Unapproved PPA Cannot Override Regulations; Power Supplied Pre‑COD Held Firm and Fixed Charges Upheld

A bench of Justices J.B. Pardiwala and K.V. Viswanathan heard an appeal by Tamil Nadu Generation and Distribution Corporation Ltd. (TANGEDCO) challenging the Appellate Tribunal for Electricity’s (APTEL) judgment and the Tamil Nadu Electricity Regulatory Commission’s (TNERC) finding that power supplied by M/s Penna Electricity Ltd. during 29.10.2005 to 30.06.2006 was “firm power” and that fixed charges were payable for the period. The principal question concerned whether energy supplied prior to the project’s combined‑cycle Commercial Operation Date (COD) was “infirm power” attracting only variable charges, and whether the amended Power Purchase Agreement (PPA) of 25.08.2004, unapproved by the State Commission, could determine COD contrary to Central and State tariff regulations.

The Court dismissed the appeal and affirmed the orders of the TNERC and APTEL. It held that the amended PPA, executed after the enactment of the Electricity Act, 2003, ought to be aligned with the Central Electricity Regulatory Commission (CERC) Regulations, 2004 and the TNERC Regulations, 2005; an unapproved PPA could not displace statutory regulatory provisions. The Court endorsed the fora below in treating the gas turbine’s synchronized and continuous supply from 29.10.2005 as firm generation and directing pro‑rata payment of fixed charges. The Court noted that “terms and conditions of such an agreement, however, are not unregulated. Such an agreement is subject to grant of approval by the Commission.” The Court, in its reasoning, observed: “The question here is, is the power generated during the relevant period continuously up to 153 million units from the gas turbine open capacity of 30 MW after all trials is firm or infirm power? Applying the Regulations, we have no doubt in our mind that it is firm power and that for the said period, as rightly held by the fora below, the respondent was entitled to fixed charges. Further the mandate under Section 61(d) of the 2003 Act, is that in the determination of tariff recovery of the cost of electricity in a reasonable manner is to be ensured. The respondent, having supplied continuous power, cannot be denied the annual fixed charges for the relevant period, and if it were done so, they will permanently lose that amount, which will be unjust and contrary to law.”

Background The dispute arose from a PPA originally executed on 29.04.1998 and amended on 25.08.2004 between the Board (predecessor to TANGEDCO) and the developer (now Penna Electricity). The amended PPA defined “Date of Commercial Operation” by reference to the Project achieving entry into commercial operation (i.e., project‑level COD), and defined “Infirm Power” as electricity delivered prior to that project COD and not at the Board’s request, payable at variable charges only. Penna synchronized its gas turbine in open‑cycle on 29.10.2005 and supplied continuous power thereafter; combined‑cycle COD (with the steam turbine) was shown as 01.07.2006. TNERC and APTEL found that, under CERC/TNERC Regulations which recognized COD in relation to a unit and defined infirm power as generation prior to unit COD, the open‑cycle unit achieved COD on synchronization and continuous supply, and the supply was therefore firm.

TANGEDCO contended that the PPA’s project‑level COD meant all supply before 01.07.2006 was infirm and payable only at variable charges; it also relied on correspondence where parties had discussed treatment of early supplies. Penna argued that the amended PPA, executed after the 2003 Act and not placed for approval under Section 86(1)(b), had to be aligned with the Regulations; under CERC/TNERC definitions the gas turbine unit’s synchronization entitled it to be treated as in commercial operation for that unit and to fixed charges. The fora below held that the amended PPA was not binding to the extent it conflicted with the Regulations and that continuous supply from 29.10.2005 was firm power. The Supreme Court affirmed those findings, rejected waiver and estoppel pleas based on correspondence, and noted that the interim deposit of Rs. 50 crores paid to the respondent was in terms of earlier directions and the balance, if any, was to be paid within 12 weeks.

Case Details: Case No.: 2025 INSC 1439; Civil Appeal No. 5700 of 2014 Case Title: TAMIL NADU GENERATION AND DISTRIBUTION CORPORATION LTD. v. M/s PENNA ELECTRICITY LIMITED Appearances: For the Petitioner(s): Mr. Amit Anand Tiwari (Senior Advocate and AAG) For the Respondent(s): Mr. Shyam Divan (Senior Advocate); Mr. Buddy A. Ranganadhan (Senior Advocate)