Electricity consumers cannot be asked to bankroll the depreciation of a power plant once the flow of power to them has stopped, the Supreme Court has ruled, drawing a firm line between “technical life” of an asset and the actual period during which consumers received electricity.
A Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe overturned a ruling of the Appellate Tribunal for Electricity (APTEL) that had favoured recovery of depreciation charges over the plant’s entire 15-year useful life.
The dispute centred on a 108 MW gas-based project established by Tata Power Delhi Distribution Limited ahead of the 2010 Commonwealth Games to tackle Delhi’s peak electricity demand. The project, however, was never intended to be permanent. Records before the Court showed that the utility itself had sought land for a temporary operational window of roughly five to six years.
The Supreme Court noted that electricity from the plant stopped reaching Delhi consumers after March 2018. Once that happened, the Court said, consumers could not continue to be saddled with depreciation costs merely because the plant still had remaining operational life on paper.
The Bench observed that the right to recover depreciation cannot be detached from actual supply of electricity. A generating company may have an asset capable of functioning for 15 years, but that does not automatically entitle it to recover charges from consumers for the entire duration if the consumers are no longer being served by that plant.
At the heart of the litigation was a tariff determination made by Delhi Electricity Regulatory Commission in 2017. The regulator approved the power purchase arrangement only till March 2018 while recognising a 15-year technical life for depreciation calculations. The approved capital cost stood at ₹197.70 crore, substantially lower than the ₹320.17 crore claimed by TPDDL.
After supply ceased in 2018, the regulator permitted depreciation recovery only for the six-year period during which the plant actually supplied electricity to consumers. This allowed recovery of ₹83.34 crore, while the remaining ₹94.59 crore was denied.
APTEL later reversed that position and held that depreciation should continue over the full 15-year span. The regulator then moved the Supreme Court.
Restoring the regulator’s order, the Court pointed to the terms of the Power Purchase Agreement, under which the plant was obligated to supply electricity for only six years. After that, the generator was free to operate as a merchant generator and sell power elsewhere.
The Bench also noted that there was no legal obstacle preventing the company from selling either the plant itself or the electricity generated through alternative commercial arrangements. In such circumstances, the burden of tariff charges beyond March 2018 could not be transferred to consumers who were no longer receiving electricity from the facility.
Rejecting TPDDL’s reliance on Regulation 6.32 of the DERC Tariff Regulations, 2011, the Court clarified that the provision does not create an unconditional right to recover depreciation from consumers irrespective of whether electricity continues to be supplied to them.
With that finding, the appeal filed by the Delhi regulator was allowed and the APTEL ruling was set aside.
The case was titled Delhi Electricity Regulatory Commission vs Tata Power Delhi Distribution Limited.
