Summary and Analysis The State of Himachal Pradesh & Anr. vs. JSW Hydro Energy Limited & Ors. (2025 INSC 857)
1. Heading of the Judgment
Civil Appeal No. 12883 of 2024
The State of Himachal Pradesh & Anr. (Appellants) vs. JSW Hydro Energy Limited & Ors. (Respondents)
Decided on: July 16, 2025
Judges: Pamidighantam Sri Narasimha and Joymalya Bagchi, JJ.
Core Issue: Whether contractual obligations to supply free power override electricity tariff regulations.
2. Relevant Laws & Sections
The judgment interprets:
Electricity Act, 2003:
Section 61: Tariff regulations guided by commercial principles, consumer interests, and cost recovery.
Section 79: Functions of the Central Electricity Regulatory Commission (CERC).
Section 178: CERC’s power to frame regulations.CERC (Terms and Conditions of Tariff) Regulations, 2019:
Regulation 55, Note 3: Caps "Free Energy for Home State" (FEHS) at 13% or actual, whichever is less for tariff calculation.Contract Law:
Validity of the Implementation Agreement (1999) requiring 18% free power to Himachal Pradesh.
3. Basic Case Details
Background
1993/1999: Himachal Pradesh (HP) allotted the Karcham Wangtoo Hydroelectric Project (1,045 MW) to JSW’s predecessor via an Implementation Agreement.
Contractual Obligation: JSW agreed to supply 12% free power for the first 12 years (2011–2023) and 18% thereafter (2023–2051) as "royalty" for resource use.
2019: CERC Regulations capped FEHS at 13% for tariff calculations. JSW sought to limit its free power supply to 13%, arguing the regulations override the contract.
High Court Ruling (2024): Directed HP to align the contract with CERC’s 13% cap. HP appealed to the Supreme Court.
Parties’ Arguments
HP:
The 18% obligation is contractual consideration, not regulated by CERC.
CERC’s cap applies only to tariff computation, not actual supply.JSW:
CERC regulations override "inconsistent" contracts under the PTC India Ltd. precedent.
Supplying 18% free power reduces its Return on Equity (RoE), harming financial viability.CERC:
Regulations govern tariff fixation only; actual free power supply is a contractual matter.
4. Judgment Explanation
Key Findings
CERC Regulations Do Not Prohibit >13% Free Power
Regulation 55, Note 3 caps FEHS at 13% for tariff calculations only (e.g., billing beneficiaries).
It does not restrict generating companies from supplying more free power under contracts.
Example: If JSW supplies 18% free power, only 13% is factored into tariffs; the extra 5% cost is borne by JSW.Implementation Agreement Remains Valid
The 18% free power is legally enforceable as:
Consideration for HP’s resources (land, water, permits).
A binding contract unaffected by tariff regulations.
Precedent: Contracts inconsistent with regulations are overridden only where regulations expressly apply (PTC India Ltd. distinguished).High Court Erred in Entertaining Writ Petition
Specialized Regulators (CERC/APTEL) must decide tariff-related disputes, not constitutional courts.
JSW should have:
Challenged the CERC’s 2022 tariff order before the Appellate Tribunal for Electricity (APTEL).
Sought contractual remedies (arbitration) instead of a writ petition.
Conduct of JSW: It took contradictory positions—first seeking CERC’s relaxation of the cap, then filing a writ petition.State’s Status as "Deemed Licensee" Irrelevant
Whether HP is a "deemed licensee" under the Electricity Act need not be decided, as the free power obligation arises from contract, not tariff regulation.
Final Ruling
Allowed HP’s appeal; set aside High Court’s order.
JSW must supply 18% free power per the Implementation Agreement.
No costs awarded.
5. Simplified Takeaway
For Companies: Tariff regulations limit cost recovery from beneficiaries, but contracts with states for higher free power remain valid.
For Governments: Resource-use contracts (e.g., hydropower) can legally mandate free power beyond regulatory caps.
Legal Strategy: Disputes involving technical regulations must first go to expert bodies (CERC/APTEL), not courts.
Impact: Ensures states receive contracted royalties for resources, balancing investor commitments and public interest.