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Case Number

Appeal No. 168 of 2010

Advocates

Mr. Anand K. Ganesan, ;
Mr. Pradeep Misra,
Mr. M.G Ramachandran;
Ms Swapna Seshhadri;
Mr. Nikhil Nayyar;
Mr. Swapnil Verma;
Mr. Daleep Kumar Dhyani;
Mr. Manoj Dubey;

Judges

M. Karpaga Vinayagam
Chairperson
Rakesh Nath, Technical Member

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Smart Summary

Structured Summary of the Tribunal Opinion (Chairperson: Justice M. Karpaga Vinayagam) — Dated 31st May, 2011

Factual and Procedural Background

NTPC Limited (Appellant) challenged the Central Electricity Regulatory Commission's (Central Commission / CERC) impugned order dated 15.6.2010. The impugned order had determined the tariff consequent upon additional capitalization incurred by NTPC for Kahalgaon Super Thermal Power Station Stage-I for the periods 2006-07, 2007-08 and 2008-09. The Appellant contended that the Central Commission erred on multiple aspects of the tariff determination. The Tribunal heard counsel for both parties and delivered a judgment addressing the enumerated issues. The Appeal was allowed and directions were given to the Central Commission to implement the Tribunal's findings; there was no order as to costs.

Legal Issues Presented

Whether capitalization of un-discharged liabilities can be included in capital expenditure and whether a disallowance in the impugned order was erroneous.
Whether depreciation can be equated to normative loan repayment (i.e., whether depreciation should be adjusted against normative loan repayment).
Whether cost of maintenance spares should reflect the impact of additional capitalization for determination of working capital.
Whether provisions of Tariff Regulation 2004 can be applied to refinancing of Government of India loans that were refinanced prior to the Regulation period.
How de-capitalization of assets affects cumulative repayment of loan (including treatment of salvage value and proportionate reduction of capital base).
Whether normative transit loss of coal (0.8% for coal received by rail between 62.8% and up to 80% PLF) was required to be considered.

Arguments of the Parties

Appellant's Arguments

Un-discharged liability: The Central Commission wrongly disallowed capitalization of un-discharged liability expenditures on the basis that actual cash payment was made subsequently; earlier Tribunal decisions permitted such capitalization.
Depreciation vs. normative loan repayment: Depreciation is an accounting allocation over an asset's useful life to present a true and fair view and should not be equated with normative loan repayment; prior Tribunal authority supports the Appellant's position.
Maintenance spares: The Central Commission disallowed cost of maintenance spares without considering the effect of additional capitalization on working capital; prior Tribunal rulings support inclusion.
Refinancing of loans: Tariff Regulation 2004 should not be retroactively applied to refinancing that occurred in the period 2001-04; the costs associated with refinancing borne earlier by NTPC should not be re-opened under the 2004 Regulations.
De-capitalization impact: When an asset is not in use the capital base should be proportionately reduced for tariff purposes; interest on outstanding loan continues to be payable and salvage value rules (10% as non-tariff revenue, excess as additional revenue, shortfall as loss) apply; cumulative loan repayment must be reduced proportionately.
Normative transit loss: A transit loss of 0.8% for coal received by rail between 62.8% and up to 80% PLF should have been allowed by the Commission as directed by prior Tribunal rulings.
Remedial point on calculation error: In the impugned order the Central Commission mistakenly disallowed un-discharged liabilities of Rs. 43.45 lakhs (as shown in its own table); this was a calculational error needing correction.

Respondent's Arguments (Central Commission)

