M/s Everest Power Private Limited vs Punjab State Electricity Regulatory Commission & Ors

IN THE APPELLATE TRIBUNAL FOR ELECTRICITY
(Appellate Jurisdiction)
APPEAL No. 430 of 2019
APPEAL No. 416 of 2022
th
Dated : 4 May, 2026
Present: Hon’ble Ms. Seema Gupta, Officiating Chairperson
Hon’ble Mr. Virender Bhat, Judicial Member

In the matter of:

APPEAL No. 430 of 2019

M/s Everest Power Private Limited
The Additional Vice President,
Through its Authorised Signatory
Having its Corporate Office at:
Hall A, First Floor, Plot No. 143-144
Udyog Vihar Phase IV, Gurgaon – 122015
Email: [email protected] … Appellant

Versus

1. Punjab State Electricity Regulatory Commission
Through its Registrar
Site No. 3, Block No. B,
Sector 18A, Madhya Marg,
Chandigarh, SCO: 220-221,
Sector 34A, Chandigarh – 160018
Email: [email protected]

2. Punjab State Power Corporation Limited
Through its Chief Engineer
PSEB Head Office, The Mall
Patiala – 147001, Punjab
Email: [email protected]


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Appeal No. 430 of 2019 & 416 of 2022 Page 1 of 81

3. PTC India Limited
Through its Executive Vice President
nd
2 Floor, NBCC Tower,
15, Bhikaji Cama Place,
New Delhi – 110066
Email: [email protected] … Respondent (s)

Counsel for the Appellant(s) : Sanjay Sen Sr. Adv.
Hemant Singh
Biju Mattam
Sourav Roy
Supriya Rastogi Agarwal
Lakshyajit Singh Bagdwal
Chetan Kumar Garg
Nehul Sharma
Harshit Singh
Lavanya Panwar
Alchi Thapliyal
Syed Fazl Askari
Gyanendra Singh
Pawan Singh
Arun Lal
Gandharv Garg
Nishant Kumar
Jay Lal
Akshaya Lal
Sanjeev Singh Thakur
Indrayudh Chowdhury
Gaurav Prakash Pathak
for App. 1

Counsel for the Respondent(s) : Sakesh Kumar
Ankita Bafna
for Res. 1

Anand K. Ganesan
Swapna Seshadri
Amal Nair
for Res. 2
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Appeal No. 430 of 2019 & 416 of 2022 Page 2 of 81

Amit Kapur
Akshat Jain
Avdesh Mandloi
Abhimanyu Maheshwari
Shikhar Verma
Rishabh Bhardwaj
Sayan Ghosh
for Res. 3
APPEAL No. 416 of 2022

M/s Everest Power Private Limited
Through its Authorised Signatory
Hall A, First Floor, Plot No. 143 -144,
Udyog Vihar, Phase - IV,
Gurgaon – 122015, Haryana
Email: [email protected]
[email protected] … Appellant

Versus

1. Punjab State Electricity Regulatory Commission
Through its Registrar
Site No. 3, Block No. B,
Sector 18A Madhya Marg,
Chandigarh, SCO: 220-221,
Sector 34A, Chandigarh – 160018
Email: [email protected]

2. M/s Punjab State Power Corporation Limited
Through its Chief Engineer
PSEB Head Office, The Mall
Patiala – 147001, Punjab
Email: [email protected]
[email protected]

3. M/s PTC India Limited
Through its Executive Vice President
nd
2 Floor, NBCC Tower,
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Appeal No. 430 of 2019 & 416 of 2022 Page 3 of 81

15, Bhikaji Cama Place,
New Delhi – 110066
Email: [email protected]
[email protected] … Respondent (s)

Counsel for the Appellant(s) : Sanjay Sen Sr. Adv.
Hemant Singh
Biju Mattam
Sourav Roy
Ankita Bafna
Neil Chatterjee
Supriya Rastogi Agarwal
Lakshyajit Singh Bagdwal
Chetan Kumar Garg
Harshit Singh
Lavanya Panwar
Alchi Thapliyal
Pawan Singh
Gandharv Garg
Nishant Kumar
Jay Lal
Akshaya Lal
Sanjeev Singh Thakur
Indrayudh Chowdhury
Gaurav Prakash Pathak
for App. 1

Counsel for the Respondent(s) : Gargi Kumar
for Res. 1

Anand K. Ganesan
Swapna Seshadri
Amal Nair
Sugandh Khanna
for Res. 2

Amit Kapur
Akshat Jain
Avdesh Mandloi
Abhimanyu Maheshwari
Shikhar Verma
Rishabh Bhardwaj
Sayan Ghosh
for Res. 3

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J U D G M E N T
PER HON’BLE MR. VIRENDER BHAT, JUDICIAL MEMBER
rd
1. The captioned two appeals are directed against the two orders dated 3
th st
September, 2019 and 9 March, 2021 passed by 1 Respondent -
Punjab State Electricity Regulatory Commission (hereinafter referred to
as “the Commission”) in Petition Nos. 23 of 2017 & 16 of 2020
respectively. Since identical issues have been raised in both the appeals
and are between the same parties, we find it appropriate to dispose off
both the appeals vide this common judgement.

2. The Appellant in both the appeals M/s Everest Power Private Limited (in
short EPPL) is a generating company and has developed 100 MW
Malana II Hydro Electric project in Dist. Kullu in the State of Himachal
nd
Pradesh. The 2 Respondent in both the appeals M/s Punjab State
Power Corporation Limited (in short PSPCL) is entrusted with the
responsibility of generation and distribution of power in the State of
rd
Punjab. The 3 Respondent in both the appeals M/s PTC India Limited
in short (PTC) is a trading licensee under the Electricity Act, 2003 and
has been granted inter state trading license by the Central Electricity
Regulatory Commission .
Details of the two appeals :-
3. The Appeal No. 430 of 2016 has been filed by M/s Everest Power Private
Limited challenging the Generation Tariff Order dated 03.09.2019 (in
short “ Impugned Order 1 ”) passed by the Punjab State Electricity
Regulatory Commission in Petition No. 23 of 2017, while determining the
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Appeal No. 430 of 2019 & 416 of 2022 Page 5 of 81

Annual Fixed Cost (“ AFC ”) for the Control Period for FY 2017-18 to FY
2019-20.

4. The second captioned Appeal No. 416 of 2022 has been filed by EPPL
challenging the Order dated 09.03.2021 (“ Impugned Order 2 ”) passed
by the Punjab State Electricity Regulatory Commission in Petition No. 16
of 2020, which was filed by EPPL for approval of the Annual Fixed Cost
(“ AFC ”) for its Project in respect of the following control periods:

(a) Multi-Year Tariff (“ MYT ”) Control Period of FY 2017-18 to FY 2019-
20 for True-up of FY 2017-18 & 2018-19 and revised estimates for
FY 2019-20, under Sections 62 & 64 of the Electricity Act, 2003
(“ EA, 2003 ”) read with Regulation 63 of the Commission (Terms
and Conditions of Determination of Generation, Transmission,
Wheeling and Retail Supply Tariff) Regulations, 2014 (“ PSERC
MYT Regulations, 2014 ”); and

nd
(b) MYT for 2 Control Period of FY 2020-21 to FY 2022-23, under
Sections 62 & 64 of EA 2003 readwith Regulation 60 of the PSERC
MYT Regulations, 2014.

Submissions of EPPL

List of important Date and Events
5. The following list of important as well as relevant dates and events would
be helpful in understanding and analyzing the rival
contentions/submissions of the parties :-

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executed between the Appellant and the
Respondent No. 3/ PTC for sale of entire
capacity of the Project.

2. 23.03.2006 In terms of the above, a back-to-back Power
Sale Agreement was executed between PTC
and the Respondent No. 2/ PSPCL.

3. 01.07.2014 The Commission, in exercise of its powers
conferred under Section 61 readwith Section
181(2) of EA 2003 notified the PSERC MYT
Regulations, 2014.

4. 28.05.2015 By way of a notification, the Commission
clarified the effective date of enforcement of the
said Regulations to be April, 2017 and the
Three-Year Control Period for the same was
from FY 2017-18 to FY 2019-20.

5. 03.04.2017 In the meanwhile, the Appellant filed a petition,
bearing Petition No. 23 of 2017, before the
Commission for approval of AFC for the Control
Period for FY 2017-18 to FY 2019-20.

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Appeal No. 430 of 2019 & 416 of 2022 Page 7 of 81

6. 08.11.2017
The Commission passed an interim order in I.A.

No. 18 of 2017 in Petition No. 23 of 2017,
allowing provisional AFC at Rs. 167.83 Crores
for FY 2017-18to maintain the continuity of
power to PSPCL.
7. 19.11.2018
In light of the directions of the Commission in

Order dated 30.07.2018 in Petition No. 24 of
2017, the Appellant filed amended Petition No.
23 of 2017 for each year of the Control Period
(FY 2017 to FY 2020) under Sections 62 & 64 of
the EA, 2003 readwith Regulation 63 of the
PSERC MYT Regulations, 2014.
8. 03.09.2019 The Impugned Order 1 was passed by the
Commission.
9. 20.05.2020 The Appellant filed the amended Petition No. 16
of 2020 seeking Multi-Year Tariff for Control
Period of FY 2017-18 to FY 2019-20, True-up of
FY 2017-18 & 2018-19 and revised estimates
for FY 2019-20
10. 09.10.2020
The Appellant filed amended Petition No. 16 of

2020 in view of queries dated 22.06.2020
sought by the Commission.
11. 09.03.2021 The Impugned Order 2 was passed by the
Commission.

Issues which arise for our consideration in these two appeals :-
6. Following five issues arise for our consideration in these two appeals:-
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(i) Dis-allowances made by the Commission in the two impugned
orders towards Operation and Maintenance Expenditure.
(ii) Dis-allowances by the Commission in the two impugned orders
towards capital expenditure under Deferred Provisions.

(a) Disallowance towards Buildings (balance work towards
construction of project colony) & construction of staff rest run
at Dam Complex :
(b) Disallowance of Rs.0.54 crores under “Miscellaneous
Expenditure:
(c) Disallowance of Rs. 1.12 crores towards escalation of balance
infrastructure works: and
(d) Disallowance of Rs.0.61 Crores towards Construction of Store
at Project Site;

Analysis and discussions:-

7. Before proceeding to deal with issues raised by Appellant in both the
appeals, it is observed that the Appellant has filed certain documents by
way of an Application (being I.A No. 1855 of 2025), related to the
escalations in costs of various components. While preferring such
application, the Appellant has relied upon Order XLI Rule 27 (1)(aa) of
Code of Civil Procedure, 1908. Further, it has been submitted that this
Tribunal is a court of first appeal, and as such, empowered to examine
the complete merits of each case duly placed before it for consideration.

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Appeal No. 430 of 2019 & 416 of 2022 Page 9 of 81

8. Appellant has submitted that EPPL's claims for additional capitalisation
pertaining to construction of the Project Colony, construction of staff
restrooms at the dam complex, and escalation on balance infrastructure
works, all of which were disallowed by Commission, are directly traceable
to the EPC Contract with NECL and the chain of correspondence arising
therefrom. It was submitted that the documents sought to be introduced
establish the contractual genesis of the escalation claims and are,
therefore, necessary to enable this Tribunal to pronounce a just judgment
on the issues raised in the Appeal.

9. On the other hand, PSPCL opposed the Application on both
maintainability and merits. On maintainability, it was submitted that the
documents comprising contracts and correspondence between 2005 and
2015 were indisputably within EPPL's knowledge and possession
throughout the proceedings before the State Commission (which
culminated in the Impugned Order dated 09.03.2021), as well as at the
time of filing the Appeal in 2022. Despite multiple rounds of data calls by
the State Commission, EPPL chose to present its additional
capitalisation claims only on the basis of audited accounts, without
relying on or producing the EPC Contract or related correspondence.

10. On merits, PSPCL submitted that the documents are narrative and
descriptive in nature; that none of them contain item-wise cost
justification, contractor-certified measurements, or cost build-up details
directly linked to the monetary claims adjudicated by the State
Commission; and that the production of these documents at this belated
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Appeal No. 430 of 2019 & 416 of 2022 Page 10 of 81

stage would not advance the cause of justice but would only permit EPPL
to attempt to fill lacunae in its evidentiary record.

11. At the threshold, we note the applicable legal framework governing
admission of additional evidence before this Tribunal. Section 120 of the
EA 2003 provides that this Tribunal shall not be bound by the Code of
Civil Procedure, 1908, and shall be guided by the principles of natural
justice. At the same time, PSPCL rightly points out that while this Tribunal
is not bound by the technical provisions of the CPC, the substantive
principles underlying Order XLI Rule 27 which reflect the broader
doctrine of finality and orderly adjudication cannot be entirely set at
naught. The two conditions recognised under Order XLI Rule 27 for
admission of additional evidence are: (a) that the evidence was not within
the party's knowledge or could not, despite due diligence, have been
produced at the original proceedings; or (b) that the evidence is
necessary to enable the Court or Tribunal to pronounce judgment.

