Court affirms exclusive tariff powers of commissions
The Supreme Court has held that State Electricity Regulatory Commissions have exclusive authority to determine tariff. It also said these commissions may consider government grants and policy incentives while fixing tariff.
A bench of Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar delivered the ruling in a dispute arising from tariff determination by the Andhra Pradesh Electricity Regulatory Commission (APERC).
The Court rejected the argument that a Regulatory Commission cannot consider a grant made by the Central Government under Article 282. It held that tariff determination lies entirely within the Commission’s domain.
The bench observed:
“Regulatory Commissions have plenary power over tariff determination and there is no unallocated regulatory residue remaining outside its power to determine tariff. The argument that Regulatory Commissions do not have the power to take into account a Grant made by the Central Government under Article 282 is rejected. Tariff determination is the exclusive province of the Regulatory Commissions.”
Regulatory power must respect policy purpose
The Court, however, added that a Commission must exercise this power in a manner that supports the object of the policy or grant.
It observed:
“However, this regulatory power must be exercised as a collaborative enterprise. It must not be exercised in a manner that ignores the purpose and object of a policy or grant by other stakeholders.”
Dispute centred on wind energy incentive
The dispute concerned the Generation Based Incentive (GBI) scheme introduced by the Ministry of New and Renewable Energy (MNRE) in 2009 to promote wind energy.
Under the scheme, wind power generators were entitled to Rs. 0.50 per unit of electricity fed into the grid. The scheme also made it clear that the incentive would operate “over and above the tariff that may be approved by the State Electricity Regulatory Commissions.”
In its 2015 Tariff Regulations, APERC framed Regulation 20. That provision stated that the Commission “shall take into consideration any incentive or subsidy offered by the Central or State Government… if availed by the generating company… while determining the tariff.”
How the dispute reached the Supreme Court
When APERC passed tariff orders in 2015 and 2016, it did not factor in the GBI benefit. Later, when distribution companies (DISCOMs) sought amendment of those orders, APERC changed its position.
It then directed deduction of the GBI amount from the tariff payable by the DISCOMs to the generators.
The Appellate Tribunal for Electricity (APTEL) set aside APERC’s order. APTEL held that APSERC lacked the power to mandatorily take the GBI benefit into account while determining tariff. The DISCOMs then appealed to the Supreme Court.
Supreme Court disagrees with APTEL but faults APERC’s approach
The Supreme Court disagreed with APTEL’s view on the scope of APERC’s powers. It held that APERC did have the authority to consider the GBI while fixing tariff.
At the same time, the Court held that APERC had wrongly applied the incentive. Instead of preserving the benefit for the respondent wind power generator, APERC mechanically deducted the amount from tariff and passed the benefit to the appellant DISCOMs.
The Court observed:
“we hold that the Commission has the last word in determination of tariff, we are in disagreement with its treatment of the GBI while determining tariff in the present case. Regulatory authority cannot be exercised in a manner that nullifies the legislative or policy intent or the intent of the grant, just because power and jurisdiction to determine tariff is exclusively vested in the Regulatory Commission.”
Incentive must benefit the generator, not the DISCOM
The Court said APERC had to apply the GBI in a way that advanced the scheme’s purpose. According to the bench, the scheme aimed to encourage renewable power generation and benefit wind power producers.
The Court observed:
“we are of the opinion that the APERC was obligated to apply GBI in furtherance of the purpose for which it was designed, that is, to incentivise renewable power generators and give the benefit as intended in the scheme.”
Regulation 20 requires contextual treatment
The Court also clarified how Regulation 20 should operate. It said the requirement to “take into consideration” an incentive or subsidy does not mean the Commission must always deduct that amount from tariff.
Instead, the Commission must adopt a contextual and purposive approach.
The Court observed:
“Under Regulation 20, while determining tariff the Regulatory Commission, ‘shall take into consideration any incentive or subsidy offered by the central or state government’. However, the need to ‘take into account’ does not mechanically translate into either a mandatory deduction or automatic pass-through. It requires a contextual and purposive treatment. Factoring in the incentive into tariff cannot be divorced from its underlying objective. The importance of the policy to encourage investment in renewable energy sources has already been explained. If a scheme was not intended as a ‘consumer subsidy’, but as a ‘generator-focused incentive’ and the scheme is integrally linked to realization of national and international policies, the Commission must respect and give effect to it.”
Appeal dismissed
On that reasoning, the Supreme Court dismissed the appeal.
Cause Title: Southern Power Distribution Company of Andhra Pradesh Limited & Anr. versus Green Infra Wind Solutions Limited & Ors.
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