Electricity Act | Regulatory Commission Can Take Into Account Govt Grant While Determining Tariff : Supreme Court

The Supreme Court has observed that although tariff determination lies exclusively within the domain of the State Electricity Regulatory Commission, it is equally bound to consider government policy incentives, including subsidies aimed at enhancing power generation; however, such consideration must not result in a mechanical deduction of the incentive from the tariff in a manner that defeats the very objective of the scheme."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."The Court added :"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."A bench of Justices Pamidighantam Sri Narasimha and Atul S. Chandurkar heard a case where the Andhra Pradesh Electricity Regulatory Commission (APSERC) did take the Generation Based Incentive (GBI) into account while fixing tariffs, but passed its benefit on to the DISCOMs, which was meant for the Respondent-wind power generator company. While upholding the Commission's power to take the Generation-Based Incentive (GBI) into account in tariff determination, the Court faulted its approach of mechanically deducting the incentive, meant for wind power generators, from the tariff, thereby passing its benefit on to the Appellant DISCOMs. “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.”, the Court observed. Background At the heart of the dispute was the Generation Based Incentive (GBI) scheme introduced by the Ministry of New and Renewable Energy (MNRE) in 2009 to promote wind energy. The scheme provided wind power generators Rs. 0.50 per unit of electricity fed into the grid, explicitly stating that this incentive was to be "over and above the tariff that may be approved by the State Electricity Regulatory Commissions." The APERC in its 2015 Tariff Regulations, had framed Regulation 20, which 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." When APERC subsequently passed tariff orders in 2015 and 2016, it did not factor in the GBI benefit. However, when distribution companies (DISCOMs) later sought amendment of these orders, APERC reversed course and directed that the GBI amount be deducted from the tariff payable by the DISCOMS to generators. The Appellate Tribunal for Electricity (APTEL) set aside the APSERC's order, holding that APSERC lacked the power to mandatorily take into account the GBI benefits, prompting the DISCOMs to appeal to the Supreme Court. Dismissing the appeal, the Supreme Court disagreed with the APTEL's view that APSERC was not required to mandatorily consider the GBI benefits, while determining tariff, but emphasized that while APSERC was right in considering the GBI during tariff determination, it wrongly deducted the incentive from the tariff payable by the Appellant to the Respondent. It said that the APSERC was obligated to grant a benefit to the Respondent-power generator, not the Appellant-DISCOMS. “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.”, the court observed. The Court criticized APERC's approach as precisely the kind of mechanical exercise that Regulation 20 did not contemplate. By simply deducting the GBI amount from the tariff without considering the underlying purpose of the scheme, APERC had effectively nullified the very objective the GBI was designed to achieve. “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...

Electricity Act | Regulatory Commission Can Take Into Account Govt Grant While Determining Tariff : Supreme Court

Yash Mittal

While the State Electricity Regulatory Commission shall consider policy incentives in tariff setting, they must not mechanically deduct them in a way that defeats their purpose, the court observed.

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