Applying Restitutionary Principle, CERC Grants DB Power 'Change in Law' Compensation Under Electricity Act, 2003 - 2025-07-16

CERC Grants DB Power Over ₹40 Crore in 'Change in Law' Compensation on Remand from APTEL

New Delhi: The Central Electricity Regulatory Commission (CERC), in a significant order dated June 25, 2025, has directed Rajasthan Discoms and PTC India to compensate DB Power Ltd. (DBPL) for additional costs incurred due to 'Change in Law' events. The Commission, ruling on a matter remanded by the Appellate Tribunal for Electricity (APTEL), upheld the restitutionary principle embedded in Power Purchase Agreements (PPAs), aiming to restore the power generator to the same economic position it was in before the legal and tax changes occurred.

The bench, comprising Chairperson Jishnu Barua and Members Ramesh Babu V. and Harish Dudani, allowed DBPL's claims for additional costs related to Station Heat Rate (SHR), consequential tax increases, and carrying cost, while partially disallowing its claim on Development Surcharge.

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Case Background

The dispute originates from a petition filed by DB Power Ltd. in 2017, seeking compensation under its PPAs dated November 1, 2013, with PTC India Ltd., which had a back-to-back agreement with Rajasthan Discoms for the supply of 250 MW of power from its thermal power project in Chhattisgarh. DBPL argued that various new or increased taxes, duties, and cesses imposed after the bid cut-off date constituted 'Change in Law' events, entitling it to compensation.

In its initial order dated December 19, 2017, the CERC had allowed some claims (like increase in Royalty, Forest Transit Fee, and Clean Energy Cess) but disallowed others, including claims related to Station Heat Rate (SHR) and carrying cost. Both DBPL and the Rajasthan Discoms challenged this order before the APTEL.

In a crucial judgment on July 25, 2023, the APTEL set aside the CERC's 2017 order and remanded the matter for fresh consideration on four key issues: 1. Compensation based on actual Station Heat Rate. 2. Admissibility of Carrying Cost. 3. The impact of increased levies (like NMET, DMF) on VAT and Entry Tax. 4. The claim for Development Surcharge on coal.

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Arguments of the Parties

DB Power Ltd. (Petitioner): -

Station Heat Rate (SHR): Argued for compensation based on the actual SHR, subject to normative ceilings in CERC regulations, rather than the lower, indicative rate of 2250 kCal/kWh used in the original order. They calculated a shortfall of over ₹40 crore. -

Development Surcharge: Claimed it as a 'Change in Law' event, citing Supreme Court precedent. -

Consequential Taxes: Contended that while the rates of VAT/Entry Tax were unchanged, the tax base expanded due to new levies like NMET and DMF (which were already recognized as 'Change in Law'), leading to higher tax outgo. -

Carrying Cost: Insisted on carrying cost at the Late Payment Surcharge (LPS) rate stipulated in the PPA, to be fully restituted for the delay in receiving compensation.

Rajasthan Discoms (Respondents): -

Station Heat Rate (SHR): Initially contested the SHR calculations, demanding rated Design Heat Rate data, but did not dispute the final computation submitted by DBPL. -

Carrying Cost: Argued against allowing carrying cost, stating the PPA had no specific restitution clause. If allowed, it should be limited to the interest on working capital and not granted for the period of litigation delay caused by the petitioner. -

Other Claims: Urged the Commission to subject all claims to a fresh prudence check.

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Commission's Analysis and Decision

The CERC meticulously analyzed each claim on remand, guided by the principles of restitution and recent judicial precedents.

On Station Heat Rate (SHR)

The Commission accepted DBPL's methodology of calculating compensation using the lower of actual SHR or normative SHR, and the lower of actual or normative Auxiliary Power Consumption. It noted that the respondents did not contest the final revised calculation of ₹40,17,79,869 submitted by DBPL.

"As the Respondents have not contested the claim or the methodology adopted by the Petitioner, the claim is found to be admissible. As far as the compensation amount is concerned, the Petitioner and the Respondent may carry out reconciliation, if any, based on the additional coal quantum."

On Consequential Increase in VAT, Entry Tax, etc.

The CERC agreed with the petitioner that an increase in the tax base due to other 'Change in Law' events warrants compensation for the resulting higher tax payments.

"In line with the aforesaid findings, the Petitioner in this case too shall be eligible to recover the additional expenditure incurred towards the consequential increase in VAT, Entry Tax, and Niryatkar on account of increase in the underlying taxes and duties on which the VAT, Entry Tax, and Niryatkar are computed provided these taxes and duties are also recognized as Change in Law."

On Development Surcharge

The Commission recognized that the levy of Development Surcharge is a 'Change in Law' event. However, it rejected DBPL's claim for compensation based on an increase in the Busy Season Surcharge, as the latter had not been allowed as a 'Change in Law' event in the original order and was not appealed. Conversely, it directed DBPL to pass on the benefit of the withdrawal of the Development Surcharge from January 15, 2018, to the respondents.

On Carrying Cost

Rejecting the respondents' argument, the CERC affirmed that the PPA's restitutionary clause justifies the grant of carrying cost. Citing recent APTEL judgments, the Commission adopted a balanced approach on the rate of interest.

"Given the actual interest rates on the working capital arranged by the Petitioner is lower than the LPS rates as well as the interest rates on working capital as worked out as per the applicable Tariff Regulations, we find it appropriate to permit the Petitioner to claim the carrying cost at the actual rate of interest on the working capital arranged by the Petitioner."

The Commission also adhered to the APTEL's direction to exclude the period from April 29, 2017, to January 25, 2019, from carrying cost calculations for the SHR component, due to litigation delays attributed to the petitioner.

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Final Order and Implications

The CERC has disposed of the petition to the extent of the remand, directing the parties to reconcile the final amounts within a month and for payments to be made within 15 days thereafter. This order reinforces the legal sanctity of 'Change in Law' and restitution clauses in PPAs, ensuring that power generators are not economically disadvantaged by unforeseen regulatory and fiscal changes, while also holding them accountable for passing on any subsequent benefits to the distribution companies and, ultimately, the consumers.