Unit‑Wise COD, Firm Power Entitlement, and Regulatory Override of Unapproved PPAs: Commentary on TAMIL NADU GENERATION AND DISTRIBUTION CORPORATION LTD. v. M/s PENNA ELECTRICITY LIMITED (2025 INSC 1439)

I. Introduction

The Supreme Court of India’s decision in TAMIL NADU GENERATION AND DISTRIBUTION CORPORATION LTD. v. M/s PENNA ELECTRICITY LIMITED, Civil Appeal No. 5700 of 2014 (decided on 16 December 2025), is a significant pronouncement in electricity law. It sits at the intersection of:

• The regulatory framework under the Electricity Act, 2003;
• The legal status and enforceability of unapproved Power Purchase Agreements (PPAs); and
• The technical classification of electricity as “firm” or “infirm” power and the resulting entitlement to fixed (capacity) charges.

At its core, the case addresses whether electricity supplied from the gas turbine in open-cycle mode of a combined cycle gas-based project, during the period 29.10.2005 to 30.06.2006 (the “Relevant Period”), is to be treated as “infirm power” attracting only variable charges (fuel cost) or as “firm power” entitling the generator to both fixed and variable charges.

The Court also had to determine whether an unapproved amended PPA executed after the coming into force of the Electricity Act, 2003, and in conflict with tariff regulations, could override the statutory and regulatory scheme, particularly regarding the concept of the Commercial Operation Date (COD).

The judgment, authored by K.V. Viswanathan, J. and concurred in by J.B. Pardiwala, J., upholds the concurrent findings of the Tamil Nadu Electricity Regulatory Commission (TNERC) and the Appellate Tribunal for Electricity (APTEL), and lays down important principles about:

• Unit-wise COD as a regulatory concept for combined cycle plants;
• The primacy of tariff regulations over inconsistent PPA provisions, especially where the PPA is unapproved; and
• The definition and financial consequences of “firm” versus “infirm” power.

II. Background and Factual Matrix

1. Parties

• Appellant: Tamil Nadu Generation and Distribution Corporation Ltd. (TANGEDCO) – successor to the Tamil Nadu Electricity Board (TNEB), the State distribution licensee.
• Respondent: M/s Penna Electricity Limited – a generating company operating a gas-based combined cycle power project in Tamil Nadu.

2. Original PPA of 29.04.1998

In 1996, Tamil Nadu Industrial Development Corporation (TIDCO) initiated an international competitive bidding process (RFQ/RFP) to set up small capacity multi-fuel power projects. The predecessor of the respondent (M/s DLF Power) was selected, and a Power Purchase Agreement dated 29.04.1998 was executed with TNEB.

Key features:

• The project was originally conceived as a diesel engine based generating station.
• The tariff was fixed at Rs. 2.374102 per kWh.
• The PPA was entered into under the then prevailing Electricity (Supply) Act, 1948 and the 30.03.1992 Ministry of Power Tariff Notification under Section 43A(2) of the 1948 Act.
• At that time, the Electricity Act, 2003 was not in force, and the concept of mandatory regulatory approval of PPAs by State Commissions (Section 86(1)(b)) had not yet arisen.

3. Amended PPA of 25.08.2004

Subsequently, substantial changes were approved by the State Government:

• Change of location to or near Valantharavi, Ramanathapuram District, Tamil Nadu.
• Change of fuel from diesel to gas.
• Change of technology from diesel engines to a gas-based combined cycle gas turbine (CCGT) project.
• Change in tariff to Rs. 2.2798 per kWh.

These changes were incorporated via an amended PPA dated 25.08.2004. The Supreme Court (following APTEL) characterizes this amended PPA as being “virtually a new Power Purchase Agreement” because the entire base – technology, fuel, location, and tariff – had changed.

Crucially:

• This amended PPA was executed after the Electricity Act, 2003 came into force (10.06.2003).
• It was never placed before TNERC for approval under Section 86(1)(b).

4. Technical Configuration and Operation

The project was a gas-based combined cycle generating station comprising:

• A Gas Turbine (GT) capable of operating in open cycle mode, and
• A Steam Turbine (ST) forming part of the combined cycle configuration.

