M/s Patikari Power Pvt. Ltd. vs Himachal Pradesh State Electricity Regulatory Commission & Ors on 25 March 2026

JUDGEMENT

PER HON’BLE MR. AJAY TALEGAONKAR, TECHNICAL MEMBER

1. The Appeal Nos. 107 of 2019 and 166 of 2020 have been filed by M/s. Patikari Power Private Limited (in short “Appellant”/ “PPPL”) challenging Impugned Orders dated 21.11.2018 (Impugned Order-1) and 15.05.2020 (Impugned Order-2) respectively in Petition No. 74 of 2017 passed by Himachal Pradesh State Electricity Regulatory Commission (in short “HPERC”/ “Respondent No. 1”).

Description of the Parties

2. The Appellant is a Generating Company within the meaning of Section 2 (28) of the Electricity Act, 2003 and has developed 16 MW Patikari Hydro Electric Project (“Project”) on Bhakli Khad Stream, District Mandi in the State of Himachal Pradesh which was declared under commercial operation on 06.02.2008.

3. The Respondent No. 1 is the Himachal Pradesh State Electricity Regulatory Commission (HPERC), constituted under Section 82 and exercising adjudicatory and regulatory functions as provided under Section 86 of the Electricity Act, 2003.

4. The Respondent No. 2 is the Himachal Pradesh State Electricity Board Ltd. (HPSEB). The Appellant has entered into the PPA dated 05.07.2004 for sale of power generated from the Project.

5. The Respondent Nos. 3 and 4 are the HIMURJA and Directorate of Energy, Shimla, Himachal Pradesh.

6. The Respondent No. 5 in Appeal No. 107 of 2019 is the consumer representative.

Factual Matrix of the Case (Appeal Nos. 107 of 2019 and 166 of 2020)

7. The present Appeal Nos. 107 of 2019 and 166 of 2020 arise out of proceedings in Petition No. 74 of 2017 decided by the Himachal Pradesh State Electricity Regulatory Commission vide orders dated 21.11.2018 (Impugned Order-1) and 15.05.2020 (Impugned Order-2) (collectively referred to as the “Impugned Orders”).

8. Since both the Appeals emerge from the same petition, involve common parties and raise interconnected issues, they are being decided by this common judgment.

9. The Government of Himachal Pradesh (GoHP) vide its Global Invitation for Investment dated 19.04.1999, invited proposals from Indian/ International Companies to implement Hydro Electric Projects in the Private Sector on Build, Own, Operate & Maintain (BOOM) basis for various projects which included the invitation to develop the Project.

10. Pursuant thereto, M/s. East India Petroleum Limited (“EIPL”), the predecessor-in-interest of the Appellant, submitted its proposal for development of the Project. On 21.06.2000, GoHP executed a Memorandum of Understanding in favour of EIPL for review of the Detailed Project Report (DPR) and for implementation of the Project.

11. Based on the hydrological data and the 90% dependable year discharge, the design energy of the Project was assessed at 78.81 million Units, subject to supply of 12% free power to GoHP in terms of the Implementation Agreement. The Appellant obtained Techno-Economic Clearance on 27.09.2001, approving a capital cost of Rs. 125.90 Crs. on November 2000 price level.

12. On 09.11.2001, EIPL entered into an Implementation Agreement with GoHP for development of the Project. On the same date, a Tripartite Agreement was executed among GoHP, EIPL and the Appellant which had been incorporated to build, own, operate and maintain the Project.

13. Subsequently, on 05.07.2004, the Appellant entered into a Power Purchase Agreement (PPA) with Himachal Pradesh State Electricity Board (HPSEB) for sale of electricity generated from the Project at a tariff of Rs. 2.25 per kWh.

14. The two generating units were commissioned on 20.01.2008 and 28.01.2008 respectively and both units achieved commercial operation on 06.02.2008. Since then, power from the Project has been supplied to HPSEB in accordance with the PPA.

15. On 18.06.2007, the HPERC notified the Himachal Pradesh Electricity Regulatory Commission (Power Procurement from Renewable Sources and Co-generation by Distribution Licensees) Regulations, 2007 (Renewable Regulations, 2007) under which hydro power projects up to 25 MW were treated as renewable energy sources and co-generation projects.

16. The Regulations were amended on 12.11.2007, enabling the Commission to review or modify PPAs approved prior to the commencement of the Regulations.

17. In August 2008, the Appellant filed Petition No. 184 of 2008 before HPERC seeking determination of tariff under the Renewable Regulations, 2007. By order dated 29.10.2009, the HPERC held that it had the power to re- open concluded PPAs in order to incentivise renewable energy projects and directed project-wise consideration based on detailed data.

