Odisha Power Generation Corporation Limited vs Odisha Electricity Regulatory Commission & Ors. on 16 July 2026

JUDGEMENT

PER HON’BLE MR. AJAY TALEGAONKAR, TECHNICAL MEMBER

1. The present Appeal has been filed by M/s. Odisha Power Generation Corporation Ltd. (“Appellant”/ “OPGC”) challenging the Impugned Order passed by Odisha Electricity Regulatory Commission’s (“Respondent No. 1”/ “OERC”/ “State Commission”) Order dated 21.05.2021 in Case No. 54 of 2018 (“Impugned Order”).

Description of the Parties

2. The Appellant is Odisha Power Generation Corporation Limited (OPGC), a

generating company in terms of Section 2(28) of the Electricity Act, 2003.

3. Respondent No. 1 is the Odisha Electricity Regulatory Commission (OERC/ State Commission) which has been constituted under Section 3 of the Orissa Electricity Reform Act, 1995 to perform the functions specified inter alia in Section 11 of the OER Act and Section 86 of the Electricity Act, 2003.

4. Respondent No. 2, the GRID Corporation of Odisha (GRIDCO), is a company incorporated under the Companies Act, 1956 and is engaged in the business of bulk purchase and bulk sale of electricity inter alia to the four distribution companies operating in the State of Odisha and is also a deemed trading licensee under Section 14 of the Electricity Act, 2003. The entire quantum of electricity generated at the power plant of the Appellant-OPGC is sold to GRIDCO under the terms of the Bulk Power Supply Agreement dated 13.08.1996 as amended by the Supplementary Agreement dated 19.12.2012.

5. Respondent Nos. 3 to 13 are pro-forma Respondents who were impleaded before the Commission.

6. Respondent No. 14 is the Government of Odisha (GoO).

Factual Matrix of the Case

7. The Appellant owns and operates a thermal power station comprising Unit-1 and 2 of 210 MW each which commenced commercial operation in 1994 and 1996 respectively.

8. OPGC and GRIDCO entered into a Bulk Power Supply Agreement dated 13.08.1996 for sale of the entire generation from the said generating station. A Supplementary Agreement dated 19.12.2012 was thereafter executed amending certain terms of the original PPA.

9. Disputes arose between the parties as to the basis for determination of tariff for the generating station, namely whether tariff was to be governed by the terms of the PPA or by the tariff regulations framed by OERC.

10. By order dated 27.04.2015 passed in Case No. 13 of 2002, the State Commission approved the amended PPA up to 30.06.2026 and directed OPGC to file annual tariff petitions from FY 2016-17 onwards in accordance with the approved PPA. Prior thereto, tariff for supply of power by OPGC to GRIDCO was being considered in GRIDCO’s ARR proceedings.

11. In GRIDCO’s ARR proceedings for FY 2012-13, the State Commission by order dated 23.03.2012 in Case No. 91 of 2011, approved expenditure towards installation of environmental protection equipment as part of year-end charges. However, GRIDCO, by letter dated 16.11.2012, informed OPGC that reimbursement of such expenditure would be considered only after approval by the State Commission.

12. In the ARR proceedings for FY 2015-16, GRIDCO did not include certain environmental protection expenditure projected by OPGC on the ground that the same was subject to approval of the amended PPA. By tariff order dated 23.03.2015 in Case No. 68 of 2014, the State Commission accepted GRIDCO’s proposal and approved year-end charges without including the said expenditure.

13. Pursuant to the order dated 27.04.2015 in Case No. 13 of 2002, OPGC filed Petition being Case No. 53 of 2015 for determination of tariff for FY 2016-17. In the said petition, OPGC claimed additional capitalisation of about ₹ 95.65 crore, comprising expenditure incurred during FYs 2014-15 and 2015-16 and projected expenditure for FY 2016-17.

14. By order dated 21.03.2016 in Case No. 53 of 2015, the State Commission declined to allow the claim for additional capitalisation on the ground that OPGC had not furnished details of the works executed and use of the assets and that the audited accounts did not recognise the proposed capitalisation. The State Commission, however, observed that expenditure incurred during FY 2015-16, if otherwise in accordance with the applicable regulations could be considered in subsequent years.

