Electricity Tribunal Remands Issues Relating To Secondary Fuel Oil Consumption, Water Charges And Other Tariff Components For Fresh Consideration Under Applicable Regulations
LawDaily.org | Electricity Law
The Appellate Tribunal for Electricity (APTEL) has delivered an important judgment concerning the principles governing tariff determination, regulatory discipline and application of tariff regulations in the electricity sector.
In Appeal No. 419 of 2022, decided on 22 July 2026, APTEL considered a challenge filed by The Tata Power Company Limited (TPCL) against the order passed by the Jharkhand State Electricity Regulatory Commission (JSERC) relating to tariff true-up proceedings for Jojobera Thermal Power Station Units 2 and 3.
The Tribunal examined various issues including water charges, secondary fuel oil consumption norms, coal transit loss, additional capitalisation, depreciation, tax liability and carrying cost.
Background Of The Case
The appellant, Tata Power Company Limited, is engaged in generation, transmission and distribution of electricity. The company supplies power generated from Unit No. 2 and Unit No. 3 of Jojobera Power Plant, each having a capacity of 120 MW, to Tata Steel Limited in Jharkhand.
The two units of Jojobera Power Plant commenced commercial operations in 2001 and 2002 respectively.
The dispute arose from tariff proceedings before JSERC where the Commission undertook the truing-up exercise for FY 2016-17 and Annual Performance Review for FY 2017-18. The State Commission passed the impugned order on 27.12.2019, after which Tata Power approached APTEL challenging certain disallowances.
Key Issues Before APTEL
The Tribunal identified eight major issues raised by Tata Power:
- Partial allowance of water charges for FY 2016-17
- Disallowance of Secondary Fuel Oil cost
- Disallowance of higher transit loss for washed coal
- Disallowance of additional capitalisation
- Decapitalisation of assets and reduction of interest on loan and return on equity
- Incorrect computation of depreciation
- Tax liability relating to efficiency gains
- Denial of carrying cost
APTEL On Regulatory Framework And Tariff Regulations
A significant observation made by APTEL was regarding the binding nature of tariff regulations framed by Electricity Regulatory Commissions.
The Tribunal observed that regulations framed under Section 181 of the Electricity Act, 2003 are a form of delegated legislation and are binding upon the Commission, licensees and stakeholders unless amended or set aside according to law.
APTEL held that while exercising statutory functions under the Electricity Act, a State Commission must apply its regulations completely and cannot selectively depart from the regulatory framework.
The Tribunal further noted that a tariff order, being a quasi-judicial determination, cannot override the regulations under which it is framed.
Secondary Fuel Oil Consumption: Norms Cannot Be Reduced Based On Actual Performance
One of the most important issues considered by APTEL was regarding Secondary Fuel Oil Consumption (SFOC).
Under the JSERC Generation Tariff Regulations, 2015, the normative Secondary Fuel Oil Consumption for Jojobera Units 2 and 3 was specified at 1 ml/kWh.
However, JSERC had adopted a lower norm of 0.5 ml/kWh, relying upon previous tariff proceedings and actual consumption levels.
Tata Power argued that once regulations prescribe a normative parameter, the Commission cannot reduce it merely because actual performance was better. The company contended that such an approach would defeat the purpose of normative tariff determination.
APTEL accepted this principle and held that normative parameters prescribed under regulations cannot be substituted through tariff orders.
The Tribunal observed that normative tariff mechanisms are designed to encourage efficiency. If a generating company performs better than the prescribed norm, the benefit of efficiency cannot automatically be taken away by reducing the normative allowance.
Power Of Relaxation Cannot Be Used To Rewrite Regulations
JSERC had relied upon provisions relating to modification of norms, controllable parameters and power to relax.
However, APTEL held that such powers cannot be used to amend or replace clear regulatory provisions.
The Tribunal explained that the power to relax is intended to address exceptional situations and cannot become a mechanism for rewriting regulations.
According to APTEL, modification of regulatory norms must follow the statutory process and cannot be achieved indirectly through a tariff order.
Water Charges Issue Remanded For Fresh Consideration
Regarding water charges, Tata Power had claimed actual expenditure incurred towards raw water charges paid to Tata Steel/JUSCO.
The State Commission had restricted recovery of certain amounts due to pending litigation concerning enhanced water tax.
APTEL noted that subsequent developments required reconsideration of the issue and remanded the matter to JSERC to examine the actual water charges paid or payable along with applicable carrying cost.
Importance Of The Judgment For Electricity Sector
The judgment reinforces several important principles governing electricity tariff regulation:
- Regulatory commissions must strictly follow their own notified regulations.
- Normative parameters cannot be altered through tariff proceedings.
- Efficiency gains under normative frameworks should not be taken away arbitrarily.
- The power of relaxation cannot be used as a substitute for amendment of regulations.
- Tariff determination must remain within the statutory framework.
The decision provides clarity on the relationship between tariff regulations and tariff orders, which remains a frequently litigated issue before regulatory commissions and appellate forums.
Conclusion
The APTEL judgment in Appeal No. 419 of 2022 is significant for power generators, distribution companies and electricity regulators. By setting aside the findings relating to Secondary Fuel Oil Consumption and directing reconsideration of certain issues, the Tribunal reaffirmed that electricity tariff determination must be governed by the regulatory framework prescribed under law.
The ruling strengthens the principle that regulatory certainty is essential for the functioning of the electricity sector and that statutory regulations cannot be diluted through individual tariff orders.
For electricity utilities and regulators, the judgment serves as a reminder that tariff proceedings must remain strictly within the boundaries of notified regulations and established legal principles.