18. Pursuant thereto, the Appellant filed Petition No. 201 of 2009. By order dated 16.07.2010, the HPERC partly allowed the petition by enhancing the tariff of Rs 2.25 per kWh by 27 paise per kWh on account of impact of mandatory release of water downstream, with liberty to either party to seek review on the basis of ten years’ actual data.

19. Aggrieved by the order dated 16.07.2010, the Appellant preferred Appeal No. 179 of 2010 before this Tribunal. By judgment dated 23.04.2012, this Tribunal, while partly allowing the Appeal, observed that tariff of a hydro project is significantly dependent on water inflows and noted the Appellant’s contention that the actual river discharge was substantially lower than that envisaged at the DPR stage. This Tribunal granted liberty to the Appellant to approach the HPERC with updated and supporting data to establish its case regarding low river discharge and directed the HPERC to consider the same after affording opportunity of hearing to all concerned parties.

20. In compliance to the liberty granted by this Tribunal and upon analysing approximately eleven years of discharge data recorded during the construction and operational phases of the Project, the Appellant observed in November 2017 that the actual river discharges were lower than the data earlier furnished by HPSEB. On this basis, it was contended that the Design Energy, computed on a 90% dependable year basis (as adopted in the approved DPR) required revision from 78.81 MU to 56.98 MU thereby necessitating re-determination of tariff.

21. Accordingly, the Appellant filed Petition No. 74 of 2017 under Sections 62 and 86 of the Electricity Act, 2003 before the HPERC seeking revision/ determination/ review/ enhancement of tariff to Rs. 3.11 per kWh to offset losses allegedly suffered since commissioning in February 2008 due to lower than anticipated river discharge.

22. The Respondent No. 2 filed its reply denying the claims raised by the Appellant-Petitioner, including issue of maintainability of Petition No. 74 of 2017. By interim order dated 21.11.2018, the HPERC rejected the objection as

to maintainability and held that contractual terms can be intervened by the Regulations, keeping in view the change in circumstances of the case which are uncontrollable and revision of tariff is required to meet the objective of the Act and petition is maintainable.

23. However, HPERC vide interim order dated 21.11.2018 held that the said intervention can be made only prospectively. Aggrieved by this interim order, the Appellant filed Appeal No. 107 of 2019 before this Tribunal.

24. Further, pending adjudication of the aforementioned Appeal No. 107 of 2019, the HPERC on 15.05.2020 passed the final order in Petition No. 74 of 2017 while dismissing the aforementioned Petition on the ground of the similar reliefs not being given to the Respondent No. 2 earlier and holding that the generated energy was only slightly less than the design energy and that too probably was due to release of mandatory environment discharge.

25. Being aggrieved by the interim order dated 21.11.2018 and final order dated 15.05.2020 passed by HPERC in Petition No. 74 of 2017, the Appellant has preferred the present Appeal Nos. 107 of 2019 and 166 of 2020.

Submissions of the Appellant

26. According to the Appellant, the submission of the Respondent that the PPA cannot be reopened for giving effect to the revised Design Energy and the resultant tariff enhancement is legally inadmissible. The Appellant submits that the issue stands concluded by the earlier Judgment dated 23.04.2012 passed by this Tribunal in Appeal No. 179 of 2010. By the said Judgment, this Tribunal expressly granted liberty to the Appellant to approach the HPERC with up to

date and supporting data to substantiate its claim regarding lower river discharge and directed the HPERC to consider such discharge data.

27. According to the Appellant, the Judgment dated 23.04.2012 has attained finality inter se the parties. In particular, the findings recorded in Paras 36 to 38 are binding between the parties. This Tribunal had observed that reliance on one year’s data was inadequate to validate the hydrology of the Project and had acknowledged that lower river discharge than that envisaged at the planning/tendering stage would amount to a change in circumstances and in the basic parameters on the basis of which the Project was developed. The Tribunal had also taken note of the statutory objective of promoting renewable sources of energy under the Electricity Act.

28. The Appellant contends that these findings constitute mixed questions of law and fact and are not pure questions of law. Having attained finality, they operate inter-parties and bind the Respondent. Consequently, the Respondent is precluded from re-agitating the issue and its present contention that the PPA cannot be reopened is barred by the principles of constructive res judicata.

29. The Appellant further submits that a judgment is an authority on the ratio that it holds in the given facts of the case and any other observation which does not arises and determines the issue in question is not a binding precedent. In this context, reliance is placed on Mathura Prasad Bajoo Jaiswal vs. Dossibai N.B. Jeejeebhoy, (1970) 1 SCC 613 is misconceived. It is contended that in Mathura Prasad’s case, the issue pertained to the interpretation of Section 11 of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, wherein it was held that the Court of Civil Judge, District Thana, Maharashtra had no jurisdiction to fix standard rent. That interpretation was subsequently

overruled. In such circumstances, the Hon’ble Supreme Court held that a subsequent judgment would not be barred by the principle of res judicata.

