Case: U.P.Power Corporation Ltd Vs. N.T.P.C.Ltd

The CERC had by the Order impugned before the Tribunal allowed Petition No.139 of 2004 filed by the respondent-Corporation and permitted capitalisation of Rs.4.521 crores over the approved cost for the completion of Feroz Gandhi Unchahar Thermal Power Station Stage-I for the period 1st April, 2001 to 31st March, 2004. While doing so the CERC had in Para 37 of its Order held respondent No.1 entitled to return on equity and interest on loan on the said amount payable along with the tariff for the period 2004-2009. What is significant is that both the CERC and the Appellate Tribunal rejected the contention urged on behalf of the appellant-Corporation that the additional capital expenditure incurred by the respondent-Corporation could not be taken into consideration for tariff fixation without the same having been approved by the Central Electricity Authorityfor short) as required under Regulation 2.5 of the CERC (Terms and Conditions for Determination of Tariff) Regulations, 2001. The primary question that therefore falls for consideration in this appeal is whether the CERC and the Tribunal have correctly interpreted Regulation 2.5 of the said regulations while permitting capitalisation of the additional expenditure for purposes of determining the tariff. That question arises in the following factual backdrop:3. Feroz Gandhi Unchahar Thermal Power Station Stage-I was taken over by the respondent-National Thermal Power Corporation from the erstwhile U.P. State Electricity Board on 13th February, 1992. The Central Government had approved the takeover cost of Rs.925 crores in terms of a communication dated 2nd May, 1993 issued by the Ministry of Power. By a subsequent letter dated 5th August, 1996 the CEA accorded approval for an additional Rs.2.85 crores for R&M under Environment Action Plan, thereby taking the total approved project cost to Rs.927.85 crores.4. The CERC (Terms & Conditions for Determination of Tariff) Regulations, 2001 for the period 1st April, 2001 to 31st March, 2004 came to be notified on 26th March, 2001, pursuant whereto the respondent- Corporation filed Petition No.41 of 2001 for approval of tariff for the relevant tariff period in respect of the generating plant in question. By an Order dated 24th October, 2003, the CERC approved the tariff taking into consideration the capital cost at Rs.940.70 crores as on 1st April, 2001 but did not consider the additional capitalisation claimed by the respondent since the latter was based only on an estimated capital expenditure and was unsupported by ancertificate. Respondent-Corporation then moved petition No.139 of 2004 before the CERC on 5th October, 2004 seeking approval of the revised fixed charges in respect of the generating plant for the relevant tariff period taking into account the additional capital expenditure incurred during the said period which was estimated at Rs.6.101 crores. By an order dated 31st March, 2005, the CERC disposed of the said petition approving an amount of Rs.4.521 crores towards capital expenditure while disallowing the rest.5. The CERC held that the respondent would not be entitled to tariff revision during the relevant period in the light of Regulation 1.10 of the CERC Regulations which prohibited allowance of an additional capital expenditure, if such expenditure happened to be less than 20 per cent of the approved project cost. It all the same held in Para 37 of its Order that the respondent was entitled to relief in the form of return on equity at the rate of 16% and interest on loan on the approved additional capital expenditure for the period 2004-2009. The CERC observedAs there is nothing in the notification dated 26.3.2001 to deny the petitioner the reasonable return to service the capital expenditure incurred by the petitioner and found to be justified by us, we direct that the petitioner shall earn return on equity @ 16% on the equity portion of the additional capitalization approved by us. Similarly, the petitioner shall also be entitled to the interest on loan as applicable during the relevant period. Return on equity and interest shall be worked out on the additional capitalization of Rs.4.521 crore approved by us from 1st April of the financial year following the financial year to which additional capital expenditure relates up to 31.3.2004. The lump sum of the amount of return on equity and interest on loan so arrived at shall be payable by the respondents along with the tariff for the period 2004-09 to be approved by the Commission. The exact entitlement of the petitioner on this account shall be considered by the Commission while approving tariff for the period 2004-09.Aggrieved by the order passed by the CERC the appellant-Corporation approached the Appellate Tribunal for Electricity in Appeal No.36 of 2006. The appellant thereby questioned theauthority to approve the additional capital expenditure of Rs.4.521 crores