The Tata Power Company Limited vs Maharashtra Electricity Regulatory Commission
- Court
- Appellate Tribunal For Electricity
Judgement in Appeal No. 8 of 2018
IN THE APPELLATE TRIBUNAL FOR ELECTRICITY
(Appellate Jurisdiction)
APPEAL NO. 8 of 2018
Dated: 03.11.2026
Present: Hon’ble Mr. Virender Bhat, Judicial Member
Hon’ble Mr. Ajay Talegaonkar, Technical Member
IN THE MATTER OF:
The Tata Power Company Limited
Bombay House,
Homi Modi Street, Fort,
Mumbai – 400 001. …Appellant
Versus
Maharashtra Electricity Regulatory Commission
World Trade Centre, Centre No. 1
th
13 Floor, Cuffe Parade,
Mumbai – 400 005. …Respondent
Counsel for the Appellant(s) : Mr. Sanjay Sen, Sr. Adv.
Mr. Amit Kapur
Counsel for the Respondent(s) : Ms. Pratiti Rungta
JUDGEMENT
PER HON’BLE MR. AJAY TALEGAONKAR, TECHNICAL MEMBER
Background and Factual Matrix
1. This Appeal has been filed by The Tata Power Company Limited
(Transmission) (“TPC-T”/ “Appellant”) challenging the Tariff Order dated
30.06.2016 passed by the Maharashtra Electricity Regulatory Commission
Page 1 of 23
Judgement in Appeal No. 8 of 2018
(“MERC”/ “Respondent”/ “State Commission”) in Case No. 22 of 2016 and the
Review Order dated 19.07.2017 in Case No. 110 of 2016, to the extent of
disallowance of capitalisation for the IXORA Sub-station and eight bays at Parel,
and Operation and Maintenance (“O&M”) expenses of unutilised bays.
2. The Appellant was granted a licence on 14.08.2014 by MERC for
transmission lines and Receiving Stations in and outside Mumbai, Maharashtra
for 25 years commencing from 16.08.2014.
3. On 02.02.2016, TPC-T filed its petition seeking truing-up of ARR for FY
2014-15, provisional truing-up for FY 2015-16 and approval of ARR for the third
Control Period from FY 2016-17 to FY 2019-20. MERC passed the Impugned
Tariff Order on 30.06.2016. TPC-T thereafter sought review in Case No. 110 of
2016 which was disposed of on 19.07.2017.
4. The disputed claims concern capitalisation and O&M expenditure governed
by the MERC Multi Year Tariff Regulations, 2011 (“MERC MYT Regulations,
2011”). IXORA Construction Pvt. Ltd. (“IXORA”), subsequently renamed Nidar
Utilities Panvel LLP (“NUPLLP”) was the co-developer providing infrastructure
facilities in the Multi Services Special Economic Zone (“SEZ”) at Panvel and a
deemed distribution licensee. On 23.07.2010, IXORA requested transmission
connectivity from TPC-T, indicating an anticipated Phase-I load of approximately
45 MW by 2015. On 07.03.2011, it appointed TPC-T as consultant for providing
EHV connectivity.
5. The State Transmission Utility (“STU”) approved the DPR for the 110/33 kV
IXORA Receiving Station on 14.12.2011, followed by MERC’s in-principle
approval dated 16.03.2012 at an estimated cost of ₹ 34.30 Crores. The project
Page 2 of 23
Judgement in Appeal No. 8 of 2018
was intended to meet the immediate and long-term requirements of IXORA SEZ,
improve reliability of supply and provide feeder outlets to other distribution
licensees including MSEDCL.
6. Development of the SEZ stopped in May 2013, and IXORA did not develop
its distribution network for taking HT outlets. On 16.12.2013, TPC-T requested
the STU to advise MSEDCL regarding taking 33 kV outlets from the station. TPC-
T reported completion of construction on 25.03.2014; the installation was tested
on 31.03.2014 and inspected on 26.09.2014. Following submission of test reports
and compliance, final charging permission was granted on 18.02.2015. On
30.05.2016, Hiranandani Communities informed TPC-T that the SEZ project had
been acquired by Persipina Developers Pvt. Ltd. under the SARFAESI Act and
that power flow was tentatively expected from 01.10.2016.
7. In its MTR Order dated 26.06.2015 in Case No. 5 of 2015, MERC
disallowed capitalisation of ₹ 26.54 Crores towards the IXORA Sub-station for FY
2013-14 including the corresponding 35 bays on the ground that the asset had
not been put to use.
