CERC tariff cap can’t curtail states’ contractual rights to free power: Supreme Court

The Supreme Court on Wednesday held that tariff regulations issued by the Central Electricity Regulatory Commission (CERC) do not override contractual obligations between a state and a generating company to supply free power beyond the regulatory cap of 13% [State of Himachal Pradesh v. JSW Hydro Power].

The Court ruled that such obligations, agreed upon contractually as part of a hydropower implementation agreement, remain binding despite subsequent regulatory developments.

A Bench of Justices PS Narasimha and Joymalya Bagchi allowed an appeal filed by the State of Himachal Pradesh against a 2024 order of the Himachal Pradesh High Court.

“We hold that CERC Regulations, 2019 do not prohibit respondent no. 1 from supplying free power beyond 13% to the appellant-State, and the Implementation Agreement does not stand overridden by the operation of these Regulations,” the Court held.

The dispute arose after JSW Hydro Energy Limited approached the High Court seeking modification of its implementation agreement with the Himachal Pradesh government to limit its free power supply obligation to 13%, as per CERC's 2019 tariff regulations. The company was contractually bound to supply 18% of net electricity generated to the State free of cost from 2023 to 2051. The High Court allowed the petition and directed the State to align the contract with CERC norms.

However, the Supreme Court found that the High Court had exceeded its jurisdiction by entertaining the writ petition. It noted that the CERC, a specialised regulator, had already ruled on the issue in 2022, refusing to relax the 13% cap for tariff purposes but not invalidating the underlying contractual obligation.

“The High Court should not have entered into the domain of interpreting these Regulations which deal with tariff determination, as the same falls within the exclusive domain of the CERC,” the Court observed, reiterating that judicial interference in regulatory interpretation must be minimal.

The Bench further stated that the obligation to supply free power under the implementation agreement was not a tariff matter but a form of consideration akin to royalty, for allowing the commercial use of public resources like river water and land.

“The free power supply is a part of the consideration….for undertaking its commercial activity of power generation,” the Court held.

It also rejected the contention that the State was a “deemed licensee” under the Electricity Act, thereby falling within the scope of CERC’s regulatory jurisdiction.

Significantly, the Court also took note of the conduct of JSW Hydro in not appealing the 2022 CERC order before the Appellate Tribunal for Electricity (APTEL) and instead approaching the High Court through a writ petition.

“It cannot be allowed to approbate and reprobate, or blow hot and cold at the same time to secure relief under the law,” the judgment stated.

In conclusion, the Court set aside the High Court’s direction to amend the Implementation Agreement, holding that the supply obligation of 18% free power remains valid and enforceable. It also reiterated that remedies under the Electricity Act must primarily be sought before expert regulatory forums like CERC and APTEL.

The State of Himachal Pradesh was represented by Senior Advocates Kapil Sibal, Parag Tripathi and Anup Rattan, along with Additional Advocate General Vaibhav Srivastava and Advocates Sugandha Anand, Bhargava Ravikumar, Puneet Rajta and Mishika Bajpai.

JSW was represented by Senior Advocates P Chidambaram and AM Singhvi along with Advocates Mahesh Agarwal, Aman Anand, Shashwat Singh, Madhavi Agarwal, Chirag Nayak, Natasha Debroy, Sidharth Seem and EC Agrawala.

[Read Judgment]