Supreme Court Upholds Consumer Interest, Rules Power Utilities Cannot Recover Depreciation For Non-Supply Period

In a significant ruling reinforcing consumer protection in electricity tariff regulation, the Supreme Court has held that electricity consumers cannot be burdened with depreciation costs of a power generation asset for a period during which no electricity was supplied from that plant. Emphasising that tariff determination under the electricity regulatory framework is not merely an accounting exercise but a balancing of competing statutory interests, the Court observed that consumer welfare remains a central consideration under the law.

The judgment was delivered by a Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe in Delhi Electricity Regulatory Commission v. Tata Power Delhi Distribution Limited. The opinion was authored by Justice Aradhe. The Bench allowed the appeal filed by the Delhi Electricity Regulatory Commission and restored its tariff order after setting aside the contrary ruling of the Appellate Tribunal for Electricity (APTEL).

The dispute arose from the Rithala Combined Cycle Power Plant, a 108 MW gas-based generating station established by Tata Power Delhi Distribution Limited ahead of the Commonwealth Games 2010 to meet peak electricity demand in Delhi. The project was conceived as a temporary arrangement, and the distribution company had itself represented before authorities that the plant would operate for only five to six years.

Pursuant to tariff proceedings, the Commission, by order dated August 31, 2017, approved the power purchase arrangement only till March 2018. While the Commission accepted the plant’s technical useful life as 15 years for depreciation methodology, it limited tariff recovery to the actual operational period during which electricity was supplied to consumers. The approved capital cost stood at approximately ₹197.70 crores against a claim of ₹320.17 crores made by TPDDL. After the plant ceased supplying power to Delhi consumers in March 2018, the Commission disallowed recovery of the remaining depreciation component amounting to approximately ₹94.59 crores.

Aggrieved by the Commission’s order, TPDDL approached APTEL, which held in its favour and directed that the entire capital cost be permitted to be recovered over the full 15-year useful life of the plant. Challenging this interpretation, DERC approached the Supreme Court.

Before the Supreme Court, the principal issue was whether a generating company could continue to recover depreciation through consumer tariff for the entire technical life of an asset, even after the plant had stopped supplying electricity under the Power Purchase Agreement.

Examining the scheme of Section 61 of the Electricity Act, 2003, particularly Section 61(d), the Court held that tariff determination must balance cost recovery for utilities with the statutory obligation to safeguard consumer interest. The Bench observed that consumer protection is not an incidental consideration but a guiding principle embedded in the statutory framework.

Rejecting TPDDL’s reliance on Regulation 6.32 of the DERC (Terms and Conditions for Determination of Generation Tariff) Regulations, 2011, the Court held that the regulation does not create an unconditional right to recover depreciation from consumers for the entire technical life of an asset irrespective of actual service delivery.

The Bench noted that under the Power Purchase Agreement, TPDDL was obligated to supply electricity only for six years. After March 2018, the company was free to operate as a merchant generator and sell electricity elsewhere. In such circumstances, consumers in Delhi could not be compelled to bear depreciation costs for a period during which they received no electricity from the plant.

Setting aside the APTEL judgment, the Court held that the mere fact that the technical life of the plant was 15 years did not automatically entitle the generator to recover depreciation for the entire period from retail consumers. The right to tariff recovery must remain linked to actual supply and consumer benefit.

Allowing the appeal, the Supreme Court restored the Commission’s order dated November 11, 2019 and reaffirmed that regulatory commissions must ensure that tariff structures do not unfairly shift commercial risks of utilities onto consumers.