In a significant verdict, the Supreme Court has ruled that consumers cannot be compelled to pay for services they no longer receive, reinforcing the principle that tariff determination must balance cost recovery for utilities with the protection of consumer interests. The apex court’s decision overturned an order from the Appellate Tribunal for Electricity (APTEL), which had permitted the recovery of the entire capital cost of the Rithala Combined Cycle Power Plant in Delhi over a 15-year depreciation period.
A bench comprising Justices P S Narasimha and Alok Aradhe delivered the judgment on an appeal filed by the Delhi Electricity Regulatory Commission (DERC), challenging APTEL’s directive. The Supreme Court emphasized that tariff determination is not merely a mathematical calculation but a regulatory balancing act, weighing the need for reasonable cost recovery for utilities against the paramount obligation to safeguard consumer interests. As per information available with TahirRihat.com, electricity supply to consumers ceased beyond March 2018.
The court underscored that consumers cannot be mandated to pay for a service they are no longer receiving. The judgment highlighted that under the Power Purchase Agreement (PPA), Tata Power Delhi Distribution Limited (TPDDL) was obligated to supply electricity for only six years. The bench referenced Section 61 of the Electricity Act, 2003, which governs tariff determination, specifically noting Section 61(d), which mandates that the commission safeguard consumer interests while ensuring reasonable cost recovery for electricity.
The Supreme Court asserted that this provision establishes consumer welfare as a central guiding principle in tariff determination, not merely a peripheral consideration. The case originated from a proposal by TPDDL to establish a temporary 108-megawatt gas-based power plant at Rithala, with operations limited to five to six years, after which the land would revert to the Delhi Development Authority (DDA). According to the court, the project was conceived to address the urgent need for increased power supply in Delhi leading up to the Commonwealth Games in 2010.
In May 2008, TPDDL informed DERC of its intention to establish and operate the plant. In April 2009, the commission granted in-principle approval based on TPDDL’s proposal. The DERC, in November 2019, allowed depreciation at 6 percent per annum for the plant only up to the financial year 2017-2018, resulting in a cumulative depreciation of Rs 83.34 crore. The remaining capital cost of approximately Rs 94.59 crores, along with carrying costs, was disallowed, citing that the plant had ceased supplying electricity to consumers after March 2018.
TPDDL challenged the commission’s order. In February 2025, APTEL held that DERC had fixed the plant’s useful life at 15 years and calculated the capital cost accordingly. APTEL argued that the depreciation cost should not be restricted to six years. APTEL overturned DERC’s order and instructed the commission to allow recovery of the plant’s entire capital cost through depreciation over its 15-year useful life.
DERC then appealed to the Supreme Court, challenging APTEL’s order. The Supreme Court observed that DERC, while calculating the plant’s capital cost for final tariff determination in August 2017, had determined the plant’s useful life to be 15 years. However, the court emphasized that DERC’s August 2017 order, which was not challenged by TPDDL, approved the PPA for only six years from the date of commercial operation until March 2018.
The Supreme Court concluded that the substantial questions of law were answered in favor of the commission and against TPDDL. (Agencies reported that) the Supreme Court set aside APTEL’s February 10, 2025 judgment and reinstated the commission’s November 11, 2019 order, effectively allowing the appeal. The ruling underscores the judiciary’s commitment to protecting consumer rights in the electricity sector and ensuring that regulatory decisions appropriately balance the interests of both utilities and consumers.
The judgment clarifies the principles governing tariff determination, emphasizing the need for a holistic approach that considers the duration of service provided and the interests of consumers. It also reinforces the statutory obligation of regulatory commissions to prioritize consumer welfare in tariff-setting processes. The decision is expected to have broader implications for tariff disputes and regulatory practices within the electricity sector, potentially leading to increased scrutiny of cost recovery mechanisms and greater emphasis on consumer protection. This ruling serves as a reminder to power distribution companies that consumer interests must be at the forefront of all tariff-related decisions, potentially reshaping the dynamics between power suppliers and consumers in the long run.
Tahir Rihat (also known as Tahir Bilal) is an independent journalist, activist, and digital media professional from the Chenab Valley of Jammu and Kashmir, India. He is best known for his work as the Online Editor at The Chenab Times.
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