Key operational facts:

• The Gas Turbine in open cycle was synchronized with the grid on 29.10.2005.
• After commissioning procedures and testing, the GT unit supplied continuous power of about 30 MW in open cycle mode.
• The generating company supplied approximately 153 million units (MUs) during 29.10.2005 to 30.06.2006 (the “Relevant Period”).
• The combined cycle configuration (GT + ST) achieved COD on 01.07.2006, after capacity and reliability testing between 28.06.2006 and 01.07.2006.

5. The Dispute

For the Relevant Period (29.10.2005–30.06.2006), the generator claimed:

• The power supplied from the GT operating in open cycle was “firm power”, because:
  • The GT unit had synchronized with the grid;
  • It had successfully passed commissioning procedures; and
  • Power was supplied continuously on a firm basis.
• Accordingly, the project was entitled to both fixed (capacity) charges and variable (fuel) charges on a pro-rata basis as per the PPA and applicable regulations.

TANGEDCO, however, contended:

• Under the PPA, the Commercial Operation Date (COD) was defined in relation to the entire “Project” (i.e., the combined cycle plant), not a unit.
• Since combined cycle COD was 01.07.2006, any power supplied prior to that COD was contractually defined as “infirm power”.
• Thus, during the Relevant Period, the Respondent was entitled only to variable charges (fuel cost) and not to fixed charges.

III. Procedural History

1. TNERC’s Findings

The Tamil Nadu Electricity Regulatory Commission held in favour of the generator. Its main findings included:

• Failure to seek approval: Any PPA executed after the 2003 Act (including the 25.08.2004 amendment) ought to have been placed before TNERC for approval under Section 86(1)(b). Both parties failed to do so.
• End of 1992 Notification Regime: Though the original PPA was based on the 30.03.1992 Tariff Notification under Section 43A(2) of the 1948 Act, that notification ceased to have force from 10.06.2004, i.e. one year from commencement of the 2003 Act (Section 61 proviso).
• Need to align with post‑2003 Regulations: The amended PPA (25.08.2004) should have been aligned with:
  • The CERC (Terms and Conditions of Tariff) Regulations, 2004 effective from 01.04.2004; and
  • The TNERC Tariff Regulations, 2005 notified on 03.08.2005.
• Both the CERC and TNERC Regulations define COD in relation to a “unit” and recognise separate CODs for each unit in a combined cycle generating station.
• Power dispatched in open cycle on a firm, scheduled basis constitutes firm power, attracting fixed charges under the PPA (Schedule 29) on a Rs/kWh basis.
• In a comparable case of M/s Aban Power Ltd., TANGEDCO had agreed to and actually paid fixed charges for such supply, indicating consistency in regulatory practice.

2. APTEL’s Decision (10.07.2013)

TANGEDCO appealed to the Appellate Tribunal for Electricity, which dismissed the appeal and endorsed TNERC’s reasoning. Key conclusions of APTEL:

• The 1992 Tariff Notification could not be relied upon for the amended PPA executed on 25.08.2004, because:
  • The saving clause in the proviso to Section 61 of the 2003 Act ran only for one year from 10.06.2003, and
  • The amended PPA was beyond that date.
• Without approval by TNERC, the amended PPA could not become a binding contract in the regulatory sense; Regulation 35 of the TNERC Regulations (relating to existing generating stations) did not apply here.
• Regulation 4 of TNERC Tariff Regulations required the State Commission to be guided by CERC’s principles and methodologies in the absence of its own regulations. Therefore, TNERC was right in relying on CERC’s Tariff Regulations, 2004, which provide separate CODs for each unit of a combined cycle station.
• Even independent of CERC, the TNERC Regulations, 2005 themselves contemplated separate CODs for gas turbine (open cycle) and steam turbine (combined cycle) units.
• TANGEDCO’s own conduct – including offer of payment subject to audit – implicitly recognised the entitlement to fixed charges for open-cycle firm supply.

3. Appeal to the Supreme Court

TANGEDCO approached the Supreme Court under Section 125 of the Electricity Act, 2003, urging that the fora below had misinterpreted both the PPA and the regulatory framework.

