The case of Power Grid Corporation of India Limited (PGCIL) v. Madhya Pradesh Power Management Company Limited (MPPMCL) And Others was presided over by the Central Electricity Regulatory Commission (CERC) on January 3, 2022. This petition centered on determining the transmission tariff for the 400 kV Mundra UMPP-Bhuj (Triple Snowbird) Circuit-1 Transmission Line and associated assets, under the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2019. The primary parties involved were PGCIL as the petitioner and MPPMCL along with other distribution licensees as respondents.

The CERC evaluated PGCIL's petition for the approval of transmission tariffs, addressing various financial components such as capital costs, time over-runs, interest during construction (IDC), return on equity (RoE), and operation & maintenance (O&M) expenses. The Commission thoroughly reviewed submissions from both PGCIL and MPPMCL, considering regulatory compliance, cost justifications, and precedent cases. The judgment ultimately approved the transmission tariff for the specified period, allowing certain cost variations and disallowing others based on prudence checks and adherence to regulations.

Precedents Cited

The judgment referenced several regulations under the 2019 Tariff Regulations, particularly those governing capital costs, interest calculations, and return on equity. Additionally, it built upon previous decisions where similar issues of cost over-runs and time delays were addressed, notably the Commission's order on Petition No. 387/TT/2018 concerning the Circuit-2 of the same transmission line.

Legal Reasoning

The Commission employed a meticulous approach to dissecting the financial claims presented by PGCIL. Key aspects of the legal reasoning included:

• Capital Cost Admittance: The Commission scrutinized the claimed capital costs, ensuring they aligned with regulatory provisions and accounted for additional capital expenditures (ACE) justified under the original scope of the project.
• Time Over-run: While acknowledging the delays due to Row (Right of Way) issues and land rate finalizations, the Commission drew a distinction between condoned and non-condoned delays, ultimately allowing a partial over-run based on the merits of the submitted chronology.
• Interest Calculations: The admissibility of IDC and IEDC was evaluated against the actual loan rates and the provisions of the tariff regulations, ensuring that only justified interest claims were approved.
• Return on Equity (RoE): The RoE was computed based on the statutory base rates, adjusted for applicable tax rates, and trued-up to reflect the actual tax impact.
• Operation & Maintenance Costs: O&M expenses were assessed against normative rates, with specific attention to the categorization and allowable claims for different components like sub-station bays and transmission lines.
• Compliance with Tariff Regulations: The Commission ensured that all claims adhered to the detailed provisions laid out in the 2019 Tariff Regulations, including aspects like initial spares and GST applicability.

Impact

This judgment has significant implications for future transmission tariff determinations, particularly in the following areas:

• Cost Management: Transmission licensees will need to maintain rigorous documentation and justification for any cost variations to ensure compliance and admissibility.
• Time Over-run Considerations: The distinction between condoned and non-condoned delays provides a clearer framework for handling project delays, balancing operational pragmatism with regulatory oversight.
• Financial Calculations: Detailed adherence to tariff regulations for IDC, IEDC, and RoE calculations serves as a benchmark for transmission companies in financial reporting and tariff filings.
• Operational Transparency: The emphasis on separate claims for components like PLCC under communication systems underscores the need for precise categorization and compliance with normative O&M expense rates.

1. Capital Cost

Capital Cost refers to the total expenditure incurred by a transmission licensee in constructing and bringing a transmission line into commercial operation. It includes not just the physical construction costs but also interest during construction and additional expenditures like purchasing spare parts.

2. Time Over-run

Time Over-run denotes the delay in project completion beyond the scheduled date. Regulation permits leniency for delays caused by factors outside the company's control, but any delays due to internal inefficiencies may not be condoned.

3. Interest During Construction (IDC)

IDC is the interest accumulated on loans taken to finance the construction of the transmission project. Only the IDC incurred up to the project's commercial operation date is typically admissible for recovery.

4. Return on Equity (RoE)

RoE is the financial return earned by the company's equity holders. It is calculated based on a regulated base rate and adjusted for applicable taxes, ensuring that the company's equity investors receive a fair return on their investment.

5. Operation & Maintenance (O&M) Expenses

O&M Expenses cover the ongoing costs required to operate and maintain the transmission infrastructure. These costs are standardized based on the type and capacity of the assets to ensure consistency and fairness in tariff calculations.

The CERC's judgment in the PGCIL v. MPPMCL case sets a robust precedent for the determination of transmission tariffs, emphasizing regulatory compliance, financial prudence, and fairness. By meticulously evaluating capital costs, time over-runs, and operational expenses, the Commission ensures that transmission licensees are fairly compensated while safeguarding the interests of beneficiaries and maintaining economic viability. This decision not only clarifies the application of the 2019 Tariff Regulations but also provides a clear framework for future tariff determinations, promoting transparency and accountability in the power transmission sector.