Introduction

The case of Maharashtra State Power Generation Company Limited v. Maharashtra Electricity Regulatory Commission, adjudicated by the Appellate Tribunal for Electricity on January 30, 2013, addresses critical financial implications arising from delays in the commissioning of power generation units. The appellant, Maharashtra State Power Generation Company Limited (MSPGCL), a state-owned entity, challenged the Maharashtra Electricity Regulatory Commission's (MERC) disallowance of certain capital and variable costs related to two of its power generation units: Parli Unit-7 and Paras Unit-4.

The core issues revolve around the allocation of Interest During Construction (IDC), initial spares cost, computation of IDC rates, liquidation damages (LDs), and the disallowance of variable costs due to operational inefficiencies attributed by MSPGCL to external factors.

Summary of the Judgment

The Appellate Tribunal upheld the MERC's decision to disallow 50% of the additional IDC incurred due to project delays, classifying the delays as partially attributable to factors beyond MSPGCL's control. Additionally, the tribunal affirmed the disallowance of certain initial spares costs and variable costs based on normative operational parameters. However, it remanded specific issues back to MERC for further consideration, notably the computation of IDC based on actual interest rates and the partial deduction of LDs from the capital cost.

Analysis

Precedents Cited

The judgment extensively references previous cases, notably Appeal No. 72 of 2010 and Appeal No. 99 of 2010, collectively referred to as the Appeal Nos. 72 and 99. These cases established the framework for allocating additional costs arising from project delays, emphasizing the division of excess IDC and LDs between the generating company and consumers based on the degree of control over the delay factors.

Furthermore, the tribunal referred to Review Petition No. 9 of 2011 in Appeal No. 199 of 2010, reinforcing the stance that operational inefficiencies, such as substandard coal quality, do not absolve the generating company from meeting normative performance standards.

Legal Reasoning

The tribunal's legal reasoning centered on the principle of cost prudence under Section 61(d) of the Electricity Act. It delineated three categories for delay-induced cost allocation:

• Entirely Attributable to the Generating Company: Full burden of additional costs lies with the company, with no pass-through to consumers.
• Beyond the Company’s Control: The company may retain additional costs, but consumers benefit from full LDs recovered.
• Mixed Responsibility: Both the company and consumers share excess costs and LDs in proportion.

In the present case, the tribunal concluded that the delays exceeded what could be ascribed solely to external contractors (M/s. BHEL) but did not transgress entirely into the realm beyond MSPGCL's control. Consequently, it mandated a 50-50 split of the excess IDC and partial consideration of LDs.

Impact

This judgment reinforces the notion that generating companies must exhibit diligent project management and cannot entirely shift blame for delays to contractors or external factors without substantial evidence. It also underscores the judiciary's role in safeguarding consumer interests by preventing the unjust passing of additional costs onto end-users. Future cases involving similar disputes over project delays will likely reference this ruling to determine fair cost allocation based on the degree of control over delay factors.

Complex Concepts Simplified

Interest During Construction (IDC)

IDC refers to the interest expenses incurred on borrowed funds during the construction phase of a project. It is a component of the total capital cost.

Liquidated Damages (LDs)

LDs are pre-determined amounts stipulated in contracts, payable by a party (often the contractor) for delays in project completion beyond the agreed schedule.

Prudence Check

A prudence check is a regulatory assessment ensuring that capital costs claimed by a company are reasonable, necessary, and directly attributable to the project without overestimation.

Normative Operational Parameters

These are predefined performance standards that power plants must meet, such as availability, plant load factor (PLF), heat rate, and oil consumption, to ensure efficient and reliable operation.

Conclusion