M/S SAMALPATTI POWER CORPORATION PVT. LTD vs THE CHAIRMAN, Tamil Nadu Generation & Distribution Corporation Limited & Anr on 31 August 2026

JUDGEMENT

PER HON’BLE MRS. SEEMA GUPTA, TECHNICAL MEMBER

1. Appeal No. 307 of 2017 has been filed by M/s Samalpatti Power Corporation Pvt. Ltd. ("SPCL”) and an Appeal, No. 344 of 2017 has been filed by Tamil Nadu Generation and Distribution Corporation Limited ("TANGEDCO"), against the Common Order dated 31.01.2017 passed by the Tamil Nadu Electricity Regulatory Commission ("State Commission"/"TNERC") in M.A.P. No. 2 of 2007 and M.A.P. No. 1 of 2012. The impugned Order determines the admissible capital cost of the 105.66 MW diesel-based generating station of SPCL and the consequential tariff parameters. SPCL is aggrieved by the disallowance of certain components of the capital cost and the consequential tariff determination made by the State Commission in Appeal No 307 of 2017, and while TANGEDCO has challenged the findings relating to the debt-equity ratio adopted for tariff determination in Appeal No 344 of 2017.

Description of parties

2. The Appellant, in Appeal 307 of 2017, and Respondent No.1 in Appeal 344 of 2017, the M/s Samalpatti Power Corporation Pvt. Ltd. (hereinafter referred as "SPCL") is a generating company engaged in the business of generation and sale of electricity.

3. The Appellant in Appeal No 344 of 2017 and Respondent No.1 in Appeal 307 of 2017, the Tamil Nadu Generation and Distribution Corporation Limited (hereinafter referred as "TANGEDCO"), formerly known as the Tamil Nadu Electricity Board ("TNEB"), is the distribution licensee in the State of Tamil Nadu. Respondent No.2 in both the Appeals, the Tamil Nadu Electricity Regulatory Commission (hereinafter referred as “TNERC/ State Commission”) is the State Electricity Regulatory Commission for the State of Tamil Nadu, discharging statutory functions under the Electricity Act, 2003, Brief facts are as under:

4. SPCL has proposed to establish a 100 MW diesel generating power station (DGPP) at Bargur Industrial Complex, Krishnagiri District, Tamil Nadu for supply of electricity to the erstwhile Tamil Nadu Electricity Board ("TNEB") and a Memorandum of Understanding was executed on 18.02.1995. Subsequently, the installed capacity of the project was enhanced from 100 MW to 105.66 MW, which was approved by TNEB on 17.09.1997 and by the Government of Tamil Nadu on 21.09.1997. Approval under Section 44 of the then Electricity Supply Act 1948, for setting up of 105.66 MW DGPP was accorded by TNEB.

5. The Central Electricity Authority ("CEA") accorded Techno-Economic Clearance ("TEC") to the project on 10.02.1998, prescribing, inter alia, the approved project cost, debt-equity structure and other financial parameters. Subsequently, a Power Purchase Agreement dated 22.05.1998 was executed between SPCL and TNEB governing the sale and purchase of electricity from the generating station. Thereafter, SPCL submitted the Firm Financial Package, which was approved by the CEA on 12.08.1999 after financial appraisal of the project. The project achieved financial closure on 24.12.1999.

6. The generating station achieved Commercial Operation on 01.03.2001. Upon completion of the project, SPCL on 26.05.2001, submitted the completed capital cost of Rs 424.827 Crore to CEA for approval. During scrutiny of the completed capital cost, certain components of expenditure claimed by SPCL, including financing charges, interest during construction, foreign exchange variation, customs duty, liquidated damages, consultancy charges and other allied expenses, became the subject matter of examination by the CEA.

7. Subsequent to the enactment of the Electricity Act, 2003, the jurisdiction relating to determination of tariff vested with the State Commission. Since the completed capital cost had not attained finality, TANGEDCO filed M.A.P. No.2 of 2007 before the State Commission seeking determination of the admissible capital cost of the project. SPCL challenged the jurisdiction of the State Commission before the Hon'ble Madras High Court by filing writ petitions. However, the writ proceedings were ultimately withdrawn on 04.04.2012, and SPCL itself filed M.A.P. No. 1 of 2012 before TNERC seeking approval of its claimed completed capital cost. Since both the petitions related to determination of capital cost of the same project, the State Commission heard them together.

8. By the impugned order, the State Commission determined the completed capital cost after allowing and disallowing various expenditure heads claimed by SPCL. The State Commission in the Impugned Order approved the Capital cost of subject project as Rs 419.05 Crore as against Rs 424.84 Crore claimed by SPCL. The State Commission also determined the debt-equity ratio and other tariff parameters for the project. While certain claims of the generating company were accepted, several components of the capital expenditure were either reduced or disallowed on the ground that they were not prudently incurred or were unsupported by the material available on record.

9. TANGEDCO filed Appeal No. 344 of 2017 challenging the same common order on a limited issue relating to the debt-equity ratio adopted by the State Commission. According to TANGEDCO, the Commission failed to correctly apply Regulation 21 of the TNERC Tariff Regulations, 2005, which mandates that where actual equity employed is less than 30%, the actual debt and equity should alone be considered. It is the specific case of TANGEDCO that, after determining the completed capital cost, the Commission ought to have deducted the actual loan availed by the generating company and treated only the balance as equity instead of mechanically adopting a normative debt-equity ratio.

10. SPCL opposes the appeal filed by TANGEDCO and supports the findings of the State Commission on the issue of debt-equity ratio, while simultaneously assailing those findings of the Commission which resulted in reduction of the admissible capital cost. Conversely, TANGEDCO supports the findings of the Commission relating to disallowance of various capital expenditure but seeks modification of the impugned order to the extent it adopts an incorrect debt-equity ratio for tariff determination.

ANALYSIS AND DISCUSSION

11. We have heard Mr. Girik Bhalla, Mr. Vishrov Mukherjee, learned counsels appearing on behalf of SPCL and Ms. Anusha Nagarajan, learned counsel appearing on behalf of TANGEDCO at considerable length. We have also considered the written submissions/note of arguments, the impugned Order, the material on record. Since both the Appeals arise out of the common impugned Order and involve interconnected issues relating to determination of the capital cost and consequential tariff of the generating station, they are being disposed of by this common judgement. Issues in Appeal 307 of 2017 : SPCL has challenged disallowance of cost on following accounts

1. Establishment and Construction Supervision Expenses

2. O&M Mobilization Fee

3. Development Expenses

4. Financial Advisory Fee

5. Legal and Stamping Fee

6. Management fee under Equity Raising Charges

7. Disallowance in soft Cost Due to reduction in hard Cost

8. Land Deposit paid to TACID

9. Construction Insurance

10. Interest During Construction Learned Counsel on behalf of SPCL, has submitted that SPCL has given up its claim on Issue No. 8 (i.e Land Deposit paid to TACID) and Issue No 9

(Construction Insurances ) and Issue No 10 ( and Interest during Construction). Accordingly these issues (No. 8,9,10) are disposed of as being not pressed. Issues in Appeal 344 of 2017 : TANGEDCO has challenged the Debt equity considered in the approved Capital cost based on Normative ratio of 70:30, instead of considering entire debt taken by SPCL and then working out the Debt : Equity Ratio for the approved capital cost of the project. Submissions urged on behalf of TANGEDCO in Appeal No. 344 of 2017

12. It is submitted that the Regulation 21 of the TNERC Tariff Regulations, 2005 clearly provides that while the amount of equity is limited to 30% of the capital cost, there is no cap on the debt that may be availed for the project. In fact, where the equity employed for the project is less than 30%, the actual debt amount has to be considered. In the present case, SPCL admittedly drew a debt of Rs. 304.05 Crores, which was also approved by the TNERC. Accordingly, the TNERC ought to have considered the approved capital cost of Rs 419.05 crores and deducted the actual debt drawn from the said amount, resulting in an equity component of Rs 115 Crore, constituting 27.44% of the project cost and a corresponding debt- equity ratio of 72.56:27.44. Adopting a higher equity than what is permissible under Regulation 21 would result in a greater tariff burden on the consumers.

13. Further, while fixing the debt-equity ratio in the Impugned Order on the basis of equity infused in the project, the TNERC failed to consider any of the submissions advanced by TANGEDCO on the issue. TNERC accepted SPCL's claim that it had infused equity of Rs 129.36 Crore, despite the fact that such

equity was computed on the basis of the capital cost of Rs 424.84 Crores claimed by SPCL in its petition, while after undertaking a prudence check, the TNERC approved a lower capital cost of Rs 419.05 Crore, consequently, there was no legal or factual basis to adopt the equity figure of Rs 129.36 Crore which was predicated upon the higher capital cost claimed by SPCL.

