The Supreme Court has clarified that regulatory approval for a limited operational period overrides the technical useful life of a power plant when determining depreciation recovery in electricity tariffs. This judgment reinforces the primacy of consumer protection under the Electricity Act, 2003, and sets a binding precedent on how regulatory commissions must balance utility cost recovery with tariff fairness.
Background & Facts
The Dispute
The dispute arose over whether Tata Power Delhi Distribution Limited (TPDDL) could recover the remaining capital cost of the Rithala Combined Cycle Power Plant through consumer tariffs after the plant ceased supplying electricity in March 2018. The Delhi Electricity Regulatory Commission (DERC) denied recovery of the unamortized cost, while the Appellate Tribunal for Electricity (APTEL) directed full depreciation recovery over the plant’s 15-year technical life, despite the plant no longer serving consumers.
Key Facts
- The Rithala Power Plant was conceived as a short-term solution to meet peak demand ahead of the Commonwealth Games 2010.
- TPDDL applied for land allotment on 11.06.2007, specifying an operational tenure of 5 to 6 years, after which the land would revert to the Delhi Development Authority.
- On 24.07.2007, TPDDL formally requested a change in land use for a temporary 5 to 6 year operational span.
- DERC granted in-principle approval in April 2009.
- On 27.07.2009, TPDDL executed an intra-company Terms and Conditions for sale and purchase of power.
- Petition No. 11 of 2009 was filed on 21.08.2009 seeking approval of the power purchase terms.
- Petition No. 7 of 2010 was filed on 26.02.2010 seeking approval for use of 6 acres of land.
- Petition No. 6 of 2013 was filed on 23.11.2012 seeking determination of the final generation tariff.
- The Plant achieved commercial operation in open cycle mode on 04.02.2011 and in combined cycle mode on 04.09.2011.
- On 31.08.2017, DERC issued a comprehensive order:
- Approved the PPA for a period of six years from the date of combined cycle commissioning, ending in March 2018.
- Accepted a technical useful life of fifteen years for depreciation calculation.
- Determined the capital cost at ₹197.70 crores, after reducing TPDDL’s claimed cost of ₹320.17 crores.
- Directed TPDDL to file true-up petitions for annual tariff finalization.
- TPDDL did not appeal the 31.08.2017 order, which became final and binding.
- On 11.11.2019, DERC allowed depreciation at 6% per annum only up to Financial Year 2017-2018, totaling ₹83.34 crores, and disallowed recovery of the remaining ₹94.59 crores since electricity supply had ceased after March 2018.
- TPDDL filed an appeal before APTEL.
- On 10.02.2025, APTEL set aside DERC’s order, directing full depreciation recovery over 15 years under Regulation 6.32 of the 2011 Regulations.
- DERC filed the present appeal before the Supreme Court on 15.06.2025.
- The Supreme Court heard the matter and delivered judgment on 07.05.2026.
Procedural History
- 11.06.2007: TPDDL applied for land allotment with 5-6 year operational limit.
- 24.07.2007: Request for change of land use submitted to DDA.
- 17.05.2008: TPDDL notified DERC of intent to establish the Plant.
- April 2009: DERC granted in-principle approval.
- 27.07.2009: Intra-company Terms and Conditions executed.
- 21.08.2009: Petition No. 11 of 2009 filed.
- 26.02.2010: Petition No. 7 of 2010 filed.
- 04.02.2011: Plant commenced commercial operation in open cycle mode.
- 04.09.2011: Plant commenced commercial operation in combined cycle mode.
- 23.11.2012: Petition No. 6 of 2013 filed.
- 31.08.2017: DERC order issued, approving six-year operational period and 15-year useful life.
- 11.11.2019: DERC order disallowing depreciation beyond March 2018.
- 10.02.2025: APTEL order allowing full 15-year depreciation recovery.
- 15.06.2025: Appeal filed before Supreme Court.
- 07.05.2026: Supreme Court judgment delivered.
The Parties' Positions
- DERC: Argued that consumers cannot be charged for electricity not supplied after March 2018. Recovery must align with the approved PPA period. APTEL misapplied Regulation 6.32 by ignoring the regulatory framework.
- TPDDL: Argued that Regulation 6.32 mandates depreciation over the full 15-year useful life, irrespective of operational duration. The unamortized cost must be recovered to avoid regulatory failure and disproportionate burden on future tariffs.
