Generating Company Liable for Transmission Charges in Force Majeure COD Delay?

In the dynamic world of power generation and transmission, delays in achieving the Commercial Operation Date (COD) can lead to significant financial implications. One pressing question for stakeholders is: Is a generating company liable to pay transmission charges for delay in COD due to force majeure? This issue often arises in power purchase agreements (PPAs) and transmission service agreements (TSAs), where unforeseen events disrupt timelines.

Force majeure clauses are designed to provide relief in such scenarios, but their application depends on contract specifics and judicial interpretations. This post delves into the legal framework, key clauses, relevant case law, and practical recommendations to help generating companies navigate these challenges.

Understanding Force Majeure in Power Sector Contracts

Force majeure events—such as natural disasters, pandemics, wars, or regulatory changes—excuse parties from performance obligations when delays are beyond their control. In transmission-related contracts, these clauses typically state that neither party shall be liable for delays caused by such events, provided they could not have been foreseen or prevented with reasonable diligence.

Geoenpro Petroleum Ltd. vs Geophysical Institute of Israel - Delhi (2020)

For instance, the clause defines force majeure as occurrences that affect the rights and obligations of either party under the contract and are beyond their control. Delays from qualifying events do not trigger liability.

Geoenpro Petroleum Ltd. vs Geophysical Institute of Israel - Delhi (2020)

However, exclusions apply: strikes limited to a contractor's personnel or equipment breakdowns unrelated to force majeure do not qualify for relief.

Geoenpro Petroleum Ltd. vs Geophysical Institute of Israel - Delhi (2020)

Geoenpro Petroleum Ltd. vs Geophysical Institute of Israel - Delhi (2020)

Transmission Charges and COD Delays: The Legal Position

Transmission charges are levied by licensees for using the associated transmission system (ATS), often from the generating station's COD until the ATS is commissioned. Delays in COD due to force majeure generally relieve generating companies of these charges, as upheld in Appellate Tribunal for Electricity (APTEL) rulings.

In one case, APTEL addressed transmission charges for delays in commissioning the ATS from the generating station's COD to the ATS COD. It clarified that generating companies are not liable in force majeure scenarios, particularly for renewable projects like solar or wind. 2023 Supreme(Online)(APTEL) 29

Similarly, for delays due to Direct Non Natural Force Majeure Event or Indirect Non Natural Force Majeure Event (or Natural Force Majeure Event affecting the Long Term Transmission Customer(s)), long-term transmission customers (including generators) are not required to pay charges. This protection holds unless the delay stems from a customer event of default. 2023 Supreme(Online)(APTEL) 52 2023 Supreme(Online)(APTEL) 23

Another APTEL order extended Long Term Access (LTA) periods due to force majeure, exempting appellants from bilateral transmission charges during the mismatch period from April 1, 2020. 2024 Supreme(Online)(APTEL) 167 2024 Supreme(Online)(APTEL) 256

Upon a force majeure event before COD, the period set forth for the COD shall be extended by a period equal in length to the duration of the Force Majeure Event. The affected party must mitigate damages and cure with diligence. 2021 0 Supreme(Del) 678

Judicial Interpretations and Narrow Application

Courts interpret force majeure clauses narrowly, compelling adherence to contractual terms. 2021 0 Supreme(Del) 678 In pandemic-related cases, lockdowns excused delay penalties.

Rashmi Cement Ltd. vs World Metals & Alloys (FZC) - Delhi (2020)

However, not all delays qualify. In a non-power sector case under the Companies Act, 2013, petitioners failed to invoke force majeure for delays in submitting bank guarantees during the second COVID wave, as they did not demonstrate exhaustive efforts to comply. The court dismissed the petition, emphasizing fair conduct. 2021 0 Supreme(Del) 678

In real estate disputes under the Consumer Protection Act, 1986, delays attributed to contractor disputes or force majeure events were sometimes excused, but courts insisted on reasonable timelines. For example, the delay has occurred due to the conditions beyond the control of the OPs and the same would come under force majeure conditions and accordingly no compensation is payable.

Shaleen Garg VS Today Home & Infrastructure Pvt. Ltd.

R. V. Prasannakumaar VS Mantri Castles Pvt. Ltd.

Conversely, where force majeure was not adequately proven, companies remained liable: The company is liable to pay compensation for the delay in handing over possession, subject to force majeure/default on the part of the allottee.

SHRACHI BURDWAN DEVELOPERS PVT. LTD. VS SUKHDEV NANDI

These principles extend to the power sector, where APTEL prioritizes contract language. In transmission contexts, entities like Karnataka Power Transmission Corporation Limited (KPTCL) collect charges but are not deemed to provide 'technical services' under Income Tax Act provisions, highlighting the transactional nature. 2015 0 Supreme(Kar) 752

Key Factors Determining Liability

To avoid transmission charge liability:- Document the Event: Maintain records proving the delay qualifies as force majeure.- Timely Notification: Comply with contract requirements for notifying counterparties.- Mitigation Efforts: Demonstrate reasonable steps to limit and resolve the impact. 2021 0 Supreme(Del) 678- No Exclusions: Ensure the event isn't limited to internal issues like personnel strikes.

Geoenpro Petroleum Ltd. vs Geophysical Institute of Israel - Delhi (2020)

Failure in these areas can lead to liability, as courts scrutinize claims rigorously.

Practical Recommendations for Generating Companies

• Review Contracts Thoroughly: Confirm force majeure definitions, exclusions, and notification protocols.
• Proactive Documentation: Log events, impacts, and mitigation from day one.
• Seek Extensions: Apply for LTA/COD extensions promptly, as in APTEL cases. 2024 Supreme(Online)(APTEL) 167
• Consult Experts: Engage legal counsel for case-specific advice, as outcomes vary.

Conclusion and Key Takeaways

Generally, generating companies are not liable for transmission charges due to force majeure-induced COD delays, if contracts are followed and events qualify. APTEL precedents reinforce extensions and exemptions, but narrow judicial interpretations demand strict compliance. 2023 Supreme(Online)(APTEL) 52

Key Takeaways:- Force majeure provides relief but requires proof and diligence.- Transmission charges hinge on ATS vs. generator COD mismatches.- Always prioritize notification and documentation.

This post offers general insights based on available precedents and is not legal advice. Consult a qualified attorney for your situation.

References:-

Geoenpro Petroleum Ltd. vs Geophysical Institute of Israel - Delhi (2020)

Rashmi Cement Ltd. vs World Metals & Alloys (FZC) - Delhi (2020)