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Case Number

Petition No. 6/1999

Attorney(S)

1. Shri S.S Sharma, AGM, PGCIL
2. Shri U.K Tyagi, PGCIL
3. Shri C. Kannan, PGCIL
4. Shri K.K.S Babu, PGCIL
5. Shri Sanjay Mehra, PGCIL
6. Shri S. Gopal, PGCIL
7. Shri A.K Nagpal, PGCIL
8. Shri S.S Vindal, PGCIL
9. Shri D. Sen, PGCIL
10. Shri S. Mondal, DVC.
11. Shri T.K Gosh, DVC.
12. Shri M. Prasad, BSEB
13. Shri B.S Sheshadri, CE, KPTCL
14. Shri B. Ravindran, OSD, KSEB

Judges

D.P Sinha, Member
G.S Rajamani, Member
K.N Sinha, Member

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Smart Summary

Analyst Summary of the Opinion (Petition No. 6/1999)

Factual and Procedural Background

This summary is based exclusively on the text of the provided opinion and does not add or infer facts beyond that text.

The petitioner, Power Grid Corporation of India Ltd., sought the Commission's approval of transmission tariff for the 132 kV single-circuit Dehri-Karamnasa line with associated bays in the Eastern Region. The transmission system comprised: (a) the Dehri-Karamnasa 132 kV S/C line, (b) extension of the 220 kV/132 kV existing sub-station of Bihar State Electricity Board (BSEB) at Dehri, and (c) extension of the 132 kV existing sub-station of BSEB at Karamnasa.

The Board of Directors of the petitioner granted investment approval on 17.9.1997 at a cost of Rs. 11.74 crores (including IDC of Rs. 0.46 crores), with an expected completion within one year (by 17.9.1998). The transmission system was actually commissioned on 1.6.1999. The petitioner filed the tariff petition for the period up to 31.3.2002 but the Commission limited consideration in this petition to the period 1.6.1999 to 31.3.2001; a separate petition was filed for tariff from 1.4.2001 to 31.3.2004. An amended petition was filed on 21.11.2001 to place additional facts on record and for impleadment of respondent No. 6; the amended petition was taken on record.

The petitioner stated the final completion cost for the Dehri-Karamnasa line with associated bays as Rs. 10.39 crores and sought annual transmission charges for 1999–2000 (10 months) and 2000–2001. Respondents included Bihar State Electricity Board, West Bengal State Electricity Board, Grid Corporation of Orissa Ltd., and Damodar Valley Corporation. The Commission's order disposes of Petition No. 6/1999.

Legal Issues Presented

Whether the capital cost of Rs. 10.39 crores claimed by the petitioner should be accepted for tariff computation, or whether the cost should be restricted to Rs. 9 crores as referenced in a CEA letter dated 24.7.1997.
Whether expenditure incurred after the date of commercial operation should be considered for tariff purposes.
Whether Interest During Construction (IDC) and Interest During Extra-ordinary Delay in Commissioning (IEDC) or similar charges should be disallowed due to delay in commissioning attributable to the petitioner.
What debt-equity ratio should be adopted for purposes of tariff (petitioner’s actual ratio vs. a proposed 80:20 ratio by respondents).
Whether increase of return on equity from 12% to 16% should be allowed.
Whether cost of spares should be included in working capital for the first five years, and whether one month's O&M expenses should be allowed in computation of working capital.
Whether incentive for the transmission system should be allowed below 98% availability, and the appropriate basis for depreciation (i.e., rates related to actual life of assets).
Whether the petitioner is entitled to other charges like foreign exchange variation, income tax, incentive, surcharge and other cess and taxes as per the Ministry of Power notification then in force.

