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Home News Power Sector News CERC penalises 12 utilities for not having letters of credit

CERC penalises 12 utilities for not having letters of credit

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Pramod DeoState power utilities have been penalised for not complying with the provisions of the Electricity Act, 2003, while drawing power under the unscheduled interchange mechanism. In a path-breaking order, the Central Electricity Regulatory Authority (CERC) has imposed a penalty of Rs 1 lakh each on utilities in Uttar Pradesh, Jammu and Kashmir, Arunachal Pradesh, Nagaland, Bihar, Jharkhand, Manipur, Meghalaya, Mizoram and Madhya Pradesh, and Rs 90,000 each on utilities in Punjab and Tamil Nadu for not having letters of credit and thereby causing non-compliance.

The utilities have been asked to pay the penalties by September 15.

CERC in a suo motu petition has ruled that utilities would have to get letters of credit as a payment security mechanism for the energy drawn under the unscheduled interchange (UI) mechanism. The power regulator observed that this was a requirement under the Electricity Act and UI Regulations.

UI mechanism was set up to penalise parties who defer from their scheduled generation or drawal.

UI charge is payable if a utility deviates from scheduled generation or drawal, depending on the frequency. CERC's judgment is crucial against the backdrop of grid collapse that took place on July 30 and 31 which, among other things, was due to over-drawal and under-drawal.

CERC Chairman Pramod Deo told Business Standard: "Opening of a letter of credit is a statutory requirement as a payment security mechanism for the energy drawn under the UI. Non-opening of letter of credit has resulted in accumulation of arrears of UI dues and consequent accumulation of payables to the generators and the distribution companies. This has created hurdles in the smooth operation of the UI mechanism."

A Velayutham, member of the expert committee on grid disturbance in northern region, argued that utilities cannot escape paying UI charges and opening of letters of credit. "Non-payment of UI charges will result in further over-drawal from the system, endangering the grid security. However, the committee headed by the Central Electricity Authority Chairman A S Bakshi, which probed July 30 and 31 northern grid collapse, has suggested that UI mechanism needs to go in a phase manner. Till that period, utilities will have to honour payment of UI charges."

CERC official said Madhya Pradesh Power Trading Company, in its reply to the show-cause notice served by CERC, had said a letter of credit could not be opened due to financial constraints. It had requested that the default be condoned.

Tamil Nadu Generation and Distribution Corporation had prayed for opening a letter of credit for Rs 5 crore by relaxing the provisions of UI Regulation 10 (4) which envisages opening of letter or credit equal to 110 per cent of average payable weekly UI liability of utilities in the previous financial year.

CERC has expressed displeasure at not utilities of Jammu and Kashmir, Nagaland, Goa and Damn & Diu not sending any reply or not appearing in person or through an advocate. "We deprecate the attitude towards the CERC's order in the matter."

Source - Business Standard


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