15. Aggrieved thereby, OPGC filed Appeal No. 126 of 2016 before this Tribunal. In the said appeal, OPGC had contended that the tariff norms contained in the approved and amended PPA, and consequent Supplemental Agreement executed pursuant to the Government of Odisha Notification would govern the determination of tariff and not the OERC Tariff Regulations. This appeal came to be dismissed by judgment dated 06.04.2017 wherein this Tribunal had concluded that the Regulations framed by the State Commission have primacy. This judgement was thereafter assailed by OPGC before the Hon’ble Supreme Court.

16. During the pendency of Appeal No. 126 of 2016, OPGC filed Case No. 62 of 2016 for determination of tariff for FY 2017-18. In support of its claim for additional capitalisation of about ₹ 96.51 crore, OPGC placed on record documents including work orders, vendor bills and auditor certificates.

17. By order dated 23.03.2017 in Case No. 62 of 2016, the State Commission again declined to allow the claim for additional capitalisation, holding that documentary evidence regarding installation and utilisation of the assets had not been produced and that the regulations did not contemplate approval of projected future expenditure as additional capitalisation.

18. Thereafter, OPGC filed Civil Appeal No. 9485 of 2017 before the Hon’ble Supreme Court challenging the judgment of this Tribunal dated 06.04.2017.

19. OPGC filed Case No. 75 of 2017 seeking determination of tariff for FY 2018-

19. By order dated 22.03.2018 in Case No. 75 of 2017, the State Commission observed that the issue of additional capitalisation required separate examination and directed that the same be considered through a separate application.

20. On 19.04.2018, the Hon’ble Supreme Court allowed Civil Appeal No. 9485 of 2017, set aside the judgment of this Tribunal and remanded the matter to the State Commission with directions to determine tariff by applying the Government Notification dated 21.06.2008 for fixed costs, the PPA for variable costs specified therein and the applicable statutory regulations for costs not reflected in the PPA.

21. Pursuant thereto, OPGC filed Case No. 33 of 2018 seeking redetermination of tariff for FYs 2016-17, 2017-18 and 2018-19. OPGC also filed a separate petition, being Case No. 54 of 2018, seeking approval of additional capitalisation in respect of expenditure incurred during FYs 2015-16, 2016-17 and 2017-18, projected expenditure for FY 2018-19 and carrying cost thereon. OPGC continued to raise claims relating to additional capitalisation in its subsequent annual tariff petitions for FYs 2019-20, 2020-21 and 2021-22.

22. By order dated 28.03.2019 passed in Case No. 33 of 2018, the State Commission re-determined tariff in terms of the judgment of the Hon’ble Supreme Court. While noting that the petition for additional capitalisation was pending separately, the State Commission did not consider the said claim in the tariff redetermination proceedings. Similar observations were made by the State Commission in the tariff orders for FYs 2019-20, 2020-21 and 2021-22.

23. By order dated 21.05.2021 passed in Case No. 54 of 2018, the State Commission rejected OPGC’s claim for additional capitalisation.

24. Subsequently, OPGC also filed Case No. 66 of 2021 before the State

Commission seeking approval for renovation and modernisation of the generating station including life extension works and installation of Flue Gas Desulphurisation (FGD) system.

25. Aggrieved by the order dated 21.05.2021 passed in Case No. 54 of 2018 rejecting its claim for additional capitalisation, OPGC has preferred the present appeal.

26. The Appellant has prayed for the following relief before us:

“(a) Admit the present Appeal and set aside the Impugned Order dated 21.05.2021 passed by the Ld. Odisha Electricity Regulatory Commission in Case No. 54 of 2018; (b) Declare that the Appellant is entitled to claim additional capitalisation from FY 2015-16 onwards in terms of the Ld. Commission’s extant regulations and allow the claims made by Appellant in Case No. 54 o 2018 and subsequent annual tariff petitions, by way of pass through in tariff;

(c) Direct Respondent No. 2, GRIDCO to forthwith pay to the Appellant all legitimate dues on account of the Appellant’s additional capitalisation claims; (d) Award the Appellant interest and associated carrying costs; (e) Award the Appellant costs; and

(f) pass such other and further orders/ directions as this Hon’ble Tribunal may deem just and proper in the facts and circumstances of the case.”