Arguments of the Parties

Petitioner's Arguments

The petitioner built and commissioned the Dehri-Karamnasa transmission system and claimed tariff based on norms notified by the Central Government on 16.12.1997.
The system was completed at a cost of Rs. 10.39 crores (with Rs. 9.71 crores incurred up to the date of commercial operation and the balance thereafter).
The petitioner explained that the debt-equity mix in practice differs from original approvals because actual financing depends on phasing during construction; for investment approval an 80:20 ratio may be considered but actual ratios vary. In another petition the petitioner stated it was attempting to reach a 70:30 ratio.
Delay in commissioning was attributed primarily to conduct relating to respondent No. 1 (BSEB): specifically, a decision in February 1999 regarding a mid-bay gantry structure at Dehri sub-station and related clearances; after that, the work was completed expeditiously and the line was put into commercial operation on 1.6.1999.
The petitioner sought approval of annual transmission charges for the specified periods and entitlement to other charges (foreign exchange variation, income tax, incentive, surcharge and other cess and taxes) in accordance with the Ministry of Power notification.

Respondents' Arguments

The respondents contended that the final project cost of Rs. 10.39 crores should not be accepted because CEA, by letter dated 24.7.1997, had approved the project at Rs. 9 crores.
They asserted that of the Rs. 10.39 crores, Rs. 9.71 crores was incurred up to commercial operation and the balance afterward; they argued expenditure beyond commercial operation should not be considered for tariff.
On account of delay in commissioning (project was to be commissioned by 17.9.1998 but commissioned on 1.6.1999), respondents submitted they should not be liable to pay IDC and IEDC as the reasons for delay were attributable to the petitioner.
They objected to the debt-equity mix of 64:36 adopted by the petitioner and argued the debt-equity should be 80:20; they also submitted depreciation recovered should be utilized to reduce loan liability, in line with the notification dated 16.12.1997 which links depreciation with loan repayments.
They further prayed that increase of return on equity from 12% to 16% should not be allowed; cost of spares should not be included in working capital for the first five years; one month's O&M expenses should not be allowed in computation of working capital; incentive should not be allowed below 98% availability; depreciation should be charged at rates related to the actual life of the assets; and they questioned the timing of loan repayment (repaid in second year with no explanation for non-repayment in first year).

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Commission’s analysis proceeded by reference to the Ministry of Power notification dated 16.12.1997 and the documentary record placed before it. The key analytical steps the Commission took, as set out in the opinion, are as follows:

The Commission confirmed that the tariff petition was to be considered in accordance with the norms notified by the Central Government on 16.12.1997 and that return on equity, working capital, O&M and incentive had been correctly claimed in accordance with that notification.
On financing, the notification required capital expenditure to be financed as per the approved financing package in the techno-economic clearance issued by CEA. Here, there was no techno-economic clearance from CEA; instead the Board of Directors of the petitioner had given investment approval, which did not specify a debt-equity mix. The petitioner explained variance in actual debt-equity as a result of phasing of investments during construction and had stated elsewhere an attempt to reach a 70:30 ratio. Consequently, the Commission allowed the actual debt-equity ratio employed by the petitioner for tariff purposes.
On the respondents' submission that the CEA had approved cost at Rs. 9 crores (letter dated 24.7.1997), the Commission examined that letter and determined it was not a techno-economic clearance. Because techno-economic clearance was not obtained (project fell within Board's powers), the Commission rejected respondents' contention that the capital cost for tariff be limited to Rs. 9 crores.
Regarding delay in execution, the Commission carefully considered the petitioner's explanation and respondent No.1's record. The petitioner attributed delay mainly to respondent No.1's decision in February 1999 regarding provision of a mid-bay gantry structure and related clearances. Respondent No.1 acknowledged that clearance to proceed was given on its behalf via a letter dated 15.2.1999 and that drawings were supplied by the petitioner on 4.2.1999. The Commission found that, on the facts on record, it was not possible to attribute the delay to the petitioner.
The Commission stated as a general principle that for tariff the expenditure up to the date of commercial operation shall be taken into account and additional expenditure thereafter shall be accounted for in the year in which it is incurred.
The Commission set out additional technical considerations that guided approval: weighted average depreciation rate was worked out on actual capital expenditure as per auditors' certificates annexed; escalation in O&M and spares for working capital used WPI and CPI (industrial workers) for April of the respective year; interest rates varied because loans carried floating rates and the rate prevailing on date of commercial operation was considered — any resetting of rates during the tariff period must be settled between parties or referred to the Commission.
The Commission noted its earlier provisional order dated 31.12.1999 which had allowed provisional tariffs of 83% and 80% for 1999–2000 and 2000–2001 respectively, and held that those provisional/interim tariffs would be adjusted against the final transmission charges approved by the present order.
The Commission required the petitioner to file an affidavit within four weeks certifying that tariff calculations and auditors' certificates are based on audited accounts, or alternatively to file a revised auditor's certificate in the prescribed format. The Commission made clear that failure to comply would render the approved transmission charges ineffective and cause the order to lapse automatically.

