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A Two-Decade Victory: CERC Rules in Favor of Lanco Kondapalli in Fuel Cost Dispute

In a landmark order, the Central Electricity Regulatory Commission (CERC) has brought an end to a protracted legal stalemate, directing Andhra Pradesh and Telangana DISCOMs to reimburse finance and procurement costs for naphtha fuel to Lanco Kondapalli Power Limited (LKPL). The judgment, delivered by a bench comprising Chairperson Jishnu Barua and Members Ramesh Babu V., Harish Dudani, and Ravinder Singh Dhillon, reaffirms the sanctity of Power Purchase Agreements (PPAs) and clarifies the regulatory adjudicatory power regarding tariff-linked disputes.

The Two-Decade Standoff

The genesis of this dispute dates back to the period between 2000 and 2001, following the commencement of commercial operations at LKPL’s 368.144 MW Combined Cycle Power Project. LKPL sought the reimbursement of over Rs. 10.79 crore in finance and procurement-related costs incurred for naphtha, alongside substantial interest.

Disagreements over payment led to years of litigation, spanning arbitration applications before the Andhra Pradesh High Court, multiple petitions before the State Commission, and appellate proceedings in the Appellate Tribunal for Electricity (APTEL) and the Supreme Court. The core question remained: were these costs recoverable under the PPA, and was the claim time-barred?

Defining 'Fuel Cost' and Contractual Rights

The Respondents argued that the recovery of these finance-related costs was not permitted, suggesting that such expenses were either subsumed into existing capacity charges or altogether outside the scope of the PPA.

Rejecting these contentions, the CERC performed a rigorous analysis of Article 3.3 of the PPA. The Commission noted that the definition of "Fuel Cost" is not vague. The proviso to Article 3.3 explicitly includes "finance and procurement costs" as a mandatory component for calculating the cost of fuel. The CERC ruled that interpretation of these terms must be literal, noting that:

> "Finance and procurement costs are expressly enumerated as a component of fuel cost and are not made conditional upon any further qualification, save and except that they form part of the cost of fuel as delivered at the site."

Jurisdiction and Evidence: Clarifying the Path

The DISCOMs raised concerns regarding the jurisdiction of the CERC, suggesting that the matter should have been referred to arbitration. However, the Commission ruled that matters involving the impact on tariff—such as fuel surcharges and energy charges—fall directly under the Regulatory Commission’s oversight as per the Electricity Act, 2003, and the jurisprudence established in the MPPMCL v DVC case.

Addressing the evidentiary objections, where the Respondents claimed that the petitioner failed to provide exact bank statements for every interest payment, the CERC adopted a pragmatic stance:

> "The evidentiary standard applicable to tariff proceedings... cannot be equated with that applicable to a civil suit for recovery of money."

The Commission further held that because the Respondents failed to file a dispute notice within the 60-day window stipulated in the PPA, they were essentially barred from raising such objections two decades later.

Key Observations

The Commission’s ruling solidifies several critical principles in energy regulation: * Contractual Integrity: Terms within a PPA regarding "Fuel Cost" must be strictly adhered to, protecting generating companies from unpredictable operational costs. * Compensatory Nature of Interest: Interest on delayed payments under a PPA is seen as compensatory for the time value of money rather than a penalty, and cannot be dismissed through the archaic rule of damdupat . * Protection Against Unjust Enrichment: As the Commission poignantly observed: > "To deny interest in such circumstances would amount to permitting unjust enrichment, as the Respondents enjoyed the benefit of electricity supplied while depriving LKPL of timely reimbursement."

Future Implications

This decision acts as a buffer for power producers against long-term fiscal erosion caused by delayed reimbursements. For DISCOMs, it serves as a stern reminder that failing to address billing disputes within mandated timelines creates permanent liabilities. As the industry evolves toward higher efficiency and tighter margins, this order ensures that regulatory commissions remain the ultimate arbiters when contract-based tariff components are ignored.

The CERC has mandated the payment of the principal amount along with interest computed at the working capital rate, marking a decisive resolution to one of the most long-standing regulatory disputes in India's power sector.