State changed the rules after you signed the PPA. You still get paid.

When the State changes the rules, who pays the power bill?

GMR Warora Energy Limited had a problem. It had won a competitive bid to supply electricity to state distribution companies (DISCOMs) at a fixed tariff. Then the government changed the rules — coal distribution policies, railway surcharges, environmental notifications, taxes. Each change added crores to GMR’s costs. The question before the Supreme Court of India was simple: under a ‘Change in Law’ clause in a long-term Power Purchase Agreement (PPA), who bears the burden when the State itself moves the goalposts?

The answer, delivered by a two-judge Bench of Justice B.R. Gavai and Justice Vikram Nath on April 20, 2023, in GMR Warora Energy Limited v. Central Electricity Regulatory Commission (CERC) & Ors., 2023 LiveLaw (SC) 329, is a masterclass in restitutionary thinking. It tells every generator, every DISCOM, and every CFO in the power sector one thing: if a State instrumentality issues an order after your PPA’s cut-off date that increases your costs, you get compensated. No ifs. No buts.

The coal that never came

The story begins with a batch of appeals — Civil Appeal No. 11095 of 2018 and its companions — all arising from orders of the Central Electricity Regulatory Commission (CERC), various State Commissions, and the Appellate Tribunal for Electricity (APTEL). The generators had signed PPAs under Section 63 of the Electricity Act, 2003, which mandates tariff determination through competitive bidding. Their PPAs contained Article 13 — the standard ‘Change in Law’ clause — which promised to compensate them if a change in law after the bid date increased their costs.

But what counts as a ‘change in law’? The generators argued that everything from a Railway Board surcharge to a Ministry of Environment and Forests (MoEF) notification on coal quality to the New Coal Distribution Policy (NCDP) of 2013 qualified. The DISCOMs argued the opposite: these were routine regulatory adjustments, not compensable events.

The CERC and State Commissions allowed some claims and rejected others. APTEL partly allowed appeals, expanding Change in Law benefits on some components — Busy Season Surcharge, Development Surcharge, MoEF Notification, NCDP changes, and Carrying Cost — while rejecting others like Minimum Alternate Tax (MAT) and the shift from UHV to GCV coal pricing. Both sides came to the Supreme Court.

What the Railway Board did

The first major issue was the Busy Season Surcharge and Development Surcharge imposed by the Railway Board via notifications after the PPAs’ cut-off dates. The DISCOMs argued that these were not ‘law’ — they were merely administrative decisions by a public sector entity. The Supreme Court rejected that argument flatly.

“All additional charges payable on account of orders, directions, notifications, regulations issued by instrumentalities of the State after the cut-off date in PPAs constitute ‘Change in Law’ events for payment of compensation,” the Bench observed, per Justice Gavai. The Railway Board is an instrumentality of the State. Its notifications have the force of law. When they increase a generator’s coal transport costs, that is a compensable Change in Law event.

The same logic applied to the Evacuation Facility Charges (EFC) imposed by Coal India Limited (CIL). CIL is a government company — an instrumentality of the State. Its mandatory circulars imposing EFC on coal supplies are Change in Law events. The Court followed its own reasoning in MSEDCL v. Adani Power Maharashtra Limited & Ors., 2023 SCC OnLine SC 233, which had directly decided these common issues for all appeals in the batch.

The SHAKTI Policy and the coal distribution shift

Then came the New Coal Distribution Policy (NCDP). The government replaced the 2007 NCDP with the 2013 NCDP, and later introduced the SHAKTI Policy. These changed how coal was allocated to power plants. Generators who had bid expecting coal under the old regime found themselves paying more under the new one.

The Court held that the enforcement of the SHAKTI Policy constitutes a Change in Law event. The NCDP changes — including the shift from 100% normative coal supply to actuals — were also compensable. The Court relied on Energy Watchdog v. CERC & Ors., (2017) 14 SCC 80, which had established the foundational framework for Change in Law under electricity PPAs, and Jaipur Vidyut Vitaran Nigam Ltd. v. Adani Power Rajasthan Ltd., 2020 SCC OnLine SC 697, which had addressed coal supply shortfall as a Change in Law event.

The restitutionary principle

Underlying all these rulings was a single, powerful idea: Change in Law compensation is restitutionary. Its purpose is to restore the generator to the same economic position as if the Change in Law event had never occurred. Not to punish the DISCOM. Not to enrich the generator. Just to make the generator whole.

“Change in Law compensation is based on the principle of restitution — to restore the generator to the same economic position as if the Change in Law event had not occurred,” the Court said. This principle governed every component it allowed: the surcharges, the EFC, the SHAKTI Policy costs, the NCDP changes.

But the Court also left some issues open. The Minimum Alternate Tax (MAT) under Section 115JB of the Income Tax Act, 1961, was one. The Court noted that it had not been fully argued and left it for determination in appropriate proceedings. The shift from UHV to GCV coal pricing — a technical change in how coal quality was measured — was also left open.

The carrying cost conundrum

One of the most practical issues in the judgment was the rate at which generators should receive carrying cost — interest on delayed Change in Law compensation. The PPAs’ Article 11.8.3 dealt with this, but the rate was disputed. The Court followed Jaipur Vidyut Vitaran Nigam and directed that carrying cost be paid at 9% per annum. This is now the benchmark rate for delayed Change in Law payments in the sector.

The Court also directed the Union of India, through the Ministry of Power (MoP), to evolve a mechanism ensuring timely payment by DISCOMs to generators under PPAs. This was an obiter — not strictly necessary for the decision — but it signals the Court’s frustration with the chronic payment delays that plague the power sector. “The Court lamented the practice of DISCOMs and generators pursuing endless litigation challenging concurrent findings of CERC and APTEL,” the judgment noted.

THE PLAY: If a State instrumentality — Railway Board, Coal India, Ministry of Environment — issues an order after your PPA’s cut-off date that increases your costs, file a Change in Law claim immediately. The Supreme Court has now held that all such orders are compensable events. Do not wait for the DISCOM to agree. Go to the regulator.

What this means for practitioners

For advocates advising generators, this judgment is a gift. The ratio is broad: any additional charge payable on account of an order by a State instrumentality after the PPA cut-off date is a Change in Law event. The Court did not limit this to statutes or regulations. It included notifications, circulars, and policies. The only requirement is that the issuing entity be an instrumentality of the State.

For CFOs and founders, the message is equally clear. When you bid for a long-term PPA, you are not locking in your costs forever. If the government changes the rules — and it will — you have a contractual right to be compensated. But you must act fast. File your claim with the regulator as soon as the cost increase materialises. Do not wait for the DISCOM to acknowledge it. The clock starts ticking from the date of the order, not from the date of the first invoice.

The judgment also reinforces the importance of the restitutionary principle. You are not entitled to a windfall. You are entitled to be made whole. So document every cost increase meticulously. If you cannot prove the causal link between the State instrumentality’s order and your increased cost, you will not get compensated.

The bottom line

When the State changes the rules after you sign a PPA, the generator does not eat the cost — the DISCOM pays, with 9% carrying cost if it delays.