Introduction

The case of Power Grid Corporation Of India Limited v. Madhya Pradesh Power Management Company Ltd. And Others was adjudicated by the Central Electricity Regulatory Commission (CERC) on February 13, 2021. The petition was filed by Power Grid Corporation of India Ltd. (PGCIL) seeking determination of the transmission tariff for the assets under the "Green Energy Corridors-Inter State Transmission Scheme (ISTS) Part-C" for the tariff period 2014-2019. The key issues revolved around the approval of capital costs, handling of additional capital expenditures, interest during construction, depreciation, return on equity, and the impact of time and cost overruns due to right-of-way (RoW) issues.

Summary of the Judgment

After thorough examination of the submissions from both petitioner PGCIL and respondent Madhya Pradesh Power Management Company Ltd. (MPPMCL), the CERC approved the transmission tariffs for the specified assets within the 2014-19 tariff period. The Commission examined claims related to capital costs, additional capital expenditures, interest during construction (IDC), incidental expenditures during construction (IEDC), depreciation, operation and maintenance (O&M) expenses, return on equity (ROE), and interest on working capital (IWC). It also addressed the delays in commercial operation dates due to RoW issues.

Key decisions included the approval of actual commercial operation dates, allowance of initial spares within regulatory norms, reconciliation of IDC based on submissions, and the conditional approval of additional capital expenditures within the tariff period. The Commission dismissed claims related to GST on transmission charges as premature and directed the billing and recovery of transmission charges to be governed by existing CERC regulations.

Analysis

Precedents Cited

While the judgment does not explicitly cite specific previous cases, it adheres to the foundational principles outlined in the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2014. These regulations govern the determination of tariffs, including capital costs, IDC, IEDC, depreciation, ROE, and recovery mechanisms for transmission companies. The Commission referenced various clauses from these regulations to substantiate its decisions, ensuring consistency with established regulatory frameworks.

Legal Reasoning

The Commission meticulously evaluated PGCIL's claims against the regulatory provisions. Key aspects of the legal reasoning included:

• Capital Cost Approval: The Commission assessed the capital costs submitted by PGCIL, ensuring they were within the apportioned approved costs and within regulatory allowances. Discrepancies were scrutinized, and only those within permissible limits were approved.
• Time and Cost Over-runs: PGCIL attributed delays to RoW issues. The Commission evaluated the validity of these claims by examining the chronology and correspondence provided. It concluded that the delays were beyond PGCIL's control and condoned the over-runs.
• Interest During Construction (IDC) and Incidental Expenditure During Construction (IEDC): The Commission validated IDC claims based on auditor certificates and regulatory guidelines, ensuring accurate computation and admissibility. IEDC claims were also approved as they adhered to regulatory norms.
• Depreciation and O&M Expenses: Depreciation was calculated based on weighted average rates as per regulations. O&M expenses were allowed following the prescribed norms, without factoring future wage revisions.
• Return on Equity (ROE): ROE was grossed up considering the Minimum Alternate Tax (MAT) rate, as mandated by regulations. The Commission ensured that the ROE calculations were in line with the regulatory expectations.
• Recovery Mechanisms: Reimbursement claims for filing fees, publication expenses, license fees, and RLDC charges were evaluated and approved in accordance with Regulation 52.

Impact

This judgment reinforces the adherence to regulatory frameworks in determining transmission tariffs, ensuring transparency and prudence in financial claims by transmission companies. Key impacts include:

• Standardization of Tariff Determinations: By strictly following regulatory clauses, the Commission sets a precedent for future tariff determinations, emphasizing compliance and justified claims.
• Handling of Over-runs: The judgment delineates clear criteria for condoning time and cost over-runs, particularly in cases involving external impediments like RoW issues.
• Financial Accountability: Transmission companies are underscored to maintain thorough documentation and adherence to regulatory norms when claiming financial allowances, ensuring accountability.
• Future Litigation Framework: This judgment may serve as a reference point for similar cases, providing a blueprint for regulatory evaluations and decisions.

Complex Concepts Simplified

Interest During Construction (IDC):

IDC refers to the interest incurred on loans taken to finance the construction of transmission assets. It is capitalized as part of the asset cost and later amortized over the asset's useful life.

Incidental Expenditure During Construction (IEDC):

IEDC includes incidental costs incurred during the construction phase, such as project management expenses, which are also capitalized and recovered over time.

Return on Equity (ROE):

ROE is the profit percentage a company is expected to earn on its equity base. In this context, it represents the regulated return that transmission companies receive on their invested equity.

Right of Way (RoW) Issues:

RoW issues pertain to the legal rights to pass through land owned by others for the construction of transmission lines. Delays in obtaining RoW can impact project timelines and costs.

Initial Spares:

Initial spares are backup components retained for maintenance purposes, ensuring the reliability and uninterrupted operation of transmission assets.

Conclusion

The CERC's judgment in the PGCIL v. MPPMCL case underscores the critical importance of stringent adherence to regulatory frameworks in tariff determinations. By validating PGCIL's claims within the bounds of the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2014, the Commission has reinforced principles of transparency, accountability, and prudence in financial dealings of transmission companies. The judgment also provides clarity on handling over-runs due to external factors like RoW issues, setting a clear precedent for future cases. Overall, this decision fortifies the regulatory mechanisms governing the electricity transmission sector, ensuring fair and justified tariff structures that balance the interests of both the transmission companies and the end consumers.