Introduction

In the landmark case of Power Grid Corporation Of India Limited v. Bihar State Power (Holding) Company Ltd., adjudicated by the Central Electricity Regulatory Commission (CERC) on February 9, 2021, significant precedents were set concerning the truing-up of transmission tariffs. The petitioner, Power Grid Corporation of India Ltd. (PGCIL), sought the approval of trued-up transmission tariffs for the 2014-19 period and determination of tariffs for the 2019-24 period related to the "Work associated with common transmission system for Phase-II generation project in Odisha" in the Eastern Region. This case delved deep into the intricacies of capital expenditure allocation, depreciation rates, Operation & Maintenance (O&M) expenses, and the treatment of initial spares within transmission projects.

Summary of the Judgment

The CERC meticulously examined the petitions filed by PGCIL, which encompassed three primary assets integral to the transmission project in Odisha. The petitioner sought approval for:

• Trued-up transmission tariffs for the 2014-19 period and tariffs for the 2019-24 period.
• Recovery of shortfalls or refunds related to Annual Fixed Charges due to changes in the Minimum Alternate Tax (MAT) rates.
• Reimbursement of petition filing and publication expenses.
• Separate billing and recovery of Licensee fee, RLDC fees, Interest on Loan, and Goods and Services Tax (GST) on transmission charges.
• Claiming of initial spares and capital spares at the end of the tariff block.

Upon deliberation, the Commission approved most of the petitions, with specific caveats and rejections where PGCIL's claims were found either premature or inconsistent with existing regulations. Notably, the petition for separate O&M expenses for PLCC (Programmable Logic Control and Communication) was denied, reinforcing the integrative treatment of PLCC as part of the substation infrastructure.

Analysis

Precedents Cited

The Judgment references several prior petitions, notably Petition No. 19/TT/2020 and Petition No. 343/2010, which dealt with similar issues of capital expenditure allocation and depreciation. In these cases, the Commission reiterated that apportioning capital costs during the truing-up phase, especially for IT Equipment, is impermissible. This continuity in adjudication ensures consistency in regulatory application, preventing entities from retroactively altering capital expenditure allocations to gain undue financial advantages.

Legal Reasoning

The core legal reasoning revolves around the strict adherence to the Central Electricity Regulatory Commission's (Terms and Conditions of Tariff) Regulations, 2014 and 2019. The Commission emphasized that capital expenditure apportioned during the truing-up phase must strictly align with the initially approved estimates. Any re-apportionment, especially to categories like IT Equipment, which were not initially claimed, undermines the principles of prudence and transparency in tariff determination.

Furthermore, the rejection of separate O&M expenses for PLCC underscores the Commission's stance on integrated infrastructure components. By treating PLCC as an integral part of the substation, the Commission ensures that O&M expenses are not redundantly charged, thereby safeguarding the beneficiaries from inflated tariffs.

Impact

This Judgment sets a stringent precedent on the allocation of capital expenditures and the treatment of O&M expenses within transmission projects. Future entities seeking tariff approvals must ensure meticulous adherence to initial capital expenditure allocations, refraining from post hoc reclassifications. Additionally, the integrated treatment of infrastructure components like PLCC will likely discourage fragmented billing practices, promoting a more holistic approach to tariff determination.

Regulatory bodies may also tighten oversight mechanisms to ensure compliance with such precedents, fostering greater transparency and accountability within the electricity transmission sector.

Complex Concepts Simplified

Truing-up of Transmission Tariff

Truing-up refers to the final adjustment of transmission tariffs based on actual costs incurred and revenues received during the tariff period. It ensures that transmission licensees recover their costs prudently without overcharging beneficiaries.

Initial Spares

Initial Spares are essential spare parts procured during the construction of transmission assets to ensure their smooth operation. These are capitalized subject to ceiling limits to prevent excessive financial claims.

Weighted Average Rate of Depreciation (WAROD)

WAROD is the average depreciation rate applied across different assets, weighted by their capital costs. It provides a standardized method to calculate annual depreciation, ensuring consistency in financial assessments.

Minimum Alternate Tax (MAT)

MAT is a parallel tax system for companies in India, ensuring that entities with significant profits pay a minimum tax, irrespective of their deductions and exemptions under the regular tax system.

Conclusion

The CERC's Decision in Power Grid Corporation Of India Limited v. Bihar State Power (Holding) Company Ltd. And Others serves as a critical guideline for transmission licensees in India. By reinforcing the principles of prudent cost allocation and integrated treatment of operational expenses, the Commission ensures that tariffs remain fair and justified. Entities within the electricity transmission sector must now uphold these standards, meticulously documenting and adhering to initial capital expenditure allocations without resorting to post hoc reclassifications. This Judgment not only fosters financial integrity but also safeguards the interests of beneficiaries, promoting a more transparent and accountable regulatory environment.