Submissions of the Appellant-OPGC

27. OPGC submitted that OERC wrongly denied OPGC’s Additional Capitalisation claims from FY 2015-16 onwards by incorrectly holding that no such claim can be made during the PPA period.

28. The Supreme Court’s 19.04.2018 judgment was misread; it preserved the applicability of statutory OERC Regulations for “other costs” not covered by the

PPA and Additional Capitalisation falls in that category.

29. Neither the PPA nor the 2008 GoO Notification freezes Capital Cost or bars Additional Capitalisation; OERC wrongly conflated capital cost, tariff norms and AFC components.

30. The Odisha Electricity Regulatory Commission (Terms and Conditions for Determination of Generation Tariff) Regulations, 2014 (“2014 Tariff Regulations”) expressly permit Additional Capitalisation subject to prudence check and OERC could not override these binding regulations by relying on the PPA/GoO Notification.

31. OERC wrongly treated Additional Capitalisation as O&M/ future R&M expenditure even though these are distinct statutory heads; OERC’s own later orders allowing R&M/ FGD/ ash-pond costs show inconsistency in its stand.

32. No prior approval is required unless the Regulations expressly say so; the only test is whether the expenditure fits within the regulatory heads and passes prudence check.

33. OPGC submitted that the impugned order is also vitiated by a 19-month delay in pronouncement and if the claims are allowed, OPGC is also entitled to carrying cost for the period of under-recovery.

Submissions of the Respondent No. 1- OERC

34. OERC submitted that the Appellant’s petition was deficient and incomplete as it lacked essential data, justification, original scope of work, CEA approval and a Remaining Life Assessment (RLA) study; therefore, the Commission rightly permitted the Appellant to re-approach only after curing these defects.

35. Additional Capitalisation cannot be allowed as a matter of course under the 2014 Regulations; it is subject to prudence check and compliance with Regulations 3.3 and 3.4 which the Appellant failed to satisfy.

36. OERC further submitted that the Appellant did not comply with mandatory statutory preconditions, including prior approval from OERC, adequate supporting justification and material particulars of the proposed capital works.

37. OERC correctly distinguished between O&M expenses, R&M expenses and Additional Capitalisation, each of which is governed by a separate regulatory framework and the Appellant wrongly mixed up these concepts.

38. The Commission decided the matter in accordance with the 2008 Government Notification, the PPA and the 2014 OERC Regulations and the Appellant’s argument that these were ignored is incorrect.

39. OERC submitted that the Hon’ble Supreme Court’s judgment dated 19.04.2018 did not entitle the Appellant to Additional Capitalisation but left it to the State Commission to decide the issue on facts and in accordance with law.

40. RLA was essential because there were conflicting positions on the useful life of the generating station; 25 years under the Regulations, 30 years under the PPA and an even longer period under the Fuel Supply Agreement and without clarity on remaining life, the claim could not be examined properly.

41. OERC further submitted that since the station’s PLAF had drastically reduced during FY 2015-16 to FY 2018-19 and the Appellant is a Government undertaking, allowing such claims without compliance with statutory requirements would risk wastage of public money and impose an additional burden on consumers.

Submissions of the Respondent No. 2 - GRIDCO

42. GRIDCO submitted that the Additional Capitalisation was not justified at the end of the plant’s life; Units 1 and 2 were commissioned in 1994 and 1996 and were to reach the end of useful life by June 2026; OPGC also failed to submit the mandatory RLA study especially when continuation itself depended on FGD compliance under environmental norms.

43. The 2008 GoO Notification freezes the Fixed Cost / capital structure and the Hon’ble Supreme Court’s 2018 judgment did not permit alteration of that capital base; therefore, any expenditure which expands the capital base could not be allowed as Additional Capitalisation and had to be absorbed within the relaxed O&M framework under the PPA.

