Supreme Court affirms regulator’s primacy over tariff fixation, dismisses challenge to APTEL order on mixed-capacity hydel project

A bench of Justice Sanjay Kumar and Justice N.V. Anjaria heard the appeal by M/s KKK Hydro Power Limited challenging the Appellate Tribunal for Electricity’s (APTEL) judgment that directed redetermination of tariff for the augmented capacity of a small hydel power project and awarded arrears by applying a weighted average tariff. The appeal contested APTEL’s partial allowance of the company’s claim for enhanced tariff and the Himachal Pradesh Electricity Regulatory Commission’s (HPERC) rejection of the petitioner’s plea for arrears at an enhanced rate.

The Supreme Court dismissed the appeal but clarified the scope of regulatory control over power purchase agreements (PPAs) and tariff fixation. The Court held that fixing the price for purchase of electricity and approval of PPAs was not a matter of private negotiation between a generating company and a distribution licensee and fell squarely within the jurisdiction of the State Commission under Section 86(1)(b) of the Electricity Act, 2003. The Court, in its reasoning, observed: “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.” The Court further noted that while APTEL had erred in permitting effect to be given to a supplementary PPA which had not been placed before the Commission for approval, it would not disturb the relief already allowed because the distribution licensee did not challenge APTEL’s order and the parties had acted upon the Commission’s subsequent computation.

Background The dispute arose from a project originally commissioned as a 3 MW Baragran hydroelectric plant under an Implementation Agreement and PPA dated 30 March 2000, which fixed tariff at ₹2.50 per kWh and stated that “this rate is firm and fixed and shall not be changed due to any reason whatsoever.” The owner later sought and obtained government approval to augment capacity to 4.90 MW; a supplementary IA and a PPA in March 2008 defined the revised project but retained the ₹2.50 per kWh clause while also acknowledging that the PPA “shall be subject to the provisions of the Himachal Pradesh Electricity Regulatory Commission (Power Procurement from Renewable Sources and Cogeneration by Distribution Licensee) Regulations, 2007.” HPERC issued a tariff order for small hydel projects in December 2007 and later revised the levelised tariff to ₹2.95 per kWh in February 2010. KKK Hydro requested HPSEB to amend the PPA to reflect ₹2.95 per kWh; a supplementary PPA of 10 September 2010 recorded mutual consent to amend the tariff but that document was not submitted to the Commission for approval.

The Commission dismissed the petitioner’s claim for arrears and rejected HPSEB’s challenge to its earlier conditional consent, concluding that parties could not unilaterally vary concluded PPAs without the Commission’s approval, especially where tariff changes were involved. APTEL allowed the company’s appeal in part: it held the original 3 MW capacity remained outside the 2007 Regulations but the additional 1.90 MW commissioned in July 2008 fell within the Regulations and required redetermination; APTEL directed a single weighted-average tariff for the entire 4.90 MW project and awarded arrears accordingly. The Supreme Court found APTEL had misapplied the statutory mandate in permitting an unapproved supplementary PPA to determine tariff for the incremental unit. Nevertheless, because HPSEB did not appeal against APTEL and parties had implemented a weighted average tariff later determined by HPERC (₹2.60 per kWh) and executed a supplementary PPA in 2015, the Court declined to upset the settled position. The Court allowed impleadment of HPERC as respondent No.4 and dismissed the appeal, while clarifying that parties could not agree tariffs privately without Commission review under Section 86(1)(b). The Court left open the avenue for the generator to approach the Commission under the amended proviso to Regulation 6 where statutory change or policy shift had occurred.

Case No.: 2025 INSC 1057 (Civil Appeal No. 3005 of 2015) Case Title: M/s. KKK Hydro Power Limited v. Himachal Pradesh State Electricity Board Limited & Ors. Appearances: For the Petitioner(s): Not indicated in the judgment For the Respondent(s): Not indicated in the judgment