NORTH BIHAR POWER DISTRIBUTION COMPANY LIMITED vs BIHAR ELECTRICITY REGULATORY COMMISSION & Anr

Court: Appellate Tribunal For Electricity

<div> Judgement in Appeal No. 48 of 2021 IN THE APPELLATE TRIBUNAL FOR ELECTRICITY (Appellate Jurisdiction) APPEAL No. 48 OF 2021 th Dated: 13 April, 2026 Present: Hon`ble Ms. Seema Gupta, Officiating Chairperson Hon`ble Mr. Virender Bhat, Judicial Member IN THE MATTER OF: NORTH BIHAR POWER DISTRIBUTION COMPANY LIMITED, Through its Resident Engineer, Sh. Umang Anand, Nehru Marg, Patna – 800021. … Appellant(s) VERSUS 1. BIHAR ELECTRICITY REGULATORY COMMISSION Through its Secretary , Ground Floor, Vidyut Bhawan-II, Jawahar Lal Nehru Marg, Patna – 800021. 2. BIHAR INDUSTRIES ASSOCIATION INDUSTRY HOUSE, Through its Chairman-cum-Managing Director, Sinha Library Rd, Block C, Central Revenue Colony, Chajju Bagh, Patna, Bihar – 800017. Counsel on record for the Appellant(s) : Mr.Nishant Kumar Ms.Anisha Upadhyay for App. 1 Counsel on record for the Respondent(s) : Mr.Ravi Kishore for Res. 1 Page 1 of 22 Judgement in Appeal No. 48 of 2021 JUDGEMENT PER HON’BLE MRS. SEEMA GUPTA, OFFICIATING CHAIRPERSON 1. The captioned Appeal No. 48 of 2021 has been filed by North Bihar Power Distribution Company Limited , assailing the order dated 21.03.2018 in Case No. 40 of 2017 ( “ Impugned Order” )and the review order dated 19.12.2018 in Case No.20 of 2018 passed by the Bihar Electricity Regulatory Commission Description of Parties 2. The Appellant, North Bihar Power Distribution Company Limited, is a State government owned distribution licensee in North Bihar and is a 100 % subsidiary of Bihar State Power Holding Company Limited (BSPHCL). The Respondent No.1 i.e. Bihar Electricity Regulatory Commission (herein after referred as “BERC/State Commission ”), is the State Electricity Regulator. The Respondent No.2 is the Bihar Industries Association Industry House, a non-profit organization. Factual matrix of the Case: 3. On 01.11.2012 the Appellant came into being after restructuring of erstwhile Bihar State Electricity Board (BSEB) vide Notification No. 17 dated 30.10.2012 issued by Energy Department, Government of Bihar, wherein the Appellant was vested with the distribution activities in the State of Bihar, in terms of sub section (2) of Section 131 of the Electricity Act, 2003. Until 01.04.2012, the distribution functions and activities were carried out by BSEB. 4. On 05.12.2017, the Appellant filed a petition before the State Commission being Case No. 40 of 2017 for truing up of ARR for FY 2016-17, APR for FY 2017- Page 2 of 22 Judgement in Appeal No. 48 of 2021 18, ARR and determination of tariff for FY 2018-19 under the Multi Year Distribution Tariff Regulations, 2015 (“MYDT Regulations 2015”), in which State Commission passed the Order on 21.03.2018, and disallowed some claims of the Appellant. Appellant filed a review petition being Case No. 20 of 2018 before the State Commission on 18.05.2018, which was dismissed by the State Commission vide its order dated 19.12.2018. Aggrieved thereby, Appellant filed the present appeal assailing the correctness of the Tariff order/True up order dated 21.03.2018 and review order dated 19.12.2018 of the State Commission. DISCUSSION AND ANALYSIS 5. Heard Mr. S.B. Upadhyay, learned senior counsel appearing on behalf of the Appellant and Mr. Ravi Kishore, learned counsel for the State Commission and perused the Impugned Order dated 21.03.2018 and review Order dated 23.12.2018, written submission filed by the parties and other documents. The Appellant has challenged following six issues: i. Disallowance of fixed cost of Adani Enterprises Limited (“AEL”) for Jan– June 2016. ii. Imposition of 1% “deemed rebate” on power purchase as non ‑ tariff income. iii. Disallowance of prior period expenses. iv. Apportionment of fixed versus variable costs, especially PPA capacity charges, in tariff design for FY 2018–19. v. Interest on Working Capital (IoWC) for FY 2016–17 and FY 2017–18. vi. Late Payment Surcharge (LPSC) for FY 2016–17. Our consideration and views on each of these issues are deliberated in following paragraphs: ISSUE 1 – DISALLOWANCE OF FIXED COST OF ADANI POWER (AEL) FOR APRIL 2016-JUNE 2016 Page 3 of 22 Judgement in Appeal No. 48 of 2021 6. It has been contended on behalf of the Appellant that the State Commission has disallowed Rs.27.75 Crores out of Rs.32.46 Crores claimed by the Appellant on account of total charges paid to the Adani Enterprise Limited under its medium term PPA, during the period from January to June 2016, citing the imprudent demand forecasting for such disallowance. It is submitted that during April to June 2016, the price on the power exchange were consistently lower than the AEL energy charge and accordingly, the Appellant prudently backed down the comparatively costlier power from AEL and procured power from the IEX which resulted in substantial savings for the consumers. It has been further contended that the disallowed amount pertains to AEL’s fixed capacity charge which constituted unavoidable contractual obligations. The State Commission has misapplied Regulation 20.2 (5) of the MYDT Regulations 2015 which is intended to disallow cost increment arising from the penalties, interest or operational inefficiency and not legitimate fixed capacity charges payable under the approved PPA. As such, the variation in demand is an un-controllable parameter under Regulation 9.1(d) of the MYDT Regulations 2015. 