Supreme Court Holds Distribution Licensee Entitled to Reimbursement of Fixed Charges and Compensation for Wrongful Diversion of Power

A bench of Justices Sanjay Kumar and Alok Aradhe heard civil appeals filed by Gujarat Urja Vikas Nigam Limited (GUVNL) under Section 125 of the Electricity Act, 2003 challenging the Appellate Tribunal for Electricity’s (APTEL) common judgment dated 21.03.2025 in appeals arising out of the Gujarat Electricity Regulatory Commission’s (GERC) order dated 27.12.2019. The appeals concerned claims arising from alleged diversion of GUVNL’s contracted share of power by Essar Power Limited (EPL) to its sister concern, Essar Steel Limited (ESL), the correct basis for computing diverted units, and entitlement to fixed charges, compensation and delayed payment charges.

The Court summarised its principal holdings and directions. It held that GUVNL was entitled not only to compensation for wrongful diversion computed on the HTP‑1 energy tariff (less variable charges) but also to reimbursement of proportionate fixed charges for the shortfall in supply from its allocated share; the APTEL’s finding that reimbursement of fixed charges was not payable was set aside. The Court directed GERC to re‑compute amounts due in light of these conclusions, to give both parties a reasonable opportunity of hearing and to pass fresh orders. The Court also held that computation of diversion could be carried out on a half‑hourly basis where the parties had accepted the Central Electricity Authority’s recommendation and acted upon it. The Court, in its reasoning, observed: The Court added that reimbursement of fixed charges flowed from the PPA and was distinct from the compensation quantified under the parties’ earlier methodology.

Background The dispute dated to two PPAs executed in 1996 for a 515 MW plant at Hazira: 300 MW was contracted to GEB (later GUVNL) and 215 MW to ESL. GUVNL alleged that EPL supplied excess of ESL’s proportion from GUVNL’s allocated share from 1998 onwards and sought recovery. GERC in 2009 accepted the proportionate principle (58:42), allowed compensation for diversion on HTP‑1 energy tariff less variable costs, held pre‑2002 claims time‑barred except a settlement of ₹64 crore, and recorded that reimbursement of proportionate fixed charges would be payable in certain circumstances. APTEL in 2010 partly reversed GERC; this Court in 2016 set aside APTEL and restored GERC’s 2009 findings. GERC later computed amounts in 2019 and disallowed fixed‑charge reimbursement, awarding compensation on HTP‑1 basis and certain delayed payment and deemed generation adjustments. APTEL in 2025 affirmed some computations but reversed half‑hourly metering adoption and ruled that fixed charges were not reimbursable; that led to the present appeals. The Supreme Court analysed the prior judgments, the PPA provisions (including Articles on tariff, invoicing and availability period defined as 60‑minute blocks), the parties’ correspondence, the CEA recommendation dated 21.02.2005 to adopt half‑hourly metering, and this Court’s earlier restoration of GERC’s 2009 order. The Court reiterated that para 9.13 of GERC’s 2009 order fixed the compensation methodology: “ …GUVNL is entitled to the HTP‑1 energy tariff after excluding the variable cost… The diversion in the circumstance should be computed on an hourly basis… ” but held that where the parties and CEA had adopted half‑hourly metering and acted on it, computation on half‑hourly basis was permissible. The Court remanded detailed quantification (including disputed figures on deemed generation incentive and actual deductions) to GERC for fresh determination, directed contemporaneous application of any compound interest orders uniformly, and disposed of the appeals with parties to bear their own costs.

Case Details: Case No.: Civil Appeal Nos. 6581-6582 of 2025 (2025 INSC 1160) Case Title: Gujarat Urja Vikas Nigam Limited v. Essar Power Limited & Anr. Appearances: For the Petitioner(s): Counsel not specified in the reported text For the Respondent(s): Counsel not specified in the reported text