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Reliance Infrastructure Limited v. Maharashtra Electricity Regulatory Commission
Factual and Procedural Background
This Review Petition was filed by Reliance Infrastructure Ltd. challenging the judgment of the Tribunal dated 13.9.2012 in Appeal No. 203 of 2010. The petitioner contended that there was an error apparent on the face of the record because certain facts brought to the Tribunal's notice were not considered, particularly regarding the allowance of carrying cost on revenue gap determined during the truing up of Aggregate Revenue Requirement (ARR). The petitioner argued that the Tribunal's judgment was inconsistent with previous judgments and regulatory practices concerning the entitlement to carrying cost on legitimate expenditures of the licensee. The State Commission had, in the past, allowed carrying cost on revenue gap after truing up, but it was not allowed for the financial year in question. The Tribunal heard submissions from both the petitioner and the State Commission before delivering its judgment.
Legal Issues Presented
- Whether there was an error apparent on the face of the record in the Tribunal's judgment dated 13.9.2012 regarding the allowance of carrying cost on legitimate expenditure of the licensee during truing up of ARR.
- Whether the principle of carrying cost allowance as laid down in previous judgments was correctly applied or whether paragraphs 11.5 and 11.6 of the impugned judgment were inconsistent with earlier decisions.
- Whether the State Commission should be directed to reconsider the claim for carrying cost based on the corrected principles.
Arguments of the Parties
Appellant's Arguments
- The judgment relied on earlier Tribunal findings but failed to address key reasons for accrual of carrying cost on legitimate expenditure as established in previous appeals (Nos. 36 of 2008, 153 and 173 of 2009).
- There was an inconsistency between paragraphs 11.4 and 11.5 of the judgment, with paragraph 11.5 contradicting earlier Tribunal rulings and regulatory practice.
- The State Commission had previously allowed carrying cost on revenue gap but denied it for the financial year in question without proper consideration.
- Projections in ARR are estimates and may differ from actual expenditure; hence, carrying cost should be allowed to encourage reasonable estimation by the licensee.
Respondent's Arguments (State Commission)
- The State Commission supported the Tribunal's judgment and contended that there was no error apparent on the face of the record.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Judgment dated 6.10.2009 in Appeal No. 36 of 2008 (2009 ELR (APTEL)) | Projection and assessments must be as accurate as possible; truing up is necessary due to inherent projection inaccuracies. | Referenced to emphasize the importance of accurate projections and the burden on consumers if costs are underestimated and trued up later with carrying cost. |
| Judgment dated 30.7.2010 in Appeal No. 153 of 2009 (2010 ELR (APTEL) 0891) | Carrying cost is allowed as a legitimate expense to cover the financing cost when recovery of costs is deferred. | Applied to affirm that carrying cost must be allowed on legitimate expenditure, recognizing regulatory and Supreme Court precedents. |
| Judgment dated 15.2.2011 in Appeal No. 173 of 2009 | Carrying cost is a legitimate expense; recovery of such cost is justified when cost recovery is deferred. | Used to identify an inconsistency in the 13.9.2012 judgment and to direct correction in the approach to carrying cost allowance. |
| 2007 APTEL 193 and 2007 (3) SCC 33 | Legitimate expenses include carrying cost; reduction in depreciation rate violates legitimate expectations of the distribution company. | Supported the principle that carrying cost forms part of legitimate expenditure recoverable by the licensee. |
Court's Reasoning and Analysis
The Court examined the principles laid down in earlier judgments relied upon by the Tribunal, particularly those dated 15.2.2011 (Appeal No. 173 of 2009) and 30.7.2010 (Appeal No. 153 of 2009). It noted that carrying cost is a legitimate expense arising from deferred recovery of costs and is recognized both by regulatory practice and the Supreme Court. The Court found that paragraphs 11.5 and 11.6 of the judgment dated 13.9.2012 were inconsistent with these established principles and previous Tribunal rulings. Specifically, paragraph 11.6 contradicted the directions in paragraph 12.3 and the findings in paragraph 11.5, creating an error apparent on the face of the record. The Court held that when expenditure allowed on true up is legitimate, carrying cost must be allowed on such expenditure. Consequently, it amended paragraphs 11.5 and 11.6 to clarify that the utility is entitled to carrying cost on legitimate expenditure under specified conditions, including deferred recovery and allowance by superior authorities. The Court directed the State Commission to decide the appellant's claim based on these corrected principles.
