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Supreme Court judgement on ‘Compensatory Tariff’ matters

Author(s): Ashwini Chitnis, Shantanu Dixit Publication Date: April, 2017

On 11th April 2017, the Supreme Court of India delivered a landmark judgement on the appeals relating to crucial matters of ‘compensatory tariff’ granted by Central Electricity Regulatory Commission. The judgement holds important implications and lessons for vital issues such as sanctity of contracts, strengthening competition, distribution company finances, generation capacity addition, regulatory governance, public policy, and consumer interest.

Through this judgement the apex Court has rejected the use of regulatory powers to grant relief to generation projects beyond the contract provisions. The Court has also ruled that the promulgation of the Indonesian regulation and the resultant coal price rise experienced by projects based on imported coal does not constitute as either a ‘change of law’ or ‘a force majeure event’ as per the power purchase agreement and hence no relief in the form of compensatory tariff is applicable for projects on this ground.  The Court has however held that change in domestic coal policy should be treated as ‘change in law’ and has allowed relief to this limited extent. As per our preliminary macro analysis, the total relief applicable on this count would only be around 20-25% of the ‘compensatory tariff’ granted by the regulatory commissions.

In this context, this article published in The Wire on 20th April 2017, presents a brief history and background of the events leading up to the Supreme Court’s verdict and highlights the key aspects of the judgement along with its implications for the sector.

Prayas (Energy Group), one of the authorised consumer representatives before the Central Electricity Regulatory Commission (CERC), has been involved in the entire process pertaining to the grant of compensatory tariff by CERC, including proceedings before the APTEL and the SC, which culminated in the Supreme Court judgment dated 11th April 2017.

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