Introduction

On February 9, 2023, the Central Electricity Regulatory Commission (CERC) delivered a pivotal judgment in the case filed by Power Grid Corporation of India Limited (PGCIL), a prominent transmission licensee. The petition sought the truing up of transmission tariffs for the period from the Commercial Operation Date (COD) to March 31, 2019, under the 2014 Tariff Regulations, and the determination of tariffs from April 1, 2019, to March 31, 2024, under the 2019 Tariff Regulations. The focus was on specific transmission assets associated with the “Transmission System for Ultra Mega Solar Park in Anantapur District, Andhra Pradesh-Part C (Phase-III)” in the Southern Region.

The key issues revolved around the accurate computation and adjustment of transmission tariffs, considering factors like capital cost, Interest During Construction (IDC), Incidental Expenditure During Construction (IEDC), depreciation, Return on Equity (RoE), Operation & Maintenance (O&M) expenses, and more. The respondents included various distribution licensees, transmission licensees, power utilities, and departments procuring transmission services from PGCIL.

Summary of the Judgment

CERC meticulously examined the petitions filed by PGCIL, scrutinizing the claimed costs and adhering strictly to the provisions outlined in the 2014 and 2019 Tariff Regulations. The Commission approved the trued-up annual fixed charges (AFC) for the 2014-2019 period and determined the AFC for the 2019-2024 period for the respective transmission assets. Key approvals included transmission tariffs, depreciation, interest on loans, Return on Equity, O&M expenses, and interest on working capital. Notably, the Commission did not condone the time over-run for any of the transmission assets, ensuring compliance with regulatory timelines.

Additionally, the judgment addressed specific prayers related to reimbursement of filing fees, billing adjustments, GST implications, and security expenses. While some prayers were approved, others like the GST recovery were deemed premature. The decision also clarified the billing mechanism for transmission charges, referencing prior orders and applicable sharing regulations.

Analysis

Precedents Cited

The judgment referenced several specific provisions from the 2014 and 2019 Tariff Regulations, notably Regulation 9(1), Regulation 14(1)(i), Regulation 18, Regulation 26, Regulation 27, and others, indicating the Commission's reliance on established regulatory frameworks. The decision also referred to previous petitions and orders, such as Petition No. 87/TT/2019 and Petition No. 274/TT/2019, demonstrating consistency and adherence to prior rulings. This reliance underscores the importance of the regulatory provisions in guiding tariff determinations and ensuring uniformity in decisions.

Legal Reasoning

The Commission's legal reasoning was grounded in meticulous verification of the petitioner's claims against the regulatory provisions. For instance, while assessing the IDC and IEDC claims, the Commission identified discrepancies in the loan amounts and adjusted accordingly, prioritizing data from authoritative forms like Form-9C. The non-condonation of time over-runs was based on strict adherence to the stipulated timelines in the Investment Approval (IA) and the absence of condonation approvals.

In determining depreciation, CERC applied the Weighted Average Rate of Depreciation (WAROD) as per Regulation 27 of the 2014 Tariff Regulations, ensuring that the depreciation charges were methodically calculated based on the capital expenditure and approved ACE. The treatment of Capital Finance Assistance (CFA) was in line with Regulation 19 of the 2014 Tariff Regulations, excluding non-repayable grants from the capital structure for debt-equity ratio computations.

The Commission also addressed specific project-related nuances, such as the truing up of tariffs for ongoing projects, reimbursement mechanisms for filing fees, and the separation of licensee and RLDC fees. By differentiating Asset-3's charges to be borne by APSPCL until the associated generating system's commissioning, the Commission showcased adaptability in its approach.

Impact

This judgment sets a significant precedent in the realm of transmission tariff determination. By reinforcing the importance of adhering to regulatory timelines and providing clear methodologies for truing up tariffs, CERC ensures transparency and fairness in tariff calculations. Future cases will likely reference this decision when addressing similar issues related to cost overruns, depreciation methods, and the treatment of incidental expenditures.

Moreover, the clear stance on not condoning time over-runs without prior approval emphasizes the necessity for licensees to adhere to project timelines, potentially influencing project management practices. The detailed treatment of various costs underlines the comprehensive nature of tariff determination, encouraging meticulous record-keeping and justification of claims by transmission licensees.

Complex Concepts Simplified

Truing Up of Tariffs

Truing up tariffs refers to the adjustment of previously set tariffs to reflect actual costs incurred or savings made during a specific period. This ensures that the transmission licensee recovers the correct amount of costs from the beneficiaries, maintaining financial fairness and regulatory compliance.

Interest During Construction (IDC)

IDC is the interest accrued on loans taken to finance the construction of transmission assets. It is capitalized as part of the asset's cost and later recovered through tariffs. Proper computation of IDC ensures that the licensee is compensated for the cost of funds employed during the construction phase.

Capital Finance Assistance (CFA)

CFA is a grant provided by government authorities to support the development of infrastructure projects like transmission systems. These grants do not require repayment and are excluded from the capital structure when computing the debt-equity ratio, ensuring that only actual borrowed funds influence the tariff calculations.

Return on Equity (RoE)

RoE represents the profit amount based on the equity invested in the transmission assets. It is calculated by applying a base rate to the equity base, ensuring that shareholders earn a fair return on their investment. In this case, RoE was adjusted based on the applicable Minimum Alternate Tax (MAT) rates.

Conclusion

The CERC's judgment in the Power Grid Corporation of India Limited case is a testament to the Commission's commitment to regulatory precision and fairness in tariff determination. By adhering strictly to the 2014 and 2019 Tariff Regulations, the Commission ensured that the transmission tariffs accurately reflect the costs incurred, safeguarding the interests of both the licensee and the beneficiaries.

Key takeaways include the necessity for rigorous compliance with regulatory timelines, the importance of accurate cost reporting, and the clear guidelines for cost adjustments through truing up mechanisms. The judgment not only resolves the immediate issues but also fortifies the regulatory framework governing transmission tariffs, thereby fostering a transparent and equitable energy sector.