Power generating companies owned by the central government have now been given the green light to reduce power supply to a state utility in case it defaults in opening of or maintaining the letter of credit (LC) for paying its dues.
This follows a recent judgment of the Appellate Tribunal for Electricity (APTEL) in a case filed by NTPC.
These central government-owned companies — which include NTPC, NHPC, Nuclear Power Corporation and North Eastern Electric Power Corporation, account for about a third of the total power generated in the country.
In a judgment last week, APTEL set aside an order by the Central Electricity Regulatory Commission (CERC), which had declined to instruct the Northern Regional Load Despatch Centre (NRLDC) to reduce/regulate supply of power to Jammu and Kashmir after it defaulted in opening LC in favour of NTPC.
This effectively allows NTPC to curtail supplies to defaulting state utilities.
“The judgment gives an additional comfort from NTPC’s point of view. Should a state default in future, the company can legally take action. This will act as a deterrent to other states. Though this does not apply to the private companies, they can take heart from the fact that the regulatory framework in the power sector is active,” said Arvind Mahajan, executive director, KPMG Advisory Services.
NTPC had approached the Tribunal challenging the order of CERC after the latter disposed NTPC’s petition at the admission stage. NTPC had approached CERC asking for regulation of power supply to J&K.
However, CERC declined to instruct the NRLDC to regulate the supply of power. In effect, the Commission declined to implement the tripartite agreement that permits NTPC to reduce power supply to the defaulting state, noted the judgment.
In 2001, an expert group set up to recommend settlement of outstanding dues, had come with a tripartite agreement scheme between the central government, the respective state governments and the Reserve Bank of India.
Under this agreement, an essential condition was establishment and maintenance of LC equivalent to 105 per cent of average monthly billing. The failure to do so shall attract reduction in supplies equal to 2.5 per cent of the average daily supply for the preceding 90 days.
NRLDC, on its part, argued in its response that reduction to a particular state was done only in two conditions, namely, downward change in allocation by the power ministry and a request from the generator in line with the Commission’s generic procedure.
The Tribunal also noted that while no other utility had defaulted in opening the LC, they had opposed the present appeal by NTPC. A number of them had contended that the generic procedure on regulation of power supply in case of non-payment of dues (prescribed by the CERC) was sufficient to deal with payment defaults. The judgment, however, said the tripartite agreement could not be undermined on account of existence of generic procedure.
