Power regulator changed rules after fixing tariff. SC says no.

The regulator set the price. Then, during a 'truing up,' it changed the math. The power company said: you can't rewrite the rules after the game. On an October morning in 2022, the Supreme Court agreed — and in doing so, drew a bright line between adjusting numbers and rewriting the law.

Two private electricity distribution companies in Delhi — BSES Rajdhani and BSES Yamuna — had taken over the capital's power network after privatization. Each year, the Delhi Electricity Regulatory Commission (DERC) set how much they could charge consumers. The regulator projected costs, fixed a tariff, and the companies billed accordingly. Later came the 'truing up' — a routine exercise where projected costs were compared with actual costs, and the difference was adjusted in the next year's tariff.

But in 2012, when DERC performed the truing up for the financial years 2008-09 and 2009-10, the companies noticed something unusual. The regulator had not just adjusted numbers. It had changed the very method it used to calculate those numbers in the first place.

The original Multi-Year Tariff (MYT) order — a tariff framework set for a multi-year control period — had been issued on 23 February 2008. A subsequent tariff order for FY 2008-09 followed on 28 May 2009. The companies had built their business plans around the methodology laid out in those documents. Then, on 26 August 2012, DERC issued the impugned truing up order. The companies opened the file and saw that the regulator had, during the truing up exercise, altered the very principles of the original tariff determination — effectively amending a quasi-judicial order without following the procedure required by law.

When the regulator changed the formula

The original tariff order had used a specific methodology to compute AT&C losses — an aggregate measure of how much electricity was lost through technical faults and theft. The companies had built their business plans around that methodology. During truing up, DERC switched to a different method. The result: the companies could recover significantly less money than they had expected.

It was not just AT&C losses. The regulator also changed how it computed depreciation, disallowed certain salary expenses related to FR/SR (a category of employee compensation), refused to let the companies recover interest on security deposits held by a third party (DPCL), and rejected claims for fringe benefit tax. On each of these six issues, the companies argued that DERC had violated a fundamental principle: you cannot change the rules of the game after the match is over.

The six issues, framed as substantial questions of law, were: the change in AT&C loss computation methodology, the change in depreciation computation methodology, the disallowance of FR/SR salary, the disallowance of interest on consumer security deposits retained by DPCL, the disallowance of fringe benefit tax, and the reduction in enforcement sale MUs (million units of electricity). Each issue represented a point where DERC had, according to the companies, impermissibly altered the original tariff methodology during the truing up exercise.

The legal question: what is 'truing up' allowed to do?

The Electricity Act, 2003, gives state electricity regulators the power to determine tariffs under Section 62. The procedure for issuing a tariff order is laid out in Section 64 — a quasi-judicial process (a decision-making process that resembles a court proceeding) where the regulator hears objections from all stakeholders and passes a reasoned order. Once issued, that order is final. It can only be amended or revoked under Section 64(6), which requires following the same procedure as the original order.

The companies' core argument was simple: truing up is an accounting exercise, not a regulatory do-over. You compare projected costs with actual costs and adjust the difference. You do not reopen the methodology you used to set the original tariff. If DERC wanted to change how AT&C losses were computed, it had to do that in a fresh tariff proceeding — not slip the change into a truing up.

DERC argued that truing up was part of the same regulatory process, and that it had the flexibility to correct errors or adopt better methods as actual data became available. The Appellate Tribunal for Electricity (APTEL) — the first appellate body — partly agreed with the companies on 28 November 2014 but upheld some of DERC's changes. The companies appealed to the Supreme Court on all six issues, invoking Section 125 of the Electricity Act, which allows appeals to the Supreme Court on substantial questions of law.

Why the Supreme Court said no

The bench of Justice S. Abdul Nazeer and Justice Krishna Murari framed the question sharply: could a tariff order made under Section 64 be amended during truing up without following the procedure under Section 64(6)?

The answer was no. The court held that a tariff order is quasi-judicial in nature and becomes final and binding on the parties. It cannot be reopened or its methodology changed during a truing up exercise. Truing up is meant to reconcile projected numbers with actual numbers — not to rewrite the principles on which those numbers were based.

The court applied the test laid down in Sir Chunilal V. Mehta & Sons Ltd. v. The Century Spg. & Mfg. Co. Ltd. (1962) to determine whether the appeals raised substantial questions of law — questions that directly and substantially affect the rights of the parties, not merely the stakes involved. The court also relied on PTC India Limited v. Central Electricity Regulatory Commission (2010) and Gujarat Urja Vikas Nigam Ltd. v. Tarini Infrastructure Ltd. & Ors. (2016) for the proposition that regulatory orders must be final and binding unless properly challenged.

On all six issues, the court found that DERC had impermissibly changed its methodology during truing up. The court held: "It is not permissible to amend a tariff order made under Section 64 of the Electricity Act 2003 during the truing up exercise." The courtroom fell silent as the judgment was read — the crisp finality of that sentence settled the matter.

On AT&C losses, the court held that the regulator had switched from one computation method to another without any explanation, effectively reducing what the companies could recover. On depreciation, DERC had applied a method different from what the original tariff order had prescribed. On salary expenses and fringe benefit tax, the regulator had disallowed claims that the original order had never questioned. On interest on consumer security deposits, DERC had refused to allow recovery of interest paid to a third party — a change that fundamentally altered the economics of the original tariff.

What this means for power companies and regulators

The judgment is a reminder that regulatory certainty matters. A company that invests crores based on a tariff order needs to know that the rules will not change mid-cycle. Truing up is a tool for accuracy, not for regulatory revision. If a regulator wants to change its methodology, it must do so transparently — through a fresh tariff proceeding where all stakeholders can be heard.

The procedural journey of this case itself tells a story of regulatory overreach checked by judicial discipline. The original MYT tariff order of 23 February 2008 set the control period. The subsequent tariff order of 28 May 2009 fixed the tariff for FY 2008-09. Then came the impugned truing up order of 26 August 2012 — a document that, when opened, revealed a spreadsheet where the numbers had been recalculated on entirely new assumptions. The appeal to APTEL on 28 November 2014 partly corrected the error. The Supreme Court on 18 October 2022 completed the correction.

For practitioners, the takeaway is this: challenge any truing up order that changes the original tariff methodology, because the Supreme Court has now made it clear that such changes are impermissible. The existence of a substantial question of law is the sine qua non (an essential condition) for the Supreme Court's jurisdiction under Section 125 — and here, the court found that every one of the six issues raised such a question.

THE PLAY: When reviewing a truing up order, compare the methodology used against the original tariff order — if they differ, the regulator has likely overstepped.

The regulator set the price. The truing up was supposed to check the math. The Supreme Court sent the math back — and with it, a clear rule: the game cannot be replayed after the final whistle.