Introduction

The case of Power Grid Corporation of India Ltd. (PGCIL) v. National Thermal Power Corporation Ltd. (NTPC) and Others was adjudicated by the Central Electricity Regulatory Commission (CERC) on February 5, 2020. PGCIL, the petitioner, sought the truing up of capital expenditure for various Optical Ground Wire (OPGW) links and the determination of tariff for the 2014-19 period for assets under its Fibre Optic communication system in the Eastern Region. The dispute primarily involved the replacement of existing Unified Load Despatch and Communication (ULDC) Microwave links with OPGW fibre optic links, addressing cost recovery, and tariff determination in the absence of specific regulatory frameworks.

The key issues revolved around:

• Truing up of capital expenditure for specific OPGW assets during the 2013-14 period.
• Determination of tariff for the 2014-19 period in light of updated cost estimates.
• Handling of time overrun claims for asset commissioning.
• Reimbursement of filing and publication fees, license fees, and regulatory aspects related to tariff determination.

Summary of the Judgment

In its judgment, the CERC approved PGCIL's petition for the truing up of capital expenditures for Assets-I, II, III, and IV for the period from the commissioning date (COD) up to March 31, 2014. Additionally, the Commission determined the tariff for the 2014-19 period for these assets based on the revised cost estimates provided by PGCIL. The Commission adhered to previously established principles due to the absence of specific tariff determination regulations for the communication and ULDC systems under the Electricity Act, 2003.

The Commission also addressed PGCIL’s request regarding the condonation of time overruns in commissioning certain assets. While it condoned a minor overrun of Asset-III, it rejected the condonation for Asset-IV, emphasizing strict adherence to project timelines to ensure reliable grid operations.

Furthermore, the Commission allowed PGCIL to recover filing and publication fees from beneficiaries on a pro-rata basis and addressed the reimbursement of license fees and RLDC charges as per applicable tariff regulations. However, the Commission dismissed the request for GST reimbursement, citing its current non-applicability to transmission services.

Analysis

Precedents Cited

The judgment extensively referenced prior CERC orders, notably:

• Petition No. 68/2010: This petition laid down the foundational approach for tariff determination for communication and ULDC systems in the absence of specific regulations. The Commission directed PGCIL to seek separate regulatory approval for tariffs pertaining to these assets.
• Petition No. 57/TT/2014: This established the method for truing up fees and charges based on audited capital costs up to the COD and introduced levelised tariff for existing communication systems.

These precedents significantly influenced the present judgment by providing a consistent regulatory approach in the absence of explicit tariff determination guidelines.

Legal Reasoning

The Commission's decision hinged on several legal principles:

• Electricity Act, 2003: Sections 28(4) and 79(1)(d) empower the Commission to determine tariff rates for transmission systems, including those not explicitly covered by existing regulations.
• Absence of Specific Regulations: Acknowledging the lack of specific tariff determination provisions for communication and ULDC systems, the Commission relied on general principles and historical tariff methodologies to calculate levelised tariffs.
• Cost Reconciliation (Truing Up): Utilizing audited capital costs up to the COD and allowing for additional capitalization post-approval, the Commission ensured that tariffs reflect actual expenditures.
• Time Overrun Clauses: The Commission emphasized project timelines, condoning minor overruns only where justifiable, to ensure grid reliability and operational efficiency.

The Commission meticulously evaluated PGCIL’s submissions, including audited accounts, interest calculations, and justifications for time overruns, applying regulatory guidelines to arrive at equitable tariff determinations.

Impact

This judgment has profound implications:

• Regulatory Clarity: Provides a clear framework for tariff determination in scenarios lacking specific regulations, ensuring consistency and fairness in cost recovery.
• Operational Discipline: Reinforces the importance of adhering to project timelines, essential for maintaining grid reliability and operational integrity.
• Future Tariff Determinations: Sets a precedent for handling similar cases, guiding other utilities in tariff negotiations and regulatory compliance.
• Financial Structuring: Demonstrates the need for accurate cost assessments and financial planning to facilitate seamless regulatory approvals.

Complex Concepts Simplified

Truing Up of Capital Expenditure

Truing up refers to the reconciliation of actual capital expenditures against initially estimated costs. It ensures that the utility company is reimbursed for genuine expenditure increases, maintaining financial equilibrium.

Levelised Tariff

A levelised tariff is a uniform tariff rate calculated by averaging the total expected costs over the tariff period. It provides stability and predictability in billing, facilitating long-term financial planning.

Interest During Construction (IDC)

IDC represents the cost of capital invested during the construction phase of a project. It accounts for the interest accrued on borrowed funds or capital invested, ensuring that financing costs are factored into the overall project expenditure.

OPGW (Optical Ground Wire)

OPGW is a type of cable that combines grounding functions with optical fiber capabilities. It is used in power transmission to provide reliable communication channels alongside electrical grounding, enhancing grid management and operational efficiency.

Debt-Equity Ratio

The debt-equity ratio measures a company's financial leverage by comparing its total liabilities to its shareholders' equity. A higher ratio indicates greater reliance on borrowed funds, while a lower ratio signifies a stronger equity position.

Conclusion

The judgment in Power Grid Corporation of India Ltd. v. NTPC and Others underscores the Central Electricity Regulatory Commission's commitment to equitable tariff determination and financial transparency in the power sector. By establishing methodologies for tariff calculations in the absence of specific regulations, the Commission ensures that utility companies like PGCIL can recover actual expenditures, fostering financial stability. Additionally, the emphasis on adhering to project timelines reinforces operational discipline, vital for maintaining grid reliability and supporting the integration of advanced technologies.

This precedent not only provides clarity for existing disputes but also sets a robust framework for future regulatory challenges, promoting fairness and consistency in tariff determinations across the power sector.