Relief Sought
DERC sought: (1) Setting aside of APTEL’s order dated 10.02.2025; (2) Restoration of its order dated 11.11.2019; (3) Confirmation that depreciation recovery is limited to the approved operational period under the PPA.
The Legal Issue
The central questions were: (1) Whether depreciation under Regulation 6.32 of the 2011 Regulations must be allowed over the entire technical useful life of an asset even when electricity supply has ceased; (2) Whether the regulatory approval limiting the operational period to six years overrides the statutory right to recover depreciation over fifteen years; and (3) Whether APTEL erred in disregarding the final and binding tariff framework established by DERC in 2017.
Arguments Presented
For the Appellant (DERC)
The Commission argued that Section 61(d) of the Electricity Act, 2003 mandates that tariff determination must safeguard consumer interests. Since electricity supply ceased in March 2018, consumers cannot be compelled to pay for a service they no longer receive. The 31.08.2017 order, which fixed the operational period at six years, was final and unchallenged. Regulation 6.32 must be read harmoniously with Regulation 4.1, which ties tariff entitlement to the approved PPA period. APTEL’s interpretation would permit utilities to recover costs for non-supplied power, violating the statutory principle of cost recovery only for actual service rendered. The Commission also noted that TPDDL was free to sell power as a merchant generator beyond March 2018, and thus had alternative avenues to recover its investment.
For the Respondent (TPDDL)
TPDDL contended that Regulation 6.32 provides an absolute right to depreciate capital cost over the asset’s useful life, irrespective of the PPA duration. The 15-year useful life was accepted by DERC itself in 2017, and restricting depreciation to six years creates a regulatory asset imbalance. The unamortized cost of ₹94.59 crores, if not recovered, would distort future tariffs and penalize consumers through higher rates later. APTEL correctly applied the straight-line depreciation methodology mandated by the Regulations. TPDDL also cited BSES Rajdhani Power Ltd. v. Union of India to argue that regulatory failure to allow full depreciation harms all stakeholders.
The Court's Analysis
The Court emphasized that tariff determination is not a mechanical calculation but a regulatory balancing act between utility cost recovery and consumer protection. The Court observed that while Regulation 6.32 prescribes depreciation over the useful life, it cannot be read in isolation. Regulation 4.1 of the 2011 Regulations explicitly confines tariff entitlement to the period approved in the PPA. The 31.08.2017 order, which was not appealed, clearly limited the recovery period to six years. The Court held that the distinction between technical useful life and regulatory recovery period is not semantic but foundational to the tariff framework.
"The consumers cannot be required to pay for a service which they no longer received. Under the PPA, TPDDL had to supply electricity only for a period of six years."
The Court further noted that TPDDL was never restricted from selling power as a merchant generator beyond March 2018, as clarified by DERC on 04.09.2012. This option rendered the argument of regulatory failure untenable. The Court rejected APTEL’s view that Regulation 6.32 conferred an unconditional right to recover depreciation irrespective of supply status. Such an interpretation would nullify the statutory mandate under Section 61(d) and permit utilities to externalize investment risks onto consumers. The Court concluded that true-up proceedings are meant to implement, not reconfigure, the approved tariff structure.
The Verdict
The appeal was allowed. The Supreme Court set aside the APTEL order dated 10.02.2025 and restored the DERC order dated 11.11.2019. The recovery of depreciation for the Rithala Power Plant is limited to the approved operational period ending March 2018. The unamortized capital cost of ₹94.59 crores shall not be recovered through consumer tariffs. There shall be no order as to costs.
What This Means For Similar Cases
Regulatory Approval Overrides Technical Useful Life
- Practitioners must now treat approved PPA periods as the binding ceiling for tariff recovery, even if asset life is longer.
- Utilities cannot claim depreciation beyond the period for which electricity supply was formally authorized.
- Regulatory orders that are not appealed become final and cannot be reopened through true-up petitions.
Depreciation Is Not an Absolute Right
- Regulation 6.32 does not create an unconditional entitlement to full depreciation recovery.
- Depreciation must be aligned with actual service delivery to consumers.
- Any claim for recovery beyond the approved period must be justified by a change in regulatory framework, not merely by asset life.
Consumer Interest Is the Paramount Consideration
- Section 61(d) of the Electricity Act, 2003 is not a background principle but a mandatory constraint on tariff design.
- Utilities must explore alternative revenue streams (e.g., merchant sales) before seeking consumer-based recovery for non-supplied capacity.
- Regulatory commissions must actively prevent cost-shifting to consumers for services no longer rendered.