14. It is further submitted that SPCL for the first time in the present Appeal, averred that the Tariff Regulations, 2005 are not applicable to the present case and that the Tariff Regulations, 2002 are the applicable regulations. The contention of SPCL that the Tariff Regulations, 2002 do not envisage any debt- equity ratio and, therefore, the debt-equity ratio of 69.55:30.45 can be adopted, as the PPA permits minor deviation in the debt-equity ratio, is wholly untenable, as it has been raised for the first time at the stage of final arguments without any supporting pleadings and, therefore, cannot be entertained. Further, the Tariff Regulations, 2005 expressly provide that they came into force from the date of their publication, i.e., 03.08.2005 [Regulation 1(3)], and are applicable for determination of tariff under Section 62 of the Electricity Act, 2003 [Regulation 1(5)]. Since TANGEDCO's tariff petition and SPCL's petition for determination of capital cost were filed in 2007 and 2012 respectively, both petitions were clearly governed by the Tariff Regulations, 2005. SPCL has also failed to establish any basis for the applicability of the Tariff Regulations, 2002. Admittedly, its generating station was commissioned on 01.03.2001, and if, on that basis, the 2005 Regulations are sought to be excluded, the 2002 Regulations would equally be inapplicable. Moreover, SPCL did not challenge the finding of the TNERC fixing the debt-equity ratio at 70:30 in Appeal No. 307 of 2017 in the Impugned Order and has, therefore, accepted the said finding. It cannot now, in TANGEDCO's Appeal, be permitted to assail the same at the stage of final arguments, nearly ten years after the Impugned Order was passed. In any event, it is well settled

that the regulations framed by the Electricity Commissions have an overriding effect over contractual stipulations between the parties, as held by the Supreme Court in “PTC India Ltd. v. Central Electricity Regulatory Commission, (2010) 4 SCC 603. Accordingly, even if the PPA contemplated minor deviations in the debt-equity ratio, upon the coming into force of the Tariff Regulations, 2005, the determination of the debt-equity ratio is governed by the Regulations and not by the contractual terms of the PPA. Submission urged on behalf of the TANGEDCO in Appeal No. 307 of 2017

15. The Appellant’s contention that TNERC ought not to have looked at the TEC and the FFP cost approved by the CEA for determination of the capital cost of the Appellant's plant, and that the TNERC ought to have independently carried out a prudence check to determine whether the capital cost claimed by the Appellant was actually incurred is baseless. At the outset, it is submitted that this contention has been raised by the Appellant for the first time at the stage of final arguments in 2026, despite the Appeal having been filed in 2017. Further, several grounds urged in the Appeal are themselves premised on the allegation that the TNERC failed to consider the elements of the capital cost approved by the CEA under the TEC and the FFP, including the grounds relating to disallowance of soft cost, management fee, and establishment expenses.

16. It is further submitted that in its Petition for fixation of capital cost before the TNERC (MAP No. 1 of 2012), the SPCL itself unequivocally relied upon the TEC and the FFP approved by CEA. SPCL, itself has emphasized that the capital cost for which approval was sought was lower than the approved FFP after adjustment for foreign exchange, and relied upon the capital cost approved under the TEC and revised in terms of the FFP, and placed point-wise reliance on various

components of capital cost approved by the CEA under the TEC and/or the FFP, such as Establishment & Development Expenditure, Operator Training and O&M Mobilisation Fee. Having thus, founded its case before the Commission on the TEC and the FFP, the Appellant cannot now be permitted to approbate and reprobate by contending that the TNERC erred in relying upon the very same approvals for determination of the capital cost. Such a contradictory stand is legally impermissible. Moreover, acceptance of the Appellant's contention that the TEC and the FFP ought to have been disregarded would lead to the absurd consequence that the Appellant's generating station had no valid statutory approval or clearance to operate.

17. It is further submitted that TEC and the FFP were approved by the CEA on 10.02.1998 and 12.08.1999 respectively under Section 43A of the Electricity (Supply) Act, 1948 (subsequently omitted by the amendments of 2000), which provided that determination of tariff would be in accordance with the norms and guidelines laid down by the CEA. Accordingly, the grant of the TEC and the FFP, as well as the determination of the capital cost of the Appellant's generating station, were undertaken in accordance with the statutory scheme prevailing prior to the enactment of the Electricity Act, 2003. Section 185(2)(a) of the Electricity Act, 2003 expressly provides that anything done or any action taken under the repealed Electricity (Supply) Act, 1948 or any notification issued thereunder shall be deemed to have been done or taken under the corresponding provisions of the Electricity Act, 2003. This principle equally extends to tariff determinations undertaken under the repealed statute, as held by this Tribunal in DVC v. JSERC & Ors., Appeal No. 85 of 2009, dated 22.07.2009.

18. The aforesaid position is further reinforced by Section 6 of the General Clauses Act, 1897, which provides that, unless a different intention appears, the

repeal of a statute does not affect any right, privilege, obligation or liability acquired or incurred thereunder. As held by the Hon'ble Supreme Court in State of Punjab v. Mohar Singh, (1954) 2 SCC 483 the line of enquiry is not whether the new enactment expressly keeps alive the rights and liabilities arising under the repealed statute, but whether it manifests an intention to destroy them. Thus, the determination of the capital cost by the TNERC after considering the TEC and the FFP approvals accorded by the CEA constitutes a valid determination. The case law relied upon by SPCL to contend that the CEA no longer has any role in approval of tariff after the commencement of the Electricity Act, 2003 has no application to the present case, since no approval of tariff is being sought from the CEA. None of the judgments relied upon by SPCL hold that the statutory clearances and approvals granted by the CEA prior to the coming into force of the Electricity Act, 2003 become nugatory or invalid. SUBMISSIONS URGED ON BEHALF OF SPCL

19. It is submitted that, upon the enactment of the Electricity Regulatory Commissions Act, 1998 and the Notifications dated 22.03.1999 and 11.09.2000 issued thereunder, the erstwhile regime of tariff determination based on the norms prescribed by the Central Electricity Authority stood discontinued and the statutory power to determine tariff vested exclusively in the respective State Electricity Regulatory Commissions.

20. It is further submitted that, in exercise of its statutory powers, the TNERC notified the Tamil Nadu Electricity Regulatory Commission Tariff Regulations, 2002 on 21.08.2002 under Section 58 of the Electricity Regulatory Commissions Act. The said Regulations prescribed the tariff fixation framework applicable to power projects within the State of Tamil Nadu. Particular reliance was placed on

Regulation 6, which, inter alia, mandates that tariff should be rationalised on the basis of the actual cost of generation, transmission and distribution of electricity and should provide a level playing field for all utilities so as to promote private sector participation in the electricity sector. Subsequently, with the coming into force of the Electricity Act, 2003, Section 86 vested the State Commission with the exclusive jurisdiction to determine tariff, which continued under the TNERC Tariff Regulations, 2005 notified in supersession of the Tariff Regulations, 2002. It was submitted that the determination of the completed capital cost of SPCL's Project in M.A.P. No. 1 of 2012 and M.A.P. No. 2 of 2007 was required to be undertaken in accordance with the aforesaid statutory and regulatory framework.

21. Regulation 6(3) of the Tariff Regulations, 2002 read with the definition of "Capital Cost" under the Power Purchase Agreement dated 22.05.1998 requires the completed capital cost and tariff to be determined on the basis of the actual expenditure incurred by the Appellant in establishing the Project.

22. It is submitted that the Commission is bound by its own Tariff Regulations and cannot adopt a methodology contrary thereto, as held by the Hon'ble Supreme Court in PTC India Ltd. v. CERC, (2010) 4 SCC 603. Further this Tribunal in its judgment in “NTPC v. CERC” (Appeal Nos. 151 and 152 of 2007), held that the entire value of capital asset, as soon as the same is put into operation is recoverable by way of capital cost.

23. Present case pertains to tariff determination under Section 62 of the Electricity Act, which is based on the cost-plus regime. Under such regime, prudent capital and operational expenditure are allowable as pass-through in tariff, subject only to prudence check by the State Commission. Reliance was also placed on the Judgment of this Tribunal in Damodar Valley Corporation v.

CERC & Ors. (Appeal No. 273 of 2007), wherein it was held that tariff is a reflection of the actual cost of supply and, unless the expenditure incurred by the generating company is found to be imprudent, the same is required to be allowed as a pass-through in tariff.

