Central Electricity Regulatory Commission Clarifies O&M Expenses Allocation for PLCC Equipment in Tariff Determination

Introduction

The case titled Power Grid Corporation of India Limited vs. Central Electricity Regulatory Commission adjudicated on January 24, 2021, marks a significant development in the regulatory framework governing tariff determinations for transmission projects in India. The petition filed by Power Grid Corporation of India Ltd. (PGCIL), a deemed transmission licensee, sought truing up of transmission tariffs under the Central Electricity Regulatory Commission (CERC) Regulations of 2014 and 2019. Central to this case were disputes over allowances for Operation & Maintenance (O&M) expenses related to Power Line Carrier Communication (PLCC) equipment in specific transmission assets. The key issue revolved around whether PLCC equipment should be categorized under sub-station O&M expenses or treated separately as part of the communication system.

Summary of the Judgment

The Central Electricity Regulatory Commission, after thorough examination of the submissions and adherence to the established regulatory framework, upheld the position that PLCC equipment should be considered as part of the sub-station for the purposes of O&M expenses. Consequently, the petitioner’s request to separately claim O&M expenses for PLCC under Regulation 35(4) of the 2019 Tariff Regulations was rejected. This decision emphasizes the importance of consistent categorization of project components to avoid redundant or excessive O&M cost claims.

Analysis

Precedents Cited

The judgment referenced several past determinations to shape its reasoning:

Appellate Tribunal for Electricity (APTEL) Judgment dated September 14, 2019: This precedent clarified the method for allocating initial spares across different assets within a transmission project, emphasizing the segregation based on project execution stages.
CERC Order dated April 27, 2020, Petition No. 274/TT/2019: This order delineated effective tax rates applicable under the Minimum Alternate Tax (MAT) regime for truing up tariffs, reinforcing consistency in tax rate applications.
CERC Order dated May 9, 2020, Petition No. 19/TT/2020: Addressed the correct application of depreciation rates for IT equipment, underscoring the regulatory compliance expected during tariff truing up.

Legal Reasoning

The Commission’s reasoning hinged on the definitions and categorizations stipulated in both the 2014 and 2019 Tariff Regulations. Specifically:

Definition Consistency: The 2014 Tariff Regulations defined PLCC equipment under sub-station assets, integrating them into sub-station O&M expenses. The 2019 Regulations, while introducing separate norms for communication systems, did not explicitly redefine PLCC equipment, maintaining their classification under sub-station components.
Regulatory Framework Compliance: Citing Regulation 35(4) of the 2019 Tariff Regulations, the Commission examined whether PLCC equipment qualifies for separate O&M expense allowances. The lack of explicit mention in the communication system norms and existing integrations under sub-station categorizations led to the rejection of separate claims.
Prudence in Cost Allocation: To prevent the double allocation of O&M expenses, the Commission emphasized that PLCC expenses were already accounted for within sub-station costs. Granting separate allowances would result in excessive and unjustifiable cost recoveries.

Impact

This judgment establishes a clear precedent for future tariff determinations, particularly in the categorization of equipment within transmission projects:

Regulatory Clarity: Ensures consistent treatment of PLCC equipment across all petitions, preventing PGCIL from leveraging regulatory gaps to inflate O&M expense claims.
Cost Management: Aids in maintaining reasonable transmission tariffs by avoiding redundant O&M expenses, thereby protecting consumers from undue financial burdens.
Guidance for Future Petitions: Transmission licensees must adhere strictly to the defined categorizations within the tariff regulations, ensuring that components like PLCC are not misclassified to obtain unwarranted financial advantages.

Complex Concepts Simplified

1. Truing Up of Tariff

Truing up refers to the process of adjusting previously approved tariffs to reflect actual costs incurred and revenues earned. This ensures that the tariffs remain fair and justifiable over time.

2. Operation & Maintenance (O&M) Expenses

O&M Expenses are the costs associated with the daily operation and upkeep of transmission assets. These include costs for maintenance activities, personnel, and other operational necessities.

3. Power Line Carrier Communication (PLCC) Equipment

PLCC Equipment refers to communication devices used for transmitting control signals over high-voltage power lines. They are essential for monitoring and managing electricity transmission systems.

4. Initial Spares

Initial Spares are spare parts reserved at the commencement of a transmission project to ensure the reliability and efficiency of the system by minimizing downtime during maintenance.

Conclusion

The CERC’s decision in the Power Grid Corporation of India Limited vs. Central Electricity Regulatory Commission case serves as a pivotal reference for the allocation of O&M expenses in transmission tariffs. By affirming that PLCC equipment should remain categorized under sub-station O&M expenses, the Commission has reinforced the necessity for regulatory precision and consistency. This ruling not only curbs potential overcharges impacting consumers but also streamlines the tariff approval process, ensuring that transmission projects are financially sustainable and transparent. Going forward, transmission licensees must meticulously align their cost claims with regulatory definitions to uphold the integrity of tariff determinations.