30. Further, this Tribunal’s judgment dated 23.04.2012 did not interpreted any provision of law but on the facts of the case, held that, if the design discharge in the river stream is much lower than what was envisaged in the DPR which was based on the data provided by Respondent/ Board, then, the same would amount to change in circumstances and in basic parameters on the basis of which the Appellant had developed the Project and which is dependent on nature and is beyond the control of the Appellant.

31. The finding of Tribunal is in the nature of factual conclusion which finding has become final and binding upon the parties. Any subsequent judgment, on a pure question of law about re-opening of PPA would thus, not apply to the aforesaid finding of fact, which finding has become final, inter-parties. Therefore, law laid down in Mathura Prasad Bajoo Jaiswal case (1970) 1 SCC 613 would not apply to the facts of the instant case.

32. This Tribunal in the judgment dated 23.04.2012 held as under: “36. Thus if the river discharge is much lower than that envisaged at the planning/tendering stage it would tantamount to change in circumstances and the basic parameters on the basis of which the appellate developed the project and which is dependent on nature and are beyond the control of the appellant.” 37......................................................................This aspect requires reconsideration by the State Commission. We also notice that the validity of PPA is for 40 years and the project has to sustain operations for such a long period. We, therefore, feel

that the State Commission should consider the aspect of low discharge.” The aforesaid conclusion is a finding on mixed question of law and fact and not on pure question of law.

33. The Appellant further submits that a perusal of Paras 17.2 and 17.3 of the earlier judgment of this Tribunal establishes that the Tribunal had interpreted Regulation 6 of the Tariff Regulations, 2007 and held that the HPERC is empowered to determine tariff and review or modify the PPA. The said interpretation/ conclusion has attained finality and have not been set aside or interfered with by any higher forum/ court of law. In view of these findings, the Respondent HPSEB is precluded from contending that the PPA cannot be reopened.

34. The Appellant further contends that mere overruling of principles on which earlier judgment was passed by a subsequent judgment of a higher forum will not uproot the final adjudication between the parties. In support, reliance is placed on Neelima Srivastava vs. State of Uttar Pradesh & Ors. (2021) 17 SCC 693.

35. It is also submitted that it is well-settled that permitting parties to reopen and re-agitate issues already decided by a court of competent jurisdiction merely on the basis of a subsequent change in law, then, all earlier litigation relevant thereto would always remain in a state of flux. In this regard, reliance is placed on Kalinga Mining Corporation vs. Union of India & Ors. (2013) 5 SCC

252.

36. While the design energy of the Project based on hydrological data made available by HPSEB for the period 1984-85 to 1995-96 (12 years) was 78.81

MU’s, however, the design energy based on discharge data of 2006-07 to 2016-17 i.e. 11 years, works out to be 56.99 MU. Further, for entire series of 23 years i.e. discharge data of 1984-85 to 1995-96 (DPR data) and 2006-07 to 2016-17 is considered, then, the design energy for the entire 23 years works out to 56.98 MU’s.

37. It is further submitted that the tabulated statement in the Impugned Order dated 15.05.2020 reflecting Theoretical Generation viz-a-viz Actual Generation establishes that the Project has not achieved the original Design Energy of 78.02 MU from FY 2008-09 to FY 2016-17, except in one year, i.e., FY 2013-

14. The Appellant contends that the HPERC has accepted the discharge data placed on record and having done so ought to have revised the Design Energy of the Project. Theoretical Generation viz-a-viz Actual Generation

38. Revised Design Energy was calculated based on the total actual river discharge upstream of Weir Site, therefore, findings by HPERC that difference between theoretical generation viz-a-viz actual generation is primarily attributed to mandatory release of environment discharge from Weir Site is factually erroneous.

39. Since, the Design Energy is calculated by the Appellant based on water discharge recorded upstream of Weir Site i.e. prior to mandatory release of environment discharge, therefore, mandatory release of environment discharge cannot have any impact/ bearing on Revised Design Energy of Project.

40. Even by Commission’s own conclusion that out of total (9) years, Design energy was lower in Year 2008-09 to 2011-12 and substantially lower in Year 2009-10, 2015-16 & 2016-17, respectively. Since, non-achievement of Design Energy of 78.02 MU’s was not even attributed to machine availability of the Plant which is 99.38%, therefore, Appellant is entitled for revision of design energy of the Project.

41. Further, in view of specific conclusion of the HPERC regarding lower design energy of the Project and acceptance of hydrological series submitted by the Appellant, Revised Design Energy based on the 90% dependable year works out to 56.98 MU which requires the tariff to be enhanced from Rs. 2.25/kwh to Rs. 3.11/kwh.