24. It is submitted that “TNERC did not follow the statutory mandate of Section 86 when determining the capital cost”. Majority of the disallowances in the Impugned Order are founded on the premise that wherever the actual expenditure under any line item exceeded the cost approved by the CEA in the TEC or the FFP, the admissible capital cost was required to be restricted to the CEA-approved amount. It was contended that, by adopting such a rigid approach, the Commission abdicated its statutory obligation of determining tariff in accordance with the TNERC Tariff Regulations, 2002 and failed to undertake the prudence check of the actual and legitimate expenditure incurred by the Appellant, as mandated under the Electricity Act. It was further submitted that the Commission confined its consideration only to public interest while ignoring the other guiding principles contained in Section 61 of the Electricity Act. Learned Counsel further submitted that, upon the repeal of the Electricity (Supply) Act, 1948 with the coming into force of the Electricity Act, 2003, the requirement of CEA approval for schemes or capital cost of generating stations ceased to have any statutory basis. It was contended that the functions of the CEA under the Electricity Act are confined to those enumerated under Section 73 and do not extend to approval of capital expenditure or determination of completed capital cost, as recognised by the Hon'ble Supreme Court in U.P. Power Corporation Ltd. v. NTPC Ltd. and by the Hon'ble Delhi High Court in GVK Industries Ltd. v. CEA, which held that the CEA performs only an advisory role, whereas the statutory duty and exclusive jurisdiction to determine tariff and capital cost vest with the State Commission.

25. It is further submitted that “Impugned order is violative of Electricity act, Tariff Regulations, 2002 and Tariff Regulations, 2005”. SPCL claimed a completed capital cost of Rs 424.84 Crores in M.A.P. No. 1 of 2012, duly verified and certified by its Statutory Auditors, which constitutes the actual expenditure incurred and forms part of the capital cost in terms of Regulation 6(3) of the TNERC Tariff Regulations, 2002 and Regulations 18(2) and 18(3) of the Tariff Regulations, 2005. While the TEC dated 10.02.1998 approved a tentative capital cost of Rs 391.86 Crore, subject to the FFP, the FFP dated 12.08.1999 approved a tentative capital cost of Rs. 390.82 Crore, which was expressly subject to variation on account of exchange rate fluctuations and Change in Law. On adjustment for the exchange rate prevailing on the Commercial Operation Date, the CEA-approved capital cost under the FFP worked out to Rs 431.38 Crores. Despite the aforesaid position, the Commission allowed only Rs 419.05 Crores as the completed capital cost, thereby disallowing Rs 5.79 Crore from the actual expenditure incurred by SPCL, even though the capital cost so allowed remained Rs12.33 Crores lower than the CEA-approved capital cost under the adjusted FFP. It was contended that the Commission has neither disputed that the said expenditure was actually incurred for construction of the Project nor recorded any finding that such expenditure was imprudent.

26. Prudence check of the capital cost is required to be undertaken strictly in accordance with Regulation 18 of the TNERC Tariff Regulations, 2005, as the Electricity Act does not define the scope of "prudence check". Reliance was placed on the judgments of this Tribunal in Dodson-Lindblom Hydro Power Pvt. Ltd. v. MERC (Appeal No. 152 of 2010) and PGCIL v. CERC (Appeal No. 99 of 2013), wherein it has been held that prudence check must be carried out in accordance with the applicable Tariff Regulations and the benchmark norms prescribed by the Regulatory Commission.

27. Learned Counsel submits that the capital cost claimed by SPCL was well within the capital cost claimed and allowed by the Commission in respect of similarly placed projects, particularly MPC Project. It was submitted that, although the TEC granted to MPC was lower than that of SPCL, SPCL's Project additionally included construction of a township comprising a housing colony and an external water supply system, which did not form part of MPC's scope. Despite this additional scope of work, MPC claimed a completed capital cost of Rs 429.01 Crores as against SPCL's claim of Rs 424.84 Crore, and the Commission ultimately allowed a completed capital cost for MPC which was approximately Rs 8.70 Crores higher than that allowed to SPCL, notwithstanding that both projects were of identical capacity, had the same contracted quantum, and were constructed and commissioned during the same period. Therefore, it is contended that the Commission ought to have adopted the same parameters while determining the completed capital cost of SPCL's Project.

28. Reliance was also placed on the recent Judgment of this Tribunal dated 04.09.2025 in Delhi Transco Ltd. v. CERC & Ors. (Appeal No. 223 of 2022), wherein it was held that normative rates serve only as benchmarks and cannot override the requirement of determining tariff based on actual cost where reliable data is available, as application of normative rates resulting in denial of actual expenditure would be contrary to the principles of cost-reflective tariff and financial viability. OUR CONSIDERATION ; APPEAL NO 344 of 2017

29. The dispute in the present Appeal is confined to one issue, namely, whether, in determining, the approved capital cost of the project, the entire debt availed by SPCL is to be considered first and the balance treated as equity, or

whether debt and equity are to be reckoned in the normative ratio of 70:30, such that equity deployed does not exceed 30% of the capital cost. Learned Counsel for TANGEDCO, placing reliance on Regulation 21 of the TNERC Tariff Regulations, 2005, submitted that while equity is capped at 30% of the capital cost, there is no restriction on the quantum of debt that may be availed for the project. In the present case, SPCL admittedly availed debt of Rs. 304.05 Crore. Therefore, in the approved capital cost of Rs 419.05 Crore, the entire debt of Rs 304.05 Crore ought to have been considered, with the balance Rs. 115 Crore treated as equity, resulting in a debt–equity ratio of 72.56:27.44.

30. Per contra, learned Counsel for SPCL contended that the Tariff Regulations, 2002 and not Tariff Regulations 2005, are applicable to the present case, which do not prescribe any debt–equity ratio. It was urged that a ratio of 69.55:30.45 may be adopted, as the PPA permits minor deviation in the debt–equity ratio. This contention was opposed by TANGEDCO on the ground that it was raised for the first time at the stage of final arguments without any supporting pleadings, and therefore cannot be entertained.

31. We find no merit in the contention of SPCL that equity higher than 30% should be considered merely because the PPA permits minor deviation. In its own cross-appeal (Appeal No. 307 of 2017), SPCL accepted the debt–equity ratio of 70:30 and did not raise any issue on this aspect. It is, therefore, not open to SPCL to raise such contention now, particularly in the appeal filed by TANGEDCO contesting the debt : equity ratio allowed by the commission.

32. Further, we find it unnecessary to deliberate upon the applicability of the 2002 Tariff Regulations versus 2005 Tariff Regulations as contended by SPCL now, as SPCL themselves have relied upon both the Tariff Regulations in their

appeal and accepted the normative 70:30 debt : equity ratio as approved in the Impugned Order. The Tribunal is therefore only required to clarify the meaning or treatment of debt–equity ratio in the approved capital cost.

33. It is a settled principle that Regulatory Commissions, in discharge of their statutory mandate, prescribe a normative debt–equity ratio, most commonly 70:30, for tariff determination. This prescription is intended to secure uniformity in treatment across generating stations, to insulate tariff fixation from the vagaries of individual financing structures, and to safeguard consumer interest by ensuring that tariff is not unduly burdened by a typical capital structuring.

34. TANGEDCO has placed reliance upon the judgment of the Hon’ble Supreme Court in “PTC India Ltd. v. Central Electricity Regulatory Commission”; (2010) 4 SCC 603 to contend that the Regulations framed by the Regulatory Commission have overriding effect over the existing or future contractual stipulations contained in the PPA. The ratio of the said judgment makes it clear that the Regulations framed in exercise of the statutory power of the Regulatory Commission govern the determination of tariff and cannot be displaced by a contractual stipulation contained in the PPA. While we have already deliberated the issue of minor variation in the Debt : Equity ratio in the PPA, the issue in the present appeal pertains to interpretation of Debt : equity ratio to be considered for a project.

35. We are of the considered view that once a component of capital expenditure claimed by the petitioner is found inadmissible upon prudence check and is consequently excluded from the approved capital cost, the normative debt–equity ratio must be applied to the capital cost as finally admitted by the Commission, subject to the specific provisions of the applicable Tariff Regulations. The exercise

cannot, in law, proceed on the premise that the disallowed expenditure must first be notionally appropriated entirely against the equity component of the original financing structure, as contended by TANGEDCO, and that equity should be employed for the remaining approved capital cost, after accounting for total debt availed in the original financing structure for determining a fresh debt–equity ratio.

36. By way of illustration, where the capital cost claimed is Rs100 crore, comprising Rs 70 Crore debt and Rs 30 Crore equity, and Rs 10 crore is disallowed upon prudence check, the normative debt and equity for tariff purposes would, ordinarily, be determined at Rs 63 Crore and Rs 27 Crore respectively, being 70:30 of the approved capital cost of Rs 90 Crore. In our view the disallowance, operates upon the capital cost first, and the normative debt- equity ratio is thereafter applied to the resulting approved capital cost.