8. The Parel scheme was approved by the STU on 27.10.2009 and received
MERC’s in-principle clearance on 13.05.2010. It is submitted by TPC-T that the
scheme was intended to cater to BEST’s load, facilitate shifting of its existing 22
kV load to 33 kV through the requested 21 outlets and meet anticipated load
growth. Eight 33 kV AIS bays, involving capitalisation of ₹ 1.83 Crores were
commissioned during FY 2014-15. By letter dated 15.04.2015, the STU
communicated allocation of two bays to BEST and six to Tata Power-Distribution
(“TPC-D”). The bays were kept charged pending interconnection.
Page 3 of 23
Judgement in Appeal No. 8 of 2018
9. MERC disallowed capitalisation of the IXORA and Parel assets under the
proviso to Regulation 27.1 of the MERC MYT Regulations, 2011 on the ground
that they had not been put to use.
10. It also disallowed O&M entitlement of ₹ 10.66 Crores for 91 unutilised bays
for FY 2014-15.
11. Aggrieved by the above disallowance, the Appellant has prayed for the
following relief before us:
“(a) Allow the Appeal;
(b) Set aside the Impugned Order dated 30.06.2016 passed by Ld. Maharashtra
Commission in Case No. 22 of 2016 on Truing up of ARR for FY 2014-15,
Provisional Truing up for FY 2015-16 and approval of Aggregate Revenue
Requirement for the MYT Third Control Period from FY 2016-17 to FY 2019-20
to the extent challenged hereinabove;
(c) Set aside the Impugned Order dated 19.07.2017 passed by Ld. Maharashtra
Commission in Case No. 110 of 2016 in Review Petition filed by the Appellant to
the extent challenged hereinabove; and / or
(d) Pass any such other or further orders as this Hon'ble Tribunal may deem fit
and proper in the facts and circumstances of the case.”
Analysis and Conclusion
12. After hearing the Learned Counsel for the Appellant and the Learned
Counsel for the Respondent at length and carefully considering their respective
submissions, we have also examined the written pleadings and relevant material
on record. Upon due consideration of the arguments advanced and the
documents placed before us, we note that the two issues for our consideration in
the present Appeal can be identified as under:
Page 4 of 23
Judgement in Appeal No. 8 of 2018
i. Issue No. 1: Whether the State Commission was justified in disallowing
capitalisation of the IXORA Sub-station and eight 33 kV AIS bays at Parel
on the ground that the assets had not been put to use?
ii. Issue No. 2: Whether the State Commission was justified in disallowing
O&M expenses of ₹ 10.66 Crores for 91 unutilised bays for FY 2014-15?
Issue No. 1: Whether the State Commission was justified in
disallowing capitalisation of the IXORA Sub-station and eight 33 kV
AIS bays at Parel on the ground that the assets had not been put
to use?
Submissions of the Appellant, TPC-T
13. The Appellant submitted that the disputed capitalisation comprised ₹26.54
Crores for FY 2013-14 and ₹4.86 Crores for FY 2014-15 towards the IXORA
Project, aggregating to ₹31.40 Crores and ₹1.83 Crores towards eight 33 kV bays
at Parel.
14. The Appellant submitted that both projects were constructed at the specific
request of the distribution licensees and after approval by the STU and MERC.
Their charging and commissioning stood completed during FY 2014-15. Non-
utilisation arose from the distribution licensees’ failure to take outlets and was
beyond TPC-T’s control. It further submitted that during the final hearing on
07.07.2026, MERC admitted that any delay in commissioning was irrelevant since
the distribution licensees would not have utilised the assets even had they been
commissioned on time.
15. The Appellant contended that Regulation 27.1(a), read with its proviso,
requires “put to use” in the context of transmission assets to be understood as
Page 5 of 23
Judgement in Appeal No. 8 of 2018
charging and commissioning. The proviso excludes an uncharged or
uncommissioned asset or element forming part of a project; it does not authorise
exclusion of a charged and commissioned project merely because the
downstream licensee has not utilised it.
16. The Appellant submitted that consumer benefit had already been evaluated
under MERC’s “Guidelines for in-principle clearance of proposed investment
scheme 2005” (Guidelines, 2005) when the projects were approved. The
stipulation that in-principle clearance was not final approval for ARR purposes
permitted scrutiny of the prudence of actual expenditure; it did not permit
reconsideration of consumer benefit after implementation. Denial of capitalisation
on that basis would strand assets constructed pursuant to the approvals.