Case Law cited by the Appellant

42. The Appellant places reliance on the judgment of the Hon’ble Supreme

Court in Gujarat Urja Vikas Nigam Limited vs. Tarini Infrastructure Limited & Ors., (2016) 8 SCC 743, wherein the question of law considered was whether the tariff fixed under a PPA is sacrosanct and inviolable and beyond review and correction by the State Electricity Regulatory Commission which is the statutory authority for fixation of tariff under the Electricity Act, 2003?

43. The Hon’ble Supreme Court, upon examining Sections 61, 62, 64 and 86 of the Electricity Act, 2003, held that the court must lean in favour of flexibility and not read inviolability in terms of PPA insofar as the tariff stipulated therein as approved by the Commission is concerned. It was held that once tariff incorporated in PPA is fixed by the Commission in exercise of its statutory power, then, it is not possible to hold that said tariff, cannot be altered, except by mutual consent.

44. Applying the aforesaid principle to the present case, the Appellant submits that the HPERC had approved the PPA dated 05.07.2004 including the tariff stipulated therein. Consequently, the tariff of the Project can be reviewed, modified or amended by the HPERC in terms of the law noted above.

45. The Appellant further relies on Gujarat Urja Vikas Nigam Limited vs. Solar Semi-Conductor Power Company (India) Private Limited & Ors., (2017) 16 SCC 498, wherein the Hon’ble Supreme Court reiterated and followed the law laid down in Tarini Infrastructure. The Court held that amendment of tariff by the Regulatory Commission is permissible under Section 62(4) read with Section 64(6) of the Electricity Act, 2003. While the Court held that extension of the control period was beyond the powers of the State Commission, it was made clear that the judgment would not preclude the developer from approaching the Commission for redetermination of tariff in accordance with

law.

Submissions of Respondent No. 2- HPSEBL

46. Respondent No. 2 submits that the HPERC has dismissed the Petition of the Appellant seeking revision in design energy from 78.02 MUs to 56.98 MUs as claimed.

47. The Petition was filed by the Appellant-Petitioner in terms of the liberty granted by the Tribunal in Appeal No. 179 of 2010 dated 23.04.2012. This Tribunal had held as under:

a) The HPERC is empowered to modify the PPA in terms of the Regulation 6(1) of the HPERC Regulations, 2007 as amended on 12.11.2007

b) If the river discharge is much lower than that envisaged at the planning stage, the same would tantamount to change in the basic parameters on the basis of which the Appellant developed the Project; If the very existence of the Project is endangered due to change in the fact situation on the basis of which the Appellant developed the Project

48. In this background of findings, this Tribunal gave liberty to the Appellant to approach the State Commission with relevant hydrological data.

49. One of the issues that arises is whether a concluded PPA can be reopened by the State Commission.

50. Respondent No. 2 submits that the finding of this Tribunal in the earlier round of litigation regarding the power of the HPERC to reopen the PPA were rendered in the context of the legal position prevailing at that time. The Tribunal had, inter alia, proceeded on the footing that HPERC could exercise regulatory

powers to reopen or modify PPAs and had relied upon Regulation 6(1) of the HPERC Regulations, 2007 (as amended on 12.11.2007) to trace such power.

51. However, Respondent No. 2 contends that since then the law on the subject has changed. In Gujarat Urja Vikas Nigam Ltd. vs. Solar Semiconductor Power Co. (India) (P) Ltd., (2017) 16 SCC 498 and in Gujarat Urja Vikas Nigam Ltd. vs. Renew Wind Energy (Rajkot) (P) Ltd., 2023 SCC OnLine SC 411, the Hon’ble Supreme Court has now clarified that the State Commissions cannot reopen concluded PPAs to award a higher tariff to the developer even under exercise of their regulatory powers. Further, only if subsequent legislation (Regulations) specifically provides for over-riding existing PPAs, the Regulations would apply. In view thereof, it is stated that the earlier decision of this Tribunal inter-se parties cannot operate as res judicata on the powers of the State Commission to reopen PPAs.

52. It is stated that the doctrine of res judicata is a rule of procedure and cannot be invoked to perpetuate an incorrect legal position. Reference is placed on Mathura Prasad Badoo Jaiswal vs. Dossibai N.B. Jeejeebhoy, (1970) 1 SCC 613.

53. The judicial/ quasi-judicial power of the State Commission flows from the Act. When the Electricity Act does not permit orders to over-ride PPA, the power to pass such orders cannot be located in delegated legislation. In any event, even Regulation 6(1) requires the State Commission to apply its mind and give reasons for passing any such order. This will also necessarily require the State Commission to apply the decision of the Hon’ble Supreme Court which hold that orders cannot be passed to over-ride PPAs.

