Truing-up and Determination of Transmission Tariffs for Salal-II Transmission System
Introduction
The case of Power Grid Corporation Of India Limited, Saudamini v. Rajasthan Rajya Vidyut Prasaran Nigam Limited, Jaipur And Others was adjudicated by the Central Electricity Regulatory Commission (CERC) on January 3, 2022. The petitioner, Power Grid Corporation of India Limited (PGCIL), sought the truing up of transmission tariffs for the 2014-19 period and the determination of tariffs for the 2019-24 period concerning the Salal-II Transmission System in the Northern Region.
The primary issues revolved around the approval of updated tariffs, incorporating various financial elements such as depreciation, return on equity (RoE), operation and maintenance (O&M) expenses, and interest on working capital (IWC). Additionally, PGCIL requested reimbursements for filing fees, publication expenses, and provisions for recovering certain costs directly from beneficiaries without prior Commission approval.
Summary of the Judgment
The CERC meticulously reviewed the petitioner's submissions and the relevant financial data. The Commission approved the trued-up tariffs for both tariff periods, incorporating adjustments as per the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2014 and 2019. Specific requests, such as separate O&M expenses for the Primary Load Control Center (PLCC) and the recovery of Goods and Services Tax (GST) on transmission charges, were denied. The Commission emphasized adherence to the existing regulatory framework, ensuring that any additional claims by the petitioner align with the stipulated norms.
Analysis
Precedents Cited
The judgment extensively references the CERC (Terms and Conditions of Tariff) Regulations, 2014 and the CERC (Terms and Conditions of Tariff) Regulations, 2019. These regulations lay down the framework for determining tariffs, including aspects like depreciation, RoE, O&M expenses, and IWC. The Commission applied these regulations to assess the petitioner’s claims, ensuring consistency and regulatory compliance.
Legal Reasoning
The Commission employed a methodical approach, evaluating each component of the petitioner’s submissions against the relevant tariff regulations. For instance:
- Depreciation: Calculated based on the remaining depreciable value and spread over the asset's remaining useful life, adhering to Regulation 27 of the 2014 Tariff Regulations and Regulation 33 of the 2019 Tariff Regulations.
- Return on Equity (RoE): Determined using the effective tax rate as mandated, ensuring compliance with Regulation 31 of the 2019 Tariff Regulations.
- Operation & Maintenance Expenses (O&M Expenses): Approved as per the norms specified under Regulation 35(3) of the 2019 Tariff Regulations, with specific denials for separate O&M for PLCC based on prior order.
The Commission also scrutinized requests for additional capital expenditures (ACE) and de-capitalization, approving only those related to critical assets necessary for grid stability and reliability.
Impact
This judgment sets a precedent for the meticulous evaluation of tariff components by CERC, emphasizing adherence to regulatory norms. For future cases, transmission licensees can reference this decision to understand the expectations regarding financial submissions and the justification required for tariff adjustments. Additionally, the denial of certain claims underscores the Commission's stance on preventing unwarranted financial recoveries without proper regulatory oversight.
Complex Concepts Simplified
Truing-up
Truing-up refers to the process of adjusting previously approved tariffs to reflect actual costs and revenues, ensuring that transmission licensees recover their expenses accurately over the tariff period.
Annual Fixed Charges (AFC)
Annual Fixed Charges are the fixed costs associated with the transmission asset, including depreciation, return on equity, O&M expenses, and interest on working capital. These charges are recovered through tariffs.
Return on Equity (RoE)
Return on Equity is the profit that a company generates from its shareholders' equity. In the context of transmission tariffs, it represents the guaranteed return to investors.
Operation & Maintenance (O&M) Expenses
O&M Expenses cover the costs of operating and maintaining the transmission infrastructure to ensure its reliability and efficiency.
Interest on Working Capital (IWC)
Interest on Working Capital is the interest earned on the funds tied up in the working capital of the transmission asset, covering areas like receivables and maintenance spares.
Conclusion
The CERC's judgment in the case of Power Grid Corporation of India Limited v. Rajasthan Rajya Vidyut Prasaran Nigam Limited underscores the importance of adhering to established tariff regulations when determining and adjusting transmission tariffs. By approving the trued-up tariffs for both the 2014-19 and 2019-24 periods, the Commission has reinforced the framework ensuring that transmission licensees recover their rightful expenses while maintaining regulatory oversight to prevent arbitrary financial claims.
This decision serves as a critical reference point for future tariff determination cases, emphasizing the necessity for comprehensive and justifiable financial submissions by transmission entities. Moreover, the judgment highlights the Commission's commitment to maintaining grid reliability and financial prudence, thereby safeguarding the interests of both transmission licensees and beneficiaries.
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