IV. Summary of the Supreme Court’s Judgment

• The Supreme Court dismissed the appeal and affirmed the decisions of TNERC and APTEL.
• It held that:
  • The amended PPA of 25.08.2004, executed after the 2003 Act, had to be aligned with the CERC and TNERC Tariff Regulations.
  • The PPA’s definition of COD by reference to the entire “Project” (requiring a tested capacity of 47.52 MW in combined cycle) was in conflict with the regulations, which recognise unit-wise COD.
  • Under the regulatory definitions, COD of a unit is the date declared by the generator after successful trial run demonstrating the rated capacity (MCR/IC). For gas/combined cycle stations, units are separately recognised.
  • Since the GT unit in open cycle was synchronised on 29.10.2005, successfully tested, and supplied power continuously on a firm basis, the electricity supplied during 29.10.2005–30.06.2006 was “firm power”, not “infirm power.”
  • Consequently, Penna Electricity was entitled to fixed charges (capacity charges) in addition to variable charges for the Relevant Period, on a pro-rata basis.
• The Court rejected:
  • TANGEDCO’s reliance on the 1992 Notification regime, as that had ceased to apply; and
  • The argument that the correspondence/undertakings between parties constituted waiver or estoppel against claiming fixed charges where the regulatory regime mandated otherwise.
• The Court reaffirmed that:
  • Under Section 86(1)(b), regulatory approval of PPAs (including price terms) is mandatory;
  • Unapproved PPAs cannot override regulations; and
  • Existing or amended PPAs must be modified and aligned with tariff regulations (relying on PTC India Ltd. v. CERC).
• The Court distinguished State of Himachal Pradesh v. JSW Hydro Energy Ltd., holding that it turned on its own facts and did not affect the outcome here.
• The interim payment of Rs. 50 crores already made under earlier Supreme Court orders was noted, and TANGEDCO was directed to pay the balance admissible amount within 12 weeks.

V. Detailed Analysis

A. Statutory and Regulatory Framework

1. Pre‑2003: Electricity (Supply) Act, 1948 and the 30.03.1992 Tariff Notification

Under the Electricity (Supply) Act, 1948, Section 43A(2) empowered the Central Government to lay down, by notification, the norms and terms for tariff for sale of electricity by generating companies to Boards. Pursuant to this, the Ministry of Power issued the notable 30.03.1992 Tariff Notification.

Key features of the 1992 Notification:

• Introduced a two-part tariff for thermal (including gas and naphtha-based) stations:
  • Capacity (fixed) charges – interest on loan capital, depreciation, O&M expenses, return on equity, interest on working capital, etc., computed at a normative generation level.
  • Energy (variable) charges – fuel cost component per unit supplied.
• For gas and naphtha-based plants, COD was the date of synchronization with the grid.

The original 1998 PPA between TNEB and DLF Power (predecessor of Penna) was entered into under this 1992 regime.

2. Electricity Act, 2003: New Regulatory Architecture

The Electricity Act, 2003 radically restructured the power sector. For present purposes, three sets of provisions are central:

(i) Section 61 – Tariff Regulations

Section 61 mandates that the Appropriate Commission shall specify the terms and conditions for determination of tariff. While doing so, it must be guided by, inter alia:

• The principles and methodologies specified by the Central Commission for determination of tariff;
• The need to ensure that generation, transmission, distribution and supply are conducted on commercial principles;
• Factors encouraging competition, efficiency and economical use of resources;
• Safeguarding consumers’ interest while at the same time ensuring recovery of the cost of electricity in a reasonable manner (Section 61(d)).

The proviso to Section 61 saved, for a limited period, the earlier tariff regimes:

“Provided that the terms and conditions for determination of tariff under the Electricity (Supply) Act, 1948…, as they stood immediately before the appointed date, shall continue to apply for a period of one year or until the terms and conditions for tariff are specified under this section, whichever is earlier.”

TNERC and APTEL (and the Supreme Court) proceed on the basis that the 30.03.1992 Notification ceased to operate from 10.06.2004 (one year after the 2003 Act came into force).

(ii) Sections 62 and 63 – Determination and Adoption of Tariff

• Section 62 empowers the Commission to determine tariff for:
  • Supply of electricity by a generating company to a distribution licensee (Section 62(1)(a));
  • Transmission of electricity, wheeling, and retail supply.
• Section 63 provides that, notwithstanding Section 62, the Commission shall adopt the tariff if it has been determined through a transparent process of bidding in accordance with Central Government guidelines.

TANGEDCO argued that since the original 1998 PPA arose out of a competitive bidding process, the amended PPA was protected by Section 63. This argument is firmly rejected by APTEL and the Supreme Court (discussed below).