Holding and Implications

Holding:

The Commission approved the transmission charges for the Dehri-Karamnasa 132 kV S/C line with associated bays as follows (amounts in Rs. lakhs):

1999–2000 (Ten months): 182.89
2000–2001: 228.22

The Commission also held that the petitioner shall be entitled to other charges such as foreign exchange rate variation, income tax, incentive, surcharge and other cess and taxes in accordance with the Ministry of Power notification in force up to 31.3.2001. The Commission allowed the actual debt-equity ratio employed by the petitioner and refused to restrict capital cost to Rs. 9 crores on the basis of the CEA letter dated 24.7.1997 (that letter was not a techno-economic clearance). Expenditure up to the date of commercial operation was to be taken into account for tariff; subsequent additional expenditure would be accounted for in the year incurred.

Implications (Direct effects):

The approved transmission tariff amounts are to be included in the regional transmission tariff of the Eastern Region and shared by regional beneficiaries in accordance with paragraph 7 of the Ministry of Power notification dated 16.12.1997.
The previously allowed provisional/interim tariffs will be adjusted against these final approved charges.
The petitioner must file an affidavit within four weeks certifying that tariff calculations and auditors' certificates are based on audited accounts, or submit a revised auditor's certificate in the prescribed form. Failure to comply will cause this order to lapse and the approved charges to not take effect.

No broader precedent is identified or established in the text of the opinion; the decision operates to resolve the parties' dispute on the tariff question and related accounting/financing matters in this proceeding.

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Power Grid Corporation Of India Ltd. v. Bihar State Electricity Board

In this petition, the petitioner, Power Grid Corporation of India Ltd. has prayed for the Commission's approval for transmission tariff for 132 kV S/C Dehri-Karamnasa line with associated bays in Eastern Region.

2. The petitioner, who is entrusted with the functions to undertake the transmission of energy through inter-state transmission system, has built and commissioned the Dehri-Karamnasa Transmission System comprising of the following components:—

(a) Dehri-Karamnasa 132 kV S/C line.

(b) Extension of 220 kV/132 kV existing sub-station of BSEB at Dehri.

3. The Board of Directors of the petitioner company, under its delegated powers accorded the investment approval for Dehri-Karamnasa transmission system on 17.9.1997 at a cost of Rs. 11.74 crores, which included IDC of Rs. 0.46 crores. The transmission system was to be completed within one year from the date of investment approval, that is, by 17.9.1998 The transmission system was actually commissioned on 1.6.1999 Accordingly, the petitioner filed the present petition for approval of tariff.

4. When the petition was filed, the petitioner had claimed tariff for the period up to 31.3.2002, based on Ministry of Power notification dated 16.12.1997 However, subsequently, it was decided that in the present petition consideration of tariff would be limited from 1.6.1999 to 31.3.2001 The petitioner has filed a separate petition for approval of tariff from 1.4.2001 to 31.3.2004 The petitioner filed an amended petition on 21.11.2001 to place on record certain additional facts regarding expenditure, etc. and for impleadment of respondent No. 6. The amended petition has been taken on record.

5. Dehri-Karamnasa 132 kV S/C line with associated bays is stated to have been completed at a cost of Rs. 10.39 crores. Accordingly, the petitioner has prayed for approval of tariff as under:

PERIOD ANNUAL TRANSMISSION CHARGE (Rs. In Lakhs) 1999–2000 (10 months) 184.46 2000–2001 230.45

6. In addition, the petitioner also seeks the approval for payment of other charges like foreign exchange, income tax, incentive, other cess and taxes and surcharge as per the notification issued by Ministry of Power.

