Introduction

The case of Power Grid Corporation of India Ltd. (Petitioner) vs. Karnataka Power Transmission Corporation Ltd. and Others (Respondents) was adjudicated by the Central Electricity Regulatory Commission (CERC) on January 27, 2021. This petition primarily concerned the truing up of tariffs for a specific transmission asset, namely the 400 kV (Quad) D/C line from NCC Generation Switchyard to Nellore Pooling Station, under the provisions of the 2014 and 2019 CERC (Terms and Conditions of Tariff) Regulations.

The Petitioner sought approval for trued up transmission tariffs for the periods 2014-19 and 2019-24, along with several other financial adjustments related to capital expenditure, depreciation, return on equity, interest on loans, and operational expenses.

Summary of the Judgment

The CERC meticulously reviewed the Petitioner’s claims for truing up and determining tariffs. The Commission approved the trued up transmission tariffs for the 2014-19 period and determined the tariffs for the 2019-24 period after a thorough examination of the capital expenditures, depreciation rates, return on equity calculations, and operational expenses presented by the Petitioner. Notably, the Commission addressed issues related to the separate accounting of PLCC (Power Line Communication Controller) under O&M expenses and restricted capital expenditure re-apportionment during the truing up process.

Analysis

Precedents Cited

The judgment references several prior petitions and orders, particularly:

• Petition No.262/TT/2015: Approved the tariff for the transmission asset for the 2014-19 period.
• Petition No.19/TT/2020: Addressed the treatment of IT equipment depreciation during the truing up of tariffs.
• Petition No.126/TT/2020: Clarified the non-admissibility of separate O&M expenses for PLCC under Regulation 35(4).

These precedents provided a foundational understanding of the regulatory expectations and compliance requirements related to tariff determination and truing up processes.

Legal Reasoning

The Commission's legal reasoning hinged on the adherence to the CERC Regulations, specifically:

• Regulation 8: Governs the truing up of tariffs based on actual versus projected capital expenditures up to a specified cutoff date.
• Regulation 19: Details the determination of capital costs, including exclusions and inclusions pertinent to new and existing projects.
• Regulation 33: Specifies depreciation computations, ensuring alignment with the admitted capital cost.
• Regulation 30 & 31: Outline the computation and truing up of the Return on Equity (RoE), considering applicable tax rates like MAT.

The Commission emphasized that the truing up process is strictly limited to adjusting already admitted capital expenditures and does not permit re-apportionment or inclusion of new capital costs during the truing up phase. Additionally, the Commission reinforced that certain expenses, such as O&M for PLCC, are inherently part of other categorized expenses and cannot be claimed separately.

Impact

This judgment sets a definitive precedent on how transmission tariff truing up should be approached, particularly regarding:

• The non-admissibility of re-apportioning capital expenditures during truing up.
• The integration of specific equipment costs within broader categories, preventing double-counting of expenses.
• The adherence to prescribed depreciation rates and RoE calculations in line with regulatory guidelines.

Future petitions involving tariff determinations will likely reference this judgment to ensure compliance with established procedures and prevent similar contentions regarding expense categorization and capital cost adjustments.

Complex Concepts Simplified

Truing Up of Tariffs

Truing up refers to the process of adjusting the initially approved tariffs based on actual costs incurred versus those projected at the time of approval. This ensures that the tariffs remain fair and reflective of true expenditures.

Capital Expenditure (CapEx)

Capital Expenditure involves funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment. In this case, it's related to transmission assets.

Return on Equity (RoE)

Return on Equity is a measure of financial performance calculated by dividing net income by shareholders' equity. It represents the profitability of a company relative to shareholders' equity.

Interest on Loan (IoL)

Interest on Loan pertains to the cost incurred by the Petitioner for borrowed funds used in financing the transmission assets. The calculation accounts for the prevailing interest rates and the amount borrowed.

Operation & Maintenance (O&M) Expenses

Operation & Maintenance Expenses are the ongoing costs for running the transmission systems, including expenses related to equipment upkeep, repairs, and staff salaries.

PLCC (Power Line Communication Controller)

PLCC is equipment used in transmission systems for communication and protection purposes. The judgment clarified that PLCC expenses are integrated within broader O&M expenses and should not be claimed separately.

Conclusion

The CERC's judgment in Power Grid Corporation of India Ltd. v. Karnataka Power Transmission Corporation Ltd. and Others underscores the importance of meticulous adherence to regulatory frameworks in tariff determination. By setting clear boundaries on capital expenditure adjustments and expense categorization, the Commission ensures transparency and fairness in the financial adjudication of transmission tariffs.

This decision reinforces the need for regulatory bodies and entities involved in infrastructure projects to maintain accurate financial records and adhere strictly to prescribed guidelines during tariff truing up processes. The judgment not only resolves the immediate concerns of the Petitioner but also provides a comprehensive roadmap for handling similar cases in the future, thereby enhancing the robustness of regulatory compliance within the energy sector.