Gencos regulate power supply to discoms amid unpaid dues

Power generation companies (gencos) have started regulating power supply to distribution companies (discoms) which have deferred paying their monthly dues, with supplies to those in Meghalaya and Sikkim cut by a quarter, two officials aware of the development said.

The development follows the introduction of the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, which were announced in June.

“The LPS rules which have been formulated are a very strong mechanism. Power supply to Meghalaya and Sikkim is already under being regulated. However, they have their own (power generation) plants, they are running those. More names (of states) should come up in the next few days,” said one of the two people cited above, both of whom spoke on the condition of anonymity.

Going by the rules, gencos have lowered power supply to the discoms by 25% of the contracted volume in the two states which have not paid their monthly dues, the official mentioned above said, adding that the payment status of discoms is under constant watch.

Under the new ‘late payment surcharge’ (LPS) rules, in case a discom does not pay the outstanding dues two-and-a-half months after the generation of the bill, the genco will supply only 75% of the contracted power to the distribution licencee. The remaining 25% may be sold by the genco through power exchanges.

If the default in dues continues for another 30 days, then the genco can sell 100% of the power contracted with the discom under the power purchase agreement through the exchanges, thereby not supplying to the discom at all.

The government has accelerated its push for state discoms to pay dues to gencos which amount to around ₹1.5 trillion. On 30 July, Prime Minister Narendra Modi urged states to clear their dues to power generation companies to help ensure firms‘ operational viability which in turn would help them meet the country’s energy demand. Total dues in the country’s power sector including to gencos and discoms amount to ₹2.5 trillion.

On 5 August, Mint reported that state-run Power Finance Corp. Ltd PFC) and its subsidiary, REC Ltd, are expected to lend up to ₹1.45 trillion in total to state-run discoms under the Union government’s ambitious one-time settlement scheme.

As part of the plan, REC has already provided around ₹22,000 crore for clearing outstanding dues of discoms in Jharkhand, Rajasthan, Chhattisgarh and Jammu and Kashmir.

The issue of high dues of discoms is long-running, and exacerbated again in April-May as the country faced a power crisis amid a shortage of domestic coal. Power gencos were largely unwilling to import coal to meet the surging power demand.

The task of clearing dues and improving the financial condition of the power sector utilities has gained significance as the government lines up a plan for the power sector as part of its Vision 2047 to meet the country’s enhanced energy demand to drive economic growth.

This includes improving corporate governance practices of state-owned discoms, making tariff cost effective, reducing cross subsidies and shortening the duration of power purchase agreements.

Queries sent to the spokesperson of the Union ministry of power, principal secretary to the government of Meghalaya and the power secretary of the government of Sikkim remained unanswered till press time.