7. We note from the impugned order and the submissions made on behalf of the State Commission that the Appellant had approached and persuaded the State Commission for extension of PPA dated 23.02.2012 executed with AEL, for further period of two years beyond 31.12.2015, for purchase of 200 MW power on the same terms and conditions as stipulated in the said PPA. The State Commission, after considering the various explanations furnished by the Appellant, had accepted to extend the PPA with AEL for further six months i.e. up to 30.06.2016 on the same terms and conditions of the PPA, which was to supply 200 MW power on RTC basis. However, during the period April to June 2016, only 7.49 MUs of energy was purchased against the extended PPA, Page 4 of 22 Judgement in Appeal No. 48 of 2021 whereas a total charge of Rs. 22.74 Crores were paid to the AEL which included the fixed cost liability under the PPA as shown below: </div><table><thead><tr><th>Month</th><th>Energy (MU)</th><th>Fixed Charges (Rs. Crore)</th><th>Energy Charges (Rs. Crore)</th><th>Other Charges (Rs. Crore)</th><th>Total Charges (Rs. Crore)</th></tr></thead><tbody><tr><td>April 2016</td><td>5.57</td><td>6.09</td><td>2.06</td><td>1.09</td><td>9.24</td></tr><tr><td>May 2016</td><td>1.92</td><td>6.17</td><td>0.71</td><td>0.32</td><td>7.19</td></tr><tr><td>June 2016</td><td>0.00</td><td>6.09</td><td>0.00</td><td>0.22</td><td>6.30</td></tr><tr><td>Total</td><td>7.49</td><td>18.34</td><td>2.76</td><td>1.63</td><td>22.74</td></tr></tbody></table><div> 8. The Appellant contended that during April–June 2016, the price on the power exchange (IEX) were consistently lower than AEL’s energy charges, accordingly NBPDCL, along with other Bihar Discoms, prudently backed down the comparatively costlier power from AEL and procured power from IEX, thereby resulting in substantial savings and during April to June 2016, approximately 413.8 MU of AEL energy was surrendered and replaced by around 792 MUs procured from IEX, leading to savings of about Rs 42.76 Crore in energy costs. 9. The Appellant has referred to Regulation 9.1(d) of MYDT Regulations, 2015 to contend that demand is an uncontrollable parameter. The said Regulation is extracted below: 9. Controllable and uncontrollable factors 9.1 The "uncontrollable factors" shall comprise the following factors which are beyond the control of, and could not be mitigated by the applicant: (a)Force Majeure events, such as acts of war, fire and natural calamities. (b) Change in law; (c) Taxes and Duties; Page 5 of 22 Judgement in Appeal No. 48 of 2021 (d) Variation in sales; if the Distribution Licensee has adequate power Availability”. 10. There is no issue with this submissions of the Appellant, however, it is not the case of the Appellant that the power contracted from AEL was not required due to variation in load demand of customers, however as per the submissions of the Appellant, this power was substituted by procuring comparatively cheaper power available on the power exchange, notwithstanding the subsisting fixed cost liability in the PPA with AEL. From the tabulated data, it does appear that the considering the total amount of Rs. 22.74 Crore claimed for purchasing 7.49 MUs in the months April 16 to June 2016, leads to a very high per unit cost of energy from the AEL as Rs 30 per unit, as also noted in the Impugned Order. The State Commission, in the Impugned Order, has allowed cost of Rs 3.3 Crore for 7.49 MUs as per PPA tariff of Rs 4.41 per unit and disallowed the balance cost from the AEL for FY 2016-17 , which in accordance with the table works out to Rs. 19.44 Crore (i.e., Rs 22.74 Crore minus Rs3.3 Crore). On a first glance, it appears that Appellant was not prudent enough, while undertaking the power purchase from the exchange, and surrendering its power from AEL, with which it had an approved PPA and has a liability to pay fixed cost charges. However, the submissions made by Appellant, cannot be brushed aside on this conjuncture, but need to evaluated, whether such an action has actually resulted in the overall savings to the consumer as claimed by the Appellant. 11. There is no denial of fact that the Appellant had a valid PPA for 200 MW of power on RTC basis up to 30.06.2016 at a tariff of Rs 4.41 per unit approved by State Commission, in which energy charge works out to Rs 3.69 per unit in terms of above referred table. We take note from the Table 4.13 of the Impugned Order ( source wise power purchase quantum approved for FY 2016-17) that a quantum Page 6 of 22 Judgement in Appeal No. 48 of 2021 of 7.49 MUs is reflected against AEL and about 809 MUs from the exchanges ( IEX and PXIL) with resultant tariff for AEL as Rs 30.36 per unit, while the same from exchange ( IEX/PXIL) is reflected as Rs 2.84 per unit. Undoubtedly, due to availing of only 7.49 MUs of energy for three months (April 2016 to June 2016) coupled with fixed cost liability in terms of the PPA, the resultant per unit tariff would be high for AEL after accounting the entire fixed cost for only 7.49 MUs of energy. The Appellant has claimed that they have surrendered about 429 MUs of energy from the AEL and substituted the same from cheaper energy available from Exchange. 