State Electricity Commissions Can Consider Union Grants For Tariff Fixation But Cannot Deduct Generation Incentives Meant For Green Energy: Supreme Court

"Regulatory power must be exercised as a collaborative enterprise and must not be exercised in a manner that ignores the purpose and object of a policy or grant by other stakeholders." Supreme Court held that while State Electricity Regulatory Commissions (SERCs) possess the plenary power to take into account Union Government grants during tariff determination, they cannot deduct 'Generation Based Incentives' (GBI) intended to promote renewable energy from the determined tariff.

A bench of Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar observed that the regulatory process must function as a "collaborative enterprise" that respects national and international policy goals, such as India’s commitments under the Paris Agreement. The Court clarified that incentives like the GBI are designed to be "over and above" the tariff to attract investment in the wind energy sector and cannot be treated as a consumer subsidy to be adjusted against the payments due to power generators.

"The GBI is intended to be disbursed to the GENCOs over and above the tariff as determined by the Commission."

The dispute arose when the Southern Power Distribution Company of Andhra Pradesh (DISCOM) sought to amend existing tariff orders to deduct the GBI received by wind power generating companies (GENCOs) from the Ministry of New and Renewable Energy (MNRE). The Andhra Pradesh Electricity Regulatory Commission (APERC) allowed the deduction, citing Regulation 20 of its 2015 Tariff Regulations, but the Appellate Tribunal for Electricity (APTEL) reversed this decision. The DISCOMs subsequently approached the Supreme Court, contending that the Commission’s power to fix tariff is exclusive and permits the adjustment of any subsidies or incentives availed by generators.

The primary question before the court was whether a State Electricity Regulatory Commission has the jurisdiction to factor in a Union Government incentive like GBI while determining tariff under the Electricity Act, 2003. The court was also called upon to determine whether such regulatory power can be exercised in a manner that modifies the destination or purpose of a Parliamentary grant made under Article 282 of the Constitution of India.

The Court began by affirming that the Electricity Act, 2003, is a complete and comprehensive code that leaves no "unallocated regulatory residue" outside the jurisdiction of the Regulatory Commissions. Citing Sections 61, 62, and 86 of the Act, the bench noted that tariff determination is indeed the exclusive province of the SERCs. The Court rejected the argument that a grant made by the Union Government under Article 282 of the Constitution is immune from regulatory consideration, stating that the Commission’s authority to "take into consideration" such incentives flows directly from statutory regulations.

"There is no unallocated regulatory residue left outside the Electricity Regulatory Commissions’ jurisdiction and tariff determination is their exclusive province."

Addressing the constitutional arguments regarding Article 114(2), the Court clarified that factoring GBI into tariff determination does not amount to altering the destination of a Parliamentary grant. The bench noted that the GBI is duly credited to the GENCOs, thereby reaching its intended destination as specified in the Appropriation Bill. The Court observed that while the SERC determines the tariff payable by the DISCOM, it does not intercept or redirect the actual payment of the grant itself, thus maintaining the constitutional boundary regarding the expenditure of the Consolidated Fund of India.

"The grant reached its destination when it was released in favour of the wind GENCOs... the Commission does not intercept or redirect the payment; it merely determines the tariff payable by the DISCOM to the GENCO."

The heart of the judgment lay in the Court’s conceptualization of "Regulation as an Enterprise." The bench emphasized that sectoral regulators like the SERCs are not expected to act in silos but must work in tandem with other duty bearers, including the MNRE and the Central Government, to subserve the broader objectives of the Electricity Act. The Court held that regulatory power should not be viewed merely as "control" over private entities but as a collaborative effort to balance plurality of interests, including energy security, developer stability, and environmental concerns.

"Regulatory Commissions are not expected to act in silos... they must work in tandem with other duty bearers to subserve the purpose of the Electricity Act, 2003."

The Court placed significant weight on India’s international obligations and the transition to green energy. Referencing the Paris Agreement and India’s Nationally Determined Contributions (NDCs), the bench noted that the GBI Scheme was specifically designed to incentivize renewable energy generation and attract foreign investment to mitigate global warming. Under Section 61(h) of the Electricity Act, the regulator is mandated to promote generation from renewable sources, and the Court held that this statutory duty must influence how incentives are treated during tariff fixation.

"While interpreting regulatory statutes, Constitutional Courts will not choose any of the conflicting claims but will balance plurality of interests such as energy security, consumer interests, developers’ stability as well as environmental concerns, such as global warming."

Crucially, the Court interpreted the word "shall" in Regulation 20 of the APERC Regulations 2015. While the regulation obligates the Commission to "take into consideration" any incentive, the Court ruled that this does not mechanically translate into a mandatory deduction. The bench held that "taking into account" requires a contextual and purposive treatment; since the GBI was designed as a "generator-focused incentive" and not a "consumer subsidy," the Commission cannot divert the benefit intended for the generator to the DISCOMs or consumers.

"The need to ‘take into account’ does not mechanically translate into either a mandatory deduction or automatic pass-through; it requires a contextual and purposive treatment."

In conclusion, the Supreme Court upheld the APTEL’s decision to set aside the deduction of GBI from the tariff. While it reaffirmed the plenary power of the SERCs over tariff matters, it restricted the exercise of that power to ensure it does not nullify the policy intent of environmental grants. The Court declared that the GBI must remain a benefit over and above the determined tariff to ensure the stability and growth of the renewable energy sector in India.

The Supreme Court dismissed the appeal filed by the DISCOMs, holding that the GBI is an incentive intended for generators that cannot be adjusted against the tariff. The ruling reinforces the principle that sectoral regulators must align their decisions with national energy security and environmental policies. Ultimately, the judgment balances the technical autonomy of the SERCs with the broader constitutional and policy goal of incentivizing the transition to sustainable energy.

Date of Decision: 25 March 2026