Discount Strategy Short Circuited For OPG Power In Tamil Nadu, As APTEL Vacates TNERC Order

In an interesting order on January 4 from APTEL that lays bare the risk of offering tactical discounts without a clear strategy apparently, Chennai-based  OPG Power generation has suffered a setback. The firm, which had signed a PPA on 12.12.2013 for supply of 74 MW RTC power for the period 01.06.2014 to 30.09.2028 to TANGEDCO, at Rs 4.91/kWH looks set to pay a heavy price for a flawed discounting plan.

The issue has its genesis in February 2013, when, in a series of letters, with the third letter superceding the previous two, OPG Power offered TANGEDCO a discount on the power generated and supplied by it, to ‘support the state’s finances hit by unprecedented floods”. “We offer a discount of Rs. 1.20 per kWh on the monthly energy charge (MEPn) contained in the PPA. This discount is for a period of 5 years and the same can be extended as required. We hope that our request is considered favorably and we request you to consider, if possible, a schedule of 85% of the contracted capacity”. (Stress Ours)

Subsequent to this latter, and its acceptance by TANGEDCO, it seems OPG discovered that the discount was not really helping it sell more power at the lower rate, as even this rate was not enough to take it high enough on the state Merit Order Dispatch pecking order, which goes by the least cost suppliers. Thus, after realising it was not helping, the generator decided to take back its offer of a discount, claiming that since it was not part of the original PPA, it was allowable.

TANGEDCO disagreed, claiming that the discount was unconditional, and it could not be blamed for not being able to take up over 85% of the power OPG generated. When the case went to TNERC, the state regulator sided with OPG, holding TANGEDCO liable to pay tariff to the generator for the power supplied by it at the tariff indicated in the PPA dated 12.12.2013.

Now, by the MYT Order dated 11.08.2017, the State Commission approved the source-wise power purchase cost for the control period from Financial Year (FY) 2016-17 to FY 2018-19 (in para 4.15.12), second respondent (generator) having been shown as one of such sources for procurement, the energy charges payable by it having been mentioned as Rs. 3.12/kWh, quite apparently taking into account the discount offered by the generator by letter dated 03.02.2016, pertaining to the FYs 2016-17, 2017-18 and 2018-19 respectively.

By its letter dated 07,08.2018, TANGEDCO proceeded to instruct the generator to continue supply of power at the energy charge of Rs. 3.1170/kWh after availing of discount of Rs.1.20/kWh.

At APTEL, the bench declared that ” In our reading of the documents relevant for resolution of this dispute, we are clear in our mind that the tone, tenor and content of letter dated 03.02.2016 leave no scope for any doubts that offer of discount thereby made was not only voluntary but absolute and unconditional.” (See portion highlighted in bold above by us).

Declaring that clearly, the offer was for the period of five years, in the minimum, with at best a best efforts request to source power from TANGEDCO.

APTEL: declared that TNERC has fallen into error by inferring that it was a conditional offer and it is not correct for OPG Power  to argue that there was no formal adoption or approval of the discounted price or that it was entitled to renege from the discount tendered through letter dated 03.02.2016 at any stage. Since the discounted price was approved by the Commission by the tariff adoption order and subsequent MYT order. In this view, separate amendment of the PPA was not required. No public interest suffered as a consequence to the discount in the price.

Once the parties had acted upon the financial terms, as modified by the discount, the same became part of the contract and could not be unilaterally withdrawn, not the least before the expiry of agreed period of five years for which there was an unequivocal commitment

It declared that the State Commission has fallen into grave error by making inferences as to the intent behind the letter dated 03.02.2016 by extraneous considerations, it being impermissible to do so.

OPG Power (generator) had taken advantage of the discount so as to rise in ranking in the MOD and the efforts made to withdraw the same are clearly a dishonest attempt to wriggle out of the financial obligations arising therefrom.

With that, APTEL effectively dismissed the request, leaving OPG to wonder at what might have been.