Consumer Cannot Be Burdened With Depreciation Beyond The Useful Life Of A Power Plant

Introduction:

The Apex Court in the case, Delhi Electricity Regulatory Commission vs TATA Power Delhi Distribution Ltd.¹, held that electricity consumers do not have to bear power plant depreciation costs for the period during which they weren’t supplied electricity. The Supreme Court allowed the Appeal filed by the Delhi Electricity Regulatory Commission (“DERC”) under Section 125² of the Electricity Act, 2003 (“the Act”) and overturned the order of the Appellate Tribunal for Electricity (“APTEL”). The Order passed by DERC dated 11.11.2019 was restored.

Genesis of the case:

TATA Power Delhi Distribution Ltd. (“TPDDL”), brought forward their proposal to establish a temporary 108-megawatt gas-based Power Plant at Rithala, which was to run for an operational period of 5-6 years, after which the land would go back to the Delhi Development Authority.  From the beginning itself, the operational period of the Plant was supposed to be limited as its main purpose was to serve the needs of the then upcoming Commonwealth Games, 2010.

Subsequently, TPDDL submitted three petitions for approval before the DERC for finalizing the terms and conditions of sale and purchase of power³, for use of land in licensed area⁴ & for seeking determination of the final generation of tariff⁵. TPDDL got in principle approval and begun commercial operations, in both modes i.e., open and combined cycles in 2011. Later, by a Common Order dated 31.08.2017, the DERC allowed the petitions filed by TPDDL & permitted operation and supply for a period of 6 years & determined the capital cost of the plant at Rs. 197.70 Crores against the claimed cost of Rs. 320.17 Crores. It approved a technical useful life of 15 years for the Plant but restricted the tariff framework to a period of 6 years, thus, allowing the plant to be operational for supply purposes until March 2018.

Later on, the DERC by Order dated 11.11.2019 passed by the DERC in the petition filed for Truing up of fixed cost, depreciation & O&M expenses for the period FYs 2010-2018 allowed depreciation @ 6% per annum as per the regulations⁶ to recover the cost in 15 years but however, while computing the depreciation, the Commission restricted the amount only upto FY 2017-18. Thus, , technically allowing depreciation recovery of Rs. 83.34 Crores only. This Order was challenged by TPDDL before the APTEL, contending that in case useful life as well as operation life of the Rithala-CCPP is taken as 6 years, the recovery of capital cost should also be allowed within the said time period.  The APTEL set aside the 2019 Order by the DERC, citing Regulation 6.32 of the DERC (Terms and Conditions for Determination of Generation Tariff) Regulations, 2011⁷ (“2011 Regulations”), which allowed for recovery of depreciation for the total useful life of the Plant, and not just for its operational period and remanded back with the direction to allow the recovery of entire capital cost of TPDDL 's power plant at Rithala by way of depreciation over its useful life of 15 years. This order was  challenged by the Commission  before the Supreme Court.

Questions of law framed by the Supreme Court:

• Whether the depreciation under the applicable tariff regulations must necessarily be allowed over the entire technical useful life of an asset irrespective of the period during which the asset is actually utilised for supply of electricity?
• Whether Regulation 6.32 of 2011 Regulations confers an absolute right upon the generating utility to recover entire capital cost over the useful life of the asset, even where the asset ceases to supply electricity to the consumer?
• Whether the APTEL erred in law in disregarding the regulatory framework and approval conditions which limited the operational and recovery period of the Plant to six years?

Contentions of the Parties:

The DERC contented that, placing the liability on the electricity consumers by charging them the depreciation costs for the period beyond March 2018 was violative of Section 61(d)⁸ of the Act, which provides for safeguarding the consumers interests while recovering electricity costs. On the other hand, TPDDL while relying on BSES Rajdhani Power Ltd..⁹ argued that, the Regulation 6.32 of the 2011 Regulations does not restrict depreciation only to the operational life of the plant and it was necessary to immediately apply the directions of the APTEL in securing accountability, which if not implemented, would cause serious regulatory failure, causing harm to all stakeholders involved.

Judgement & Analysis:

The Court held that tariff determination needs to aim to balance both reasonable cost recovery for utilities along with safeguarding consumer interests. In the present scenario, consumers were not being supplied electricity after March 2018 and they cannot be mandated to pay any costs for a period that they weren’t being supplied with electricity. While answering the first question in negative, the Apex Court observed that DERC in 2012 had clarified that the Plant could act as a merchant generator and could be used to sell power anywhere after the 6-year period without any restrictions.

While interpreting the 2011 Regulations, the Court stated that it was important to construe Regulation 6.32 harmoniously with Regulation 4.1, which confined tariff entitlement to the period approved in the Power Purchase Agreement. The 2011 Regulations needs to be read along with Section 61(d) of the Act which prioritizes consumer interests preventing Regulation 6.32 from conferring an absolute right to TPDDL to recover depreciation costs from the consumers, as it cannot override an already established statutory framework.

The Court while answering the third substantial question of law in affirmative & DERC’s favour, pointed out that TPDDL had the opportunity to contest the 2017 Order of the DERC, which approved the Power Purchase Agreement for a period of 6 years only, before it became final and binding. The APTEL erred in its judgement by failing to distinguish the 6-year operational and regulatory recovery period and 15-year technical useful life of the plan, which was clearly defined in the framework.

Thus, the Supreme Court set aside the judgement dated 10.02.2025 passed by the APTEL and restored the earlier Order dated 11.11.2019 of the DERC, bringing significant relief to the electricity consumers.

Footnotes

1. Delhi Electricity Regulatory Commission v. Tata Power Delhi Distribution Ltd., Civil Appeal No. 6388 of 2025 (Supreme Court of India May 7, 2026).

2. Electricity Act, 2003, No. 36 of 2003, § 125 (India).

3. Petition No. 11/2009

4. Petition No. 07/2010

5. Petition No. 06/2013

6. DERC MYT Regulations, 2011

7. Delhi Electricity Regulatory Commission (Terms and Conditions for Determination of Generation Tariff) Regulations, 2011 reg. 6.32 (2011).

8. Electricity Act, 2003, No. 36 of 2003, § 61(d) (India).

9. BSES Rajdhani Power Ltd. v. Union of India, 2025 SCC OnLine SC 1637 (Supreme Court of India).

This article was prepared with the assistance of Mr. Chaitanya Sontakke- Assessment Intern.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.