The Respondent (Central Commission) argued that judgments of this Tribunal were under challenge in the Hon'ble Supreme Court and that NTPC had given undertakings not to press some issues before the Commission; therefore, those issues could not be pressed before the Tribunal.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Judgment dated 16.3.2009 in Appeal No. 133 and 135 etc of 2008, NTPC v. CERC 2009 ELR (APTEL)337.	Support for allowing capitalization in respect of un-discharged liabilities; authority on treatment of depreciation (as cited elsewhere).	The Tribunal relied on this decision to support the Appellant's position and treated it as binding on the Central Commission for the relevant issues.
Judgment dated 10.12.2008 in Appeals No. 151 & 152 of 2007 -NTPC v. CERC 2008 ELR (APTEL) 916.	Authority cited in relation to un-discharged liability treatment.	Used by the Tribunal as part of prior consistent authority favouring the Appellant's position on un-discharged liabilities.
Judgment dated 16.2.2009 in Appeal Nos. 133 and 135 of 2008 NTPC v. CERC, 2009 ELR (APTEL)337	Authority on depreciation not being equated to normative loan repayment.	The Tribunal applied this authority to decide the depreciation issue in favour of the Appellant.
Judgment dated 13.6.2007 in Appeals No. 139 and 140	Multiple principles: treatment of depreciation vs loan repayment, treatment of maintenance spares/working capital, refinancing timing, allowance of transit loss, and related tariff principles.	The Tribunal repeatedly relied on this decision to resolve several issues in favour of the Appellant and treated the decision as binding on the Central Commission.
Judgment dated 21.8.2009 in Appeals No. 54 and 74 of 2009 NTPC v. CERC 2009 ELR (APTEL)705.	Support for the Appellant on cost of maintenance spares and related working capital treatment.	The Tribunal cited this decision to corroborate its view that the Central Commission should have accounted for additional capitalization when determining maintenance spares/working capital.
Hon'ble Supreme Court reported in 2007 3 SCC 33 Delhi Electricity Regulatory Commission v. BSES Yamuna Power Limiteds.	Foundational authority influencing several Tribunal decisions relied upon (indicated as the strength of the Tribunal's decisions).	The Tribunal noted that its decisions were rendered in the light of the Supreme Court judgment and used that context in affirming the applicable principles.
Judgment dated 13.6.2007 in Appeal No. 130 and 140 of 2007.	Specific authority on impact of de-capitalization of assets on cumulative repayment of loan, salvage value treatment and proportionate reduction of capital base.	The Tribunal applied this precedent to hold that de-capitalization requires proportionate reduction of the capital base and cumulative loan repayment for tariff purposes, subject to salvage value treatment.

Court's Reasoning and Analysis

The Tribunal proceeded issue by issue. On the first issue (un-discharged liability) it examined the impugned order and the table contained therein and identified a clear, consequential calculation error: the Central Commission's table stated "Less: Un-discharged Liabilities included above - 43.45 lakhs in 2008-09", indicating an erroneous disallowance of Rs. 43.45 lakhs. The Tribunal characterized this as a mistake that the Central Commission must correct and therefore allowed the issue in favour of the Appellant and directed the Commission to pass consequential orders.

For the remaining issues, the Tribunal relied on its prior decisions (as cataloged above) and the Supreme Court authority referenced in those decisions. Where the Tribunal had previously decided points in favour of NTPC (on depreciation not being equated to loan repayment, maintenance spares/working capital, refinancing timing, de-capitalization impacts, and normative transit loss), the Tribunal held that those ratios remained binding on the Central Commission. The Tribunal rejected the Respondent's contention that pendency of second appeals in the Supreme Court or undertakings by NTPC before the Commission operated to dilute the binding effect of the Tribunal's decisions that had not been set aside. The Tribunal therefore applied the precedent rulings to decide each issue in favour of NTPC.

On normative transit loss, the Tribunal observed that the impugned order failed to consider the claim; it noted that the Supreme Court had directed the Central Commission to proceed to determine other issues not challenged by the Commission, and therefore the Commission ought to have allowed the NTPC claim for transit loss previously directed by the Tribunal.

Having answered the enumerated points in favour of the Appellant, the Tribunal directed the Central Commission to implement the findings and directions in terms of this judgment and the prior Tribunal judgments referenced.

Holding and Implications

Core Holding: APPEAL ALLOWED.

Direct effects and directions:

The Tribunal decided all the listed issues (un-discharged liability, depreciation v. normative loan repayment, cost of maintenance spares, consequences of refinancing, impact of de-capitalization, and normative coal transit loss) in favour of the Appellant, NTPC Limited.
The Tribunal found a calculational mistake in the impugned order (disallowance of un-discharged liabilities of Rs. 43.45 lakhs) and directed the Central Commission to correct it and to pass consequential orders.
The Central Commission was directed to implement the Tribunal's findings and directions in terms of this judgment and the other Tribunal judgments referenced in the opinion.
There was no order as to costs.

Broader implications: The opinion applies existing Tribunal and Supreme Court authorities to resolve the issues and directs the Central Commission to follow those binding ratios. The judgment does not announce a newly stated legal principle beyond applying those prior authorities; it requires the Commission to implement the established Tribunal rulings as they apply to the facts before it.

(This summary is prepared strictly from the text of the provided opinion and does not add or infer information beyond that opinion.)

