Allocation Under Fuel Supply Agreements Is Plant-Wide, Not PPA-Specific: Supreme Court Upholds Pro Rata Apportionment of Coal and Compensation Orders by CERC and APTEL

“Coal allocation under the Fuel Supply Agreements is not PPA-wise, but for the entire generating station. No beneficiary can claim priority over firm or tapering coal linkage based on PPA date or delivery schedule”, held the Supreme Court in a significant ruling on September 8, 2025, while dismissing two civil appeals filed by Haryana Utilities and GRIDCO.

In a notable affirmation of sectoral regulatory autonomy, a Bench comprising Chief Justice B.R. Gavai and Justice K. Vinod Chandran dismissed the challenge against the Central Electricity Regulatory Commission’s (CERC) orders — upheld by the Appellate Tribunal for Electricity (APTEL) — which directed that the supply of firm and tapering linkage coal to GMR Kamalanga Energy Ltd. (GKEL) be apportioned pro rata among the power off-takers based on energy supplied. The Court also upheld GKEL’s entitlement to Change in Law compensation for procuring alternate coal due to shortfall in linkage supply.

The decision, grounded in a strict interpretation of the Electricity Act, 2003, and consistent with prior rulings like Energy Watchdog and Adani Power, reiterates the judiciary’s deference to expert regulatory authorities in technical matters of energy law and policy.

“Court Must Defer to Expert Bodies Unless Findings Are Arbitrary, Perversely Irrational, or Contrary to Statute”

“Even well-reasoned concurrent orders passed by statutory expert bodies are often challenged on insubstantial grounds, leading to years of litigation and heavy carrying costs ultimately borne by consumers,” the Court lamented, echoing its own ruling in GMR Warora Energy Ltd. v. CERC (2023).

The Court began its judgment by highlighting that appeals under Section 125 of the Electricity Act can only lie on substantial questions of law as per Section 100 of the Civil Procedure Code. Reaffirming the judicial threshold, the Court emphasized that it would not substitute its views for those of expert tribunals unless “perversity, arbitrariness or statutory breach” was evident.

In this case, both CERC and APTEL had concurrently ruled that the firm and tapering coal linkage granted to GKEL was for the plant as a whole, and not earmarked for any specific PPA. Consequently, the cost of imported or open market coal used to mitigate shortfalls had to be shared pro rata by all three power purchasers — Haryana Utilities, GRIDCO, and Bihar Utilities.

Change in Law Relief Must Be Shared Pro Rata Across Beneficiaries — No DISCOM Can Claim Preferential Coal Supply

The appeals stemmed from a dispute over coal allocation and Change in Law compensation under long-term Power Purchase Agreements (PPAs) executed by GKEL with Haryana Utilities (under Section 63), GRIDCO (under Section 62), and Bihar Utilities. GKEL had faced coal supply shortfalls due to changes in coal distribution policy and was forced to procure alternate fuel, thereby raising supplementary bills under CERC's approved Change in Law mechanism.

Haryana DISCOMs contended that their 300 MW allocation must be fully met from firm linkage coal (as per the FSA dated 26 March 2013), and any cost of imported/tapering linkage coal should be borne solely by GRIDCO and Bihar. GRIDCO argued that since its PPA was the first executed and operationalized, it had first claim over the firm linkage.

The Court rejected both arguments emphatically. “Such a construction would violate the principle of parity among equals and result in cross-subsidization of one State’s consumers by another,” the Bench ruled. Quoting CERC's findings:

“Coal supplied under the FSA is meant for use at the power plant (3x350 MW) and not tied to any individual PPA. ACQ is linked to the percentage of generation under long-term PPAs, not to PPA date or priority.” [Para 32, CERC Order]

The Apex Court agreed with APTEL’s view that apportionment must follow a project-wide allocation approach, noting:

“Letters of Assurance and SLC-LT minutes clearly establish that linkage approvals were for the station’s total capacity. MCL also confirmed that coal release is based on total PPA capacity, not segregated PPA-wise.” [Para 8.20, APTEL Judgment]

Judicial Rebuke of Haryana Utilities for "Approbation and Reprobation" in Electricity Litigation

The Court was particularly critical of Haryana Utilities' shifting legal positions. Citing Uttar Haryana Bijli Vitran Nigam Ltd. v. Adani Power (Mundra) Ltd., it observed:

“After expressly accepting the GMR Kamalanga methodology before the CERC, it is not open for the appellants, as State instrumentalities, to alter their stand post final orders. Such conduct amounts to approbation and reprobation.” [Para 39]

The Bench underscored that Haryana Utilities had, in fact, paid nearly ₹140 crore pursuant to the original 2016 CERC order before reversing its stance and initiating litigation.

This flip-flop was noted as emblematic of a broader pattern of “unnecessary and unwarranted litigation”, which the Court stated “must be curbed”, especially where regulatory orders are neither arbitrary nor statutorily infirm.

GRIDCO Not a Necessary Party to Section 63 Proceedings — Distinction Between Sections 62 and 63 Tariffs Upheld

Addressing GRIDCO’s grievance that it was not impleaded in earlier petitions before CERC, the Court clarified that GKEL’s petitions pertained solely to Section 63-based PPAs with Haryana and Bihar Utilities.

“GRIDCO’s PPA was under Section 62, where tariffs are cost-plus and determined separately by the regulator. Proceedings under Sections 62 and 63 are distinct; non-impleadment of GRIDCO did not vitiate the CERC’s orders,” held the Court [Para 43].

The Court also relied on a prior appeal by GRIDCO before APTEL challenging its tariff order, where APTEL had upheld the tariff methodology adopted by CERC. Thus, GRIDCO’s attempt to now contest the same principles in a Section 63 context was disallowed.

Court Reaffirms Energy Watchdog Doctrine and Warns Against Disrupting Regulatory Equilibrium

In a broader reflection on energy jurisprudence, the Court reiterated its dicta from Energy Watchdog v. CERC (2017) and MSEDCL v. Adani Power (2023), observing:

“The delicate balance achieved under the Electricity Act — between investor confidence and consumer protection — must not be disrupted by avoidable litigation.” [Para 22]

The Court warned that such appeals, when dismissed, still result in “carrying costs being passed on to end-consumers, who are the ultimate sufferers.”

SC Dismisses Both Appeals, Upholds Sectoral Expertise and Pro Rata Allocation Principle

In conclusion, the Supreme Court ruled:

“None of the DISCOMs can claim a priority for supply of power based either on the prior date of agreement or the recital as to the source of coal. The coal supply from all the sources has to be apportioned amongst all the three DISCOMs in proportion to the energy supplied to them.” [Para 45]

Accordingly, both appeals — Civil Appeal No. 1929 of 2020 (Haryana Utilities) and Civil Appeal No. 3429 of 2020 (GRIDCO) — were dismissed, with the CERC and APTEL orders being upheld in full.

Date of Decision: 08 September 2025