March 26, 2023

The national power grid operator has barred 13 states from buying or selling electricity from the spot market: a penalty for not clearing their dues to generators.

The ban applies to power distribution companies (discoms) of Andhra Pradesh, Tamil Nadu, Telangana, Manipur, Mizoram, Karnataka, Bihar, Rajasthan, Jharkhand, Jammu and Kashmir, Madhya Pradesh, Maharashtra, and Chhattisgarh.

The cumulatively owe Rs 5,000 crore to gencos. Telangana owes the highest amount of Rs 1,380 crore.

This is the first time Power System Operation Corporation (POSOCO)– the grid operator under the aegis of power ministry–has invoked the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022 to penalise the by disallowing them to buy electricity from alternate short-term sources. The would be unable to purchase any additional power from the spot market. Supply from long-term agreements with gencos would continue, but that too can be regulated if the defaults continue.

The rules—notified in June this year—pertain to payment discipline. Discoms are bound to pay payment surcharge (LPS) on the outstanding amount after the due date of payment—that is one month. The rate of LPS for successive months of default will increase by 0.5 per cent for every month of delay.

Any further delay in clearing the dues beyond two and half months of default, would invoke penalty provisions. The rules state – “the short-term power supply to the defaulting entity shall be regulated entirely as per the process set in LPS Rules. Continuing default after regulation of short-term power supply, or continuing default in non-payment of the for three and a half months, would result in regulation of long-term access and medium-term access by 10 per cent, with progressive increase of 10 per cent for each month of default.”

This entails a complete ban on buying short-term power from the spot market and thereafter regulation of medium-term and long-term power supply. Discoms have long-term power supply agreements with the gencos.

According to sector experts, under the new LPS regulations, the penalty provision kicks in automatically and the discoms would need to abide by it or face even stricter penalties. The move to regulate power purchase from the spot market would cool down the prices in the power exchanges, as there would be less buyers.

“States which defaulted on payment, central gencos would regulate electricity supply, and the discoms would crowd the exchanges and prices would shoot up. This also helped them get away with paying dues. Now the options are being reduced to push them towards payment discipline,” said a senior official.

Dues of state-owned discoms to gencos are rising, even after two schemes to liquidate their dues. The lion’s share of dues is to privately owned or independent power producers (IPPs), while renewable power units continue to see an increase in dues. The total dues of discoms towards gencos has crossed Rs 1.2 trillion by July 2022.

In May this year, the notified a scheme to liquidate the discoms’ dues, enabling the companies to pay their dues in 48 installments. In case of delay in payment of an instalment, a late payment surcharge will be payable on the entire outstanding dues as on the date of notification of the rules. There will be no additional LPS payable on the outstanding dues if timely payment is made.

However, later in June, it added new provisions which empowered POSOCO or the National Load Despatch Centre (NLDC) to penalise defaulting discoms which fail to clear their dues. The Electricity (Amendments) Bill, 2022 also has empowered the NLDC and its regional and state level arms to regulate electricity supply on their own to the discoms which default on their payment.

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