(iii) Sections 79 and 86 – Functions of CERC and State Commissions

Of particular importance is Section 86(1)(b), which assigns to the State Commission the function to:

“regulate electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured… through agreements for purchase of power...”

This provision underpins the requirement that PPAs (including tariff terms) must be reviewed and approved by the State Commission. It also justifies regulatory intervention in unapproved or misaligned PPAs.

3. Post‑2003 Tariff Regulations: CERC and TNERC

(i) CERC (Terms and Conditions of Tariff) Regulations, 2004

Effective from 01.04.2004, these regulations provide a comprehensive tariff framework. Relevant definitions include:

• “Date of Commercial Operation” (COD) in relation to a unit:

  “the date declared by the generator after demonstrating the Maximum Continuous Rating (MCR) or Installed Capacity (IC) through a successful trial run after notice to the beneficiaries…”

  and, in relation to a generating station, COD means the date of commercial operation of the last unit or block of the station.
• “Declared Capacity” (DC):

  “the capability of the generating station to deliver ex-bus electricity in MW… duly taking into account the availability of fuel;”

  with a note that in case of a gas or combined cycle station, the station shall declare **separate capacities for units and modules** on gas and liquid fuel, to be scheduled separately.
• “Infirm Power”:

  “electricity generated prior to commercial operation of the unit of a generating station;”

• “Unit” in relation to a combined cycle station:

  “turbine-generator and auxiliaries;”

• Tariff components (Regulation 15):
  • Two-part tariff: Annual Capacity (fixed) charges and Energy (variable) charges.
  • Capacity charges include interest, depreciation, RoE, O&M expenses, interest on working capital.

These definitions are the heart of the Court’s reasoning: they shift the focus from “project-level COD” to unit-level COD, with important tariff implications.

(ii) TNERC Tariff Regulations, 2005

The State Commission notified its Terms and Conditions for Determination of Tariff Regulations on 03.08.2005. These:

• Substantially mirror the CERC definitions and structure;
• Recognise gas-based projects operating in open cycle and combined cycle modes as distinct;
• Provide for separate CODs for:
  • Gas Turbine (open cycle) units; and
  • Steam Turbine (combined cycle) units.
• Via Regulation 4, require TNERC to be guided by CERC’s principles and methodologies where its own regulations are silent.

B. The Contractual Framework: PPA Clauses in Conflict

1. “Project” vs “Unit” and COD under the PPA

The amended PPA defines:

• “Project” as the entire multi-fuel, gas-based combined cycle power station (including GT, ST, auxiliaries, land, buildings, switchyard, PLCC equipment, telemetering, etc.). It is a station-wide concept.
• “Date of Commercial Operation”:

  “means the Day on which Project achieves Entry into Commercial Operation”

• Clause 4.2 – Entry into Commercial Operation:

  “(a) The Project shall be deemed to have achieved Entry into Commercial Operation on the date of issue by the Company to the Board of the Certificate of Project Completion, provided that the Company shall not be entitled to issue such a certificate unless during the Capacity Test to establish Entry into Commercial Operation… the Project achieves a Tested Capacity of at least 47.52 MW.”

Given the installed capacities, the requirement of 47.52 MW entails that both the Gas Turbine and the Steam Turbine must be operational in combined cycle mode. In other words, under the PPA:

• COD is tied to “Project-level” completion of the combined cycle plant, not to the operational readiness of an individual unit (e.g., the GT in open cycle).

2. Definition of “Infirm Power” under the PPA

The PPA defines:

“Infirm Power means the Electricity produced by the Project and delivered to the Board prior to the Date of Commercial Operation at the Supply Point, not on any request or Despatch Instruction of the Board, in respect of which the Board shall pay to the Company, Variable Charges…”

Combining this with the PPA’s COD definition, TANGEDCO argued:

• Until the entire Project (combined cycle) achieved COD (01.07.2006), all energy delivered was “infirm power” under the PPA, irrespective of the GT unit’s readiness or continuous supply.
• Thus, only variable charges were payable for the Relevant Period.

C. The Core Legal Conflict: PPA vs. Tariff Regulations

The Supreme Court identifies a “clear dichotomy” between:

• The PPA’s Project-based COD definition; and
• The CERC/TNERC Regulations’ Unit-based COD and treatment of “infirm power” in relation to each unit.

