S. 86 Electricity Act | Power Generators, Discoms Cannot Fix Tariffs Privately, Need Regulatory Commissions' Approval : Supreme Court

The Supreme Court held that a generating company and a distribution licensee cannot unilaterally fix tariffs through a Power Purchase Agreement (PPA), ruling that tariff determination requires the prior approval of the Electricity Regulatory Commission

Citing Section 86 of the Electricity Act of 2003, the court observed:

“...fixing of the price for the purchase of electricity is not a matter of private negotiation and agreement between a generating company and a distribution licensee. The price as well as the agreement, i.e., PPA, incorporating such price and providing for purchase of electricity at that price necessarily have to be reviewed and approved by the State Commission under this provision.”

“We, however, clarify and affirm that a generating company and a distribution licensee cannot, by private agreement, execute a PPA on their own or stipulate tariff therein as per their choice, for supply of electricity within a State, without seeking the review and approval of the Electricity Regulatory Commission under Section 86(1) (b) of the Act of 2003.”, the court added.

The bench comprising Justices Sanjay Kumar and NV Anjaria dismissed the appeal filed by a power-generating company, which sought a higher tariff for its hydroelectric power supplied to the Himachal Pradesh State Electricity Board (HPSEB) based on the unilateral revision in the tariff rates in the PPA without the approval of the Himachal Pradesh Electricity Regulatory Commission (“HPERC”).

The case stemmed from a 2000 agreement where the Appellant-KKK Hydro was granted a fixed tariff of ₹2.50 per unit (kWh) for a 3 MW project. After the HPERC was established, the company expanded its capacity to 4.9 MW in 2008.

The core of the dispute began in 2010 when KKK Hydro and HPSEB unilaterally signed a supplementary agreement, raising the tariff to ₹2.95 per unit, relying on a subsequent HPERC order. Crucially, they did not seek the mandatory approval of the HPERC for this change.

The HPERC later rejected this move, insisting the original ₹2.50 rate applied. The Appellate Tribunal for Electricity (APTEL) intervened in 2014, devising a compromise: a weighted average tariff of ₹2.60 per unit, differentiating between the old and new project capacities. Dissatisfied with not receiving the full ₹2.95, KKK Hydro appealed to the Supreme Court.

Restoring the HPERC's decision to award ₹2.50 per unit (kWh), the judgment authored by Justice Sanjay Kumar observed:

“…the appellant and the HPSEB were bound to approach the Commission to secure its approval before they could effect any enhancement of the tariff stipulated in the PPA dated 11.03.2008. Without doing so, the appellant and the HPSEB, on their own and without the Commission's review and approval, enhanced the tariff from 2.50/- per kWh to 2.95/- per kWh under their ₹ ₹ supplementary PPA dated 10.09.2010!.”

“In summation, the plea of the appellant that it should be extended the enhanced tariff of 2.95/- per kWh for the entire project, including the ₹ 3 MW plant covered by the PPA dated 30.03.2000, is bereft of merit.”, the court added.

Resultantly, the appeal was dismissed.

Cause Title: M/s. KKK Hydro Power Limited versus Himachal Pradesh State Electricity Board Limited and others

Citation : 2025 LiveLaw (SC) 856

Click here to read/download the judgment

Appearance:

For Appellant(s) Mr. M.G. Ramachandran, Sr. Adv. Mr. Raj Kumar Mehta, AOR Ms. Himanshi Andley, Adv. Ms. Srishti Khindaria, Adv.

For Respondent(s) Mr. Pradeep Misra, AOR Mr. Daleep Dhyani, Adv. Mr. Suraj Singh, Adv. Mr. Anand K. Ganesan, Adv. Mr. Nikunj Dayal, AOR Mr. Amal Nair, Adv. Ms. Shivani Verma, Adv. Mr. Pramod Dayal, Adv.