Belated PLF incentive claims are barred once truing-up attains finality and entitlement was not timely asserted.

The Tata Power Company Limited (“TPC-G”) challenged MERC’s Multi Year Tariff Order dated 8 August 2016 in Case No. 32 of 2016, concerning truing-up for FY 2014–15, provisional truing-up for FY 2015–16, and tariff determination for the third control period.

The appeal raised three issues: denial of additional Plant Load Factor (“PLF”) incentive for FY 2011–12 to FY 2013–14; treatment of increased property tax while determining controllable and uncontrollable O expenses; and disallowance of income-tax claims relating to deferred revenue recoveries for FY 2007–08 to FY 2013–14.

TPC-G contended that backing-down of generation directed by the Maharashtra State Load Despatch Centre (“MSLDC”) entitled it to additional PLF incentive under Regulation 49.8 of the MERC MYT Regulations, 2011, but the claim had not been raised during the earlier truing-up proceedings.

It also argued that increased property tax was an uncontrollable expense under Regulation 12.1(d), and that income tax should be recalculated on revenue-gap recoveries actually billed in subsequent years.

MERC opposed the claims on the grounds of tariff finality, waiver, and the completion of prior truing-up proceedings.

1. Whether TPC-G could claim additional PLF incentive of approximately ₹41.96 crore for FY 2011–12 to FY 2013–14 on account of deemed generation arising from MSLDC backing-down instructions, despite not claiming it in monthly billing or the earlier truing-up proceedings?

2. Whether the increase in property tax, classified as an uncontrollable factor under Regulation 12.1(d), was required to be excluded from the actual O expenses for the purpose of gain-and-loss sharing under Regulations 13 and 14?

3. Whether TPC-G was entitled to consequential income-tax pass-through on revenue gaps recovered and billed in subsequent years for FY 2007–08 to FY 2013–14, notwithstanding the finality of the earlier truing-up orders?

The Tribunal applied Regulation 49.8 of the MERC MYT Regulations, 2011, under which PLF incentive is payable for actual generation exceeding the target PLF, with deemed generation attributable to MSLDC backing-down instructions, but the incentive is to be computed and billed monthly subject to year-end adjustment.

It applied the doctrines of waiver, acquiescence, tariff finality, and reasonable diligence, holding that the continuous nature of tariff determination does not permit a party to reopen concluded truing-up proceedings after failing to raise a known claim; in this context, it relied on UPPCL v. NTPC, (2009) 6 SCC 235.

For O expenses, Regulation 12.1(d) treats taxes and duties as uncontrollable factors, while Regulation 13 requires gains or losses from uncontrollable factors to be passed through in tariff; Regulation 14 governs sharing of gains and losses from controllable factors.

Regulation 45 provides normative O expenses with a prescribed escalation factor, but that escalation cannot subsume expenses independently classified as uncontrollable where doing so would render Regulations 12.1 and 13 otiose.

For income tax, Regulation 34 requires tax on the permissible return from the regulated business to be provisionally approved and trued up, subject to prudence check, and permits recovery or refund of variations based on documentary evidence.

The Tribunal also applied the principle that an affirmed methodology may not be reopened, but computational or clerical omissions in applying that methodology may be rectified without constituting a substantive review.

On the PLF issue, the Tribunal held that although Regulation 49.8 created an entitlement to incentive on deemed generation, TPC-G had neither claimed the incentive in its monthly bills nor raised or reserved the claim in the earlier MYT and MTR truing-up proceedings.

The MSLDC certificate was evidentiary and did not create the underlying right; moreover, TPC-G had quantified and submitted the claim even before the certificate was issued, demonstrating that the certificate’s absence did not prevent a timely claim.

Since the prior truing-up orders had attained finality, the claim was barred by waiver and acquiescence.

On property tax, the Tribunal distinguished between ordinary normative O expenditure, which is subject to controllable-factor sharing under Regulation 14, and a subsequent increase in statutory property tax, which falls within the uncontrollable category under Regulation 12.1(d).

Treating the entire increase as part of controllable O would negate Regulation 13; therefore, the portion of the property-tax increase not already reflected in the normative O benchmark had to be treated as an uncontrollable variation.

On income tax, the Tribunal found that the earlier judgment in Appeal No. 244 of 2015 had affirmed the billed-revenue methodology, but had not necessarily adjudicated the correctness of every computation made under that methodology.

Revenue gaps recovered in later years constituted actual regulated-business revenue in those years, and omission of the corresponding tax liability could be rectified without reopening the approved methodology.

The matter therefore required a prudence check and recomputation by MERC.

MERC’s finding was set aside. The matter was remanded with directions to treat the subsequent increase in property tax as an uncontrollable factor under Regulation 13, to the extent it was not already incorporated in normative O expenses, while determining the balance O gain or loss under Regulation 14.

MERC’s refusal to consider the past-period claim was set aside. The matter was remanded for a prudence check and determination of income-tax pass-through on the deferred revenue recoveries, applying the billed-revenue methodology affirmed in the earlier judgment.

MERC was directed to pass the remand order expeditiously, preferably within three months of receiving the judgment; the appeal and pending interlocutory applications were disposed of accordingly.