17. Relying on Section 61(d) of the Electricity Act, 2003, the Appellant
submitted that consumer protection must be balanced with reasonable recovery
of electricity costs. A transmission asset can benefit consumers only when the
upstream or downstream entities are ready. Their failure to utilise an approved
and commissioned asset cannot be imposed upon the transmission licensee. It
also referred to the STU’s responsibility under Sections 39(2)(b) and (c) for
planned and coordinated development of an efficient and economical intra-State
transmission system.
18. The Appellant submitted that the MERC MYT Regulations, 2011 did not
expressly address deemed commissioning where upstream or downstream
entities were not ready. The second proviso to Regulation 3(12)(c) of the CERC
Tariff Regulations, 2009 and the second proviso to Regulation 4(3) of the CERC
Tariff Regulations, 2014 recognised commissioning where regular service was
prevented for reasons not attributable to the transmission licensee. These
principles ought to have guided MERC under Section 61(a) of the Act. Further,
Page 6 of 23
Judgement in Appeal No. 8 of 2018
Regulation 2.1(23) of MERC’s MYT Regulations, 2015 expressly recognised such
commissioning while Regulation 23.1 retained the capital-cost provision
corresponding to Regulation 27.1 of the 2011 Regulations.
19. While responding to the objection of res judicata , the Appellant relied on
Uttar Pradesh Power Corporation Ltd. v. National Thermal Power
Corporation Ltd. & Ors., (2009) 6 SCC 235 , to submit that tariff determination is
a continuous process and the earlier unchallenged disallowance did not bar
consideration of its claim in the subsequent proceedings.
20. Regarding Parel sub-station, the Appellant explained that the bays had
been commissioned and kept charged while outgoing cable connections were
either under execution or yet to be executed. Since the distribution licensees had
not intimated their utilisation dates, TPC-T could not specify when the bays would
be used.
21. The Appellant also relied on MERC’s subsequent Order dated 12.09.2019
in Case No. 204 of 2017. That order recorded absence of demand from NUPLLP
in FY 2015-16 and absence of service to consumers up to FY 2017-18. Following
approval of NUPLLP’s PPA on 03.08.2018 and grant of grid connectivity by the
STU, MERC considered the IXORA scheme for capitalisation in FY 2018-19 at a
depreciated cost of ₹ 29.99 Crores against the claim of ₹ 36.66 Crores. Five of
the eight Parel bays were similarly capitalised in subsequent years at depreciated
cost upon utilisation.
22. The Appellant submitted that its responsibility ended with keeping the
assets ready for use by the distribution licensees which it had done by
commissioning the IXORA and Parel Projects. Once constructed and
Page 7 of 23
Judgement in Appeal No. 8 of 2018
commissioned pursuant to the STU’s and MERC’s approvals, these assets ought
to be treated as deemed “put to use” where the upstream or downstream entities
were not ready.
23. Finally, the Appellant contended that allowing capitalisation of unutilised
GIS bays while denying capitalisation of AIS bays on the same ground rendered
the impugned treatment contradictory.
Submissions of the Respondent, MERC
24. The State Commissions’ Guidelines, 2005 prescribed a two-stage approval
process; in-principle clearance followed by final approval during tariff
determination or ARR review. The evaluation included consumer benefit,
justification of investment, recurring costs and the results achieved. The licensee
was required to implement the scheme according to the approved expenditure,
capitalisation and utilisation plan.
25. The in-principle clearance expressly reserved scrutiny of actual
expenditure, scope and objectives achieved after implementation. It also required
TPC-T to report the completion date, actual cost, escalation with reasons and the
extent to which the scheme’s objectives had been achieved. Consequently, STU
approval and in-principle clearance did not confer an unconditional entitlement to
capitalisation.
26. The Commission relied on the proviso to Regulation 27.1 “Provided that the
assets forming part of the project but not put to use or not in use, shall be taken
out of the capital cost.” It submitted that completion of erection or readiness for
use could not be equated with being put to use where consumers received no
benefit. The IXORA scheme was commissioned only in FY 2014-15 against the
Page 8 of 23
Judgement in Appeal No. 8 of 2018
approved completion by FY 2013, remained unutilised and had no certain
utilisation date.
27. The Commission further submitted that its MTR Order dated 26.06.2015
had already disallowed ₹ 26.54 Crores towards IXORA, including 35 bays
comprising eight bays above 66 kV and below 400 kV and twenty-seven bays of
33 kV and below. That order approved total capitalisation of ₹ 260.77 Crores
against ₹ 311.08 Crores claimed, after disallowing, inter alia , ₹ 21.56 Crores
towards land capitalisation and ₹ 26.54 Crores towards the unutilised sub-station.
