MSEDCL, MERC Face Censure From APTEL Over Payment Delays To Wind Developer

Highlights :

  • After strong judgements against KERC orders in August, it seems to be the turn of MERC in September, as APTEL comes down hard on the regulator.
  • In criticising the leeway given to discoms to delay payments to developers, APTEL has sent a strong signal to other regulators and discoms hopefully

In a highly critical new order, the Appellate Tribunal for Electricity (APTEL) has ruled against the Maharashtra State Electricity Distribution Company Ltd. (MSEDCL), quashing its appeal against “interest on interest,” as imposed on it by the Maharashtra Electricity Commission (MERC), which awarded 1.25% penalty interest on 1.25% delayed payment charges interest to Rajalakshmi Minerals, a Karnataka-based wind power generator.

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The full order can be accessed here.

MSEDCL entered into a Wind Energy Purchase Agreement (WEPA) in 2014 with Rajlakshmi Minerals for the operation of a 3.4 MW power plant in Maharashtra, and the purchase price was determined at Rs. 5.81 per Kwh, the WEPA containing provision, inter alia, for levy of delayed payment surcharge (DPC) at 1.25% per month in case of delay in payment beyond the due date.

Since  MSEDCL was unable to carry out timely payments of dues for electricity supplied under the WEPA, in January 2019, Rajalakshmi petitioned MERC, which allowed the petition granting relief of direction to pay the outstanding dues but also directed that in the event of lack of timely payment, the MSEDCL would pay penal interest at 1.25% per month.

Aggrieved, MSEDCL then petitioned APTEL, claiming that in law there is no principle of imposition of interest over interest and yet the MERC has practically awarded penalty interest of 1.25% on the DPC interest of 1.25% as envisaged under the WEPA.

It appears that MSEDCL was facing similar outstanding claims of other generators. Instead of contesting, it had offered to pay to those sellers in the past, submitting a plan to MERC indicating timeframe for the purpose. MSEDCL had given similar assurances to MERC and Rajalakshmi Minerals, and upon failing to keep those promises, the procurer was slapped with penalty interest by MERC.

APTEL in its order criticised MERC for accepting “mere paper promises of the appellant towards its liabilities” while directing the parties involved from both the sides to sit together and reconcile the statement of account within two weeks from the date of this Order. APTEL found it jarring that the directions were made subject to “reconciliation”, the responsibility of the Commission to determine having been all but forgotten – “irresponsibly abdicated.”

It also reprimanded the seller, saying it had been “misleading the State Commission and has attempted to do so before this tribunal as well.” The tribunal further said that MSEDCL’s affairs were suffering on account of financial mismanagement, its payment plans neither were sincere nor an effective solution.

As for MSEDCL’s argument that MERC’s directions to pay 1.25% penalty interest above the DPC was contrary to the WEPA contract, APTEL said the following:

“Our answer is in the negative. The regulatory commission under the Electricity Act, while adjudicating upon a dispute, exercises powers and jurisdiction which are essentially that of a civil court but transferred to the regulator under the special regime governing this sector. In legal proceedings for recovery of money due – the case in which the impugned order was passed being proceedings of such nature, the adjudicating authority is competent not only to award (or decree) the principal sum but also interest – past, present, and future. It is trite that if future interest (over and above the sum determined to be paid till the date of the decision) were to be denied, and if the sum determined were not paid for substantial period after the decision, the party held entitled to recover will not receive the money due in full, the compensation suffering erosion of real value due to time elapse. That would not be complete justice. Thus, the practice of adding the condition of future interest to the sum awarded in such cases is the norm, denial an exception. If the claim arises out of a contract, the addition of such condition does not amount to re-writing of contract.”

Thus, APTEL found no merit in MSEDCL’s appeal, directing the payment of arrears to the petitioner.

In a stinging rebuke to the state of affairs at MSEDCL, it added that “We are deeply disturbed over the manner in which the appellant has been warding off its creditors depriving them of timely payments of their legitimate dues. This is reflective of financial mis-management on the part of the appellant but, more gravely, a conduct not expected of a distribution licensee. The MERC seems to have been playing along believing the promises held out through payment-plans without insisting on scrupulous adherence thereto. This has been leading to unnecessary litigation adding to the cost for all stake-holders. The Commission, as the sector regulator, equipped as it is with the requisite powers, can do better…it is the duty of the regulator to effectively deal with some of the issues that statedly plague the food chain and are attributable to actions (or inaction) of the regulatory authority including certain disallowances, delayed implementation of the tariff orders, approvals of gains and losses in MYT Order instead of True up; belated approval of the final true up etc. It is the obligation of the State Commission to ensure, by issuing appropriate directions and enforcement thereof to the logical end, that the Distribution licensee conducts itself in such a manner that it lives up to the objectives of the Electricity Act by maintaining financial discipline, adopting efficient systems, aiding in recovery of the cost of electricity in a reasonable manner and conduct of its business of distribution and supply on commercial principles which only would safeguard the consumers’ interest.”

“We direct the State Commission to examine the financial affairs of the appellant and take appropriate measures in such regard in accordance with law so as to bring about financial discipline in a time-bound manner, bearing in mind the observations recorded above.”

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Soumya Duggal

Soumya is a master's degree holder in English, with a passion for writing. It's an interest she has directed towards environmental writing recently, with a special emphasis on the progress being made in renewable energy.

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