Key Changes and Impacts on Developers, ETLegalWorld

BACKGROUND

The Central Electricity Regulatory Commission (Connectivity and General Network Access to the inter-State Transmission System) Regulations, 2022 (“GNA Regulations”), notified on 07.06.2022 and amended on 01.04.2023, 19.06.2024 and 31.08.2025, require every Connectivity grantee to sequentially achieve three milestones: (i) submission of land documents for at least 50% of the land required for the granted capacity, within 18 months of an in-principle grant or 12 months of a final grant, whichever is earlier [Regulation 11A(1)]; (ii) achievement of Financial Closure (“FC”), at least 6 months prior to the Scheduled Commercial Operation Date (“SCOD”) or the firm start date of Connectivity, whichever is later [Regulation 11A(2)]; and (iii) achievement of Commercial Operation Date (“COD”), generally by the SCOD [Regulation 24.6]. Failure to meet any of these milestones in time triggers revocation of Connectivity and encashment of the relevant Bank Guarantee, the Land BG for land non-compliance, or Conn-BG1/BG2/BG3 for FC/COD non-compliance, under Regulations 11B and 24.6.

A large number of entities, at varying stages of implementation and some at an advanced stage, approached CERC either after receiving revocation notices or in anticipation of one, seeking additional time. Rather than adjudicate each petition case-by-case, CERC resolved to notify a uniform, generally applicable Compensation Procedure permitting additional time on payment of Milestone Extension Charges (“MEC”), irrespective of the reason for delay, on the reasoning that Connectivity is a scarce transmission resource that cannot be held indefinitely without demonstrated progress.

CERC first published a Draft Proposal on 15.04.2026, building on an earlier Staff Paper dated 25.11.2025, and invited stakeholder comments by 30.04.2026. The draft proposed eligibility thresholds of 20% land for the land milestone, 50% (Land-BG route) or 25% (LOA/PPA route) land for the FC milestone, and 100% (Land-BG route) or 50% (LOA/PPA route) land, together with FC proof and an EPC contract, for the COD milestone; MEC of Rs. 1,500/MW/day for land and FC extensions, escalating up to 30% over six months, and Rs. 3,000/MW/day for COD extensions, escalating up to 200% over twelve months; maximum additional time of three, six and twelve months for the three milestones respectively, with a two-month MEC-free grace period after GNA-effectiveness for COD; and MEC proceeds credited to the Deviation and Ancillary Services Pool Account. The draft was grounded in Regulation 41 (Power to Relax) read with Regulation 42 (Power to Remove Difficulty).

CERC received written comments from 42 stakeholders, RE developers, DISCOMs, CTU and industry associations, and held a public hearing on 19.05.2026 at which 13 stakeholders made oral or PPT submissions. Developers broadly sought lower eligibility thresholds, reduced MEC of around Rs. 700-1,000/MW/day, an express Force Majeure carve-out, and longer extension windows of up to 15-30 months for COD. DISCOMs and their associations sought the converse: higher thresholds, steeper escalation, and express safeguards preserving PPA and Liquidated Damages rights and State Commission jurisdiction.

In its final Order dated 14.08.2026, CERC changed the legal basis for the Procedure: instead of Regulation 42 (Power to Remove Difficulty), the Order is issued under Regulation 41 read with Regulation 44 (Suo Motu Orders and Practice Directions), expressly relaxing Regulations 11A, 11B, 24.6 and other associated Regulations. This recharacterises the Procedure from case-specific hardship relief into a general suo motu practice direction of uniform application, applicable from 14.08.2026 to all eligible entities rather than to new applications only.

THE ELIGIBILITY GATEWAY: LAND DOCUMENTATION AND CTUIL SCRUTINY

The final Order retains graded eligibility thresholds but recalibrates two of the three in developers’ favour. To seek additional time for the land milestone, an entity must have furnished land documents for at least 20% of the land required, at least 15 working days before the due date; the same 20% threshold, now unified across the Land-BG and LOA/PPA routes (down from the draft’s 50%/25% split), applies for the FC milestone. For the COD milestone, an entity under the Land or Land-BG route must have furnished land documents for 75% of the land required (down from the draft’s 100%), while an entity under the LOA/PPA route continues to need 50%; either way, the entity must also furnish proof of Financial Closure and details of contracts for major equipment or civil and electrical works, whether executed separately or under a composite EPC contract, again at least 15 working days before the due date. The thresholds are summarised below:

CTUIL now runs a defined scrutiny cycle before granting relief: any deficiency in the documents must be flagged within 7 working days of receipt; the entity then has 7 working days to cure it, failing which it becomes permanently ineligible for the Procedure; CTUIL confirms eligibility and the MEC payable within a further 7 working days; and the entity must pay within 3 working days of that intimation, failing which the extension application is closed and the Connectivity reverts to ordinary treatment under the GNA Regulations.

