APTEL Asks KERC to Decide Compensation owed to Fortum by DISCOMs

The Appellate Tribunal for Electricity (APTEL) recently gave a judgement in favour of Fortum Solar India Private Limited after the solar power developer petitioned it, seeking compensation from various DISCOMs.

The full judgement can be read here.

The tribunal not only directed the Karnataka Electricity Regulatory Commission (KERC) to determine the incremental tariff payable to Fortum, but also came down heavily on the state commission for “abdicating its responsibility by expecting the parties to reach a decision, by consensus, on the incremental tariff that is to be levied post the (change in law) CIL event.” The apex regulator said, “If the parties could reach a consensus and present it to the commission for approval, it would be an ideal way. But then, again, such opportunity has to precede determination of the matter by the Commission, not afterwards.”

The case cane be traced back to when Fortum Solar signed power purchase agreements (PPAs) with three distribution companies – Bangalore Electricity Supply Company, Hubli Electricity Supply Company, Chamundeshwari Electricity Supply Company, and the Mangalore Electricity Supply Company- for setting up 250 MW of grid-connected ground-mounted solar projects in Karnataka. Soon after the signing of the PPAs, an order from the Ministry of Finance imposed safeguard duty (SGD) on solar cells and modules imported from China, Thailand, and Vietnam, which caused Fortum to incur extra costs.

The Gurugram-based solar project developer then petitioned KERC, urging it to declare the imposition of SGD to be a CIL event. It requested the commission to direct the DISCOMs to reimburse the additional expenses, including carrying costs. KERC, in its judgement, agreed with Fortum and rejected the distribution companies argument that relief under CIL could not be sought because components had been imported from China after the imposition of SGD. But the commission also said that carrying costs couldn’t be claimed under CIL. Agreeing with the DISCOMs, it further said that the developer had imported some extra modules, on which SGD reimbursement couldn’t be allowed.

KERC had directed the distribution companies to examine relevant documents within 2 months to verify the amount payable to Fortum, and compensate the developer while also taking into account the increase in tariff over the remaining period of the PPA. However, the state commission failed to declare by itself the amount of compensation to which Fortum was entitled, shifting the responsibility for the same on the DISCOMs.

Upon not being paid by the DISCOMs, Fortum Solar petitioned APTEL. The apex regulator ruled that it agreed with the commission’s judgement that the developer’s claims were related to ‘change in law’, but it also asked KERC to consider the developer’s claim for carrying cost and additional expenses.

More importantly, the tribunal emphasised that it was the state commission’s particular responsibility to decide the amount of compensation owed to Fortum and the date from which such money was payable, rather than that of the distribution companies. APTEL criticised KERC’s shirking of this vital responsibility and directed the latter to decide how much incremental tariff was owed, in addition to the already determined sum of compensation due to CIL. The state commission is to ensure that the resulting amount is paid to Fortum within two months, according to the tribunal’s directives.