RERC: New RE Penalty Rules Apply to Older PPAs Too

In an interesting ruling, the Rajasthan Electricity Regulatory Commission (RERC) has clarified that even for older renewable projects, the  Late Payment Surcharge (LPS)  could be imposed as per the fresh renewable energy regulations. The case came to the fore after a company approached the state power regulator seeking its intervention. The case was related to a power dispute between Ramgad Minerals & Mining Ltd. and Jaipur Vidyut Vitran Nigam Ltd. (JVVNL).

While approaching the RERC, Ramgad Minerals had sought enforcement of LPS terms under its PPAs dating back to 2009. The PPAs stipulated that LPS be charged after 30 days of payment delay at the Prime Lending Rate (PLR) of the State Bank of India (SBI), while the 2020 RE Regulations mandate a different methodology.

Ramgad Minerals: Contract Should Prevail

Ramgad Minerals contended that the 2020 regulations apply only to projects commissioned after April 1, 2020, and therefore should not override agreements signed well before that date. The company argued that LPS is a commercial term and not part of the tariff structure governed by the Commission. It further asserted that regulations are prospective unless clearly stated otherwise, and no amendments were made to its PPAs to incorporate the new norms.

The petitioner highlighted that LPS, being a mutually agreed term, cannot be altered unilaterally by regulatory changes and cited earlier Commission orders where PPAs were held to prevail in similar disputes.

JVVNL: Regulatory Mandate Must Apply

In contrast, JVVNL argued that LPS is integral to tariff determination, a statutory function under the Electricity Act, 2003, and thus falls squarely within the Commission’s regulatory domain. It cited Clause 11 of the PPA, which binds parties to comply with any "change in law," including new regulations.

JVVNL relied on precedents where the Commission held that LPS should be determined based on prevailing regulations, including in the cases of Sun and Sand Mumbai, Ajeet Seeds, and Link Enterprises, among others.

Commission: Regulations Supersede PPAs

The RERC sided with JVVNL, reiterating that LPS is a compensatory tool, not a fixed financial benefit, and must reflect market realities. The Commission noted that LPS exists to offset actual losses incurred by generators due to delayed payments—such as interest on working capital loans—and should not serve as a means for “windfall gains.”

Referring to the Supreme Court’s judgment in PTC India v. CERC, the Commission stated that regulations, as subordinate legislation, have the power to override existing contracts, including PPAs. It observed that the PPA itself includes provisions acknowledging the binding nature of future policy or regulatory changes.

Application Prospective, Not Retrospective

While upholding the applicability of the 2020 regulations, the Commission clarified that the rules apply prospectively from their date of notification. Therefore, Ramgad Minerals is not required to refund any LPS already paid under earlier PPA terms.

The regulator also rejected the petitioner’s claim for carrying cost on outstanding LPS amounts, citing the absence of any provision in the PPA or regulations allowing for compound interest or additional compensation on delayed LPS payments.

Verdict

The RERC concluded that prevailing regulations govern LPS calculations, not the original PPA terms, and dismissed the petition. The decision sets a precedent for other renewable energy generators operating under legacy agreements, signalling a clear regulatory intent to ensure dynamic, market-aligned compensation mechanisms across the state’s power sector.