Introduction

The case of Power Grid Corporation Of India Ltd. v. Bihar State Power (Holding) Company Ltd. And Others (S) adjudicated by the Central Electricity Regulatory Commission (CERC) on January 27, 2021, serves as a pivotal moment in the regulatory landscape of India's electricity transmission sector. The petitioner, Power Grid Corporation of India Limited (PGCIL), sought the truing up of tariffs from the commencement of commercial operations to March 31, 2019, and the determination of tariffs for the period from April 1, 2019, to March 31, 2024, concerning several transmission assets under a Split Bus arrangement in the Eastern Region.

The key issues addressed include the adjustment of previously approved tariffs, reimbursement of various costs, and adherence to the regulations stipulated in both the 2014 and 2019 CERC Tariff Regulations. The respondents, primarily distribution licensees and power departments in the Eastern Region, did not contest the petition.

Summary of the Judgment

The CERC meticulously evaluated PGCIL's petitions, covering aspects such as Annual Fixed Charges (AFC), Interest on Working Capital (IWC), Interest on Loan (IoL), Return on Equity (RoE), Depreciation, Operation & Maintenance (O&M) Expenses, and Additional Capital Expenditure (ACE). The Commission approved the trued-up tariffs for the 2014-19 period and determined the tariffs for the ensuing 2019-24 period, ensuring compliance with the prescribed regulatory frameworks.

Analysis

Precedents Cited

The Judgment references significant precedents, notably the APTEL judgment dated September 14, 2019, in Appeal No. 74 of 2017, which emphasized the prudence checks on Initial Spares allowances based on the overall project cost rather than on an individual asset basis. Additionally, the APTEL judgment dated April 27, 2011, in Appeal 72/2010 provided guiding principles on handling time over-runs, differentiating costs attributable to the project developer versus those beyond their control.

Legal Reasoning

The CERC's legal reasoning is anchored in meticulous adherence to the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2014 and 2019. Key components of their reasoning include:

• Truing Up Annual Fixed Charges: Adjustments were made to AFC based on actual costs incurred, considering depreciation, IoL, RoE, IWC, and O&M expenses. Discrepancies in previous filings were rectified in line with regulatory norms.
• Handling of Time Over-Runs: Following APTEL's guidelines, the Commission disallowed IDC and IEDC for time over-runs not condoned, ensuring that project developers bear costs arising from delays attributable to them.
• Additional Capital Expenditure (ACE): ACE claims were scrutinized against the cut-off dates and regulatory provisions, allowing only those expenditures within the original project scope and justified under specific conditions.
• Rate of Return on Equity (RoE): RoE was grossed up based on the effective Minimum Alternate Tax (MAT) rates, ensuring equitable returns adjusted for tax liabilities.
• Operation & Maintenance (O&M) Expenses: O&M expenses were allowed strictly based on approved line lengths and normative rates, adjusting unjustified claims accordingly.

Impact

This Judgment has far-reaching implications for the electricity transmission sector:

• Regulatory Compliance: Enforcement of stringent norms ensures that transmission licensees adhere strictly to financial regulations, promoting transparency and accountability.
• Financial Prudence: By disallowing unjustified cost claims and enforcing truing up, the decision safeguards consumer interests, preventing over-recovery of costs.
• Standardization of Tariff Determination: The adoption of precedents from APTEL encourages uniformity in tariff determinations across various projects and regions.
• Investment Decisions: Clear guidelines on handling ACE and RoE adjustments provide a stable framework for future investments in the transmission infrastructure.

Complex Concepts Simplified

Truing Up

Truing Up refers to the process of adjusting previously approved tariffs based on actual costs incurred versus projected costs. This ensures that tariffs remain fair and reflective of real expenditures.

Annual Fixed Charges (AFC)

AFC are the fixed costs associated with maintaining transmission assets, including depreciation, interest on loans, return on equity, interest on working capital, and O&M expenses.

Additional Capital Expenditure (ACE)

ACE includes any additional costs incurred beyond the original capital expenditure, such as unplanned expenses due to project delays or changes in scope. Only ACE within the original project scope and within specified regulations is admissible.

Interest on Working Capital (IWC)

IWC represents the cost of financing the day-to-day operational needs of the transmission assets, calculated based on receivables, maintenance spares, and operational expenses.

Return on Equity (RoE)

RoE is the profit generated on the shareholders’ equity, adjusted for tax liabilities. It ensures that transmission licensees achieve a fair return on their investments while maintaining affordability for consumers.

Conclusion

The CERC's decision in Power Grid Corporation Of India Ltd. v. Bihar State Power Company Ltd. And Others (S) sets a robust precedent for future tariff determinations in the electricity transmission sector. By meticulously adhering to regulatory frameworks and incorporating judicial precedents, the Commission has reinforced the principles of transparency, fairness, and accountability. This Judgment not only ensures that transmission licensees operate within their financial means but also protects consumer interests by preventing undue over-recovery of costs. Moving forward, this decision is likely to influence how transmission tariffs are determined, reviewed, and adjusted, thereby shaping the financial and operational dynamics of India's electricity infrastructure.

Stakeholders in the power sector—ranging from transmission licensees to consumers—must closely adhere to the guidelines and precedents established in this Judgment to ensure sustainable and equitable growth of the electricity transmission network in India.