The court said the power of the commission to pass provisional tariffs was 'ultra vires' the Constitution and the Electricity Act, 2003 - meaning beyond its powers and scope of law. CERC has approached the Supreme Court against the verdict.
Provisional tariffs, which were disallowed by the court, are the interim price to be charged by a new power station or transmission asset for electricity supply until the final rate is fixed.
Power companies are worried. "This is a jolt to the power sector at a time the sector is already in duress. We will all get affected as this will further delay projects. In the absence of provisional tariff, there will be ambiguity on how much we charge from consumers," a senior NTPC official said.
Power companies to cut rates after HC says regulators cannot fix provisional tariffs
Some industry officials said provisional tariff can be high because when only one unit of a new power plant starts operations, the tariff is calculated to account for the fixed cost of the entire plant. Association of Power Producers Director-General Ashok Khurana said companies should only include a part of fixed charges while calculating tariffs.
"While fixing provisional tariff there is always a possibility that a major portion of fixed costs will get loaded in it, thereby increasing the charges. The high court has said there is no provision for provisional tariff in the Electricity Act. APP feels this is a good step from the consumer's point of view. The private power companies also quote provisional tariff, but they calculate it by adding fixed costs on proportional basis," he said.
CERC fixes final tariff for power assets for a period of five years. Since the process takes a year's time, the commission fixes provisional tariff. The difference between the interim and final tariffs is adjusted later, officials said. The high court passed the order after 46 large power consumers, led by Balaji Industries Ltd, challenged the provisional tariff fixed by CERC for power generated by state-run DVC.
The consumers had contested the regulator's provisional tariff for DVC's power plants for 2009-14, alleging the company was charging higher tariff by inflating costs. The bench headed by Justice Debasish Kar Gupta has directed CERC to fix a final tariff for DVC stations within two months and communicate it to consumers within two weeks thereafter. The judgement, however, has not given the alternative to provisional tariff in the absence of final tariff or any timeline or method for its calculation.
CERC Secretary Rajiv Bansal said the commission and DVC have moved the Supreme Court and the matter is likely to be heard by the court for admission and stay on Friday. Power producers impacted by the directive, such as NTPC, PGCIL and NHPC, are likely to file appeals in the Supreme Court for joining CERC and DVC once their pleas are accepted.