54. Without prejudice, it is submitted that even on merits, the Appellant has failed to establish any basis warranting interference with the Impugned Order. The State Commission has correctly appreciated the material on record and correctly returned findings in the present case.

55. The test for any revision as sought for by the Appellant in the present case is:

a) Change in basic parameters on the basis of which the Appellant developed the Project; and

b) Threat to the very existence of the Project due to change in fact situation.

56. The HPERC has entirely gone by the data of the Appellant and then held that that there has been no such substantial under generation of power. Since there is no rain gauge at the project site, the river discharge data as provided by the Appellant was taken.

57. Respondent No. 2 submits that the HPERC, upon verification of the facts has concluded that the Design Energy of the Project is 78.02 MUs. As recorded in Para 14 of the Impugned Order, in six out of nine years under consideration, the theoretical power generation as computed by the Appellant itself was around the approved Design Energy. This does not by any stretch satisfy the requirement of the basic parameters of the project being changed endangering the very existence of the project.

58. The HPERC has also held that the minor difference in generation is primarily account of mandatory release of environmental discharge from the Weir Site and also partly due to shutdowns taken by the Appellant.

59. The issue of mandatory water discharge and compensation thereof is pending in separate proceedings between the parties. The HPERC had granted compensation to the project over which there are disputes between the parties. Therefore, that issue cannot be the basis for claiming revision in design energy in the present case as also held in the Impugned Order.

60. The case of the Appellant is that its design energy should be downward revised to 56.98 MUs. However, as per the data of the Appellant itself, it was able to achieve a generation of 58.05 MUs even in FY 2011-12, when the Unit II of the Project underwent major repairs works on account of which the Project was shut down for a substantial period.

61. Further, the parties assume risks and are entitled to rewards in performing the PPA. For example, the project cost as per DPR was Rs. 125.90 Crs., whereas the actual cost incurred is only Rs. 115.11 Crs. The savings is to the reward of the Appellant. Similarly, the actual losses on the evacuation line are much less than as estimated in the PPA which benefit is also of the Appellant. If other costs are less or more, the risk and reward is of the parties. Merely because generation is less than expected generation by itself is no ground to increase tariff in the present case.

62. Without prejudice to the above, the claim of the Appellant for retrospective application of any relief is also misconceived. If legislative action (as per Regulations) is the basis for over-riding PPAs, the same cannot be retrospectively done. In these circumstances, the appeals are liable to be dismissed.

Our Analysis and Conclusion

63. We note that this Tribunal’s Judgment dated 23.04.2012 in Appeal No. 179 of 2010 (“Patikari-1 Judgment”) paved the way for the Appellant to approach the HPERC with the prayer to enhance the tariff. The HPERC vide Impugned Order-1, has held that the contractual terms can be intervened by the regulations, prospectively. Further, the HPERC vide Impugned Order-2 has concluded that the project is designed and executed with planned energy output as per the design, and therefore, design energy should not be changed during its useful life; Lower generation is no ground for review of design energy.

64. We also note that this Tribunal in Patikari-1 Judgment had concluded as under:

(i) The Appellant had signed the PPA voluntarily and there was no undue influence or duress by the State or the Board. (Para 11,12)

(ii) According to the Regulations, the State Commission is empowered to determine the tariff and review or modify the PPA in the present case where the PPA was entered into between the appellant, a renewable energy generator, and the respondent no.2 prior to the notification of the Regulations. (Para 17.3)

(iii) Lower Return on Equity (RoE) then envisaged in the Regulations could not be a reason for reopening of the PPA. In this case the Appellant was aware of the return it was likely to get at the hydrology projected in the Detailed Project Report. Despite this, the Appellant proceeded with the project and voluntarily signed the PPA. (Para 33)

(iv) There is point in the submissions made by the Appellant that it will not serve the object of the Act regarding promotion of renewable sources of energy, if the existence of such a project is endangered due to change in the fact situation on the basis of which the appellant

developed the project and which is dependent on nature and beyond its control. This aspect requires reconsideration by the State Commission. (Para 37)

65. The above mentioned Judgement has attained finality. While the parties have advanced competing arguments on issue (ii) above as to whether the finding that the Commission has powers to review or modify the PPA operates as res judicata, there is no such dispute in respect of the other three findings.

66. We note that vide Impugned Order-2, the HPERC has rejected the prayer of the Appellant-Petitioner for review of the Design Energy on merits. Therefore, we would like to analyse this aspect first and if need be, would analyse based on the appropriate case law the issue as to whether PPA can be modified by the HPERC.

