A generator's change in law claim runs on three weeks' notice, a sixty day check by the Commission and an appeal within forty-five days

A generator that sells power under a power purchase agreement (PPA) and bears a higher cost after a change in law claims compensation under the agreement and, since 22 October 2021, under the Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021 (the Rules), which restore it to its earlier position. It gives three weeks' notice and files its documents with the Appropriate Commission, which has sixty days to verify and adjust the tariff. The Central Electricity Regulatory Commission (CERC) hears the claim of a generator owned by the Central Government, or with a composite scheme in more than one State, under section 79 of the Electricity Act, 2003, and a State Commission any other claim under section 86; appeal lies to the Appellate Tribunal for Electricity (APTEL) within forty-five days and then to the Supreme Court within sixty days.

Which commission hears the claim?

Section 79(1)(a) and (b) of the Electricity Act, 2003 give the CERC the tariff of generating companies owned or controlled by the Central Government and of those with a composite scheme for generation and sale of electricity in more than one State; section 79(1)(f) adds adjudication of disputes on them. For other generators, section 86(1)(b) and (f) give the State Commission the regulation of procurement prices and the adjudication of disputes between licensees and generating companies. The Rules call either the Appropriate Commission.

Under section 62(1)(a) the Commission determines the tariff for supply to a distribution licensee; under section 63 it adopts a tariff discovered through bidding, which changes for a change in law only through the agreement's article and the Rules.

What counts as a change in law?

Three texts answer it. The first is the agreement, which defines the events after the bid date; the agreement quoted in the CERC's order of 20 January 2024 lists the enactment of a new Indian law, the repeal, modification or re-enactment of an existing one, and the commencement of a law not in force at the bid date. That agreement also sets a threshold: the financial effect must exceed the higher of INR 1 crore and 0.1 per cent of the capacity charge in an accounting year.

The second is rule 2(c) of the Rules. As the CERC set it out in that order, change in law, "unless otherwise defined in the agreement", means any enactment, amendment or repeal of any law made after the determination of tariff under section 62 or section 63, "leading to corresponding changes in the cost requiring change in tariff". Rule 2(d) takes "law" to include any Act, Ordinance, order, bye-law, rule, regulation or notification.

The third is regulation 3(12) of the CERC (Terms and Conditions of Tariff) Regulations, 2024, for cost-plus tariffs from 1 April 2024 to 31 March 2029. It lists five limbs: a new Indian law, a change to an existing one, a change in interpretation by a competent court or final authority, a change in a condition of a consent or licence, and a change in a treaty. Regulation 2(3)(a) excludes a tariff adopted under section 63 after competitive bidding, so the definition does not apply to a bid-based agreement.

What is the restitution principle?

Rule 3(1) states it: the monthly tariff or charges are adjusted and recovered under the Rules "to compensate the affected party so as to restore such affected party to the same economic position as if such change in law had not occurred". In its order of 26 December 2023 in Petition No. 209/MP/2022, the CERC quoted a judgment of the Supreme Court of 25 February 2019 in Uttar Haryana Bijli Vitran Nigam Ltd. v. Adani Power Ltd. as describing the change in law article of that agreement as an in-built restitutionary principle, under which the affected party is put, through the monthly tariff payments, in the position it would have held.

In Petition No. 209/MP/2022 (order of 26 December 2023) the CERC held that the rise in the goods and services tax rate from 5 to 12 per cent by notification of 30 September 2021 was a change in law, but left the amount open because the record did not show whether the project was then in construction or operation. It declined to apply the Rules to that event, which pre-dated them.

What time limits do the Rules set?

Rule 3, as quoted in the CERC's order of 20 January 2024, sets a sequence, and the text of the Rules in this note is taken as quoted there.

• Notice, rule 3(2): three weeks' prior notice to the other party of the proposed impact on the tariff or charges.
• Computation, rule 3(3): furnished within thirty days of the change in law or on the expiry of three weeks from the notice, whichever is later; recovery starts from the next billing cycle.
• Mode, rule 3(4) to (6): one time, monthly or per unit, by the agreement's formula or else the Schedule; a fixed amount in a generation project is recovered within one hundred and eighty months.
• Filing, rule 3(7): the documents and calculation go to the Appropriate Commission within thirty days of recovery coming into effect.
• Decision, rule 3(8): the Commission verifies the calculation and adjusts the impact within sixty days of receiving those documents.
• Annual adjustment, rule 3(9): yearly, on the amount actually recovered.

In Petition No. 242/MP/2023 the CERC observed that neither the agreement nor the Rules sets a deadline for the notice, and it has treated lateness as a matter of reasonableness. In Petition No. 356/MP/2022 it held a claim raised 50 days after imported coal arrived not belated, and in Petition No. 242/MP/2023 it accepted a notice as compliant with rule 3(2), "though belatedly".

