Case: TANGEDCO v. Penna Electricity Ltd.
Citation: 2025 INSC 1439
The Supreme Court has delivered a significant ruling in TANGEDCO v. Penna Electricity Ltd., conclusively settling a long-standing issue in power-sector tariff disputes: whether electricity generated continuously from an open-cycle gas turbine before combined-cycle commissioning should be treated as “firm power” entitled to fixed charges, or merely “infirm power” payable only at variable fuel rates.
Background and Nature of the Dispute
Tamil Nadu Generation and Distribution Corporation Ltd. (TANGEDCO) entered into a Power Purchase Agreement (PPA) in 1998 with Penna Electricity’s predecessor for a diesel-based project. This PPA was comprehensively amended on 25 August 2004, converting the project into a gas-based combined cycle plant with a revised tariff structure.
Between 29 October 2005 and 30 June 2006, Penna’s gas turbine operated in open-cycle mode, supplying approximately 153 million units of electricity on a continuous basis, even before the steam turbine became operational and the plant achieved combined-cycle commissioning on 1 July 2006.
The central dispute concerned this interim period (“Relevant Period”):
- TANGEDCO treated the supply as infirm power, paying only variable charges.
- Penna claimed it was firm power, warranting payment of fixed/capacity charges under the tariff framework.
Regulatory Context: PPA Versus Electricity Act, 2003
While the original PPA pre-dated the Electricity Act, 2003, the amended PPA was executed after the Act and after the CERC Tariff Regulations, 2004 came into force. The Tamil Nadu Electricity Regulatory Commission (TNERC) subsequently notified its own Tariff Regulations in August 2005, largely mirroring the CERC regime.
Under Section 86(1)(b) of the Electricity Act, 2003, all PPAs for procurement by a distribution licensee must be placed before and approved by the State Commission, and existing PPAs must be aligned with applicable tariff regulations.
A key inconsistency emerged:
- The PPA defined Commercial Operation Date (COD) at the project level, linked to combined-cycle operation.
- The CERC/TNERC regulations define COD unit-wise, treating each gas turbine or block as a separate unit entitled to fixed charges once synchronized and tested.
Findings of TNERC and APTEL
TNERC ruled that:
- The amended PPA, being post-2003 Act, required regulatory approval and alignment with the tariff regulations.
- Under the regulations, the gas turbine achieved COD on 29.10.2005, the date of synchronization.
- Continuous supply thereafter constituted firm power, entitling Penna to pro-rata fixed charges, not merely variable charges.
The Appellate Tribunal for Electricity (APTEL) upheld TNERC’s decision, emphasizing that:
- In case of conflict, statutory tariff regulations prevail over unapproved PPA clauses.
- TNERC was justified in aligning the PPA with the regulatory framework and recognising unit-wise COD.
Arguments Before the Supreme Court
TANGEDCO’s case rested on three main points:
- The PPA recognised only a project-level COD of 01.07.2006, making all prior supply infirm.
- Correspondence between the parties showed Penna’s acceptance of variable-only payments, amounting to waiver or estoppel.
- Granting fixed charges would adversely impact consumer interest.
Penna’s response was that:
- The amended PPA lacked statutory approval under Section 86(1)(b).
- Under applicable regulations, each unit has an independent COD from synchronization.
- Once the gas turbine supplied continuous baseload power, it ceased to be trial energy.
- Regulatory jurisprudence mandates alignment of PPAs with tariff regulations.
Supreme Court’s Reasoning
PPAs Are Subordinate to Regulatory Framework
The Court reiterated that PPAs are not purely private contracts. They are subject to regulatory oversight, and tariff regulations can override inconsistent contractual terms. The 2004 amendment effectively created a new agreement that had to comply with the prevailing regulatory regime.
Unit-Wise COD Determines “Firm Power”
The Court noted that:
- “Infirm power” refers only to electricity generated before a unit’s commercial operation.
- Penna’s gas turbine was synchronized, tested, reached baseload, and delivered continuous power from 29.10.2005.
- Such supply squarely qualifies as firm power, entitling the generator to both fixed and variable charges.
- Denial of fixed charges would violate Section 61(d) of the Electricity Act, which mandates reasonable cost recovery.
No Waiver Against Statute
The Court rejected reliance on correspondence suggesting infirm power treatment, holding that:
- There can be no estoppel against law or statutory regulations.
- Once COD is properly understood under the regulatory framework, informal letters cannot negate statutory entitlements.
Public Interest Is Balanced
The Court observed that public interest does not lie solely in reducing consumer tariffs. Ensuring fair recovery of costs for generators supplying firm power is equally essential to sectoral stability.
Final Ruling and Impact
The Supreme Court dismissed TANGEDCO’s appeal, affirming the orders of TNERC and APTEL. It held that Penna is entitled to fixed/capacity charges for continuous open-cycle power supplied between 29.10.2005 and 30.06.2006.
TANGEDCO was directed to pay any remaining balance (beyond ₹50 crore already paid) within 12 weeks.
Significance of the Judgment
The ruling lays down important principles for the power sector:
- Unit-wise COD is decisive, not project-level COD.
- Continuous pre-combined-cycle generation can be firm power.
- Regulations prevail over inconsistent PPA clauses.
- Waiver or correspondence cannot defeat statutory tariff rights.
This judgment will serve as a key precedent in tariff disputes involving gas-based and phased-commissioning power projects across India.
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