67. To appreciate the issue on merits, it is necessary to first peruse the relevant part of Patikari-1 Judgment wherein liberty was granted to the Appellant to approach HPERC for reconsideration, as mentioned in S. No. (iv) of paragraph 64: “37. Ld. Counsel for the appellant has submitted that due to lower generation at Patikani hydro electric project due to less infows, the appellant had to infuse additional finances to pay the debts and the project could become a non-performing asset. There is point in the submissions made by the appellant that it will not serve the object of the Act regarding promotion of renewable sources of energy if the existence of such a project is endangered due to change in the fact situation on the basis of which the appellant developed the project and which is dependent on nature and beyond its control. This aspect requires reconsideration by the State Commission. We also notice that the validity of PPA is for 40

years and the project has to sustain operations for such a long period. We, therefore, feel that the State Commission should consider the aspect of low discharge.

38. Even though the information submitted by the appellant for the last 2 years of operation indicates lower generation than the design generation, the data for river discharge has not been submitted along with the discharge expected as per the DPR. Moreover, the data of limited period of less than two years is inadequate to conclusively establish the issue in favour of the appellant. However, we give liberty to the appellant to approach the State Commission with upto date supporting data to establish their case regarding low discharge in the river and the State Commission would consider the same after giving opportunity of hearing to all concerned.” (Emphasis added)

68. It may be seen from the extracted portion of this Tribunal’s Judgment that the litmus test for enhancement of tariff, pursuant to the liberty granted to the Appellant, is whether the change in hydrology has “endangered the existence of the project.” In our opinion, the term “existence” in this context does not refer to physical survival, but to the very ability of the project to remain operational. It denotes a situation where revenues are so inadequate that the generating company is unable to continue operations, that is, the income is insufficient even to meet the operation and maintenance expenses of the plant.

69. We now proceed to examine whether there is evidence to demonstrate that the change in hydrology has been so significant as to reduce revenues to a level insufficient to sustain the operation and maintenance of the project.

A. Energy Generation

(i) The Appellant has claimed that the Design Energy based on the hydrological data for the period 1984-85 to 1995-96 made available by the HPSEB works out to be 78.81 MU. However, HPERC in the Impugned Order-2 has concluded Design Energy to be 78.02 MU. Since this has not been specifically contested by the Appellant, we proceed with our analysis based on Design Energy as per DPR to be 78.02 MU.

(ii) The theoretical 90% dependable generation since measurements were started by the Appellant, which the Appellant desires to be set as revised Design Energy, is 56.98 MU. The table of annual energy as submitted by the Appellant is extracted below:

The average annual energy based on the measurements during 2006-07 to 2016-17 as captured in the table submitted by the Appellant works out to be 74.53 MU.

(iii) In their analysis, HPERC has concluded that if the release of water for maintaining environmental flow would not have been mandatory, the actual generation would have been higher than design energy in four out of nine years of actual operation. This has been contested by the Appellant on the ground that its claim of revised Design Energy is based on actual river discharge upstream of weir site and is unaffected by the mandatory discharge; and therefore, the finding of the HPERC is factually erroneous.

(iv) If the contention of Appellant is accepted, then both (a) the Design Energy of 78.02 MU as envisaged at the DPR stage, and (b) the revised Design Energy of 56.98 MU as suggested by the Appellant, pertain to the upstream of the weir site and are therefore on a like- for-like basis.

(v) However, the reduction in energy at power station bus bar will not give true picture. This is because inordinate financial difficulty can be the only criteria to assess need for revision in Design Energy and tariff in accordance with Patikari-1 Judgment. To assess level of financial difficulty, it would be necessary to estimate reduction in estimated revenue.

B. Revenue

(i) The Appellant has calculated expected revenue from the project at DPR stage as about Rs 2397 lakh. This has been calculated based on DPR discharges (as per hydrology data supplied by the Board for the period 1984-85 to 1995-96) and available project parameters. We do not agree that this was the expected revenue at DPR stage. Design Energy is a statistical estimate derived from historical

hydrological data and represents a normative, risk-adjusted benchmark as rational expectation of generation from the project. Design Energy is estimated based on 90 percent dependable hydrology to ensure a prudent and economically efficient project configuration. The 90 percent dependable flow refers to the flow that is likely to be available in nine out of ten years, and the energy generatable from this flow forms the basis of project design. If a project is designed based on higher discharge, such as 50 percent dependable flow or average flow, it would require not only significantly higher installed capacity (electro-mechanical equipment) but also larger civil structures to accommodate higher discharges that occur only intermittently. For a substantial portion of time, such enhanced capacity and infrastructure would remain underutilised, rendering the project economically inefficient. In contrast, designing on 90 percent dependable hydrology aligns capacity with flows available for most of the time, ensuring stable generation and optimal utilisation of assets. Consequently, during periods when flows are of higher than design flows, the project may not be able to fully utilise excess water, which is an inherent and accepted design trade-off. Since the project is physically designed and sized based on 90 percent dependable hydrology, the stakeholders rightly carry out financial analysis, revenue projections and tariff determination based on Design Energy. Use of average energy for this purpose would overstate expected revenues relative to the project's actual design intent and the generation levels that the project was built to deliver on a dependable basis.