12. In order to test the proposition advanced on behalf of the Appellant regarding the alleged savings from sourcing power through the exchange rather than from AEL, let us assume that the Appellant had in fact availed 429 MUs of power from AEL under the approved PPA, notwithstanding the availability of cheaper power in the exchange. In such a scenario, the cost of procurement from AEL at Rs 4.41 per unit would amount to Rs189.2 Crore, whereas the same quantum procured from the exchange at the average rate of Rs 2.84 per unit would cost only Rs121.8 Crore and even after considering fixed cost charges liability of AEL, purchase from exchange would be cheaper. Even under partial procurement scenarios, the comparative analysis demonstrates that reliance on AEL power leads to higher overall costs, when cheaper power is available at the Rs in Crore Exchange. Few scenarios are considered below : </div><table><thead><tr><th>S.No.</th><th>Quantum surrendered (MUs) ( April 2016-June 2016)</th><th>Cost of power from AEL @Rs 4.41/unit (B)</th><th>Cost of power from exchange @ Rs 2.84 /unit. (C)</th><th>Fixed Cost Liability incl. other charges of AEL ( Rs 18.34+1.63) (D)</th><th>Total Cost (E=C+D)</th><th>Benefits/loss to Consumer (F =E-B)</th></tr></thead><tbody></tbody></table><div> Page 7 of 22 Judgement in Appeal No. 48 of 2021 </div><table><thead><tr><th>1</th><th>429</th><th>189.19</th><th>121.8</th><th>19.97</th><th>141.77</th><th>47.42</th></tr></thead><tbody><tr><td>2</td><td>300</td><td>132.3</td><td>85.2</td><td>19.97</td><td>105.17</td><td>27.13</td></tr><tr><td>3</td><td>250</td><td>110.2</td><td>71.0</td><td>19.97</td><td>90.97</td><td>19.23</td></tr><tr><td>4</td><td>200</td><td>88.2</td><td>56.8</td><td>19.97</td><td>76.77</td><td>11.43</td></tr></tbody></table><div> 13. From the comparative analysis set out above, it is evident that even if one were to assume a requirement of only 200 MUs of power, and such requirement had been met through procurement from AEL under the PPA rather than surrendered in favour of cheaper exchange power, the overall cost to consumers would nonetheless have been higher. This assumption is, in fact, conservative, since the record demonstrates that up to 1100 MUs have actually been procured from the open market. Thus, even in the limited scenario as reflected above, procurement from the exchange remains demonstrably more economical, whereas reliance on AEL power would have resulted in higher overall power purchase cost. 14. It is pertinent to note that the State Commission, in the Impugned Order, has not recorded any finding with respect to the quantum of power procured from the exchange, thereby implicitly acknowledging the necessity of open market procurement to meet the prevailing demand. We take note that initially the State Commission was not inclined to extend the term of the PPA beyond 31.12.2015, considering the high cost of energy, however subsequently it had extended the same up to 30.06.2016, and accordingly liability of payment of fixed charges gets affixed on the Appellant. Thus, the State Commission having already approved Page 8 of 22 Judgement in Appeal No. 48 of 2021 the PPA with AEL, the procumbent of cheaper power from exchange and surrendering power from AEL under PPA in the month of April 2016 to June 2016, has not resulted in more power procurement cost to the ultimate consumer, even after considering fixed cost liability under the said PPA. Therefore, it cannot be concluded that surrendering AEL power and substituting the same with exchange procurement has occasioned more power purchase cost to the consumers on account of liability towards fixed charges under the PPA. The substitution has resulted in tangible consumer benefit, consistent with the principle of least-cost procurement. 15. We would however like to add that though in the present cost, not availing power under approved PPA but by substituting the same with cheaper power from exchange, has ultimately resulted in overall reduction in power purchase cost, however in case of non-extension of said PPA, there would have been no liability of fixed charges resulting in savings on that account also and still Discoms could have been in a position to meet their demand by availing power from Exchange. We therefore feel, that going forward, the DISCOM should adopt more pragmatic approach before entering into the PPA to undertake the fixed cost liability if power is not required to be availed under the PPA, and anticipate market situation better. 