What does the timeline look like on illustrative figures?

An illustration. All figures are hypothetical. They assume monthly billing from the first of the month and an order received on the day the sixty days end, apply rule 3 mechanically, and the plain division stands in for the agreement or Schedule formula.

Event: a levy takes effect on 1 October 2027
One time additional cost INR 18 crore; first outlay INR 2 crore on
1 October 2027

Notice under rule 3(2), given 4 October 2027
  Three weeks expire                                    25 October 2027
Computation under rule 3(3)
  30 days from the event                               31 October 2027
  Later of the two dates, so due by                    31 October 2027
  Recovery starts with the next billing cycle           1 November 2027
Documents to the Commission, rule 3(7)
  30 days from 1 November 2027                          1 December 2027
Commission verifies and adjusts, rule 3(8)
  60 days from receipt on 1 December 2027              30 January 2028
Appeal to APTEL, section 111(2)
  45 days from receipt on 30 January 2028               15 March 2028
Appeal to the Supreme Court, section 125
  APTEL decision communicated 10 September 2028
  60 days                                              9 November 2028
  With the further 60 days at most                      8 January 2029

INR 18 crore over 180 months: INR 10 lakh a month, before interest

Carrying cost. Suppose, as a separate hypothetical, an outlay of INR 2 crore is recovered in full on 31 January 2028, four months after it was paid, with the lender's rate at 11.5 per cent, the working capital rate at 10.5 per cent and the agreement's late payment surcharge at 12.5 per cent. On the approach in Petition No. 242/MP/2023 the lowest, 10.5 per cent, governs: INR 2 crore x 10.5 per cent x 4 / 12 is INR 7 lakh of simple interest.

How is carrying cost decided?

Carrying cost is interest for the time between paying a cost and recovering it. In Petition No. 242/MP/2023 the CERC recorded that the Supreme Court, in its judgment of 24 August 2022 in Civil Appeal No. 7129 of 2021 (Uttar Haryana Bijli Vitran Nigam Limited v. Adani Power (Mundhra) Limited), had held that a party entitled to carrying cost under the agreement receives it from the date the additional expenditure was incurred until it receives compensation. It fixed the rate at the lowest of the generator's actual interest on funds, the working capital rate under the tariff regulations and the late payment surcharge rate in the agreement.

It is not automatic. In Petition No. 356/MP/2022 (order of 31 December 2023) the Commission awarded it on a timely claim under the agreement's own clauses on delayed amounts: 5 per cent above the Bank Rate, compounded on quarterly rests. Regulation 9(5) of the 2024 Tariff Regulations, on applications for a cost-plus tariff, allows carrying cost at simple interest at the State Bank of India's one-year marginal cost of funds based lending rate plus 100 basis points, from commercial operation if the application is on time and from filing if late; it does not address a change in law claim.

What appeal lies from the Commission's order?

Under section 111(1) and (2), a person aggrieved by an order of the Appropriate Commission may appeal to APTEL within forty-five days of receiving it. APTEL may entertain a late appeal for sufficient cause, with no outer limit stated. The only deposit the section requires is of a penalty levied by an adjudicating officer.

Section 125 gives an appeal to the Supreme Court within sixty days of communication of APTEL's decision, on the grounds in section 100 of the Code of Civil Procedure, 1908, with a further sixty days at most.

What remains unsettled?

Four points.

Whether the Rules reach an earlier event. The CERC declined to apply them to the notification of 30 September 2021 in Petition No. 209/MP/2022, yet in Petition No. 242/MP/2023 treated them as binding and as overriding qualifying provisions of the bid documents. An agreement signed before 22 October 2021 with a later event is not addressed.

How far the Rules displace the agreement. Rule 2(c) defers to its definition and rule 3(5) to its formula, but in Petition No. 242/MP/2023 the CERC held the Rules binding over the qualifying provisions of the bid documents. How a threshold of the kind quoted above sits with rule 3 is not decided.

The rate of carrying cost. In Petitions No. 242/MP/2023 and 209/MP/2022 the CERC took the lowest of the actual interest paid, the working capital rate and the late payment surcharge rate; in Petition No. 356/MP/2022 it applied the agreement's own delayed payment clause, at 5 per cent above the Bank Rate compounded quarterly. Which governs where an agreement carries both a restitution clause and a delayed payment clause is not settled.

What follows if the Commission does not act within sixty days. Rule 3(8) states no consequence. Recovery under rule 3(3) has by then begun on the generator's computation; the text quoted does not say whether it stands, or is refunded, if verification is late or reduces the amount.