12. Crucially, however, given that this Tribunal is not bound by the CPC,
these conditions cannot be applied mechanically or with the same rigidity
as a civil court bound by the CPC would apply them. The overarching
touchstone for this Tribunal is whether, in a tariff determination exercise,
admission of the documents is necessary in the interest of justice and for
enabling a complete and fair adjudication of the controversy before it. As
the Hon'ble Supreme Court has consistently reiterated, procedural rules
are handmaids of justice and not their mistresses. Where exclusion of
relevant material would result in an incomplete or unjust determination of
a matter touching public interest as tariff proceedings undeniably do, the
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Appeal No. 430 of 2019 & 416 of 2022 Page 11 of 81

Tribunal's inherent powers must be exercised liberally. It also needs to
be kept in mind that a generating company which is supplying power to
a distribution licensee under Section 62, is entitled to a rightful tariff in
terms of the tariff principles contained in Section 61 of the Act. The tariff
determination exercise is similar to a cost audit exercise undertaken by
an auditor, where documents are requisitioned or produced at various
stages as per the requirements, and is thus, different from a dispute
under a civil suit. Thus, to determine a statutorily mandated tariff, this
Tribunal or the Regulatory Commissions have to consider any
documents which helps in such exercise. With respect to the above
distinction between a civil suit and a statutory tariff determination
regulatory exercise, we find it imperative to liberally construe the
procedure with respect to furnishing of documents which help in
determination of tariff.

13. It is further to be noted that regulatory tariff proceedings before a State
Commission are not adversarial civil trials in which a party anticipates
and pre-emptively adduces every document that may conceivably be
relevant to every defence that the opposing party may raise. Before a
Regulatory Commission, a generating company files its tariff petition
supported by statutory formats, audited accounts, and such supporting
documents as it deems necessary to demonstrate the cost incurred. The
Commission then exercises its inquisitorial jurisdiction, it requisitions for
data, raises queries, and conducts scrutiny. The claim that EPPL should
have produced EPC contracts from 2005 in its Petition assumes
anticipatory precision that cannot fairly be expected in regulatory
proceedings of this nature.
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Appeal No. 430 of 2019 & 416 of 2022 Page 12 of 81

14. This Tribunal also notes that the proceedings before the State
Commission involved multiple rounds of data calls and queries, and the
Impugned Order 2 reflects that the State Commission's primary concern
was the inability of EPPL to correlate the claimed expenditure with the
approved scope and reasonable cost parameters. It is precisely this
correlation through the EPC Contract's escalation clause, the contractor
correspondence, and the documented delays that the additional
documents seek to establish. The documents are not being introduced
to raise a new issue; they are being introduced to provide the
documentary foundation for an issue, i.e., the contractual basis of
escalation that has been raised and argued from the inception of the
Appeal.

15. It is observed that the documents as placed by the Appellant are relevant,
and their non-production before the State Commission is explainable in
the context of the nature of regulatory tariff proceedings, and that no
prejudice is caused to PSPCL. PSPCL's plea that it would be prejudiced
is not substantiated as the documents are historical, they arise from
transactions to which EPPL was a party, and their contents are not such
as to take PSPCL by surprise or deprive it of the opportunity to respond
effectively. PSPCL has to keep in mind that it is statutorily bound to make
payment of rightful tariff of the Appellant/ generating company in terms
of Section 61 principles, and as such, we hold that PSPCL cannot be
prejudiced by consideration of documents now furnished by the
Appellant.

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Appeal No. 430 of 2019 & 416 of 2022 Page 13 of 81

16. For the foregoing reasons, we are of the considered view that the above
Application deserves to be allowed in the interest of justice, to enable a
full and fair adjudication of the issues arising in Appeal No. 416 of 2022.
The documents sought to be placed on record are relevant to the core
issues in controversy, i.e., with respect to determination of tariff, their
production is necessitated by the specific findings of the Impugned Order
2.

Issue 1- Disallowances made by the Commission in the two Impugned
Orders towards Operation and Maintenance Expenditure

Submissions on behalf of the Appellant:-

17. The Appellant submits that the issue regarding erroneous disallowance
of Operation and Maintenance Expenses primarily arises from Impugned
Order 1 and same methodology/ baseline values has been followed by
Commission while passing Impugned Order 2. As such, consolidated
submissions have been advanced by the Appellant/ EPPL during the
course of hearing, with respect to issue qua O&M expenses.

18. The Appellant is aggrieved with the determination of tariff by Commission
in the Impugned Orders, wherein, the said Commission failed to adhere
to Regulation 8.1 (b) which makes it mandatory to determine baseline
values for O&M Expenditure after duly considering various relevant
factors inter-alia including industry benchmarks/ norms for similar/ same
capacity projects, figures approved by Commission in past, latest audited
accounts, estimates for ensuing years, etc.
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Appeal No. 430 of 2019 & 416 of 2022 Page 14 of 81

19. It is the case of Appellant that Commission, by not following the mandate
of Regulation 8.1(b), failed to consider appropriate benchmarks from
similarly situated generators, and the expenditure incurred in the Base
Year in terms of Regulations 8.1(b) readwith 3.9 of the Commission MYT
Regulations, 2014, while determining the O&M cost of the Project. The
aforesaid relevant clauses of the PSERC MYT Regulations, 2014 are
reproduced herein below:

“…
3.9. “Base Year” means the year immediately preceding the first
year of the control period, and used for the purposes of these
regulations;

…
8. MYT APPROACH

8.1. Baseline Values

(a) The baseline values for the control period shall be
determined by the Commission and the projections for the
Control Period shall be based on these figures.

(b) The baseline values shall be inter-alia based on figures
approved by the Commission in the past, latest audited
accounts, estimate of the expected figures for the relevant
year, industry benchmarks/norms and other factors
considered appropriate by the Commission .”

(Emphasis & Underline Supplied)

20. However, the Commission, in the Impugned Order 1, determined the
base line value for the subject control period only based on past figures
approved under the O&M expense head for FY 2016-17, merely
escalating them by Wholesale Price Index (“ WPI ”) negating the entire
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ambit of revision of baseline for each control period as envisaged under
Regulation 8.1(b).

21. In the above context, it is the case of the Appellant that the Commission
ought to have approved the baselines values for the Appellant on the
basis of (i) the latest audited costs ( actual expenditure incurred ); (ii) the
approved expenditure in earlier years; (iii) industry benchmarks/ norms
for similar/ same capacity projects; and (iv) estimate of the expected
figures for the relevant year(s) as submitted by the Appellant, and other
relevant factors, which was in line with Regulation 8.1 of the PSERC MYT
Regulations, 2014 ( as reproduced hereinabove ).

22. Thus, the Commission has acted in clear derogation of the PSERC MYT
Regulations, 2014 by limiting the Operation and Maintenance Expenses
to figures approved under the O&M expense head for FY 2016-17 and
escalating them by WPI.

23. It has been submitted that the PSERC MYT Regulations, 2014 were
notified on 01.07.2014, however the same were made effective w.e.f.
01.04.2017 vide a subsequent notification dated 28.05.2015.
Accordingly, these regulations were applicable for tariff determination for
the relevant MYT control period, i.e., from FY 2017-18 to FY 2019-20. It
is stated that the Commission determined the baseline values for the very
first time for FY 2017-18 vide the Impugned Order 1 and thus the
Appellant could not have challenged the baseline figures earlier.

24. In addition to the above, Appellant has submitted that the PSERC failed
to consider that even if the claim of the Appellant was allowed, then also
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Appeal No. 430 of 2019 & 416 of 2022 Page 16 of 81

actual O&M cost of the Project is almost 50% to 75% lesser in
comparison to the O&M cost incurred by similar/ same projects and thus,
expenditure by the Appellant towards O&M cost should have been
allowed. Notably, Commission erred in not considering such data as an
appropriate benchmark and failed to provide any similar benchmarks
evincing industry standards. A table depicting the aforesaid has been
submitted by the Appellant, and the same has been reproduced below:

25. Further, it is Appellant’s case that Commission failed to evaluate the
details and the comprehensive information/ data/ documents submitted
by the Appellant relating to O&M expenditure incurred since COD of the
Project, in line with Regulation 8.1, which were as follows:

(a) Latest Audited Accounts of the Appellant;

(b) Detailed note on regulatory regime with regards to determination
of O&M cost for various hydro projects by the Ld. Central
Commission (“ CERC ”);
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Appeal No. 430 of 2019 & 416 of 2022 Page 17 of 81

(c) O&M Expenditure approved by CERC for Hydro Projects having
similar/same capacity; and

(d) Details of the expenditure incurred towards various sub-heads
(employee cost, Repair & Maintenance expenses, and
Administrative & General expenses) under O&M expenses along
with the supporting documents elaborating reasons thereof.

All the above documents were furnished by the Appellant in its petition
filed before the Commission ( being Petition No. 23 of 2017 in which the
Impugned Order 1 was passed ).

26. It is also stated that Commission also ignored the actual expenditure
incurred by the Appellant towards Repair & Maintenance (“ R&M ”)
Expenses during FY 2014-15 to FY 2016-17, which was furnished by the
Appellant in its petition filed before the Commission ( being Petition No.
23 of 2017 in which the Impugned Order 1 was passed ).

27. Adding onto the foregoing submissions, it has been submitted by the
Appellant that at the time of hearing in Petition No. 23 of 2017 ( in which
the Impugned Order-1 was passed ), the Commission issued a letter
dated 19.03.2019 read with order dated 08.04.2019, wherein, some
queries were put forth regarding O&M expenditure. In this context, the
Appellant filed a Reply dated 18.10.2019, addressing the aforesaid
queries of the said Commission in the following manner:

(a) The Commission sought queries with respect to increase in R&M
expenses for FY 2016-17 in relation with FY 2012-13; information
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for Administrative and General Expenses for FY 2014-15, 2015-16
& 2016-17; salary bills of employees of the Appellant for FY 2014-
15, 2015-16 & 2016-17; details of R&M expenses incurred during
FY 2014-15, 2015-16 & 2016-17; and details of actual expense
incurred towards R&M expenses for FY 2014-15, 2015-16 & 2016-
17;

(b) In the above context, the Appellant submitted a comprehensive
note containing head-wise details of Administrative and General
Expenses for FY 2014-15, 2015-16 & 2016-17. The Appellant also
submitted the actual R&M expenses for FY 2014-15, 2015-16 &
2016-17;

(c) In addition to the above, while submitting the salary bills of its
employees as required, the Appellant apprised Commission of the
fact that its Project was facing financial crunch due to non-
realization of full AFC since the matter had been sub-judice before
multiple forums, which was decided only in April, 2015 by the
Hon’ble Supreme Court. Hence, it was only from FY 2015-16 that
the Appellant was able to review the salaries of its employees; and

(d) It was further submitted that the Appellant’s Project was
Commissioned in July, 2012 and thus, the first financial year after
COD, i.e., FY 2012-13, was not the full operation year for the said
Project. In such circumstances, the requirement towards R&M
expenses was very limited for FY 2012-13, and since the Project
was under defect liability period, most of such expenses were
being carried out by the EPC contractor. As such, the actual
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Appeal No. 430 of 2019 & 416 of 2022 Page 19 of 81

expenditure incurred by the Appellant towards R&M expenses only
began from FY 2014-15.

28. In addition to the above, the Appellant filed an additional reply dated
22.06.2019 to the queries put forth by Commission, wherein, the
Appellant submitted a detailed note on O&M expenses including the
details of the expenses incurred by the Appellant towards Employee
Cost and R&M during the period from 2014-15 to 2016-17, alongwith
pointed justifications and copies of the relevant bills/ invoices.

Erroneous comparison undertaken by Commission with Shanan Hydro
Electricity Project of the Respondent No. 2/ PSPCL

29. It is further submitted by the Appellant that the comparison undertaken
by Commission between Shanan Project of the Respondent No. 2/
PSPCL and the Appellant is completely erroneous on account of the
following:

(i) Shanan Project is located in a broad valley with most components
at surface with a small tunnel, while the Project of the Appellant is
located in high-altitude with vertical cliff having underground
components and is subject to snowfall;

(ii) Further, Shanan Project does not have any project road and project
relies on PWD roads where in the maintenance of the roads are
taken care of by PWD, whereas, for the Appellant’s Project, all
access is through project roads and rope ways maintained by the
Project itself, thereby requiring extensive maintenance;
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(iii) Shanan is surrounded by mountainous terrain having elevation of
only 1200-1300m and is located in a valley. On the other hand, the
Appellant is located on a smaller hillside valley and is surrounded
by mountainous terrain having elevation of over 2400m-2500m;

(iv) Shanan is located in a fairly developed area including residential
and commercial properties, whereas, the Appellant is located in a
remote location with no permanent construction around the site;
and

(v) Shanan has access to National Highway (NH – 154) closer to
project site, whereas, the Appellant has only one road access to
the site, part of which is maintained by the Appellant itself.

30. In addition thereto, the following distinctions have been drawn between
Shanan HEP and Malana-II HEP of the Appellant:

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Appeal No. 430 of 2019 & 416 of 2022 Page 21 of 81

31. Apart from the foregoing, the Appellant has made following submissions
as regards uniqueness of the Project:

(a) Each hydro project is unique in itself, depending on the site-specific
conditions including geology, topography, accessibility of the site
and climatic conditions etc. In this context, there were notable
differences in the Project of the Appellant;

(b) A comparison of O&M Expenditure ( in Rs. Crores ) between
Malana-II HEP ( Appellant’s Project ) and other similar projects is
provided hereunder:

(c) Also, the average O&M Cost/ MW of other projects ( based on the
latest amount approved towards O&M by the Ld. CERC/
Commission ) is much higher than the O&M Cost/ MW of Malana -
II HEP of the Appellant. The same is depicted and explained
through a comparative table produced herein below:

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Appeal No. 430 of 2019 & 416 of 2022 Page 22 of 81

(d) Further, Commission failed to consider the outsourcing part of
O&M services, which had various advantages like hedging the risk,
availability of skilled and unskilled man-power, to meet the
seasonal variation of man power requirement, help in meeting the
man power requirement during maintenance and shutdown.

