I.             Vide Ministry of Power letter of 6/4/2020 purporting to give clarification on subject of letters of credit some additional statements have been made.

“3 a  Obligation to pay for power within 45 days -- or as provided in PPA remains unchanged.

3 c    Obligation to pay for capacity charges as per PPA shall continue as does the obligation to pay for transmission charges”.

II.       The statement of Ministry of Power as quoted at Para 3a and Para 3c above are wrong, being against the letter and spirit of Electricity Act 2003 as explained below.

          a)      Statement of objectives and reasons of Electricity Act 2003 clearly provided for distancing of Government from determination of tariff, for which the Electricity Regulatory Commission was created.

          In the land mark judgment of Supreme Court on Energy Watchdog case, dated 11/04/2017, the statement of objective and reasons for Electricity Act 2003 has been quoted at page 16 the relevant portion of which is as under.

1.3 Over a period of time, however, the performance of SEBs has

deteriorated substantially on account of various factors. For

instance, though power to fix tariffs vests with the State

Electricity Boards, they have generally been unable to take

decisions on tariffs in a professional and independent

manner and tariff determination in practice has been done

by the State Governments. Cross-subsidies have reached

unsustainable levels. To address this issue and to provide

for distancing of government from determination of tariffs,

the Electricity Regulatory Commissions Act, was enacted in

1998. It created the Central Electricity Regulatory

Commission and has an enabling provision through which

the State Governments can create a State Electricity

Regulatory Commission. 16 States have so far

notified/created State Electricity Regulatory Commissions

either under the Central Act or under their own Reform Acts.  

The Ministry of Power letter of 6/4/2020 is in clear contradiction to the principle of distancing of government from determination of tariff. The issuing of statement /direction by Ministry of Power regarding payment of capacity charges, being in contradiction to objectives and reasons of Electricity Act 2003 is therefore not valid or sustainable.

b)      There are instances where the state discoms have declared force majeure and thereby stated that under force majeure condition the  capacity charges are not payable. The PPA generally has a provision for force majeure and therefore with the prevailing condition of force majeure on account of Corona Virus, Lock Down and extreme load crash the force majeure is established and capacity charges are not payable, particularly when a IPP station  is closed down on account of load crash.

III.      Section 107 and Section 108 of Electricity Act 2003 stipulate as under.

          Section 107. (Directions by Central Government): --- (1) In the discharge of

its functions, the Central Commission shall be guided by such directions in

matters of policy involving public interest as the Central Government may give

to it in writing.

(2) If any question arises as to whether any such direction relates to a matter of

policy involving public interest, the decision of the Central Government thereon

shall be final.

Section 108. (Directions by State Government): ---- (1) In the discharge of

its functions, the State Commission shall be guided by such directions in matters

of policy involving public interest as the State Government may give to it in

writing.

(2) If any question arises as to whether any such direction relates to a matter of

policy involving public interest, the decision of the State Government thereon

shall be final.

          In view of clear provision of Section 108, the GOI / MOP have no authority or jurisdiction to issue direction directly to SERCs or to state discoms or to IPPs within the state. However, the MOP letter dated 6/4/2020 has been endorsed to all generation companies, all discom and all SERCs which is a clear conflict with  section 108 of the Electricity Act 2003.

IV.     The preamble of Electricity Act 2003 clearly mentioned the factor of protecting interest of consumers. Therefore in case a private sector IPP is shutdown due to force majeure condition of load crash, the capacity charges are not payable. However, as per MOP letter, if the capacity charges are paid for shut down station, it would increase the tariff burden on the common consumer and thereby go against the letter and spirit of preamble to the Electricity Act 2003.

V.      It is further seen that under the excuse of giving clarification on earlier letter of MOP regarding LCs etc. the major statement has been made at Para 3a and 3c of the letter which is not justified.

VI.     The past experience shows that whenever the Ministry of Power issues directions or letter to favour the IPPs, the same letter are subsequently quoted by the IPPs before the state regulator or APTEL or various courts. In this way it becomes difficult for the state discoms to defend their case before various regulatory/court authorities. This aspect should have been kept in mind by the Ministry of Power. It is highly likely that such issues as claim of capacity charges for a shut down power station would go into litigation and therefore MOP needs to be cautious and restrained before issuing statements that would have far reaching implications adversely impacting the consumer interest.

Thanking you with regards.

Sincerely Yours

Shailendra Dubey