7. The submissions in this petition have been filed on behalf of Bihar State Electricity Board (respondent No. 1), West Bengal State Electricity Board (respondent No. 2), Grid Corporation of Orissa Ltd. (respondent No. 3) and Damodar Valley Corporation (respondent No. 4).

8. According to the respondents, the final project cost of Rs. 10.39 crores claimed by the petitioner should not be accepted as CEA, vide its letter dated 24.7.1997 had approved the project at a cost of Rs. 9 crores. It is further submitted that out of total expenditure of Rs. 10.39 crores, an expenditure of Rs. 9.71 crores was incurred up to the date of commercial operation and the balance was incurred thereafter. It is urged that the expenditure incurred beyond the date of commercial operation should not be considered for the purposes of tariff. It is pointed out that the project was to be commissioned by 17.9.1998 but was actually completed and put under commercial operation on 1.6.1999 On account of delay in commissioning of the project, the respondents should not be liable to pay IDC and IEDC as the reasons for delay are attributable to the petitioner itself. The respondents have objected to debt-equity mix of 64:36 adopted by the petitioner since in its opinion debt-equity should be in the ratio of 80:20 and that the depreciation recovered should be utilised for reducing the liability since, in accordance with the notification dated 16.12.1997, depreciation is linked with loan repayments.

9. The respondents have also prayed that increase of return on equity from 12% to 16% may not be allowed, cost of spares should not be allowed to be included in the working capital for the first five years of operation, one month's O&M expenses should not be allowed in computation of working capital, incentive for transmission system should not be allowed below 98% of availability and depreciation should be charged at rates related to the actual life of the assets. It is also submitted that repayment of loan was done in second year and reasons for non-repayment of loan during first year have not been indicated.

10. We have considered the submissions made on behalf of parties. As we have already noted, the petition for tariff has been filed based on norms notified by Central Government on 16.12.1997 We are satisfied that the return on equity, working capital, O&M and incentive for the transmission system have been correctly claimed in accordance with the said notification dated 16.12.1997

11. On the question of means of financing of the project, we may note that in accordance with the notification of 16.12.1997, the capital expenditure of the transmission system is to be financed as per the approved financed package set out in the techno-economic clearance issued by CEA. In the instant case, techno-economic clearance has not been issued by CEA but the cost approval has been accorded by the Board of Directors of the petitioner company, which does not refer to the debt equity mix to be followed while financing the project. The petitioner has explained that debt-equity mix usually turns out to be somewhat different from the original approval, though for the purpose of investment approval debt-equity ratio of 80:20 is considered since the actual debt-equity mix is based on the phasing of investments done during the construction period. The petitioner in another petition No. 7/1999 has filed an affidavit before the Commission stating that it is attempting to reach a debt-equity mix of 70:30. In view of the facts, we allow the actual debt-equity ratio employed by the petitioner. For the purpose of tariff, the expenditure up to the date of commercial operation shall be taken into account and additional expenditure, if any, shall be accounted for in the year in which the expenditure is incurred.

12. The respondents have submitted that the cost approved by CEA for Dehri-Karamnasa 132 kV S/C line was Rs. 9 crores and the same should be considered for the purpose of computation of tariff. We have considered this submission. It is noted from the copy of the letter dated 24.7.1997, annexed to the reply filed on behalf of respondent No. 1, that CEA had, on certain short term proposals made by the petitioner to augment inter-regional transmission system agreed to the proposal of the petitioner for construction of Dehri-Karamnasa 132 kV S/C line at a cost of Rs. 9 crores, from operation point of view. The letter dated 24.7.1997 cannot be considered as techno-economic clearance of CEA. As we have already noted, techno-economic clearance of CEA was not obtained in the present case since the project was within the powers of the Board of Directors of the petitioner company. Therefore, we reject the contentions raised on behalf of the respondents that consideration of capital cost for the purpose of tariff be restricted to Rs. 9 crores.