16. The State Commission, in the Review Order dated 31.12.2016 has referred to the Regulation 20(2)(5) of BERC (Multi Year Distribution Tariff) Regulations 2015, for denial of fixed cost charges of AEL. In this context, it is pertinent to note that referred regulation 20 (2) pertains to the formula for computing incremental charges on account of increase in fuel cost and power purchase fuel cost adjustment (FPPCA) and under (5) it has been stated that “ any increase by the licensee by way of penalty, interest due to delayed payments and due to operational inefficiency shall not be allowed”. In our view the said Regulation is Page 9 of 22 Judgement in Appeal No. 48 of 2021 not application while dealing with fixed capacity charge under the PPA and such observation in the review Order is set aside. 17. In view of above deliberations, we allow the fixed capacity charge and other charge of AEL for the month of April 2016 to June 2016. The Impugned Order stands modified to the aforesaid extent on this issue. 18. The learned Senior counsel on behalf of the Appellant has contended that State Commission has computed average charges as Rs 3.937/kWh considering total power purchase cost including Transmission cost as Rs 4058.09 Crore and has effected double disallowance as while disallowing 1396.96 MU of power (Rs. 552.02 Crore), it has applied computed composite power purchase rate, which already includes fixed charges, while fixed cost of AEL was already disallowed. Having allowed the fixed capacity charge for the AEL as noted above, the issue of double disallowance on account of disallowance of cost of AEL stands duly addressed. ISSUE 2 – 1% “DEEMED REBATE” ON POWER PURCHASE AS NON ‑ TARIFF INCOME 19. The State Commission in the Impugned Order has considered normative rebate of 1% on total power purchase cost of Rs. 4153.73 Crore i.e. about Rs. 41.54 crore, and treated this as non ‑ tariff income for FY 2016 -17 as reflected in the Table 4.54 of the Impugned Order. Learned Senior counsel on behalf of Appellant has contended that Appellant has got actual rebate of only about Rs. 10.18 crore as reflected in audited accounts and same should only be considered; State Commission has even applied this rebate on power purchase cost that it had disallowed (and was being funded by State subsidy), effectively assuming that the utility got rebate on costs it never paid . By imputing rebate even on the disallowed cost, the State Commission has further reduced the ARR by Page 10 of 22 Judgement in Appeal No. 48 of 2021 approximately Rs. 2.9 crore (being 1% of about Rs. 290 Crore disallowed), thereby imposing an unfunded burden on the Appellant. Such an approach results in a double adjustment of ARR—first by disallowing the cost and thereafter by assuming an income on that disallowed cost—which is both inconsistent and punitive. It is further contended on behalf of Appellant that the MYDT Regulations, 2015 do not provide for any deemed or notional rebate on power purchase and State Commission, has relied upon Regulation 44 of the CERC Tariff Regulations, 2014 (relating to rebate structure) and this Tribunal judgement in “NDPL v. DERC” (Appeal No. 153 of 2009) to justify the assumption of a 1% rebate, which is not applicable in the present case . 20. The referred judgement of this Tribunal dated 30.07.2010 in “NDPL v. DERC” (Appeal No. 153 of 2009) is with regard to deductions made for the rebate earned by the Appellant from the power purchase cost and observed that in some cases generation companies offer rebate of 2 % immediately on presentation of bill. This Tribunal, after analysing the billing cycle of domestic consumer and considering that there is mismatch between receipt of payment from the consumer and payment to be made by distribution licensee for power purchase for getting 2% rebate, held that rebate earned on early payment of power purchase cost cannot be deducted from the power purchase cost and rebate earned only up to 1% alone can be treated as part of non-tariff Income. This tribunal in this judgement held that even if a licensee has earned a rebate of 2%, however rebate earned of only up 1% can only be treated as non-tariff income. Emphasis on this judgement is on the rebate earned and it does not hold that mandatorily 1% rebate is to be accounted for, whether earned or not, for reducing power purchase cost or treating as non-tariff income. Thus, the referred judgement is not applicable to the facts of the Present case. Page 11 of 22 Judgement in Appeal No. 48 of 2021 21. It is apposite to reproduce the Regulation 44 of the CERC Tariff Regulations, 2014 as hereunder: “44. Rebate Tariff Regulations 2014-19 (1) payment of bills of the generating company and the transmission licensee through letter of credit on presentation or through NEFT/RTGS within a period of 2 days of presentation of bills by the generating company or the transmission licensee, a rebate of 2% shall be allowed. (2) Where payments are made on any day after 2 days and within a period of 30 days of presentation of bills by the generating company or the transmission licensee, a rebate of 1% shall be allowed.” 