THE COMPENSATION STRUCTURE: MEC RATES, REFUNDS AND ADJUSTMENT

The final MEC rates are lower than the draft’s for the land and FC milestones, and unchanged for COD. MEC for land and FC extensions is now levied at a base rate of Rs. 1,000/MW/day (against the draft’s Rs. 1,500/MW/day), while COD extensions continue to be levied at Rs. 3,000/MW/day. The full escalation structure is set out below:

MEC is payable 15 days in advance of the relevant period, though an entity may choose to pay for a longer estimated period; any unutilised excess is refundable without interest within a specified 15 days of compliance, a timeline the draft had left open-ended.

The final Order introduces two relief mechanisms absent from the draft. First, under Clause B(3), if COD is achieved by the Regulation 24.6 due date plus the two-month grace period, 50% of the MEC paid for land and FC extensions is refunded without interest within a month of the COD declaration. Second, under Clause B(4), an entity may, by written request, elect to keep unutilised advance MEC with CTUIL for adjustment against MEC payable for a different milestone, rather than taking a refund. MEC otherwise remains payable separately for each milestone extended; the stakeholder request to club or net MEC across milestones, or against the eventual COD delay, was rejected save for the Clause B(3) mechanism.

Three further clarifications round out the compensation mechanics. Where the Regulation 24.6 revocation trigger falls within two months of the GNA-effectiveness date, the entity is given at least two MEC-free months, counted within, not in addition to, the overall twelve-month COD extension cap. A “month” is now defined as thirty days regardless of the calendar month, removing ambiguity in computing the escalation slabs. And the firm start date of Connectivity is unaffected by any extension, so mismatch charges under the Sharing Regulations, 2020 continue to accrue throughout the extended period.

Most significantly, the final Order redirects how MEC proceeds are used. Rather than the draft’s proposal to credit 100% of MEC to the Deviation and Ancillary Services Pool Account, the final Order applies 50% of land/FC MEC and 100% of COD MEC to reduce Monthly Transmission Charges under the Sharing Regulations, 2020, benefiting all DISCOMs sharing ISTS charges; the balance 50% of land/FC MEC is held by CTUIL in a separate account, to be refunded to entities that qualify under Clause B(3) or, failing that, applied likewise to reduce transmission charges, including any interest accrued.

WHAT THE PROCEDURE DOES NOT DO: LIMITS FOR DEVELOPERS AND DISCOMS

In its analysis of stakeholder objections, CERC drew several boundaries around the Procedure’s scope. Availing it is entirely the entity’s choice: an entity that does not opt in continues to be governed strictly by the GNA Regulations, with ordinary revocation on non-compliance. MEC is payable irrespective of the reason for delay; every stakeholder request for a Force Majeure or no-fault carve-out was rejected, on the reasoning that meeting the eligibility criteria, and not the reason for the underlying delay, is what demonstrates a developer’s continuing seriousness about the project.

The Procedure is also expressly without prejudice to contractual and jurisdictional protections outside it: it does not override, dilute or modify PPA or PSA terms, including Liquidated Damages provisions, and does not affect State Commission jurisdiction over PPA enforcement. Payment of MEC is likewise held not to constitute a “Change in Law” event, foreclosing any argument for tariff pass-through on that basis.

Finally, no DISCOM consent is required before an entity approaches CTUIL for an extension, even where it may affect ISTS transmission-charge waivers; eligibility is assessed separately for each individual Connectivity grant, even where an entity holds multiple grants under a single PPA, with no separate carve-out for captive or industrial consumers; and land documents are confined to instruments recognised under the GNA Regulations read with CTUIL’s Detailed Procedure, so that, for instance, an Agreement to Lease or Agreement to Sell is not independently recognised merely because stakeholders proposed it.

CONCLUSION

The eligibility and CTUIL-scrutiny changes are best read as a recalibration exercise: the final thresholds are somewhat more forgiving than the draft’s at the FC and COD stages, but the 7+7+7+3 working-day compliance cycle leaves little room for a late or incomplete filing. The compensation structure is the Procedure’s substantive core, and its most consequential feature for developers is not the headline rate but the two new relief mechanisms, the fifty per cent refund on timely COD and the inter-milestone adjustment facility, since these determine the effective cost of the Procedure for an entity that ultimately commissions on time. What the Procedure does not do is equally important: it offers no shelter from Force Majeure-attributable delay, no protection against PPA-level Liquidated Damages exposure, and no case-by-case discretion, being deliberately structured as a uniform, opt-in mechanism rather than an exception-based one. Entities considering whether to avail of it should treat the eligibility thresholds as a staged compliance obligation rather than a one-time payment, and should weigh the MEC cost against continuing PPA and financing exposure before electing into the Procedure.

(Views are personal)