Only actual rebates, not normative deemed rebates, constitute non-tariff income absent specific regulatory mandate.

In brief

The question

1. Whether the State Commission was justified in disallowing fixed capacity charges paid to AEL for April–June 2016 on the grounds of imprudent demand forecasting

The court held

The Tribunal partly allowed the appeal.

It also directed

It set aside the disallowance of AEL fixed costs for April–June 2016 and reversed the 1% deemed rebate, directing that only actual rebates be considered.

The disallowance of prior period expenses and LPSC was upheld, though the Appellant was granted liberty to provide better details for the former.

The IoWC issue was remanded to BERC for re-computation on a prorated basis for FY 2017-18 and to exclude disallowed power purchase costs from the deduction.

BERC was directed to pass consequential orders within four months.

01Facts

The Appellant, a state-owned distribution licensee, challenged the Bihar Electricity Regulatory Commission’s (BERC) orders dated 21.03.2018 and 19.12.2018, which determined the truing up of the Aggregate Revenue Requirement (ARR) for FY 2016-17 and tariff determination for FY 2018-19

p. 2, 3

The Appellant was formed following the restructuring of the Bihar State Electricity Board under Section 131 of the Electricity Act, 2003

¶ 3

The core dispute arose from BERC’s disallowance of several claims, including fixed costs for power purchase from Adani Enterprises Limited (AEL), prior period expenses, and the imposition of a 1% "deemed rebate" on power purchases

¶ 5

02Issues

i.1. Whether the State Commission was justified in disallowing fixed capacity charges paid to AEL for April–June 2016 on the grounds of imprudent demand forecasting

¶ 6

ii.2. Whether a 1% normative "deemed rebate" on power purchase can be treated as non-tariff income in the absence of actual realization

¶ 19

iii.3. Whether prior period expenses can be disallowed for lack of item-wise details despite being reflected in audited accounts

¶ 24

iv.4. Whether the apportionment of fixed and variable costs in tariff design for FY 2018-19 was erroneous regarding PPA capacity charges

¶ 27

v.5. Whether the Interest on Working Capital (IoWC) for FY 2016-18 was correctly computed, specifically concerning the retrospective application of regulatory amendments

¶ 31, 32

vi.6. Whether Late Payment Surcharge (LPSC) paid to generators is a pass-through expense

¶ 39

03Law Applied

The Tribunal applied the Bihar Electricity Regulatory Commission (Multi-Year Distribution Tariff) Regulations, 2015 ("MYDT Regulations 2015"), specifically Regulation 9.1(d) regarding uncontrollable factors, Regulation 20.2(5) regarding operational inefficiency, and Regulation 26 regarding Working Capital.

p. 5, 9, 17, 19

It also considered Regulation 44 of the CERC Tariff Regulations, 2014, regarding the rebate structure.

p. 12

The court relied on the principle of "least-cost procurement" and Section 61 of the Electricity Act, 2003, which mandates safeguarding consumer interests through a "prudence check".

p. 9, 13

The precedent NDPL v. DERC (Appeal No. 153 of 2009) was distinguished regarding the treatment of rebates.

p. 11

Provisions in the judgment · 2 · Linked ones open on LawLens

Electricity Act, 2003 Section 61 Section 131

04Reasoning

Regarding AEL costs, the Tribunal found that substituting AEL power with cheaper exchange power resulted in tangible consumer savings (approx. Rs. 47.42 Crore) despite the fixed cost liability; thus, the disallowance was unjustified.

¶ 12-14

On the "deemed rebate," the Tribunal held that BERC cannot assume a normative 1% income if it was not actually earned, as regulations do not mandate DISCOMs to structure finances solely to avail rebates.

¶ 22, 23

For prior period expenses, while audited accounts are credible, the Commission’s right to a "prudence check" under Section 61 allows it to demand year-wise details.

¶ 26

Regarding IoWC, the Tribunal ruled that the 30.06.2017 amendment to Regulation 26 could not be applied retrospectively to the period before its notification (11.07.2017).

¶ 34

Furthermore, it held that disallowed power purchase costs should not be deducted when calculating the working capital requirement, as it creates an artificial reduction in the ARR.

¶ 36

Finally, the LPSC was disallowed because the DISCOM already received financing costs on its receivables (Delayed Payment Surcharge), and allowing LPSC on payables would constitute a double benefit.

¶ 41

05Holding

The Tribunal partly allowed the appeal.

p. 22

It set aside the disallowance of AEL fixed costs for April–June 2016 and reversed the 1% deemed rebate, directing that only actual rebates be considered.

¶ 17, 23

The disallowance of prior period expenses and LPSC was upheld, though the Appellant was granted liberty to provide better details for the former.

¶ 26, 41

The IoWC issue was remanded to BERC for re-computation on a prorated basis for FY 2017-18 and to exclude disallowed power purchase costs from the deduction.

¶ 35, 36, 42

BERC was directed to pass consequential orders within four months.

p. 22

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