32. In terms of the aforesaid, certain unique features which differentiate
Malana -II HEP (the Appellant’s Project) from other Hydroelectric
Projects situated in the State of Himachal Pradesh are provided as
follows:

(a) The Project is located in high altitude region of Himalayas, wherein
dam, HRT and Surge shaft are located between elevation 2500-
2800 meters;

(b) The Project witnesses inclement weather and unprecedented
snowfall almost every year. The heavy snowfall and freezing cold
makes the working conditions of the Project quite challenging &
difficult as the movement of men and machinery during the winter
season is not possible;

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Appeal No. 430 of 2019 & 416 of 2022 Page 23 of 81

(c) The Project site shivers under intense cold with the minimum
temperature going well below 0°C. The working conditions at Dam
Complex are severe where the dam site is cut-off for more than 4
months due to heavy snow cover, and 4-5 feet thick snow remains
on the top of the Concrete Gravity Dam;

(d) High head scheme (600m): This is the highest head for a Project
having capacity of 100MW or so. Generally, such high heads come
under higher capacity projects. Some of the examples are Naptha
Jhakri 1500 MW (450 mtr.), Karcham Wangto 1000MW (300 mtr),
Teesta III 1200MW (800mtr), etc.;

(e) The head race tunnel is almost 5km long located in a very fragile
geology;

(f) The Project components are accessed through the project road of
length of 14 Km. These roads to Dam site traverses through very
difficult and steep terrain and adverse geology, and are subjected
to extreme weather conditions of monsoon, cloud bursts and heavy
snow, resulting in frequent landslides and washing out of the road.
Thus, continuous maintenance of all the roads and bridges is
mandatory to ensure smooth operation of the project; and

(g) All of the Project components are underground, and therefore,
continuous monitoring, maintenance and repair are unavoidable.
33. Additionally, the O&M Expenses of other projects similar to the Appellant,
i.e., 100 MW (approx.) run-of-water hydro-projects in similar
geographical areas have been tabulated as under:
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Appeal No. 430 of 2019 & 416 of 2022 Page 24 of 81

Table : Comparison of O&M among a similar capacity of
projects for FY 17-18, 18-19 as approved by CERC (in CERC
Tariff Regulations 2014)

In light of the above, the Appellant has contended that COMMISSION
has erroneously disallowed the legitimate expenditures towards the
Operation and Maintenance Expenses for the Project, and incorrectly
determined the baseline values. As such, it has been contended that
Impugned Orders 1 and 2 be set aside on this count.

Submission of PSPCL

34. The primary issue raised in these appeals, and the sole issue in Appeal
No. 430 of 2019 is the O&M expenses allowed by the State Commission
for the base year FY 2017-18, being the base line values in terms of
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Appeal No. 430 of 2019 & 416 of 2022 Page 25 of 81

Regulation 8.1(b) of the MYT Regulations, 2014 which, inter alia, reads
as under:
“8.1 Baseline Values
…
(b) The baseline values shall be inter-alia based on figures
approved by the Commission in the past, latest audited accounts,
estimate of the expected figures for the relevant year, industry
benchmarks/ norms and other factors considered appropriate by
the Commission.”

35. It is submitted the State Commission has correctly applied MYT
Regulations, 2014 and determined the base line value in a judicious
manner.

36. The primary contention of the Appellant that the State Commission
should consider the O&M expenses as per the CERC Regulations as
determined for generating stations of NHPC is grossly misconceived.

37. The CERC Regulations have no application to the present case. This
issue has been settled by the Hon’ble Tribunal intra parties in the
judgement dated 12.11.2014 in Appeal Nos. 30 and 35 of 2014, whereby
the Hon’ble Tribunal rejecting the contention of the Appellant for
application of CERC’s Regulations, inter alia, held as under:

“87. In the present case, as pointed out by the State Commission,
already the Regulations have been framed by the State
Commission and therefore, the applicable Regulations are only
State Commission's Regulations and not the Central Commission's
Regulations.
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Appeal No. 430 of 2019 & 416 of 2022 Page 26 of 81

88. In view of above, the contention of the Appellant Everest Power
that the State Commission ought to have applied the Central
Commission's Regulations while determining the tariff of the
project is entirely misplaced.”

38. Further, the very nature of determination by CERC and the State
Commission is different. The CERC allows O&M cost on normative basis
on a lump sum basis for the generator, without any bifurcation between
employees cost, Administrative and General (A&G) Expenses and
Repair and Maintenance (R&M) Cost.
39. However, the State Commission determines each element of O&M cost
separately in accordance with the MYT Regulations.
40. The State Commission has considered the approved O&M cost for the
previous year FY 2016-17 of Rs. 18.36 crores for considering and
computing the base line for FY 2017-18 for Employee Cost, the terminal
benefits has been allowed on actual basis, and also for R&M and A&G
Expenses para 2.19 to 2.22.

41. After determination of the base line values, the escalation is in terms of
Regulations, wherein the k factor is determined. There is no dispute on
such k factor determination.

42. While the actual figures cannot be taken as a base line value, the State
Commission has also considered the actual claims of the Appellant and
given reasons as to why the same cannot be considered. The State
Commission has also noted the following:

a) There is no justification for maintaining offices at Delhi, Gurugram
and Shimla. It is relevant to mention that the Appellant company
operates only one project, it is not that multiple projects have to be
coordinated from one office;
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Appeal No. 430 of 2019 & 416 of 2022 Page 27 of 81

b) The Appellant also maintains guest houses at Delhi, Gurugram and
Shimla, which cost is claimed in tariff;

c) The specific query on increase in salary expenses despite
reduction in the number of employees was not answered;

d) The projected employee cost in fact exceeded the amount
mentioned in the audited accounts;

e) 20% increase in employee cost is claimed;

f) The insurance cost is for higher value than the capital cost; and

g) Corporate Social Responsibility Cost is also claimed;

43. The truing up for FY 2016-17 has been accepted by the parties. There is
no justification for the Appellant to accept the FY 2016-17 determination,
but object to the same used as the base for considering FY 2017-18. The
State Commission has allowed higher O&M cost than for FY 2016-17.

44. Further, the State Commission has also compared the cost with the
Shanan Powerhouse. The said project is 110 MW (same as the
Appellant) located in Himachal Pradesh (owned by PSPCL), for which
the total O&M cost for FY 2017-18 was only Rs. 10.91 crores.

45. The Appellant has been allowed much higher cost of Rs. 19.02 crores
for FY 2017-18.

46. The generating stations compared by the Appellant ( @Pg 15 of appeal )
of NHPC are also materially different, in terms of capacity, location,
terrain etc. In fact, two of located in Northeast India and one in Jammu
and Kashmir.
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Appeal No. 430 of 2019 & 416 of 2022 Page 28 of 81

Our Analysis and Findings
47. The central and most significant issue in these appeals and the sole
issue in Appeal No. 430 of 2019, concerns the determination of baseline
values for Operation and Maintenance (O&M) expenses for the MYT
Control Period FY 2017-18 to FY 2019-20. The Appellant contends that
the Commission, in arriving at the baseline values for the O&M
expenditure, mechanically and exclusively relied upon the approved
O&M figures for FY 2016-17 (i.e., the immediately preceding year),
escalating them merely by the Wholesale Price Index ('WPI'), without
undertaking the comprehensive multi-factor analysis mandated by
Regulation 8.1(b) of the PSERC MYT Regulations, 2014.

48. In the above context, Regulation 8.1(b) of the PSERC MYT Regulations,
2014 reads as follows:
"The baseline values shall be inter-alia based on figures
approved by the Commission in the past, latest audited
accounts, estimate of the expected figures for the relevant
year, industry benchmarks/norms and other factors
considered appropriate by the Commission."

49. We observe that the language of this provision is unambiguous and
categorical. The word 'shall' imports a mandatory obligation on the State
Commission. The phrase 'inter-alia based on' explicitly enumerates a
non-exhaustive list of factors that the Commission is duty-bound to
consider while determining baseline values. These factors include: (i)
figures approved by the Commission in the past; (ii) latest audited
accounts; (iii) estimates of expected figures for the relevant year; (iv)
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Appeal No. 430 of 2019 & 416 of 2022 Page 29 of 81

industry benchmarks/norms; and (v) other factors considered
appropriate by the Commission. The enumeration of multiple distinct
considerations under Regulation 8.1(b) is a deliberate legislative choice
reflecting the intent that baseline determination is a comprehensive
exercise and not a mechanical extrapolation from past approved figures.

50. The term 'inter-alia' is of particular importance. It signifies that the
enumerated factors are illustrative and not exhaustive thereby implying
that the Commission must, at a minimum, consider all the enumerated
factors and may, in addition, weigh other factors it deems appropriate.
The use of this phrase precludes a reading of the regulation that would
confine the inquiry to only one factor, namely past approved figures.

51. From a careful reading of Impugned Order 1, it is evident that the
Commission determined the baseline values for O&M expenses for FY
2017-18 exclusively on the basis of the figures approved for FY 2016-17
— being Rs. 18.36 Crores escalated by WPI. The Commission did not
undertake any independent analysis of the other mandatory factors
prescribed under Regulation 8.1(b). It does appear to us that this
approach suffers from a fundamental and incurable legal infirmity.

52. It is observed that the very purpose of the PSERC MYT Regulations,
2014 was to introduce a multi-year tariff framework that moved away
from the year-to-year mechanical extrapolation that had characterized
the pre-MYT regime. The baseline determination was conceived as a
fresh and comprehensive exercise at the commencement of each
Control Period, precisely to ensure that the baseline reflects prevailing
operational realities rather than perpetuating outdated figures. By limiting
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Appeal No. 430 of 2019 & 416 of 2022 Page 30 of 81

the baseline inquiry to a simple WPI escalation of the previous year's
allowed figures, the State Commission has negated the very purpose of
the MYT regime it created under its own regulations.

53. Therefore, this Tribunal finds it wholly impermissible for the Commission
to carry forward the pre-MYT approved figures without conducting the
comprehensive review mandated by Regulation 8.1(b), particularly since
the baseline values are being established for the first time under the new
MYT framework. In this regard, we also agree with the Appellant that it
could not have challenged the baseline figures earlier precisely because
those baseline figures were being determined for the very first time in the
MYT framework through Impugned Order 1.

54. The Appellant has placed on record extensive material demonstrating
the unique, challenging, and complex features of the Malana-II Hydro
Electric Project, which distinguishes it fundamentally from other hydro
projects and particularly from the Shanan Hydro Electricity Project, with
which Commission chose to compare it. This Tribunal finds the following
features to be of material significance in determining a fair and rational
O&M baseline:
• High Altitude Location: The Project is situated at an altitude of
approximately 2528 meters above sea level, with dam, HRT and surge
shaft components located between elevations of 2500-2800 meters.
The extreme altitude entails harsh climatic conditions with
temperatures dropping well below 0°C in winters.
• Prolonged Inaccessibility: The dam site remains cut off for more than
four to five months every year due to heavy snow cover, with four to
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Appeal No. 430 of 2019 & 416 of 2022 Page 31 of 81

five feet of thick snow remaining atop the Concrete Gravity Dam. This
seasonal inaccessibility renders maintenance work impossible for
extended periods, necessitating intensified efforts during accessible
months.
• High Head Scheme (600 meters): The Project operates with a net
head of 600 meters — the highest head for any project in the
approximately 100 MW class. Such a high head imposes
extraordinary stress on hydraulic machinery and necessitates
specialized, frequent, and intensive maintenance of turbines,
penstocks, and associated equipment.
• Underground Components: All major project components — the
powerhouse, surge shaft, head race tunnel — are underground,
requiring continuous specialized monitoring and maintenance.
• Long Head Race Tunnel in Fragile Geology: The 5-kilometer head
race tunnel passes through very fragile and geologically sensitive
terrain, requiring perpetual monitoring and remedial interventions.
• Challenging Access: Project roads of approximately 14 km traverse
difficult and steep terrain prone to frequent landslides, cloud bursts,
and monsoon damage, and are maintained entirely by the Appellant.
No public roads serve the site.
• Outsourced O&M: The Project relies on outsourced O&M services to
manage seasonal manpower requirements, meet specialized
technical demands, and ensure year-round plant safety — a model
that involves legitimate overhead costs not present in government-
owned projects.

55. In sharp contrast, the COMMISSION chose to benchmark the Appellant's
O&M costs against the Shanan Hydro Electricity Project of PSPCL, a
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Appeal No. 430 of 2019 & 416 of 2022 Page 32 of 81

project of 110 MW capacity whose total O&M cost for FY 2017-18 was
Rs. 10.91 Crores. In our considered view, this comparison is
fundamentally flawed and cannot be sustained for the following reasons:
• Shanan Project is situated at an altitude of approximately 1200-1300
meters, barely half the altitude of the Malana-II Project of the Appellant
in a broad, developed valley. The Malana-II Project of the Appellant,
by contrast, is in a remote, high-altitude mountainous terrain above
2400-2500 meters.
• The bulk of Shanan's components are above ground, while all major
components of Malana-II are underground, requiring continuous and
expensive underground maintenance.
• Shanan relies on PWD-maintained roads, incurring no road
maintenance expenditure, while the Appellant maintains all project
roads and ropeways at its own cost.
• Shanan enjoys proximity to National Highway NH-154, while the
Malana-II Project is accessible only through project-maintained roads
prone to landslides.
• Shanan is located in a relatively developed, populated area while
Malana-II is in a completely remote location with no permanent civilian
infrastructure.

