Partial Condonation of Time Overrun in Tariff Determination: Power Grid Corporation of India Limited v. CERC

Introduction

The case of Power Grid Corporation of India Limited (PGCIL) versus the Central Electricity Regulatory Commission (CERC) marks a significant development in the realm of tariff determination for transmission assets within the power sector. Filed as Review Petition No. 13/RP/2022, PGCIL sought to revisit the CERC's order dated January 3, 2022, which had determined the tariff for the period 2019-2024 for a specific transmission asset under the North-Eastern Region Strengthening Scheme-IV (NERSS-IV).

The crux of the dispute revolves around the disallowance of Interest During Construction (IDC) and Incidental Expenditure During Construction (IEDC) claims by PGCIL due to alleged non-condonation of time overruns. PGCIL contended that the overruns were the result of uncontrollable factors such as natural calamities and economic blockades, and therefore, sought their inclusion in the capital cost calculations.

Summary of the Judgment

The CERC, in its initial order dated January 3, 2022, disallowed the entire time overrun of 461 days for the transmission asset in question due to PGCIL's failure to provide documentary evidence supporting the overruns. Consequently, the IDC of ₹333.33 lakh and IEDC of ₹158.16 lakh were excluded from the capital cost.

In the subsequent review petition, PGCIL presented affidavits and referenced previously submitted documentation in related petitions (No. 237/TT/2018 and No. 68/TT/2021). However, the CERC maintained that without fresh documentary evidence specific to this case, it could not condone the overruns.

Ultimately, upon re-evaluation, the CERC partially condoned 26 days of the 461-day overrun, citing the exhaustive consideration of similar delays in related petitions and emphasizing the need for pragmatic tariff determination. The revised order allowed ₹4.11 lakh of IDC and ₹259.59 lakh of IEDC, adjusting the annual fixed charges accordingly.

Analysis

Precedents Cited

The judgment references earlier orders by the CERC in petitions No. 237/TT/2018 and No. 68/TT/2021. In these cases, the Commission had previously condoned certain periods of time overrun due to factors beyond the control of PGCIL, such as delays in transportation, heavy rainfall, and economic blockades. These precedents influenced the CERC's decision to afford partial condonation in the current case, underscoring a consistent approach towards similar delays across related projects.

Legal Reasoning

The CERC's legal reasoning centered on the principles of equity and prudence in tariff determination. Recognizing that PGCIL had substantiated the reasons for the time overrun across related projects, the Commission deemed it reasonable to condone a portion of the overrun in the absence of fresh documentary evidence specific to this case. The decision reflects a balanced interpretation of the Electricity Act, 2003, particularly Section 94(1)(f), in conjunction with the CERC's own Conduct of Business Regulations.

Furthermore, the Commission differentiated between adjudication under Section 79(f) and tariff determination under Section 79(d), opting for a more lenient and pragmatic approach in the latter to rectify procedural oversights without compromising regulatory standards.

Impact

This judgment sets a noteworthy precedent for future tariff determination cases involving transmission assets. By allowing partial condonation of time overruns based on historical precedents and the nature of the delays, the CERC provides a framework that balances strict regulatory compliance with practical considerations faced by utility companies.

For PGCIL and similar entities, this decision underscores the importance of comprehensive documentation when claiming IDC and IEDC. However, it also offers a degree of flexibility, acknowledging that not all contingencies can be anticipated or documented at the initial filing stage.

Regulators can leverage this judgment to adopt a more nuanced approach in tariff determinations, ensuring that deserving claims are not entirely dismissed due to procedural oversights, thereby fostering a fair and conducive environment for infrastructure development.

Complex Concepts Simplified

Interest During Construction (IDC) and Incidental Expenditure During Construction (IEDC)

IDC refers to the interest payable on the borrowed funds that are utilized to finance the construction of a project. It accumulates during the construction period and is capitalized as part of the project cost.

IEDC encompasses all other expenditures related to the construction process that are not directly attributable to materials, labor, or capital. This includes costs like administrative expenses, consultancy fees, and other ancillary services.

Time Overrun Condonation

Time overrun condonation involves the regulatory body's acceptance of delays in project completion that are caused by unforeseen or uncontrollable factors. Condoning such delays allows the utility to claim additional costs incurred due to the extended construction period, ensuring that project finances remain viable.

Conclusion

The CERC's decision to partially condone the time overrun in PGCIL's tariff determination petition reflects a judicious blend of regulatory rigor and practical flexibility. By referencing consistent precedents and acknowledging the complexities involved in large-scale infrastructure projects, the Commission has set a balanced precedent that safeguards both regulatory interests and the operational realities of utility providers.

Key takeaways from this judgment include:

The necessity for comprehensive and specific documentation when claiming IDC and IEDC.
Acknowledgment by regulators of the challenges faced in infrastructure projects, allowing for partial condonation of delays under certain conditions.
Establishment of a consistent approach in handling similar cases across related petitions, promoting fairness and predictability in regulatory decisions.

Overall, this judgment serves as a crucial reference point for future tariff determination cases, highlighting the importance of thorough documentation and the regulator's willingness to consider mitigating factors in the pursuit of equitable outcomes.