44. GRIDCO further submitted that the expenditure did not improve plant performance; despite spending ₹ 122.15 crore, the PLF declined (86.01% in 2016- 17, 74.18% in 2017-18, 82.42% in 2018-19 and 69.73% in 2019-20) showing that the expenses were in the nature of routine O&M or R&M, not true Additional Capitalisation.

45. OPGC failed to obtain prior approval and failed to furnish records including the original project report and scope of work, hence it could not be verified whether items such as ash pond height extension were genuinely additional or already covered within the original project cost of ₹ 1,060 crores.

46. GRIDCO submitted that OPGC already enjoyed relaxed norms under the PPA for Units 1 and 2; such as favourable norms for recovery of fixed charges, incentives, specific fuel oil consumption, auxiliary consumption, station heat rate and O&M escalation and therefore any further expenditure should be met within that framework rather than through tariff loading.

47. Under Clause 12.4 of the original PPA read with the MoP Notification dated 30.03.1992, the capital cost was subject to a ceiling of ₹ 1,060 crores and since the units were already fully depreciated by 2012 and loans liquidated by 2009, loading fresh capital costs on a plant nearing closure would cause an abnormal tariff increase.

48. In any event, OPGC later itself sought and obtained a separate R&M/ life- extension package in Case No. 66 of 2021 where it admitted severe forced outages and declining efficiency, obtained in-principle approval of ₹ 756.84 crore for R&M and FGD by order dated 03.11.2021 and later secured approval of ₹ 140 crores for a new ash pond in Review Petition Case No. 99 of 2021 by order dated 15.01.2022.

49. Therefore, according to GRIDCO, the capital requirements of Units 1 and 2 already stand addressed under the approved R&M/ life-extension framework and any remaining expenditure claimed in the present proceedings should be borne by OPGC out of the relaxed O&M expenses under the PPA, not through Additional Capitalisation.

Analysis and Conclusion

50. We have perused the Impugned Order. The relevant part of the order, which covers the reasoning of the State Commission for rejecting the prayer for additional capitalization is extracted below:

“32. The Commission heard the parties. As per judgement of Hon’ble Supreme Court dated 19.04.2018 the norms for variable cost shall be as per PPA and the notification of the State Government dated 21.06.2008 shall be used for fixed cost. For other costs not reflected in the PPA, the statutory Regulation may be applied. The two power generating units have been in operation since 1994 and 1996 respectively. They will complete their useful life by the year 2026 unless it is extended as per PPA. The Petitioner has also not submitted the Residual Life Assessment study. Therefore, a few years are left for life of the power plant to come to an end. If FGD is not installed then power station

shall be phased out much earlier as per the MOEF guideline. As per the judgement of Hon’ble Supreme Court from the point of view of fixed cost the Government notification dated 21.06.2008 is only to be considered. However, Hon’ble Court has given relaxation in the variable cost by mentioning that if anything is not reflected in the PPA then statutory Regulation shall apply. Proposal for additional capitalisation as submitted by the Petitioner shall have impact on the fixed cost of the power station. However, this has been frozen by Government notification which has been concurred by Hon’ble Supreme Court. Therefore, it is not possible on our part to consider expenditure incurred by the Petitioner in different areas as additional capitalisation rather they would come under relaxed O&M norms of PPA. After incurring the expenditure of Rs.122.15 crore the PLF of the plant has not improved substantially which can be seen from the following table.

Therefore, expenditure is of the nature of Operation and Maintenance or some sort of renovation and modernization. The petitioner has also not sought the prior approval of the Commission for incurring expenditure which is required for Additional Capitalisation similar to that they have sought for FGD installation in unit III and IV. Moreover, original project report is also not available to justify that the present work is additional in nature particularly the extension of height of Ash pond etc. However, if the life of the plant is extended further, this expenditure can be capitalized under the head of Renovation and Modernization. The petitioner, however, has not given any proposal for life extension. RLA study is yet to be carried out. The petitioner is at liberty to do so and come up with such proposal. Therefore, Additional capital expenditure for a plant which is going to be phased out soon should not be allowed. Hence, the expenditure proposed by the petitioner may be met from Operation and Maintenance Expenditure. The O&M norm as per PPA for Unit-1 and 2 is highly relaxed with escalation of 8% every year from the base value in the year 1996 as per PPA which is higher than norms of OERC Regulation. Therefore, any additional expenditure can be accommodated there.”