Under the regulatory regime:

• COD is declared unit-wise after successful trial runs demonstrating rated capacity;
• Infirm power is only that electricity generated before COD of the particular unit;
• Once a unit attains COD, two-part tariff (fixed + variable) becomes applicable for its scheduled energy, subject to declared capacity and scheduling.

Under the PPA, however:

• COD is deferred until the entire Project (combined cycle) reaches 47.52 MW tested capacity;
• All energy supplied before this project-level COD is treated as “infirm”, even if supplied by an individual unit that is fully commissioned and continuously delivering firm power.

The Court holds that such a PPA term, especially in an unapproved PPA executed after the coming into force of the 2003 Act and the 2004 CERC Regulations, cannot prevail over the regulatory framework. The PPA must be “aligned” with the regulations, not the other way around.

D. Characterisation of Power During 29.10.2005–30.06.2006

1. Factual Findings

The Court relies heavily on the factual record, including the respondent’s letter dated 10.11.2005, which:

• Records that the Gas Turbine unit was synchronised with the grid on 29.10.2005;
• States that, following commissioning procedures, the GT reached base load and the unit with auxiliaries was running trouble-free;
• Assures that the GT unit would deliver continuous power at 30 MW under open cycle operation on a firm basis.

The undisputed fact is that power was indeed supplied continuously during the Relevant Period, amounting to approximately 153 MUs.

2. Applying Regulatory Definitions: Firm vs. Infirm Power

The Court notes that under the CERC Regulations:

• “Infirm Power means electricity generated prior to commercial operation of the unit of a generating station.”

On this basis:

• Once the GT unit had:
  • been synchronised with the grid (29.10.2005),
  • completed commissioning trials, and
  • demonstrated ability to supply continuous power,
  it effectively attained its own unit-wise COD.
• Therefore, energy generated thereafter by that unit is not “infirm power” under the regulations.
• Rather, it is firm, schedulable power, for which the generator is entitled to both fixed and variable charges.

The Court also explains the rationale:

• “Infirm power” tariffs (only variable charges) are appropriate for the pre-COD stage because such payments are effectively viewed as a reduction in project capital cost – compensating only for fuel expended during test runs.
• Where a unit is fully commissioned and supplying continuous power on a firm basis, excluding fixed charges would permanently deprive the generator of recovery of capital and fixed costs, contrary to Section 61(d)’s mandate of reasonable cost recovery.

In a key passage, the Court states:

“Applying the Regulations, we have no doubt… that it is firm power and that for the said period, as rightly held by the fora below, the respondent was entitled to fixed charges.”

It further notes that denying fixed charges for continuous supply would mean the generator “will permanently lose that amount, which will be unjust and contrary to law.”

E. Unapproved PPAs and the Necessity of Alignment with Regulations

1. PPA Approval under Section 86(1)(b)

The Court reiterates the now-settled principle that:

• Fixing the price for purchase of electricity is not a matter of unfettered private contract between generator and licensee.
• Under Section 86(1)(b), the State Commission must review and approve PPAs, including price terms.
• Where a PPA is not approved, its terms cannot claim immunity from regulatory scrutiny and must conform to applicable regulations.

In this case:

• The amended PPA (25.08.2004) was not submitted to TNERC for approval.
• The Court criticizes this, holding that the PPA should have been placed before TNERC especially since it was entered after the 2003 Act and after the CERC Tariff Regulations came into force.

2. Rejection of Section 63 Protection

TANGEDCO attempted to shield the PPA under Section 63, arguing that the original selection in 1996 was through competitive bidding, so the Commission should simply have adopted the bid tariff.

APTEL (quoted with approval by the Supreme Court) held:

• The amended PPA was “virtually a new PPA”:
  • Change in location;
  • Change in fuel;
  • Change in technology; and
  • Change in tariff.
• The competitive bidding in 1996 could not be deemed a bid conducted under the post‑2003 Section 63 guidelines.
• Section 63 applies only to competitive bids conducted after 10.06.2003 in accordance with Central Government guidelines.
• Even Section 63 does not dispense with the mandatory approval of PPAs by the State Commission.

The Supreme Court endorses APTEL’s conclusion that the only proper route in this case is Section 62 tariff determination, guided by applicable regulations; Section 63 is inapplicable.