Since TPC-T did not challenge the IXORA disallowance, the State Commission
contended that it had attained finality and the claim was barred by res judicata .
28. The State Commission relied on this Tribunal’s judgment dated 06.09.2013
in Haryana Vidyut Prasaran Nigam Ltd. v. Haryana Electricity Regulatory
Commission, Appeal No. 2 of 2013 , concerning servicing of capital deployed in
assets commissioned and put to use and protection of consumers from return on
unutilised assets. It also relied on PTC India Ltd. v. CERC, (2010) 4 SCC 603 ,
submitting that Regulation 27.1 had not been challenged and MERC was bound
by its Regulations.
29. In response to reliance on the CERC Regulations, the Commission
submitted that the provision used “may”, rather than “shall”, and therefore did not
mandate approval of commercial operation before the element entered regular
service. Such approval required scrutiny.
30. The State Commission defended the disallowance of ₹ 1.83 Crores for the
eight Parel AIS bays on the same basis. The scheme had neither been completed
Page 9 of 23
Judgement in Appeal No. 8 of 2018
within the stipulated time nor achieved its intended benefits after erection; prior
approval alone was insufficient to justify capitalisation.
Our Analysis and Conclusion
31. TPC-T is aggrieved that capitalisation towards certain assets was
disallowed in FY 2013-14 and 2014-15. The order Impugned in the present
appeal, relates, inter-alia to the FY 2014-15.
32. First, we would like to examine disallowance of capitalisation towards
IXORA sub-station. The operative part of the Impugned Order regarding
disallowance of capitalisation in case of IXORA sub-station is extracted below:
“4.3.19 As regards the capitalisation on this scheme, TPC-T has referred to
the CERC Regulations and an ATE Judgment. However, the Commission
notes that the assets have still not been put to use, and TPC-T has admitted
that it cannot say when they would be. The proviso to Regulation 27.1
(quoted at para. 4.3.13 above) specifies that the project assets not put to
use or not in use shall be removed from the capital cost.
4.3.20 Hence, the Commission has not considered the capitalisation of Rs.
26.54 Crore for the 145 kV Receiving Sub-station at Panvel (Ixora, and no
additional impact has been considered in FY 2013-14.”
33. It has been pointed that this capitalisation was claimed in 2013-14 also and
MERC had disallowed the same vide order dated 26.06.2015 in Case No. 5 of
2015 on the ground that the asset was not put to use. We note that the final
charging approval was granted by the Electrical Inspector only on 18.02.2015.
Since TPC-T could not have charged the sub-station before approval of Electrical
Inspector, the sub-station was ready for use only in FY 2014-15. Thus, in our
opinion, the MERC was right in disallowing the capitalisation claimed for this sub-
station for 2013-14 in its order dated 26.06.2015 in Case No. 5 of 2015, which
preceded the Impugned Order. However, a thorough analysis of the information
Page 10 of 23
Judgement in Appeal No. 8 of 2018
available would have shown that the appropriate basis for rejecting the claim was
that the sub-station was not yet ready for use and, therefore, the expenditure
continued to be in the nature of capital work-in-progress, rather than that the sub-
station had not been put to use.
34. Therefore, the only question that now needs to be examined is whether the
same claim for capitalisation can also be rejected for 2014-15, the period covered
by the Impugned Order.
35. Before proceeding further on the merits of the aforesaid and other claims of
capitalisation during 2014-15, we would like to examine the contention of MERC
that the Appellant’s claim is barred by res judicata because the same had already
been disallowed with the same reasoning in the MTR Order dated 26.06.2015,
Case No. 5 of 2015, and this order remained unchallenged. First of all, we note
that in the Impugned Order, MERC itself has not used the argument of res judicata
as additional ground to disallow the claim of TPC-T in respect of IXORA sub-
station. Further, in this context, we would like to refer to this Tribunal’s judgment
dated 13.01.2009 in Delhi Transco Ltd. v. Delhi Electricity Regulatory
Commission & Ors., Appeal No. 133 of 2007 . In paragraph 15 thereof, this
Tribunal recognised that “each assessment year of a tariff order gives rise to a
fresh cause of action and can be challenged separately” and further held that the
non-challenge to earlier tariff orders did not preclude examination of the treatment
adopted in the subsequent tariff year. This judgement has attained finality as the
Civil Appeal Nos. 5863-5864 of 2009 preferred against the said judgment were
dismissed by the Hon’ble Supreme Court by order dated 16.02.2016.
