Regulator and appellate rulings upheld: distributor cannot unilaterally set procurement tariff; discounted rate only for accelerated depreciation projects

SC dismissed the appeal, upholding the regulator's and APTEL's rulings that a distribution licensee cannot unilaterally fix procurement tariff contrary to the statutory scheme. The Appropriate Commission alone determines tariff; a discounted levelized rate applied only to projects that availed accelerated depreciation. The purchaser's attempt to bind generators to that rate via PPAs - without obtaining written commitments that they would opt for accelerated depreciation - was impermissible. Generators who did not claim accelerated depreciation are not bound by the Rs.3.56/kWh tariff, and the purchaser's conduct was rejected.

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ISSUES:

Whether wind energy projects that did not avail the benefit of accelerated depreciation under the Income Tax Act, 1961 are entitled to approach the State Electricity Regulatory Commission for determination of tariff on a case-to-case basis despite having executed Power Purchase Agreements (PPAs) specifying a tariff applicable to projects availing accelerated depreciation.Whether a distribution licensee, being a State instrumentality, can bind power producers to a fixed tariff in PPAs contrary to the statutory tariff orders and policy directives promoting renewable energy.Whether the tariff stipulated in a PPA is inviolable and beyond review by the Appropriate Commission under the Electricity Act, 2003.The legal effect of the option available under the Income Tax Act, 1961 to power producers to avail or not avail accelerated depreciation at the time of filing income tax returns, vis-à-vis the timing and binding nature of tariff fixation in PPAs.

RULINGS / HOLDINGS:

The Court held that wind energy projects which did not avail the benefit of accelerated depreciation under the Income Tax Act, 1961 are entitled to approach the State Electricity Regulatory Commission for project-wise determination of tariff on a case-to-case basis, notwithstanding the existence of PPAs specifying a tariff applicable only to projects availing accelerated depreciation.It was held that a distribution licensee, as an instrumentality of the State, cannot advance purely commercial considerations to bind power producers to a tariff contrary to statutory tariff orders and State policy objectives promoting renewable energy, and thus cannot unilaterally fix a binding price in PPAs that overrides the statutory scheme.The Court reaffirmed that the tariff stipulated in a PPA is not sacrosanct or inviolable and is subject to determination and review by the Appropriate Commission under the Electricity Act, 2003, consistent with public interest and changed circumstances.The option under the Income Tax Act, 1961 to avail or not avail accelerated depreciation is to be exercised at the time of filing the return of income for the relevant assessment year, and this statutory discretion cannot be curtailed or preempted by the PPA executed prior to such exercise.Since the distribution licensee failed to secure any written commitment from the power producers that they would avail accelerated depreciation, it cannot bind them to the tariff applicable only to such projects; the tariff fixed in the PPA is conditional and dependent on the exercise of the statutory option by the power producer.

RATIONALE:

The Court applied the statutory framework under the Electricity Act, 2003, specifically Sections 61, 62, 64, and 86, which empower the Appropriate Commission to determine and regulate tariff for electricity generation and procurement, ensuring that tariff fixation is a statutory function rather than a matter of private contractual agreement.The Court relied on the Income Tax Act, 1961 and Income Tax Rules, 1962 provisions governing accelerated depreciation, emphasizing that the option to avail such benefit is exercisable only at the time of filing income tax returns for the relevant assessment year, thus creating a temporal limitation on when the tariff applicable to a project can be conclusively fixed.Precedents were considered, including the decision distinguishing the earlier judgment concerning solar energy projects where the timing of commissioning and tariff orders differed, and the principle that tariff in a PPA is not inviolable but subject to statutory review, as affirmed in the case involving hydropower projects seeking tariff redetermination.The Court highlighted the policy objectives enshrined in the National Electricity Policy and the State's Wind Power Policies, which mandate promotion and incentivization of renewable energy projects, requiring State instrumentalities to act in furtherance of these policies rather than purely commercial interests.The Court noted the absence of any written commitment from the power producers to avail accelerated depreciation and held that without such commitment, the distribution licensee cannot impose a tariff applicable only to projects availing that benefit, as it would be contrary to the statutory and policy framework.

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