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National Thermal Power Corporation Ltd. v. Central Electricity Regulatory Commission

PER HON'BLE MR. JUSTICE M. KARPAGA VINAYAGAM, CHAIRPERSON

NTPC Limited is the Appellant herein.

2. The present Appeal has been filed as against the impugned order dated 15.6.2010 passed by the Central Electricity Regulatory Commission (Central Commission) whereby the Central Commission has determined the tariff consequent upon the additional capitalization incurred by the Appellant-NTPC Limited for Kahalgaon Super Thermal Power Station Stage-I during the period 2006-07, 2007-08 and 2008-09. The Appellant is aggrieved by the following aspects decided by the Central Commission:

(a) Un-discharged liability

(b) Equating depreciation to normative loan repayment

(d) Consequences of Refinancing of Loans

(e) Impact of de-capitalization of assets on cumultative repayment of loan

(f) Non consideration of normative transit loss for coal received through railway system

3. We have heard the Learned Counsel for the Appellant as well as the Respondent.

4. With regard to the first issue namely un-discharged liability, it is submitted that the Central Commission dis-allowed the capitalization of un-discharged liability expenditure holding that the actual expenditure incurred can not be included as part of capital expenditure where the actual cash payment is made subsequently. This issue of un-discharged liability has been decided in favour of the Appellant by this Tribunal in various decisions rendered earlier. Those decisions are referred as below:—

(a) Judgment dated 16.3.2009 in Appeal No. 133 and 135 etc of 2008, NTPC v. CERC 2009 ELR (APTEL)337.

(b) Judgment dated 10.12.2008 in Appeals No. 151 & 152 of 2007 -NTPC v. CERC 2008 ELR (APTEL) 916.

5. It is pointed out that in the impugned order, that though the Central Commission has taken to consideration the above judgments of this Tribunal and allowed the un-discharged liability, the Central Commission has made a wrong calculations thereby there was a wrong disallowance of the said claim.

6. We have perused the relevant observation of the impugned order and also the table which has been given in the impugned order.

7. As correctly pointed out by the Learned Counsel for the Appellant, it is clear from the third and last row in the table which reads “Less: Un-discharged Liabilities included above - 43.45 lakhs in 2008-09”. The Central Commission by mistake disallowed the un-discharged liabilities of Rs. 43.45 lakhs.

8. We have heard the Learned Counsel for the Central Commission on this aspect. As mentioned above this is purely a mistake and this needs to be corrected by the Central Commission. Therefore, the issue is allowed in favour of the Appellant. Accordingly, the Central Commission is required to pass a consequential order on this issue.

9. The Second Issue is relating to equating depreciation to normative loan repayment. It is submitted by the Appellant that the Central Commission continued to adjust depreciation against the normative loan repayment despite the fact that is settled by accounting treatment and judicial decisions that the purpose of depreciation is to allocate the cost of an asset over its useful life of the asset so as to exhibit a true and faire view of the financial statements of the enterprise. As pointed out by the Learned Counsel for the Appellant, this issue has already been covered in favour of the Appellant in the following judgments of this Tribunal:

(a) Judgment dated 16.2.2009 in Appeal Nos. 133 and 135 of 2008 NTPC v. CERC, 2009 ELR (APTEL)337

(b) Judgment dated 13.6.2007 in Appeals No. 139 and 140

(c) These decisions have been rendered as the strength of the judgment of Hon'ble Supreme Court reported in 2007 3 SCC 33 Delhi Electricity Regulatory Commission v. BSES Yamuna Power Limiteds.

10. It is pointed out by the Learned Counsel for the Respondent that because judgment of this Tribunal has been challenged in the Hon'ble Supreme Court and in that proceedings, NTPC has given undertaking that it will not press for some of the issues including this issue before the Central Commission and, therefore, the issue cannot be pressed in this Tribunal. But as pointed out by the Learned Counsel for the Appellant that mere pendency of the Appeal against the judgment of this Tribunal in the Hon'ble Supreme Court and mere undertaking given by the NPTC as to not to implement the order of the Tribunal pending decision in the Second Appeal does not dilute the ratio of the decision of this Tribunal which is binding on the Central Commission.

11. Therefore, the issue is also decided in terms of the decision rendered by this Tribunal as referred to above. Accordingly, this issue is decided in favour of the Appellant.

