Introduction

The case of Tata Power Company Limited (Distribution) v. Maharashtra Electricity Regulatory Commission (MERC) ([Appellate Tribunal for Electricity](#)) adjudicated on October 20, 2020, addresses critical issues concerning the disallowance of depreciation rates, DSM (Demand Side Management) employee costs, and erroneous remittance of transmission charges by MERC. Tata Power-D, the appellant, challenged MERC's Tariff Order dated October 21, 2016, and its subsequent Review Order dated November 22, 2017, seeking rectification of these financial computations affecting their tariff and revenue requirements.

Summary of the Judgment

The Appellate Tribunal for Electricity reviewed three primary issues:

• Disallowance of Appropriate Depreciation Rates: Tata Power-D contended that MERC incorrectly disallowed depreciation rates for their Retail Supply Business for FY 2014-15.
• Disallowance of DSM Employee Costs: The appellant argued that MERC wrongly excluded DSM employee costs from the total DSM expenditure, contrary to DSM Implementation Regulations.
• Erroneous Remittance of Transmission Charges: Tata Power-D challenged MERC's direction to remit transmission charges collected from Open Access Consumers to the State Transmission Utility (STU), leading to potential double payment.

Upon thorough examination, the Tribunal partially allowed the appeal. It mandated MERC to recompute the depreciation rates based on accurate asset-wise data, upheld the disallowance of DSM employee costs, and accepted MERC's stance on the transmission charges as the appellant remained revenue-neutral.

Analysis

Precedents Cited

The Tribunal referenced several key precedents to underpin its decision:

• Mohinder Singh Gill v. Chief Election Commissioner [(1978) 1 SCC 40]: Emphasized that statutory orders must be evaluated based on their original reasoning without supplementation by new grounds post-issuance.
• Gordhandas Bhanji [Comm. of Police, Bombay v. Gordhandas Bhanji, AIR 1952 SC 16] by Bose, J.: Stressed that public orders should be interpreted objectively based on the language used, devoid of subsequent explanatory additions.
• PTC v. CERC and Ors: (2010) 4 SCC 603: Reinforced MERC's obligation to adhere strictly to its regulations.
• Meghalaya State Electricity Board v. Meghalaya SERC: 2010 ELR (APTEL) 940: Clarified that truing up exercises must align with established methodologies and cannot introduce new principles.
• Bangalore Electric Supply Company v. KERC: Supported the principle that truing up should adhere to the original tariff computation methodologies.

These precedents collectively reinforced the Tribunal's stance on maintaining regulatory consistency, adhering to established procedures, and ensuring that regulatory bodies do not retroactively alter their justification for decisions.

Legal Reasoning

The Tribunal's legal reasoning navigated through the application of MERC's MYT (Multi Year Tariff) Regulations, 2011, specifically focusing on:

• Depreciation Calculation: Under Regulation 31.2(b) of the MYT Regulations, depreciation should be computed using the straight-line method as per the depreciation schedule. MERC had deviated by applying a weighted average rate from a previous year instead of adhering to asset-wise depreciation rates.
• DSM Implementation: Regulations 3.2 and 9 of the DSM Implementation Regulations, 2010, mandate that all DSM-related expenses, including employee costs, should be recoverable through tariffs. MERC's partial disallowance contradicted these provisions.
• Transmission Charges Remittance: Regulation 15.2(v) of the Distribution Open Access Regulations, 2014, directs that partial Open Access consumers should pay transmission charges to the distribution licensee, not the STU. MERC's initial erroneous direction for Tata Power-D to remit these charges to STU was acknowledged as a mistake but was adjusted without reversing the original order.

The Tribunal underscored that regulatory bodies must steadfastly follow their established regulations and cannot alter foundational reasoning post-decision. While MERC acknowledged certain errors, the Tribunal determined that fixes should align with regulatory mandates without introducing new justifications.

Impact

This judgment has several implications:

• Regulatory Compliance: Reinforces the necessity for regulatory bodies like MERC to strictly adhere to their procedural and substantive regulations, ensuring consistency and fairness in decision-making.
• Depreciation Calculations: Establishes a precedent that depreciation rates must be meticulously computed based on asset-wise details as per regulatory schedules, preventing arbitrary adjustments.
• DSM Cost Recovery: Affirms that DSM-related expenses, including employee costs, must be fully recoverable unless explicitly disallowed by clear regulatory provisions, promoting the integrity of DSM programs.
• Transmission Charges: Clarifies the proper channel for remittance of transmission charges from partial Open Access consumers, safeguarding against double payments and financial discrepancies.
• Judicial Oversight: Highlights the role of the judiciary in overseeing and rectifying regulatory decisions to ensure they remain within the ambit of established laws and regulations.

Future cases involving tariff determinations, depreciation allowances, and DSM cost recoveries will reference this judgment to guide regulatory adherence and judicial review processes.

Complex Concepts Simplified

Depreciation

Depreciation is an accounting method that allocates the cost of tangible assets over their useful lives. It ensures that the expense recognized in each accounting period correlates with the revenue generated by the asset.

In this case, Tata Power-D claimed depreciation on its Retail Supply Business assets based on rates specified in MERC's MYT Regulations. However, MERC applied an average rate from a previous year instead of adhering to the asset-wise rates, leading to partial disallowance of depreciation claims.

Demand Side Management (DSM)

DSM refers to initiatives by utility companies to optimize energy usage, focusing on energy efficiency and load management. Expenses related to DSM programs include costs for planning, implementing, and monitoring these initiatives.

The crux of the dispute was whether DSM-related employee costs should be fully recoverable through tariffs. MERC partially disallowed these costs, contradicting existing DSM Implementation Regulations that mandate recovery of all justifiable DSM expenses.

Transmission Charges and Open Access

Transmission charges are fees levied for the use of the electricity transmission network. Open Access refers to the ability of consumers to procure electricity from sources other than the local distribution licensee.

Tata Power-D collected transmission charges from partial Open Access consumers but was erroneously directed by MERC to remit these charges to the State Transmission Utility (STU), leading to potential double payment. Regulation 15.2(v) specifies that such charges should be retained by the distribution licensee.

Conclusion

The judgment in Tata Power Company Limited v. Maharashtra Electricity Regulatory Commission underscores the paramount importance of regulatory adherence and the judiciary's role in ensuring that regulatory bodies operate within their defined legal frameworks. By partially allowing the appeal, the Tribunal mandated a more precise computation of depreciation rates, upheld MERC's stance on DSM employee costs, and validated the treatment of transmission charges, albeit with financial neutrality for Tata Power-D.

Key takeaways include:

• Regulatory bodies must strictly follow their established regulations without ad hoc deviations.
• Financial computations, such as depreciation and DSM cost recoveries, require meticulous adherence to regulatory schedules and methodologies.
• Judicial oversight serves as a check to ensure regulatory decisions align with statutory mandates and precedents.
• Errors in regulatory directions, while acknowledged, must be rectified without undermining the integrity of the initial regulatory framework.

This judgment thus reinforces the framework within which electricity distribution and tariff regulations operate, ensuring fairness, transparency, and adherence to the rule of law in the energy sector.