PPA Exit

CERC allows Delhi discoms to exercise right of first refusal

In a first-of-its-kind order, the Central Electricity Regulatory Commission (CERC) allowed the two Delhi discoms – BSES Rajdhani Power Limited (BRPL) and BSES Yamuna Power Limited (BYPL) – to exit their power purchase agreement (PPA) with NTPC Limited for the Dadri-I thermal power plant (TPP). The discoms invoked the provisions in the CERC’s Tariff Regulations, 2019 to exercise the right of first refusal to purchase power from the generation station on completion of 25 years of commercial operations. While the discoms stopped scheduling power from the Dadri-I power plant in November 2020 and sought an exit from the PPA, NTPC denied exit to the discoms. Following this, BRPL and BYPL approached the CERC on this issue, which ruled in the discoms’ favour in its order dated July 1, 2021. The order will help the two Delhi discoms save about Rs 350 million per month, which was being paid towards fixed charges of the plant despite not drawing any power. This development is expected to trigger several such petitions from discoms, seeking approval to exit PPAs that are no longer beneficial.

Background and order details

BRPL and BYPL entered into a consolidated PPA with various NTPC generating stations including Dadri-I on June 5, 2007. BYPL and BRPL were allocated 62 MW and 560 MW of power from Dadri-I respectively. The validity of the PPA was up to March 31, 2012, or 25 years from the commercial operation date (CoD) of the last unit of the respective coal-based power generating stations (whichever would be later). Subsequently, on March 29, 2012, BSES and NTPC entered into a supplementary PPA (SPPA) that extended the expiry dates of the  NTPC generating stations till the end of life of the respective stations in the CERC tariff orders or central government allocations.

Based on the CERC’s approved CoD of the Dadri-I generating station as on December 1, 1995, the generating station completed 25 years of operation on November 30, 2020. Prior to this expiry date, BSES had requested NTPC to form a mutual arrangement as per Regulation 17(1) of the CERC Tariff Regulations, 2019 to allow BYPL and BRPL to exit the PPA for the plant. However, in the absence of a response from NTPC, BSES exercised its right of first refusal and stopped the drawal of power from Dadri-I from December 1, 2020. Despite the lapse of the PPA and the SPPA with respect to the Dadri-I station, NTPC continued to raise invoices towards fixed charges aggregating Rs 350 million monthly even though the discoms had stopped procuring power from Dadri-I.

BSES moved the CERC to restrain NTPC from invoking any penalty for exiting the contract. NTPC countered BSES, stating that the discom cannot selectively apply Regulation 17 only for the Dadri-I TPP while continuing to procure power from the Singrauli and Rihand TPPs (which had also completed 25 years of initial useful life). However, the CERC rejected NTPC’s contention that BSES could not selectively apply Regulation 17 in respect of the Dadri-I station, stating that it was not mandatory to invoke such provisions for all the generating stations that had completed 25 years of operation.

The CERC disagreed with NTPC’s interpretation of Regulation 17, and ruled that BYPL and BRPL were well within their rights to exit the deal by exercising the right of first refusal under Regulation 17(2), especially since NTPC had suggested no mutual arrangement as per Regulation 17(1). As per the PPA and the SPPA, since the Dadri-I TPP had completed 25 years, the discoms were eligible to exercise the right of first refusal under the provisions of Regulation 17(2) of the 2019 Tariff Regulations once the Ministry of Power (MoP) deallocated the share of the petitioners from the TPP.

In fact, the case was supported by the MoP guidelines dated March 22, 2021, which allow discoms to continue or exit from PPAs after the completion of their term beyond 25 years. The CERC referred to the MoP guidelines and reiterated that willing discoms are permitted to relinquish their allocation from TPPs after 25 years from the CoD. The MoP’s order dated July 5, 2021 further clarified that state discoms may relinquish the entire allocated power from projects that have completed 25 years since their CoD. It also clarified that power allocation cannot be partly relinquished from a project. The first right to procure power from a central generating station even beyond the term of the PPA would  be with the state/discoms with which the PPA was signed.

Conclusion

With the CERC’s landmark judgement, BSES expects a reduction in the power purchase cost for discoms, which, in turn, will lower the power tariff and benefit nearly half a million consumers of BRPL and BYPL. Exiting from the costly power plants will help BSES discoms optimise their power purchase costs and maintain DERC-mandated renewable purchase obligations. Net, net, the latest CERC order will not only benefit the BSES discoms, but will also pave the way for other discoms to exit uneconomical PPAs.

GET ACCESS TO OUR ARTICLES

Enter your email address

Share your work e-mail and access a free 3 month digital subscription to Power Line Magazine