37. TANGEDCO has made reference to Regulation 21 of TNERC 2005 Tariff Regulation, which is extracted hereunder : "21. Debt-Equity Ratio: "For the purpose of determination of tariff, debt-equity ratio as on date of commercial operation of Generating Station and transmission projects, sub-station, distribution lines or capacity expanded after the notification of these Regulations shall be 70:30. Where equity employed is more than 30% the amount of equity shall be limited to 30% and the balance amount shall be considered as loans, advanced at the weighted average rate of interest and for weighted average tenor of the long term debt component of the investment: Provided that in case of a Generating Company or other licensees, where actual equity employed is less than 30%, the actual debt and equity employed is less than 30%, the actual debt and equity shall be considered for determination of return on equity in tariff computation."

38. On a plain reading of Regulation 21, the normative debt–equity ratio prescribed for tariff determination is 70:30. The Regulation is couched in mandatory terms insofar as it restricts recognition of equity to a ceiling of 30% of the capital cost, with any excess being deemed as debt. The provision further clarifies that where equity actually employed is less than 30%, the actual debt and equity shall be considered for computation of return on equity. The scheme of the Regulation is therefore twofold: (i) it places a cap on equity recognition, and (ii) it ensures that actual equity, if lower than 30%, is not artificially inflated. Importantly, the Regulation does not stipulate any sequencing principle whereby debt must first be appropriated in entirety before equity is reckoned. The restriction is directed only at equity deployment beyond 30%, and not at the order of application of debt and equity. Therefore, to adopt the alternative methodology of considering equity deployed against the amount of the disallowance, while retaining the entire debt in the approved capital cost would, in effect, alter the normative ratio prescribed by the Regulations and would introduce a financing allocation which is not contemplated by the regulatory framework.

39. The contention advanced by TANGEDCO that in the finally approved capital cost, the entire debt availed by SPCL must first be appropriated, and only the balance capital cost be attributed to equity is not borne out by the text or intent of Regulation 21 also. Such an interpretation would amount to judicial legislation, introducing a debt-first prioritization which the Regulation does not contemplate. The only normative discipline imposed is that equity shall not exceed 30% of the capital cost, and the balance shall be treated as debt. We accordingly hold that, unless the applicable Regulations expressly provide otherwise, or the case falls within a provision dealing with actual debt or equity, the appropriate course is to determine the final admissible capital cost and thereafter apply the prescribed normative debt-equity ratio thereto.

40. Accordingly, we do not find any error apparent in considering the debt : equity ratio of 70:30 and restricting the equity deployed to 30% of approved capital cost and balance by loan component. Impugned Order is upheld on this issue and Appeal 344 of 2017 being dismissed being devoid of merit. OUR CONSIDERATION ; APPEAL NO 307 of 2017

41. SPCL in its written Arguments, as well as learned counsel for SPCL during the hearing, before addressing their concerns on the various issues raised in their Appeal has made submissions as noted above with regard to the Regulatory framework for determination of tariff and contended that TNERC did not follow the statutory mandate of Section 86 while determining the Capital cost and the Impugned Order is violative of Electricity Act, Tariff Regulation 2002 and Tariff Regulation 2005 and as such taking a holistic view the completed cost is within the restated approved cost .

42. The submissions advanced on behalf of SPCL reveal a contradiction. On one hand, SPCL asserts that since the actual completed cost is less than the cost approved by the Central Electricity Authority (CEA) in the TEC and FFP approvals, the State Commission ought to have accepted the actual cost incurred, duly supported by the Auditor’s Certificate. SPCL simultaneously contends that the Commission should disregard the cost items and normative figures approved by CEA and undertake a de novo prudence check of all parameters. Such inconsistent positions undermine the coherence of the appellant’s case.

43. SPCL has placed reliance upon the judgment of the Hon’ble Supreme Court in PTC India Ltd. v. CERC, (2010) 4 SCC 603, to contend that a Regulatory Commission is bound by its own Regulations and cannot adopt a methodology

contrary thereto. This Tribunal, being subject to the binding authority of the Apex Court, is equally precluded from advancing any proposition inconsistent with such declaration of law. Reliance has also been placed by SPCL upon the judgement in “Damodar Valley Corporation v. CERC, Appeal No. 273 of 2007”, and “GVK Industries Ltd. v. Union of India, to argue that the role of the CEA under the Electricity Act, 2003 is confined to the functions enumerated under Section 73, and that tariff determination lies exclusively within the jurisdiction of the Regulatory Commissions and the Hon’ble Supreme Court in U.P. Power Corporation Ltd. v. NTPC Ltd. has reiterated this position.

44. There cannot be two opinions that upon the enactment of the Electricity Regulatory Commissions Act, 1998 and subsequent Notifications issued thereunder, the erstwhile regime of tariff determination by the Central Electricity Authority stood discontinued and the statutory power to determine tariff vested exclusively in the respective State Electricity Regulatory Commissions. Further, with the coming into force of the Electricity Act, 2003, Section 86 and Section 181 vested the State Commission with the exclusive jurisdiction to determine tariff, and to frame regulations consistent with the Act and the rules generally to carry out the provisions of Act. Therefore post-2003, the approval of CEA cannot be treated as a statutory requirement for capital cost determination.

45. The issue in the present appeal is distinct. It concerns the effect and treatment of cost elements and normative values approved by CEA under the erstwhile statutory regime, prior to the enactment of Electricity Act, 2003. The judgments cited do not lay down that such approvals cease to have evidentiary or normative relevance for the purpose of subsequent prudence examination and State Commissions are precluded from taking these into consideration as one of the relevant benchmarks or reference points, particularly where the project itself

was conceived, appraised and approved under the erstwhile statutory framework, provided that the same are not treated as binding statutory approvals contrary to the Electricity Act, 2003 or the applicable Tariff Regulations.

46. In our view, the Detailed Project Reports (DPRs) approved by the Central Electricity Authority prior to the enactment of the Electricity Act, 2003, continue to hold normative significance in tariff determination. The DPR, being the product of a rigorous techno-economic appraisal by the statutory authority then vested with such jurisdiction, embodies cost ceilings and design parameters that were intended to safeguard consumer interest and ensure financial discipline. The Electricity Act, 2003, while conferring tariff-setting powers upon State Commissions, does not abrogate the relevance of such DPRs. Rather, these DPRs serve as guiding benchmarks against which prudence checks must be conducted. To disregard them entirely would be to nullify the statutory process undertaken under the earlier regime and risk permitting inflated or unverified capital costs. Therefore, the normative ceilings embedded in pre-2003 DPRs remain a valid reference point, ensuring continuity, regulatory certainty, and protection of consumer interest, even as State Commissions exercise their independent authority under the post-2003 framework, unless applicable Regulations prescribes some other normative ceiling, which is apparently not the case of Appellant, other than the prudence check of all actual cost incurred even if it is over and above the Ceiling provided in the TEC & FFP approval.

47. The DPR provides evidence of the originally sanctioned project cost, a technical benchmark for comparison, a reference document during prudence scrutiny and supporting material to assess whether cost overruns are justified. We are therefore unable to accept the contention of the Appellant that the various cost elements/normative values under Detailed Project Report (DPR) approved

by the Central Electricity Authority prior to the Electricity Act, 2003 should be disregarded in its entirety. The DPR, having undergone rigorous technical and financial scrutiny, continues to serve as a guiding reference for capital cost determination. Even though the Electricity Act, 2003 vests tariff determination powers in the State Commission, such authority must be exercised in harmony with established norms and benchmarks, rather than in isolation. To ignore the DPR would be to discard a valuable baseline that ensures consistency, predictability, and fairness in regulatory treatment. Accordingly, the DPR ceilings, though not binding, must be accorded due weight as guiding factors in the Commission’s prudence review.

48. It is also important to note that Section 185(2)(a) of the Electricity Act, 2003, as extracted hereunder, expressly provides that anything done or any action taken under the repealed Electricity (Supply) Act, 1948 or any notification issued thereunder shall be deemed to have been done or taken under the corresponding provisions of the Electricity Act, 2003.

