The Maharashtra Electricity Regulatory Commission (MERC) has directed the Maharashtra State Electricity Distribution Company Limited (MSEDCL) to develop a timebound and transparent mechanism to ensure payments to power generators.

It asked MSEDCL to develop the plan within a month and report the compliance, failing which it would be compelled to initiate action against MSEDCL’s officials.

Background

Rajlakshmi Minerals, a wind energy generator with 3.4 MW capacity, signed a wind power purchase agreement (PPA) with MSEDCL for a fixed tariff of ₹5.81 (~$0.078)/kWh in August 2014.

According to PPA, MSEDCL was obligated to make payments to the generator within 60 days of receiving the monthly power bills. In case of a delay, an interest rate of 1.25% per month would be levied.

The wind energy generator filed a petition with the Commission in March 2019 as MSEDCL failed to make timely payments. In its order, the Commission directed MSEDCL to pay the outstanding dues with the 1.25% monthly interest on the outstanding delayed payment charges.

MSEDCL later filed an appeal with the Appellate Tribunal for Electricity (APTEL) and contended that a levy of penal interest on the outstanding amount, which is interest on interest, is not permissible in law.

However, APTEL dismissed the appeal and directed the Commission to determine the amount payable by MSEDCL to the generator and ensure that it cleared the outstanding bills within three months.

The generator informed the Commission that MSEDCL failed to provide the dates by which it would pay the delayed payment charges. Therefore, no interest could be calculated per the Commission’s previous order.

Rajlakshmi Minerals computed the interest on the delayed payment charges for the period from the reconciliation report dated April 18, 2019, to the actual date of payment April 26, 2021, at ₹2.1 million (~$28,320). Taking into account a ₹1 million (~$13,449) payment from MSEDCL, the balance was calculated at ₹1.10 million (~$14,791).

The wind energy generator requested the Commission to direct MSEDCL to pay a principal amount of ₹35.99 million (~$483,943), delayed payment charges of ₹5.77 million (~$77,577) from May 2017 to October 2018, and interest on delayed payment charges of ₹1.77 million (~$23,796).

MSEDCL’s response

 MSEDCL said it had paid the principal amount of ₹35.99 million (~$483,943), delayed payment charges of ₹6.9 million ($92,794), and ₹1 million (~$13,449) as interest on the delayed payment charges.

In all, MSEDCL paid a total of ₹43.89 million to the wind energy generator, more than the claimed amount of ₹43.53 million (~$585,307).

Commission’s analysis

The Commission observed that MSEDCL, in compliance with the APTEL’s order, has paid ₹1.07 million (~$14,474) in November 2021 to the generator towards outstanding interest at 1.25% for late payment of delayed payment charges. Rajlakshmi Minerals had also accepted receipt of such payment and informed the compliance of the Commission’s order.

To avoid repeated instances of wind energy generators approaching the Commission seeking direction for MSEDL to pay outstanding amounts, the state regulator directed MSEDCL to develop a timebound and transparent mechanism for reconciliation and payments to power generators.

Commenting on the financial health of distribution companies (DISCOMs), the Commission said billing and collection efficiency are critical operational parameters for DISCOMs. It noted that MSEDCL had not achieved the expected improvement in collection efficiency.

DISCOMs also needed to improve their operational efficiency and achieve the targets stipulated in the orders to reduce their operational expenses.  The state regulator said that the Maharashtra government should set up a study group to look into the financial difficulties of MSEDCL and suggest short-term and long-term remedial measures.

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