3. Regulatory Override and PTC India Principle

Relying on PTC India Ltd. v. CERC (2010) 4 SCC 603, the Court reiterates that:

“…on the making of the impugned 2006 Regulations, even the existing PPAs had to be modified and aligned with the said Regulations… All contracts coming into existence after making of the impugned 2006 Regulations have also to factor in the capping of the trading margin… Such regulatory intervention into the existing contracts across the board could have been done only by making regulations…”

Transposing this to the present case:

• The 2004 CERC Regulations and 2005 TNERC Regulations have statutory force as subordinate legislation.
• They can and do intrude into and modify PPA terms that are inconsistent with the regulatory scheme.
• An unapproved PPA executed after the regulations took effect cannot override them; rather, it must be interpreted or read down to align with the regulations.

Therefore, the PPA’s “project-level COD” clause had to be read in harmony with the unit-wise COD concept in the regulations. When so aligned, the GT unit’s COD was effectively 29.10.2005, making its subsequent supply “firm power”.

F. Correspondence and the Rejection of Waiver/Estoppel

TANGEDCO argued that letters exchanged in October 2005 showed that Penna had accepted that energy supplied prior to COD would be treated as “infirm power” and billed only at variable charges, amounting to a contractual waiver or estoppel.

The key correspondence:

• 17.10.2005 – TANGEDCO’s letter: Stated that till COD, energy generated would be treated as infirm power and only variable charges would be paid, as per PPA Clause 5.3.
• 25.10.2005 – Penna’s reply: Indicated that once the GT’s capacity and performance were established, they would commit firm power, which should be treated as such.
• 28.10.2005 – TANGEDCO’s letter: Reiterated that till COD, energy would be treated as infirm power and only variable charges would be paid.
• 28.10.2005 – Penna’s response: Stated that paragraph 2 of TANGEDCO’s letter (treating energy as infirm till COD) was “agreeable.”

The Supreme Court holds that this exchange:

• “Beg[s] the question as to what the commercial operation date was.”
• Does not alter the statutory/regulatory definition of COD and of “infirm power.”
• Cannot amount to a valid waiver or estoppel against asserting rights that flow from the statutory tariff framework.

In essence:

• Private agreements or understandings cannot override mandatory regulations.
• Even if the generator appeared to accept “infirm” classification before the legal position was crystallised, once the regulatory framework is correctly applied, those statements do not bar the generator from claiming what the law entitles it to.

G. Distinguishing State of Himachal Pradesh v. JSW Hydro Energy Ltd.

TANGEDCO relied on State of Himachal Pradesh v. JSW Hydro Energy Ltd., 2025 SCC OnLine SC 1460, where the Supreme Court held that:

• A regulatory cap on free supply of power (13%) did not override the contractual obligation of the generator to supply additional free power to the State.
• Such additional free power was treated as a form of “royalty” for use of river water, not as part of the tariff exercise.

The Court distinguishes that decision:

• JSW Hydro concerned the relationship between regulatory treatment of free power and a distinct contractual obligation for royalty-type payments.
• The regulation there did not intend to override a contractual obligation; it merely limited what portion of free power would be factored into tariff calculations.
• In contrast, the present case involves a direct conflict between PPA terms and tariff regulations governing COD, firm/infirm power, and entitlement to fixed charges.

Thus, JSW Hydro “turned on its own facts” and does not diminish the principle that PPAs must conform to tariff regulations.

H. Precedents Cited and Their Influence

1. Tata Power Co. Ltd. v. Reliance Energy Ltd., (2009) 16 SCC 659

In Tata Power, the Court held:

“…terms and conditions of such an agreement [PPA]… are not unregulated. Such an agreement is subject to grant of approval by the Commission. The Commission has a duty to check if the allocation of power is reasonable… If the terms and conditions… are not found to be reasonable, approval may not be granted.”

This principle underlies the present decision’s approach:

• PPAs are not sacrosanct private covenants in tariff matters.
• They are subject to regulatory approval and alignment with statutory principles and public interest (including consumer protection).

2. PTC India Ltd. v. CERC, (2010) 4 SCC 603

As discussed above, PTC India clarifies that:

• Tariff regulations under Section 178 (for CERC) or analogous provisions for State Commissions have the status of subordinate legislation.
• They can require that existing contracts, including PPAs, be modified and aligned with regulatory norms.
• This type of “regulatory inroad” into contracts is permissible only by regulation, not by mere orders.

