Once Power Flows Continuously from a Synchronized Turbine, It Is No Longer Infirm: Supreme Court Orders TANGEDCO to Pay Fixed Charges to Penna Electricity

 “Power Delivered After Synchronization is Firm Power, Entitled to Full Tariff – Not Just Fuel Cost”, Supreme Court of India delivered a judgment that will resonate deeply across India’s power sector in the landmark case of Tamil Nadu Generation and Distribution Corporation Ltd. v. M/s Penna Electricity Ltd. (Civil Appeal No. 5700 of 2014). The Court ruled that electricity continuously supplied from a gas turbine, after synchronization with the grid, qualifies as “firm power” – and not “infirm power” – even if the Power Purchase Agreement (PPA) specifies a later commercial operation date (COD).

Holding that “the respondent, having supplied continuous power, cannot be denied the annual fixed charges for the relevant period,” the Court affirmed the decisions of the Tamil Nadu Electricity Regulatory Commission (TNERC) and the Appellate Tribunal for Electricity (APTEL), rejecting the appeal filed by TANGEDCO. This ruling redefines how COD and tariff entitlements are to be interpreted when generation has already begun in part.

“Once a Unit Synchronizes and Supplies Power Firmly, Fixed Charges Cannot Be Denied” – Court Declares PPA Must Align With Electricity Regulations

The case revolved around a dispute regarding tariff entitlement for power supplied by Penna Electricity Ltd. between 29.10.2005 and 30.06.2006. TANGEDCO contended that under the PPA, the COD was 01.07.2006 – and any electricity supplied before that date was “infirm”, entitling the supplier to only variable charges, not fixed charges. But Penna had already synchronized its gas turbine with the grid and was supplying power on a continuous, firm basis from 29.10.2005.

The Supreme Court categorically rejected TANGEDCO’s contention, observing, “Applying the Regulations, we have no doubt in our mind that it is firm power.” The bench, comprising Justices J.B. Pardiwala and K.V. Viswanathan, ruled that power supplied from a gas turbine operating in open cycle mode after synchronization and meeting reliability standards is entitled to both fixed and variable charges.

“PPAs Must Comply With Electricity Act, Not Override It” – Supreme Court Raps TANGEDCO for Relying on Unapproved Contract Terms

The Court criticized both parties for failing to obtain statutory approval of the amended PPA under Section 86(1)(b) of the Electricity Act, 2003. “Even existing PPAs had to be modified and aligned with the regulations,” the Court stressed, relying on precedents including PTC India Ltd. v. CERC and Tata Power v. Reliance Energy Ltd.

While the original PPA (signed in 1998) predated the 2003 Act, the amended PPA (dated 25.08.2004) represented a new contractual framework—with changes in location, technology (from diesel to gas), fuel, and tariff. The Court firmly held that such a substantial modification could not bypass the mandatory requirement of regulatory approval.

Rejecting TANGEDCO’s argument that the original bidding process shielded the agreement under Section 63 of the Act, the Court ruled, “Section 63 does not dispense with the mandatory approval of the PPA by the State Commission... the amended PPA dated 25.8.2004 was virtually a new agreement.”

“Infirm Power Means Before COD of the Unit, Not Entire Project” – Court Upholds Unit-wise COD Approach Under CERC Regulations

One of the core legal issues was whether COD under the CERC and TNERC Tariff Regulations could be declared unit-wise, or only for the entire project as per the PPA. The Court held that “there is a clear dichotomy between the Regulations and the PPA,” finding that the PPA failed to recognize separate CODs for individual units such as a gas turbine.

As per the CERC Tariff Regulations, the term ‘Date of Commercial Operation’ refers to “the date declared by the generator after demonstrating the Maximum Continuous Rating (MCR) through a successful trial run.” The Supreme Court agreed with the findings of TNERC and APTEL that the COD in relation to the gas turbine unit was achieved on 29.10.2005 when it was synchronized with the grid and began supplying power reliably and continuously.

The Court emphasized, “The definition of ‘Infirm Power’ under the Regulations states that it means electricity generated prior to commercial operation of the unit of a generating station. In this case, continuous supply began after COD of the unit.”

“Estoppel and Correspondence Cannot Override Law and Reality of Supply” – Court Rejects TANGEDCO’s Reliance on Letters

TANGEDCO had relied on a series of letters exchanged in October 2005, where Penna initially accepted payment on the basis of “infirm power.” The Court dismissed this argument outright, calling it a flawed attempt to override legal obligations through private correspondence.

“The letters take us back to the issue of COD and really beg the question as to what the commercial operation date was. We have extended the definition of ‘COD’ as it prevails under the regulations,” the Court clarified. “Hence, we reject the argument based on estoppel and waiver.”

Court Affirms That Power Sector Must Follow Regulatory Law Over Contractual Clauses

In a key legal pronouncement, the Supreme Court reinforced the principle that statutory regulations framed under the Electricity Act override any inconsistent terms in power purchase agreements. “The PPA was not in tune with the Regulations... It does not recognize COD in relation to a unit,” the Court observed.

Citing KKK Hydro Power v. Himachal Pradesh SEB, the Court reaffirmed, “Fixing of the price for the purchase of electricity is not a matter of private negotiation… the price and the PPA incorporating such price necessarily have to be reviewed and approved by the State Commission.”

Penna Entitled to Fixed Charges for 153 Million Units Supplied Before Full COD

The Court concluded that Penna had supplied a total of 153 million units of electricity from its gas turbine, operating in open cycle mode, from 29.10.2005 to 30.06.2006. “Power has been continuously drawn… The appellant is seeking to classify it as infirm power only by falling back on the PPA. This cannot be permitted,” the Court said.

The Supreme Court affirmed the APTEL judgment dated 10.07.2013 and directed that fixed charges for the said period must be paid. “If denied, the respondent will permanently lose that amount, which will be unjust and contrary to law,” the Court declared.

Supreme Court Directs Balance Payment Within 12 Weeks

Under interim orders dated 25.08.2014, TANGEDCO had already paid ₹50 Crores to Penna Electricity. The Supreme Court ordered that any balance amount due shall be paid within 12 weeks from the date of the judgment.

This ruling not only affirms the supremacy of statutory electricity regulations over unapproved or outdated PPAs but also ensures fair compensation for power generators delivering actual, continuous supply to the grid.

Date of Decision: 16 December 2025