36. Applying the aforesaid principle, the non-challenge to the disallowance
made while truing-up FY 2013-14 cannot, by itself, foreclose examination of the
Page 11 of 23
Judgement in Appeal No. 8 of 2018
Appellant’s entitlement for FY 2014-15 under the Impugned Order dated
30.06.2016.
37. In case of Parel sub-station, TPC-T has claimed that the 8 bays of the sub-
station with capital cost of ₹ 1.83 Cr were commissioned in 2014-15. STU had
allocated 6 bays to TPC-D and 2 bays to BEST. TPC-T has admitted that these
bays could not be used in FY 2014-15 since downstream system of TPC-D and
BEST were not ready. In this case also, the capitalisation was disallowed by the
MERC on the ground that these bays have been idle since their commissioning
in FY 2014-15.
38. The Regulation 27.1 of the MERC MYT Regulations, 2011 is extracted
below for ready reference:
“27.1 Capital cost for a project shall include :
(a) the expenditure incurred or projected to be incurred, including interest during
construction and financing charges, any gain or loss on account of foreign
exchange risk variation on the loan during construction up to the date of
commercial operation of the project, as admitted by the Commission, after
prudence check;
(b) capitalized initial spares subject to the ceiling rates specified in this
Regulations; and
(c) additional capital expenditure determined under Regulation 28’
Provided that the assets forming part of the project but not put to use or not
in use, shall be taken out of the capital cost.”
39. MERC has disallowed capitalisation in case of IXORA sub-station and 8
bays at Parel sub-station on the basis of proviso to the above extracted
Regulation 27.1. MERC has disregarded the contention of TPC-T that non-
Page 12 of 23
Judgement in Appeal No. 8 of 2018
utilisation of assets is attributable to entities concerned, which had failed to
construct their outlets, and that non-utilisation is beyond the control of TPC-T.
40. We are of the opinion that there is clearly a void in the regulations of MERC
which do not provide for a commonly encountered situation, particularly in case
of transmission system that though the system may be ready for use, it may not
get used because the upstream or downstream systems to be constructed by
other entities are not ready. Rather than rejecting the claim for capitalisation of
such assets on this technical ground, MERC should have attempted to fill the gap
in the Regulations with a view to ensure fairness and justice.
41. As pointed out by TPC-T, CERC had issued Tariff Regulations, 2009 for the
period of 2009-2014, which inter-alia provided for payment of transmission
charges from the date of commercial operation, and the date of commercial
operation, 3 (12) (c) was defined as follows:
“(12) ‘date of commercial operation’ or ‘COD’ means
…
(c) in relation to the transmission system, the date declared by the
transmission licensee from 0000 hour of which an element of the
transmission system is in regular service after successful charging and trial
operation:
Provided that the date shall be the first day of a calendar month and
transmission charge for the element shall be payable and its availability
shall be accounted for, from that date:
Provided further that in case an element of the transmission system
is ready for regular service but is prevented from providing such service for
reasons not attributable to the transmission licensee, its suppliers or
contractors, the Commission may approve the date of commercial operation
prior to the element coming into regular service.”
42. Thus, it is clear that CERC Regulations envisaged declaration of
commercial operation and hence recovery of transmission charges by the
Page 13 of 23
Judgement in Appeal No. 8 of 2018
transmission licensee even if the asset could not be put to use for the reasons
not attributable to the transmission licensee.
43. Section 61 of the Electricity Act, 2003 provides that an Appropriate
Commission while specifying the terms and conditions for the determination of
tariff shall inter-alia be guided by the principles and methodologies specified by
the Central Commission for determination of the tariff applicable to generating
companies and transmission licensees. Since the definition of date of commercial
operation (“DOCO”) specified in the CERC Regulations was already available for
reference, it was expected that MERC would have adopted the same suitably in
their MYT Regulations. However, it is noted that such provision is reflected neither
in Regulation 27.1 nor in the definition of the DOCO in the MERC MYT
Regulations. Intriguingly, in the MERC MYT Regulations, 2011, the DOCO is
defined only for thermal and hydro generating stations, and these Regulations
are totally silent about DOCO of transmission systems.
44. The fundamental principles of fairness and justice also require that an entity
which has completed the work entrusted to it should not be penalised by way of
denial of capitalisation of asset (which in turn will lead to non-recovery of
transmission charges) merely because other entities have failed to perform the
tasks assigned to them. In Nuclear Power Corporation of India Ltd. v. Central
Electricity Regulatory Commission & Ors., Appeal No. 332 of 2016 , decided
on 18.01.2019, and in subsequent judgments, this Tribunal has recognised the
principle that, in the absence of specific provisions in the applicable Regulations,
the entity responsible for the delay preventing a commissioned transmission
system developed through the TBCB route from being put to use is liable to pay
the transmission charges for the corresponding period. This principle has also
been considered by the Hon’ble Supreme Court in Power Grid Corporation of
Page 14 of 23
Judgement in Appeal No. 8 of 2018
India Ltd. v. Madhya Pradesh Power Transmission Company Ltd., (2025) 8
SCC 705 .
