Power Ministry proposes to allow Power Generating Companies to sell electricity to third parties on discoms’ default

By August 24, 2021 December 22nd, 2021 No Comments

As part of its effort to reduce burden and enhance liquidity of distribution licensee (Discoms) which in turn may reduce retail tariff for consumers, the Ministry of Power has proposed amendment to the Electricity (late payment Surcharge) Rules, 2021, and has sought comments on the draft amendment rules (Click Here to Read) by 18.09.2021.

As per the proposal, if a Discom, has any payment, including late payment surcharge, outstanding after expiry of 7 months from due date of payment as per power purchase agreement (PPA), then notwithstanding anything contained in the PPA, a generating company can sell the power to any consumer or licensee or exchange, for the period of default. However, the power generating company will retain its claim on the payment of fixed charges or capacity charges from the Discom, after giving a notice of 15 days. Such claim shall be reconciled on annual basis and shall be limited to only under recovery of the fixed or capacity charges.

In addition to the above, the proposal lays down order of payment and adjustment towards late payment surcharge, whereby all payment by the Discoms to generating companies will be adjusted towards procurement of power starting from the oldest procurement to the latest on first in and first out basis. The payment shall be first adjusted towards late payment surcharge before adjustment towards procurement of power.

Alpha Rajan & Partners Comment: The power purchase agreements are generally made very tight by the Discoms to ensure availability of the earmarked capacity to themselves and it becomes difficult for generating companies to negotiate terms to cover risk of non-payment in a bid to bag a good rate for their power. The statutory right for generating companies to stop power supply to defaulters and supply to third parties will enable them to ensure its regular payment stream and retention of claim over fixed charges will help them in recovering their costs. This will boost investment in power generation business as the power to do a third party sale under power arrangements with Discoms may make projects more commercially viable.

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