Holding and Implications
The Review Petition is allowed. The Court amended the impugned judgment to correct the inconsistency regarding the allowance of carrying cost on legitimate expenditure during truing up of ARR.
The State Commission is directed to pass consequential orders in accordance with the clarified principles. No order as to costs was made. This decision directly affects the parties by ensuring the appellant's entitlement to carrying cost is recognized and properly adjudicated, but it does not establish any new legal precedent beyond correcting the application of existing principles.
This Review Petition has been filed by Reliance Infrastructure Ltd. against the judgment of this Tribunal dated 13.9.2012 in appeal no. 203 of 2010. Review Petition no. 13 of 2012 in Appeal No. 203 of 2010 liabilities, then no carrying cost may be admissible as the claim is made for the first time at the time of true up.
3. According to the petitioner there is an error apparent on the face of records as some fact brought to the notice of the Tribunal has not been considered.
4. We heard learned counsel for the review petitioner/appellant and learned counsel for the State Commission.
5. According to learned counsel for the petitioner, even though the instant judgment relies on the findings of the Tribunal in judgment in Appeal no. 36 of 2008, 173 and 153 of 2009, etc., the principle of allowance of carrying cost more particularly set out in paragraph 11.4 and 11.5 of the judgment does not address the chief reasons for accrual of carrying cost on legitimate expenditure of the licensee as put forth in the said appeals 36 of 2008 and 153/173 of 2009 and hence the review petition has been filed. In the summary of findings, the Tribunal in paragraph 12.3 had directed the State Commission to consider the claim of the appellant on the Review Petition no. 13 of 2012 in Appeal No. 203 of 2010 principles given in paragraphs 11.4 and 11.5. However, the conclusion in paragraph 11.5 which is further clarified in paragraph 11.6 is inconsistent and contrary to the previous judgments mentioned in paragraph 11.4. This inconsistency is an error apparent on the face of record. The findings in the above said paragraphs 11.4 & 11.5 are contrary to each other and earlier orders passed by the Tribunal in appeal nos. 265,
266 and 267 of 2006, 117 of 2008, 36 of 2008,
153 of 2009 and 173 of 2009. The State Commission also had in the past allowed carrying cost on revenue gap as a result of true-up but the same was not allowed in the Financial Year in question. Though this fact was brought to the notice of the Tribunal during the arguments and in the written submissions, the same has not been noted or considered.
6. Learned counsel for the petitioner also argued that the projections in ARR are estimates only and could be lower or higher than the actual expenditure. To encourage the licensee not to over estimate the expenditure but project reasonably, it Review Petition no. 13 of 2012 in Appeal No. 203 of 2010 is desirable to review the judgment in so far as issue of carrying cost on revenue gap decided on truing up of ARR.
7. Learned counsel for the State Commission supported the judgment of the Tribunal stating that there is no error apparent on the face of record.
8. We find that in giving the findings in the judgment dated 13.9.2012 on the issue of carrying cost on revenue gap decided on truing up of ARR, we had relied on this Tribunals judgment dated 15.2.2011 in appeal no. 173 of 2009.
9. Let us now examine the principle laid down by this Tribunal in judgment dated 15.2.2011 in appeal no. 173 of 2009, as elaborated in our judgment dated 13.9.2012.
10. In the above judgment the findings of the Tribunal in judgment dated 6.10.2009 in appeal no. 36 of 2008 as reported in 2009 ELR (APTEL) has been relied upon and noted as under:
117. All projection and assessments have to be made as accurately as possible. Truing up is an exercise that is necessarily to be done as no projection can be so accurate as to equal the real situation. Simply because Review Petition no. 13 of 2012 in Appeal No. 203 of 2010 the truing up exercise will be made on some day in future the Commission cannot take a casual approach in making its projections. We do appreciate that the Commission intends to keep the burden on the consumer as low as possible. At the same time one has to remember that the burden of the consumer is not ultimately reduced by under estimating the cost today and truing it up in future as such method also burdens the consumer with carrying cost.
