In Key Judgement, CERC Lays To Rest GST Impact On O&M Costs For Developers

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In a significant order last week, the Central Electricity Regulatory Commission (CERC) has finally or seemingly put to rest all doubts on the applicability of the ‘Change in law’ provisions on O&M costs for developers. The Central regulatory authority did this even as it clubbed multiple petitions around the issue from various developers, and after being prodded by the apex regulator, Appellate Tribunal For Electricity (APTEL).

The GST law, brought in during 2017, had led to a series of disputes regarding applicability of provisions, which had drawn the Ministry of New and Renewable Energy (MNRE) to categories it clearly as a change in law event then.  In fact, MNRE vide its letter dated 12.3.2020 read with letter dated 23.3.2020, has clarified that since the Commission has already laid down the principles to be followed with regard to ‘Change in Law’ compensation on account of imposition/enhancement of effective rates of GST and levy of Safeguard Duty on import of Solar PV cells and modules in earlier cases, there is no need to ask every Developer to approach the Commission for seeking orders individually in similar cases. In terms of the said letters, the Petitioner has written to the Respondents along with the computation of its claims. MNRE had even notified the Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021 to urge Petitioners to approach Respondents/procurers for settlement of Change in Law claims amongst themselves in terms of the Change in Law Rules and will approach the Commission in terms of Rule 3(8) of the said Rules.

The issues that it could not address clearly enough was the impact of the law on projects that had been commissioned before the GST law came into effect, more precisely, their O&M costs. Regulators had been taking different views on the issue, leading to inconsistencies and a pile up of issues with APTEL. The CERC ruling will hopefully put those to rest for good now.

Quite simply, CERC accepted that the change in law provision would apply to O&M costs, and to that extent, developers were entitled to a fair reimbursement of the same from the relevant purchasing parties. And in case of NTPC and SECI being the latter, they in turn had the right to recover the same from relevant discoms, the PPAs being an accepted back to back arrangements.

APTEL, which took a view point shared by solar developers, held that the PPAs, even as they do not mention O&M costs separately,  do provide an exhaustive (as opposed to illustrative or inclusive) list of exclusions under change in law. The impact of any changes in law on the expenses incurred in the O&M of the Project has not been excluded therein, and hence ought to be considered included.

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Thus, it drove the change in view point at CERC too, something that should lead to the cessation of a whole host of litigations and possibly even future cases.

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The full order can be accessed here.