185. Repeal and saving.–

(2) Notwithstanding such repeal

(a) anything done or any action taken or purported to have been done or taken including any rule, notification, inspection, order or notice made or issued or any appointment, confirmation or declaration made or any license, permission, authorisation or exemption granted or any document or instrument executed or any direction given under the repealed laws shall, in so far as it is not inconsistent with the provisions of this Act, be deemed to have been done or taken under the corresponding provisions of this Act;

49. TANGEDCO has placed reliance upon the judgment of the Hon’ble Supreme Court in “State of Punjab v. Mohar Singh, (1954) 2 SCC 483”, in relation to the effect of repeal under Section 6 of the General Clauses Act, 1897

which says that whenever there is a repeal of an enactment, the consequences laid down in section 6 of General Clauses Act will follow unless as the section itself says, a different intention appears. In case of simple repeal there is scarcely any room for expression of a contrary opinion. These judgments, relate to the continued validity and effect of acts, approvals and liabilities arising under the repealed statutory regime and shall be applicable with regard to TEC and FFP approvals granted by CEA unless such elements of cost approvals/ normative parameters are in violation of statutory framework applicable to the Project.

50. Reliance placed by TANGEDCO, upon the judgment of this Tribunal in DVC v. JSERC & Ors., Appeal No. 85 of 2009, dated 22.07.2009, in support of the proposition that acts and approvals undertaken under the repealed Electricity (Supply) Act, 1948 are saved by Section 185(2)(a) of the Electricity Act, is not directly applicable as the issue in the referred judgement pertained to the tariff determination for DVC generation projects under transition from the regime of DVC Act 1948 to Electricity Act 2003 and not repeal of DVC Act 1948. However, the purpose of Section 6 of the General Clauses Act, 1897 read with principles contained in Section 185 of the Electricity Act, 2003, is exactly to avoid abrupt transition.

51. Reliance placed by SPCL on the judgement in “NTPC v. CERC, Appeals 151 & 152 of 2007’, to argue that the entire cost incurred must be recoverable, is misplaced. That judgment only clarifies that depreciation begins on the entire admitted capital cost once the plant is operational. It does not dispense with the requirement of prudence check or statutory compliance or cost elements approved at the conceptual stage.

52. With regard to comparing the cost incurred vis a vis normative values approved as part of TEC and FFP in the Impugned Order, reliance placed by SPCL on the judgement of this Tribunal in “Delhi Transco Ltd. v. CERC’, in Appeal No. 223 of 2022, which states that the normative benchmark methodology is intended for instances where audited capital cost details are unavailable or unreliable, is inapposite as that case concerned benchmarking against other licensees, not normative values approved for the project at the conceptual stage. This Tribunal in this judgement was referring to the application of normative benchmark values based on other transmission licensee data for the Delhi Transco Ltd, when actual audited data was submitted by Delhi Transco. Issue in the present case pertains to Normative values approved for the subject project at the time of TEC and FFP of the project, under the erstwhile statutory regime.

53. The learned counsel for SPCL placing reliance on the judgment in “Dodson-Lindblom Hydro Power Pvt. Ltd. v. MERC,” Appeal No. 152 of 2010, dated 20.10.2011, submitted that this judgement has provided a guidance with respect to prudence check to be undertaken by Appropriate Commission, which makes it clear that a prudence check is a substantive scrutiny of reasonableness and necessity, and not a mere audit of disbursement; and the said principle has been reiterated in the judgement of this Tribunal in “Power Grid Corporation of India Ltd. v. CERC”, Appeal No. 99 of 2013, dated 29.04.2015, wherein it was held that the capital cost determined by the Commission after prudence check shall form the basis for determination of tariff. There is no doubt that the prudence check is required to be undertaken by the Commission on a regular and continuous basis in accordance with the applicable regulatory framework and accordingly the actual incurrence of expenditure, by itself, does not render such expenditure admissible; the expenditure must satisfy the parameters of prudence under the applicable Regulations.

54. The principle underlying Section 185(2)(a) of the Electricity Act, 2003 and Section 6 of the General Clauses Act, 1897, as explained in State of Punjab v. Mohar Singh, (1954) 2 SCC 483, is that upon a simple repeal, the consequences flowing from acts done, approvals granted, and rights or obligations accrued under the repealed enactment continue to subsist unless a different intention appears from the repealing statute. The Electricity Act, 2003, while vesting exclusive tariff-determination jurisdiction in the Appropriate Commission under Section 62 and Section 86, discloses no such contrary intention with regard to technical or cost approvals granted by the Central Electricity Authority under the erstwhile Electricity (Supply) Act, 1948. The TEC and FFP approvals granted to the subject Project prior to 2003 continue to subsist as valid antecedent approval for determination of capital cost We accordingly hold that the TEC and FFP approvals granted by CEA prior to the Electricity Act, 2003 retain their normative significance and continue to serve as a valid reference point for the purpose of prudence check, notwithstanding that the statutory power to determine tariff and capital cost now vests exclusively in the State Commission.

55. The Hon'ble Supreme Court in West Bengal Electricity Regulatory Commission v. CESC, (2002) 8 SCC 715, has also held that however, CEA approval does not ipso facto bind the Commission but the Commission will have to take into consideration the finding of CEA giving due weightage to that piece of evidence.

56. We do not feel it necessary to deliberate the capital cost of the subject project vis a vis other projects as contended by SPCL, as the capital cost of those projects is not an issue in the present Appeal.

57. In view of above deliberations, we shall proceed with deliberation of various issues in following paragraphs, taking guidance/cognizance of the approval

granted under TEC and FFP for various cost elements as well as considering the provisions of the applicable Regulations such that the exercise of determination of cost and applicable tariff is consistent with the provisions of Act.

ISSUE

1: ESTABLISHMENT AND CONSTRUCTION SUPERVISION EXPENSES; DISALLOWANCE OF RS 1.152 CRORE

58. SPCL has claimed an amount of Rs 2.484 Crore under this head, submitting that it is within the TEC amount of Rs 2.5 Crore, however State Commission disallowed an amount of Rs 1.152 Crore under this Head.

59. Learned Counsel for SPCL submitted that a MoU dated 18.02.1995 was executed between SIV Industries Limited (“SIV”) and TNEB according to which SIV was required to form and incorporate Project company (i.e., SPCL), within 12 months from the date of MoU, i.e., by 18.02.1996. During the period between 18.02.1995 till formation of SPCL (incorporated on 22.12.1995), SIV was required to undertake various activities in terms of the MoU including identification of land, obtaining various statutory and non-statutory clearances, fuel allocation, etc, expenses for which were borne by SIV till SPCL had its own financial resources which mainly includes Salary and other Administrative Expenses. SPCL’s Board of Directors had duly examined the expenses incurred by SIV and approved them and SPCL as evidence submitted the Debit notes to SIV Industries Limited (total Rs 2,46,62,815) and for Shapoorji Pallonji & Co Ltd (total Rs 2,50,19,722). It is further submitted that detailed break up and supporting documentation were submitted to CEA and TANGEDCO as well as Audited Financials of Promoter companies for relevant Period.

60. State Commission in the Impugned Order took note of the submissions of TANGEDCO that the apportionment of overheads such as salary, Administration

and General expenses incurred by the promoter company (M/s. SIV Industries) to M/s. Samalpatti Power Corporation is not available in the Debit Notes raised by M/s. SIV Industries and the basis on which the share of administrative expenses has been arrived at is also not furnished and disallowed disputed amount of Rs 1.152 Crore. Relevant paragraph of the Impugned Order is extracted hereunder: “The break-up of cost incurred with supporting documents towards the claim of legal, technical, commercial and other expenses were not submitted to the Commission for deciding on the allowing or disallowing of these items. Instead, SPCL has submitted the Minutes of the Meeting of the Board of Directors of SPCL on 17th March 1999 and 12th October 1999. The Debit Note raised by the promoter company and accepted by the SPCL is between the two companies (i.e. promoting company and new company) and any expenses incurred relating to the project will be added to the capital cost of the project. The fixed charges are calculated based on the final capital cost of the project. If there is any dispute on allowing/disallowing a claim, then the person who claims the money should satisfy the other party for accepting such claims. Without proper vouchers and proof of apportionment of expenses for the new company (SPCL) allowing of the disputed amount of development expenses is not possible. Hence, the disputed amount of Rs.1.152 Crores is hereby disallowed and the plea of SPCL is not considered as the same lacks documentary evidences supported with proof of payment.”

61. Upon careful consideration of the submissions, and the Impugned Order, it is to note that no documentary evidence such as vouchers, invoices, or proof of apportionment of expenses was furnished by SPCL before the State Commission, particularly in relation to the disputed amounts. The debit notes, by itself, merely establish that a payment has been effected but do not, demonstrate the prudence or necessity of such expenditure. In the absence of supporting documentation delineating the expenditure under various heads and the basis of cost allocation to SPCL, the State Commission could not have undertaken any meaningful prudence check. Prudence review is not a mechanical exercise however, it requires substantiation of claims through verifiable records, enabling

the State Commission to assess whether the expenditure was necessary, reasonable, and incurred in the interest of consumers. Without such evidentiary support, the State Commission could not be expected to validate the legitimacy of the costs claimed.

