1. Introduction

The case titled Power Grid Corporation of India Ltd. v. Central Electricity Regulatory Commission (CERC), adjudicated on February 8, 2021, addresses the truing-up of transmission tariffs for the periods 2014-19 and determination for 2019-24. The petitioner, Power Grid Corporation of India Ltd. (PGCIL), sought approval for additional capital expenditures, adjustments in transmission tariffs, and reimbursement of various associated costs. The respondents included distribution licensees and power departments, primarily beneficiaries in the Northern Region.

2. Summary of the Judgment

The CERC, after considering the petitions, affidavits, and responses, approved the truing-up of transmission tariffs for the 2014-19 period and determined the tariffs for 2019-24. Key decisions included the approval of additional capital expenditures, adjustments related to Initial Spares based on tribunal judgments, calculation of Return on Equity (RoE) considering Minimum Alternate Tax (MAT) rates, and the reimbursement of filing fees and publication expenses. The Commission also addressed disputes related to Operation & Maintenance (O&M) expenses and Interest on Working Capital (IWC).

3. Analysis

3.1 Precedents Cited

The judgment heavily relied on prior tribunals' decisions, notably the Appellate Tribunal for Electricity's (APTEL) judgment in Appeal No. 74 of 2017. This precedent emphasized treating Initial Spares as a percentage of the total project cost rather than on an individual asset basis. Additionally, references were made to past orders and regulations, including:

• Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2009 and 2014
• Section 115JB of the Income Tax Act, 1961 (MAT provisions)
• Regulations 14, 18, 19, 23, 24, 25, 26, 28, 29, 30, 31, 32, 33, 34, 35, and 37

The adherence to APTEL's interpretation set a cornerstone for the Commission's decision, ensuring consistency in the application of tariff regulations concerning capital costs and Initial Spares.

3.2 Legal Reasoning

The Commission's legal reasoning can be dissected into several pivotal components:

• Initial Spares Calculation: PGCIL's initial spares claim was contested by BRPL, referencing the lack of direct applicability of APTEL's judgment. However, the Commission determined that APTEL's principles on treating Initial Spares as a percentage of total project cost were indeed applicable, thereby allowing an increase in the allowable Initial Spares.
• Return on Equity (RoE): Considering PGCIL's operation under MAT provisions, the Commission adopted the effective tax rates as per MAT, ensuring the RoE was accurately grossed up. This aligns with Regulation 31 of the 2019 Tariff Regulations.
• Operation & Maintenance (O&M) Expenses: Disputes arose regarding separate O&M expenses for PLCC equipment. Drawing from prior orders, the Commission determined that PLCC should be treated as part of the sub-station, thereby disallowing separate O&M expense claims.
• Interest on Working Capital (IWC): The Commission validated PGCIL's computation of IWC based on actual floating interest rates, complying with Regulation 32 of the 2019 Tariff Regulations.
• Additional Capital Expenditure (ACE): PGCIL's ACE claims were scrutinized for adherence to tariff regulations. The Commission approved ACE incurred within the original scope and up to the cut-off date, as stipulated in Regulations 24 and 25.
• Reimbursement Claims: The Commission authorized PGCIL's claims for reimbursement of petition filing fees and publication expenses, acknowledging their compliance with Regulation 70(1) of the 2019 Tariff Regulations.

3.3 Impact

This judgment has several significant implications:

• Tariff Determination: Reinforces the methodology of treating capital costs and Initial Spares based on total project expenditure, ensuring fair tariff adjustments.
• Regulatory Compliance: Sets a precedent for the application of MAT rates in RoE calculations, ensuring alignment with tax obligations.
• Operational Clarity: Clarifies the treatment of O&M expenses for integrated components like PLCC, preventing double charging.
• Future Petitions: Provides a framework for handling similar petitions, especially concerning capital expenditure adjustments and expense reimbursements.

The decision not only resolves the immediate disputes but also serves as a guiding reference for future operational and regulatory compliance within the power transmission sector.

4. Complex Concepts Simplified

4.1 Initial Spares

Initial Spares refer to the reserve components essential for the maintenance and reliability of transmission assets. The judgment clarified that these spares should be calculated as a percentage of the total project cost, rather than individually for each asset. This approach ensures flexibility and adequacy in spare parts provisioning across the entire transmission system.

4.2 Return on Equity (RoE)

RoE represents the profitability measure for shareholders, reflecting the return generated on their invested equity. In this case, RoE was "grossed up" using the effective tax rate under the MAT provisions, ensuring that the return considered the tax liabilities accurately.

4.3 Truing-Up of Tariffs

Truing-up involves adjusting previously determined tariffs to reflect actual expenses and revenues, ensuring that transmission licensees are neither over-recovered nor under-recovered in their tariff determinations.

4.4 Additional Capital Expenditure (ACE)

ACE encompasses extra costs incurred beyond the original project scope, such as balance payments and deferred works. The judgment outlined the conditions under which ACE can be admitted, ensuring that only prudent and necessary expenditures are included in the tariff calculations.

5. Conclusion

The CERC's judgment in the Power Grid Corporation of India Ltd. case establishes critical precedents in the determination and truing-up of transmission tariffs. By adopting tribunal-preferred methodologies for calculating Initial Spares and accurately integrating RoE considerations under MAT, the Commission ensures a balanced and fair tariff structure. Additionally, the clear stance on O&M expenses for integrated components like PLCC mitigates potential double-charging scenarios. This comprehensive approach not only resolves the immediate disputes but also fortifies the regulatory framework governing power transmission tariffs, influencing future adjudications and operational practices within the sector.

Stakeholders, including transmission licensees and distribution licensees, must adhere to these clarified regulations to ensure transparent and equitable tariff determinations. The judgment underscores the importance of regulatory compliance, prudent financial management, and the necessity of aligning operational expenses with established norms to sustain the reliability and efficiency of the national power transmission infrastructure.