Mandatory Relaxation of O&M Norms for Transmission Licensees Exclusively Operating in Difficult Regional Terrains

The Appellant, North East Transmission Company Limited (NETCL), is a transmission licensee operating a 662.8 km interstate system specifically for the Palatana Gas Based Power Project in the North-Eastern Region (NER).

Following the determination of its tariff for the 2014-19 control period, the Appellant filed a petition seeking relaxation of normative Operation and Maintenance (OM) expenses under Regulations 54 and 55 of the CERC Tariff Regulations, 2014.

The Appellant argued that as a single-project company operating in the difficult terrain of the NER, the pan-India normative benchmarks were structurally inadequate to cover its actual costs.

The Central Commission (CERC) rejected the claim on 27.01.2021, asserting that single-project companies must optimize costs and that the norms were based on representative industry data.

The Appellant challenged this order and the subsequent dismissal of its Review Petition.

1. Whether the Central Commission erred in refusing to exercise its "Power to Relax" under Regulation 54 of the Tariff Regulations, 2014, given the Appellant’s unique status as a single-project company in the NER.

2. Whether the national normative OM benchmarks, largely derived from PowerGrid's diversified asset base, are equitably applicable to a licensee operating solely in the high-cost terrain of the North-Eastern Region.

The Tribunal applied Regulation 54 of the CERC (Terms and Conditions of Tariff) Regulations, 2014, which grants the Commission the power to relax regulatory provisions in exceptional circumstances provided reasons are recorded in writing.

The Tribunal also relied on Section 61 of the Electricity Act, 2003, which mandates balancing consumer interests with the "recovery of the cost of electricity in a reasonable manner".

The Tribunal cited the Tariff Policy, 2016 (Para 5.11), which suggests that when operations are significantly below norms due to historical or structural reasons, initial starting points should be recognized at "relaxed" levels.

The principle of "Prudence Review," as established in M/s Everest Power Pvt. Ltd. v. PSERC, was used to ensure that expenditure is evaluated for necessity and reasonableness.

The Tribunal observed that while CERC norms are generally binding as subordinate legislation, Regulation 54 exists specifically to prevent manifest hardship.

It noted that the national OM benchmark of ₹0.403 lakh/ckt-km was a diluted average; in contrast, actual NER costs for PowerGrid were ₹0.75 lakh/ckt-km—32% to 127% higher than other regions.

The Tribunal found that a single-project company in the NER cannot mitigate these regional cost spikes through economies of scale like a pan-India utility can.

The Tribunal highlighted that the CERC itself had acknowledged this regional disparity in the 2024 Regulations by proposing a 1.5x multiplier for NER-based licensees.

The Tribunal found the CERC's rejection—based on the claim that the Appellant failed to provide data—was factually incorrect as the Appellant had participated in the consultative process.

It reasoned that applying rigid pan-India norms to a utility ensuring 99.9% availability in a conflict-prone, high-rainfall, and hilly terrain was inequitable.

The Tribunal set aside the Impugned Order dated 27.01.2021 and the Review Order dated 06.08.2021, remanding the matter to the CERC with a direction to exercise its power under Regulation 54 to rework the OM charges for the 2014-19 period, conducting a "prudence check" of actual data and considering the 1.5x multiplier.