The Supreme Court of India’s decision in M/s. KKK Hydro Power Limited v. Himachal Pradesh State Electricity Board Limited & Ors. addresses fundamental questions relating to the fixation of electricity tariffs, the binding authority of State Electricity Regulatory Commissions, and the impermissibility of private negotiations in the power sector under the Electricity Act, 2003.
At its core, the judgment clarifies whether a private generating company and a state distribution licensee can enter into supplementary agreements altering the tariff without seeking prior approval from the State Electricity Regulatory Commission (SERC). The case also traverses the intersection of earlier contractual arrangements, subsequent statutory regulations, and the effect of regulatory oversight on existing and modified power purchase agreements (PPAs).
Case Title: M/s. KKK Hydro Power Limited v. Himachal Pradesh State Electricity Board Limited & Ors.
Court: Supreme Court of India
Citation: 2025 INSC 1057
Bench: Justice Sanjay Kumar and Justice N.V. Anjaria
Date of Judgment: 29 August 2025
Factual Background
1. Initial Agreement (2000)
- On 30 March 2000, the Government of Himachal Pradesh (GoHP) and M/s. KKK Hydro Power Limited executed an Implementation Agreement (IA) for establishing the Baragran Hydro Electric Project (3 MW) on the Sanjoin Nallah, Kullu.
- On the same day, a Power Purchase Agreement (PPA) was executed between the appellant and the Himachal Pradesh State Electricity Board (HPSEB).
- Tariff Clause (6.2): The rate for the sale of power was fixed at ₹2.50/kWh, “firm and fixed” for 40 years.
2. Constitution of HPERC (2000)
- On 30 December 2000, the Himachal Pradesh Electricity Regulatory Commission (HPERC) was constituted under the Electricity Regulatory Commissions Act, 1998.
3. Project Commissioning (2004)
- The 3 MW project was commissioned on 5 August 2004.
4. Capacity Augmentation (2005–2007)
- In 2005, the appellant sought approval to augment capacity to 4.90 MW.
- A supplementary IA was executed on 5 July 2007, with revised royalty terms.
- On 4 December 2007, HPERC conditionally approved a draft PPA for 4.90 MW, making it subject to the HPERC Regulations, 2007.
5. Tariff Orders
- On 18 December 2007, HPERC fixed a tariff for small hydro projects (≤5 MW) at ₹2.87/kWh.
- On appeal, APTEL remanded the matter, leading HPERC to revise the tariff to ₹2.95/kWh in February 2010.
6. Supplementary PPA (2010)
- On 10 September 2010, the appellant and HPSEB executed a supplementary PPA enhancing tariff to ₹2.95/kWh, but crucially, without HPERC’s approval.
7. Disputes
- The appellant sought arrears at the enhanced rate.
- HPERC, in its 5 July 2013 order, held that the supplementary PPA was unenforceable since it was not approved by the Commission, restricting tariff to ₹2.50/kWh for the entire 4.90 MW capacity.
Procedural History
HPERC (2013): Dismissed appellant’s claim for arrears; rejected supplementary PPA of 2010.
APTEL (2014):
- Held tariff for original 3 MW plant (commissioned 2004) remained fixed at ₹2.50/kWh.
- Held additional 1.90 MW (commissioned 2008) subject to Regulations of 2007; entitled to revised tariff.
- Directed a weighted average tariff for entire 4.90 MW plant; arrears payable accordingly.
HPERC Compliance (2015): Fixed weighted average tariff at ₹2.60/kWh from 14 July 2008.
Supreme Court (2025): Appeal filed by KKK Hydro Power Limited against APTEL’s decision.
Issues Before the Supreme Court
- Whether a generating company and distribution licensee can modify tariff through private agreement (supplementary PPA) without the approval of the State Commission.
- Whether the appellant was entitled to apply the enhanced tariff of ₹2.95/kWh to the entire 4.90 MW project.
- What was the effect of HPERC’s Tariff Orders of 2007 and 2010 on existing and augmented PPAs?
- Whether APTEL erred in applying a weighted average tariff.
