Central Electricity Regulatory Commission (CERC) provides financial relief to power generators by exempting submission of construction phase bank guarantee (BG)

Press Release | HSA Advocates

Central Electricity Regulatory Commission (CERC) provides financial relief to power generators by exempting submission of construction phase bank guarantee (BG)

Background facts: ACME Solar Holdings Ltd and its 4 SPVs (ACME) approached CERC seeking extension of timelines of various milestones for commissioning of a project where ACME entered into a Power Purchase Agreement (PPA) with Solar Energy Corporation of India (SECI) who in turn executed Power Sale Agreement (PSA) with its beneficiaries. Post filing of application for grant of Long Term Access (LTA) to firm up the beneficiaries, ACME submitted the copies of PPAs and PSA to Power Grid Corporation of India Ltd (PGCIL) and sought exemption from submission of construction phase BG.

It was ACME's case that as per Clause 24b.ii(vi) of the Detailed Procedure notified under Regulation 27 of the Central Electricity Regulatory Commission (Grant of Connectivity, Long-term Access and Medium term Open Access in inter-State Transmission and related matters) Regulations, 2009 (Connectivity Regulations, 2009), ACME is exempted from furnishing construction phase BG. It was also the case of ACME that the PPAs were submitted to PGCIL/CTU prior to the grant of the LTA approval and still PGCIL failed to consider the said PPAs to be a part of the LTA Application.

Subsequently, PGCIL also filed an application seeking clarification on the conditions to be fulfilled by the LTA Applicant for claiming the exemption from submission of construction phase BG where the LTA Applicant has already submitted the requisite documents (PPA/PSA) post filing of the application.

CERC was to decide whether submission of the Application BG or Construction Phase BG can be exempted where the LTA Applicant signs the PPA/PSA post the submission of LTA Application along with the interplay of Connectivity Regulations, 2009 read with the Detailed Procedure.

Order: CERC by virtue of its order dated May 9, 2020 has observed that Application BG/Construction Phase BG is not required where augmentation of the transmission system as identified for grant of LTA is done only after an agreement of the beneficiaries in the Standing Committee on Power System Planning/Regional Power Committee for bearing the transmission charges and where the LTA Agreement is required to be directly signed by the beneficiaries with Central Transmission Utility (CTU) or tripartite agreement with CTU and inter-State transmission licensee.

It was further observed that with the absence of PSA between SECI/NTPC and beneficiary, LTA Applicant cannot avail the benefit of exemption of BG and that PPA between LTA Applicant/Generator and Beneficiary is not at the same footing as a PPA between LTA Applicant/Generator and SECI/NTPC.

There may be times in competitively bid projects through SECI/NTPC where fulfilling conditions of an agreement between beneficiaries and CTU to bear the transmission charges towards augmentation of transmission system may not be possible or there may be time lag between execution of PPA and PSA due to inherent process of bidding and approval from state commissions. Hence, where augmentation is required, BG can be exempted where PPA is executed between LTA applicant and beneficiaries; or where PPA is executed between LTA applicant and intermediary agency which is supported by back to back PSA with the beneficiaries, for the equal quantum.

Also, any Application BG or Construction phase BG furnished by the LTA applicant, which has corresponding quantum through PPA or PSA with beneficiaries, shall be returned to such LTA applicant.

Our view: Interpreting the Detailed Procedure of the Connectivity Regulations, 2009 with respect to the exemptions from submission of Application BG and Construction phase BG, CERC has provided immense relief to the power generators/LTA applicants. The CERC order gains significance as several power generators/LTA applicants who fall in this category can now approach CTU for return of BG's resulting in much-needed financial relief.

HSA Advocates Partner Shreshth Sharma along with Associate Jyotsna Khatri successfully represented ACME.