India: Navigating The New Electricity Rules: Resolving Outstanding Dues Between GENCOs, ISTL's, ETL's, And DISCOM's

Abstract:

The committee was formed by Ministry of Power, chaired by the Central Electricity Authority tabling a report in the year August, 2019 on the "Delayed Payment by the DISCOMs to theGENCOs/IPPs" highlighting issues face by generation companies due to delayed payment by the distribution companies as follows:

"The non-payment by DISCOMs creates working capital problem for generating companies,This, in turn, leads to inability to procure adequate coal to comply with the normative availability requirements. The working capital crunch faced by generating companies is illustrated in detail in the section 3.7 of the report.

(i) Inability to buy coal may lead to further under recovery of fixed charges and penalties.

(ii) Reduced coal availability may also result in part load operation of units which in turn may lead to higher station heat rate and higher auxiliary power consumption.

(iii) Further, inability to service debt to lenders due to cash crunch leads to lower credit ratings and charging of higher rates of interest including penal interest on the generating companies.

(iv) It has been pointed out to the Committee that most of the stressed IPPs are paying interest at the rate of 12-13% even after 4-5 year of operations.

(v) Generating companies, particularly IPPs, are trying to overcome the cash crunch by way of taking additional short-term loans at very expensive rates, thereby further burdening the financials and cash limits.

vi) All the above difficulties may ultimately culminate in default in debt servicing. Thus, delayed payment by DISCOMs is pushing the assets being tuned into NPAs, thereby affecting the banking sector and the country's economy in general."

The introduction of theElectricity (Late Payment Surcharge and Related Matters) Rules, 2022 has sparked a significant shift in the dynamics of settlements between Power Generating Companies(GENCOs), Independent System Transmission Operators (ISTLs), Extra High Voltage Transmission Licensees (ETLs), and Distribution Companies (DISCOMs). This article delves into the intricacies of the new rules and their impact on resolving outstanding dues, exploring the challenges, opportunities, and potential outcomes for all stakeholders involve

Introduction

The long due issue regarding the recovery of monies by the Generation Companies, Inter –State Transmission Licensee ("ISTL"), andElectricity Trading Companies from the Distribution Companies ("DISCOM's")have been addressed and the new Electricity (Late Payment Surcharge and Related Matters) Rules, 2022 ("LPS Rules 2022")have been made in exercise of powers conferred by sub-section (1) of section 176of the Electricity Act, 2003 (36of 2003), and in supersession of the Electricity (Late Payment Surcharge) Rules, 2021 in order to streamline the process of monitoring of payments of bills of suppliers by the DISCOMs and identifying defaults by the DISCOM's.

The notification(F.No.10/03/2022-UR&SI-II-(E-263775)) issued by Ministry of Power states the various categories of invoices covered under the LPS Rules, 2022 including RegularInvoices,Supplementary Invoices, Change in Law Invoices, Late Payment Surcharge Invoices,and others to be covered under the LPS Rules, 2022.

Settlement of outstanding dues of GENCO's, ISTL's and ETL's from the DISCOM's under the new Electricity (Late Payment Surcharge and Related Matters) Rules, 2022

The dues are broadly categorized under two categories basis the date of existence of dues, namely:

1. Legacy Dues

The overdue up to June 3, 2022 are being liquidated through Equated Monthly Instalments (EMIs)for which financial assistance has been made available by Power Finance Corporation Limited (PFC)/ REC Limited (REC)/ financial institutions/ banks. Asper Rule 5 of the LPS Rules, 2022, the redetermination of such legacy dues shall be as per the monthly installment slabs provided under such Rule 5.However, such legacy dues needed to be communicated to the generating company,transmission licensee, electricity trading licensee, within thirty days from the date of publication of such LPS Rules, 2022. Furthermore, in case of delay in payment of an installment under Rule 5, Late Payment Surcharge shall be payable on the entire outstanding dues as on the date of notification of these rules.

2. Current Dues

All the dues of monies payable to the GENCO's, ISTL's and ETL's from the DISCOM's post the June 3, 2022 onwards are categorized as current dues. Under the definition clause 2 (h) of the LPS Rules, 2022, defines outstanding dues as "means the dues of a generating company, electricity trading licensee, or a transmission licensee, not stayed by a competent court or Tribunal or dispute resolution agency as designated in thePower Purchase Agreement, which remains unpaid by the beneficiary beyond the due date and includes the amount of installment not paid after there-determined due date under rule 5".

The LPS Rules, 2022 have also under Rule 6 mandated the requirement of maintaining an irrevocable/unconditional Payment Security Mechanism by the DISCOM's/power purchasers non-compliance of which shall lead to regulation of power supply upon the perusal of the GENCO's, ISTL's and ETL's. Furthermore, the GENCO's are also protected under such scenarios by mandating the DISCOM's to make the payment of fixed charges or capacity chargers under the PPA. However, the incase the GENCO's supplies power without the payment security mechanism or without advance payment, it shall lose the right to collect the late payment surcharge from the DISCOM's/power purchasers.

The definition of outstanding dues under the LPS Rules, 2022, clearly mandates the requirement of a sufficient order from an appropriate adjudicatory forum to be procured by the DISCOM's/power purchaser in case of disputed invoices. The LPS Rules, 2022, also lays down retributory provisions regarding power regulation for non-payment of timely dues by DISCOMs has the following impact:

(a) Upto 1 month: Withdrawal of Short-Term Access to powerexchange

(b) More than 1 month–Long Term/ Medium Term access shall be regulated by 10%. Quantum of reduction in drawl schedule increases progressively by Ten per cent for each month of default.

The LPS Rules, 2022 have also under Rule 6 mandated the requirement of maintaining an irrevocable/unconditional Payment Security Mechanism by theDISCOM's/power purchasers non-compliance of which shall lead to regulation of power supply upon the perusal of the GENCO's,ISTL's and ETL's. Furthermore, the GENCO's are also protected under such scenarios by mandating the DISCOM's to make the payment of fixed charges or capacity chargers under the PPA. However, the in case the GENCO's supplies power without the payment security mechanism or without advance payment, it shall lose the right to collect the late payment surcharge from the DISCOM's/power purchasers.A dedicated platform for Payment Ratification and Analysis in Power Procurement ("PRAAPTI")have made it conducive for the GENCO's and DISCOMs in processing a time bound manner. Furthermore, in case of disputed invoices the prescribed rules shall be referred to post the trigger date for the disputed invoices.

Analysis and Observations

1. With the implementation of Electricity (LPS and Related Matters) Rules, 2022,remarkable improvement has been seen in recovery of outstanding dues.Against legacy dues of Rs.1,38,378 crores as on 03.06.2022, States/ UTs have timely paid instalment of 60% to Rs. 49,452/- of the total legacy dues by far.

2. Alongwith the Legacy Dues reduced to 60% there is a major resolve exhibited by theDISCOMs in processing the current dues due to a coherent mechanism in place by the LPS Rules 2022.

3. TheLPS Rules, 2022 has also made the Hon'ble Supreme Court make observations ont he Regulatory Commissions by stating that non quantification of the disputes by the Electricity Regulatory Commissions and the untimely payments of the Discoms is also detrimental to the interests of the consumers. If timely payment is not made by the Discoms, under the PPA, they are required to pay theLPS, which are much higher. Such observations by the Hon'ble Supreme Court would ensure a more comprehensive dispute resolution mechanism before the Regulatory Commissions.

Ensuring a mandated Payment Security Mechanism and putting both the GENCO's and DISCOM's under obligations, also ensuring payment of fixed charges or capacity charges would prevent frivolous litigations.

Originally published March 19, 2024.

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