Introduction

The Central Electricity Regulatory Commission (CERC) rendered a pivotal judgment on March 14, 2022, in the case of Power Grid Corporation Of India Limited v. Karnataka Power Transmission Corporation Limited And Others (S) (Petition No. 357/TT/2020). This case primarily concerned the truing up of transmission tariffs for the 2014-19 tariff period and the determination of tariffs for the 2019-24 period for specific transmission assets under CERC’s regulatory framework.

Summary of the Judgment

The petitioner, Power Grid Corporation of India Limited (PGCIL), sought regulatory approval for adjusting previously determined transmission tariffs and establishing new tariffs for a set of transmission assets associated with the Ultra Mega Solar Power Park at Tumkur (Pavagada), Karnataka. The respondents encompassed various state electricity boards, distribution companies, and transmission corporations.

CERC meticulously evaluated the petitioner’s claims, which included adjustments for depreciation, interest on loans, return on equity (RoE), operation and maintenance (O&M) expenses, and working capital (WC). After comprehensive scrutiny, CERC approved the trued-up Annual Fixed Charges (AFC) for the 2014-19 period and established the AFC for the 2019-24 period, ensuring compliance with the relevant tariff regulations.

Analysis

Precedents Cited

The judgment referenced earlier petitions and orders, notably the CERC’s decision in Petition No. 2/TT/2018 and the appellate ruling by the Appellate Tribunal for Electricity (APTEL) in Appeal No. 74 of 2017 dated September 14, 2019. These precedents provided foundational guidelines for capital expenditure, depreciation methodologies, and the handling of initial spares in tariff determinations.

Legal Reasoning

CERC’s legal reasoning was anchored in the meticulous adherence to the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2014 and 2019. Key aspects of the reasoning included:

• Capital Cost Adjustments: Examination of capital cost calculations, ensuring alignment with Regulation 9(2) of the 2014 Regulations, and addressing discrepancies in loan amounts and IDC computations.
• Additional Capital Expenditure (ACE): Validation of ACE claims under Regulations 14(1)(i) and 14(1)(ii) for un-discharged liabilities and deferred works, respectively.
• Initial Spares: Adherence to Regulation 13, allowing capitalized initial spares based on the overall project cost rather than asset-wise, in line with APTEL’s directive.
• Return on Equity (RoE): Calculation of RoE incorporating the Minimum Alternate Tax (MAT) rates as stipulated in the regulations, ensuring that the petitioner’s financial claims were grounded in regulatory provisions.
• Operation and Maintenance Expenses (O&M): Approval of O&M expenses based on normative rates and specific asset categories, while disallowing unrelated claims such as separate expenses for PLCC.
• Sharing of Transmission Charges: Addressing the transition from the 2010 to the 2020 Sharing Regulations, ensuring that transmission charges are allocated appropriately between the common pool and solar power park developers based on commissioning dates.

Impact

This judgment has far-reaching implications for the determination and adjustment of transmission tariffs within India’s power sector:

• Regulatory Clarity: Provides clear guidelines on truing up transmission tariffs, ensuring transparency and fairness in tariff determinations.
• Capital Expenditure Management: Emphasizes the need for precise capital cost calculations and adherence to prescribed depreciation methods, influencing future tariff petitions.
• Tariff Flexibility: Allows for adjustments in tariffs based on regulatory changes and financial recalculations, facilitating dynamic tariff management.
• Precedent for Solar Projects: Sets a benchmark for handling tariffs in large-scale solar projects, balancing the interests of transmission companies and renewable energy developers.

Complex Concepts Simplified

Truing Up of Tariffs

Truing up involves adjusting previously set tariffs based on actual financial performance and expenditures, ensuring that transmission companies recover their costs while maintaining reasonable charges for consumers.

Additional Capital Expenditure (ACE)

ACE refers to extra costs incurred beyond the original budget or scope of a project, such as unexpected liabilities or deferred works. Regulatory approval is required to include these costs in tariff calculations.

Return on Equity (RoE)

RoE is the profit generated on the equity invested by shareholders. In regulatory terms, it represents the assured return for equity investors in transmission companies, which is factored into tariff calculations to ensure fair returns.

Conclusion

The CERC’s judgment in Power Grid Corporation Of India Limited v. Karnataka Power Transmission Corporation Limited And Others (S) underscores the commission’s commitment to meticulous regulatory oversight in tariff determination. By validating the petitioner’s claims for truing up and establishing new tariffs, CERC has reinforced the principles of fairness, transparency, and regulatory compliance. This decision not only provides a roadmap for future tariff petitions but also ensures the sustainable financial health of transmission companies, which is pivotal for India’s expanding power sector.