Introduction

The Power Grid Corporation of India Limited, a deemed transmission licensee, approached the Central Electricity Regulatory Commission (CERC) with a petition under Section 28(4) of the Electricity Act, 2003. The primary aim was to obtain approval for the truing up of annual fees and charges based on actual expenditures for the 2014-2019 period and to determine the fees and charges for the forthcoming 2019-2024 period for the Communication Scheme under the National Load Despatch Centre (NLDC).

The parties involved in this case include the petitioner, Power Grid Corporation of India Limited, and the respondent, Madhya Pradesh Power Management Company Limited (MPPMCL). Key issues revolve around the methodology for fee determination, approval of operational and maintenance expenses, lease charges, and potential future tax implications.

Summary of the Judgment

CERC examined the petitions submitted by Power Grid Corporation seeking truing up of fees for the period 2014-19 and determination for 2019-24 for the Communication Scheme under NLDC. The Commission upheld the petitioner's request by approving the actual expenses incurred, including capital costs, operation and maintenance (O&M) expenses, lease charges, and interest on working capital. Additionally, CERC addressed ancillary matters such as lease charges recovery mechanisms and potential Goods and Services Tax (GST) implications.

The Commission maintained continuity in tariff determination by adhering to previously established methodologies and regulations, allowing for levelized tariffs where specific regulatory provisions were absent. The decision emphasizes the importance of accurate cost recovery and the flexibility required in regulatory frameworks to accommodate actual expenditures and evolving technological requirements.

Analysis

Precedents Cited

The primary precedent referenced in this judgment is the order dated 8th December 2011 in Petition No. 68/2010. In this order, CERC directed the determination of tariffs for communication and SLDC systems under the general power of tariff determination due to the absence of specific regulations in the 2009 Tariff Regulations. This precedent was pivotal in guiding the truing up and tariff determination process in the current case.

Legal Reasoning

CERC's legal reasoning hinged on the interpretation of existing tariff regulations and their applicability to the communication assets under NLDC. The Commission emphasized adherence to Regulation 6(1)(iii) of the 2014 Tariff Regulations, which mandated the use of prior methodologies for determining tariffs when specific regulations were lacking. This approach ensured consistency and fairness in fee determination.

Furthermore, CERC scrutinized the petitioner's claims for additional capital expenditure, O&M expenses, and lease charges, approving them based on auditor certifications and compliance with regulatory provisions. The Commission also clarified the mechanisms for fee recovery, particularly for lease charges, stipulating direct recovery from beneficiaries to streamline the process.

Impact

This judgment sets a significant precedent for future tariff determinations, particularly in scenarios where specific regulatory guidelines are absent. By endorsing the use of actual expenditure and maintaining continuity with past methodologies, CERC provides a clear pathway for similar petitions, promoting transparency and accuracy in fee structures.

Additionally, the decision's stance on lease charge recovery mechanisms offers operational clarity for transmission licensees, potentially influencing how ancillary charges are structured and recovered in future regulatory frameworks.

Complex Concepts Simplified

Truing Up of Fees

Truing up of fees involves adjusting the predetermined charges based on actual expenditures incurred. This ensures that the fees collected reflect the real costs faced by the service provider, promoting financial accuracy and fairness.

Operation and Maintenance (O&M) Expenses

O&M Expenses refer to the costs associated with the day-to-day functioning and upkeep of the transmission infrastructure. Approving actual O&M expenses means that the company can recover the true costs it incurs in maintaining the communication assets.

Capital Recovery Factor (CRF)

CRF is a percentage used to annualize the recovery of capital costs over the asset's lifespan. It accounts for the cost of capital, including both loan interest and return on equity, ensuring that investments are recouped systematically.

Dark Fibre Lease Charges

Dark fibre refers to unused optical fiber that can be leased to transmission licensees. Lease charges for dark fibre are fees paid for the access and use of this fiber infrastructure. In this judgment, CERC approved the recovery of these charges directly from beneficiaries.

Goods and Services Tax (GST)

GST is an indirect tax levied on the supply of goods and services in India. The petitioner sought the ability to recover GST on transmission charges if it becomes applicable in the future, although CERC deemed this request premature as GST was not currently levied on transmission services.

Conclusion

The CERC's judgment in the Power Grid Corporation's petition serves as a comprehensive guide for the truing up and determination of transmission fees in the absence of specific regulatory provisions. By validating the petitioner's approach to actual expenditure-based fee recovery and clarifying mechanisms for lease charges, CERC reinforces the principles of transparency and fairness in regulatory practices.

This decision underscores the importance of adaptable regulatory frameworks that can accommodate evolving operational realities and technological advancements. It also highlights the necessity for meticulous documentation and auditing to support fee determinations, setting a benchmark for future cases in the transmission sector.

Ultimately, the judgment enhances the clarity and effectiveness of tariff determination processes, ensuring that transmission licensees can sustainably recover costs while maintaining equitable charges for beneficiaries.