Supreme Court Rules CERC Cap on Free Power Affects Tariff Only; Contractual Obligation Beyond 13% Remains

A bench of Justices Pamidighantam Sri Narasimha and Joymalya Bagchi heard the appeal by the State of Himachal Pradesh against a High Court order that had directed alignment of an Implementation Agreement with the Central Electricity Regulatory Commission (CERC) (Terms and Conditions of Tariff) Regulations, 2019. The core question concerned whether Note 3 of Regulation 55 — which treated free energy for the home State (FEHS) as “13% or actual whichever is less” for tariff calculation — operated to bar a generating company from supplying free power beyond 13% under a pre‑existing contractual obligation.

The Court allowed the appeal, set aside the High Court judgment and held that the CERC regulations governed only tariff determination and provided a pass‑through for 13% FEHS, while any additional free power obligation remained a contractual matter under the Implementation Agreement. The Court emphasized the specialised domain of the CERC and the limited role of writ jurisdiction in matters falling squarely within regulatory expertise. The Court, in its reasoning, observed: “We have allowed the appeal by the State of Himachal Pradesh by interpreting the provisions of the Electricity Act, 2003 and the CERC Regulations, 2019 in the context of the subsisting and continuing contractual relationship between the parties. We have held that the Central Electricity Regulatory Commission shall give effect to the Regulations and provide a pass‑through to the extent of 13% free power but the remaining part of the obligation is contractual in nature and will be governed by the provisions of the Implementation Agreement. On interpreting the cap under Note 3 of Regulation 55 of the CERC Regulations, 2019, we have held that it does not restrain or prohibit respondent no. 1 from supplying free power beyond 13% but it is only meant for the calculation and fixation of tariff. Further, considering the expertise and specialisation of the CERC ... we have held that the present writ petition was not maintainable before the High Court as the interpretation of the Regulations falls within the exclusive domain of the regulator.”

Background The dispute arose from an Implementation Agreement executed in the late 1990s and its subsequent supplements for a hydroelectric project which obliged the generating company to supply free power to the State — 12% of net generation for the first 12 years from commercial operation and 18% thereafter. After the CERC framed the 2019 tariff regulations, Note 3 of Regulation 55 stated: “FEHS = Free energy for home State, in percent and shall be taken as 13% or actual whichever is less.” JSW Hydro Energy (successor of earlier contractors) sought relaxation of the 13% cap in its tariff petition; the CERC, by order dated 17.03.2022, declined that relief and held that, for tariff fixation and recovery from beneficiaries, FEHS would be taken as 13% while observing that inconsistent provisions in PPAs and PSAs would stand overridden to the extent of the regulation. The generating company then filed a writ petition in the High Court seeking direction to the State to align the Implementation Agreement with the CERC Regulations and the 17.03.2022 order. The High Court allowed the petition and directed modification of the contractual terms; the State appealed to the Supreme Court.

The Supreme Court noted that Regulation 55 and Regulation 44 dealt with billing and computation of charges and that the “13% or actual whichever is less” formula served the purpose of tariff calculation and pass‑through to beneficiaries, not to prohibit contractual free power beyond 13%. The Court recorded that the CERC had declined the generating company’s prayer for a pass‑through beyond 13% and that the generating company had not appealed the CERC order before APTEL. Holding the High Court’s exercise of writ jurisdiction improper in a matter that implicated the specialised regulatory competence of the CERC, the Supreme Court allowed the State’s appeal, set aside the High Court judgment and declared the writ petition not maintainable to the extent it sought to modify the Implementation Agreement. The CERC’s findings on PPAs/PSAs for tariff purposes remained undisturbed.

Case No.: Civil Appeal No. 12883 of 2024 (2025 INSC 857) Case Title: The State of Himachal Pradesh & Anr. v. JSW Hydro Energy Limited & Ors. Appearances: For the Petitioner(s): Mr. Kapil Sibal, Sr. Advocate; Mr. Parag Tripathi, Sr. Advocate For the Respondent(s): Mr. P. Chidambaram, Sr. Advocate; Dr. A.M. Singhvi, Sr. Advocate (for respondent nos.1 & 2); Mr. Nikhil Nayyar (for CERC); Ms. Preetika Dwivedi (for distribution companies Rajasthan); Mr. Gurminder Singh, Sr. Advocate (for distribution company Punjab)