Accordingly, expectations of generation and revenue are aligned with Design Energy and not with the average energy derived from past hydrological data.

(ii) At DPR stage, Design Energy was 78.02 MU. Further, according to PPA, the values of auxiliary consumption, transformation loss and transmission loss are 0.5%, 0.5% and 4.5% respectively {as may be seen from para 12 b) of the Impugned Order-2}. Thus, the delivered energy at Delivery Point, based on which commercial settlement is done, was expected to be: = 78.02 x (1-0.005) x (1-0.005) x (1-0.045) =73.77 MU

(iii) Since the tariff was fixed at ₹ 2.25 per kWh, as discussed at B (i) above, the rational expectation at DPR stage was to have annual revenue = ₹ (73.77 x 2.25) Million = ₹ 1660 Lakh

(iv) However, when it comes to actual revenue, the information about actual energy delivered and the revenue earned therefrom is readily available. First, to have a representative value of energy post commissioning, one must take average of energy delivered over the years post commissioning. But in this case, since the Appellant has proceeded based on theoretical generation to cut off impact of external factors, we may also proceed on the same basis. As mentioned earlier {A (ii)}, the theoretical average generation for the period from 2006-07 to 2016-17 works out to be 74.53 MU. The values of the actual auxiliary consumption and transformation & transmission loss (together) as

claimed by the petitioner are 0.42% and 2.08% respectively {as seen from the para 12 b) Impugned Order-2}. Thus, the average theoretical energy that could have been delivered to HPSEBL would work out to be = 74.53 x (1-0.0042) x (1-0.0208) = 72.67 MU

(v) With the tariff of ₹ 2.25 per, the average annual revenue would work out to be = 72.67 x 2.25 = ₹ 163.50 Million = ₹ 1635 Lakh1

(vi) Reduction in revenue as compared to DPR stage = ₹ (1660- 1635) Cr = ₹ 25 Lakh

70. It may be seen that there is reduction of only ₹ 25 lakh in actual average revenue as compared to rational expectation of revenue at DPR stage. This reduction is only about 1.5% (₹ 25 Lakh as percentage of ₹ 1660 Lakh).

71. Independent of the issue of reduction in revenue, the question worth investigating is whether the average revenue is so low as to significantly impact ability of the Appellant to carry out operation and maintenance of the plant. Since, the Appellant has furnished data up to FY 2016-17, we may carry out analysis for this year. We note that the practice of the State Commissions and the Central Commission has been to revise O&M expense norms primarily to account for inflation, without factoring in the vintage of the plant. This indicates 1 This value is bit lower than the figure mentioned by the Appellant i.e. ₹ 1676 lakh. This is because, the Appellant has not applied auxiliary consumption, transformation loss and transmission loss to arrive at the delivered energy, which is the basis for billing.

that the O&M expenses of Small Hydro Stations are not materially influenced by the age of the plant.

72. The norm of O&M expenses as per 2012 Regulations of HPERC was ₹ 18 lakh per MW for plant of capacity 5-25 MW (the project in question falls in this category). This base figure was to be escalated @5.72% every year to arrive at norm for the relevant year. The norm for O&M expenses would work out as ₹ 22.5 lakh per MW for 2016-17. Since, the project capacity is 16 MW, the total O&M expenses were expected to be ₹ 360 Lakh (=22.5 x 16) in 2016-

17. The average expected revenue, as estimated earlier is ₹ 1635 Lakh {69. B (v)}. Thus, O&M expenses form only about 22% of revenue and there seems to be enough margin to carry out debt servicing.

73. Further, it may also be seen from the following extract of the Impugned Order-2 that the plant was being operated very efficiently:

“………Moreover, the HPSEBL has informed that the machine availability of the plant has been 99.38% which is more than that of 98.09% claimed by the generator. Plant Availability Factor of more than 98% is considered excellent in the run of the river hydro plants. Therefore, the apprehension that the low generation of the plant may be due to poor operation and maintenance or inefficiency of the machines gets diminished.”

