Supreme Court Clarifies Firm vs Infirm Power Payments for Gas-Based Projects: Fixed Charges Payable from Unit-Level Commercial Operation – EQ
Summary:
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## Business Summary – Key Points
* **Dispute Context**
* The case involved a payment dispute between **TANGEDCO** and **Penna Electricity Ltd.** regarding electricity supplied between **29 Oct 2005 and 30 Jun 2006**.
* The core issue was whether the power supplied during this period was **“firm power” (fixed + variable charges)** or **“infirm power” (only variable charges)**.
* **Operational Milestone**
* Penna’s **Gas Turbine (Open Cycle)** achieved synchronization, testing, and continuous operation on **29.10.2005**.
* The **Steam Turbine (Combined Cycle)** became operational later on **01.07.2006**.
* Power was supplied continuously at around **30 MW** during the disputed period.
* **Commercial Impact**
* TANGEDCO treated pre-July 2006 power as infirm, paying only fuel costs.
* Penna claimed entitlement to **fixed charges**, arguing that commercial operation had effectively begun for the gas turbine unit.
* **Regulatory Compliance Issue**
* The amended **Power Purchase Agreement (PPA) dated 25.08.2004** was **never approved** by the State Electricity Regulatory Commission, as required under the **Electricity Act, 2003**.
* Unapproved PPAs cannot override statutory tariff regulations.
* **Regulatory Framework Applied**
* **CERC Tariff Regulations, 2004** and **TNERC Regulations, 2005** were held applicable.
* These regulations recognize **unit-wise Commercial Operation Date (COD)**, not project-level COD.
* Each turbine (gas or steam) can have a separate COD.
* **Firm vs Infirm Power Clarified**
* **Infirm power** applies only to electricity supplied **before a unit completes trial runs and reliable operation**.
* Once a unit achieves stable, continuous operation and supplies scheduled power, it qualifies as **firm power**.
* Penna’s gas turbine met these conditions from **29.10.2005**.
* **Financial Principle Affirmed**
* Fixed charges compensate recovery of capital costs (interest, depreciation, O&M).
* Denying fixed charges for continuous supply would cause **permanent financial loss** to the generator.
* This would violate the principle of **reasonable cost recovery** under Section 61 of the Electricity Act.
* **Contractual Letters Rejected**
* Correspondence suggesting treatment as infirm power did **not override statutory regulations**.
* Estoppel or waiver cannot apply against regulatory law.
* **Public Interest Argument Dismissed**
* The Court rejected the claim that paying fixed charges would burden consumers.
* Regulatory compliance and fair cost recovery were held to be in the **long-term public interest**.
* **Final Outcome**
* Supreme Court upheld TNERC and APTEL decisions.
* Power supplied from **29.10.2005 to 30.06.2006** classified as **firm power**.
* Penna entitled to **fixed charges + variable charges** for the period.
* TANGEDCO directed to pay remaining dues within **12 weeks** (₹50 crore already paid).
* **Business & Sector Takeaways**
* PPAs must align with current regulatory frameworks.
* **Unit-wise COD** is critical for gas and combined cycle projects.
* Continuous, scheduled power supply triggers entitlement to fixed charges.
* Regulatory approval is as important as contractual wording.
* Utilities cannot rely on legacy definitions once new regulations apply.
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