Determination of Transmission Tariff for Power Grid Corporation of India Limited: A Landmark Judgment

Introduction

The case of Power Grid Corporation of India Limited vs. Central Electricity Regulatory Commission adjudicated on October 20, 2022, marks a significant precedent in the realm of electricity transmission tariffs in India. The petitioner, Power Grid Corporation of India Limited (Power Grid), a deemed transmission licensee, sought the determination of transmission tariffs for the period from the commercial date of operation (COD) to March 31, 2024. The focal asset in question was the 400 kV S/C Tehri (Generation)-Tehri (Koteshwar) (Quad) line and associated bays under the "Transmission system associated with Tehri Pump Storage Plant (PSP)" in the Northern Region.

The crux of the petition revolved around the establishment of a new tariff framework under the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2019. Key issues included the approval of capital costs, handling of time overruns due to rights of way (RoW) impediments, interest during construction, return on equity, operation & maintenance expenses, and the applicability of GST on transmission charges.

Summary of the Judgment

After meticulous examination of the submissions from both the petitioner and the respondents, including attestations from THDC India Limited (THDC), the Central Electricity Regulatory Commission (CERC) delivered a comprehensive judgment. The CERC approved the COD of the transmission asset as January 9, 2021, acknowledging the time overrun of 1,162 days attributable to RoW issues beyond Power Grid's control. The court condoned the overruns, recognizing Power Grid's diligent efforts to mitigate delays caused by local impediments and the COVID-19 pandemic.

Moreover, the CERC upheld the approval of additional capital expenditure (ACE) and sanctioned various cost components such as Interest during Construction (IDC), Incidental Expenditure during Construction (IEDC), Initial Spares, and Return on Equity (RoE). The court dismissed THDC's contention regarding exemption from transmission charges based on Ministry of Power (MoP) orders, emphasizing adherence to CERC's own regulations over contractual agreements in cases of regulatory oversight.

Analysis

Precedents Cited

The judgment referenced the landmark Supreme Court case PTC India Ltd. vs. CERC (dated March 15, 2020), which underscored that regulatory frameworks take precedence over existing contracts under Section 178 of the Electricity Act, 2003. This principle was pivotal in affirming CERC's authority to override contractual indemnification agreements in favor of regulatory provisions.

Legal Reasoning

The CERC's legal reasoning was multifaceted:

• Regulatory Supremacy: Aligning with the Supreme Court's stance, CERC asserted that its regulations under the Electricity Act supersede any contractual clauses between regulated entities. This was evident in the rejection of THDC's reliance on the Indemnification Agreement dated September 23, 2014.
• Condition of COD Approval: CERC meticulously perused Regulation 5(2) and Regulation 6(1)(a) of the 2019 Tariff Regulations, establishing that Power Grid was entitled to approve the COD despite delays, given the RoW challenges that impeded timely execution.
• Force Majeure and Regulatory Flexibility: While recognizing the force majeure events cited by THDC, such as the COVID-19 pandemic, CERC maintained that regulatory mandates on tariff determination and RoW obligations take precedence, compelling THDC to bear the transmission charges during the delay period.

Impact

This judgment has profound implications for the electricity transmission sector:

• Strengthening Regulatory Authority: Reinforces the CERC's authority over transmission tariff determinations, ensuring that regulatory frameworks guide contractual obligations.
• Handling RoW Challenges: Establishes a precedent for how RoW impediments and resultant delays are to be treated in tariff determinations, offering clarity on the condonation of overruns under specific circumstances.
• Transmission Charge Liability: Clarifies that entities like THDC cannot circumvent transmission charge liabilities through contractual clauses or external MoP orders, ensuring financial responsibilities are met irrespective of project delays.
• Future Tariff Petitions: Sets a benchmark for future tariff petitions, especially those entailing complex cost structures and project execution challenges, thereby enhancing the regulatory predictability in the sector.

Complex Concepts Simplified

Rights of Way (RoW)

RoW refers to the legal right to pass through property owned by another. In infrastructure projects, securing RoW is crucial for the construction and operation of transmission lines. Delays or obstructions in obtaining RoW can significantly impact project timelines and costs.

Commercial Date of Operation (COD)

COD is the date when a project is officially operational and capable of delivering its intended services. Approval of COD is essential for revenue generation and tariff determinations.

Interest during Construction (IDC)

IDC refers to the interest on funds borrowed for the construction of a project until it becomes commercially operational. It forms a component of the capital cost in tariff calculations.

Additional Capital Expenditure (ACE)

ACE encompasses expenditures incurred beyond the initial capital outlay, necessary for the completion of the project under original or adjusted scopes. It includes costs like deferred works or unanticipated liabilities.

Return on Equity (RoE)

RoE is the return that shareholders receive on their invested capital. In regulated tariffs, RoE is computed to ensure investors earn a fair return on their equity stake in the project.

Conclusion

The CERC's judgment in favor of Power Grid Corporation of India Limited underscores the primacy of regulatory frameworks in overseeing and determining tariffs within the electricity transmission sector. By validating the transmission asset's COD amidst RoW challenges and dismissing contractual clauses that sought to absolve THDC from financial liabilities, the court has fortified the regulatory landscape against potential loopholes.

This decision not only provides a clear roadmap for handling similar future cases but also ensures that transmission licensees remain accountable for their financial obligations, fostering a more transparent and equitable environment in India's power sector. The comprehensive breakdown of cost components and stringent adherence to regulatory provisions serve as a benchmark for best practices in tariff determination and project execution.

In essence, this judgment reinforces the symbiotic relationship between regulatory bodies and transmission entities, ensuring that infrastructure development aligns with fiscal prudence and legal mandates, ultimately benefiting the end consumers through fair and justifiable tariff structures.