Notional IDC omitted at initial tariff determination may be allowed at true-up, subject to prudence verification.

JSW Hydro Energy Ltd. operates the 1,000 MW Karcham Wangtoo Hydro Electric Project in Himachal Pradesh. A Power Purchase Agreement dated 21 March 2006 provided for the sale of 704 MW capacity to PTC India Ltd.

The Appellant filed Petition No. 434/GT/2014 for determination of tariff for 2014–19. Although the Forms submitted in those proceedings disclosed that equity deployed during construction exceeded 30% of the project funds, the Central Electricity Regulatory Commission (“CERC”) determined capital cost and IDC without separately allowing normative IDC on the excess equity.

The tariff order dated 30 March 2017 stated that the capital cost and IDC allowed were subject to revision at the truing-up stage on the basis of balance sheets, IDC allocation and reconciliation of debt shown in Form 14 with the books of account.

Subsequently, in Petition No. 391/GT/2019, the Appellant sought truing-up of tariff for 2014–19 and determination of tariff for 2019–24, including normative IDC on equity deployed beyond 30%.

By order dated 17 March 2022, CERC rejected the claim on the ground that normative IDC had not been claimed or granted in the original tariff proceedings and that a new claim could not be introduced at the truing-up stage. The Appellant challenged that decision before the Appellate Tribunal for Electricity.

1. Whether normative IDC on equity deployed in excess of 30% during construction, though not specifically claimed or allowed in the original tariff determination, could be considered at the truing-up stage under the CERC Tariff Regulations, 2014?

2. Whether consideration of such normative IDC at truing-up would amount to impermissibly changing the tariff methodology or reopening a concluded tariff determination, contrary to the principle in BSES Rajdhani Power Ltd. v. DERC?

3. If the claim was allowed, from what date would the Appellant be entitled to carrying cost?

Regulation 9(2) of the CERC (Terms and Conditions of Tariff) Regulations, 2014 provides that capital cost includes IDC and financing charges, with interest on a normative loan equal to 70% of the funds deployed where actual equity exceeds 30%; the excess equity is consequently treated as normative loan.

The Tribunal applied the principle that a binding tariff regulation must be implemented and that an inadvertent omission to apply it cannot be perpetuated merely because it occurred in an earlier tariff order.

It distinguished BSES Rajdhani Power Ltd. v. DERC, under which truing-up cannot be used to substitute a different tariff methodology or reopen a consciously decided issue, because the present case involved no change in methodology but the implementation of an applicable regulation omitted earlier.

The Tribunal also relied on the regulatory principle that tariff determinations, particularly IDC and capital cost, may be reconciled at truing-up with audited accounts and actual debt deployment.

However, carrying cost is compensatory and cannot be awarded for delay attributable to the claimant; therefore, it could accrue only from the date on which the claim was first formally raised in the truing-up petition.

The Tribunal found that the Appellant’s excess equity deployment was already disclosed in the tariff forms and that Regulation 9(2) created an entitlement to normative IDC where the prescribed conditions were satisfied.

The original tariff order did not consciously reject the Appellant’s entitlement; rather, it failed to apply the relevant regulatory treatment and expressly kept capital cost and IDC subject to reconciliation at truing-up.

Accordingly, allowing normative IDC at truing-up would correct an omission and operationalise the existing regulatory framework, not introduce a new tariff methodology or conduct a de novo review of the earlier order.

The Tribunal nevertheless held that the Appellant had itself failed to claim the amount earlier and had not challenged the 2017 order by review or appeal. Granting carrying cost for the intervening period would therefore unfairly shift the consequences of the Appellant’s omission onto consumers.

The impugned CERC order dated 17 March 2022 was set aside on this issue, and the matter was remanded to CERC to undertake the necessary prudence check and pass consequential orders.

Carrying cost on the admissible normative IDC was restricted to the period commencing from the date of filing of the truing-up petition until the eventual adjustment, and was not allowed for the earlier period.

CERC was directed to complete the exercise expeditiously, preferably within three months of receiving the judgment.