CERC Agrees to Compensate for Carrying Cost Due to Change in Law Event for a Thermal Project

The Central Electricity Regulatory Commission (CERC), in a recent order, approved an imported coal-based thermal power generator’s request for compensation for the additional expenses incurred due to the increase in clean energy cess on coal, settlement of dues because of the introduction of Goods and Services Tax (GST) on imported coal, and the ‘carrying cost’ on account of ‘Change in Law’ events.

Coastal Energen had filed a petition with the Commission seeking compensation on account of ‘Change in Law’ events as per the terms of the power purchase agreement (PPA) signed with the Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) for a 558 MW project.


Coastal Energen is a thermal power generating company and had set up a 1,200 MW power project in the Thoothukudi district of Tamil Nadu. The generator had entered into a PPA with TANGEDCO to supply 558 MW of power for 15 years.

The company sought compensation based on ‘Change in Law’ events that had a significant financial impact on the costs and revenue during the operating period. The generator claimed that it was entitled to be compensated and restored through monthly tariff payment as before ‘Change in Law’ came into effect.

The generator had also filed an application seeking TANGEDCO to pay ₹4.79 billion (~$66.03 million) as the pending amount due to the ‘Change in Law’ events.

Commission’s analysis

The clean energy cess rebranded as clean environment cess, was ₹50 (~$0.74)/ton when it was introduced in 2010, raised to ₹100 (~$1.5)/ton in 2014 and to ₹200 (~$3)/ton in the 2015-2016 budget. It was again doubled from ₹200 (~$3)/ton to ₹400 (~$6)/ton in the 2016-17 budget. Since July 2017, the cess was abolished, and a new cess on coal production called the GST compensation cess took its place at the same rate of ₹400 (~$6)/ton.

Replying to the generator’s petition on clean energy cess, the regulator said that since the revised rates of clean energy cess had been introduced through amendments to the Finance Acts, the said changes are covered in the ‘Change in Law’ clause in the PPA. The increase in the clean energy cess had been allowed as a ‘Change in Law’ event up to June 30, 2017.

Further, the regulator observed that the generator was entitled to recover the GST in proportion to the coal consumed. The consumption had to be corresponding to the scheduled generation at normative parameters as per the applicable tariff regulations of the Commission or at actual, whichever is lower, for the supply of power to TANGEDCO. The Commission directed the petitioner to furnish along with its monthly bill the proof of payment and computations duly certified by the auditor to TANGEDCO.

Regarding the ‘carrying cost’, the Commission clarified that the generator was eligible for ‘carrying cost’ arising out of approved ‘Change in Law’ events from the effective date of ‘Change in Law’ until the actual payment was made.

The Commission added that the generator would be eligible for ‘carrying cost’ at the actual interest rate it paid for arranging funds or the rate of interest on the working capital. The compensation would be according to the applicable CERC Tariff Regulations or the late payment surcharge rate as per the PPA, whichever is lower.

The Petitioner has submitted that since carrying cost is compensation for the time value of money and is different from interest; it is entitled to be compensated and restored to the same economic position as if such ‘Change in Law’ events had not occurred.

“The petitioner is entitled to charge the compensation on account of ‘Change in Law’ events during the operating period. However, it is clarified that the petitioner should be entitled to claim the compensation after the expenditure allowed under ‘Change in Law’ during the operating period exceed 1% of the value of ‘Letter of Credit’ in aggregate. For this purpose, the generator should furnish all the relevant documents,” the Commission noted.

While the CERC has said that the generator is eligible to claim ‘carrying cost’ in this case, this has not been allowed in several cases by solar project developers.

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