Introduction

The case of Azure Power India Private Limited (APIPL) v. NTPC Limited, adjudicated by the Central Electricity Regulatory Commission (CERC) on January 3, 2022, marks a significant development in the realm of power purchase agreements (PPAs) and the implications of legislative changes on contractual obligations. APIPL, a prominent solar power generation company, entered into multiple PPAs with entities such as NTPC Limited (NTPC), the Solar Energy Corporation of India Limited (SECI), and various Ordnance Factories in Maharashtra. The crux of APIPL's petitions centered on the financial burdens imposed due to the introduction of the Goods and Services Tax (GST) and amendments in the Service Tax rates, which they classified as a 'Change in Law'.

Summary of the Judgment

APIPL filed three petitions seeking:

• Recognition of the Finance Act, 2016 and Central Goods and Services Tax, 2017 as a 'Change in Law' under Article 12 of their respective PPAs.
• Additional tariffs to compensate for the increased tax burdens resulting from these legislative changes.
• Reimbursement of legal and administrative costs incurred during the petition process.

During the hearings, APIPL indicated its intention to utilize the newly notified Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021 to settle these claims. The CERC, after reviewing the provisions of these rules, directed APIPL to adhere to the prescribed process for 'Change in Law' claims. Consequently, the Commission dismissed the petitions, instructing APIPL to follow the established protocol under the 2021 Rules and adjust the previously deposited filing fees accordingly.

Analysis

Precedents Cited

The judgment primarily references the Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021. These rules serve as the governing framework for addressing 'Change in Law' impacts on tariff agreements, delineating procedures for affected parties to claim and adjust tariffs in response to legislative changes.

Legal Reasoning

The CERC's legal reasoning hinged on the recent establishment of the 2021 Rules, which outline a clear mechanism for handling 'Change in Law' incidents. The Commission emphasized that:

• Upon a 'Change in Law', affected parties must first attempt to settle claims amongst themselves in accordance with the 2021 Rules.
• Only after such settlements should parties approach the Commission under Rule 3(8) of these Rules.
• The existing petitions did not adhere to this procedural mandate, prompting their dismissal.

By directing APIPL to follow the stipulated process, the Commission underscored the importance of adhering to established regulatory frameworks, ensuring consistency and fairness in handling similar claims across the industry.

Impact

This judgment establishes a pivotal precedent for future 'Change in Law' claims within the electricity sector. Key impacts include:

• Procedural Compliance: Parties must now strictly follow the 2021 Rules for lodging and settling 'Change in Law' claims, ensuring that disputes are methodically addressed.
• Regulatory Clarity: By clarifying the process and emphasizing pre-commission settlement, the decision reduces ambiguities and potential delays in resolving financial adjustments.
• Financial Planning: Generating companies and procurers must integrate these procedural requirements into their financial planning and contractual negotiations to mitigate unforeseen liabilities.

Furthermore, the adjustment of filing fees against future petitions provides a streamlined approach for parties to manage administrative costs associated with such claims.

Complex Concepts Simplified

Conclusion

The CERC's decision in Azure Power India Pvt Ltd v. NTPC Ltd underscores the necessity for adherence to established regulatory frameworks when addressing 'Change in Law' impacts within power purchase agreements. By mandating that affected parties utilize the 2021 Rules for settling claims, the Commission ensures a consistent and efficient approach to managing financial adjustments necessitated by legislative changes. This judgment not only clarifies procedural mandates but also fortifies the regulatory landscape, providing clarity and predictability for stakeholders in the electricity sector.