22. Since the rebate clauses are embedded in the CERC Tariff Regulations, the obligation to extend rebate is statutory in nature and binding upon the generating companies. Once the DISCOMs effect timely payment within the stipulated time, the generators cannot lawfully refuse the rebate. There is no dispute that DISCOMs ought to make all reasonable efforts to avail such rebate, however, neither the CERC Regulations nor the BERC Regulations have been shown to contain any provision mandating that DISCOMs must necessarily structure their finances so as to avail such rebate. In fact, even in the absence of actual rebate availed, the Impugned Order proceeds on the assumption of a normative 1% rebate to be treated as non-tariff income, which is without regulatory foundation. 23. In the absence of any statutory or regulatory mandate, DISCOMs cannot be compelled to arrange their financial operations in a manner directed towards availing rebates. Consequently, the direction to treat a normative 1% rebate as non-tariff income for the purpose of reducing the ARR is unsustainable in law. The Impugned Order, to the extent it rests upon such reasoning, cannot be upheld and is accordingly set aside on this issue and the Rebate actually availed Page 12 of 22 Judgement in Appeal No. 48 of 2021 by the Discoms, as indicated in the audited accounts, is to be considered as non- tariff Income. ISSUE 3 – PRIOR PERIOD EXPENSES 24. Appellant had claimed net prior period expenses amounting to Rs. 281.09 Crore, as appearing in audited accounts, however, State Commission, in the Impugned Order, after reclassification of an amount of Rs. 8.84 Crore pertaining to holding-tax related A&G expenses as prior period expense and considering negative prior period power purchase cost of Rs 9.33 Crore, approved a net prior period income of Rs. 0.49 crore. It has been contended on behalf of the Appellant, that State Commission has relied upon the absence of an item-wise and year- wise break-up from the field offices to disallow the claimed net prior period expenses of Rs. 281.09 Crore, while at the same time accepting the prior period sale of power (income) figures reflected in the same audited accounts. 25. We note from the Impugned Order that the State Commission has asked the details of net prior period expenses claimed during True up of FY 2016-17, and in response, the Appellant herein have indicated that it is unable to furnish item wise and year wise details of prior period expenses as the same is distributed over various offices. It has been contended on behalf of the Appellant that courts have consistently treated audited accounts and Chartered Accountant certificates as adequate proof of actual expenditure. 26. There is no doubt that auditors play a critical role in certifying audited accounts by ensuring that financial statements present a true and fair view of a company’s financial position, comply with applicable statutory requirements, and are free from material misstatements. It provides credibility to the accounts and builds trust among shareholders, including regulators, and the general public. Auditors examines the books of account, vouchers, invoices and ensure Page 13 of 22 Judgement in Appeal No. 48 of 2021 accuracy, completeness and compliance with accounting standards and it also tend to identify material misstatements due to error or fraud. However, in terms of Section 61 of Electricity Act, 2003, the Appropriate Commission is required to safeguard the consumer’s interest and is required to undertake an independent prudence check to verify whether the costs claimed are reasonable, efficient, and in line with sectoral benchmarks. Thus, it is onerous on the part of Appellant, to provide year wise details of prior period expenses. We do not find any error in the Impugned Order on this issue and the same is upheld. However, since on some issues we intend to remand the matter to State Commission, we feel it proper to provide liberty to the Appellant, to submit requisite details as desired by State Commission with regard to prior period expenses for FY 2016-17 expeditiously and State Commission, on prudence check may pass order for such prior period expenses also along with other issues being remanded. Issue 4 – Apportionment Of Fixed And Variable Charges In Tariff Design (FY 2018–19) 27 . Learned senior Counsel for the Appellant has contended that PPA capacity charges and transmission charges are inherently fixed costs, and treating almost the entire power purchase cost of Rs. 6480.33 Crore as “variable” while recognizing only Rs. 567.06 Crore as “fixed” results in an artificially low fixed cost share of 10.47%, thereby leading to the erroneous conclusion in the Impugned Order that a fixed charge recovery of 18.28% indicates over-recovery. While same may constitute 44-45 % of the ARR, if fixed cost burden is correctly aggregated. In accordance with the principles of cost causation and Section 61(g) of the Electricity Act, such costs ought to be primarily recovered through fixed or demand charges, while energy-related costs, including losses, should appropriately be recovered through per-unit energy charges. Page 14 of 22 Judgement in Appeal No. 48 of 2021 28. Per Contra, learned counsel on behalf of the State Commission submitted that fixed charges for the Discom denote the network-related costs such as O&M expenses, depreciation, return on Equity (RoE) etc, whereas the power purchase represents the actual cost of power procurement, which inherently includes both fixed and variable components of generation cost. In the Impugned Order, the fixed cost on account of network related cost has been indicated as Rs 567.06 Crore and with existing tariff the revenue in fixed cost component of tariff works out to Rs 1229.89 Crore and same has been considered to be recovered as fixed cost under the total revenue of 7047.39 Crore. 