56. Accordingly, we are of the view that comparing the O&M costs of two
structurally, geographically, geologically, and operationally dissimilar
projects merely because of broadly similar installed capacity without any
adjustment for project-specific factors, constitutes an arbitrary exercise
that is contrary to the mandate of Regulation 8.1(b) as well as the tariff
principles contained in Section 61 of the Act. The Commission has failed
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Appeal No. 430 of 2019 & 416 of 2022 Page 33 of 81

to explain how the Shanan Project can serve as a meaningful benchmark
for the Appellant.

57. Further, the Appellant placed before the Commission detailed industry
benchmark data, comparing O&M costs for projects of similar capacity
and geography. The said data, which the Appellant placed before the
Commission and which was not disputed, reveals a stark and irrefutable
fact that even as per the Appellant's own claim, its O&M cost per MW
(Rs. 0.34 Crore per MW) was far below the per-MW O&M of all
comparable NHPC-regulated projects ranging from Rs. 0.58 to Rs. 1.19
Crore per MW. The Commission , having allowed only Rs. 19.02 Crores
for FY 2017-18 (which represents approximately Rs. 0.19 Crore per
MW), in our view, has effectively penalized the Appellant for operating a
project at costs far below industry benchmarks.

58. This Tribunal notes that Regulation 8.1(b) specifically and expressly
mandates consideration of 'industry benchmarks/ norms.' When an
industry benchmark analysis unambiguously demonstrates that even the
Appellant's claimed figures are significantly below peer-group averages,
it is wholly inexplicable and contrary to the regulatory mandate for the
Commission to disallow the claim without providing any counter-analysis
of the benchmarks. The State Commission ought to have addressed this
benchmark data with reasons; its silence on this aspect renders the
impugned determination unsustainable.

59. Regarding the employee cost, the Commission approved only Rs. 4.37
Crores for FY 2017-18 against the Appellant's claim of Rs. 8.15 Crores.
The State Commission found fault with the Appellant on account of
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Appeal No. 430 of 2019 & 416 of 2022 Page 34 of 81

alleged maintenance of offices at Delhi, Gurugram and Shimla;
maintenance of guest houses at these locations; an unexplained
increase in salary despite reduction in employee count; and a 20%
increase in employee cost claimed.

60. This Tribunal finds the State Commission's approach on employee costs
to be flawed. First, the Appellant is a private generating company
executing a legally binding PPA with PTC/PSPCL. Its offices at Delhi,
Gurugram and Shimla serve legitimate administrative, regulatory,
commercial, and legal functions. A generating company involved in multi-
jurisdictional regulatory proceedings before Commission (Chandigarh),
CERC (Delhi), and this Tribunal is entitled to maintain office infrastructure
at these locations. The State Commission's reasoning that the Appellant
operates 'only one project' and therefore does not need multiple offices
conflates the site-level operations of a hydroelectric project with the
corporate-level legal, regulatory, and commercial administration of a
private generating company. Such an approach has no basis in the MYT
Regulations and is contrary to the principle that all legitimately incurred
administrative costs form part of an entity's operational expenditure. The
approach of the Commission amounts to dictating as to how a private
generating company needs to conduct its operations/ business, which is
not the intent of its tariff regulations.

61. Secondly, regarding the increase in salary expenses despite reduction in
employee count, the Appellant submitted detailed information to the
Commission during the hearing that the Project faced financial difficulties
due to non-realization of full AFC over prolonged periods when the matter
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Appeal No. 430 of 2019 & 416 of 2022 Page 35 of 81

was sub-judice before multiple forums, which was ultimately resolved
only in April 2015 by the Hon'ble Supreme Court. It was only from FY
2015-16 that the Appellant was financially able to revise salaries. The
Commission failed to appreciate this undisputed context and instead
treated the natural consequence of deferred salary revisions as an
infirmity in the Appellant's accounts.

62. Regarding Repair & Maintenance Expenses, the Commission approved
only Rs. 14.65 Crores for FY 2017-18 against the Appellant's claim of
Rs. 25.77 Crores under the head of Repair & Maintenance and
Administrative & General Expenses. The Commission based this
determination primarily on past approved figures.

63. However, it is observed that the Project had been under the defect
liability period of its EPC contractor up to FY 2013-14, during which most
R&M activities were carried out by the contractor at no additional cost to
the Appellant. Meaningful independent R&M expenditure only
commenced from FY 2014-15. Therefore, we find that using FY 2012-13
as a reference year for R&M escalation was inherently distorting, as R&M
costs in the early years were suppressed.
Further, the unique features of the Project, being underground
components, 5 km fragile tunnel, steep project roads prone to landslides,
600m head machinery under high stress necessarily entail higher-than-
average R&M costs compared to surface projects or valley-based
projects.

Furthermore, it has been brought to the notice of this Tribunal that the
Appellant submitted detailed R&M expense data for FY 2014-15, 2015-
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Appeal No. 430 of 2019 & 416 of 2022 Page 36 of 81

16 and 2016-17 with bills and invoices. The Commission, despite
receiving this information, failed to conduct a prudence check on the
same and instead made a blanket disallowance.

64. PSPCL's first argument is that the Appellant accepted the FY 2016-17
true-up determination, and therefore cannot object to that figure being
used as the base for FY 2017-18. The Appellant's acceptance of the FY
2016-17 true-up amounts to acceptance of that figure for that particular
year alone. It does not and cannot amount to a concession that the FY
2016-17 approved figure is a correct, comprehensive, and legally
sufficient basis for baseline determination under Regulation 8.1(b) of the
Commission MYT Regulations 2014, a separate and distinct normative
exercise. Also, it is a settled principle of law that res judicata is not
applicable to tariff proceedings, as held by the Hon'ble Supreme Court in
Uttar Pradesh Power Corporation Limited v. National Thermal Power
Corporation, reported in [(2009) 6 SCC 235]. As such, the contention of
PSPCL stands rejected on this ground.

65. PSPCL has also contended that the CERC Regulations have no
application and that this Tribunal has previously rejected the Appellant's
contention for application of CERC Regulations in Appeal Nos. 30 and
35 of 2014. We note that the above argument by PSPCL is a misleading
argument as the Appellant is not, in the present appeals, seeking
application of CERC Regulations per se. Rather, it relies upon data
pertaining to NHPC projects (which are regulated by CERC) purely as an
industry benchmark, as mandated by Regulation 8.1(b) of the PSERC
MYT Regulations, 2014 itself. This is an entirely different proposition.
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Appeal No. 430 of 2019 & 416 of 2022 Page 37 of 81

Industry benchmarks by their very nature may be drawn from the
practices and approvals of other regulatory authorities overseeing
comparable projects. The earlier judgment rejecting the substitution of
CERC Regulations for State Commission Regulations has no bearing on
the use of CERC approved figures as benchmarks.

66. It is also the case of PSPCL that the State Commission allowed a higher
O&M cost than for FY 2016-17, and therefore there is no grievance. We
are of the view that the question is not whether the allowed amount is
higher than the previous year but whether it is determined in accordance
with the law i.e., in accordance with the multi-factor analysis mandated
by Regulation 8.1(b) read with Section 61 of the Act. A determination that
is marginally higher than the previous year but is still reached by an
impermissible methodology is no less legally infirm.

67. PSPCL's another argument is the comparison with the Shanan
Powerhouse, which the State Commission used to justify limiting the
Appellant's O&M to Rs. 19.02 Crores. This Tribunal has already
addressed the fundamental inappropriateness of this comparison in
detail above, and we are not repeating our observations again. Such a
comparison reveals a failure to apply the analytical judgment required by
Regulation 8.1(b) of PSERC MYT Regulations, 2014.

68. For the reasons enumerated above, this Tribunal holds that the
Commission committed a grave error of law in determining the baseline
values for O&M expenses for the MYT Control Period FY 2017-18 to FY
2019-20. The Commission was duty-bound under Regulation 8.1(b) of
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Appeal No. 430 of 2019 & 416 of 2022 Page 38 of 81

the PSERC MYT Regulations, 2014 to conduct a comprehensive multi-
factor analysis, taking into account: (i) figures approved in the past; (ii)
the latest audited accounts of the Appellant; (iii) estimates for the relevant
year; (iv) industry benchmarks and norms from comparable projects; and
(v) project-specific operational parameters. Having failed to do so, and
having mechanically relied upon a single factor i.e., the past approved
figure for FY 2016-17 escalated by WPI, the State Commission's
determination of baseline O&M values is vitiated and cannot stand.

69. Accordingly, Issue No. 1 is decided in favour of the Appellant. The matter
is remanded to the Commission with specific directions to re-determine
the baseline O&M values for the Control Period FY 2017-18 to FY 2019-
20 in strict conformity with Regulation 8.1(b), considering all the factors
enumerated therein, including the industry benchmark data furnished by
the Appellant. The Commission shall also consider the unique features
and site-specific challenges of the Malana-II HEP while re-determining
the above as per our directions. Impugned order-2 shall stand modified
accordingly as per the revised base line values to be redetermined by
the Commission in terms of this judgement and the corresponding
additional financial impact shall be alongwith carrying cost at the
applicable rate.

Issue 2: Disallowances by the Commission in the two Impugned Orders
towards Capital Expenditure under Deferred Provisions

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Appeal No. 430 of 2019 & 416 of 2022 Page 39 of 81

This issue can be, for the sake of convenience, divided in following four
sub-issues.

A. Disallowances towards Buildings (balance works towards
construction of Project colony) & construction of staff rest room at
dam complex:

Submissions on behalf of the Appellant:-


70. It is Appellant’s case that Commission disallowed the following amounts
under the above component:

(a) Rs. 0.24 Crores ( Rs. 2.14 Crores claimed minus Rs. 1.90 Crores
allowed ) towards construction of the Project Colony during FY
2017-18; and

(b) Rs. 0.28 Crores ( Rs. 1.01 Crores claimed minus Rs. 0.73 Crores
allowed ) towards construction of staff rest room at Dam complex
during FY 2018-19.

71. It is submitted that the above claims of the Appellant are clearly reflected
in the Audited Balance Sheets for FY 2017-18 & 2018-19, details whereof
are as under:

(i) The expenditure of Rs. 2.14 Crores towards construction of Project
Colony is reflected under Note 3 of the Audited Balance Sheet for
FY 2017-18 under the head ‘Buildings – Project Office’. The
relevant note in the audited balance sheets of the Appellant were
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Appeal No. 430 of 2019 & 416 of 2022 Page 40 of 81

a part of record before the Commission and have been filed before
this Tribunal by way of IA No. 1855 of 2025 ; and

(ii) The expenditure of Rs. 1.01 Crores towards construction of Staff
Restroom at dam complex is reflected under Note 3 of the Audited
Balance Sheet for FY 2018-19 under the head ‘Buildings – Project
Office’.

72. Appellant submits that Commission failed to acknowledge its own
observations made in the order dated 30.07.2018 passed in Petition No.
24 of 2017 ( Petition filed for approval of Capital Investment Plan and
Business Plan for the subject Control Period ) (“ CIP Order ”), as
elucidated hereinbelow, wherein, the expenditure towards project colony
and staff restroom was acknowledged:

(a) The infrastructure work pertaining to Project Colony could not be
completed on account of local issues;

(b) The difficulty being faced by the Appellant on account of non-
availability of experienced/ skilled labourers during winter season,
leaving construction work in abeyance; and

(c) The amount payable to the EPC contractor becomes due in terms
of the contract only when the entire building works are completed.

Thus, when the works towards Project Colony and staff restrooms were
completed in FYs 2017-18 and 2018-19, then the Appellant was entitled
to the actual cost incurred in terms of Sections 61(d) readwith Section
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Appeal No. 430 of 2019 & 416 of 2022 Page 41 of 81

2(30) of EA 2003 which mentions that housing colony etc. for staff is an
integral part of the generating station.

73. It is stated that the Commission in the CIP Order also noted that
additional capitalization would only be allowed when the said amount is
claimed as actual expenditure alongwith submission of audited accounts.

74. Therefore, the Appellant claimed actual expenditure with respect to the
construction of project colony and staff restroom in Petition No. 16 of
2020, in which the Impugned Order 2 was passed.

