Legal Update | J Sagar Associates | Lalitpur Power Generation Company Limited | APTEL

J. Sagar Associates (JSA) successfully represented Lalitpur Power Generation Company Limited (LPGCL) before the Appellate Tribunal for Electricity (APTEL) challenging Uttar Pradesh ERC’s Order denying Change in Law relief and in-principle approval for incurring capex for complying with by Ministry of Environment, Forest and Climate Change (MoEFCC’s) Notification dated 07.12.2015. This order prescribed revised emission norms for thermal power plants. In its Judgement dated 13.11.2020 passed in Lalitpur Power Generation Co. Ltd. v. UPERC & Anr., APTEL recognized that approval for FGD installation is a sensitive issue of national importance having significant commercial implication on the entire power sector. APTEL has declared the Notification dated 07.12.2015 as a Change in Law event while setting aside UPERC’s Order.

APTEL by this Judgment has allowed the Appeal filed by LPGCL and set-aside Uttar Pradesh ERC’s Order dated 07.02.2020 with the following directions: -

a) MOEFCC Notification dated 07.12.2015 is a change in law event and the in-principle approval for additional capitalization on account of change in law, as sought by LPGCL, can be granted in terms of the CERC (Terms and Conditions of Tariff) Regulation, 2019 and CEA’s recommendation.

b)  SERCs have powers under the Electricity Act to fill up the gaps in supplementing the rules/regulations (if the same are silent on certain aspects) by issuing instructions consistent with the Electricity Act.        

c) The tariff impact of the additional capital expenditure incurred on account of change in the law shall be claimed by LPGCL as per the applicable Tariff Regulations.

Central Pollution Control Board had issued phase-wise timelines to 189 TPPs in the country aggregating to approx. 166.7 GW of installed thermal capacity to comply with the revised emission norms prescribed by MoEFCC’s Notification dated 07.12.2015 entailing an approx. expenditure of Rs. 80,000 Crores, which is only the Base Cost of FGD system and excludes Interest during Construction (IDC), taxes & duties, FERV, expenditure towards project management & engineering services and pre-operative expenses, which is to be allowed at actuals after commissioning of the FGD system.

CERC's Regulations provided for in-principle approval of cost to be incurred by generating companies for installation of the FGD system. However, most SERC Regulations are silent on this aspect. Hence, on one hand, generating companies regulated by CERC were being allowed in-principle approval of the FGD cost, thus being able to obtain the necessary funds from the lenders to comply with the stringent emission norms. However, generating companies regulated by SERCs were denied in-principle approval of the FGD cost, resulting in delay and imminent breach of timelines prescribed by CPCB, thereby attracting a penalty. This created a discriminatory landscape where generating companies situated in a similar situation were meted different treatment over the same notification, resulting in regulatory uncertainty.

The Judgement is significant for the entire power sector since:-

a) This is the first instance wherein APTEL has held that MoEFCC Notification dated 07.12.2015 is a Change in Law event for Section 62 (cost-plus) Projects

b) Thermal power plants regulated by SERCs wherein State Regulations do not provide for granting in-principle approval of the FGD cost have been provided relief.