29. There is no dispute that DISCOMs incur fixed cost liabilities under the power purchase Agreements. Accepting the contention advanced by the Appellant would imply that the entire fixed cost liability, including that embedded in the power purchase cost, ought to be recovered exclusively through fixed demand charges, while only the energy component of the power purchase cost would be recovered as variable charges. In our considered view, such an approach would result in disproportionately high fixed demand charges for consumers, with correspondingly low energy charges, thereby distorting the tariff structure. Ordinarily, fixed charges represent those costs which do not vary with the quantum of electricity consumed, such as the cost of maintaining the distribution network and administrative overheads. Variable charges, on the other hand, vary directly with consumption (kWh) and reflect the cost of purchasing or generating electricity. To recover the entire fixed cost of power purchase solely through fixed charges is neither advisable nor consistent with sound regulatory practice, as it reduces flexibility, imposes unavoidable burden on consumers, and diminishes incentives for efficient electricity consumption. 30. It is also not the case of the Appellant that the fixed cost component of power purchase is not being recovered. On the contrary, the fixed cost Page 15 of 22 Judgement in Appeal No. 48 of 2021 component is subsumed within the variable charges, thereby ensuring recovery while simultaneously encouraging efficient consumption. We therefore find no infirmity in the Impugned Order on this issue, and the same is accordingly upheld. Issue 5 – Interest On Working Capital (FY 2016–17 And 2017–18) 31. In the Impugned Order, State Commission has approved “Nil” Interest on Working Capital (IoWC) for FY 2016–17, and Rs. 22.96 Crore for FY 2018-19 as noted below: </div><table><thead><tr><th>Sl.No.</th><th>Particulars</th><th>Revised and approved for FY 2016-17 (RE) in Tariff Order dated 24.03.2017</th><th>approved for FY 2016-17 in Truing up</th><th>Approved in review for FY 2017-18</th></tr></thead><tbody><tr><td>1</td><td>O&M exp. (1 month)</td><td>26.63</td><td>27.17</td><td>--</td></tr><tr><td>2</td><td>Maintenance spares 40% of R&M expenses for one month</td><td>1.84</td><td>1.84</td><td>904.40</td></tr><tr><td>3</td><td>Receivables – 2 months</td><td>786.66</td><td>736.88</td><td>2.08</td></tr><tr><td>4</td><td>Total working capital (1+2+3)</td><td>815.13</td><td>765.89</td><td>906.48</td></tr><tr><td>5</td><td>Less: a. Power purchase cost, transmission charges and load dispatch charges of one month</td><td>347.25</td><td>346.14</td><td>413.48</td></tr><tr><td></td><td>b. Depreciation, RoE and contingency reserve</td><td>34.47</td><td>10.41</td><td>20.76</td></tr><tr><td></td><td>c. Security deposit from consumers</td><td>268.89</td><td>271.55</td><td></td></tr><tr><td></td><td>d. Grant received from State Govt. for purchaser of</td><td>236.30</td><td>252.28</td><td>309.28</td></tr></tbody></table><div> Page 16 of 22 Judgement in Appeal No. 48 of 2021 </div><table><thead><tr><th></th><th>power and other O&M expenses</th><th></th><th></th><th></th></tr></thead><tbody><tr><td></td><td>Sub-total (a+b+c+d)</td><td>886.91</td><td>880.38</td><td>743.06</td></tr><tr><td>6</td><td>Net working capital requirement (4-5)</td><td>(71.78)</td><td>(114.48)</td><td>163.42</td></tr><tr><td>7</td><td>Rate of interest %</td><td>14.75%</td><td>14.05%</td><td>14.05%</td></tr><tr><td>8</td><td>Interest on working capital (6*7)</td><td>--</td><td>--</td><td>22.96</td></tr></tbody></table><div> 32. It has been contended on behalf of the Appellant that First Amendment to Regulations 26, introduced in 2017, which removed O&M expenses from the working capital computation for distribution licensees, has been applied by State Commission to the ongoing second control period (2016–19) as well as to the true-up for FY 2016–17, thereby giving it an impermissible retrospective effect, contrary to the regulatory framework under which control-period norms are required to remain locked-in ex ante . It is further submitted that, for FY 2016–17, State Commission deducted one month’s power purchase cost, which also included the amounts that had already been disallowed on account of excess distribution losses, whereas Regulations 26 contemplates deduction only of