Regulatory Commissions must determine O&M baselines using multi-factor analysis and reasoned prudence checks rather than mechanical extrapolation.

In brief

The question

1. Whether the Commission erred in determining baseline OM values by failing to consider industry benchmarks and project-specific features as mandated by Regulation 8.1(b)

The court held

The Tribunal allowed both appeals and remanded the matters to the PSERC for re-determination within three months

It also directed

(i) Baseline OM values must be re-determined considering actual audited accounts and industry benchmarks

(ii) Actual audited expenditure for the Project Colony (Rs. 2.14 Cr) and Staff Rest Rooms (Rs. 1.01 Cr) must be allowed subject to prudence check

(iii) Miscellaneous expenditure (Rs. 0.54 Cr) and Store construction (Rs. 0.61 Cr) are qualify under Regulation 18.2(d)

(iv) Escalation costs (Rs. 1.12 Cr) must be re-evaluated via a speaking order. All allowed amounts are to be granted along with applicable carrying costs

01Facts

The Appellant, Everest Power Private Limited (EPPL), operates the 100 MW Malana II Hydro Electric Project in Himachal Pradesh

p. 5

EPPL challenged two orders (dated 03.09.2019 and 09.03.2021) passed by the Punjab State Electricity Regulatory Commission (PSERC) regarding the determination of Annual Fixed Cost (AFC) for the Multi-Year Tariff (MYT) control periods from FY 2017-18 to FY 2022-23

pp. 5-6

The Appellant alleged that the Commission erroneously disallowed legitimate Operation and Maintenance (OM) expenses and various capital expenditures (Add-Cap) incurred after the project's cut-off date

pp. 8-9

EPPL also moved an application (IA No. 1855 of 2025) to introduce additional documents, including EPC contracts and correspondence, to justify cost escalations

p. 9

02Issues

i.1. Whether the Commission erred in determining baseline OM values by failing to consider industry benchmarks and project-specific features as mandated by Regulation 8.1(b)

p. 9/14

ii.2. Whether the disallowance of additional capital expenditure for the Project Colony and staff rest rooms was justified, given they were previously acknowledged in the Capital Investment Plan (CIP) Order

p. 9/40

iii.3. Whether miscellaneous expenditures on office equipment and plant machinery were rightly excluded under the proviso to Regulation 18.2(e)

p. 9/52

iv.4. Whether the disallowance of escalation costs and store construction costs lacked reasoned justification and violated Regulation 18.2(d)

p. 9/63, 72

03Law Applied

The Tribunal applied Regulation 8.1(b) of the PSERC MYT Regulations, 2014, which mandates OM baseline determination based on audited accounts, industry benchmarks, and project-specific factors

p. 15

It relied on Section 61 of the Electricity Act, 2003, emphasizing the recovery of rightful costs for generating companies

p. 12

Regarding Add-Cap, it applied Regulation 18.2(d) for works necessary for efficient operation and Regulation 18.2(e) concerning natural calamities

p. 52, 59

The Tribunal followed BSES Rajdhani Power Ltd. v. DERC (2023) 4 SCC 788, which defines the scope of "truing up" as adjusting estimates to actuals without changing methodology

p. 48

It further followed A.N. Sehgal v. Raja Ram Sheoran regarding the interpretive limit of a "proviso"

p. 61

It further followed Omar Usman Chamadia v. Abdul regarding the necessity of reasoned, "speaking" orders

p. 65

Provisions in the judgment · 7 · Linked ones open on LawLens

Electricity Act, 2003 Section 2 Section 61 Section 62 Section 64 Section 120 Section 181

Code of Civil Procedure, 1908 Section 41

04Reasoning

The Tribunal found that the Commission mechanically escalated FY 2016-17 OM figures by WPI, ignoring the mandatory multi-factor analysis (audited costs and benchmarks) required by Regulation 8.1(b)

p. 30

It noted that the Commission’s comparison of the high-altitude, underground Malana II project with the surface-level Shanan project was fundamentally flawed due to geographic and technical dissimilarities

p. 33

Regarding capital expenditure, the Tribunal held that "truing up" cannot be used to introduce new caps or reverse prior approvals from the CIP stage

p. 48, 56

It ruled that the Commission incorrectly applied a proviso intended for "natural calamity" claims (18.2e) to "efficient operation" claims (18.2d), thereby wrongly excluding miscellaneous assets like computers and machinery

p. 60

Finally, the Tribunal observed that the disallowance of escalation and store construction costs was arbitrary as the Commission provided no reasons for rejecting audited evidence or contractual escalation clauses

pp. 70-76

05Holding

The Tribunal allowed both appeals and remanded the matters to the PSERC for re-determination within three months

pp. 78-81

(i) Baseline OM values must be re-determined considering actual audited accounts and industry benchmarks

p. 78

(ii) Actual audited expenditure for the Project Colony (Rs. 2.14 Cr) and Staff Rest Rooms (Rs. 1.01 Cr) must be allowed subject to prudence check

p. 79

(iii) Miscellaneous expenditure (Rs. 0.54 Cr) and Store construction (Rs. 0.61 Cr) are qualify under Regulation 18.2(d)

pp. 79-80

(iv) Escalation costs (Rs. 1.12 Cr) must be re-evaluated via a speaking order. All allowed amounts are to be granted along with applicable carrying costs

p. 79, 81

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