CERC-determined generation tariff must be adopted by State Commissions as input cost without re-determination or exclusion.

Damodar Valley Corporation (DVC), a statutory body under the DVC Act, 1948, challenged an order dated 19.04.2017 passed by the Jharkhand State Electricity Regulatory Commission (JSERC).

Under Section 79 of the Electricity Act, 2003, the Central Commission (CERC) determines DVC's generation and transmission tariffs, while JSERC determines retail supply tariffs.

Following directions from the Supreme Court to undertake a true-up exercise, JSERC issued the Impugned Order for FY 2006-07 to 2014-15.

DVC appealed the order on three grounds: disallowance of pay revision arrears previously approved by CERC, linkage of statutory fund contributions to plant availability, and the imposition of normative T&D loss targets instead of actuals.

1. Whether the State Commission could disallow pay revision expenditure of Rs. 210 Crore for FY 2006-09 when the same was specifically approved by the CERC in its order dated 08.05.2013.

2. Whether the recovery of contributions toward the Pension & Gratuity (P&G) Fund and Sinking Fund (under Section 40 of many DVC Act) should be linked to the normative plant availability factor for FY 2009-14.

3. Whether JSERC erred in applying a normative T&D loss target of 3.00% for FY 2012-13 to FY 2014-15 instead of considering actual losses.

Rule 8 of the Electricity Rules, 2005, which stipulates that tariffs determined by the Central Commission shall not be subject to re-determination by a State Commission.

Section 40 of the DVC Act, 1948, regarding the statutory obligation to maintain P&G and Sinking Funds.

Regulation 43(2)(iv) of the CERC Tariff Regulations, 2009, which treats such funds as recoverable expenditure.

Section 61 of the Electricity Act, 2003, emphasizing that loss reduction targets must be rational and grounded in empirical data, supported by the precedent in WESCO v. OERC regarding "ground realities".

Regarding Issue 1, the Tribunal held that JSERC’s exclusion of the Rs. 210 Crore pay revision arrears was unsustainable because CERC had explicitly allowed it in the body of its order (paras 132-136); a mere omission in a summary table cannot override operative findings, and Rule 8 prohibits JSERC from modifying CERC-determined input costs.

For Issue 2, the Tribunal reasoned that while fund contributions are statutory, once they are subsumed into the Annual Fixed Charges (AFC), their recovery is governed by the regulatory framework of availability-based tariffs. Thus, they must be linked to plant performance like any other fixed cost component.

On Issue 3, the Tribunal found JSERC’s 3% T&D loss ceiling arbitrary. It noted that JSERC had allowed higher actual losses in previous years and its own MYT order promised a true-up based on actuals; hence, restricting losses to normative targets without a fresh prudence check or rational basis was a regulatory error.

It remanded the issue of T&D losses (Issue C) back to JSERC to conduct a proper prudence check of actual losses for FY 2012-13 to FY 2014-15 and JSERC was directed to pass consequential orders with carrying cost within three months.