The present judgment applies that principle to uphold the supremacy of tariff regulations over conflicting PPA terms, particularly regarding COD and firm/infirm classification.

3. KKK Hydro Power Ltd. v. Himachal Pradesh State Electricity Board Ltd., 2025 SCC OnLine SC 1847

In KKK Hydro, the Supreme Court stressed that:

• Fixing the price for purchase of electricity cannot be done privately between a generator and a distribution licensee.
• Any change in tariff terms in a PPA must be approved by the State Commission under Section 86(1)(b).
• A supplementary PPA between parties enhancing tariff, without Commission approval, is impermissible.

The present case adopts the same philosophy:

• The amended PPA of 25.08.2004, even if mutually agreed, could not be enforced in derogation of tariff regulations and Commission oversight.
• Tariff outcomes (such as classification of supply as firm/infirm and entitlement to fixed charges) must be in conformity with regulatory norms, not merely PPA wording.

4. State of Himachal Pradesh v. JSW Hydro Energy Ltd., 2025 SCC OnLine SC 1460

As already noted, the Court carefully distinguishes this precedent, thereby limiting its reach and ensuring it does not dilute regulatory primacy in tariff matters.

VI. Impact of the Judgment

1. Clarification of COD for Combined Cycle Gas Projects

The judgment cements the principle that in gas-based combined cycle projects:

• Each unit (e.g., gas turbine in open cycle, steam turbine in combined cycle) can and does have its own COD, as per tariff regulations.
• Once a unit is synchronised, successfully tested, and supplying continuous power, it can attain unit-wise COD, regardless of whether the entire project (i.e., all units) is yet fully commissioned.

This has crucial consequences:

• Generators are incentivised to bring individual units into service early, knowing that fixed charges can be recovered once a unit’s COD is achieved.
• Distribution licensees cannot unilaterally classify such post‑COD unit output as “infirm” simply because another unit (e.g., steam turbine) is not yet commissioned.
• Regulators and tribunals now have a clear Supreme Court validation of unit-wise COD treatment for tariff purposes.

2. Firm vs. Infirm Power: A Functional, Not Contractual, Concept

By tying the definition of infirm power strictly to the pre-COD stage of the unit, the Court:

• Prevents arbitrary or opportunistic classification of energy as “infirm” to deny fixed charges.
• Ensures that once a unit is commercially operational, energy it supplies on a continuous, scheduled basis is treated as firm power, regardless of PPA wording.
• Aligns tariff recovery with the economic reality of plant operation and investment, consistent with Section 61(d)’s mandate.

3. Strengthening the Role of Tariff Regulations over PPAs

The decision strongly reinforces the idea that:

• Tariff regulations are primary; PPAs must conform to them.
• Unapproved PPAs – particularly those executed after the regulatory framework is in place – carry lower normative weight and are subject to modification to align with regulations.
• Regulatory bodies (State Commissions and APTEL) have both the authority and the duty to:
  • Scrutinise PPA terms for consistency with statutory objectives and tariff regulations; and
  • Read down or reinterpret inconsistent clauses to maintain alignment.

This has systemic implications:

• Distribution licensees can no longer rely on PPA drafting to circumvent regulatory obligations or to depress legitimate tariff entitlements of generators.
• Generators, equally, cannot seek benefits under unapproved PPA clauses that are inconsistent with regulations or contrary to consumer interest.

4. Guidance for Future PPAs and Regulatory Practice

The judgment will likely influence:

• Drafting of PPAs – Parties will need to:
  • Expressly incorporate and cross‑reference applicable tariff regulations;
  • Avoid definitions (such as “COD”) that are inconsistent with the regulatory framework.
• Commission approvals – State Commissions may:
  • Scrutinise PPAs more closely for alignment with regulations;
  • Decline to approve clauses that seek to redefine core regulatory concepts (like COD, firm/infirm power) in ways that affect tariff recovery.
• Litigation strategy – In disputes:
  • Arguments will increasingly hinge on correct application of regulations rather than linguistic readings of unapproved PPA clauses;
  • Parties will be cautious in relying on private correspondence as a basis to vary statutory entitlements.

