Central Electricity Regulatory Commission Sets Aside Arbitrary Deferred Tax and FERV Recoveries by PGCIL

Introduction

The case involves a petition filed by the Himachal Pradesh State Electricity Board Limited (HPSEBL) against the Power Grid Corporation of India Limited (PGCIL) before the Central Electricity Regulatory Commission (CERC). HPSEBL sought the annulment of what it deemed arbitrary recovery of deferred tax liabilities (DTL) and Foreign Exchange Rate Variation (FERV) charges imposed by PGCIL for the period spanning 2002-2009 and beyond July 2017. The petitioner further demanded refunds of the amounts paid along with stipulated interest rates.

Summary of the Judgment

The CERC examined the claims raised by HPSEBL regarding the recovery of DTL and FERV charges by PGCIL. After reviewing the submissions from both parties, the Commission concluded that HPSEBL's grievances pertained primarily to the lack of detailed computations and clarifications provided by PGCIL rather than disputing the underlying tariff orders themselves. Consequently, CERC directed PGCIL to furnish the necessary details and to engage in meetings with HPSEBL to resolve the outstanding issues within 30 days. The petition was thus disposed of at the admission stage, with provisions for HPSEBL to file a fresh petition if unresolved matters persisted.

Analysis

Precedents Cited

The Judgment references previous orders of CERC, specifically orders dated September 2, 2015, and March 18, 2011, from Petition No. 82/2002 and Petition No. 28/2010 respectively. These precedents are foundational as they outline the mechanisms for equity recovery charges from Non-Resident (NR) constituents under the ULDC scheme. The previous orders detailed the amounts recoverable and the pro-rata sharing mechanism, establishing a baseline for assessing the current claims of DTL and FERV.

Legal Reasoning

The CERC's legal reasoning centered on the nature of HPSEBL's objections. While HPSEBL contested the validity of the DTL and FERV recoveries, the Commission discerned that the core issue was the transparency and clarity of the computations underpinning these charges. The Commission observed that the existing tariff orders provided a legitimate framework for recovery but acknowledged the petitioner's right to detailed breakdowns of the charges. By directing PGCIL to provide the requisite information and facilitating direct discussions, CERC leveraged its authority to ensure administrative fairness without overturning established tariff provisions.

Impact

This Judgment underscores the imperative for regulatory bodies and utilities like PGCIL to maintain transparent and detailed accounting practices, especially when recovering significant charges from constituents. By mandating the provision of detailed computations and encouraging direct negotiations, CERC promotes accountability and reduces the likelihood of perceived arbitrary financial impositions. Future cases involving tariff recoveries can anticipate similar emphasis on clarity and substantiation of charges, potentially leading to more streamlined and less contentious regulatory interactions.

Complex Concepts Simplified

Deferred Tax Liability (DTL): This refers to taxes that have been accrued but not yet paid. In this case, PGCIL claimed DTL based on certain financial parameters, which HPSEBL contested as arbitrary.
Foreign Exchange Rate Variation (FERV): These are additional charges levied to account for fluctuations in foreign exchange rates, impacting the cost structures over time.
ULDC Scheme: The Ultra-Low Demand Charge scheme is a framework under which certain infrastructure and assets are funded and managed, with cost recoveries spread over a defined period.
Pro-rata Share: This implies that each constituent bears a portion of the total charges in proportion to their share or usage, ensuring equitable distribution of costs.
Notional Ownership: Assets are considered to be owned in name, but practical control and management reside with another party—in this scenario, HPSEBL manages assets notionally owned by PGCIL.

Conclusion

The Central Electricity Regulatory Commission's decision in Petition No. 177/MP/2022 highlights the delicate balance between regulatory authority and the necessity for administrative transparency. By recognizing HPSEBL's concerns regarding the lack of detailed justifications for DTL and FERV recoveries, CERC reinforced the principles of fairness and due process within the electricity regulatory framework. The directive for PGCIL to provide comprehensive details and engage in direct negotiations not only aims to resolve the immediate dispute but also sets a precedent for enhanced transparency in future tariff-related recoveries. This Judgment thereby contributes to strengthening regulatory oversight and ensuring equitable financial practices within the electricity sector.