13. On the question of delay in execution of the project, we have very carefully considered the reasons placed on record by the petitioner as also the respondent No. 1. According to the petitioner, the delay was mainly due to the decision given by respondent No. 1 in February 1999 regarding provision of mid bay gantry structure by the side of 20 MVA, 132 kV/33 kV transformer at Dehri sub-station of the line for maintaining necessary clearance of conductor over the transformer. Thereafter the work was completed expeditiously and the line was put under commercial operation with effect from 1.6.1999 Respondent No. 1 has, however, acknowledged that the clearance to proceed with the work was given on its behalf vide letter dated 15.2.1999 and that earlier the drawing was supplied by the petitioner on 4.2.1999 consequent to the request made by Electric Superintendent Engineer, Dehri-on-Sone. From the facts placed on record by respondent No. 1 it is not clear when the request by Electric Superintendent Engineer was made for drawings, etc. Therefore, from the facts on record, it is not possible to attribute the delay for extension of work to the petitioner.

14. On consideration of entirety of the situation, we approve the transmission charges as under:

(Rs. in lakhs)

1999–2000 2000–2001 Dehri-Karamnasa transmission Line with associated bays 182.89 (Ten months) 228.22

15. In addition to the transmission charges, the petitioner shall be entitled to other charges like foreign exchange rate variation, income tax, incentive, surcharge and other cess and taxes in accordance with the notification issued by Ministry of Power and in force up to 31.3.2001

16. While approving tariff, we have been guided by the following considerations:

(a) The weighted average depreciation rate has been worked out on the basis of actual capital expenditure as per CA's certificates annexed to the petitions.

(b) The escalation in O&M expenses and maintenance spares for working capital has been worked out on the basis of WPI and CPI (industrial workers) for the month of April of the respective year.

(c) It is observed that the interest rates considered in different petitions for the same loan are different. During the hearing it was explained by the petitioner that these loans are carrying floating rate of interest and the interest prevailing on the date of commercial operation has been considered in the tariff petition. Any resetting of the interest rates during the tariff period shall have to be settled mutually between the parties. However, in the event of their inability to settle the matter, either party may approach the Commission for a decision.

17. In its order dated 31.12.1999 the Commission had allowed a provisional tariff of 83% and 80% for the years 1999–2000 and 2000–2001 respectively of the transmission charges claimed by the petitioner in the unamended petition. The provisional/interim tariff allowed by the Commission earlier shall be adjusted against the final transmission charges approved by us in this order.

18. The detailed calculations in support of the tariff are contained in Table appended hereinbelow.

Transmission Charges

(Rs. in Lakhs)

Interest on Loan 69.99 83.99 Depreciation 49.76 61.74 Operation & Maintenance Expenses 12.57 16.34 Return on Equity 45.78 60.37 Interest on Working Capital 4.79 5.78 Total 182.89 228.22

19. The transmission tariff approved by us shall be included in the regional transmission tariff of Eastern Region and shall be shared by the regional beneficiaries in accordance with para 7 of notification dated 16.12.1997

20. We find that the auditors' certificate furnished along with the petition certifies the transmission tariff calculations but does not disclose whether the capital expenditure, equity, loan, rate of interest, repayment schedule, O&M charges, etc. are as per the audited accounts of the petitioner company. The petitioner is directed to file an affidavit within four weeks of the date of this order that all the tariff calculations and auditors' certificates are based on audited accounts of the petitioner company or in the alternative, the petitioner may file a revised auditor's certificate, in the format given below, failing which the transmission charges approved above shall not take effect and this order will automatically lapse without any further reference to the Commission.

AUDITOR'S CERTIFICATE

We have verified the books of accounts, records and other documents of Power Grid Corporation of India Ltd. and certify that the data used for transmission tariff calculations for _____________ [name of the transmission system/line (s)] are in accordance with the audited books of accounts up to __________ of the company. We have obtained all information and explanations which to the best of our knowledge and belief were necessary for the purpose of our examination and necessary approvals of the competent authority in respect of capital cost, foreign exchange, time and cost over-run, etc. as prescribed under law, have been obtained.

Signature with Auditors seal and date

21. This order disposes of Petitions No. 6/1999.

Power Grid Corporation Of India Ltd. v. Bihar State Electricity Board

Analyst Summary of the Opinion (Petition No. 6/1999)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Arguments

Respondents' Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Power Grid Corporation Of India Ltd. v. Bihar State Electricity Board

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