5. Consumer Interest and Cost Recovery Balance

While TANGEDCO invoked consumer interest, arguing that higher fixed charges would ultimately be borne by the public, the Court:

• Reminds that Section 61(d) requires both safeguarding consumer interests and ensuring reasonable cost recovery by generators.
• Implicitly holds that denying fixed charges for firm supply is as contrary to the Act as unjustified over‑recovery would be.

The decision reflects a nuanced regulatory balance:

• Generators that have invested in capacity and are supplying reliable, schedulable power must recover their legitimate fixed costs;
• Consumers benefit in the long run from a regime that preserves investment incentives and grid reliability.

VII. Complex Concepts Simplified

1. Commercial Operation Date (COD)

• Regulatory sense (CERC/TNERC):
  • Unit COD: Date declared by the generator after the unit has successfully completed trial runs demonstrating its rated capacity.
  • Station COD: Date on which the last unit of the station (project) attains COD.
• PPA in this case: Tied COD to the entire Project achieving 47.52 MW tested capacity in combined cycle mode.

2. Firm Power vs. Infirm Power

• Firm Power:
  • Power that is reliably and continuously available from a unit that has attained COD;
  • Is scheduled based on declared capacity;
  • Attracts both fixed (capacity) charges and variable (fuel) charges.
• Infirm Power:
  • Electricity generated before COD of a unit, typically during commissioning and trial runs;
  • Measured and paid for only at variable charge (fuel cost) rates;
  • Does not attract capacity/fixed charges because the unit has not yet been commercialised.

3. Open Cycle vs. Combined Cycle Operation

• Open Cycle: Only the Gas Turbine (GT) operates; exhaust heat is not used to produce steam. Faster to commission but less efficient.
• Combined Cycle: Exhaust from the GT is used to produce steam which drives a Steam Turbine (ST), increasing overall efficiency.

The same GT can first operate in open cycle mode (with its own COD) and later as part of a combined cycle configuration when the ST is commissioned.

4. Fixed (Capacity) Charges vs. Variable (Energy) Charges

• Fixed (Capacity) Charges: Recover:
  • Capital costs (interest, depreciation, return on equity);
  • Fixed O&M costs; and
  • Interest on working capital.
  These are payable for making capacity available, regardless of actual dispatch, subject to normative availability.
• Variable (Energy) Charges: Cover fuel costs per unit of electricity actually supplied.

5. Regulatory Approval of PPAs

• Under Section 86(1)(b), State Commissions must:
  • Regulate electricity procurement by licensees; and
  • Approve PPAs, including price terms, to ensure alignment with statutory principles and consumer interest.
• An unapproved PPA is not void, but its terms are subordinate to applicable regulations and can be read down or modified to ensure compliance.

VIII. Conclusion

The Supreme Court’s decision in TANGEDCO v. Penna Electricity Ltd. crystallises several important legal principles for the power sector:

1. Unit-wise COD Primacy: For combined cycle gas-based projects, COD must be determined unit-wise as per tariff regulations, and not solely on a “project-level” basis as some PPAs may attempt.
2. Regulatory Supremacy over PPAs: Tariff regulations issued under the Electricity Act, 2003 have primacy over conflicting PPA clauses, especially where PPAs are unapproved. Existing and amended PPAs must be aligned with such regulations.
3. Firm vs. Infirm Power is a Regulatory, not Merely Contractual, Classification: Once a unit has attained COD and supplies continuous power, its output is firm power attracting fixed charges, irrespective of PPA attempts to label it otherwise.
4. No Contractual Waiver of Statutory/Regulatory Rights: Correspondence or undertakings cannot validly waive or estop a party from asserting rights that stem from the statutory tariff framework and regulations.
5. Balanced Consumer and Generator Interests: The judgment affirms that ensuring reasonable recovery of costs for generators (including fixed charges for firm supply) is as much a part of consumer interest as preventing excessive tariffs.

In the broader legal context, this decision fortifies the regulatory architecture of the 2003 Act, emphasizing that:

• PPAs operate within, not outside, the statutory and regulatory framework;
• Regulatory commissions and tribunals have a central role in interpreting and enforcing alignment between contracts and regulations; and
• Technical realities of generation (such as unit-wise commissioning and operation) must be reflected accurately in tariff entitlements and classifications of power as firm or infirm.

As power projects become increasingly modular and complex (with multiple units and configurations), the unit-wise approach to COD and tariff affirmed here will have enduring significance in shaping both contractual drafting and regulatory practice across India’s electricity sector.