Introduction

The case of Power Grid Corporation Of India Limited, Saudamini v. Bihar State Power Company Ltd. And Others was adjudicated by the Central Electricity Regulatory Commission (CERC) on June 12, 2020. The primary contention revolved around the truing up of transmission tariffs for the period spanning April 1, 2014, to March 31, 2019, and the determination of tariffs for the subsequent period from April 1, 2019, to March 31, 2024. The petitioner, Power Grid Corporation of India Ltd. (PGCIL), sought regulatory approval under the CERC's Terms and Conditions of Tariff Regulations for both tariff adjustments and the recovery of associated costs.

The respondents in the case were distribution licensees and transmission utilities, primarily beneficiaries of the Eastern Region, who procure transmission services from PGCIL. The dispute encompassed several financial aspects, including approval of trued-up tariffs, additional capitalization expenses, recovery of shortfalls, and reimbursement of various operational costs.

Summary of the Judgment

In this judgment, CERC meticulously examined the petitions filed by PGCIL for both truing up the existing transmission tariffs and establishing new tariffs for the subsequent period. The Commission evaluated detailed financial submissions from the petitioner, including capital costs, additional capitalization expenditures (ACE), interest on loans, return on equity (ROE), depreciation, and operation & maintenance (O&M) expenses.

Key determinations included:

• Approval of trued-up transmission tariffs for the 2014-2019 period and determination of new tariffs for 2019-2024.
• Approval of additional capitalization costs incurred within the stipulated periods.
• Authorization for PGCIL to recover or refund shortfalls/excesses in annual fixed charges directly from beneficiaries.
• Approval of reimbursement for petition filing fees and publication expenses.
• Allowance for separate billing and recovery of licensee and RLDC fees.
• Provision for adjustments in interest on loans due to floating interest rates.
• Approval of capital spares reimbursement post tariff block and considerations for security expenses.
• Decisions regarding the applicability and adjustment mechanisms for Goods and Services Tax (GST) on transmission charges.

The Commission's decision aimed to ensure financial prudence, adherence to regulatory frameworks, and equitable cost distribution among beneficiaries.

Analysis

Precedents Cited

While the judgment primarily focused on the specific financial adjustments and tariff determinations under the CERC regulations, it implicitly adhered to the foundational principles established in earlier CERC orders concerning transmission tariff determination and financial recoveries. Notably, it referenced provisions from the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2014 and 2019, ensuring consistency with prior regulatory standards.

The decision aligns with precedents emphasizing transparency in tariff calculations, the necessity for regulatory oversight in financial recoveries, and the equitable distribution of costs among stakeholders. Although specific case precedents were not explicitly cited, the judgment adheres to the established protocol of balancing the interests of transmission utilities and distribution licensees within the regulatory framework.

Legal Reasoning

The Commission's legal reasoning was methodical, rooted in the explicit provisions of the 2014 and 2019 Tariff Regulations. The petitioner’s prayers were addressed by dissecting each component of the tariff calculation:

• Truing Up of Tariffs: The Commission evaluated the financial discrepancies between the approved tariffs and the actual expenses incurred, ensuring that the adjustments were justified and within regulatory bounds.
• Additional Capitalization: ACE claims were scrutinized for adherence to the original project scope, ensuring that only expenditures falling within permissible categories (e.g., undischarged liabilities, deferred works) were approved.
• Recovery Mechanisms: Provisions were made for the recovery and adjustment of financial components directly from beneficiaries, in line with the tariff regulations, ensuring that cost burdens were fairly distributed.
• Return on Equity and Interest on Loans: The Commission meticulously calculated ROE and IOL based on actual and normative loan profiles, ensuring compliance with the stipulated debt-equity ratios and interest rate provisions.

The legal reasoning underscored the importance of adhering to regulatory guidelines, ensuring financial accuracy, and maintaining equitable cost distribution. The Commission ensured that all financial claims were substantiated with adequate documentation and fell within the permissible regulatory frameworks.

Impact

The judgment sets a significant precedent in the realm of transmission tariff determination and financial recoveries within the Indian power sector. Key impacts include:

• Enhanced Regulatory Oversight: Reinforces the role of regulatory bodies like CERC in scrutinizing and approving financial adjustments to ensure transparency and fairness.
• Financial Prudence: Emphasizes the necessity for transmission utilities to maintain precise financial records and submit accurate claims, fostering financial accountability.
• Beneficiary Protection: Ensures that cost recoveries are justifiable and within regulatory frameworks, protecting distribution licensees and other beneficiaries from undue financial burdens.
• Regulatory Consistency: Aligns with existing regulations, providing clarity on procedures for truing up tariffs, claiming additional capitalization, and handling financial discrepancies.

Future cases involving tariff adjustments and financial recoveries can reference this judgment for procedural guidance and interpretative insights into the application of tariff regulations.

Complex Concepts Simplified

Truing Up of Tariffs

Truing up involves adjusting existing tariffs to reflect actual costs incurred by the transmission utility. This ensures that the tariffs are neither overestimated nor underestimated, aligning them with real financial performances.

Additional Capitalization (ACE)

ACE refers to extra capital expenditures incurred beyond the initial budget. In this context, ACE covers costs like undischarged liabilities and deferred works, essential for completing the project without deviating from the original scope.

Return on Equity (ROE)

ROE represents the profit earned on the net equity invested in the company. It is a crucial component in tariff calculations, ensuring that the transmission utility earns a fair return on its investments.

Interest on Loans (IOL)

IOL is the cost incurred by the utility for borrowing funds to finance its projects. Accurate calculation of IOL ensures that the utility's loans are serviced appropriately without overburdening the tariffs.

Weighted Average Life (WAL)

WAL is the average period over which the utility expects to utilize its assets. It is considered in depreciation calculations, impacting how costs are spread over the tariff periods.

Conclusion

The CERC's judgment in Power Grid Corporation Of India Limited v. Bihar State Power Company Ltd. And Others serves as a comprehensive blueprint for financial adjustments in transmission tariff determinations. By meticulously evaluating each financial component and ensuring adherence to regulatory norms, the Commission has fortified the framework governing tariff adjustments and financial recoveries.

Key takeaways include the necessity for precise financial record-keeping by transmission utilities, the critical role of regulatory bodies in ensuring fairness and transparency, and the importance of equitable cost distribution among beneficiaries. This judgment not only resolves the immediate disputes but also sets a precedent for future cases, fostering a more robust and transparent regulatory environment in India's power sector.