Introduction

The Power Grid Corporation of India Limited (hereinafter referred to as the "Petitioner"), a deemed transmission licensee, approached the Central Electricity Regulatory Commission (CERC) seeking truing up of transmission tariffs for the 2014-2019 period and determination of tariffs for the 2019-2024 period. The petition centered around the Replacement of existing ICTs with a more advanced ICT at the Misa Sub-station under the North Eastern Region Strengthening Scheme-IV (NERSS-IV) in the North-Eastern Region.

The key issues addressed in this petition included the reconciliation of transmission tariffs, capitalization of costs, reimbursement of expenses related to the filing of the petition, and adjustments related to changes in tax rates. The Respondents in the case were distribution licensees and Power Departments procuring transmission services from the Petitioner, primarily beneficiaries in the North-Eastern Region.

Summary of the Judgment

After a comprehensive review of the submissions and supporting documentation provided by the Petitioner, CERC approved the truing-up of transmission tariffs for the 2014-2019 period and determined the tariffs for the 2019-2024 period. The Commission admitted the capital costs as claimed, allowing for additional capitalization where justified, and approved the reimbursement of filing and publication expenses. Moreover, the Commission addressed the Petitioner’s requests to recover various charges separately, including Licensee and RLDC fees.

The Commission meticulously examined each component of the Petitioner's claims, ensuring adherence to the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations of 2014 and 2019. Key approvals included the allowance of Interest During Construction (IDC), Additional Capital Expenditure (ACE), Return on Equity (RoE), and Operation & Maintenance (O&M) Expenses, among others.

The judgment concluded with the approval of the Petitioner's requests, subject to compliance with the relevant regulations and provisions, thereby setting a precedent for future tariff determinations and cost recoveries in the transmission sector.

Analysis

Precedents Cited

The judgment extensively referenced earlier orders and regulations dictated by the Central Electricity Regulatory Commission. Notably, CERC's previous orders in Petition No. 68/TT/021 and Petition No. 274/TT/2019 were pivotal in shaping the current decision. These precedents established the framework for capital cost admission, IDC computations, and RoE calculations, ensuring consistency and fairness in tariff determinations.

The reliance on the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2014 and 2019 provided a robust legal foundation, ensuring that the Petitioner's claims were evaluated against established regulatory standards. This adherence to prior decisions underscores the judiciary's commitment to maintaining regulatory continuity and predictability.

Legal Reasoning

The Commission's legal reasoning was grounded in a meticulous examination of the Petitioner's submissions against the regulatory framework. Key aspects of the reasoning included:

• Capital Cost Admission: The Commission verified that the capital costs claimed by the Petitioner did not exceed the Revised Cost Estimate (RCE), thereby negating the presence of any cost over-runs.
• Interest During Construction (IDC): Despite time over-runs, the Commission partially condoned IDC claims based on the actual cash basis and auditor's certifications provided.
• Additional Capital Expenditure (ACE): ACE claims were scrutinized under Regulation 24 and 25 of the 2019 Tariff Regulations, with approvals granted for undischarged liabilities and deferred works.
• Return on Equity (RoE): RoE calculations were adjusted in line with the Minimum Alternate Tax (MAT) rates applicable, ensuring tax burdens were accurately reflected in the RoE.
• Operation & Maintenance Expenses (O&M): O&M expenses were allowed as per the normative rates specified in the 2019 Tariff Regulations, ensuring cost recoveries were justified and standardized.

The detailed financial scrutiny ensured that the tariffs were set based on actual and allowable costs, promoting transparency and accountability in the transmission sector.

Impact

This judgment establishes a significant precedent for the determination and adjustment of transmission tariffs by CERC. Key impacts include:

• Regulatory Compliance: Transmission companies must adhere strictly to CERC regulations when claiming tariffs, ensuring detailed documentation and justifications.
• Financial Certainty: By approving ACE and adjusting RoE based on MAT rates, the Commission provides financial predictability to transmission licensees, facilitating better project planning and investment.
• Cost Recovery Mechanisms: The approval of various cost components, including IDC, ACE, and O&M expenses, underscores the Commission's commitment to allowing full recovery of legitimate costs, which can encourage infrastructure development.
• Precedent for Future Cases: Future petitions involving tariff adjustments and cost recoveries will likely reference this judgment, promoting consistency in regulatory decisions.

Overall, the judgment enhances the regulatory framework’s effectiveness in balancing the interests of transmission licensees and beneficiaries, fostering a fair and transparent electricity transmission market.

Complex Concepts Simplified

Truing Up of Transmission Tariff

Definition: Truing up is the process of adjusting the transmission tariff to reflect actual costs incurred during a tariff period. It ensures that transmission companies recover all legitimate expenses and earn an appropriate return.

Capital Cost and Additional Capital Expenditure (ACE)

Capital Cost: The total expenditure incurred for setting up transmission assets up to the date of their commercial operation.

ACE: Refers to additional expenditures beyond the original capital cost that are necessary for the project’s completion or enhancement. It includes costs from unforeseen liabilities or deferred works.

Interest During Construction (IDC)

IDC is the interest payable on borrowed funds used for financing the construction of transmission assets. It ensures that the cost of financing is reflected in the tariffs.

Return on Equity (RoE)

RoE represents the profit transmission companies earn on their equity investment. It is a critical component of the total revenue requirement, ensuring that shareholders receive a fair return on their investment.

Operation & Maintenance (O&M) Expenses

O&M expenses cover the costs related to the day-to-day operation and upkeep of transmission assets. These include routine maintenance, repairs, and other operational costs necessary to ensure reliable electricity transmission.

Conclusion

The Central Electricity Regulatory Commission’s decision in the Power Grid Corporation of India Limited case underscores the Commission's commitment to ensuring fair and accurate transmission tariffs. By meticulously validating the Petitioner's cost claims and adhering to regulatory frameworks, CERC has reinforced the principles of transparency, accountability, and financial prudence in the electricity transmission sector. This judgment not only facilitates the appropriate recovery of costs by transmission licensees but also ensures that beneficiaries are charged tariffs that are reflective of actual service costs, thereby promoting a balanced and sustainable energy ecosystem.