SC's compensatory tariff order strengthens CERC powers

Sector expects many other entities to benefit from upholding of CERC authority

The Supreme Court (SC) recently ruled against any compensatory rates for suppliers of electricity (using imported coal) due to any change in international regulations. What the order also did is to uphold the Central Electricity Regulatory Commission (CERC)'s power.

This latter aspect has also raised hopes for the two companies directly affected by the ruling, Adani Power and Tata Power, for seeking compensation. Also, many other private entities -- CLP, Reliance, GMR, GVK -- stand to benefit.

"In a situation where there are no guidelines framed at all or where the guidelines do not deal with a given situation, the Commission's general regulatory powers under Section 79(1)(b) can then be used," said the SC order dated April 11.

This reverses what the Appellate Tribunal for Eelctricity had decided only three months earlier. It had declared CERC had no regulatory power under the same section to vary or modify the bid rates or otherwise grant a compensatory one for projects bid under Section 63.

A knowledgeable source said, "Tata Power and Adani Power will explore the Section 79 option to seek a compensatory tariff (rate) which is not limited to domestic coal, based on the observation made by the SC."

An e-mail query to Adani Power and Tata Power on Friday remained unanswered. CERC refused to comment on the judgement.

Even if this route is not favourable for the two companies directly involved, the positives clearly outweigh the negatives for the sector in general. "Wherein a PPA (power purchase agreement) is contested, Section 79 comes handy for the Commission. With the SC restoring it, several cases would reach finality," said a sector executive.

The Association of Power Producers (APP) estimates close to 60,000 Mw of coal-based and privately owned power units would benefit. "All power plants which had to source imported coal due to deficits in the domestic market would stand to gain from this order. As the SC has granted a change in law under Indian conditions, whoever was to get domestic coal supply and appealed to CERC would now use this case citation to get compensation," said A K Khurana, director-general of APP. Among the noted ones are CLP Jhajjar, Lanco Anpara and power units of GMR, GVK and Reliance Power.

This outweighs the estimated 5,000-6,000 Mw which could be adversely impacted by the SC judgement, according to industry estimates.

For Adani Power specifically, its Tiroda and Kawai units would also stand to gain. "This could bring down the write-off for the company to Rs 3,700 crore, from the earlier estimate of Rs 9,000 crore," said a sector expert.

The SC judgement might also bring clarity to pending proposals with various state electricity regulatory commissions. "Post this judgment, electricity regulatory commissions (ERCs) will evaluate each discovered tariff on various parameters, including consumer benefit, and might not approve various bids. It is also relevant to mention that Section 63 bids are pending for approval before various ERCs and they might take a different approach post this judgment," said Aditya Singh, a transactional & regulatory lawyer based in Delhi.