75. In order to buttress the above, the Appellant has also placed on record
certain contracts and communications exchanged with the sub-
contractors in order to demonstrate the actual expenditure:

(a) An EPC Contract, bearing No. EPPL/C-HM/INFRA/2378, was
entered into between the Appellant and Navayuga Engineering
Company Limited (‘ NECL ’) on 20.12.2005, for execution of
‘ Infrastructural Works, Preliminary Enabling and Ancillary Works ’ –
detailed under Schedule – II, for an amount of Rs. 140 Crores
(‘ Subject EPC Contract ’). The said Agreement contemplated
completion of the works in 15 months;

(b) The Appellant, vide its letter dated 28.02.2006 issued to NECL,
sought clarity for the delay in progress by NECL, in terms of the
percentage of payment on monthly basis being made by the said
Applicant;

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Appeal No. 430 of 2019 & 416 of 2022 Page 42 of 81

(c) Vide a letter dated 03.03.2006 addressed to the Appellant, NECL
accepted the proposal for demand of progressive payments based
on actual works executed at the Project site, in replacement of the
payment schedule contained in the Subject EPC Contract;

(d) Also, a meeting was conducted between the Appellant and NECL,
wherein, minutes of meetings dated 02.09.2006 records reasons
sought by the said Applicant for delay in progress of works at
Project site. Thus, in the meeting, the Scope of Work was revised,
the Subject EPC Contract was amended, and the Billing Breakup
of the said Amendments were provided;

(e) Pursuant thereto, NECL addressed a letter dated 05.08.2008 to the
Appellant, informing that due to the amendment in the Scope of
Works ( vide letter dated 28.02.2006 ), additional costs were to be
borne in order to meet the implementation schedule of the Project
due to certain issues, and an additional claim of Rs. 20.68 Crores
was submitted by NECL, with a detailed breakup by way of a study
report;

(f) In terms of the above, the Appellant sent a letter to NECL on
29.06.2015, confirming Balaji O&M Services Pvt. Ltd. (‘ BOMSPL’ )
as a sub-contractor for the Balance Works towards Colony Works
( from October, 2015 to June, 2016 ) and Project Works ( from
March, 2016 to September, 2016 );

(g) As regards the above, a letter came to be issued by BOMSPL on
11.07.2015, agreeing to execute the balance works related to
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Appeal No. 430 of 2019 & 416 of 2022 Page 43 of 81

Permanent Colony and Road at the Project site, as well as abiding
to the time period contemplated by the Appellant contained in its
letter dated 29.06.2015; and

(h) It is pertinent to submit that the payments towards such works of
construction of Project Colony and Staff Restroom were made in
FYs 2017-18 and 2018-19.

It is apposite to note that the documents mentioned at (a) to (g) above,
were placed on record by the Appellant through its Application for placing
on record “additional documents” (being IA No. 1855 of 2025) before this
Tribunal.

76. It is further submitted that as per the principles envisaged under Section
61(d) of EA 2003, the tariff is to be determined keeping in mind the
recovery of costs incurred by the generating company, especially in light
of the aforesaid documents. Notably, the fact that such estimated costs
for the aforesaid components were considered appropriate in CIP Order,
subject to true-up, entails that Commission ought to have considered the
actual cost during the true-up stage and not restricted the same to earlier
estimates rendering the true-up process otiose. As such, since the
audited financial statements of the Appellant reflected the actual
expenditure of Rs. 2.14 Crores towards construction of Project Colony
and Rs. 0.28 Crores towards construction of staff rest room being
legitimate expenditures, the same ought to have been allowed by the
Commission.

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Appeal No. 430 of 2019 & 416 of 2022 Page 44 of 81

77. Further, a perusal of Response dated 25.11.2020 by the Appellant to the
queries raised by the Commission reveals that a copy of the bill towards
above construction works amounting to Rs. 2.14 Crores for construction
of Project colony had been provided to the Commission (Annexure-1 to
the said Response) along with bill of Rs. 1.01 Crores for construction of
Staff Rest Room .

78. Apart from the foregoing, reference is also placed upon Section 2(30) of
EA, 2003, which states that “ "generating station" or “station” means any
station for generating electricity, including any building and plant with
step-up transformer, switchgear, switch yard, cables or other
appurtenant equipment, if any, used for that purpose and the site thereof;
a site intended to be used for a generating station, and any building used
for housing the operating staff of a generating station, and where
electricity is generated by water-power, includes penstocks, head and
tail works, main and regulating reservoirs, dams and other hydraulic
works, but does not in any case include any sub-station ”.

As such, in terms of Section 2(30) of EA 2003, housing colonies,
buildings, and rooms constitute an integral part of a generating station,
and expenditures towards the same ought to have been allowed.

79. Thus, it is submitted that Commission has failed to conduct prudence
check in terms of the extant Regulations, and as such, the impugned
Order deserves to be set aside and the issue remanded for fresh
consideration.

Submission on behalf of PSPCL :-
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Appeal No. 430 of 2019 & 416 of 2022 Page 45 of 81

80. The State Commission has correctly disallowed an amount of Rs. 0.24
crores towards construction of project colony during FY 2017-18 and Rs.
0.28 crores towards construction of staff rest rooms at dam complex
during FY 2018-19. It is pertinent to note that the State Commission vide
Order dated 30.07.2018, in Petition No. 24 of 2017 approved the
expenditure towards abovementioned structures, to the tune of Rs. 1.90
crores.

81. It is the Appellant’s case that they were only allowed a normative value
and were given the liberty to claim any escalation based on actual costs
incurred. The above is misconceived.

82. The Appellant has wrongly based its entire argument on its own
submissions, which it is trying to pass-off as ratio decidendi of the Order
dated 30.07.2018. The Appellant’s inability to complete the works on time
cannot mean that the burden is passed on to the consumers.

83. The Sate Commission has correctly held that the Appellant has failed to
establish the impact of alleged adverse events on the construction of
project colony and staff rest room at dam complex. In absence of any
cogent reasons for increase in expenditure, the inflated costs cannot be
allowed.

Our Analysis :-

84. This issue pertains to the disallowance in Impugned Order 2 of the
following components:
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Appeal No. 430 of 2019 & 416 of 2022 Page 46 of 81

(a) Rs. 0.24 Crores (the differential between Rs. 2.14 Crores actually
incurred and Rs. 1.90 Crores normatively approved) towards
construction of the Project Colony during FY 2017-18; and
(b) Rs. 0.28 Crores (the differential between Rs. 1.01 Crores actually
incurred and Rs. 0.73 Crores normatively approved) towards
construction of Staff Rest Rooms at the Dam Complex during FY 2018-
19.

85. For this, we refer to Section 2(30) of the Electricity Act, 2003 which
defines 'generating station' as including 'any building used for housing
the operating staff of a generating station.' The definition thus expressly
and unambiguously recognizes that housing colonies and operational
staff accommodation constitute an integral and inseparable part of a
generating station. Since the Malana-II Project of the Appellant is located
in a remote Himalayan terrain without any habitation in the vicinity, the
construction of a project colony and staff rest rooms is not a discretionary
or peripheral activity, it is an operational necessity without which the
Project cannot be manned or operated. The Electricity Act, 2003
recognizes this reality by bringing staff housing expressly within the
definition of a generating station.

86. The critical distinguishing fact in this case is that the COMMISSION itself,
in its Order dated 30.07.2018 passed in Petition No. 24 of 2017 (the
Capital Investment Plan Order, 'CIP Order'), expressly acknowledged the
works relating to project colony and staff rest rooms. In the CIP Order,
the Commission specifically noted: (a) that the infrastructure work
pertaining to the Project Colony could not be completed on account of
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Appeal No. 430 of 2019 & 416 of 2022 Page 47 of 81

local issues; (b) that the Appellant faced difficulty due to non-availability
of experienced and skilled labourers during winter seasons; and (c) that
the amounts payable to the EPC contractor became due only upon
completion of the entire building works.

87. In the CIP Order, the Commission approved a normative provision for
these works subject to true-up explicitly stipulating that additional
capitalization would be allowed once the Appellant claims actual
expenditure with audited accounts. This conditional approval at the CIP
stage imposed a duty on the Appellant to carry out the works and then
submit actual expenditure with audited accounts at the true-up stage,
which the Appellant duly did in Petition No. 16 of 2020. The Impugned
Order 2 was the true-up stage and the Appellant had complied with all
conditions of the CIP Order. However, it is observed that the State
Commission made a u-turn and disallowed the additional amounts
without explaining why the conditions it had itself imposed were not met
or why the actual audited expenditure was not credible.

88. In this regard, we observe that the concept of 'truing up' in electricity tariff
law has a well-settled meaning. As the Hon'ble Supreme Court in BSES
Rajdhani Power Limited v. Delhi Electricity Regulatory Commission
[(2023) 4 SCC 788] as relied upon by the Appellant has categorically held
that truing up means the adjustment of actual amounts incurred by the
entity against estimated/projected amounts. The truing-up stage is not
an occasion for the Commission to revisit, reopen, or rethink the
fundamental basis of earlier tariff determinations. Nor can a Commission
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Appeal No. 430 of 2019 & 416 of 2022 Page 48 of 81

use the true-up stage to introduce a fresh methodological departure that
was not part of the original determination.

89. The ratio of this Tribunal's judgment in GIFT Power Company Limited v.
GERC (Appeal No. 285 of 2021, dated 14.11.2022) is also squarely
applicable, where it was held that the scope of truing up is limited to the
adjustment of actual income and expenditure against estimated
amounts. At the true-up stage, the Commission cannot change the basic
premise or methodology of tariff determination.

90. In the present case, the Commission had, in the CIP Order,
acknowledged the works relating to project colony and staff rest rooms,
approved normative amounts, and deferred final determination to the
true-up stage upon submission of actual audited expenditure. When the
Appellant submitted actual audited expenditure in Petition No. 16 of
2020, the Commission in the Impugned Order 2 was obligated to conduct
a prudence check and determine whether the actual expenditure was
reasonable, necessary, and incurred as stated. Instead, the Commission
disallowed the excess figures over the normative estimates without
conducting any prudence check, without identifying any instance of
waste or imprudence in the actual expenditure, and without providing any
reasoned basis for the disallowance.

91. The Appellant has placed on record an EPC Contract bearing No.
EPPL/C-HM/INFRA/2378 executed between the Appellant and
Navayuga Engineering Company Limited ('NECL') on 20.12.2005 for
execution of infrastructural works at Rs. 140 Crores, including project
colony construction. The contract contemplated completion in 15
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Appeal No. 430 of 2019 & 416 of 2022 Page 49 of 81

months. The contract demonstrates that the scope of work was revised
due to delays; additional costs were claimed by NECL; and ultimately a
sub-contractor, Balaji O&M Services Pvt. Ltd. ('BOMSPL'), was engaged
for balance works in 2015-16. Payments for these works fell in FYs 2017-
18 and 2018-19 and are duly reflected in audited accounts under the
head 'Buildings — Project Office.'

92. The actual expenditure of Rs. 2.14 Crores (FY 2017-18) and Rs. 1.01
Crores (FY 2018-19) is not merely a self-serving assertion of the
Appellant but is corroborated by audited financial statements, contractor
bills, and contract documentation. We find that the Commission's
disallowance of the excess over the normative figure, without any finding
that the actual expenditure was excessive, unjustified, or imprudent, is
arbitrary.

93. PSPCL has argued that the Commission correctly disallowed the excess
figures/ costs, and that the CIP Order approved only a normative value
and not a commitment to allow escalation. In this regard, it is observed
by us that the CIP Order did not merely fix a normative value but it
conditionally deferred final determination to the true-up stage, upon
submission of actual audited accounts. If the Commission's intention was
to cap the allowable amount at the normative figure regardless of actual
costs, it would not have kept the matter open for true-up. The very act of
deferring to the true-up stage implies that the Appellant or any generator/
entity has to complete the work and then claim the actual, reasonable
expenditure later at the true-up stage. PSPCL's contention that the
Appellant's failure to complete works on time should not burden
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Appeal No. 430 of 2019 & 416 of 2022 Page 50 of 81

consumers is unpersuasive when the delay was caused by local
agitation, seasonal unavailability of skilled labour in high-altitude terrain
which were factors beyond the Appellant's control and noted by the
Commission itself in the CIP Order.

94. This Tribunal, therefore, holds that the Commission erred in disallowing
Rs. 0.24 Crores and Rs. 0.28 Crores towards construction of Project
Colony and Staff Rest Rooms respectively. These expenditures are
expressly covered within the definition of 'generating station' under
Section 2(30) of the Electricity Act, 2003; operationally necessary for a
remote Himalayan project; acknowledged and conditionally approved by
the Commission itself in the CIP Order; duly incurred and reflected in
audited accounts; and subject to true-up in terms of the CIP Order itself.
The Commission ought to have conducted a prudence check at the true-
up stage, and its summary disallowance without identifying any
imprudence, is unsustainable. This issue is answered in favour of the
Appellant. Thus, Commission is directed to allow the actual audited
expenditure towards Project Colony (Rs. 2.14 Crores for FY 2017-18)
and Staff Rest Rooms (Rs. 1.01 Crores for FY 2018-19) subject to a
proper prudence check, and the amounts so allowed be released
alongwith applicable interest/ carrying cost.

B.
Miscellaneous (towards procurement of Office Equipment; Tools &
Tackles/ Machinery and Computers):

Submission of the Appellant :-

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Appeal No. 430 of 2019 & 416 of 2022 Page 51 of 81

95. That, the Commission disallowed Rs. 0.54 Crores, which was incurred
towards “ miscellaneous expenditure ” by the Appellant, on account of
wrongfully treating the same as an expenditure qua “ minor items ” which
is not allowed in terms of proviso to Regulation 18.2(e) of the PSERC
MYT Regulations. While doing so, the Commission proceeded to
disallow the entire amount towards purchase of office equipment, plant
& machinery, furniture & fixtures and computers during the entire MYT
period.

96. The Appellant submitted that the reliance upon proviso to Regulation
18.2(e) is completely erroneous, for the reason that the said proviso is
restricted to only Regulation 18.2(e), and not Regulation 18.2(d). The
claim of the Appellant falls under Regulation 18.2(d). The Regulation
18.2(d) is reproduced hereinbelow:

“18. ADDITIONAL CAPITALIZATION

… 18.2 The Capital Expenditure of the following nature actually
incurred after the cut-off date may be admitted by the
Commission subject to prudence check:

.. (d) Any additional works/services which have become
necessary for efficient and successful operation of the project,
but not included in the original project cost; and …”

(Underline Supplied)

97. It is settled law that a proviso is an exception to the main provision, which
in the present case is Regulation 18.2(e). Regulation 18.2(e) is
applicable only in case of damage due to natural calamity. It is in this
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Appeal No. 430 of 2019 & 416 of 2022 Page 52 of 81

context, that the proviso bars expenditure towards minor items incurred
as a result of natural calamity after the cutoff date.