12. The third issue is the cost of maintenance spares. According to the Appellant, the Central Commission disallowed the cost of maintenance spares without considering the impact of additional capitalization on the maintenance spares to be considered for determination of working capital. This issue has also been decided in favour of the Appellant in the following judgments:

(a) Judgment dated 13.6.2007 in Appeals No. 139 and 140

(b) Judgment dated 21.8.2009 in Appeals No. 54 and 74 of 2009 NTPC v. CERC 2009 ELR (APTEL)705.

13. Despite the ratio decided by this Tribunal, the Central Commission has not followed the principle decided on 13.6.2007 and the similar arguments were advanced by the Respondent for the Counsel regarding the pendency of the Appeal before the Supreme Court.

14. As indicated above, the mere pendency of the Appeal against the judgment of this Tribunal will not dilute the ratio of this Tribunal so long it is not set aside. Therefore, the issue is also allowed in terms of the said decision.

15. The next issue is consequences of refinancing of loans. According to the Appellant, the Central Commission has wrongly applied the provisions of tariff Regulation 2004 to the refinancing of Government of India Loans by NTPC even though the loans were refinanced in the earlier period of 2001-04. This issue also stands covered in favour of the Appellant in the judgment dated 13.6.2007 in Appeals No. 139, 140, etc; of 2007.

16. In this decision it has been specifically held that the Tariff Regulation 2004 have to be applied to the refinancing done by the Appellant after these Regulation came into force and it can not be applied to the prior period i.e when refinancing had already been done by the Appellant and costs associated with refinancing have been borne by the Appellant. So this decision is binding on the Commission. Accordingly, this issue is also decided in favour of the Appellant.

17. The next issue is impact of de-capitalization of assets on the cumulative repayment of loan. On this issue, it is submitted that the Central Commission has not considered the impact of de-capitalization of assets on cumulative repayment of loan. As pointed out by the Learned Counsel for the Appellant this issue also stands covered in favour of the NTPC by the judgment dated 13.6.2007 in Appeal No. 130 and 140 of 2007. In this decision, it has been held that when the asset is not in use, the capital base for the purpose of tariff is also proportionately reduced. However, despite the decapitalization, interest on loan is required to be paid. Whereas, 10% salvage value of the depreciated asset should be non-tariff revenue, the interest on loan has to be borne by the beneficiary. If the salvage value is more than 10%, the amount realized above 10% should be counted as additional revenue. If salvage value is less than 10%, it will be counted as loss in the revenue. Therefore, cumulative repayment of the loan proportionate to the assets decapitalized required to be reduced. But the Central Commission has not followed this ratio passed by this Tribunal. Therefore, this point is also answered in favour of the Appellant.

18. The next issue is non consideration of normative transit loss for coal received through railway system. The impugned order does not specifically deal with the claim of the Appellant. According to the Appellant the Central Commission has not considered the coal transit loss of 0.8% for requirement of coal between 62.8% and upto 80% Plant Load. This issue has been decided by this Tribunal in favour of the Appellant in the judgment dated 13.6.2007 in Appeal No. 139 and 140 of 2007.

19. In this case, the Tribunal has specifically directed to allow the transit loss of 0.8% on the requirement of coal between 62.8% and upto 80% of the Plant Load Factor.

20. But the Central Commission in the impugned order has failed to consider this claim at all. Though, the Central Commission has filed second appeal against the judgment dated 13.6.2007, the Hon'ble Supreme Court has specifically directed the Central Commission to proceed to determine the other issues i.e issues not challenged by the Central Commission. Hence the Commission ought to have allowed the claim of NTPC with regard to normative transit loss of coal which has not even been challenged before the Supreme Court. Therefore, this issue also decided in favour of the Appellant.

21. Accordingly all these issues are answered in favour of the Appellant. The Central Commission is directed to implement the findings and directions on these issues in terms of this judgment as well as the other judgments rendered by this Tribunal. With these observations, this Appeal is allowed. However, there is no order as to costs.

(Rakesh Nath)

Technical Member

(Justice M. Karpaga Vinayagam)

Chairperson

Dated: 31st May, 2011

REPORTABLE/NON-REPORTABALE

National Thermal Power Corporation Ltd. v. Central Electricity Regulatory Commission

Structured Summary of the Tribunal Opinion (Chairperson: Justice M. Karpaga Vinayagam) — Dated 31st May, 2011

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondent's Arguments (Central Commission)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

National Thermal Power Corporation Ltd. v. Central Electricity Regulatory Commission

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