Consumers not to pay for service not received: SC

The Supreme Court on Thursday said consumers cannot be required to pay for a service which they no longer received, and tariff determination is not merely a mathematical exercise but a regulatory balancing act.

The apex court set aside a February last year order of the Appellate Tribunal for Electricity (APTEL), which had directed that entire capital cost of the Rithala Combined Cycle Power Plant in Delhi be permitted to be recovered through depreciation over a period of 15 years.

A bench of Justices PS Narasimha and Alok Aradhe delivered its judgement on an appeal by the Delhi Electricity Regulatory Commission (DERC) challenging the APTEL’s order.

“The tariff determination is not merely a mathematical exercise but a regulatory balancing act. The object of enabling reasonable cost recovery for utilities must be weighed against and calibrated with, paramount obligation to safeguard consumer interest,” the bench said.

It said in this case, admittedly, electricity was not supplied to consumers beyond March 2018.

“The consumers cannot be required to pay for a service which they no longer received,” the top court said.

It said under the Power Purchase Agreement (PPA), the Tata Power Delhi Distribution Limited (TPDDL) had to supply electricity only for a period of six years.

The bench noted that Section 61 of the Electricity Act, 2003, governs the determination of tariff and Section 61(d) specifically provides that in specifying the terms and conditions for the determination of tariff, the appropriate commission shall be guided by the object of safeguarding consumers’ interests and at the same time, recovery of the cost of electricity in a reasonable manner.

“This provision establishes consumer welfare not as a peripheral consideration but as a central and guiding statutory principle in tariff determination,” the bench said.

It noted that TPDDL had moved a proposal for allotment of land at Rithala for setting up a temporary 108-megawatts gas-based power plant with operational tenure expressly limited to five to six years, following which the land would revert to the Delhi Development Authority (DDA).

The bench said the genesis of the project lay in the pressing and urgent need to augment power supply in the National Capital Territory of Delhi in the lead-up to the Commonwealth Games, 2010.

It said that in May 2008, the TPDDL intimated the DERC of its intention to establish and operate the plant, and in April 2009, the commission granted in-principle approval for the scheme based on TPDDL’s proposal.

The top court noted that the DERC in November 2019 allowed depreciation at the rate of 6 per cent per annum in respect of 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, together with carrying cost, was not allowed to be passed through in tariff, on the ground that plant has ceased to supply electricity to the consumers after March 2018,” the bench noted.

The commission’s order was challenged by the TPDDL.       

APTEL in February 2025, held that the DERC itself had fixed the useful life of the plant at 15 years and had computed the capital cost on that basis and therefore, the depreciation cost cannot be restricted only to six years.

APTEL set aside the DERC’s order and remanded the matter to it with a direction to allow recovery of the entire capital cost of the plant by way of depreciation over the useful life of the plant for 15 years.

The DERC then moved the apex court, challenging the APTEL’s order.

The top court noted that the DERC, while computing the capital cost of the plant for determination of the final tariff generated, had in August 2017 found that useful life of the plant was 15 years.

It said the DERC in its August 2017 order, which was not challenged by the TPDDL, approved the PPA only for six years from the date of commercial operation till March 2018.

“For the foregoing reasons, the substantial questions of law which arise for consideration in this appeal, are answered in favour of the Commission and against the TPDDL. The impugned judgment dated February 10, 2025, passed by the APTEL is set aside and order dated November 11, 2019, passed by the Commission is restored,” the bench said, while allowing the appeal.