While in the present case, the expenses incurred after the cutoff date
were not as a result of any natural calamity. Hence, Regulation 18.2(e)
is not applicable, including the proviso.

98. Accordingly, the actual expenditure incurred by the Appellant in terms of
Regulation 18.2(d), due to additional work or expenditure which becomes
essential for efficient and successful operation of the Project, ought to be
allowed. That, the above expenditures towards miscellaneous items are
clearly reflected in the Audited Balance Sheets in the following manner:

(a) Rs. 0.25 Crores under Note 3 of Audited Balance Sheet for FY
2017-18 under the heads ‘Plant & Machinery’, ‘Office Equipment’,
‘Computers’ and ‘Furniture & Fixtures’;

(b) Rs. 0.13 Crores under Note 3 of Audited Balance Sheet for FY
2018-19 under the heads ‘Office Equipment’, ‘Computers’ and
‘Furniture & Fixtures’; and

(c) Rs. 0.16 Crores under Note 3 of Audited Balance Sheet for FY
2019-20 under the heads ‘Office Equipment’, ‘Computers’ and
‘Furniture & Fixtures’.

Pertinently, the above documents did not form part of the record before
Commission, and the same have been placed before this Tribunal by
way of the abovementioned IA.

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Appeal No. 430 of 2019 & 416 of 2022 Page 53 of 81

99. It is also pertinent to note that the above expenditure was incurred
belatedly, i.e., after the cutoff date, due to impediments created by local
agitation and non-availability of migrant workers, which was noted by the
Commission itself in the CIP Order.

100. It is also submitted by the Appellant that the above claim, which was
allowed principally by the Commission through the CIP Order, was
disallowed subsequently in the true-up order (Impugned Order 2), which
goes against the very scope of truing-up, which entails comparison of
normative/ provisionally allowed with actual expenditure. In this regard,
reliance has been placed upon the following judgments:

(a) Judgment of the Hon’ble Supreme court titled as BSES Rajdhani
Power Limited v. Delhi Electricity Regulatory Commission , reported
in (2023) 4 SCC 788 , wherein the following was laid down:

“55. ‘Truing up’ has been held by APTEL in SLDC
v. GERC4 to mean the adjustment of actual
amounts incurred by the Licensee against the
estimated/projected amounts determined under the
ARR. Concept of ‘truing up’ has been dealt with in
much detail by the APTEL in its judgment in NDPL
v. DERC wherein it was held as under:

“60. Before parting with the judgment we are
constrained to remark that the Commission has not
properly understood the concept of truing up. While
considering the Tariff Petition of the utility the
Commission has to reasonably anticipate the
Revenue required by a particular utility and such
assessment should be based on practical
considerations. … The truing up exercise is meant
(sic) to fill the gap between the actual expenses at
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Appeal No. 430 of 2019 & 416 of 2022 Page 54 of 81

the end of the year and anticipated expenses in the
beginning of the year. When the utility gives its own
statement of anticipated expenditure, the
Commission has to accept the same except where
the Commission has reasons to differ with the
statement of the utility and records reasons thereof
or where the Commission is able to suggest some
method of reducing the anticipated expenditure.
This process of restricting the claim of the utility by
not allowing the reasonably anticipated expenditure
and offering to do the needful in the truing up
exercise is not prudence.”

56. This view has been consistently followed by the
APTEL in its subsequent judgments and we are in
complete agreement with the above view of the
APTEL. In our opinion, ‘truing up’ stage is not an
opportunity for the DERC to rethink de novo on the
basic principles, premises and issues involved in
the initial projections of the revenue requirement of
the licensee. ‘Truing up’ exercise cannot be done to
retrospectively change the methodology/principles
of tariff determination and reopening the original
tariff determination order thereby setting the tariff
determination process to a naught at ‘true up’
stage.”


(b) Judgment dated 14.11.2022 of this Hon’ble Tribunal titled as GIFT
Power Company Limited v. GERC rendered in Appeal No. 285 of
2021, wherein, the following was laid down:

“7. Clearly, the scope of truing up proceedings is
limited to the adjustment of actual income and
expenditure for the corresponding period of
determination of ARR. It is not open to the
Regulatory Commission to change, at the stage of
truing up, the basic premise or methodology on the
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Appeal No. 430 of 2019 & 416 of 2022 Page 55 of 81

basis of which ARR was determined, the stage of
truing up being one only for adjustment of actuals
qua the estimated amounts and not meant for
introducing new or varied methodology. We may
quote Hon’ble Supreme Court on this subject in the
judgment reported in the case of BSES Rajdhani
Power Limited vs. Delhi Electricity Regulatory
Commission (2022 SCC OnLine SC 1450) as
under:

“53. ‘Truing up’ has been held by APTEL in SLDC
v. GERC to mean the adjustment of actual amounts
incurred by the Licensee against the
estimated/projected amounts determined under the
ARR. Concept of ‘truing up’ has been dealt with in
much detail by the APTEL in its judgment in NDPL
v. DERC wherein it was held as under:—

“60. Before parting with the judgment we are
constrained to remark that the Commission has not
properly understood the concept of truing up. While
considering the Tariff Petition of the utility the
Commission has to reasonably anticipate the
Revenue required by a particular utility and such
assessment should be based on practical
considerations. … The truing up exercise is meant
(sic) to fill the gap between the actual expenses at
the end of the year and anticipated expenses in the
beginning of the year. When the utility gives its own
statement of anticipated expenditure, the
Commission has to accept the same except where
the Commission has reasons to differ with the
statement of the utility and records reasons thereof
or where the Commission is able to suggest some
method of reducing the anticipated expenditure.
This process of restricting the claim of the utility by
not allowing the reasonably anticipated expenditure
and offering to do the needful in the truing up
exercise is not prudence.”

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Appeal No. 430 of 2019 & 416 of 2022 Page 56 of 81

54. This view has been consistently followed by the
APTEL in its subsequent judgments and we are in
complete agreement with the above view of the
APTEL. In our opinion, ‘truing up’ stage is not an
opportunity for the DERC to rethink de novo on the
basic principles, premises and issues involved in
the initial projections of the revenue requirement of
the licensee. ‘Truing up’ exercise cannot be done to
retrospectively change the methodology/principles
of tariff determination and re-opening the original
tariff determination order thereby setting the tariff
determination process to a naught at ‘trueup’
stage."
…
9. In our considered view, the majority opinion is
misdirected and in breach of the discipline required
to be maintained at the stage of truing up.
Reference to Regulation 6 (General Framework) of
MYT Regulations, 2016, wherein the right of the
State Commission to “vary as and when the facts
and circumstances so warrant, from the procedures
and parameters specified” to justify the departure
made is incorrect as the general power cannot be
availed to junk the letter and spirit of specific
circumspection prescribed for truing up by
Regulation 21.3. The decision rendered on such
majority opinion must be set aside and vacated. We
order accordingly.”

101. It is thus stated that impugned Order 2 to the extent of disallowance qua
miscellaneous expenditures ( as mentioned hereinabove ) ought to be set
aside and remanded back to the Commission for fresh consideration.

Submission of PSPCL :-

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Appeal No. 430 of 2019 & 416 of 2022 Page 57 of 81

102. PSPCL has contended that the State Commission has correctly not
considered the expenses under the miscellaneous head, amounting to
Rs. 0.54 crores in terms of Regulations 18.2(e) of the MYT Regulations,
2014, any expenditure on acquiring minor items is not to be considered
for additional capitalization for determination of tariff. When the expenses
claimed are post cut-off date, a strict interpretation of the regulations shall
be followed. The said Regulation, inter alia , reads as under:

“18.2. The Capital Expenditure of the following nature
actually incurred after the cut-off date may be admitted by
the Commission subject to prudence check:

[…]

e. In case of hydro generating stations, any expenditure
which has become necessary on account of damage
caused by natural calamities (but not dun to flooding of
power house attributable to the negligence of the
generating company) including due to geological reasons
after adjusting for proceeds from any insurance scheme,
and expenditure incurred due to any additional work which
has become necessary for successful and efficient plant
operation:

Provided that any expenditure on acquiring the minor
items or the assets the tools and tackles, furniture, air-
conditioners, voltage stabilizers, refrigerator coolers, fans,
washing machines, heat convectors, mattresses, carpets
c brought after the cut-off date shall not be considered for
additional capitalisation for determination of tariff w.e.f.,
the date of the start of first year of the control period.”

103. It has thus been submitted on behalf of PSPCL that where the regulation
itself bars capitalisation of minor items incurred post cut-off date, there is
no merit in the claim sought to be advanced.
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Appeal No. 430 of 2019 & 416 of 2022 Page 58 of 81

Our Analysis :

104. This issue relates to the disallowance of Rs. 0.54 Crores under the head
of 'miscellaneous expenditure,' which comprised Rs. 0.25 Crores
incurred in FY 2017-18 towards Plant & Machinery, Office Equipment,
Computers, and Furniture & Fixtures; Rs. 0.13 Crores in FY 2018-19
towards Office Equipment, Computers, and Furniture & Fixtures; and Rs.
0.16 Crores in FY 2019-20 towards Office Equipment, Computers, and
Furniture & Fixtures.

105. The Commission disallowed this entire amount by invoking the proviso
to Regulation 18.2(e) of the PSERC MYT Regulations, 2014, which bars
capitalization of 'minor items' such as tools and tackles, furniture, air-
conditioners, voltage stabilizers, refrigerators, fans, and so on, acquired
after the cut-off date.

106. In the above context, we first refer to Regulation 18.2 which provides for
the categories of capital expenditure incurred after the cut-off date that
may be admitted subject to prudence check. Regulation 18.2(d) covers
'any additional works/services which have become necessary for efficient
and successful operation of the project, but not included in the original
project cost.'

Regulation 18.2(e) covers expenditure on account of damage caused by
natural calamities (except due to negligence of the generating company),
and expenditure due to additional works necessary for 'successful and
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Appeal No. 430 of 2019 & 416 of 2022 Page 59 of 81

efficient plant operation.' The proviso to Regulation 18.2(e) excludes
capitalization of minor items acquired after the cut-off date.

107. From a perusal of the Impugned Order, it appears to us that the
fundamental error committed by the State Commission is the application
of the proviso to Regulation 18.2(e) to expenditure that does not fall
under Regulation 18.2(e) at all. As a matter of elementary statutory
interpretation, a proviso is an exception carved out of and therefore
limited in its operation to the specific provision it is annexed to. We agree
with the contention of the Appellant that a proviso to Regulation 18.2(e)
can only govern the scope of Regulation 18.2(e). It cannot be extended
beyond Regulation 18.2(e) to override the intent of Regulation 18.2(d).

108. The Appellant's expenditure on Plant & Machinery, Office Equipment,
Computers, and Furniture & Fixtures does not arise from damage caused
by natural calamities, and as such cannot attract Regulation 18.2(e).
These are items procured for the efficient and successful operation of the
Project specifically falling under Regulation 18.2(d), i.e., 'additional
works/services which have become necessary for efficient and
successful operation of the project, but not included in the original project
cost.' The Commission's extension of the proviso to Regulation 18.2(e)
to this claim, which squarely falls under Regulation 18.2(d), is thus,
erroneous.

109. We observe that the law on the limited scope of a proviso is well settled.
A proviso must be read as subordinate to and an exception within the
main provision to which it is appended. It cannot expand its operation to
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Appeal No. 430 of 2019 & 416 of 2022 Page 60 of 81

other provisions or override them. As the Hon'ble Supreme Court has
consistently held, a proviso carves out an exception only from the
particular enactment to which it is a proviso, and its scope does not travel
beyond that. Reference in this regard may be made to Judgments
passed by the Hon’ble Supreme Court in A.N Sehgal v. Raja Ram
Sheoran reported as [ 1992 Supp (1) SCC 304]; Tribhovandas Haribhai
Tamboli v. Gujarat Revenue Tribunal & Ors. reported as [(1991) 3 SCC
442]. Applying this settled principle, we hold that the proviso to
Regulation 18.2(e) cannot be read to invalidate a claim legitimately falling
under Regulation 18.2(d).

110. The expenditure on Plant & Machinery (included in the FY 2017-18 claim)
represents items that are essential for plant-level operations — tools,
testing equipment, and operational machinery. The expenditure on Office
Equipment, Computers, and Furniture & Fixtures is necessary for the
administrative functioning of the Project office. These are not mere
consumer goods but are operational necessities required for the
management and technical operation of a 100 MW hydroelectric project.
The fact that such items were procured after the cut-off date does not, by
itself, disqualify them under Regulation 18.2(d), which specifically allows
additional capitalization after the cut-off date for items necessary for
efficient and successful project operation.

111. Thus, it is observed that the Commission failed to conduct any prudence
check on whether these specific items were necessary for efficient and
successful operation of the Project, as Regulation 18.2(d) mandates.