74. The Appellant has also claimed that at times, there was difficulty in servicing of debt, and the account was on the verge of becoming NPA; and

also that many of the dues of construction contractors could not be paid. We note the following submissions made before HPERC as recorded in the Impugned Order-2. “vi. that based on the expected minimum generation of 78.81 MU per annum, the project was envisaged to generate minimum revenue to the tune of Rs. 152.15 million@ the tariff of Rs 2.25/- per kWh. In spite of the above, the Petitioner had managed to tie up loans amounting to Rs 7450 lakhs from banks viz. State Bank of India, State Bank of Hyderabad, State Bank of Patiala, and The Lakshmi Vilas Bank Limited for executing and completing the project well within the approved cost and time frame. However, with actual inflows being substantially low compared to 90% Dependable Year discharges, the project is not able to achieve the minimum annual generation of 78.81 MU as envisaged in DPR / TEC granted by the Respondent leading to abysmally lower revenue generation by the Project;

vii. that because of the abysmally low generation and consequent lower revenues on account of lower discharges in the river on which the Project is located, Petitioner has been put to tremendous financial constraints right since commissioning of its project making it extremely difficult even to service the loans. Many a time since its commissioning the Project has been on the verge of being declared as NPA when the Petitioner had perforce to infuse additional funds from time to time by arranging additional inter-corporate loans or through other means to avoid this. Because of these financial constraints, the Project has not been able to pay large outstanding claims of its contractors/vendors which are pending since construction stage thereby putting the additional financial burden on the Petitioner by way of interest on these outstanding payments;” …… ….

“11. …………. …………Details of these large outstanding claims against the Petitioner as on date of filing the petition with dates since when these are payable as informed by the petitioner are given hereunder:-

………;”

75. The assertion that payments to certain construction contractors have remained outstanding for an extended period, even several years after commissioning, is rather unusual. The outstanding amount of all contractors put together, as derived from paragraph no. 11 of the Impugned Order-2 extracted in the preceding paragraph is approximately ₹6.77 crore in contrast to average annual revenue exceeding ₹16 crore. We are not sure if any additional factors like contractual disputes are also at play. As regards

contention that there was difficulty in debt servicing, it is possible that lower generation in certain years might have led to occasional difficulties in servicing debt, which might have required the developer to infuse additional funds on such occasions. However, it is equally plausible that such infusions were offset in subsequent years when generation and revenues improved. As significant period has elapsed since commercial operation, a substantial, if not the entire, portion of the debt service obligations ought to have been discharged. In the absence of a detailed account of how revenues have been applied over the years, the Appellant has not established a persuasive case of financial distress of such magnitude as to impair the operation and maintenance of the project.

76. The issue which may come to mind is whether after incurring O&M expenses and debt servicing, enough funds remained as return on equity to the Appellant-Developer. In this regard, we may remind ourselves of the conclusion drawn by HPERC and endorsed by this Tribunal in Patikari-1 Judgment that the PPA was signed voluntarily by the Appellant-Developer and there was no undue influence or duress by the State or the Board. As a corollary, it may be concluded that the as rational developer of the project, the Appellant would have carried out financial analysis about expected returns. Another factor to keep in mind is that having noted such difficulty in certain kind of projects, where the initial burden of debt serving leaves limited cash in the hands of developer, Central Government has been giving benefit of Accelerated Depreciation (which is still available) to such projects including Small Hydro Projects. Still, there cannot be a guarantee of certain Return on Equity (RoE) as any business is subject to risks, and profit is considered as reward for taking risks2. One of the conclusions of this Tribunal in Pratikari-1

Frank H. Knight, Risk, Uncertainty and Profit, Encyclopaedia Britannica, available at: https://www.britannica.com/topic/Risk-Uncertainty-and-Profit (last accessed on 20.03.2026).

Judgement was that the lower RoE cannot be a reason for reopening of the PPA.

77. Based on the proceeding discussion, we conclude that the Appellant has failed to establish, with any material evidence, that the reduction in hydrology has been of such a magnitude or sustained nature as to adversely impact the operation and maintenance of the Project. The change in hydrology has not posed any existential threat to the Project, nor has it been shown to have rendered the Project unviable or incapable of meeting its core operational obligations. A mere reduction in river flows, without demonstrated consequences for the operational functioning of the Project, does not constitute a case for relief.

78. Since we have already decided that there is no merit in the prayer of the Appellant to enhance the tariff, there will not be any need to modify the relevant provisions of the PPA. Therefore, the issues as to whether the Commission has powers to modify the PPA, and if it has such powers, whether such modification can be made retrospectively, have become theoretical in the context of this case; and it is unnecessary for us to go into these issues.

ORDER

For the foregoing reasons as stated above, we are of the considered view that the captioned Appeal Nos. 107 of 2019 and 166 of 2020 do not have merits and are dismissed.

The Captioned Appeal and pending IAs, if any, are disposed of in the above terms.

PRONOUNCED IN THE OPEN COURT ON THIS 25th DAY OF MARCH, 2026.

(Ajay Talegaonkar) Technical Member (Virender Bhat) Judicial Member

REPORTABLE / NON-REPORTABLE kns/mkj/kks