Year PLF 2016-17 86.01% 2017-18 74.18% 2018-19 82.42% 1919-20 69.73%

51. It may be seen from the above extract that the State Commission had rejected the prayer of OPGC for additional capitalization on the following grounds:

(i) Based on their interpretation of the order of the Hon’ble Supreme Court in Civil Appeal No. 9485 of 2017

(ii) The expenditure is of the nature of operation and maintenance

(iii) Prior approval was not sought, and

(iv) Original project report is not available to justify the present work

52. In its submissions, GRIDCO has supported the aforesaid conclusion of the State Commission in the Impugned Order. We now take up these grounds one by one. We shall first address ground (ii), as it is foundational. If the expenditure is found not to be capital in nature, the other grounds need not be examined. Generally, meaning of capital expenditure is well understood. Although the General Financial Rules, 20171 of Government of India do not govern the present controversy, the distinction drawn between capital expenditure and revenue expenditure in Rule 84 thereof may be usefully referred to by way of illustration:

“Significant expenditure incurred with the object of acquiring tangible assets of a permanent nature (for use in the organisation and not for sale in the ordinary course of business) or enhancing the utility of existing assets, shall broadly be defined as Capital expenditure. Subsequent charges on maintenance, repair, upkeep and working expenses, which are required to maintain the assets in a running order as also all other expenses incurred for the day to day running of the organisation, including establishment and administrative expenses shall be classified as Revenue expenditure.”

53. It can be seen that the State Commission has examined this issue solely from the standpoint of efficiency improvement, which, cannot by itself be the criterion for an expenditure to qualify as capital expenditure. Further, an improvement in PLF is not a measure of efficiency. PLF is a measure of the plant’s 1 https://doe.gov.in/files/circulars_document/FInal_GFR_upto_31_07_2024.pdf (Last accessed on 11.07.2026)

utilisation, and is contingent on the despatch instructions given by the Discom. The correct test for capital expenditure is whether it creates a new asset or enhances the capacity, efficiency, or useful life of an existing asset. Therefore, we do not agree with the conclusion of the State Commission that since PLF has not improved, the claim is of the nature of operation and maintenance expense.

54. Coming to the ground (iii), we have also perused the OERC Regulations, 2014 and we could not find requirement of prior approval in the relevant Regulations namely Regulation 1.7 (b) (definition of Additional Capitalization), Regulation 3.3 and 3.4. This is also submission of the OPGC. Therefore, we are unable to agree with the reasoning advanced by the State Commission for rejecting the claim, namely that prior approval had not been obtained by the OPGC.

55. As regards ground (iv), we find that Regulation 3.3 of the OERC Regulations, 2014 is relevant, and is extracted below:

“3.3 The capital expenditure incurred or projected to be incurred, on the following counts within the original scope of work, after the date of commercial operation and up to the cut-off date may be admitted by the Commission, subject to prudence check:

(a) Undischarged liabilities;

(b) Works deferred for execution;

(c) Procurement of initial capital spares within the original scope of work, subject to the provisions under Regulation 3.1(b) of these Regulations; (d) Liabilities to meet award of arbitration or for compliance of the order or decree of a court; (e) Change in law; and (f) Any additional works/services, which have become necessary for efficient and successful operation of a generating station but not included in the original capital cost

Provided that the details of works included in the original scope of work along with estimates of expenditure, un-discharged liabilities and the works deferred for execution shall be submitted along with the application for determination of tariff. Provided further that the assets forming part of the project but not put to use, shall not be considered.”

56. It is evident from the first proviso to the above extracted Regulation that the submission of the original scope of work is a mandatory requirement. The rationale is self-evident. In the absence of these particulars, it would be difficult, if not impossible, to determine whether the asset or item for which additional capitalisation is sought was originally envisaged within the approved scope of work and merely remained unexecuted at the relevant point of time, or whether it constitutes an altogether new item. Therefore, the State Commission was justified in faulting the OPGC for its failure to submit the original scope of work.