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Appeal No. 430 of 2019 & 416 of 2022 Page 61 of 81

112. This Tribunal further notes that in the CIP Order, the Commission had
principally allowed this expenditure. The disallowance in Impugned
Order 2 during the true-up proceedings represents a reversal of a
position taken in the CIP Order, a reversal without any new material or
legal basis. As this Tribunal has held in Issue No. 2 above, the true-up
stage is not an occasion for the Commission to revisit and reverse
allowances principally made earlier at the capital investment plan stage.
The ratio of BSES Rajdhani and GIFT Power Company applies here as
well, with equal force here.

113. PSPCL’s contention in this regard is that Regulation 18.2(e) is applicable,
and that post-cut-off date expenditure on minor items cannot be
capitalized. This argument does not sustain for the reason that the
Appellant's claim does not arise under Regulation 18.2(e) but it arises
under Regulation 18.2(d). PSPCL has not addressed the Appellant's
above argument as to the scope of the proviso.

114. This issue is thus decided in favour of the Appellant. The Commission
committed an error of law by applying the proviso to Regulation 18.2(e)
to expenditure falling squarely under Regulation 18.2(d). The
disallowance of Rs. 0.54 Crores towards miscellaneous expenditure
(comprising Plant & Machinery, Office Equipment, Computers, and
Furniture & Fixtures) is set aside. Commission is directed to re-examine
this expenditure under Regulation 18.2(d) and conduct a proper item-
wise prudence check as mandated by the said regulation and allow all
such items that pass the prudence check. The appellant shall be entitled
to carrying cost also at the applicable rate.
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Appeal No. 430 of 2019 & 416 of 2022 Page 62 of 81

C. Escalation (Escalation on balance infrastructure works & major
works):

115. The Appellant submits that the Commission through the CIP Order, had
allowed Rs. 0.19 Crores for FY 2018-19 and Rs. 0.04 Crores for FY
2019-20, towards escalation on balance infrastructure works and major
works. However, through Petition No. 16 of 2020 ( in which the Impugned
Order 2 was passed ), the Appellant claimed Rs. 1.35 Crores for FY 2017-
18 and Rs. 0.42 Crores for FY 2019-20, as trued up expenditure, towards
escalation on balance infrastructure works and major works, and such
expenditure was erroneously disallowed by Commission.

116. It is the case of Appellant that the above expenditure of Rs. 1.35 Crores
is clearly reflected under Note 3 of the Audited Balance Sheet for FY
2017-18 under the head ‘Buildings – Project Office’, which was brought
to the notice of Commission in the tariff determination proceedings.

117. In fact, reliance has been placed on the EPC Contract, dated 20.12.2005
executed between the Appellant and NECL also contains an escalation
clause, which is reproduced hereinunder:

“The contractor will subject to Clause-5, commence the work
within 15 days after receiving the Notice for Commencement
(‘NTP’) from the Employer. Such notice for commencement
st
would be given by the Employer on or before 31 December
2005 to the Contractor. If the Notice for Commencement is
th
delayed beyond 15 January 2006 the Agreement Price will
th
remain same till 30 August, 2006. In case NTP is delayed
st
beyond 1 May 2006, both parties would negotiate and arrive at
a suitable escalation and in case of failure of Parties to agree to
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Appeal No. 430 of 2019 & 416 of 2022 Page 63 of 81

suitable escalation, the Employer would have the right to
terminate this Contact.”

(Underline Supplied)

118. It is thus Appellant’s submission that through the Impugned Order-2, the
Commission, without assigning any reasons, allowed only Rs. 0.23
Crores for FY 2017-18, under the above head of expenditure, thereby
rendering a disallowance of Rs. 1.12 Crores which was incurred during
FY 2017-18. In this regard, it is stated that the construction of project
colony was delayed on account of various factors/ reasons beyond
control of the Appellant. It is stated that when civil works are delayed,
there is always a cascading effect due to increase in costs/ expenditure
on account of various commercial reasons.

119. Accordingly, in the true up proceedings qua the Impugned Order, the
Commission proceeded to ignore the escalation bills issued by the O&M
Contractor upon the Appellant amounting to Rs. 1.35 Crore, which were
attached in the Response dated 25.11.2020 filed by the Appellant to the
queries raised by the Commission.

120. It is the stance of Appellant that the above issue was also dealt with by
the Appellant vide its reply dated 25.11.2020 to queries/ observations
conveyed by the Commission vide its letter dated 22.06.2020 and order
dated 12.11.2020.

121. In light of the above facts, the Appellant submits that the Commission
was required to conduct a prudence check for the additional expenditure
incurred by the Appellant, in terms of Section 61(d) of EA 2003, basis the
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Appeal No. 430 of 2019 & 416 of 2022 Page 64 of 81

information/ documents furnished by the Appellant before the said
Commission. However, the Impugned Order 2 was passed by
disallowing the above without providing any reasons whatsoever.

122. Even otherwise, the disallowance rendered by the Commission under
Para 2.19 of the Impugned Order 2 also renders it as a non-speaking
order, which is impermissible in law, in terms of the following judgments
passed by the Hon’ble Supreme Court:

(a)
Judgment titled as Omar Usman Chamadia v. Abdul , reported in
(2004) 13 SCC 234 , wherein the following was laid down:

“10. However, before concluding, we must advert to
another aspect of this case which has caused some
concern to us. In the recent past, we had several
occasions to notice that the High Courts by
recording the concessions shown by the counsel in
the criminal proceedings refrain from assigning any
reason even in orders by which it reverses the
orders of the lower courts. In our opinion, this is not
proper if such orders are appealable, be it on the
ground of concession shown by the learned
counsel appearing for the parties or on the ground
that assigning of elaborate reasons might prejudice
the future trial before the lower courts. The High
Court should not, unless for very good reasons
desist from indicating the grounds on which their
orders are based because when the matters are
brought up in appeal, the court of appeal has every
reason to know the basis on which the impugned
order has been made. It may be that while
concurring with the lower courts' order, it may not
be necessary for the said appellate court to assign
reasons but that is not so while reversing such
orders of the lower courts. It may be convenient for
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Appeal No. 430 of 2019 & 416 of 2022 Page 65 of 81

the said court to pass orders without indicating the
grounds or basis but it certainly is not convenient
for the court of appeal while considering the
correctness of such impugned orders. The reasons
need not be very detailed or elaborate, lest it may
cause prejudice to the case of the parties, but must
be sufficiently indicative of the process of reasoning
leading to the passing of the impugned order. The
need for delivering a reasoned order is a
requirement of law which has to be complied with
in all appealable orders. This Court in a somewhat
similar situation has deprecated the practice of non-
speaking orders in the case of State of Punjab &
Ors. vs. Jagdev Singh Talwandi (AIR 1984 SC
444), that was a case where the High Court in a
detention order while allowing the challenge to the
detention order directed the release of the detenue
before it could give a reasoned order. Even such a
practice was deprecated by a Constitution Bench of
this Court. Whereas in the instant case it is a final
order reversing the order of the learned Sessions
Judge wherein the High Court thought it not
necessary to give the reasons on the ground that
the counsel appearing for the parties did not press
for a reasoned order. Consequently, when the
matter was taken up for hearing, we had no benefit
of the reasons which persuaded the High Court to
pass the impugned order. Hence, we have
proceeded to decide the appeal on merit based on
the material available on record and the arguments
addressed before us, from which we have come to
the conclusion that the impugned order ought to be
set aside. Though a prayer was made on behalf of
the first respondent that the matter be remanded to
the High Court to facilitate it to pass a reasoned
order, on facts of this case, we think it proper to
decide the issue before us ourselves without
prolonging the proceeding any further by
remanding it to the High Court. But we do record
our disapproval of the practice followed by the High
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Appeal No. 430 of 2019 & 416 of 2022 Page 66 of 81

Court reflected in the impugned order and hope the
same will not be repeated.”

(b) Judgment titled as Chairman, Disciplinary Authority, Rani Laxmi
Bai Kshetriya Gramin Bank v. Jagdish Sharan Varshney and
Others , reported in (2009) 4 SCC 240 , wherein the following was
laid down:

“ 7. In the present case, since the appellate
authority's order does not contain any reaons, it
does not show any application of mind.

8. The purpose of disclosure of reasons, as held by
a Constitution Bench of this Court in the case of
S.N.Mukherjee vs. Union of India reported in (1990)
4 SCC 594, is that people must have confidence in
the judicial or quasi-judicial authorities. Unless
reasons are disclosed, how can a person know
whether the authority has applied its mind or not?
Also, giving of reasons minimizes chances of
arbitrariness. Hence, it is an essential requirement
of the rule of law that some reasons, at least in brief,
must be disclosed in a judicial or quasi-judicial
order, even if it is an order of affirmation. ”

123. To this extent as well, the Appellant contends that Impugned Order 2 is
non-speaking and liable to be set aside and remanded to the
Commission for fresh consideration.

Submission on behalf of PSPCL :-

124. PSPCL submits that the Appellant’s contention that the State
Commission has vaguely disallowed the escalation on balance
infrastructure works, i.e., Rs. 1.12 crores, is baseless. It is stated that
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Appeal No. 430 of 2019 & 416 of 2022 Page 67 of 81

Appellant failed to furnish any cogent reasons for the increase in
expenditure, and merely attached its balance sheets wherein it expected
the State Commission to fish out reasons for escalation.

125. It is stated that during the course of final hearing before this Hon’ble
Tribunal, the Appellant sought to place on record a set of additional
documents purportedly to substantiate its escalation claims. PSPCL has
objected to the said attempt under Order XLI Rule 27 of the Code of Civil
Procedure, 1908.

126. It is stated that the Appellant’s attempt to introduce additional documents
at the stage of final hearing is impermissible and amounts to a clear
attempt to ill lacunae in its case. Pleadings in the appeal had long been
completed and the matter had already been argued at length when the
said application was filed. And this is when the Appellant had every
opportunity to and access to the documents filed at the Appellate Stage.

127. The documents sought to be introduced pertain to the period between
2005 and 2015 and were indisputably within the Appellant’s knowledge
and possession throughout the proceedings before the State
Commission as well as during the pendency of the appeal. The Appellant
has failed to plead, much less establish, that despite due diligence such
documents could not have been produced earlier, as required under
Order XLI Rule 27 Code of Civil Procedure, 1908.

128. It has been submitted that the impugned Order 2 was passed in tariff
proceedings after multiple rounds of data calls and scrutiny. The State
Commission adjudicated the Appellant’s claims on the basis of the
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Appeal No. 430 of 2019 & 416 of 2022 Page 68 of 81

material placed before it. The Appellant cannot now be permitted to
fundamentally alter the evidentiary basis of its case at the appellate stage
by introducing documents that were consciously withheld earlier.
129. Without prejudice, even on merits, the additional documents sought to
be introduced have no nexus with the issues adjudicated by the State
Commission. The documents do not contain any correlation with
approved scope, or material demonstrating prudence of the expenditure
actually booked during FY 2017-18 to FY 2019-20. They are narrative in
nature and do not address the specific deficiencies recorded in the
impugned Order.

Our Analysis

130. This issue pertains to the disallowance of Rs. 1.12 Crores, being the
difference between Rs. 1.35 Crores claimed and Rs. 0.23 Crores allowed
by the Commission, towards escalation on balance infrastructure works
(Buildings and Communication) during FY 2017-18.

131. We have perused the documents on record, and observe that the EPC
Contract dated 20.12.2005 between the Appellant and NECL contains a
specific escalation clause, which provides that in the event of delay in the
Notice to Proceed beyond 01.05.2006, both parties shall negotiate a
suitable escalation amount. Given that the Project experienced
significant delays on account of local issues, geological challenges, and
force majeure events, all acknowledged by the Commission in the CIP
Order, escalation costs payable to the contractor upon delayed
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Appeal No. 430 of 2019 & 416 of 2022 Page 69 of 81

completion are a contractually mandated and commercially legitimate
component of project costs.

132. We find infirmity in the Commission's treatment of this claim for complete
absence of reasons for such disallowance. The Appellant submitted
actual expenditure of Rs. 1.35 Crores as reflected in audited accounts
for FY 2017-18, a detailed response dated 25.11.2020 to the
Commission's queries and supporting contractor bills issued by the O&M
contractor. Despite the substantial evidence produced by the Appellant,
the Commission allowed only Rs. 0.23 Crores without explaining as to
why the escalation bills submitted by the Appellant were not accepted,
without identifying any specific invoice that was found to be doubtful, and
without providing any analysis of the contractual basis for escalation.

133. An order that affects the financial rights of a regulated entity without
assigning reasons, becomes a non-speaking order. The law on the
requirement of reasoned orders from quasi-judicial bodies is settled
beyond any doubt. As the Hon'ble Supreme Court held in Omar Usman
Chamadia v. Abdul [(2004) 13 SCC 234], a reasoned order is a
requirement of law that must be complied with in all appealable orders.
The purpose of reasoned orders is to demonstrate application of mind,
minimize arbitrariness, and enable an effective appeal. The Hon'ble
Supreme Court further in Chairman, Disciplinary Authority, Rani Laxmi
Bai Kshetriya Gramin Bank v. Jagdish Sharan Varshney [(2009) 4 SCC
240] held that a quasi-judicial order that does not disclose reasons does
not demonstrate application of mind and is liable to be set aside.

