Introduction

The Central Electricity Regulatory Commission (CERC) adjudicated the case Power Grid Corporation Of India Ltd. v. Rajasthan Rajya Vidyut Prasaran Nigam Ltd. And Others (S). Filed on June 2, 2021, by the Power Grid Corporation of India Ltd. (the Petitioner), this case centers on the truing up of transmission tariffs for the 2014-19 period and the determination of tariffs for the 2019-24 period under the respective Tariff Regulations of CERC.

The Petitioner sought approval for actual additional capitalization expenditure, allowance of initial spares, recovery methods for various charges, billing for license fees, adjustment of interest on loans, and other related financial adjustments pertaining to transmission assets in the Northern Region. Respondents included various distribution licensees, transmission utilities, and power departments such as Uttar Pradesh Power Corporation Ltd. (UPPCL) and BSES Rajdhani Power Ltd. (BRPL).

Summary of the Judgment

CERC meticulously reviewed the Petitioner’s submissions regarding capital costs, additional capital expenditures (ACE), time over-runs, interest on loans (IoL), return on equity (RoE), and operation & maintenance (O&M) expenses. The Commission approved the trued-up transmission tariffs for both asset categories for the 2014-19 period and determined the tariffs for the 2019-24 period. Key decisions included:

• Approval of actual and projected ACE within regulatory guidelines.
• Adjustment of capital costs post-truing up, considering audited expenditures and regulatory provisions.
• Rejection of separate O&M expenses claims for the PLCC, aligning with prior orders.
• Determination of RoE based on notified Minimum Alternate Tax (MAT) rates.
• Approval of reimbursements for filing fees and publication expenses directly from beneficiaries.
• Allowance for billing and recovery of license fees and Regional Load Despatch Centre (RLDC) fees as per regulations.

Analysis

Precedents Cited

The judgment references the Appellate Tribunal for Electricity (APTEL) judgment dated September 14, 2019, in Appeal No. 74 of 2017, which set guidelines for the allowance of initial spares based on the overall project cost. Additionally, the judgment draws upon earlier CERC orders, such as those in Petition No. 36/TT/2013 and Petition No. 99/TT/2014, which addressed issues of time over-runs and additional capitalizations.

Legal Reasoning

CERC applied a structured approach to assess the Petitioner’s claims:

• Capital Cost and ACE: Verified the capital expenditures and ACE against approved estimates, ensuring adherence to the 2014 and 2019 Tariff Regulations.
• Time Over-run: Evaluated the condonation of time over-runs, allowing the retention of liquidated damages (LD) based on APTEL’s precedent.
• Initial Spares: Aligned the allowance of initial spares with APTEL’s guidelines, differentiating applicability between the 2009-14 and 2014-19 tariff periods.
• Interest and RoE: Calculated IoL and RoE based on the weighted average rate, considering floating interest rates and MAT provisions.
• O&M Expenses: Assessed the petitioner’s O&M claims, rejecting separate claims for PLCC expenses in line with prior directives.
• Regulatory Compliance: Ensured all financial adjustments were in strict compliance with the specified Tariff Regulations.

Impact

This judgment reinforces CERC’s commitment to a transparent and regulated approach to tariff determination. Key impacts include:

• Standardization: Establishes a clear framework for truing up tariffs, ensuring consistency across future appeals and petitions.
• Financial Accountability: Emphasizes the necessity for detailed and audited financial submissions by transmission licensees.
• Precedential Value: The reliance on APTEL’s judgment regarding initial spares serves as a binding precedent, guiding similar future cases.
• Regulatory Clarity: Clarifies the applicability of Tariff Regulations concerning ACE, O&M expenses, and RoE, reducing ambiguity for stakeholders.

Complex Concepts Simplified

Truing Up of Tariffs

Truing up refers to the process of reconciling the initially approved tariffs with the actual costs incurred during the tariff period. This ensures that transmission licensees recover the true cost of providing services, preventing overcharging or under-recovery.

Initial Spares

Initial spares are essential spare parts required for the smooth operation of transmission assets. They are capitalized based on predefined norms to ensure transmission reliability without imposing excessive capital costs.

Additional Capital Expenditure (ACE)

ACE covers expenditures beyond the original scope of the project, such as costs incurred due to unforeseen circumstances like force majeure, changes in law, or project delays. It ensures that licensees can recover these additional costs through tariffs.

Interest on Working Capital (IWC)

IWC represents the cost of financing the working capital required for the operation of transmission assets. It is calculated based on normative rates and specific components like O&M expenses, maintenance spares, and receivables.

Return on Equity (RoE)

RoE is the profit earned by the transmission licensee on its equity base. It is calculated after considering the effective tax rates, including MAT, ensuring that investors receive fair returns on their investments.

Conclusion

The CERC’s judgment in Power Grid Corporation Of India Ltd. v. Rajasthan Rajya Vidyut Prasaran Nigam Ltd. And Others (S) sets a detailed and structured precedent for the truing up of transmission tariffs. By meticulously addressing each financial component—ranging from capital costs and ACE to RoE and O&M expenses—the Commission ensures transparency and fairness in tariff determination. This decision not only aligns with existing legal frameworks and regulatory guidelines but also reinforces the principles of financial prudence and accountability. For transmission licensees and stakeholders, this judgment underscores the importance of comprehensive financial reporting and adherence to regulatory norms, paving the way for streamlined future proceedings in tariff adjudication.