62. We therefore, find no infirmity in the approach adopted by the State Commission. The Impugned Order, which declined to accept the disputed expenditure in the absence of documentary proof, is consistent with the principles of prudence, transparency, and consumer protection. Accordingly, the Impugned Order is upheld on the issue. ISSUE NO 2: DISALLOWANCE OF O&M MOBILIZATION FEE

63. Learned Counsel on behalf of SPCL, submitted that SPCL has claimed an expenditure of Rs 1.3 Crore as O&M Mobilization cost. It is submitted that, Prior to commissioning of the Project, O&M Operator was asked to mobilize his personnel at site for various activities like i) Establish/ procure and maintain adequate O&M facilities, tools, equipment, spare parts, safety systems, and protective gear as recommended by the EPC Contractor, ii) Establish and maintain a system for spare parts, tools, consumables, and supplies essential for the Facility’s operation, iii) Employ and coordinate the training of staff to operate and monitor the facility and coordinate operations of the facility with the Grid System, iv) Assist the Project Company in monitoring performance/RC testing and advise on compliance with PPA performance standards v) Prepare and update the Punch List and to advise the Owner on correction of EPC Contractor deficiencies, obtain necessary insurance policies etc. It is further submitted that such expenditure has been booked under the head pre-operative expenses, which has a provision of Rs 15 Lakh as per the TEC and they have sought

additional Rs 1.159 Crore under this head. Learned counsel on behalf of SPCL submitted that SPCL had approached CEA for approval of said amount, as it has helped in achieving the COD of the project 2.5 months ahead of scheduled COD and resulted in considerable savings. SPCL, without prejudice to above, submitted that State Commission ought to have, at the minimum, allowed an amount of Rs 15 Lakh under this Head.

64. State Commission in the Impugned Order has disallowed the entire amount of Rs 1.3 Crore, citing that under the TEC approved by CEA dated 12.08.1999, expenses under O&M Mobilisation were not included. Relevant portion of the Impugned Order is extracted as under: “13.27.6. Commission’s findings: As per TEC approved by the CEA on 10-02-1998, expenses under O & M Mobilization were not included. Further, even in the FFP approved by the CEA dated 12-08-1999, the expenses under this head are not included. Clause 3 (viii) of FFP clearly provides that any change in terms and conditions affecting the FFP should be brought to the knowledge of CEA. Further, Clause 3 (ix) of FFP provides that all the terms and conditions of TEC would remain unaltered until and unless specifically notified subsequently by the Authority. Though SPCL has stated that the expenditure has been incurred towards O & M Mobilization which enabled the project to complete ahead of the scheduled date of operation, the fact is that this expenditure has not been included in the cost component of TEC. SPCL has also stated that this item was left out by oversight and subsequently requested for inclusion in the capital cost. Whereas, in the Record Notes on Discussion of the Standing Committee Meeting held on 13-01-2005 communicated by CEA vide letter No. 2/TN/19/94-Pac/143-53, dated 03-02-2015, the Chairman of the Standing Committee has also commented that the said item will not be allowed in the completed cost. In view of the above, Commission also feels that any item not included as a component of the capital cost approved while issuing the TEC and FFP shall not be allowed by the Commission. Inclusion of the expenditure incurred along with the other items without previous approval of cost will automatically increase the overall capital cost of the Project which the CEA itself has not

agreed. Hence, the total claim under this head amounting to Rs.1,30,00,000/- is disallowed by the Commission.”

65. From the above, it is evident that the expenditure of Rs. 1.30 crore as O&M mobilisation was neither included at the TEC and FFP stages and nor was considered for inclusion subsequently in the capital cost during the Standing Committee meeting. The Respondent-TANGEDCO, acknowledging the request of SPCL, sought recommendation of the CEA, however proposed disallowance of only Rs. 1.159 Crore out of the total incurred expenditure of Rs. 1.30 Crore.

66. We take note that there exists a provision of Rs. 15 lakh towards pre-operative expenses in the TEC approved by the CEA, though not under a specific head of O&M mobilization, as submitted by SPCL and not disputed by Respondent-TANGEDCO. The absence of a distinct nomenclature for O&M mobilization does not, in our considered view, alter the substantive character of such expenditure. The activities undertaken as noted above, such as establishment of O&M facilities, inventory systems, training of personnel, and preparatory measures for performance testing are inherently pre-operative in nature. They are directed towards enabling the Facility to achieve operational readiness and therefore fall squarely within the ambit of pre-operative activities.

67. The principle of prudence requires that expenditure incurred prior to commencement of operations, which is necessary for mobilization and readiness, be recognized within the ceiling provided in the TEC. To deny such recognition merely on account of absence of a specific sub-head would defeat the purpose of the normative ceilings and undermine the regulatory discipline intended to be maintained through TEC approval process.

68. Accordingly, we hold that the activities undertaken as part of O&M mobilization ought to have been allowed subject to ceiling amount of Rs. 15 lakh provided in the TEC as part of pre-operative expenses, as also conceded by SPCL. To this limited extent, the Impugned Order warrants modification. The expenditure of Rs. 15 lakh is therefore allowed under the head of pre-operative expenses, while the balance disallowance remains undisturbed. ISSUE NO 3 : DEVELOPMENT EXPENSES

69. Learned Counsel on behalf of SPCL submitted that during the period between 18.02.1995 till formation of SPCL, SIV and Shapoorji Pallonji & Co. Ltd. (“Shapoorji”) undertook various activities in terms of the MoU including negotiation, dealing with all Government Authorities, CEA, tieing up the finances and were debited to the Project for reimbursement by SPCL in line with standard industry practice. Reliance has been placed on the Judgment of this Tribunal dated 20.11.2015 in Appeal No. 284 of 2013 ‘Raj West Power Limited v. RERC & Ors’ to contend that said judgment acknowledged the importance of Project Management Services in overall execution and commissioning of the power plant, and held that such services are important and entails cost which shall be capitalized in the project cost. Accordingly, expenses incurred for apportionment of salaries, administrative overheads, etc. were claimed under debit notes by both the companies duly certified by auditors and such debit notes were accepted by the Board of Directors of SPCL.

70. While SPCL seeks approval for the entire expenses under the head without any disallowance, TANGEDCO has alleged Rs.7,01,407 was incurred during (Dec. 1994 to Mar 1995) prior signing of the MoU and therefore it should not be allowed. It is submitted by SPCL that even considering, MoU was signed on

18.02.1995, the disallowance by the State Commission ought to have been done in a proportionate manner and should have allowed the expenses incurred after the signing of the MoU till 31.03.1995 i.e., Rs. 1,21,975 and restricted the disallowance to only Rs. 4.373 Lakhs (period from December 1994 to 14.02.1995).

71. We take note that SPCL has submitted details of debit notes of Rs 2,46,62,815 raised by SIV Industries and Rs 2,50,19,722 raised by “Shapoorji, part of which were claimed under the head of Establishment and Construction Supervision Expenses and part under Development Expenses. Disallowance under Construction Supervision Expenses is already deliberated in the preceding paragraphs. With regard to SPCL claim under development expenses, State Commission notes that Respondent TANGEDCO has disputed an amount of Rs1.26 Crore, which also includes Rs 7,01,407 incurred prior to signing of MOU and Rs twenty Five lakhs incentive paid to employees of promotor companies for achieving financial closure of the Project, which were specifically disallowed by the State Commission. With regard to the disallowance of claim under this head, relevant portion of the Impugned Order is extracted hereunder : “The claim made by SPCL lacks documentary evidence and for raising any claim the same has to be supported with proof of payment. TANGEDCO has disputed the method of apportioning of expenses of the Promoter Company. In the absence of justification of apportionment and proof for payment of such claim, the admission of the disputed amount of Rs.1.26 Crores is rejected by the Commission.”

72. We are in agreement with the views expressed by State Commission with regard to specific disallowance of Rs 25 lakh paid as an incentive to the employees for achieving the financial closure, especially when salary and other expenses are paid and included as part of Capital Cost of the project. Like the

observation in the previous issue “Establishment and Construction Supervision Expenses”, the disallowance under present head also has been on account of lack of documentary evidence and method of apportionment of expenses to SPCL on the part of promoter companies. In the absence of such details, the prudence check of the expenses could not have been carried out.

