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Power Grid Corporation Of India Limited v. Madhya Pradesh Power Transmission Company Ltd.
Factual and Procedural Background
An application was made for approval of provisional transmission tariff for the 400 kV Bina-Nagda D/C transmission line and associated bay equipment in the Western Region, covering the period from 1.11.2007 to 31.3.2009. The petitioner’s Board of Directors initially approved an estimated cost of Rs. 26,693 lakh (including IDC of Rs. 1,467 lakh) on 13.7.2004, with a scheduled completion by March 2008. Subsequently, a revised cost estimate of Rs. 38,780 lakh (including IDC of Rs. 2,163 lakh) was approved on 3.12.2007. The transmission line commenced commercial operation on 1.11.2007, five months ahead of schedule, following agreement by Western Region constituents to this preponement. The petitioner submitted capital expenditure details and claimed transmission charges based on the capital cost as on the date of commercial operation. The petition was heard after notice to respondents, with some issues raised by Madhya Pradesh Power Trading Company Limited deferred to consideration at the final tariff stage.
Legal Issues Presented
- Whether the provisional transmission tariff claimed by the petitioner based on the capital cost as on the date of commercial operation should be approved.
- Whether the expenditure, equity deployment, depreciation, interest, O&M expenses, and working capital calculations conform to the applicable regulatory framework for provisional tariff determination.
- The procedural requirement for filing a fresh application for final tariff approval and associated documentation.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The court analyzed the petitioner's claim for provisional transmission tariff by examining the capital expenditure as on the date of commercial operation, which was Rs. 32,319.64 lakh. The equity portion was considered at 30% of this capital cost, consistent with the 2004 regulations. Return on equity was allowed at 14% on a pro rata basis. Depreciation was calculated at 2.68% of the capital cost, with loan repayment notionally equated to depreciation and interest on loan computed at the petitioner’s claimed weighted average rate of 9.27%. O&M expenses and interest on working capital were calculated in accordance with the 2004 regulations. The court noted that no Advance Against Depreciation was considered for provisional tariff calculation. Issues raised by a respondent party were deferred for consideration at the final tariff stage. The court thus approved the provisional tariff based on the petitioner’s submissions, subject to adjustment upon final tariff determination. The petitioner was directed to file a fresh application for final tariff with auditor-certified loan details and explanations for cost escalation.
Holding and Implications
The court allowed the provisional transmission tariff for the 400 kV Bina-Nagda D/C transmission line from the date of commercial operation, subject to adjustments after final tariff determination.
The petitioner is required to submit a fresh application for final tariff approval by 31.12.2008, including auditor-certified loan reconciliations and explanations for the increase in estimated cost. The decision directly affects the provisional tariff recovery rights of the petitioner but does not establish any new legal precedent.
The application has been made for approval of provisional transmission tariff for 400 kV Bina-Nagda D/C transmission line along with bay equipment at Nagda and Bina (the transmission line) in Western Region from 1.11.2007 to 31.3.2009
2. The investment approval for the transmission line was accorded by Board of Directors of the petitioner's company vide its Memorandum dated 13.7.2004 at an estimated cost of Rs. 26693 lakh, which included IDC of Rs. 1467 lakh. As per the investment approval the transmission line was to be completed by March 2008. Subsequently, approval for the revised cost estimate was accorded by Board of Directors of the petitioner company vide Memorandum dated 3.12.2007 for an estimated cost of Rs. 38780 lakh, which includes IDC of Rs. 2163 lakh. The transmission line has been declared under commercial operation w.e.f 1.11.2007, 5 months ahead of schedule. The petitioner has explained that early commissioning of the transmission line was discussed at 5th WRPC meeting held on 6.10.2007 and WR constituents agreed to preponment of the commissioning of transmission line.
3. The details of capital expenditure submitted by the petitioner are as follows:
(Rs. in lakh)
Expenditure up to 31.3.2007 (audited) 23684.30 Expenditure from 1.4.2007 to 31.10.2007 8635.34 Balance estimated expenditure 3413.11 Total 35732.75
4. The petitioner has claimed the following transmission charges, based on the capital cost of Rs. 32319.64 lakh as on the date of commercial operation:
(Rs. in lakh)
Period Transmission Charges 2007-2008 (Pro rata) 1974.28 2008-2009 4693.93
5. The petition has been heard after notice to the respondents. Madhya Pradesh Power Trading Company Limited, though not impleaded as a party in its reply has raised certain issues which are relevant for consideration while determining final tariff. Since the present petition is for provisional tariff only, the issues raised are not being gone into at this stage. The respondents are at liberty to bring up these issues, if so advised, when the petition for final tariff is filed and the issues will be examined then.
Capital cost
6. The actual expenditure of Rs. 32319.64 lakh as on the date of commercial operation has been claimed by the petitioner as the base for determination of provisional transmission tariff. This expenditure has been considered for the purpose of tariff.
7. The petitioner has indicated equity deployment of Rs. 9696.64 lakh as on the date of commercial operation which is 30% of the capital cost of Rs. 32319.64 lakh considered (the limit specified in the 2004 regulations). The same has been considered. Therefore, return on equity @ 14% would be Rs. 565.64 lakh for the year 2007-2008 on pro rata basis and Rs. 1357.53 for the year 2008-2009.
8. The petitioner has claimed depreciation of Rs. 361.23 lakh (2.68% of the capital cost of Rs. 32319.64 lakh) for the year 2007-2008 (pro rata) and Rs. 866.94 lakh for year 2008-2009, and same has been allowed. Loan repayment has notionally been taken to be equal to the depreciation allowed in tariff, and weighted average interest rate has been taken as claimed by the petitioner, i.e 9.27%. Interest on loan component on the average loan amounts for the years 2007-2008 and 2008-2009 works out to Rs. 866.49 lakh and Rs. 2022.67 lakh respectively. No Advance Against Depreciation has been considered by us while working out the provisional tariff.
9. O & M expenses have been claimed for 660.310 ckt kms and four (4) bays at the rates specified in the 2004 regulations, and are in order. Interest on working capital has been calculated as per the 2004 regulations.
10. Based on the above, the provisional annual transmission charges are determined as follows:
(Rs. in lakh)
2007-2008 (Pro rata) 2008-2009 Return on equity 565.64 1357.53 Depreciation 361.23 866.94 Advance against depreciation 0.00 0.00 Interest on loan 866.49 2022.67 O & M expenses 122.87 307.24 Interest on working capital 58.06 139.55 Total 1974.29 4693.94
11. We allow transmission charges tabulated above for the transmission line, on provisional basis from the date of commercial operation subject to adjustment after determination of final tariff.
12. The petitioner shall make a fresh application for approval of final tariff in accordance with the Commission's regulations on the subject, latest by 31.12.2008
13. While making the fresh application for approval of final tariff, the petitioner shall file a certificate, duly signed by the auditors, certifying the loan details, duly reconciled with audited accounts of 2007-2008. The petitioner shall also furnish the reasons for increase in estimated cost from Rs. 26694 lakh, as per approval dated 13.7.2004, to Rs. 38780 lakh, as per the revised approval dated 3.12.2007
14. The application stands disposed of in above terms.
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