Kiran Raj

The Supreme Court of India Division Bench of Justice Sanjay Kumar and Justice N.V. Anjaria dismissed an appeal challenging the tariff determination for a hydel power project in Himachal Pradesh. The Court held that tariff fixation under Power Purchase Agreements cannot be unilaterally modified by private agreement between a generating company and a distribution licensee without the approval of the State Electricity Regulatory Commission under Section 86(1)(b) of the Electricity Act, 2003. While refraining from disturbing the tariff already acted upon, the Court clarified the binding legal position for future cases.

The appellant, M/s. KKK Hydro Power Limited, established a hydel power project in District Kullu, Himachal Pradesh. An Implementation Agreement was executed with the Government of Himachal Pradesh on 30 March 2000 for a 3 MW project at Sanjoin Nallah, a tributary of River Beas. On the same day, a Power Purchase Agreement (PPA) was entered into with the Himachal Pradesh State Electricity Board (HPSEB). Clause 6.2 of the PPA fixed the tariff at ₹2.50 per kilowatt hour (kWh) on a firm and fixed basis for 40 years.

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The Himachal Pradesh Electricity Regulatory Commission (HPERC) was constituted only later, on 30 December 2000, under the Electricity Regulatory Commissions Act, 1998. The 3 MW project was commissioned on 5 August 2004. Subsequently, the appellant sought augmentation of capacity to 4.90 MW. The Government approved this by forwarding a draft supplementary Implementation Agreement on 6 September 2006, which altered royalty provisions. A supplementary Implementation Agreement was executed on 5 July 2007 incorporating these revised terms.

Pursuant to this, on 4 December 2007, the HPERC conditionally approved a draft PPA submitted jointly by the appellant and HPSEB. The order specifically required compliance with the Himachal Pradesh Electricity Regulatory Commission (Power Procurement from Renewable Sources and Cogeneration by Distribution Licensee) Regulations, 2007. A new PPA was executed on 11 March 2008 for the revised 4.90 MW capacity, again fixing tariff at ₹2.50 per kWh, but subject to the 2007 Regulations.

Meanwhile, the HPERC issued a Tariff Order on 18 December 2007 for small hydel power projects not exceeding 5 MW, fixing tariff at ₹2.87 per kWh. This was later enhanced to ₹2.95 per kWh by order dated 9/10 February 2010, following directions of the Appellate Tribunal for Electricity (APTEL).

On this basis, the appellant sought execution of a supplementary PPA incorporating the tariff of ₹2.95 per kWh. A supplementary PPA was executed on 10 September 2010 with HPSEB, enhancing the tariff to ₹2.95 per kWh. However, this was done without placing the draft before the Commission for approval. The HPSEB inserted a caveat that such enhancement would be without prejudice to its legal rights. Payments were thereafter made at the higher rate, but arrears from April 2008 to August 2010 remained disputed.

The appellant filed Petition No. 6 of 2011 before the Commission seeking arrears. While HPSEB cleared the principal dues, the appellant pressed for interest. Separately, HPSEB filed Petition No. 118 of 2012 seeking recall or modification of the Commission’s earlier consent order dated 4 December 2007.

By common order dated 5 July 2013, the Commission dismissed both petitions. It framed six issues relating to the scope of its jurisdiction, the relevance of its consent order, the binding nature of the model PPA, the power of parties to amend PPAs, and the appellant’s entitlement to relief. The Commission held that the supplementary PPA was not in conformity with the 2007 Regulations, and that tariff for the 4.90 MW project remained at ₹2.50 per kWh.

Aggrieved, the appellant approached the APTEL. On 17 October 2014, the Tribunal partly allowed the appeal. It held that while tariff for the original 3 MW plant under the 2000 PPA required no redetermination, the additional 1.90 MW plant commissioned in July 2008 had to be governed by the 2007 Regulations. It directed determination of a common tariff as weighted average for the entire 4.90 MW project. The appellant was held entitled to arrears accordingly.

