Delay attributable to contractors or suppliers is a controllable factor; consequential cost overruns cannot be passed to consumers.

In brief

The question

1. Whether CERC erred in allowing a time overrun of 8 months for GT and ST attributable to the contractor BHEL?

The court held

It held that (a) the 8-month delay by BHEL and specific delays by ONGC were "controllable" and not condonable for tariff purposes; and (b) capitalization of cost escalations, IDC, and IEDC arising from these delays is disallowed

It also directed

The Tribunal allowed the appeal, set aside the Impugned Order, and remanded the matter to CERC to re-determine the tariff by performing a fresh prudence check of capital cost with reference to the RCE-I (2010 price level) instead of the CEA's 2017 recommendation

01Facts

The Appellant (TSECL), the sole off-taker of power from the Tripura Gas Based Power Project, challenged the Central Electricity Regulatory Commission's (CERC) order dated 04.04.2019.

The project suffered significant delays: 33 months for the Gas Turbine (GT) and 44 months for the Steam Turbine (ST)

p. 5

NEEPCO (Respondent No. 1) attributed 8 months of delay to its EPC contractor, BHEL (partially due to offloading work to a joint venture, NBPPL), and the remainder (25–36 months) to ONGC’s failure to supply gas

pp. 6, paras 17-18

CERC condoned these delays as "uncontrollable" and approved a revised capital cost of ₹1062.24 Crore based on a CEA recommendation, despite the lack of formal Ministry approval for the RCE-II

p. 30, 32

02Issues

i.1. Whether CERC erred in allowing a time overrun of 8 months for GT and ST attributable to the contractor BHEL?

p. 6, para 18

ii.2. Whether CERC erred in allowing a time overrun of 25 months and 36 months for GT and ST respectively attributable to non-supply of gas by ONGC?

p. 6, para 18

iii.3. Whether CERC erred in allowing the cost overrun and using the CEA-vetted cost instead of the formally approved RCE-I?

p. 6, para 18 · p. 33

03Law Applied

Regulation 12 of the CERC (Terms and Conditions of Tariff) Regulations, 2014, which classifies "delay on account of contractor, supplier or agency" as a "controllable factor," meaning cost escalations therefrom cannot be passed to consumers

pp. 20-21

Maharashtra State Power Generation Co. Ltd. v. MERC (Appeal No. 72 of 2010) regarding the categorization of delays

p. 11

Regulation 10(4) provides that if a Power Purchase Agreement (PPA) provides a ceiling on capital expenditure, the Commission must consider it

pp. 33-34

Suresh Madhukar Ganorkar v. Union of India to hold that D.O. letters lack statutory force and are not executive instructions

pp. 16-17

Provisions in the judgment · 5 · Linked ones open on LawLens

Electricity Act, 2003 Section 3 Section 61 Section 76

Disaster Management Act, 2005 Section 6 Section 10

04Reasoning

The Tribunal found that CERC failed to apply its own 2014 Regulations. Since both BHEL (contractor) and ONGC (supplier) fall under "controllable factors" per Regulation 12, NEEPCO cannot pass the resulting Interest During Construction (IDC) and Incidental Expenditure during Construction (IEDC) to the beneficiaries

pp. 21-22, 28

The Tribunal rejected the "Force Majeure" argument for gas supply, noting that non-supply by a vendor does not constitute Force Majeure under the Specific PSA or Regulations

pp. 27-28

Regarding cost-overrun, the Tribunal held that CERC erred by treating a CEA recommendation letter as a formal "Investment Approval." Per Regulation 10(4) and Clause 3.2 of the PSA, the formally approved RCE-I (₹623.44 Crore) should have served as the benchmark for the prudence check, adjusted only for appropriate price levels, rather than adopting the unapproved RCE-II

pp. 33-35