- Whether royalty changes in water usage policy affected the appellant’s rights.
Arguments
Appellant (KKK Hydro Power Limited)
- The supplementary PPA of 2010, executed with HPSEB, was binding and enforceable.
- Argued for parity with other small hydel projects benefiting from tariff revisions.
- Claimed entitlement to arrears for the entire project at the enhanced tariff.
Respondents (HPSEB & HPERC)
- Section 86(1)(b) of the Electricity Act mandates Commission approval of tariffs.
- The 2010 supplementary PPA lacked Commission approval and was invalid.
- Tariff for 3 MW project fixed under 2000 PPA could not be reopened.
Judgment and Reasoning
Delivered by Justice Sanjay Kumar (with Justice N.V. Anjaria concurring), the Court dismissed the appeal, providing detailed reasoning:
1. Role of State Commission in Tariff Fixation
- Section 86(1)(b) of the Electricity Act, 2003 unequivocally requires regulatory approval of tariffs.
- Fixation of price for electricity cannot be left to private negotiations.
- The 2010 supplementary PPA, executed without HPERC approval, was illegal and unenforceable.
2. Applicability of HPERC Tariff Orders
- The 2007 and 2010 tariff orders applied only to PPAs stipulating ₹2.87/kWh, not to appellant’s 2008 PPA (which fixed ₹2.50/kWh).
- Thus, appellant could not rely on the 2010 tariff order to claim ₹2.95/kWh for the 3 MW unit.
3. Distinction Between Original and Augmented Capacity
- Original 3 MW unit (2004): Governed by PPA of 2000; tariff fixed at ₹2.50/kWh; not subject to Regulations of 2007.
- Additional 1.90 MW unit (2008): Commissioned after 2007 Regulations; subject to revised tariff under regulatory regime.
4. APTEL’s Weighted Average Approach
- Although APTEL erred in overlooking Section 86(1)(b), HPSEB did not challenge the weighted average tariff order.
- The Court chose not to unsettle the status quo since tariff of ₹2.60/kWh had been acted upon for years.
5. Royalty on Water Usage
- GoHP’s change in royalty policy adversely affected appellant.
- However, under amended Regulation 6 of 2007, appellant could approach HPERC for relief.
6. Legal Clarification
The Court clarified as binding principle:
“A generating company and a distribution licensee cannot, by private agreement, stipulate tariff for supply of electricity within a State without seeking review and approval of the State Electricity Regulatory Commission under Section 86(1)(b) of the Act of 2003.”
Final Holding
- The appellant’s plea for applying an enhanced tariff of ₹2.95/kWh to the entire project was rejected.
- Appeal dismissed; APTEL’s order left undisturbed since HPSEB did not challenge it.
- Legal position clarified to prevent future circumvention of regulatory oversight.
Key Takeaways
I) Primacy of Regulatory Approval:
No tariff agreement between the generator and licensee is valid without SERC approval.
II) Distinction Between Pre- and Post-Regulation Projects:
- Projects commissioned before the establishment of SERC remain bound by original PPAs.
- Later augmentations are subject to prevailing regulatory frameworks.
III) Supplementary Agreements:
It cannot be enforced unless vetted by the Commission, especially when altering the tariff.
IV) Judicial Restraint:
Supreme Court avoided disturbing a tariff arrangement long acted upon, even if initially flawed, due to lack of appeal by HPSEB.
V) Future Guidance:
Explicit clarification prevents repetition of similar disputes, strengthening regulatory authority.
Conclusion
The Supreme Court’s judgment in M/s. KKK Hydro Power Limited v. HPSEB & Ors. (2025 INSC 1057) is a landmark ruling in Indian electricity law. It underscores that tariff fixation is a non-negotiable regulatory function, not a subject of private contract.
Although the appellant’s claim for enhanced tariff failed, the case clarified a crucial principle that will guide future PPA negotiations and disputes: all tariff-related agreements must pass through the scrutiny of the State Electricity Regulatory Commission under Section 86(1)(b) of the Electricity Act, 2003.
Important Link
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