the actual power purchase cost forming part of the ARR, and any disallowed portion funded through State subsidy cannot be treated either as a working-capital requirement or as an available source for deduction. Deduction on account of depreciation and Return on Equity (RoE) is also not correct as these are not readily available cash resources, and do not necessarily translate into immediate cash inflows aligned with the working-capital cycle. Regulation 26 provides for reduction of working capital only where the State Government provides a grant or subsidy specifically towards power purchase and O&M expenses; however, subsidy provided to consumers, including support extended under the UDAY scheme, constitutes tariff income and cannot automatically be treated as a Page 17 of 22 Judgement in Appeal No. 48 of 2021 working-capital grant, a distinction that State Commission has itself acknowledged while observing that resource-gap subsidy cannot, in all circumstances, be simply netted off against the working capital requirement. 33. We note that, in the True Up exercise for FY 2016–17, one month’s O&M expenses have been considered in accordance with Regulation 26 of the MYDT Tariff Regulations 2015. Accordingly, we find no merit in the contention of the Appellant regarding the alleged retrospective application of the first amendment to the MYDT Regulations, 2015, dated 30.06.2017, for FY 2016–17. The deductions on account of depreciation and Return on Equity (RoE) have also been made in line with the extant regulations, and the Impugned Orders warrants no interference on this count. 34. It is pertinent to note that the MYDT Regulations, 2015, were applicable from 1st April 2016 until 31st March 2021, or until amended. The first amendment, dated 30.06.2017, came into force only upon its notification in the Official Gazette on 11.07.2017, and therefore its applicability commences from that date. We do not find merit in the submission of the Appellant that the said amendment cannot be applied to the entire control period (2016–19). However, applying the amended provisions to the working capital requirement for the entire FY 2017– 18 period, including the period prior to 11.07.2017, as has been done in the Impugned Order, is not in accordance with law and cannot be sustained. 35. In view of the above, the Impugned Order requires interference on this issue. The matter is remanded to the State Commission with a direction to re-compute the working capital requirement by applying the provisions of the applicable Regulations on a prorated basis, duly distinguishing between the period prior to 11.07.2017 and the period thereafter. Page 18 of 22 Judgement in Appeal No. 48 of 2021 36. With regard to the deduction of power purchase cost, including disallowed cost, we note that in calculating the working capital requirement for FY 2016–17, one month’s power purchase cost amounting to Rs. 346.14 crore has been excluded. This said figure also includes the amount disallowed on account of excess losses, thereby leading to a reduction in the working capital requirement. Regulation 26 of the MYDT Tariff Regulations 2015 provides for the exclusion of ‘power purchase cost, transmission charges and load dispatch charges of one month,’ but does not specify whether such exclusion should extend to disallowed power purchase cost. In our considered view, the reduction in working capital requirement on account of power purchase and other costs ought to be confined to the power purchase cost as allowed by the Commission. Inclusion of disallowed costs in such computation would not be just or proper, since disallowed costs are not recognised in the ARR, their inclusion, however, results in an artificial reduction of the working capital allowance. Such an approach is inconsistent with the regulatory framework. Accordingly, the matter is remanded to the State Commission, to consider the only allowed power purchase costwhile computing the working capital requirement. 37. The existing Regulation 26 of MYDT Regulation 2015, provides that “if the State Government is providing resource gap grant or subsidy, working capital shall be reduced by that amount.". In the impugned order, in the working capital requirement, for FY 2017-18, State Commission has not considered the subsidy of Rs 1165.60 Crores received from the State Government under the head of exclusions, and has observed as under: “The Commission observes that the subsidy of Rs.1165.60 crore projected by the Petitioner represent tariff subsidy extended to the consumers by the State Government being received @ Rs.97.13 crore per month during FY 2017-18. The amount shall be considered as tariff income only but not the subsidy from GoB. Hence, the Commission has not considered Rs.1165.60 crore as subsidy from Page 19 of 22 Judgement in Appeal No. 48 of 2021 GoB for FY 2017-18 and accordingly for computation of working capital requirement for FY 2017-18. 