Fixed Capital Cost Parameters in a Mutually Negotiated PPA Preclude Subsequent Claims for Additional Capitalisation

In brief

The question

1. Whether "Additional Capitalization" falls under the category of "other costs" as per the Supreme Court’s 2018 roadmap, thereby allowing OERC Regulations to apply over the PPA

The court held

The Tribunal concluded that the State Commission correctly disallowed the additional capitalization, though for different reasons

It also directed

It held that the capital cost was a frozen parameter under the PPA and the Supreme Court’s directions

The Tribunal further observed that since the foreign investor (for whom the special dispensation was created) had divested, the Government of Odisha should review whether this special tariff framework remains necessary

The appeal was dismissed, and the Impugned Order was affirmed

01Facts

The Appellant (OPGC) operates a thermal power station (Units 1 & 2). A Bulk Power Supply Agreement (PPA) was executed in 1996 and amended in 2012

p. 4

Disputes regarding tariff determination reached the Supreme Court, which on 19.04.2018 directed that fixed costs be determined by a 2008 Government Notification, variable costs by the PPA, and "other costs" by OERC Regulations

p. 7, 16

Consequently, OPGC filed Case No. 54 of 2018 seeking additional capitalization of ₹122.15 crore for FYs 2015-18

p. 7, 13

The State Commission (OERC) rejected the claim on 21.05.2021, holding that capital costs were frozen by the PPA/Notification and the expenses were in the nature of O&M

pp. 8, 12-13

02Issues

i.1. Whether "Additional Capitalization" falls under the category of "other costs" as per the Supreme Court’s 2018 roadmap, thereby allowing OERC Regulations to apply over the PPA

p. 16, 18

ii.2. Whether the capital cost of the project was frozen as a "parameter" under the negotiated PPA settlement

p. 19

iii.3. Whether the OERC was correct in categorizing the claimed expenditure as Operation and Maintenance (O&M) based on Plant Load Factor (PLF) performance

p. 14

03Law Applied

The Tribunal primarily interpreted the directions of the Supreme Court in OPGC v. OERC (CA No. 9485 of 2017) regarding the tripartite division of costs (Fixed, Variable, and Other)

p. 16

It applied the principle of res judicata, holding that specific judicial directions override general statutory regulations

pp. 21-22

It also relied on the definition of "Capital Expenditure" versus "Revenue Expenditure" similar to Rule 84 of the General Financial Rules, 2017

p. 14

OERC (Terms and Conditions for Determination of Generation Tariff) Regulations, 2014, specifically Regulation 3.3 regarding the mandatory submission of the original scope of work for additional capitalization

pp. 15-16

Provisions in the judgment · 4 · Linked ones open on LawLens

Electricity Act, 2003 Section 2 Section 86 Section 14 Section 61

04Reasoning

The Tribunal rejected the OERC’s reasoning that capital expenditure is defined by PLF improvement, clarifying that PLF is a measure of utilization, not asset enhancement

pp. 14-15

The Tribunal found that the 1996 PPA expressly listed "Capital Cost" as a fixed "parameter" (frozen at ₹1060 Cr) rather than a floating input

pp. 19-20

It reasoned that "Additional Capitalization" is not an independent "other cost" but an addition to "Capital Cost," which was already exhausted under the "Fixed Cost" limb of the Supreme Court's directions governed by the Government Notification

pp. 18-20

Furthermore, the Appellant failed to comply with the mandatory requirement of Regulation 3.3 to provide the original scope of work, making a prudence check impossible

p. 16

The Tribunal emphasized that the PPA was a negotiated settlement intended to provide tariff certainty, and allowing additional capitalization would disturb this contractual allocation of risk

pp. 20-23