Establishment of Comprehensive Truing-Up Mechanism for Transmission Tariffs: Power Grid Corporation Of India Ltd. v. Madhya Pradesh Power Management Company Ltd. And Others

Introduction

The case of Power Grid Corporation Of India Ltd. v. Madhya Pradesh Power Management Company Ltd. And Others was adjudicated by the Central Electricity Regulatory Commission (CERC) on January 25, 2021. This petition, filed by Power Grid Corporation of India Ltd. (PGCIL), a deemed transmission licensee, sought the truing-up of tariffs for the period from April 1, 2014, to March 31, 2019, under the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2014, and the determination of tariffs from April 1, 2019, to March 31, 2024, under the 2019 Tariff Regulations.

The petition primarily concerns the tariff determination for assets under the “Integration of Pooling Stations in Chhattisgarh with central part of WR for IPP generation projects in Chhattisgarh” in the Western Region. Respondents in the case include various distribution and transmission licensees and power departments who are the beneficiaries procuring transmission services from PGCIL.

Summary of the Judgment

After extensive hearings and consideration of affidavits submitted by both the petitioner and respondent, the CERC approved the trued-up transmission tariffs for the specified period. Key components approved include the annual fixed charges, return on equity (RoE), interest on loan (IoL), and interest on working capital (IWC) for the assets in question. The Commission also addressed claims related to depreciation, initial spares, and additional capital expenditure (ACE), ensuring compliance with both the 2014 and 2019 Tariff Regulations.

Analysis

Precedents Cited

The judgment references prior orders, notably the Commission’s decisions in Petition No. 126/TT/2018 and Petition No. 104/TT/2014, which previously determined tariffs and allowed specific RoE and IWC claims. These precedents provided a foundational framework for assessing the current petition, ensuring consistency in tariff determination and adherence to regulatory norms.

Legal Reasoning

The CERC meticulously examined the trued-up claims presented by PGCIL, ensuring that all components of the tariff were justifiable and within the regulatory provisions. The Commission emphasized the importance of adhering to the prescribed debt-equity ratios, depreciation norms, and effective tax rates under the Minimum Alternate Tax (MAT) regime. A significant aspect of the legal reasoning was the rejection of separate O&M expenses for PLCC equipment, aligning with previous rulings to prevent double-counting of expenses.

Impact

This judgment sets a pivotal precedent in the realm of electricity transmission tariffs in India. By establishing a comprehensive truing-up mechanism, the CERC ensures that transmission licensees like PGCIL can adjust their tariffs to reflect actual expenditure and regulatory changes, promoting financial prudence and transparency. Future cases will likely reference this decision when dealing with tariff adjustments, RoE claims, and adherence to evolving tax regulations.

Complex Concepts Simplified

• Truing-Up: A mechanism allowing transmission licensees to adjust previously determined tariffs based on actual incurred costs, ensuring that tariffs reflect true operational expenses.
• Return on Equity (RoE): The profit generated on the equity invested in the transmission assets, adjusted for tax implications, ensuring that investors receive a fair return.
• Interest on Loan (IoL): The interest payable on the loans taken to finance the transmission assets, calculated based on normative loan amounts and prevailing interest rates.
• Interest on Working Capital (IWC): The interest on the funds required for the day-to-day operations of the transmission assets, calculated on normative working capital components.
• Minimum Alternate Tax (MAT): A parallel tax system in India ensuring that companies pay a minimum amount of tax, calculated on book profits.

Conclusion

The CERC’s decision in Power Grid Corporation Of India Ltd. v. Madhya Pradesh Power Management Company Ltd. And Others reinforces the regulatory framework governing transmission tariffs in India. By approving the trued-up tariffs and addressing key financial components such as RoE, IoL, and IWC, the Commission ensures that transmission licensees operate within a transparent and fair economic environment. This judgment not only resolves the immediate concerns of PGCIL and its beneficiaries but also establishes a robust precedent for future tariff determinations, promoting financial stability and accountability in the power sector.