Pursuant to this, the Commission fixed tariff at ₹2.60 per kWh vide order dated 11 June 2015. The appellant and HPSEB executed a supplementary PPA dated 3 November 2015 incorporating this tariff with effect from 14 July 2008.

The appellant, however, pursued the present civil appeal under Section 125 of the Electricity Act, 2003 before the Supreme Court, contending entitlement to the enhanced tariff of ₹2.95 per kWh for the entire 4.90 MW project.

The Court recorded the following observations:

“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.”

“The order dated 09.02.2010 passed by the Commission, without reference to the appellant’s case, required only those existing PPAs which stipulated the tariff of Rs.2.87/- per kWh to be amended so as to give effect to the enhancement of tariff from Rs.2.87/- per kWh to Rs.2.95/- per kWh. This order had no application at all to the case of the appellant as its PPA dated 11.03.2008 did not stipulate the tariff of Rs.2.87/- per kWh.”

“Without doing so, the appellant and the HPSEB, on their own and without the Commission’s review and approval, enhanced the tariff from Rs.2.50/- per kWh to Rs.2.95/- per kWh under their supplementary PPA dated 10.09.2010.”

“Viewed thus, the Commission was fully justified in ignoring the supplementary PPA dated 10.09.2010 and asserting that it could not enforce it. However, the APTEL overlooked this crucial aspect and held that, insofar as the additional 1.90 MW plant was concerned, the supplementary PPA dated 10.09.2010 can be given effect to.”

“The observation of the APTEL that no adverse inference could be drawn against the appellant for not obtaining the approval of the Commission… completely overlooked the binding mandate of Section 86(1)(b) of the Act of 2003.”

“As the HPSEB did not choose to file an appeal against the APTEL’s order and mutely accepted the direction therein… we choose not to interfere with the same at this late stage.”

“We, however, clarify and affirm that a generating company and a distribution licensee cannot, by private agreement, execute a PPA on their own or stipulate tariff therein as per their choice, for supply of electricity within a State, without seeking the review and approval of the Electricity Regulatory Commission under Section 86(1)(b) of the Act of 2003.”

The Court dismissed the appeal, affirming that the appellant could not claim the enhanced tariff of ₹2.95 per kWh for the entire 4.90 MW project. It declared that the relief granted by the APTEL was contrary to Section 86(1)(b) of the Electricity Act, 2003 but had attained finality as HPSEB did not appeal. Accordingly, the Supreme Court refrained from disturbing the tariff of ₹2.60 per kWh fixed and acted upon since 2015.

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The Bench directed that the appellant’s plea for parity with other projects was untenable given that its original PPA dated 30 March 2000 predated the Commission’s establishment. On the issue of royalty, it left open to the appellant to approach the Commission under the amended proviso to Regulation 6 of the 2007 Regulations for appropriate relief.

The Court explicitly clarified the binding principle that tariff under PPAs cannot be unilaterally modified or enforced without Commission approval, thereby affirming the statutory mandate for regulatory oversight in all such agreements.

The appeal was dismissed, while IA No. 4 of 2016 was allowed to implead the Commission. All other pending applications stood dismissed.

Advocates Representing the Parties

For the Appellant(s): Mr. M.G. Ramachandran, Senior Advocate; Mr. Raj Kumar Mehta, Advocate-on-Record; Ms. Himanshi Andley, Advocate; Ms. Srishti Khindaria, Advocate

For the Respondent(s): Mr. Pradeep Misra, Advocate-on-Record; Mr. Daleep Dhyani, Advocate; Mr. Suraj Singh, Advocate; Mr. Anand K. Ganesan, Advocate; Mr. Nikunj Dayal, Advocate-on-Record; Mr. Amal Nair, Advocate; Ms. Shivani Verma, Advocate; Mr. Pramod Dayal, Advocate

Case Title: M/s. KKK Hydro Power Limited v. Himachal Pradesh State Electricity Board Limited & Ors.

Neutral Citation: 2025 INSC 1057

Case Number: Civil Appeal No. 3005 of 2015

Bench: Justice Sanjay Kumar, Justice N.V. Anjaria