Introduction-

Power purchase agreements (PPAs) under the Electricity Act, 2003 facilitate the buying and
selling of electricity for various durations, involving trading/distribution licensees or end
consumers. Trading licensees engage in PPAs with generators to resell electricity to
beneficiaries, such as distribution licensees or large consumers, through power sale
agreements (PSAs). Distribution licensees also directly enter PPAs with generators. These
agreements are regulated by State Electricity Regulatory Commissions. The article discusses
the uncertain regulatory landscape affecting PPAs, influenced by factors like currency
fluctuations, fuel shortages, and legal decisions regarding coal block cancellations.
PPAs/PSAs are comprehensive agreements covering technical and commercial aspects,
specifying generating sources, fuel types, tariffs, delivery points, additional charges, supply
commencement dates, penalties, and incentives. They also outline obligations and
termination conditions similar to standard sale agreements.

The regulatory framework established by the Electricity Act, 2003 is crucial for
ensuring transparency, fairness, and stability in the power sector. Section 86(1)(b) of
the Act confers authority upon State Commissions to oversee agreements between
generating companies and licensees, including distribution companies. This oversight
extends to Power Purchase Agreements (PPAs) and Power Sale Agreements (PSAs)
which are fundamental for ensuring a steady supply of electricity.

PPAs and PSAs involving distribution licensees must undergo scrutiny and approval
by the State Commission. They can be executed either through competitive bidding
processes or negotiated routes, with both methods subject to the approval of the
State Commission under Sections 63 and 62 of the Electricity Act, 2003, respectively.

Moreover, the State Commission is vested with the power to arbitrate disputes
arising from these agreements. This jurisdiction extends even to cases involving
entities outside the state if any part of the dispute's cause originates within its
jurisdictional boundaries.

A notable scenario arises when a distribution licensee engages in a PSA with a

The Appellate Tribunal for Electricity (APTEL) has addressed this issue by establishing
tests to determine the nexus between the agreements and the state where power is
consumed. Mere acknowledgment of back-to-back agreements may not suffice;
there must be a clear indication of a direct connection between the PPA, PSA, and
the state's energy consumption.

Furthermore, the Electricity Act, 2003 has facilitated the creation of a national market
for electricity, allowing for inter-state transactions. These transactions, which may
involve entities from different states, require careful consideration of jurisdictional
issues and adherence to agreements to ensure smooth operations.

In essence, the regulatory framework provided by the Electricity Act, 2003 is essential
for fostering a stable and efficient power sector. It ensures that agreements are fair,
transparent, and enforceable, thereby promoting investment and growth in the
energy infrastructure of the country.
The issue of re-opening Power Purchase Agreements (PPAs) and adjusting settled
tariffs is a significant concern in the energy sector. Despite being concluded
contracts, renewable energy generators have sought to unilaterally revise tariffs
upwardly with the aim of maintaining financial viability. The Appellate Tribunal for
Electricity (APTEL) has upheld the authority of regulatory bodies to re-open PPAs and
adjust tariffs, particularly to support renewable energy projects, citing provisions in
the Electricity Act, 2003.

APTEL has emphasized that re-opening PPAs should aim to bolster renewable energy
initiatives, rather than curtailing incentives. The tribunal has permitted tariff revisions
in cases of uncontrollable factors such as defective hydrological data or increases in
biomass fuel prices. Additionally, recent legal judgments, like the cancellation of coal
block allocations, have impacted the cost of electricity production, necessitating
adjustments in PPAs.

While APTEL's decisions appear to support development objectives, they have led to
a surge of renewable energy generators seeking tariff revisions. Some cases may be
genuine, but there's concern about generators bidding excessively low tariffs initially.
Regulatory bodies must balance promoting renewable energy with consumer
interests, as higher tariffs can burden consumers.

APTEL's decisions have triggered debates about distinguishing genuine cases from
those with aggressive bidding tactics. Regulatory bodies face the challenge of
discerning between legitimate financial hardships and unwarranted requests for tariff
revisions. Ultimately, achieving a balance between promoting renewable energy and
mitigating consumer burdens remains a challenging task for regulatory authorities.

The dispute over compensatory tariff between Adani Power and Tata Power,
generators of power in Gujarat, has stirred controversy since 2012. The generators,
who secured contracts through competitive bidding processes, faced unforeseen
increases in production costs due to Indonesian coal price hikes prompted by new
regulations. Seeking relief, they petitioned the Central Electricity Regulatory
Commission (CERC) under the Electricity Act, 2003. While the CERC rejected claims of
force majeure and changes in law, it granted compensatory tariffs, a decision that
sparked debate over its fairness and precedent-setting implications.
The grant of compensatory tariff has divided opinions. While it may rescue Ultra
Mega Power Projects (UMPPs) from becoming nonviable assets and ensure power
supply, it could set arbitrary precedents and disadvantage other bidders. Critics
argue that the generators, by aggressively bidding and assuming risks, contributed
to the situation. Ultimately, if compensatory tariffs are upheld, consumers may bear
the burden of increased tariffs.

In a related matter, the Supreme Court's ruling in the Bangalore Electricity Supply
Corporation Limited v. Konark Power Projects Limited & Anr. case highlighted the
sanctity of concluded PPAs and limited the scope for their renegotiation by State
Commissions under state-specific regulations. However, a recent APTEL judgment
has reaffirmed the regulatory authority's power to reopen concluded PPAs and adjust
tariffs.

The implications of these legal battles extend beyond individual disputes, raising
broader questions about the balance between regulatory intervention, contractual
sanctity, and consumer welfare in the energy sector. The resolution of these disputes
will shape the future regulatory landscape and determine the dynamics of power
procurement and distribution in India.