By Akanksha Chandrakar
Delays in payments from discoms to generating companies have significant consequences, severely impacting their cash flows. Recognising the issue, the Ministry of Power introduced the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022 (LPS Rules, 2022) on June 3, 2022. These rules aim to alleviate the financial
stress of discoms struggling with payment defaults.
Under these rules, all dues, including late payment surcharges, as of June 3, 2022, were classified as arrears, which were to be rescheduled, with the distribution licensee required to clear them in equated monthly instalments (EMIs) starting from August 2022. Since the issuance of the rules, the outstanding dues have significantly reduced from around Rs 1.3 trillion to Rs 246.84 billion as of December 6, 2024.
In November 2024, the Grid Controller of India (GRID-INDIA) introduced a revised procedure for the implementation of the LPS Rules. Effective from January 1, 2025, the updated framework applies to both intra-state and interstate generators, licensees and distribution entities. It aims to strengthen payment security mechanisms, streamline power scheduling processes, and address non-payment issues more effectively.
An overview of GRID-INDIA’s revised procedure…
Revised procedure
The procedure in particular relates to Clause 7(e) and Clause 9(6) of the rules. Clause 7 relates to the regulation of defaulting entities’ power supply in case of sustained non-payment of dues to generating companies, transmission licensees or trading licensees. Clause 7(e) specifies that “the National Load Despatch Centre shall issue the detailed procedure to implement the regulation of access according to these rules”. Rule 9 relates to the sale of unrequisitioned capacity. Clause 9(6) specifies that the “National Load Despatch Centre shall issue the detailed procedure to implement the provisions on sub-rule (1) of this rule”.
The rules provide a clear framework for mechanisms such as letters of credit (LCs) and escrow accounts to secure payments and outline the procedure for reducing power supply to defaulters. Additionally, the procedure allows generators to sell surplus power on power exchanges, ensuring financial stability in the system.
Key portals such as the Payment Security Administration (PSA) and PRAAPTI portals are central to monitoring and reporting, providing a transparent mechanism for scheduling power, and tracking billing and payment statuses. The updated procedure also includes provisions for penalties and restrictions on non-compliant entities. For instance, defaulters may be barred from participating in power exchanges or their trading access may be limited.
The backbone of the revised procedure is the payment security mechanism (PSM), which is crucial for maintaining financial discipline in the electricity market. This mechanism includes the use of LCs or escrow accounts, as per the agreement, to ensure that payments are secured for power transactions. Alternatively, advance payments are accepted as a valid security measure, provided there are no outstanding dues. Once the payment security is confirmed, the power scheduling for despatch can proceed. This scheduling requires notifying the load despatch centre (LDC) via the PSA portal on a day-ahead basis. If a discom faces difficulties in establishing an LC, it may provide an advance payment that corresponds to the required quantum of power. This will enable the generating station to notify the LDC for power scheduling, ensuring that no dues remain outstanding. However, if the PSM is not adequately maintained, the generating company has the authority to reduce the power supply to the defaulting entity. During this period, the defaulting entity is still liable for fixed or capacity charges. Power supply is typically restored within a day of reestablishing payment security.
In cases of prolonged default, the generating company has the right to reduce power supply to the defaulter by 75 per cent of the contracted power, with the remaining 25 per cent being sold through power exchanges. If non-payment continues for 30 days, the generating company can sell the entire contracted power through power exchanges. All such actions must be communicated to the procurer and the LDC, and the regulated power quantum must be recorded on the PSA portal. This ensures that all stakeholders are informed and the process remains transparent. The procedure also includes comprehensive monitoring and reporting obligations. Generators, transmission licensees and distribution licensees are required to update billing and payment statuses regularly on the PRAAPTI portal. If dues remain unpaid for more than two and a half months, defaulting entities face restrictions on electricity trading and signing new short-term contracts. Furthermore, access to non-short-term contracts is reduced by 10 per cent for each month the default continues. Full access is restored only after all outstanding dues and applicable surcharges are cleared. However, under exceptional circumstances, the National Load Despatch Centre (NLDC), regional load despatch centres (RLDCs), or state load despatch centres (SLDCs) may temporarily revise regulations to ensure grid security, though such actions must be properly justified and documented.
All interstate and intra-state generating stations, except state-owned facilities, are required to update the PSM portal of the NLDC by 6 a.m. daily. This update must include the status of the PSM or advance payments for electricity purchases, in alignment with the timelines specified in the Indian Electricity Grid Code. Transmission and trading licensees must also inform the NLDC about any instances of non-maintenance of the PSM, defaults in EMIs, or outstanding dues by defaulting entities. Furthermore, any request for power supply regulation must be submitted at least seven days before the intended regulation date.
If the PSM is not maintained, generating companies, transmission licensees and trading licensees are required to regulate the power supply to the defaulting entity. This may involve halting power scheduling for the defaulter, initiating or completing the encashment of the LC according to the power purchase agreement (PPA), or selling the power to third parties, if allowed under the PPA, to recover the dues. In addition, the affected generator or electricity trading licensee can sell the regulated power in the power market.
For interstate generators, RLDCs are responsible for publishing daily lists of defaulting entities within their regions, along with details of the regulated power quantum, by 6.30 a.m. Similarly, SLDCs for intra-state generators are responsible for validating contracts entered into the PSA portal within 15 days. If validation is not completed within the stipulated time, these contracts are deemed valid. By 6.30 a.m. daily, SLDCs receive a list of defaulting entities from the PSA portal and must execute non-scheduling instructions as required.
Also, generators have a clear obligation to meet their contractual commitments to procurers, including distribution licensees or transmission system users. Unauthorised sales of contracted power to third parties without the original procurer’s consent will result in penalties. In such cases, generating companies may be barred from participating in power exchanges and prohibited from scheduling new short-term contracts for a minimum of three months from the date the violation if confirmed by the LDC. For repeated violations, the penalty duration will increase to six months for the second offence and one year for subsequent violations.
The procedure also establishes a strict complaint resolution process. Upon receiving a complaint, the RLDC will examine the case and send queries to the concerned generator, seller, or trader by the next day, with copies shared with the NLDC, procurer and the relevant SLDC or RLDC. The concerned parties must respond by the second day. If no response is received, the complaint is treated as valid. Confirmed violations lead to debarment from power trading and scheduling.
Another significant aspect of the revised procedure is the management of unrequisitioned surplus (URS) power. Distribution licensees are required to finalise and communicate their power requisition schedules to generating companies at least two hours before the day-ahead market (DAM) bidding window closes. Any URS power, including that from shut-down units, must first be offered in the DAM, followed by real-time markets and other segments if not cleared. Beneficiary consent is not required to sell surrendered surplus power, but URS bids must not exceed 120 per cent of the energy charge rate determined by the commission or the government. Power energy charges must be provided to regional power committees (RPCs) and SLDCs by the first day of each month. This data must also be submitted to the National Open Access Registry by the second day. The NLDC and SLDCs will compile and share this information with power exchanges by the third day. Power exchanges are required to submit generator-specific reports on pricing and quantum by the fourth day, and RLDCs must provide sale data to the RPCs by the sixth day.
Generators are not eligible for fixed cost recovery for unoffered surplus power up to their declared capacity. This is reflected in the monthly non-offered plant availability factor, which is calculated using a prescribed formula. Further, if technical issues prevent the placement of URS bids, such power is treated as “deemed offered” for the purpose of fixed charge computation.
To conclude, the rules aim to enforce payment discipline on discoms and improve transparency. This is a significant step towards strengthening the power sector’s operational and financial health.