73. Reliance placed by SPCL on the judgement of this Tribunal dated 20.11.2015 in Appeal No. 284 of 2013 ‘Raj West Power Limited v. RERC & Ors’ is misplaced. In the said judgment, Rs 500 Crore was claimed by Appellant therein as Project Management Cost paid to the holding Company, part of which was disallowed by the State Commission. It was observed by the State Commission, that Appellant had allocated the project management cost of Rs. 500 crore amongst various capital expenditure heads/packages, which was already recoverable as part of allowed overhead expenses (5%) of Rs. 305.54 crores included in the overall project cost considered for in-principle approval. The State Commission further allowed Rs. 65 crore as part of the management cost paid to another agency by the promotor company. This Tribunal in the referred judgement had observed that at the time of obtaining in-principle approval from the State Commission, due care should have taken by the Appellant in providing cost heads containing various activities required to be executed for the power plant and project management cost could have been included in that as a separate cost head. It was further observed by this Tribunal that no doubt project management plays predominantly an important part in overall execution and commissioning of the power plant of this magnitude and it would have a cost also for performing various activities but at the same time, we should not have an oversight of the overall expenditure required to be done which would be capitalized on commercial operation declaration of the various units in the power plant which would define the fixed cost. This Tribunal did not interfere

with the disallowance made by State Commission under the head and observed that since final cost is still to be worked out, State Commission while finalizing the final completed cost would definitely look into all the elements of cost vis-à- vis expenditure incurred by the Appellant since the inception of the project till COD of the power plant.

74. The aforesaid judgement does not, by any stretch of imagination, seeks to done away with the prudence check of the cost incurred even on account of activities related to project management . Disallowance in the present issue is on account of lack of documentary evidence and method of apportionment of expenses to SPCL on the part of promoter companies, in the absence of which prudence check cannot be carried out.

75. Accordingly, we find no error in the approach adopted by the State Commission and no infirmity in the Impugned Order on this issue. The Impugned Order is, therefore, upheld. ISSUE NO 4 : FINANCIAL ADVISORY FEE

76. The FFP provides for Financial Advisory fee of 0.5 % of debt amount. An amount of Rs. 25.2 lakhs has been disallowed under this head, considering 0.5 % of financial advisory fee on approved debt component of Rs. 295.47 Crore. Relevant paragraph of Impugned Order is extracted as under : “13.32.7. Commission’s findings: As per the FFP approved by the CEA, the Financial Advisory Fee has been calculated at 0.5% of the Debt amount which resulted in Rs.1.379 Crores. This amount is arrived on the total debt amount of Rs.275.891 Crores.(275.891 Cr. * 0.5% = 1.379Crores).

In the CEA’s Record Notes on discussion dated 13th January 2005, in para 37, the Director (F & CA) has also stated that “IPP has indicated more amount on certain items of financing charges. Chairman said that these charges would be restricted as per the approved Financial Package or actual whichever is less”. Though the total debt sanctioned for the project is Rs.311.2 Crores and the actual debt drawn for the project is Rs.304.05 Crores, Commission is considering a Debt Equity ratio of 70: 30 on the final completed cost of the Project and in the FFP also, the CEA has considered a Debt Equity ratio of 70: 30. In the FFP, the Financing Charges amounting to Rs.1.379 Crores has been calculated considering Debt at 70% of the Project Cost. Hence, Commission allows the financing charges on the Debt amount of Rs.295.474 Crores and calculated the financing charges at 0.5% on this amount which resulted in a disallowance of Rs.0.258 Crore (Rs.1.738 Cr. - Rs.1.48 Cr.). If the total debt drawn amounting to Rs.304.05 Crores is considered then the total amount of Rs.311.2 Crores sanctioned as loan would also be considered. But here, as the loan is limited to 70% of the Project cost even though Debt and Equity is available in excess than what is required for this project. The amount already disputed by TANGEDCO is only Rs.0.252 Crore. Hence, the amount disputed by TANGEDCO under the head amounting to Rs.0.252 Crore is disallowed.”

77. The Appellant has claimed Rs 1.738 Crore of Financial advisory fee on account of multi lender structure of the project financing. It is evident from above that in the FFP, total debt amount of Rs.275.891 Crore was considered and accordingly the Financial advisor fee was worked out as Rs1.379 Crore (275.891

* 0.5% = 1.379 Crore).

78. Financial advisory services, in the context of project financing, are primarily directed towards structuring debt, negotiating terms with lenders, and ensuring bankability of the project. The advisor’s role is intrinsically tied to the quantum of debt mobilized, since the complexity, risk assessment, and negotiation effort scale with the size of borrowings. In the DPR of the subject project, the financial advisory fee has been capped at 0.5 % of debt and same has been approved under the FFP, though quantified based on then envisaged debt component in

the project. The actual debt approved as part of allowed capital cost in the Impugned Order is Rs. 295.47 Crore, however there is no dispute that debt sanctioned for the project is Rs.311.2 Crore. We are of considered view that Appellant is entitled to Financial advisory fee of 0.5 % on sanctioned debt amount of Rs 311.2 Crore, instead of restricting it to approved debt component in the approved capital cost.

79. To this limited extent, the Impugned Order warrants modification. Accordingly, the Financial Advisory charges of 0.5 % on the sanctioned debt amount of Rs 311.2 Crore is allowed. ISSUE 5 : LEGAL AND STAMPING FEE

80. SPCL has claimed a Legal and Stamping Fee of approx. 42 lakhs, while the same has been capped at the lumpsum value of Rs 37.5 Lakh as approved in the FFP. The relevant portion of the Impugned Order is extracted hereunder: “13.33.7. Commission’s findings: The CEA vide letter No.2/TN/31/96-PAC/7005-27, dated 12th August 1999 has approved the FFP subject to certain conditions. The first such condition is that “the project shall be executed in accordance with this approved financial package and no change shall be made without prior approval of the concerned State Government and Central Electricity Authority.” While according approval for FFP, under the head Financing Charges, CEA has considered only a lump sum amount of Rs.37.5 lakhs in respect of Legal and Stamping Fees. Record Notes of CEA “Para37 Director (F & CA) stated that the IPP has indicated more amount on certain items of financing charges. Chairman said that these charges would be restricted to as per the approved financial package or actual whichever is less.” When there is a specific approval of expenditure to be incurred, the same shall not exceed the approved quantum. Increase in expenses will automatically increase the completed cost of the project. Comparison with

other IPP’s should not be made where no FFP approval was accorded by CEA to the other IPP. Hence, the Stamping and legal charges is allowed to the extent of Rs.37.5 lakhs and an additional expenditure amounting to Rs.4,50,000/- incurred over and above the FFP is disallowed.”

81. Learned counsel on behalf of SPCL submitted that Legal and stamping fees in project finance are statutory and transactional costs incurred on the execution of loan documentation. Stamp duty is a function of the value of loan instruments executed, which is based on the sanctioned quantum of loans, which in the present case is Rs. 311.2 Crore. It is further submitted that the lump sum provision of Rs. 37.5 Lakhs in the FFP was computed on the basis of the then- projected loan amount and exchange rate considering that the capital cost envisaged in the FFP was Rs. 391 Crore. As the actual loan sanctioned was higher (Rs. 311.2 Crore versus the FFP debt of Rs. 275.891 Crore), the additional stamp duty and legal documentation charges were necessarily proportionally higher. The State Commission ignored SPCL's demonstrated position that even the "restated" legal & stamping fee (computed at the actual BFXR of Rs. 44.607/USD) comes to Rs. 41.4 Lakhs, a figure that corresponds almost exactly to the actual expense of Rs. 41.9 Lakhs .

82. Legal and stamping fees are generally the costs incurred during the execution of contracts, loan agreements, and other binding documents in a project or financial transaction and these are treated as legitimate pre-operative expenses. Considering that the amount of debt considered at the time of FFP approval was lower as compared to the actual debt sanction amount of Rs. 311.2 Crore, it may result in higher Legal and stamping charges, which is the case in present issue. Accordingly, we find merit in the submissions made by SPCL and Impugned Order need interference. We further note that there seems to be no dispute with regard to actual amount incurred by SPCL under this head, other

than restricting it to Lump sum amount of Rs 37.5 lakh in terms of FFP approval. We set aside the disallowance of Rs 4.5 lakh in the Impugned Order under the subject issue. ISSUE NO 6 : MANAGEMENT FEE UNDER EQUITY RAISING CHARGES

83. The Impugned Order has allowed Rs 47.6 lakhs as management fee under equity raising charges and disallowed Rs. 12.4 Lakhs out of the Rs. 60 lakhs claimed by SPCL (Management Fee Rs. 50 lakh + Other Fee Rs. 10 lakh). Relevant paragraph of Impugned Order is extracted hereunder : “13.34.5.Commission’s findings: While according approval of FFP, under Equity Raising Charges, the CEA has considered the Management fee only in respect of the Ogden Energy II. Ogden Energy is the only investor under “Others” category. CEA has approved 0.75% on the equity to be brought in by Ogden Energy. Hence, the excess expenditure amount of Rs.12.40 lakhs is hereby disallowed.”