11. Further the judgment dated 30.7.2010 passed in appeal no. 153 of 2009 reported as 2010 ELR (APTEL) 0891 was also noted and relied upon as under:
45. The carrying cost is allowed based on the financial principle that whenever the recovery of cost is deferred, the financing of the gap in cash flow arranged by the distribution company from lenders and/or promoters and/or accruals, has to be paid for by way of carrying cost. This principle has been well recognized in the regulatory practices as laid down by this Tribunal as well as the Honble Supreme Court. In 2007 APTEL 193, this Tribunal has held that along with the expenses, carrying cost is also to be given as legitimate expense. Honble Supreme Court in 2007 (3) SCC 33 has also held the reduction in the rate of depreciation is violative of the legitimate expectation of the distribution company to get lawful and reasonable recovery of expenditure. Review Petition no. 13 of 2012 in Appeal No. 203 of 2010
58. (iv): The carrying cost is a legitimate expense and therefore recovery of such carrying cost is legitimate expenditure of the distribution company.
12. Further the Summary of our findings in judgment dated 15.2.2011 in appeal no. 173 of 2009 relied upon in our judgment dated 13.9.2012 but not noted in the judgment is as under: (1) Carrying cost is a legitimate expense. Therefore, recovery of such carrying cost is legitimate expenditure of the distribution companies. The carrying cost is allowed based on the financial principle that whenever the recovery of cost is deferred, the financing of the gap in cash flow arranged by the Distribution Company from lenders/promoters/accruals is to be paid by way of carrying cost. In this case, the Appellant, in fact, had prayed for allowing the legitimate expenditure including carrying cost. Therefore, the Appellant is entitled to carrying cost.
13. We find that findings in paragraphs 11.5 and 11.6 of the judgment dated 13.9.2012 are contrary to the above findings of the Tribunal in judgment dated 15.2.2011 in Appeal no. 173 of 2009 and findings in judgment dated 30.7.2010 in Appeal no. 153 of 2009 which have been relied upon in the judgment Review Petition no. 13 of 2012 in Appeal No. 203 of 2010 dated 13.9.2012. When the expenditure allowed on true up is legitimate, the carrying cost has to be allowed on the legitimate expenditure.
14. We agree that an error apparent on the face of the record has taken place in our judgment dated 13.9.2012 in which we had relied upon this Tribunals judgment dated 15.2.2011 in Appeal no. 173 of 2009. Even though in paragraph 12.3 under Summary of our findings, we had stated that the State Commission shall decide carrying cost based on the principles in paragraphs 11.4 and 11.5, paragraph 11.6 gave a direction in contradiction to earlier paragraphs and the findings in judgment dated 15.2.2011. Further the findings in paragraph 11.5 were also contrary to the judgments of the APTEL relied upon.
15. Accordingly, paragraphs 11.5 & 11.6 of the judgment dated 13.9.2012 may be amended to read as under: 11.5. The utility is entitled to carrying cost on its claim of legitimate expenditure if the expenditure is: Review Petition no. 13 of 2012 in Appeal No. 203 of 2010
i) accepted but recovery is deferred e.g. interest on regulatory assets, ii) claim not approved within a reasonable time, iii) disallowed by the State Commission but subsequently allowed by the Superior authority. iv) Revenue gap as a result of allowance of legitimate expenditure in the true up. 11.6. The State Commission shall decide the claim of the appellant on the above principles
16. The Review Petition is allowed. The State Commission is directed to pass consequential order. No order as to costs.
17. Pronounced in the open court on this 2nd day of January, 2013. (Justice P.S. Datta) ( Rakesh Nath) Judicial Member Technical Member REPORTABLE/NON-REPORTABLE
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