Liability for Capacity Charges Ceases Upon Expiry of Power Purchase Agreement Unless Mutually Extended

In brief

The question

1. Whether a distribution licensee is liable to pay capacity charges and energy bills to a generator after the expiry of a PPA by efflux of time, in the absence of a mutual renewal

The court held

The Tribunal allowed the appeal and set aside the DERC order. It held that the Appellants are not liable to pay any energy or capacity charges beyond the expiry of their respective PPAs in May 2015 (BRPL) and July 2015 (BYPL)

It also directed

The energy bills raised by Respondent No. 2 for the period between July and December 2015 were declared unlawful and quashed

01Facts

The Appellants, distribution licensees (DISCOMs) in Delhi, entered into Power Purchase Agreements (PPAs) with Indraprastha Power Generation Company Ltd. (Respondent No. 2) on 16.07.2012 for the Rajghat Power House (RPH)

pp. 3-4

Clause 13.1 stipulated a 25-year validity from the date of commercial operation

p. 4

These PPAs expired in May and July 2015 respectively. Despite the Appellants expressing no intent to renew and requesting the State Load Despatch Center (SLDC) to stop scheduling power, Respondent No. 2 continued billing until the plant’s closure on 31.12.2015 per pollution control orders

p. 4

The Delhi Electricity Regulatory Commission (DERC) issued an order on 10.12.2019 holding the Appellants liable for bills until 31.12.2015, citing a government meeting where it was decided to continue allocation for grid stability

pp. 5-7

02Issues

i.1. Whether a distribution licensee is liable to pay capacity charges and energy bills to a generator after the expiry of a PPA by efflux of time, in the absence of a mutual renewal

p. 3 / para. 2

ii.2. Whether the scheduling of power by SLDC under Section 32 of the Electricity Act occupies a higher priority than the existence of a valid underlying contract

pp. 22 / para. 27-28

03Law Applied

The Tribunal applied basic principles of contract law, noting that once a PPA—governed by Section 86(1)(b) of the Electricity Act, 2003—expires, the mutual obligations of the parties cease

p. 9 / para. 12

Regarding Respondent 2's right to challenge findings without a cross-appeal, the Tribunal relied on Banarsi Ors. v. Ram Phal (2003) 9 SCC 606, which allows a respondent to support a decree by challenging adverse findings without filing a cross-objection

pp. 11-13

Crucially, the Tribunal interpreted Section 32(2)(a) of the Electricity Act, 2003, which mandates that the SLDC must schedule and dispatch electricity "in accordance with the contracts entered into with the licensees"

pp. 22-23

Provisions in the judgment · 3 · Linked ones open on LawLens

Electricity Act, 2003 Section 108 Section 86 Section 32

04Reasoning

The Tribunal held that a PPA is a commercial contract; once its duration ends by efflux of time, the generator cannot force supply and the licensee is not bound to pay

p. 9

It rejected Respondent 2’s new plea that the 25-year period should start from a "stabilization date" in December 1990 rather than the May 1990 commissioning, noting this was a fresh factual argument based on conjecture and not raised before the Commission

pp. 19-20

The Tribunal further dismissed the argument that a government meeting on 05.06.2015 superseded the PPA, as the minutes themselves required the parties to "take necessary actions for renewal," which never occurred

p. 21

Finally, the Tribunal corrected the SLDC’s stance, clarifying that under Section 32(2)(a), the SLDC’s authority to schedule power is derived strictly from existing contracts; it cannot ignore a DISCOM's notice of PPA expiry and continue scheduling power unlawfully

pp. 23-24