45. Applying the underlying principle of fairness to the present case, the mere
fact that the asset in question was not put to use cannot, by itself, justify denial of
capitalisation as the asset was ready for use, since such non-utilisation was
alleged to be attributable to the failure of IXORA and Discoms concerned to
complete the associated works. In the circumstances, we have come to the
conclusion that the MERC erred in disallowing capitalisation solely on the ground
that the assets were not put to use, without analysing as to whether other entities
were responsible for the situation.
46. It is admitted position that TPC-T had constructed sub-station at Panvel on
the request of IXORA. Also, out of 8 bays at Parel sub-station, STU had allocated
6 bays to TPC-D and 2 bays to BEST. The construction of these assets was
started by TCT-T after validation and verification of Detailed Project Report (DPR)
by STU and in-principal approval of MERC. It appears that the entities responsible
for downstream assets could not complete construction of their systems in time,
which lead to non-utilisation of the assets constructed by TPC-T.
47. Further, there is need to examine as to whether STU had performed its
duties. In accordance with the Section 39 of the Electricity Act, 2003, it is a
function of STU to discharge all functions of planning and coordination relating to
intra-state system and to ensure development of efficient network and intra-state
transmission line. Prima facie, it appears that the STU failed to coordinate with
all the entities involve to avoid mismatch in commissioning of the relevant assets.
Page 15 of 23
Judgement in Appeal No. 8 of 2018
48. It is clear from the Impugned Order that the aspects mentioned in the
preceding two paragraphs were not examined by the MERC.
49. In their submission, MERC has brought forward additional grounds to
support their decision in the Impugned Order:
(i) The in-principle approval itself mentioned that it is not final approval for ARR
purpose and that the scheme will be open for scrutiny during tariff
determination process. The extract of such in-principle approval is extracted
below:
“ 2. Please note that this in-principle clearance should not be construed as final
approval for ARR purpose and the Scheme will be open for scrutiny during the
tariff determination process/ARR review, particularly in the context of actual
cost incurred, scope and objective achieved etc. ex post after implementation
of the scheme. TPC will be required to submit the status of implementation of
the scheme with cost incurred till date likely completion date etc along with their
ARR petition or during the tariff determination process at the appropriate time.
….4. Immediately after completion/commissioning of the Scheme. TPC should
communicate to the Commission the date of completion of the Scheme, actual
cost incurred, escalation in cost, if any with reasons, the scope and objectives
of the Scheme and to what extent they have been achieved etc so as to
facilitate a comparison between the in-principle clearance and the actuals.”
(ii) The objective of the scheme was not achieved as the consumers
were not benefitted.
50. We are not persuaded by these arguments. It is evident that the purpose of
the in-principle clearance was to authorise TPC-T to proceed with the construction
of the asset. Since cost is a key consideration at the ARR stage, the final approval
at that stage was intended, inter alia , to compare the actual cost of completion
with the approved cost and to undertake a prudence check. The interpretation
advanced by the State Commission could result in the denial of the entire cost
Page 16 of 23
Judgement in Appeal No. 8 of 2018
incurred, rather than merely subjecting such cost to a prudence check. Such an
interpretation would undermine regulatory certainty and could adversely affect
future investment by transmission licensees.
51. Similarly, the review of the scheme upon its completion, including an
assessment of the extent to which its objectives had been achieved, was,
perhaps, intended to inform future action and improve the planning and
implementation of similar schemes. Such a review cannot be used as a ground
to deny transmission charges merely because the objectives of the scheme have
not been fully or partly achieved. What is material is that the scheme was
entrusted to the transmission licensee for implementation and that the licensee
duly completed the work assigned to it. Section 61 of the Electricity Act, 2003,
requires the Appropriate Commission, while specifying the terms and conditions
for determination of tariff, to be guided not only by the need to safeguard
consumer interests but also by the need to ensure recovery of the cost of
electricity in a reasonable manner, and to ensure that the activities of generation,
transmission, distribution and supply of electricity are conducted on commercial
principles.