as also the power to award relief in the nature specified in para 37 supra. It was contended on behalf of the Corporation that in the absence of approval of the expenditure by CEA as required under Regulation 2.5 of the CERC Regulations, the CERC had no authority to hold that the respondent-NTPC was entitled to additional capitalisation. The Appellate Tribunal for Electricity, however, repelled that contention and dismissed the appeal filed by the appellant on the ground thatapproval of additional capitalisation to the tune of Rs.4.521 crores did not call for any interference and that the respondent-Corporation had placed sufficient material before the CERC to substantiate its claim. The Tribunal declared that the CERC was empowered to undertake a prudent check and approve additional capitalisation after the deletion of Section 43-A(2) of the Electricity (Supply) Act, 1948 because of which deletion CEA ceased to have any role in such matters. The Tribunal further held that the project had been originally approved by CEA as far back as on 5th August, 1986 and was taken over while still incomplete by the respondent-NTPC in 1992. The incomplete items were then completed by the respondent NTPC after the takeover which required investment of additional capital. The Tribunal was, therefore, of the view that the additional capital was well within the approved cost of the project which remained unexecuted on the date of vesting. The Appellate Tribunal, however, accepted thecontention that the relief regarding the return on equity and interest on loan could not be granted until the next tariff period. Consequently the Tribunal directed deletion of Para 37 of theorder giving liberty to the CERC to take the said relief into consideration while determining the tariff for the next period. The present appeal assails the correctness of the view taken by the CERC and the Appellate Tribunal.

Court's reasoning:
A plain reading of the above makes it manifest that the basis for fixation has to be theincurred on the completion of the project. But where the actual expenditure exceeds the approved expenditure the excess so incurred can be taken into consideration to the extent the same is allowed by the Central Electricity Authority or an appropriate independent agency nominated for the purpose. This implies that the excess expenditure must go through a process of scrutiny either by the CEA or the independent agency before it can constitute an input for determination of the tariff. Scrutiny of the excess would in turn primarily involve examination of two distinct aspectsis no gainsaying that the prayer for additional capitalization was made by the respondent-Corporation and considered by CERC after the Electricity Act 2003 had come into force, repealing the earlier enactments. The new legislation did not set out any role for the CEA, in the matter of approval of the schemes for the generating companies or the capital expenditure for the completion of such projects. The entire exercise touching the regulation of the tariff of generating companies owned or controlled by the Central Government, like the respondent was entrusted to the Central Commission. The role of the Central Electricity Authority established under Section 7 of the 2003 Act, was limited to matters enumerated under Section 73 of the Act, approval of the scheme for generating companies or the capital expenditure for the completion of such projects or capitalisation of the additional expenditure not being one such function. The CERC was, therefore, right when it said that the Central Electricity Authority had no part to play in the matter of approval for purposes of capitalisation of the extra expenditure incurred on a project. That was so notwithstanding the continuance of Regulation 2.5 of the regulations framed by the CERC providing for such an approval by the CEA. The far reaching changes that came about in the legal framework with the enactment of the 2003 Act, made Regulation 2.5 redundant in so far as the same envisaged a reference to the CEA or an Independent Agency for approval of the additional capitalisation. Insistence on a reference, to the CEA for such approval, despite the sea change in the legal framework would have been both unnecessary as well as opposed to the spirit of new law that reduced the role of CEA to what was specified in Section 73 of the Act. The CERC and the Tribunal were in that view justified in holding that a reference to the CEA was not indicated nor did the absence of such a reference denude the CERC of its authority to fix the tariff after the 2003 Act had come into force. That was so notwithstanding the fact that proviso to Section 61 of the Electricity Act, 2003 continued the terms and conditions for determination of tariff under the enactments mentioned therein and those specified in the Schedule for a period of one year or till such terms were specified under that section whichever was earlier.