Consumers Cannot Be Made To Bear Power Plant Depreciation Costs For Period During Which No Electricity Was Supplied: Supreme Court

In a significant relief to the electricity consumers, the Supreme Court on Thursday (May 7) has observed that electricity consumers cannot be burdened with paying depreciation costs for a power plant that no longer supplies electricity to them, even if the asset continues to have remaining technical life.

“…admittedly, electricity has not been supplied to the consumers beyond March-2018. The consumers cannot be required to pay for a service which they no longer received…”, observed a bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe, while allowing the appeal filed by the Delhi Electricity Regulatory Commission and setting aside the order of the Appellate Tribunal for Electricity (APTEL), which had permitted the power generator to recover depreciation costs from consumers even after the plant ceased supplying electricity to them, despite the generator being free under the Power Purchase Agreement (PPA) framework to sell power elsewhere after the initial six-year supply period.

The Court noted that though the technical project life of the power plant was 15 years, that alone wouldn't grant an indefeasible right to the power generator to claim depreciation cost for the entire technical life of the project. In essence, the power plant can claim depreciation cost for the period it supplied power to the consumers, and not for the entire technical period.

The dispute concerned a 108 MW gas-based power plant established by Respondent- Tata Power Delhi Distribution Limited (TPDDL) ahead of the 2010 Commonwealth Games to address peak electricity demand in Delhi. The project was conceived as a temporary arrangement, and TPDDL had itself sought land from the Delhi Development Authority for only a 5–6-year operational period.

The Delhi Electricity Regulatory Commission (DERC), by a common order dated August 31, 2017, approved the plant's power purchase arrangement only till March 2018, while simultaneously accepting a technical useful life of 15 years for depreciation methodology purposes. The capital cost approved by DERC stood at ₹197.70 crores, against TPDDL's claim of ₹320.17 crores.

After the plant stopped supplying electricity to Delhi consumers in March 2018, DERC allowed depreciation recovery only for the six-year operational period during which the plant actually served consumers. This resulted in depreciation recovery of ₹83.34 crores, while the remaining ₹94.59 crores was disallowed.

The Appellate Tribunal for Electricity (APTEL), however, later ruled in favour of TPDDL and directed that depreciation should be allowed over the full 15-year useful life of the plant. Challenging this decision, DERC approached the Supreme Court.

Setting aside the APTEL's decision, the judgment authored by Justice Aradhe observed that consumers cannot be forced to pay for the Respondent's depreciation cost for the period they haven't received supply. The Court noted that as per the PPA, since the electricity was to be supplied for the six years, after which the Respondent was free to sale anywhere, therefore, the Respondent couldn't claim the depreciating cost for the entire technical period of 15 years.

“Under the PPA, TPDDL had to supply electricity only for a period of six years. It is also pertinent to note that the Commission on 04.09.2012, had clarified to the Managing Director of TPDDL that the plant could be treated as a merchant generator which is free to sell the power anywhere other than to the distribution utilities in Delhi or outside the State or to captive consumers within the State. There was no legal impediment to either sale of the Plant or sale of electricity as a merchant generator. Therefore, TPDDL cannot be permitted to burden the consumers with tariff charges beyond March-2018.”, the court observed.

The Court rejected the Respondent's defence that Regulation 6.32 of the DERC (Terms and Conditions for Determination of Generation Tariff) Regulations, 2011, confers an absolute right upon the generating utility to recover entire capital cost over the useful life of the asset, even where the asset ceases to supply electricity to the consumer.

The Court said that “Regulation 6.32 of the 2011 Regulations does not, and cannot, override the broader statutory and regulatory framework and the same does not confer an absolute and unconditional right upon the generating utility to recover depreciation from the consumers even for a period when the asset is free to supply electricity.”

In terms of the aforesaid, the appeal was allowed, restoring the order of the DERC.

Cause Title: DELHI ELECTRICITY REGULATORY COMMISSION VERSUS TATA POWER DELHI DISTRIBUTION LIMITED

Citation : 2026 LiveLaw (SC) 474

Click here to download judgment

Appearance:

For Appellant(s) : Mr. Jayant K. Mehta, Sr. Adv. Mr. Dhananjay Baijal, AOR Ms. Mansvini Jain, Adv. Mr. Tilak Singh, Adv.

For Respondent(s) :Mr. Kapil Sibal, Sr. Adv. Mr. Amit Kapur, Adv. Mr. Anupam Varma, Adv. Mr. Rahul Kinra, Adv. Mr. Aditya Gupta, Adv. Mr. Girdhar Gopal Khattar, Adv. Mr. Yash Srivastava, Adv. Mr. Pukhrambam Ramesh Kumar, AOR Mr. Karun Shamra, Adv. Ms. Anupama Ngangom, Adv. Ms. Rajkumari Divyasana, Adv.