Reduction of the late payment surcharge by CREC

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Image by Ashraf Chemban from Pixabay

-By the Industrial India Content Team

On the 28th March 2020, the State Government proposed Central Electricity Regulatory Commission (CERC) a legal request to reduce the late payment surcharge (LPS) with regard to the mandatory lock-down, due to the raising COVID- 19 Pandemic. The power distributor companies’ revenue liquidity is highly affected due to the unexpected situation, reducing their ability to make timely payments towards the generating companies and transmission companies. The matter was examined in the Ministry of Power, wherein the payments received for March’20 by the distributor company were extremely low due to delayed or non-payments. The generating and transmission company are advised not to force recover dues and continue supplying and transmitting electricity as it is an essential factor. RBI too has provided a three-month moratorium on loan repayments and interest on working capital.

Under Section 107 of the Electricity Act, 2003, the following directions are issued to the CERC in the public interest:

  • Beyond the period of 45 days from the date the bill is generated, a specific reduced rate of LPS shall be applied from the 24th of March 2020 to the 30th of June 2020. The LPS charged should exceed costs, or else transmission licenses would have to bear the consequences of the delayed payments.
  • For generating companies and transmission licensees whose tariff was determined under section 63 by the Central Commission, distributor company may claim the relief from its obligations regarding the rate at which LPS is to be paid, as per the force majeure provisions given in the respective power purchase agreement.

The CERC Commission has considered the proposal issued under Section 107 of the Act, by the Government of India. Wherein a bill paid within 30 days from the bill generation date an LPS of 1% shall be applicable. If a customer’s previous bills are pending or if the payment is done after 45 days from the bill generation date an LPS of 1.50% shall be levied. The above LPS can be applied by the generating company or the transmission license depending on the case.

In addition, as per the directions issued under Section 107 of the Act, the generating companies whose tariff has been determined under Section 63 of the Act by this Commission, relief on the Late Payment Surcharge for payment which is delayed beyond 45 days (from the bill generation date) during the period from 24.03.2020 to 30.06.2020 may be claimed in terms of the force majeure provisions of the respective power purchase agreements (PPAs).

In cases of inter-State transmission licensees whose tariff has been adopted under Section 63 of the Act by the Commission, Late Payment Surcharge shall be governed under the provisions of Transmission Service Agreements (TSAs) read with Central Electricity Regulatory Commission (Sharing of Transmission Charges and Losses) Regulations, 2010 as amended from time to time and the procedures issued there-under.

The generating companies and the transmission licensees will have to incur the cost of working capital facilities even during the deferment period. Thus, generating companies and inter-State transmission licensees can opt for a moratorium on payment of installments of term loan and defer the payment of interest in respect of working capital facilities during the period from March 1, 2020, up to May 31, 2020 (“deferment”), but the interest accrued is not waived. In case of working capital facilities, accumulated accrued interest shall be recovered immediately after the completion of this period. The interest rate applicable will be the lending rate of respected institutions or banks.

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