The Supreme Court has dismissed an appeal filed by the Tamil Nadu Generation and Distribution Corporation Ltd. (TANGEDCO), affirming that power supplied by a generation company using an Open Cycle Gas Turbine prior to the Commercial Operation Date (COD) of the combined cycle project constitutes “firm power” and not “infirm power.”
The Division Bench comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan held that terms of an unapproved Power Purchase Agreement (PPA) must be aligned with statutory regulations. Consequently, the Court ruled that the respondent, M/s Penna Electricity Limited, is entitled to fixed charges for the electricity supplied during the relevant period, rejecting TANGEDCO’s contention that only variable charges were payable.
The central legal issue before the Court was whether the electricity generated and supplied by the respondent’s Open Cycle Gas Turbine between October 29, 2005, and June 30, 2006, should be classified as “infirm power” or “firm power.” TANGEDCO argued that under the PPA, the COD was defined for the entire “Project” (combined cycle), achieved only on July 1, 2006, rendering prior supply “infirm.” The Tamil Nadu Electricity Regulatory Commission (TNERC) and the Appellate Tribunal for Electricity (APTEL) had previously ruled in favor of the respondent. The Supreme Court upheld these concurrent findings, declaring that statutory regulations, which recognize a separate COD for individual “units,” prevail over an unapproved PPA.
Background of the Case
The case originated from a PPA entered into on April 29, 1998, between the predecessor of TANGEDCO and the predecessor of the respondent for a diesel-based power project. Following changes in location, fuel, and technology, an amended PPA was executed on August 25, 2004, for a gas-based Combined Cycle Gas Turbine project. Crucially, this amended PPA was executed after the enactment of the Electricity Act, 2003, but was not placed before the TNERC for approval as required under Section 86(1)(b).
The respondent synchronized its Gas Turbine in Open Cycle mode with the grid on October 29, 2005, and supplied power continuously until June 30, 2006. TANGEDCO treated this supply as “infirm power”—defined in the PPA as electricity produced prior to the COD of the Project—and paid only variable charges (fuel cost). The respondent claimed it was “firm power” entitling them to fixed charges as well.
Arguments of the Parties
TANGEDCO (Appellant): Learned Senior Counsel Mr. Amit Anand Tiwari argued that under the amended PPA, the COD referred to the “Project” achieving entry into commercial operation, which required a tested capacity of at least 47.52 MW (achievable only via combined cycle). He contended that since the combined cycle operation commenced only on July 1, 2006, any prior supply was “infirm power.” The appellant also relied on correspondence where the respondent purportedly agreed to treat the supply as infirm power.
M/s Penna Electricity Limited (Respondent): Learned Senior Counsels Mr. Shyam Divan and Mr. Buddy A. Ranganadhan argued that the amended PPA was never approved by the Commission and thus its terms could not override statutory regulations. They submitted that under the Central Electricity Regulatory Commission (CERC) Regulations, 2004, and TNERC Regulations, 2005, a “Unit” (Gas Turbine) has a separate COD from the “Station.” Since the unit was synchronized and supplied power continuously (153 million units) from October 29, 2005, it constituted firm power.
Court’s Analysis and Observations
Writing the judgment, Justice K.V. Viswanathan emphasized the supremacy of regulatory frameworks over unapproved contracts.
On the Validity of the PPA: The Court noted that the PPA dated August 25, 2004, was a “fresh PPA” due to changes in fuel, technology, and tariff, executed after the Electricity Act, 2003 came into force. The Court observed:
“In the absence of approval of the PPA, it would not become a binding contract between the parties… The State Commission was entitled to direct the alignment of the terms of the PPA with the Rules and Regulations.”
On Conflict between PPA and Regulations: The Court highlighted a “clear dichotomy” between the PPA and the Regulations. The PPA defined COD in relation to the “Project,” whereas Regulation 14(x) of the CERC Regulations defined COD in relation to a “unit.”
“The Regulations, on the other hand, clearly prescribed that the COD in relation to a unit meant the date declared by the generator after demonstrating the Maximum Continuous Rating (MCR) or Installed capacity (IC) through a successful trial run.”
On ‘Firm’ vs ‘Infirm’ Power: The Court rejected the classification of the supply as infirm power. It noted that “Infirm Power” under the Regulations means electricity generated prior to the commercial operation of the unit. Since the Gas Turbine unit had achieved synchronization and was supplying power continuously, it was firm power.
“Applying the Regulations, we have no doubt in our mind that it is firm power and that for the said period… the respondent was entitled to fixed charges.”
The Court also referenced Section 61(d) of the 2003 Act, stating that denying annual fixed charges for continuous supply would be “unjust and contrary to law,” as the Act mandates recovery of the cost of electricity in a reasonable manner.
On Waiver and Estoppel: Addressing TANGEDCO’s reliance on correspondence where the respondent seemingly accepted the “infirm power” classification, the Court held:
“The letters take us back to the issue of COD and it really begs the question as to what the commercial operation date was. We have extended the definition of ‘COD’ as it prevails under the regulations. Hence, we reject the argument based on estoppel and waiver advanced by the appellant.”
Decision
The Supreme Court dismissed the appeal, affirming the judgment of the APTEL dated July 10, 2013. The Court directed TANGEDCO to pay the balance fixed charges to the respondent within 12 weeks, noting that Rs. 50 Crores had already been paid pursuant to an interim order.
The Bench concluded:
“The respondent, having supplied continuous power, cannot be denied the annual fixed charges for the relevant period, and if it were done so, they will permanently lose that amount, which will be unjust and contrary to law.”
Case Details
Case Title: Tamil Nadu Generation and Distribution Corporation Ltd. v. M/s Penna Electricity Limited
Case No: Civil Appeal No. 5700 of 2014
Coram: Justice J.B. Pardiwala and Justice K.V. Viswanathan
