In a significant ruling on power-purchase disputes, the Supreme Court of India has upheld that continuous power supplied after grid synchronization cannot be treated as infirm power merely because the commercial operation date (COD) under a contract was later. The decision in Tamil Nadu Generation and Distribution Corporation Ltd. (TANGEDCO) vs. M/s Penna Electricity Ltd. (Civil Appeal No. 5700 of 2014) clarifies critical aspects of tariff entitlement, commercial operation, and the interplay between regulatory law and private contracts in the power sector.
Penna Electricity Limited operated a combined cycle gas-based power plant whose gas turbine unit was synchronised with the grid on 29 October 2005 and thereafter continuously supplied power to TANGEDCO at around 30 MW until 30 June 2006.
Under the Power Purchase Agreement (PPA) between the parties, the COD for the entire project—including both the gas turbine and the steam turbine—was contractually defined as 1 July 2006. TANGEDCO treated all electricity supplied prior to that project-wide COD as infirm power, paying only variable (fuel) charges and refusing fixed charges (capacity charges that pay for capital and operational costs).
Penna Electricity argued that once its gas turbine synchronised with the grid, passed trials, and supplied electricity continuously, those deliveries were firm power—entitling it to both fixed and variable charges under the applicable tariff regulations.
Supreme Court’s Key Rulings
1. Firm Power vs Infirm Power
The Supreme Court agreed with the Tamil Nadu Electricity Regulatory Commission (TNERC) and the Appellate Tribunal for Electricity (APTEL) that the gas turbine unit had effectively achieved unit-wise COD on 29 October 2005 when it synchronized with the grid, completed its commissioning procedures, and began continuous, reliable supply. Electricity supplied thereafter could not be categorised as infirm power merely because the PPA’s project-wide COD was later.
Under the relevant tariff regulations (Central and State), infirm power describes electricity generated before commercial operation of a unit; once a unit is synchronised and supplying continuously, it qualifies as firm power, entitled to full tariff including fixed charges.
2. Regulatory Framework Overrides Unapproved Contract Terms
The Court also stressed that PPAs executed or amended after the enactment of the Electricity Act, 2003 must be approved by the State Electricity Regulatory Commission under Section 86(1)(b) of the Act to be binding and enforceable in their terms. In this case, the PPA amendment of 25 August 2004 was never placed before the TNERC for approval, making its contractual definitions—such as project-wide COD—inconsistent with regulatory standards.
Where there is a conflict between an unapproved contract and tariff regulations, the Court reaffirmed that the statutory regulatory framework prevails. This principle aligns with well-settled jurisprudence on the supremacy of regulatory law over private contracts in the electricity sector.
3. No Waiver Through Correspondence
TANGEDCO contended that pre-COD correspondence suggested Penna had agreed to treat early power as infirm. The Supreme Court rejected this argument, explaining that letters or informal communications cannot override statutory and regulatory definitions of COD and entitlement, particularly where tariff recovery and cost principles are involved.
Outcome and Impact
The Supreme Court dismissed TANGEDCO’s appeal, upheld the TNERC and APTEL decisions, and confirmed that:
- Penna Electricity is entitled to fixed (capacity) charges in addition to variable (fuel) charges for power supplied from 29 October 2005 to 30 June 2006.
- Any remaining payment due must be made within the prescribed period (a balance on top of interim payments already made).
This ruling has important implications for generation utilities and distribution licensees. It reinforces that:
- Regulatory oversight and approval requirements under the Electricity Act are essential for PPAs’ enforceability.
- Continuous supply after synchronization should be recognised as firm power regardless of contractual COD language;
- Unit-wise COD under tariff regulations is critical, especially for projects with multiple generation units;
