Power Purchase Agreement Dispute: Supreme Court Upholds Regulatory Ruling

The case of Wardha Power Co. Ltd. v. Maharashtra State Electricity Distribution Co. Ltd. revolves around a dispute concerning the interpretation of a power purchase agreement (PPA). The Supreme Court upheld the concurrent findings of the Maharashtra Electricity Regulatory Commission (MERC) and the Appellate Tribunal for Electricity (APTEL), ruling against the appellant, Wardha Power Co. Ltd.

Background of the Case

The appellant, Wardha Power Co. Ltd., entered into an agreement to generate and supply power to Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL). Due to delays in its own power generation, Wardha Power made alternative arrangements by purchasing power from third-party sources. The dispute arose over whether such ad hoc power supply should be charged at the actual cost incurred or at the higher pre-agreed PPA rates.

Legal Issues in the Case

• Can a power generator claim PPA rates for power procured from third parties to fulfill its obligations?
• Is the generator entitled to trade the difference in rates if the purchased power costs less than the PPA rates?
• Does an appeal under Section 125 of the Electricity Act, 2003, require a substantial question of law?

Arguments from the Appellant (Wardha Power Co. Ltd.)

• The appellant argued that it should be compensated at the PPA rates, regardless of whether the power was self-generated or procured from other sources.
• It contended that it had fulfilled its contractual obligations and should not suffer a financial loss for delays.
• The appellant claimed that the regulatory bodies misinterpreted the PPA terms, leading to an unjust decision.

Arguments from the Respondents (Maharashtra State Electricity Distribution Co. Ltd.)

• MSEDCL argued that the appellant was only entitled to PPA rates for power generated by its own plant.
• For any power procured from other sources, the appellant could only recover the actual cost, preventing unjust enrichment.
• The respondents maintained that the agreement clearly differentiated between self-generated and externally purchased power.

Supreme Court’s Judgment

1. Interpretation of the Power Purchase Agreement

The Court found that the agreement explicitly allowed the appellant to procure power from external sources in case of delays, but only at actual cost. The Court observed:

“The understanding between the parties was that being a bidder who agreed to supply power from its own generation, the appellant could claim PPA rates only for generated power.”

The Court held that allowing the appellant to charge PPA rates for third-party power would lead to an unfair financial gain.

2. No Substantial Question of Law Under Section 125

The Court examined whether the case raised a substantial question of law necessary for an appeal under Section 125 of the Electricity Act, 2003. It found that the dispute was purely factual and had been correctly adjudicated by MERC and APTEL.

The Court noted:

“Though the appellant has raised 34 questions, they are actually grounds for attacking the appellate order. Grounds for attacking an order are different from a substantial question of law.”

3. Final Ruling

The Supreme Court dismissed the appeal, holding that there was no substantial question of law to justify overturning the concurrent findings of the regulatory bodies.

Key Takeaways from the Judgment

• A power generator can only claim PPA rates for power it produces itself, not for power procured from third parties.
• Regulatory decisions based on contractual interpretation and factual findings are not appealable under Section 125 unless they raise substantial legal questions.
• The ruling prevents power generators from unjustly profiting by reselling third-party power at PPA rates.

Conclusion

The Supreme Court’s decision in Wardha Power Co. Ltd. v. Maharashtra State Electricity Distribution Co. Ltd. reinforces the principle that contractual agreements must be interpreted as per their clear terms. The ruling ensures that power procurement is fair and does not allow generators to make undue profits at the expense of electricity distribution companies.

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Download Judgment: Wardha Power Co. Ltd vs Maharashtra State El Supreme Court of India Judgment Dated 07-09-2016-1741883710757.pdf

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