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Appeal No. 430 of 2019 & 416 of 2022 Page 70 of 81

134. When civil construction works are delayed particularly in Himalayan
terrain where seasonal access is severely restricted, the escalation in
costs is an inevitable and foreseeable consequence. Construction
material prices, labour costs, and contractor mobilization costs all
increase over extended periods. The Appellant's project colony
construction was delayed on account of local agitation at the project site,
non-availability of skilled and unskilled migrant labour during winter
months and logistical constraints in remote terrain. These causes of
delay were expressly acknowledged by the Commission in the CIP
Order. When a regulatory body acknowledges the causes of delay in one
order and then disallows the consequential escalation costs without
explanation in a subsequent order, the said approach needs to be
deprecated and such disallowance ought to be set aside.

135. PSPCL has argued that the Appellant failed to furnish cogent reasons for
the increase in expenditure and merely attached balance sheets
expecting the Commission to 'fish out' reasons. This argument does not
withstand scrutiny. The record shows that the Appellant submitted a
detailed response dated 25.11.2020 to the Commission's queries,
attached escalation bills from the O&M contractor, and placed on record
the underlying EPC contract with its escalation clause.

136. PSPCL has also objected to additional documents being placed on
record before this Tribunal by way of IA No. 1855 of 2025 under Order
XLI Rule 27 of the Code of Civil Procedure. This Tribunal has noted the
Appellant's clarification that the documents sought to be placed on record
as additional documents are not the same as the documents already on
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Appeal No. 430 of 2019 & 416 of 2022 Page 71 of 81

record, which include the EPC contract, sub-contractor correspondence,
and escalation bills ( items (a) to (g) referred to in the Appellant's written
submissions ). In any event, this Tribunal's findings on this issue are
based on the absence of reasons in the Impugned Order 2, a defect
which goes to the root and is independent of reliance placed by the
Appellant on any additional documents.

137. Thus, this issue is decided in favour of the Appellant. The Commission’s
disallowance of Rs. 1.12 Crores towards escalation on balance
infrastructure works is a non-speaking and arbitrary order. The
Commission did not identify any deficiency in the Appellant's
documentation. The Impugned Order 2 on this issue is set aside. The
matter is remanded to Commission with a direction to conduct a fresh
and reasoned prudence check of the escalation claims, considering the
escalation clause in the EPC Contract, the escalation bills of the O&M
contractor, and the audited financial statements, and to pass a speaking
order allowing all escalation costs found to be prudent alongwith carrying
cost at the applicable rate.

D. Construction of Store at Project Site:

138. Appellant states that the Commission disallowed Rs. 0.61 Crores which
was incurred towards construction of store at the Project site due to the
said cost not being a part of the Capital Investment Plan for MYT period.

139. The above expenditure of Rs. 0.61 Crores is clearly reflected under Note
3 of the Audited Balance Sheet for FY 2018-19 under the head ‘Buildings
– Project Office’.
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Appeal No. 430 of 2019 & 416 of 2022 Page 72 of 81

140. It is stated that the Appellant constructed stores which were however
smaller to accommodate the spares supplied by the Original Equipment
Manufacturer (OEM), therefore, it was an emergent requirement for the
Appellant to construct a store of adequate dimension near the
powerhouse complex so as to undertake routine inspection and avoid
any damage to the electronic items on account of exposure to moisture.

141. In this regard, Appellant has contended that the Commission failed to
take note of Regulation 18.2(d) of the PSERC MYT Regulations, 2014,
which states that Capital Expenditure actually incurred after the cut-off
date may be admitted by the Commission subject to prudence check in
case of “ any additional works/ services which have become necessary
for efficient and successful operation of the project, but not included in
the original project cost ”.

142. Therefore, since the construction of store at the Project site of the
Appellant was a legitimate expense on part of the Appellant, it was not
open for Commission to completely disallow the same basis no rational
reasons, which makes the Impugned Order 2 as non-speaking on the
above issue. This flows from the principle that all legitimate expenses
incurred by an entity ought to be allowed in terms of Section 61(d) of EA
2003, for which, reference is drawn upon the judgment dated 05.10.2020
passed by this Hon’ble Tribunal in Appeal No. 97 of 2020, titled as
Karnataka Power Transmission Corporation Limited v. KERC .

143. In fact, Appellant has pointed out that this issue was also elaborated
through its reply dated 25.11.2020 to queries/ observations conveyed by
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Appeal No. 430 of 2019 & 416 of 2022 Page 73 of 81

Commission vide its letter dated 22.06.2020 and order dated 12.11.2020.
Thus, the above claim ought to be set aside and remanded to the said
Commission for fresh consideration.

Submission of PSPCL :
144. The Appellant’s interpretation of State Commission’s Order dated
09.03.2020 passed in Petition No. 16 of 2020, that expenditure incurred
towards construction of store at the project site, i.e., Rs. 0.61 crore, was
not a part of the capital investment and raised as an afterthought, is
entirely incorrect.

145. Contrary to Appellant’s contention, PSPCL submitted that the State
Commission had held that since it is obvious for a plant as big as the
Appellant’s to have a store and hence it cannot be acknowledged as a
legitimate expense that incurred after cut-off date.

146. It is submitted that the State Commission is not expected to accept the
claims of the Appellant, without a prudence check of the audited
accounts.

147. PSPCL also contends that the Appellant’s averment that the State
Commission ought to have considered CERC’s mechanism for
approving determination of O&M expenses is erroneous. It is submitted
that the law is settled on this issue, CERC’s regulations are only to be
followed in cases where there is a vacuum or no similar regulations
governing the field in the state. In the present case, the State
Commission’s regulations are clear and unambiguous.

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Appeal No. 430 of 2019 & 416 of 2022 Page 74 of 81

148. In view of the circumstances enumerated above, it is submitted that there
is no merit in Appeal Nos. 430 of 2019 and 416 of 2022, and they are
liable to be dismissed.

Our Analysis :

149. This issue concerns the disallowance of Rs. 0.61 Crores incurred
towards construction of a store/ warehouse at the project site during FY
2018-19.

150. The Appellant has submitted an explanation that the existing store was
inadequate to accommodate spares supplied by the Original Equipment
Manufacturer ('OEM') for a 100 MW hydroelectric project operating with
high-head (600 meters) machinery. Due to the Project's remote location,
critical spares must be stocked at the site to ensure rapid response to
equipment failures. Moreover, electronic components and precision
instruments are particularly susceptible to moisture damage in alpine
environments, necessitating an enclosed, weatherproof storage facility
of adequate size. The construction of a larger, adequately dimensioned
store near the powerhouse complex was therefore an operational
requirement not a luxury or an afterthought.

151. In this context, Regulation 18.2(d) of the PSERC MYT Regulations, 2014
permits additional capitalization of expenditure incurred after the cut-off
date for 'additional works/services which have become necessary for
efficient and successful operation of the project, but not included in the
original project cost.' A store of adequate capacity for housing OEM
spares and sensitive electronic equipment is unambiguously an
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Appeal No. 430 of 2019 & 416 of 2022 Page 75 of 81

'additional work which has become necessary for efficient and successful
operation of the project.' The original project construction did not
anticipate the precise storage requirements that emerged during actual
operations, a common occurrence in any major infrastructure project.

152. The Commission's reasoning that a plant as big as the Appellant's would
'obviously' need a store and that therefore it cannot be an expense
incurred after the cut-off date suffers from a logical fallacy. The fact that
a store is obviously necessary does not mean the existing store was of
adequate size or specification. An inadequate store does not serve the
same function as an adequate one. The question before the Commission
was not whether a store was needed in the abstract but whether the
additional expenditure on an upgraded and adequately dimensioned
store was justified.

153. Section 61(d) of the Electricity Act, 2003 mandates that tariff shall
safeguard the interests of consumers while providing a reasonable return
to the generating entity, ensuring recovery of costs incurred by it. The
legitimate costs incurred by a generating company for the efficient
operation of a station must be recoverable in tariff. A store that enables
the Appellant to stock OEM-supplied spares and protect sensitive
electronic components in a moisture-prone alpine environment directly
enables the safe, efficient, and reliable operation of the Project and
therefore falls squarely within the purposes that Section 61(d) is
designed to serve.

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Appeal No. 430 of 2019 & 416 of 2022 Page 76 of 81

154. The disallowance of the store construction cost in Impugned Order 2 is
not accompanied by a reasoned analysis. The Appellant raised this issue
expressly in its Reply dated 25.11.2020 to the Commission's queries.
The Commission's observation that the store was not part of the Capital
Investment Plan is an insufficient basis for disallowance when Regulation
18.2(d) expressly permits additional capitalization for expenditure on
works not in the original project cost. The Commission ought to have
dealt with Regulation 18.2(d), conducted a prudence check, and passed
a reasoned order.

155. PSPCL has argued that the State Commission cannot be expected to
accept claims without a prudence check. This Tribunal agrees with this
general proposition but the problem is precisely the opposite. The
Commission disallowed the claim without conducting any prudence
check. A prudence check requires the Commission to examine the nature
of the expenditure, the purpose served, the reasonableness of the cost,
and whether it falls within the regulatory framework. The State
Commission's observation that the store should have been part of the
original capital expenditure is unfounded, since the project could not
have anticipated in 2005-2006 the precise storage requirements arising
during operations after 2012.

156. Thus, this issue also is decided in favour of the Appellant. The
disallowance of Rs. 0.61 Crores towards construction of the store at the
project site is set aside. The expenditure falls within the ambit of
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Appeal No. 430 of 2019 & 416 of 2022 Page 77 of 81

Regulation 18.2(d) as an additional work necessary for efficient and
successful project operation. The Commission is directed to conduct a
proper prudence check of this expenditure examining the size, design,
cost, and allow such expenditure alongwith carrying cost at applicable
rate, subject to prudence check. The Commission shall pass a speaking
order on this issue also.

157. In view of the foregoing analysis and findings on each of the five issues,
this Tribunal issues the following directions:

Summary of our findings :-

1. On Issue No. 1 (O&M Baseline Values): The determination of O&M
baseline values in Impugned Order 1 dated 03.09.2019 is set aside to
the extent it relates to the methodology of baseline determination. The
matter is remanded to the Commission for fresh determination of
baseline O&M values for the Control Period FY 2017-18 to FY 2019-
20 in strict accordance with Regulation 8.1(b) of the PSERC MYT
Regulations, 2014. The Commission shall consider all factors
mandated under Regulation 8.1(b) including the Appellant's latest
audited accounts, the industry benchmark data placed on record, and
the unique operational parameters of the Malana-II HEP and pass a
detailed speaking order within 3 months. Impugned Order 2 shall
stand modified accordingly to adopt the revised baseline values to be
re-determined by the Commission in terms of this judgement and the
corresponding financial impact shall be alongwith carrying cost at the
applicable rate.
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Appeal No. 430 of 2019 & 416 of 2022 Page 78 of 81

2. On Issue No. 2(a) (Project Colony and Staff Rest Rooms): The
disallowances in Impugned Order 2 of Rs. 0.24 Crores (Project
Colony, FY 2017-18) and Rs. 0.28 Crores (Staff Rest Rooms, FY
2018-19) are set aside. The Commission is directed to allow the actual
audited expenditure of Rs. 2.14 Crores towards Project Colony in FY
2017-18 and Rs. 1.01 Crores towards Staff Rest Rooms in FY 2018-
19, subject to prudence check and the amounts so allowed be
released alongwith applicable interest/carrying cost.

3. On Issue No. 2(b) (Miscellaneous Expenditure — Rs. 0.54
Crores): The disallowance of Rs. 0.54 Crores is set aside. The
Commission's application of the proviso to Regulation 18.2(e) to
expenditure falling under Regulation 18.2(d) is held to be an error of
law. The Commission is directed to allow this expenditure under
Regulation 18.2(d) with prudence check and to allow cost of all items
that are determined to be necessary for the efficient and successful
operation of the Project. The Appellant shall be entitled to carrying
cost also at the applicable rate.

4. On Issue No. 2(c) (Escalation on Balance Infrastructure Works —
Rs. 1.12 Crores): The disallowance in Impugned Order 2 of Rs. 1.12
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Appeal No. 430 of 2019 & 416 of 2022 Page 79 of 81

Crores under the head of escalation on balance infrastructure works
is set aside as a non-speaking order. The Commission is directed to
conduct a fresh and reasoned prudence check of the escalation
claims, duly considering the audited accounts of the Appellant and
supporting data placed on record and to pass a speaking order
allowing all the escalation costs found to be prudent alongwith
carrying cost at the applicable rate.

5. On Issue No. 2(d) (Construction of Store — Rs. 0.61 Crores): The
disallowance in Impugned Order 2 of Rs. 0.61 Crores towards
construction of a store at the project site is set aside. The Commission
is directed to allow the cost incurred towards the above, after
conducting a prudence check of this expenditure under Regulation
18.2(d) alongwith carrying cost at applicable rate, by way of a
speaking order.

Conclusion :-

158. In conclusion, Appeal Nos. 430 of 2019 and 416 of 2022 are accordingly
allowed in the terms set out hereinabove. The Commission shall, while
undertaking the fresh determination as directed, provide the parties a
reasonable opportunity of hearing and for furnishing any additional data
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Appeal No. 430 of 2019 & 416 of 2022 Page 80 of 81

or computation that may be required for the fresh exercise. The State
Commission shall also ensure that the re-determined AFC is reflected in
the billing cycle with appropriate carrying cost adjustments, so that the
Appellant is not financially prejudiced by the delayed recognition of
legitimate expenditure. The above exercise shall be completed within a
period of 3 months from the date of this judgment.
th
Pronounced in the open court on this 4 day of May, 2026.


(Virender Bhat) (Seema Gupta)
Judicial Member Officiating Chairperson

✓
REPORTABLE / NON REPORTABLE

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