The Karnataka Electricity Regulatory Commission (KERC) has issued an order lowering the late payment surcharges (LPS) by distribution companies (DISCOMS) to generation companies and transmission licensees in light of the ongoing coronavirus crisis.
After receiving directions from the state government, the Commission reduced the rate of LPS to 0.6% per month for payments delayed beyond 15, 30, 45, and 60 days from the date of presenting the bills. This would apply for bills generated between March 24, 2020, and June 30, 2020. The LPS rate before this revision stood at 15% per year or 1.25% per month.
The government of Karnataka had issued an order to the Commission directing it to specify a reduced rate of interest on late payment surcharges for delayed payments, treating the restrictions placed by the central government to contain the Covid-19 outbreak as force majeure events. The central government had specified that the LPS should not be more than the cost generation companies or transmission licensees would have to bear because of the delayed payment.
The phrase ‘force majeure,’ French for “a superior force,” is declared in the event of unforeseeable circumstances that prevent parties from fulfilling a contract. The government of India declared that the spread of coronavirus should be treated as a case of natural calamity, and a force majeure clause can be invoked for the same. The central government announced a complete lockdown of the country on March 24, 2020, to arrest the spread of the virus.
The KERC stated that it set the new rate based on the historical data of MCLR (marginal cost of funds-based lending rate) from the website of the State Bank of India (SBI), as per the state government’s recommendation. As per the data, the three-month MCLR as of April 10, 2020, was 7.15% per annum or 0.595% per month. The KERC said it arrived at its new LPS rate after rounding off this rate to 0.6%.
The Commission declared that electricity supply companies (ESCOMs) could claim relief from generating companies and transmission licensees under this provision, as per the force majeure clauses in their respective agreements.
In conclusion, it noted that if the period of delayed payment falls before or after the specified period, DISCOMs would be obliged to pay LPS as per the rates prescribed in the relevant clauses of their power purchase agreements.
Recently, the Chhattisgarh State Electricity Regulatory Commission (CSERC) issued an order through a Suo Moto petition revising the LPS for fixed electricity bills payable by industrial and commercial establishments. The Commission revised LPS to 1% per month from 1.5% on the outstanding amount for cases where the bill is not paid before the due date.
Previously, Mercom reported that the Central Electricity of Regulatory Commission (CERC) reduced the rate for LPS payable by DISCOMs power generators. The LPS was reduced to 12% per annum from the earlier 18% if the due date falls between March 24, 2020, and June 30, 2020.
Nithin is a staff reporter at Mercom India. Previously with Reuters News, he has covered oil, metals and agricultural commodity markets across global markets. He has also covered refinery and pipeline explosions, oil and gas leaks, Atlantic region hurricane developments, and other natural disasters. Nithin holds a Masters Degree in Applied Economics from Christ University, Bangalore and a Bachelor’s Degree in Commerce from Loyola College, Chennai.