APTEL order opens doors for state power projects to recover costs on FGD tech

In a big relief for power plants governed by state regulatory commissions, the Appellate Tribunal for Electricity (APTEL) has ruled that these projects also qualify for recovery of cost incurred on installing emission control equipment as per an earlier environment ministry order.

In an appeal filed by J. Sagar Associates (JSA) on behalf of Lalitpur Power Generation Company Limited (LPGCL) challenging Uttar Pradesh ERC’s (electricity regulatory commission) Order denying cost recovery, the APTEL ruled that the environment ministry order on new emission norms for thermal power plants was indeed a change in law event.

So, the APTEL said, the state ERC should give in-principle approval for additional capital expenditure to LPGCL, and the same shall be claimed by the company as per the applicable Tariff Regulations.

What this order means is that state electricity regulatory commissions (SERCs) are also bound by provisions of the Electricity Act and so in-principle approval for this change in law event expenditure as given by CERC should also be given by state regulators and additional cost should be made through in tariff meaning tariff could be revised to help generation companies to recover additional cost for installing emission control equipment.

The decision of APTEL would be a big relief to state regulated private sector and independent power projects that faced the prospect of increasing their expenditure without getting any recovery through adjustment in electricity tariff. This is currently available to central sector projects as CERC is giving in-principle approval for installation of flu gas desulphurisation (FGD) on thermal plants that has become mandatory with the environment ministry setting a deadline for implementing emission control norms for thermal power plants.

FGD is a set of technologies used to remove sulphur di-oxide from exhaust flue gases of fossil fuel power plants.

The Central Pollution Control Board had issued phase-wise timelines to 189 TPPs in the country aggregating to approx. 166.7 GW of installed thermal capacity to comply with the revised emission norms prescribed by MoEFCC’s Notification dated 07.12.2015 entailing an approx. expenditure of Rs. 80,000 Crores. This is only the Base Cost of FGD system and excludes Interest during Construction (IDC), taxes & duties, FERV, expenditure towards project management & engineering services and pre-operative expenses, which is to be allowed at actuals after commissioning of the FGD system.

The CERC’s Regulations provided for in-principle approval of cost to be incurred by generating companies for installation of FGD system. However, most SERC Regulations are silent on this aspect. Hence, on one hand generating companies regulated by CERC were being allowed in-principle approval of the FGD cost, thus being able to obtain the necessary funds from the lenders to comply with the stringent emission norms.

However, generating companies regulated by SERCs were denied in-principle approval of the FGD cost, resulting in delay and imminent breach of timelines prescribed by CPCB, thereby attracting penalty. This created a discriminatory landscape where generating companies situated in similar situation were meted different treatment over the same notification, resulting in regulatory uncertainty.