The Karnataka High Court has quashed an order issued by the Karnataka Electricity Regulatory Commission (KERC) relating to an increase in wheeling charges for open access power consumers in the state. The Karnataka High Court order has brought relief to all renewable energy generators trading power through open access in Karnataka.

The court, in its order, has reiterated the principle of settled contracts which lends certainty to power purchase agreements (PPAs) and imposes confidence in investors.

Case History

In May 2018, KERC had issued an order setting the wheeling, transmission charges to be levied on renewable energy projects in the state. The order has been in effect since April 1, 2018, and will be in effect till March 31, 2020.

According to the KERC, all renewable projects (other than the captive projects availing the benefit of the renewable energy certificate mechanism) which have not completed ten years of commercial operation as on March 31, 2018, had to pay 25 percent of the normal transmission or wheeling charges fixed by the CERC, in cash.

The KERC, in its order, had also stated that these renewable energy projects would be liable to bear the losses incurred in the applicable line, as approved by the KERC, by deductions from the net injected energy. It had also directed the renewable energy projects to pay two percent in banking charges.

This was a five-fold increase in wheeling charges for open access consumers in the state of Karnataka. In response, a few renewable energy project developers operating in Karnataka filed writ petitions in the Karnataka High Court challenging this order.

Towards the end of May 2018, the vacation bench of the Karnataka High Court imposed an indefinite stay on the KERC order.

Renewable energy developers had petitioned on the grounds that the KERC does not have the power to suo motu review its own tariff orders and that the KERC broke a specific and unequivocal promise. The Karnataka High Court upheld both the points of reasoning put forth by the renewable energy project developers.

When contacted, Shodhan Babu, an official at the Law Offices of Panag and Babu, (the law firm representing petitioners) replied, “The Honorable Karnataka High Court has held that Sections 62 and 64 of the Electricity Act confers the power on the KERC to determine the tariff. However, once settled, and the contracts have been entered based on the tariff orders without any request made by either party to the power purchase agreement (PPA), the KERC is not conferred with the power to determine tariff from time to time.”

Key Findings in Karnataka High Court’s Order

• KERC had promised solar photovoltaic (PV) project developers that they would be exempted from wheeling charges for ten years after commissioning.
• KERC had granted the concession of the tariff to the wind and mini-hydel projects.
• It is not justifiable on the part of KERC to guarantee exemption and then to remove that guarantee. It is against the principles of promissory estoppel (a promise enforceable by law).
• Such exemptions if withdrawn are not in public interest and can lead to project developers and investors suffering monetary loss leading to issues in serviceability of loans and would affect the economy.
• KERC’s action boils down to discriminatory treatment.
• KERC can only determine wheeling and banking charges prospectively not retrospectively.
• Renewable energy project developers not to pay the increased charges.

Babu also added that the Karnataka High Court upheld the merits of the writ petitions filed. The Karnataka High Court upheld the fact that settled tariff contracts cannot be reopened unless by way of new regulations for the entire state.

According to the KERC order passed in 2014, just five percent of the transmission charges were levied as wheeling charges in the state of Karnataka. Now the concerned renewable energy developers need to pay the same for the ten years.

When contacted, a KERC official said that the Honorable Karnataka High Court’s order would be followed and refused to comment further.