38. For FY 2016-17, it has been contended on behalf of Appellant that one month’s subsidy considered under the exclusions forms part of the subsidy provided to consumers, including support extended under the UDAY scheme, and constitutes tariff income. We find merit in these submissions. Accordingly, the matter is remanded to State Commission to undertake prudence check of the subsidy received by the Appellant for FY 2016-17 and for the government subsidy received as tariff income, and extend treatment in working capital requirement for FY 2016-17, in line with the approach adopted for FY 2017-18. ISSUE 6 – LATE PAYMENT SURCHARGE (LPSC) 39. It has been submitted on behalf of the Appellant that for FY 2016-17, claim of about Rs. 39 crore towards Late Payment Surcharge (LPSC) paid to generators and suppliers, has been disallowed in the Impugned Order by invoking Regulation 20(2)(5), attributable to inefficiency. It is further submitted that LPSC arose due to systemic liquidity constraints, including the restrictions imposed under the UDAY scheme and RBI norms which limited the ability of the utility to avail fresh working capital borrowings that would otherwise have enabled timely payment to generators and suppliers. The simultaneous denial of LPSC, the near-nil allowance of IoWC, and the imputation of a notional 1% rebate cumulatively deprive the Appellant of reasonable recovery of financing costs and pray for recovery of the Late Payment Surcharge of Rs 39.1 crore for FY 2016– 17. 40. In the Impugned Order, financing cost on the Delayed Payment Surcharge (DPS) has been allowed basis judgment of this Tribunal dated 12.07.2011 in Appeal Nos. 142 and 147 of 2009. It has been submitted on behalf of the Appellant that financing cost of DPS amounting to Rs 41.59 Crore has been Page 20 of 22 Judgement in Appeal No. 48 of 2021 allowed, calculated on a principal sum of Rs 296 Crore at 14.05%, thereby recognising financing cost on the receivables side. 41. In our view, allowance of financing cost on DPS would imply that in the absence of timely collection of monthly charges which has resulted in accrual of DPS, the payment obligations of the DISCOMs, otherwise to be met from monthly collections, stand addressed through additional borrowing. We do not consider it necessary to enter into the specific constraints faced by the Appellant in resorting to such additional borrowing. In our considered view, however, permitting financing cost of DPS as well as Late Payment Surcharge (LPSC) to be simultaneously passed through in tariff would result in a double benefit to the DISCOMs and a corresponding loss to consumers. Such an outcome cannot be countenanced. The other disallowances have already been addressed in other paragraphs of this judgement. Accordingly we find no error apparent in the Impugned Order on this issue and the same is upheld. CONCLUSION 42. In view of the above deliberations, decision on all the issues is summarized in following table: </div><table><thead><tr><th>S. No</th><th>Issue</th><th>Order</th></tr></thead><tbody><tr><td>1.</td><td>Disallowance of fixed cost of Adani Enterprises Limited (“AEL”) power purchase for Jan–June 2016</td><td>Decided in favour of the Appellant. Power Purchase Cost from AEL to be allowed for April 2016- June 2016. Issue Remanded to State Commission.</td></tr><tr><td>2.</td><td>Imposition of 1% “deemed rebate” on power purchase as non‑tariff income for FY 2016-17.</td><td>Decided in favour of the Appellant. Issue Remanded to State Commission. Rebate actually availed by Appellant as per audited accounts to be considered in non-tariff Income</td></tr><tr><td>3</td><td>Treatment and disallowance of prior period expenses.</td><td>Impugned Order upheld. However, the Appellant is provided liberty to</td></tr></tbody></table><div> Page 21 of 22 Judgement in Appeal No. 48 of 2021 </div><table><thead><tr><th></th><th></th><th>approach the State Commission with requisite details for re-consideration of the same</th></tr></thead><tbody><tr><td>4.</td><td>Apportionment of fixed versus variable costs, especially PPA capacity charges, in tariff design for FY 2018–19.</td><td>Impugned Orders Upheld</td></tr><tr><td>5.</td><td>Interest on Working Capital (IoWC) for FY 2016–17 and 2017–18.</td><td>Impugned Order interfered. Issue remanded to the State Commission on following : FY 2016-17; In the one month power purchase cost, disallowed cost not to be included. Treatment of Govt Subsidy, to be same as that considered for FY 2018-19 in the Impugned Order. FY 2017-18 : working capital requirement considering applicable regulations pre and post 11.07.2017 in prorate basis.</td></tr><tr><td>6.</td><td>Late Payment Surcharge (LPSC) for FY 2016–17.</td><td>Impugned Order Upheld</td></tr></tbody></table><div> The captioned appeal is partly allowed. The State Commission, is directed to pass consequential order on the issues remanded, as expeditiously as possible, preferably within four months from the receipt of the judgement. Captioned Appeal and pending IAs, if any, are disposed of in above terms. th PRONOUNCED IN THE OPEN COURT ON THIS 13 DAY OF APRIL, 2026. (Virender Bhat) Judicial Member (Seema Gupta) Officiating Chairperson REPORTABLE / NON-REPORTABLE tp/dk/as Page 22 of 22</div>