With SC Approval, Route to Higher Tariffs for Private Power Plants Shifts to CERC

While the Central Electricity Regulatory Commission will look into whether the power plants of Adani, Tata and Essar should be given relief, consumer groups can also challenge the re-opening of Power Purchase Agreements.

New Delhi: In major relief to the loss-making power plants of Adani, Tata and Essar in Gujarat, the Supreme Court on Monday cleared the way for the Central Electricity Regulatory Commission (CERC) to decide whether existing power supply contracts can be reopened to allow generators to pass on increased fuel costs to consumers as the per recommendations of a high-level committee.

The CERC has been asked to complete its hearing within eight weeks. 

“The CERC will look into amending the existing PPAs,” Pramod Kumar Deo, former chairman to the central electricity commission who was also member of the high-level committee, told The Wire.

But other experts The Wire spoke to said that consumer groups can challenge the reopening of Power Purchase Agreements (PPAs) before the CERC. Further, if they are not satisfied with the CERC order, they can also challenge it in Appellate Tribunal for Electricity (Aptel) and then again in the Supreme Court.

Also read: If Gujarat Power Plants Bailout Is Approved, Consumers and Lenders Will Pick up the Tab

That means legal wrangling over compensatory tariff for these plants could still drag on, they said.

The apex court passed its order on a petition filed by the Gujarat government. The committee, in its report, has recommended full pass-through of fuel costs to make these plants viable. It has also suggested haircuts for lenders on interest rates.

Consumers could end up paying as much as Rs 1.29 lakh crore in extra electricity charges over a 30-year period if these plants are allowed to pass on additional fuel costs.

Lenders too could lose over Rs 17,000 crore in haircuts.

Electricity consumer groups including Delhi-based Energy Watchdog and Pune-based Prayas had opposed the Gujarat government’s petition in the Supreme Court.

They are likely to oppose Gujarat government’s petition before the CERC too.

These plants, based on Indonesian coal, are incurring operational losses as they are not allowed to pass on increase in the imported fuel price because of contractual inflexibility.

Essar’s Salaya plant. Credit: Essar

Private developers had quoted fixed fuel costs while bidding for these projects. However, in a surprise move, the Indonesian government in September 2012 moved over to an international indices-based pricing, which led to a sharp hike in coal prices while upsetting the cost calculations of Indian power companies.

In July 2018, the Gujarat government set up the high-level committee under former Supreme Court judge Justice R.K. Aggarwal. Former RBI deputy governor S.S. Mundra and ex-CERC chairman Pramod Kumar Deo were also roped in as members.

Apart from additional financial burden on consumers, the committee’s recommendations also involve an ethical question: should consumers be asked to pay the price for private companies’ misjudgements? Or, in other words, if the price of Indonesian coal had fallen, would these companies have shared the benefits with consumers and reduced tariffs?

Also read: Consumer Groups Set to Oppose Gujarat Govt Bailout of Private Power Plants in SC

Discoms from Punjab, Haryana, Rajasthan and Maharashtra, besides the home state of Gujarat, have signed long-term PPAs with these plants.

If the panel’s recommendations are accepted, electricity consumers of Gujarat could be the biggest losers as they will have to bear the additional liability of Rs 90,000 crore. Haryana consumers will have to pay Rs 18,000 crore extra on account of electricity bills. Electricity consumers of Maharashtra and Rajasthan will end up paying Rs 10,000 crore and Rs 5,000 crore, respectively. Punjab will have to absorb Rs 5,000 crore of additional electricity costs.

Consumers could end up paying as much as Rs 1.29 lakh crore in extra electricity charges over a 30-year period if these plants are allowed to pass on additional fuel costs.

The Gujarat government approached the Supreme Court as it had rejected compensatory tariff for these plants in its ruling in April last year.

In its ruling last year, the court had said that Adani Power and Tata Power cannot claim any benefit under the force majeure clause as “changes in the cost of fuel, or the agreement becoming onerous to perform, are not treated as unforeseen events under the PPA.

In 2012, the CERC had awarded Tata Power’s 4,000 MW Mundra ultra mega power project a 52 paise per unit compensatory tariff. Adani Power’s 1,980 MW plant was allowed to raise power tariff by 41 paise per unit. The companies had argued that since imported coal was a major portion of their raw material, the cost escalation had made it impossible for them to keep supplying power over the contracted period.