The Supreme Court of India has dismissed appeals filed by Gujarat Urja Vikas Nigam (GUVNL) against the orders of the Gujarat Electricity Regulatory Commission (GERC) and the Appellate Tribunal for Electricity (APTEL) that upheld the decisions allowing four wind energy companies to seek separate tariff determinations for not availing the benefit of accelerated depreciation under the Income Tax Act.

The Court held that the tariff of ₹3.56 (~$0.040)/kWh, determined by the GERC in its 2010 order, applied only to wind energy projects that availed accelerated depreciation. Since the respondent companies did not avail such benefit and GUVNL had failed to obtain any binding commitment from them regarding depreciation choice, the companies were entitled to seek separate tariff determinations.

Background

The case arose from the tariff dispute between GUVNL and four wind power producers who had signed power purchase agreements (PPAs) with GUVNL between 2010 and 2012 during the validity of GERC’s order, which set the tariff for wind energy projects at ₹3.56 (~$0.040)/kWh. This tariff was premised on the assumption that the power producers would avail the benefit of accelerated depreciation.

The wind power companies later approached GERC seeking individual tariff determinations, claiming they had not availed of accelerated depreciation. The GERC allowed their petitions, and the APTEL upheld these decisions. GUVNL then appealed to the Supreme Court.

GUVNL argued that the companies had voluntarily entered into PPAs that had a fixed tariff clause referencing the ₹3.56 (~$0.040)/kWh tariff. GUVNL claimed this was binding for the full 25-year term of the projects and that allowing revisions would undermine contractual sanctity. It also asserted that, had the companies disclosed their intention not to avail accelerated depreciation, they might not have signed the PPAs at all.

The wind energy companies countered that the 2010 tariff order itself provided for separate tariff determination for projects not availing the accelerated depreciation benefit. They argued that exercising their statutory right under the Income Tax Act at a later stage could not be overridden by the PPAs, especially in the absence of any binding commitments regarding depreciation preference.

Supreme Court’s Analysis

The Supreme Court explained that under the 2010 tariff order, GERC explicitly set two paths. The first is a fixed tariff of ₹3.56 (~$0.040)/kWh for projects availing accelerated depreciation, and the second is a separate case-specific determination for those not availing it. This bifurcation was integral to the GERC’s regulatory policy and pricing mechanism.

It noted that under Section 32 of the Income Tax Act and Rule 5 of the Income Tax Rules, companies must choose whether to avail accelerated depreciation while filing income tax returns for the assessment year corresponding to the year in which power generation commenced. This statutory discretion could not be curtailed or preempted by the PPAs signed before the depreciation decision point.

The Court rejected GUVNL’s argument that the mere signing of a PPA at the ₹3.56 (~$0.040)/kWh constituted an irrevocable choice by the power producers to avail accelerated depreciation. It emphasized that GUVNL had failed to secure any written commitment from the companies about their depreciation strategy. Therefore, there was no basis for binding the companies to the tariff applicable only to those availing accelerated depreciation.

It also explained that as a state instrumentality, GUVNL had an obligation to promote renewable energy development in alignment with both national and state policies. The Gujarat Wind Power Policy of 2007 and 2013 had expressly aimed to incentivize wind energy development. GUVNL’s attempt to bind producers to a lower tariff, despite regulatory guidance and the absence of mutual understanding, was found to be contrary to this public interest obligation.

The Court strongly condemned GUVNL’s conduct as being unfair and driven purely by commercial interest. It reminded GUVNL that as a public utility and state agency, it must adhere to policy goals and act fairly in its dealings. The companies in question were not stopped from seeking redetermination of tariff and were entitled to a fair and separate tariff determination process, as originally provided by GERC.

The apex court had earlier ruled that the state regulatory commissions must be guided by the public interest when approving tariffs for power purchases.

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