84. It is not in dispute that the Management Fee of 0.75% was provided on the equity brought in by Ogden Energy (renamed Covanta Energy). In the Impugned Order foreign equity inflow from Covanta is considered as 14.21 MUSD ( equivalent Rs 63.406 Crore @ Rs 44.62/USD) and the allowable management fee worked out to Rs. 0.476 Crores, and same was allowed.

85. Learned Counsel on behalf of SPCL submitted that the equity raising charges comprised two distinct categories under the FFP i. Management Fee at 0.75% of Ogden/Covanta equity = Rs. 0.434 Crores (FFP) / Rs. 0.497 Crores (restated considering FERV); and

ii. Other Fees at 0.10% of Ogden/Covanta equity = Rs. 0.058 Crores (FFP) / Rs. 0.066 Crores (restated considering FERV).

86. It has been submitted that State Commission has incorrectly compared the combined total claimed (Rs. 60 lakh) solely against the Management Fee FFP provision (Rs. 47.6 lakh based on actual equity inflow), ignoring the separately approved "Other Fees" sub-head of Rs. 5.8 lakh (FFP) / Rs. 6.6 lakh (restated). The actual claimed amount of Rs. 0.6 Crore is higher than the restated amount of Rs. 0.563 Crores by only Rs. 0.037 Crores. It is further submitted that even otherwise, the Impugned Order has considered the normative equity of USD 14.21 Million deployed by Ogden Energy as opposed to the actual equity infused of USD 15.09 Million (Rs. 67.30 Crores at the approved actual BFXR of Rs. 44.606/USD). The Management Fee was actually paid on the actual amount deployed, therefore actual Management Fee was as Rs. 50.03 lakhs (0.75% of Rs. 67.30 Crores). The same ought to be allowed on actuals.

87. We take note from the Annexure FFP –I of the CEA letter dated 12.08.1999, with respect to approval of Final Financial package of the subject project of SPCL, that Equity Raising Charges has three components i) Management Fee @ 0.75 % ii) Other Fee/ Expenses @ 0.1 % and Legal Fee and Stamping fee @ 0.4 % . In the Impugned Order, under the Equity raising Charges, only management fee has been deliberated and there is no discussion with respect to other charges, where same has been claimed and allowed or not. In view of above deliberations, we find considerable force in the submissions made by SPCL.

88. The State Commission has failed to examine components of Equity Raising Charges, namely Other Fee and Legal/Stamping Fee, approved under the FFP. It is for this limited reason, that we consider it appropriate to remand this issue rather than decide it finally.

89. Accordingly, we remand the issue to State Commission to undertake prudence check with respect to entitlement and claim of Appellant and consider the same in terms of normative values approved under the FFP. ISSUE 7: DISALLOWANCE IN SOFT COST DUE TO REDUCTION IN HARD COST

90. State Commission in the Impugned Order has disallowed Rs .443 Crore on account of IDC and FC, considering the Debt : equity ratio of 70 : 30 on the approved cost of the project and held as under: “13.35.5. Commission’s findings: In respect of this item TANGEDCO in its written submission has stated that the disallowance under this head will not arise as it has requested the Commission to consider the entire debt amount drawn for this project amounting to Rs.304.05 Crores for the purpose of tariff. The actual Debt drawn and Equity brought-in for the project is in excess than what is required. Hence, as the Commission is considering only a Debt Equity ratio of 70:30 and as there is disallowances in the hard cost, the Commission considers the disallowance of Rs.0.443 Crore (Soft cost IDC Rs.0.366 Cr. + Soft Cost FC Rs.0.077 Crore)”

91. Learned Counsel on behalf of SPCL submitted that the actual soft cost incurred is less than FFP approved soft cost, the same should be allowed at actuals irrespective of disallowance (if any) in hard cost. The soft Cost comprises of Financing Cost and IDC which is being allowed by the Hon’ble Commission taking into account, amongst others, actual soft cost incurred vis-à-vis allowed hard cost. In such a scenario, a proportionate deduction in Soft Cost would result in a double prejudice / hardship to the Petitioner which cannot be permitted. It is further submitted that with higher incurred Hard Cost on account of higher Base Foreign Exchange Rate (BFxr) and customs duty, the proportionate IDC (on the

same basis of the proportion of IDC on the Hard Cost as per FFP) needs to be restated which will be much higher. Per contra, it is submitted on behalf of TANGEDCO that the disallowance under this head will not arise as it has requested the Commission to consider the entire debt amount drawn for this project amounting to Rs.304.05 Crore for the purpose of tariff.

92. The above contention of TANGEDCO, has been deliberated in previous paragraph, therefore the main issue herein pertains to whether soft cost to be allowed on the debt component which is not considered/disallowed as part of approved cost of the project.

93. Interest During Construction (“IDC”) and Financing Charges, the soft cost as referred by SPCL, represents the interest cost incurred, and other related expenditure, on borrowings deployed for financing the project during the construction period and is, in substance, the carrying cost of the debt raised for bringing the project asset into commercial operation. The IDC & FC cannot be considered in isolation from the expenditure or borrowing to which it is attributable. Where a particular component of the project expenditure is disallowed upon prudence scrutiny, or where the corresponding debt is found not to be admissible for financing the approved project cost, the IDC & financing charges attributable to such disallowed component cannot, in our considered opinion, be allowed as an independent element of the capital cost. To allow such IDC and FC notwithstanding the disallowance of the underlying debt would, in effect, permit the capitalisation of a financing cost referable to an expenditure which has itself been held inadmissible, thereby indirectly neutralising the effect of the prudence check exercised on the project cost. The appropriate course, therefore, is to exclude from the capitalised IDC & FC, the proportionate IDC & FC attributable to the disallowed component of debt, while allowing only such IDC

and FC as is demonstrably relatable to the debt corresponding to the admissible project cost. Our attention has not been drawn to any provisions of applicable Regulations which provide that IDC and FC to be allowed on disallowed debt as well. We, therefore, hold that only such IDC and financing charges as are demonstrably attributable to the admissible project cost, and upon the corresponding eligible borrowings can form part of the capital cost.

94. Accordingly, we do not find any infirmity in the principle adopted in the Impugned Order on the issue and same is upheld on the issue. However, the Admissible Project cost to be considered after considering the impact of the allowance in various issues as decided in the present judgment.

95. We further direct that the soft cost, namely Interest During Construction and Financing Charges, computation shall be finalised by the State Commission after concluding the remand proceedings

CONCLUSION

96. Based on above deliberations, decision on various issues are summarised as under : Appeal 307 of 2017

Issues

Conclusion

Issue No 1: Establishment and Construction Supervision Expenses. Impugned Order is upheld. Issue No 2 : O&M Mobilization Fee Impugned Order on the issue is modified to limited extent. The expenditure of Rs. 15 lakh is allowed under the head of

pre-operative expenses, while the balance disallowance remains undisturbed. Issue No 3 :Development Expenses Impugned order is upheld Issue No 4 : Financial Advisory Fee Impugned Order modified, the Financial Advisory charges of 0.5 % allowed on the sanctioned debt amount of Rs 311.2 Crore Issue No 5 : Legal and Stamping Fee Impugned Order modified, the disallowance of Rs 4.5 lakh under the subject issue is set aside and same is allowed. Issue No 6 : Management Fee under equity raising charges Issue remanded to State Commission to undertake prudence check with respect to entitlement and claim of Appellant under the issue and consider the same in terms of normative values approved under the FFP. Issue No 7: Disallowance in soft cost due to reduction in hard cost Principle adopted in Impugned Order is upheld, however it shall be on the approved cost to be decided in terms of this judgement.

97. Issue No 8, 9, 10 are disposed of as being not pressed.

98. We direct the State Commission to expeditiously pass consequential orders upon remand of the issues as deliberated above, along with applicable carrying cost, preferably within a period of three months from the date of receipt of this

Order. Appellant-SPCL to furnish any additional information or material that may be required by the State Commission without delay.

99. The subject appeal and associated IAs, if any, are hereby disposed of in the above mentioned terms. Appeal 344 of 2017: We do not find any error in the Impugned Order on the issue raised in this Appeal, necessitating our interference and accordingly Impugned Order is upheld. Appeal dismissed being devoid of merit, pending IAs if any are disposed of accordingly. There shall be no order as to costs. PRONOUNCED IN THE OPEN COURT ON THIS 31st OF AUGUST, 2026. (Virender Bhat) Judicial Member (Seema Gupta) Technical Member REPORTABLE / NON-REPORTABLE Pr/dk/ag