The Central Electricity Regulatory Commission (CERC) has recognized the Change in Law event and mandated compensation, agreeing with NTPC and Telangana distribution companies (DISCOM) that any impact should be recovered through usage charges for two solar projects.

The Commission outlined a methodology for compensation payments, setting a normative interest rate and annuity term. It directed reconciling additional expenditure and carrying costs, subject to the Supreme Court’s orders in relevant matters.

Background 

In a petition, NTPC sought compensation due to increased costs resulting from a change in the rate of goods and services tax (GST), which constituted a Change in Law event for the 20 MW Gandhar and 56 MW Kawas solar projects.

These projects were part of the Central Public Sector Undertaking (CPSU) program Phase-II Tranche II, with tariffs approved by CERC.

The respondents to the petition included Telangana State Southern Power Distribution Company (TSSPDCL), Telangana State Northern Power Distribution Company (TSNPDCL), and Telangana State Power Coordination Committee (TSPCC).

The respondents, TSSPDCL and TSNPDCL, are distribution companies in Telangana.

NTPC argued that when the power usage agreement (PUA) was signed, GST at 5% was applicable.

However, the Ministry of Finance’s subsequent notification of Integrated Tax (Rate) triggered a Change in Law event under Article 10 of the PUA.

NTPC said it was entitled to a compensation of ₹91.8 million (~$1.1 million), covering the total costs of the Gandhar and Kawas solar power projects and applicable carrying costs from the due date until actual payment.

Commission’s Analysis

The Commission deliberated on whether implementing the Integrated Tax (Rate) constitutes a Change in Law event according to Article 10 of the Power Usage Agreement (PUA) and if the petitioner is eligible for compensation due to the resultant additional expenses.

It considered the appropriate rate for calculating compensation payments relating to the Change in Law and whether the petitioner is entitled to reimbursement for carrying costs.

The petitioner had previously notified the DISCOMs about the potential impact of the Change in Law and committed to furnishing comprehensive details at the reconciliation stage, pending the Commission’s acknowledgment of the Change in Law concerning GST.

Notably, the COVID-19 pandemic significantly disrupted project supplies and progress, prompting the Ministry of New and Renewable Energy to issue several notifications granting time extensions for renewable energy projects, subsequently affecting the scheduled dates for power commencement.

Telangana DISCOMs contended that adhering to the original power commencement dates would have mitigated the impact of increased GST rates. They expressed dissatisfaction with the lack of advance notice and complete documentation from the petitioner regarding the Change in Law events and adjustments in usage charges.

Despite their objections, the Commission acknowledged the validity of the petitioner’s claims regarding Change in Law events, warranting compensation as stipulated in the PUAs.

NTPC and Telangana DISCOMs concurred that any repercussions from a Change in Law should be offset through usage charges per the PUAs, with NTPC agreeing to furnish documentation to assess the impact.

The Commission prescribed a consistent compensation methodology, fixing the discount rate at 9.12% and the annuity payment term at 15 years. It also mandated SECI/DISCOMs to make monthly annuity payments, effective 60 days from the order date or NTPC’s claims submission date, with late payment surcharges applicable for delays.

Addressing the issue of carrying costs, the Commission ruled in favor of the petitioner, stipulating reimbursement from the actual payment date until the issuance of the order, calculated at the lowest of the actual interest rate paid, the working capital interest rate per regulations, or the late payment surcharge rate.

The Commission directed the parties to reconcile additional expenses incurred due to the 2021 GST Notification, alongside carrying costs, supported by a clear correlation with project invoices and auditor certificates. DISCOMs must settle all reconciled claims irrespective of SECI’s payment status.

Recently, CERC issued draft regulations to determine fees and charges to be collected by Regional Load Despatch Centres from generating companies, DISCOMs, bulk consumers, inter-state transmission licensees, buyers, sellers, and inter-state trading licensees, settlement nodal agencies, and any other users.

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