CERC Establishes Key Precedents on Transmission Tariff and Cost Condonation in Power Grid Corporation Case

Introduction

The Power Grid Corporation of India Limited (PGCIL) filed a petition before the Central Electricity Regulatory Commission (CERC) seeking the determination of transmission tariffs for specific assets under the "Transmission system for Ultra Mega Solar Power Park at Tumkur (Pavagada), Karnataka - Phase II (Part A)" in the Southern Region. This comprehensive case delves into the intricacies of tariff determination, cost overruns, and the condonation of delays in transmission infrastructure development under the CERC (Terms and Conditions of Tariff) Regulations, 2019.

Summary of the Judgment

The CERC, after meticulous examination of the submissions by PGCIL and responses from the respondents, concluded several pivotal decisions:

Capital Costs: Approved the claimed capital costs for all four transmission assets, including additional capitalization incurred.
Transmission Tariff: Approved the transmission tariffs for the 2019-2024 period for the assets covered under the petition.
Cost Overruns: Condoned the cost overrun for Asset-1 due to Right of Way (RoW) issues and force majeure events. However, denied condonation for time overruns related to Asset-2, Asset-3, and Asset-4.
Interest and Depreciation: Approved Interest on Loans (IoL) and Depreciation based on the admitted capital costs.
Operational Expenses: Approved Operation & Maintenance (O&M) expenses in alignment with the prescribed norms, while rejecting separate claims for certain components like Public Line Communication Cabling (PLCC).
Sharing of Transmission Charges: Rejected the contention to split capital costs based on differing sharing regulations (2010 vs. 2020), emphasizing adherence to current regulatory frameworks.

Analysis

Precedents Cited

The judgment references several prior orders and petitions that have shaped its current stance:

Petition No. 102/TT/2016: Addressed inadvertent combining of assets under differing tariff regulations, establishing the necessity to demarcate tariffs based on regulatory timelines.
Petition No. 260/MP/2020: Dealt with security expenses, ensuring consistency in claims across petitions.
Petition No. 34/TT/2019: Emphasized cost admission principles under tariff regulations.

Legal Reasoning

The CERC's legal reasoning is anchored in the detailed provisions of the CERC (Terms and Conditions of Tariff) Regulations, 2019, particularly focusing on:

Regulation 22: Distinguishing between controllable and uncontrollable factors affecting project delays. The commission deemed RoW issues and force majeure for Asset-1 as uncontrollable, warranting condonation, whereas delays due to contractual and regulatory non-compliance for other assets were considered controllable and thus not condoned.
Regulation 19 & 24: Governing capital costs and additional capitalizations, ensuring only prudent and within-scope expenditures are admitted.
Regulation 7(1) of 2010 Sharing Regulations: Clarified the liability of power generators for transmission charges, correlating with the obligation of solar park developers to bear delays in commissioning.

Impact

This judgment underscores the CERC's commitment to stringent adherence to regulatory frameworks while exhibiting flexibility in exceptional circumstances like RoW disputes and pandemics. The key implications include:

Tariff Determination: Reinforces the importance of accurate capital cost claims and adherence to regulatory timelines.
Cost Condonation: Sets a precedent on differentiating between controllable and uncontrollable delays, guiding future petitions on infrastructure delays.
Regulatory Compliance: Highlights the necessity for transmission developers to align with evolving sharing regulations, ensuring clarity in cost-sharing mechanisms.

Complex Concepts Simplified

Commercial Operation Date (COD): The date when a transmission asset becomes operational and starts serving its intended purpose.
Right of Way (RoW) Issues: Legal and physical obstacles related to land acquisition and usage rights necessary for infrastructure development.
Additional Capital Expenditure (ACE): Costs incurred beyond the initially approved capital expenditure, often due to unforeseen project requirements.
Cost Overrun: Expenses that exceed the initially budgeted costs for a project.
Weighted Average Rate of Depreciation (WAROD): An average rate at which the value of assets decreases over time, considering the lifespan and usage of each asset.

Conclusion

The CERC's judgment in the PGCIL case serves as a cornerstone for future tariff determination and cost adjudication processes within India's power sector. By meticulously distinguishing between controllable and uncontrollable factors affecting project timelines and expenditures, the commission has fortified a balanced approach that safeguards both regulatory compliance and operational pragmatism. This decision not only streamlines the tariff determination process but also provides a clear framework for handling cost overruns and delays, thereby fostering a more transparent and accountable energy infrastructure development landscape.