Late Payment Surcharge Disputes Intensify As Power Generators Seek Regulatory Relief—CERC

Financial disputes related to Late Payment Surcharges (LPS) have become a growing concern in India’s power sector, leading many power generation companies to seek intervention from regulatory authorities. These disputes generally arise when power distribution companies (discoms) and state utilities delay payments for electricity purchased from generators. Such delays create significant financial pressure on power producers, affecting cash flow and limiting their ability to maintain smooth operations at power plants.

To address these challenges, Power Purchase Agreements (PPAs) and regulatory provisions established by the Central Electricity Regulatory Commission (CERC) include clear clauses for the imposition of Late Payment Surcharges. The surcharge serves as a financial penalty aimed at discouraging delays in payments and ensuring that generators receive compensation for the time value of money lost due to overdue bills.

Under existing regulations, power producers are entitled to recover not only the principal amount owed but also applicable interest or carrying costs. These additional charges often arise when provisional tariffs are later revised upward or when routine energy invoices remain unpaid beyond the stipulated payment period. The recovery of such dues is considered essential for maintaining financial stability within the power generation sector.

One of the key areas of disagreement between generators and procuring utilities concerns the methodology used to calculate Late Payment Surcharges. State utilities often advocate for a simple interest approach, arguing that it limits their financial liabilities. In contrast, power producers maintain that LPS should be calculated on a monthly compounding basis, as prescribed under applicable regulatory provisions.

Another major point of contention relates to the adjustment of partial payments made by discoms. Power producers generally argue that any payment received should first be used to clear accumulated Late Payment Surcharges before being applied toward outstanding principal amounts. They also contend that remaining funds should be adjusted against the oldest unpaid energy bills, ensuring proper settlement of long-pending dues.

Delays in the payment of supplementary invoices have further complicated financial relationships between generators and utilities. Such delays have resulted in several legal and regulatory proceedings, with generators seeking compensation for the additional financial burden created by prolonged non-payment.

CERC has repeatedly emphasized that Late Payment Surcharges are intended to protect generators from the adverse financial impact of payment defaults by procuring entities. The Commission has also taken the view that utilities cannot unilaterally withhold legitimate payments without valid justification. As a result, regulatory authorities continue to play a crucial role in enforcing payment obligations and issuing time-bound directives aimed at restoring liquidity in the sector and ensuring the stability and reliability of India’s power system.