by it to the Himachal Pradesh State Electricity Board Limited4[for short, ‘the HPSEB’].
2. IA No. 4 of 2016 filed by the Commission seeking to be impleaded as a party respondent in this appeal is allowed and the Commission is brought on record as respondent No. 4.
3. By the impugned judgment dated 17.10.2014, the APTEL allowed the appellant’s appeal in part and held that the tariff for its 3 MW hydel power plant under the Power Purchase Agreement5[for short, ‘the PPA’] dated 30.03.2000 required no redetermination but the tariff for its additional 1.90 MW hydel power plant, commissioned on 10.07.2008, required to be redetermined as per the Himachal Pradesh Electricity Regulatory Commission (Power Procurement from Renewable Sources and Cogeneration by Distribution Licensee) Regulations, 20076[for short, ‘the Regulations of 2007’]. The APTEL further directed that, as the entire capacity of the appellant’s power project was to be injected and evacuated from the same bus bars, a common tariff had to be determined for the power project as a whole and held that the common tariff would be the weighted average of the respective tariffs for the 3 MW and 1.90 MW plants. The appellant was held entitled to arrears on account of the difference in tariff for the period for which payment had already been made as per the existing tariff. The Commission’s order dated 05.07.2013 was set aside to that extent and the Commission was directed to pass a consequential order within a timeframe.
4. Pursuant to the above direction, the Commission determined the tariff as per the weighted average and quantified it at Rs.2.60/- per Kilowatt hour (kWh), vide order dated 11.06.2015. In accordance therewith, the appellant and the HPSEB filed a joint petition, bearing No. 106 of 2015, seeking approval of the supplementary PPA dated 03.11.2015 entered into by and between them, stipulating the new tariff as per the weighted average. Reference was made therein to the orders of the Commission and the APTEL dated 11.06.2015 and 17.10.2014 respectively and the tariff of Rs.2.60/- per kWh was incorporated for the entire project of 4.90 MW capacity with effect from 14.07.2008. Be that as it may.
5. The factual narrative needs recounting from scratch to properly gauge the issues raised in this appeal. The Government of Himachal Pradesh7[for short, ‘the GoHP’] and the appellant executed Implementation Agreement8[for short, ‘the IA’] dated 30.03.2000, whereby the appellant was to establish Baragran Hydro Electric Power Project of 3 MW capacity on Sanjoin Nallah, a tributary of River Beas, in District Kullu. Pursuant to this IA, the appellant and the GoHP executed a PPA on the same day, i.e., 30.03.2000. Clause 6.2 of the said PPA, titled ‘Tariff for Net Saleable Energy’, fixed the price to be paid by the HPSEB to the appellant at a fixed rate of Rs.2.50/- per kWh. It was stated therein that ‘this rate is firm and fixed and shall not be changed due to any reason whatsoever’. The PPA was to be in force for a period of 40 years from the synchronization date of the first unit of the project.
6. It was only thereafter, i.e., on 30.12.2000, that the Commission came to be constituted under the Electricity Regulatory Commissions Act, 1998. The 3 MW hydel power project was commissioned by the appellant on 05.08.2004. While