52. The reliance of MERC on judgment dated 06.09.2013 of this Tribunal in
Haryana Vidyut Prasaran Nigam Limited v Haryana Electricity Regulatory
Commission, Appeal No. 02 of 2013 is misplaced. That judgement dealt with
capital works which were in progress and had not been completed, whereas in
the present case assets were completed and were ready for charging.
53. In view of the foregoing, we are of the opinion that the MERC has erred in
disallowing the capitalisation of assets at IXORA sub-station and 8 bays at Parel
sub-station for the FY 2014-15 without analysing the extent to which other entities
Page 17 of 23
Judgement in Appeal No. 8 of 2018
were responsible for such a situation. Accordingly, the expenditure disallowed in
2013-14 and 2014-15 in respect of IXORA sub-station shall be allowed with effect
from the date on which final charging permission was granted by the Electrical
Inspector. In respect of 8 bays at Parel sub-station, the capitalisation shall be
allowed from their date of charging. Further, we remand the matter to the MERC
for undertaking an analysis as to which entities were responsible for non-
utilisation of the aforesaid assets and accordingly fix liability to pay transmission
charges. Needless to add that these proceedings shall be carried out in
accordance with law, after following due process and affording the concerned
parties an opportunity of hearing. The MERC shall pass a reasoned order based
on such analysis.
Issue No. 2: Whether the State Commission was justified in disallowing
O&M expenses of ₹ 10.66 Crores for 91 unutilised bays for FY 2014-15?
Submissions of the Appellant, TPC-T
54. The Appellant submitted that the 91 bays were kept charged and
maintained in readiness for use when the upstream or downstream facilities
became available. The expenditure incurred to maintain these assets ought
therefore to be allowed.
55. It further pointed out that O&M had been denied for both AIS and GIS bays
despite capitalisation having been allowed for the latter. Further, MERC’s MYT
Regulations do not provide for denial for O&M expenses merely because
transmission assets are not ‘put to use’.
Page 18 of 23
Judgement in Appeal No. 8 of 2018
Submissions of the Respondent, MERC
56. The State Commission submitted that O&M entitlement of ₹10.66 Crores
was disallowed for 91 bays, comprising 57 bays not put to use, including 35 bays
at the IXORA Sub-station and 34 bays which had been capitalised but remained
unutilised by the beneficiaries.
57. Answering the Appellant’s objection regarding different treatment of GIS
and AIS bays, the State Commission submitted that capitalisation of unutilised
GIS bays had been consciously allowed after considering the technical difficulties
associated with their erection and subsequent extension. Switchgear was of a
standardised design accommodating a particular number of bays which could
exceed immediate requirements. Providing additional GIS bays avoided
cumbersome future extensions and additional capital expenditure. Land
constraints in Mumbai were also considered since failure to acquire land when
available could affect establishment of Receiving Stations in future.
58. The State Commission further referred to TPC-T’s explanation that
unoccupied bays constituted approximately 4% of the total and were necessary
for long-term transmission planning to ensure that power off-take was not
delayed. These considerations justified allowing capitalisation of GIS bays
despite non-utilisation. The Commission therefore denied that it had adopted a
pick-and-choose approach and submitted that disallowance of capitalisation of
unutilised assets particularly AIS switchgear, had been applied across utilities.
59. Regarding the 34 capitalised bays, the Commission submitted that the
proposal to construct bays exceeding immediate requirements had not been
disclosed at the in-principle approval stage. The difficulties concerning their
construction and utilisation were presented only after completion, while claiming
Page 19 of 23
Judgement in Appeal No. 8 of 2018
ARR. Had the excess provision been disclosed earlier, the Commission could
have disallowed it at the in-principle approval stage.
60. The State Commission submitted that in paragraph 4.3.22 of the Impugned
Order, MERC has taken note of 108 unutilised bays with an aggregate cost of
₹49.18 Crores, commissioned between 2011 and 2016. It submitted that O&M
expenses on bays erected long ago but remaining unutilised could not be allowed,
particularly in the absence of a utilisation plan.
61. The Commission contended that passing through capital cost and
corresponding O&M expenditure without any benefit accruing to consumers
would increase tariff and burden consumers. It had adopted the same approach
towards O&M charges for unutilised bays of other transmission licensees.
Our Analysis and Conclusion
62. TPC-T is aggrieved by the fact that MERC has disallowed O&M expenses
for 91 bays. TPC-T has mentioned that out of these 91 bays, 57 bays were not
capitalized (which included 35 bays at IXORA sub-station) and 34 bays were
capitalized but were unused by the beneficiaries.
63. TPC-T has contended that O&M expenses should be allowed even in
respect of assets that have not been capitalized, on the ground that the MERC
MYT Regulations, 2011 contain no express provision prohibiting such allowance.
64. We are unable to accept this contention. It is no doubt true that certain
activities may require expenditure even in respect of works in progress, such as
patrolling an unfinished transmission line to prevent theft, deploying manpower
for the security of a sub-station, and monitoring the execution of works. However,
expenditure incurred on such activities prior on such incomplete assets forms part
Page 20 of 23
Judgement in Appeal No. 8 of 2018
of the expenditure incurred up to date of commercial operation [Regulation 27.1
(a)] and is required to be capitalized. The absence of an express provision
prohibiting the allowance of such expenditure as O&M expenses does not justify
its separate recovery under that head when it is attributable to the construction
phase.
65. The position is different once the assets are ready for charging and have
been put under commercial operation. From that stage onwards, the assets
qualify for consideration as commercially operational assets, and the admissible
O&M expenses form part of the costs recoverable through transmission charges
in accordance with the applicable Tariff Regulations. Accordingly, where assets
have been put under commercial operation but remain unutilized for reasons not
attributable to the transmission licensee, the licensee cannot be denied recovery
of admissible O&M expenses merely because the assets are not being put to
actual use. The rationale for allowing O&M expenses of such assets is on same
lines as for allowing capitalisation, as concluded by us under Issue No. 1.
66. We find no merit in the MERC’s submission that, had the Appellant
disclosed at the stage of seeking in-principle approval that it proposed to install
more bays than were required, the Commission could have disallowed the excess
bays.
67. The MERC, while considering the capitalisation claim, was required to
examine all relevant facts and circumstances, including the status of the bays
and the reasons for their non-utilisation, and to determine the claim in accordance
with the applicable Regulations. It cannot now seek to justify the denial of O&M
expenses on the ground that capitalisation might not have been allowed had the
position regarding non-utilisation been known to it earlier. As already held by us,
non-utilisation of an asset, by itself, does not justify denial of capitalisation where
Page 21 of 23
Judgement in Appeal No. 8 of 2018
the asset is otherwise eligible for capitalisation, nor does it justify denial of O&M
expenses once the asset has been put under commercial operation. The relevant
question is whether the bays satisfy the applicable requirements for capitalisation
and recovery of O&M expenses, and not whether they were actually being
utilized.
68. The contention of MERC that similar treatment has been accorded to the
assets of other licensees is of no consequence. In the present case, TPC-T has
challenged the disallowance of O&M expenses, and we have allowed the appeal
on this issue on its merits. The treatment accorded to other licensees cannot, by
itself, justify sustaining the impugned disallowance.
69. In view of the foregoing analysis, we remand this issue also to the MERC
for reconsideration. The MERC shall first undertake the analysis directed by us
under Issue No. 1 and determine as to which of the entities were responsible for
non-utilisation of the aforesaid assets and accordingly fix liability to pay
transmission charges of the assets in question. The transmission charges will
obviously include O&M expenses in accordance with the applicable Regulation,
in respect of those assets. As regards the 34 bays that had already been
capitalized, admissible transmission charges including O&M expenses shall be
allowed in accordance with the applicable Regulations.
ORDER
For the foregoing reasons as stated above, the captioned Appeal No. 8 of 2018
is partly allowed. The Impugned Order dated 30.06.2016 passed by MERC in
Case No. 22 of 2016 and Review Order dated 19.07.2017 in Case No. 110 of
2016 are set aside to the extent indicated below.
Page 22 of 23
Judgement in Appeal No. 8 of 2018
We uphold MERC’s decision to disallow the capitalisation of ₹ 26.54 Crores of
the IXORA Sub-station for FY 2013-14. However, we allow the capitalisation of
the entire expenditure of ₹31.40 Crores for the aforesaid sub-station for the FY
2014-15 with effect from the date when final charging permission was granted by
the Electrical Inspector. Capitalisation of the eight bays at Parel also stands
allowed from their date of actual charging.
The matter is remanded to MERC to determine the responsibility for non-
utilisation of the assets and fix liability for payment of transmission charges,
including admissible O&M expenses.
Admissible transmission charges, including O&M expenses, for the 34 bays
already capitalised shall also be allowed in accordance with the applicable
Regulations.
rd
PRONOUNCED IN THE OPEN COURT ON THIS 3 DAY OF NOVEMBER,
2026.
(Ajay Talegaonkar)
(Virender Bhat)
Judicial Member
REPORTABLE / NON-REPORTABLE
Technical Member
kns/mg/mkj/kks
Page 23 of 23