57. Now the main ground for rejection of the claim appears to be ground (i), which is based on the interpretation of the order of the Hon’ble Supreme Court. The question, however, is whether the interpretation adopted by them, and the conclusion drawn therefrom, are correct. The relevant extract of the order of the Hon’ble Supreme Court dated 19.04.2018 in CA No. 9485 of 2017 is reproduced below:

“7. Accordingly, we set aside the impugned order and remand the matter to the State Commission for fresh decision. The State Commission may take into account the Notification dated 21.06.2008| for the fixed costs, the PPA for the variable costs specified therein and for other costs not reflected in the PPA, statutory Regulations may be applied.”

58. It is clear that Hon’ble Supreme Court in its direction has mentioned three types of costs- fixed costs, variable costs and other costs. The State Commission has interpreted third limb of the direction as relaxation given by the Hon’ble Supreme Court in the variable cost. In other words, the State Commission has

interpreted that the words “other costs” as mentioned by the Hon’ble Supreme Court, is part of variable costs not reflected in the PPA. In our opinion, this interpretation has a problem. The interpretation of the State Commission effectively reads the sentence as if it says “...for other variable costs not reflected in the PPA...”. However, the word “variable” does not appear before “other costs” in the order of the Hon’ble Supreme Court. It is settled position that one should not read words into a judgment that are not there unless necessary to give effect to the evident intention. One may argue that because Hon’ble Supreme Court first says “Government notification ... for the fixed costs,” all fixed costs are already exhausted by that source, the third category cannot include fixed costs. However, in our opinion this is not the case. Hon’ble Supreme Court has only directed that the State Commission may “take into account” the notification issued by the Government. The intention of the direction seems to be that while determining the fixed costs, the State Commission has to rely primarily on Government notification, but the same is not mechanically binding in every conceivable situation. Thus, we are of the opinion that the “other costs not reflected in the PPA” is a separate, residual category, not a subset of “variable costs”. The purpose of the third limb appears to avoid precisely a gap that may arise by application of the Government Notification for fixed costs and PPA for variable costs. Therefore, the third limb covers both fixed and variable costs. Examples of such “other costs”, by way of illustration and not limitation, could include SLDC fees and charges, water cess, regulatory expenses, and similar costs that perhaps may arise but were not in vogue when the PPA was executed. Thus, our interpretation of the Hon’ble Supreme Court order is:

(i) Fixed costs: To be determine by the State Commission taking into account the Government notification.

(ii) Variable costs: To be expressly covered by the PPA

(iii) Other costs (could be fixed or variable): which are not dealt with by the PPA, are to be dealt with according to the regulations of the State Commission.

59. Further, in our opinion the word “costs” hear refers to heads of cost or cost elements and not the monitory amount for a cost element. This is because in the order, Hon’ble Supreme Court was dealing with the question as to which instrument governs which kind of cost; and not with the question as to how much should be allowed. Secondly, Hon’ble Supreme Court has used the phrase “as reflected in the PPA”. If the intent was to refer to monitory amount, the phrase could have been “as fixed/ agreed/ quantified in the PPA”.

60. Now, the “additional capitalisation” is not a separate cost element but if allowed, it only adds to the “capital cost”. We see that in the PPA as executed in 1996 (in supersession to the earlier PPA of 1991), besides fixing other parameters, the capital cost is fixed at ₹ 1060 Cr, the capital cost for arriving at O&M expenses (as 2.5% of the capital cost) for the first year has been pegged at ₹ 1030 Cr, and the escalation in O&M expenses had been pegged at 8%. Generally, when PPA is executed before or during construction, there is a provision that capital cost shall be actual or agreed whichever is less. However, this has not been the case with this PPA. Similarly, there is standard practice of linking escalation in O&M expenses to some index; this was also the case in the then prevailing GOI tariff notification issued on 30th March 1992. However, in this case the escalation has been pegged at 8% per annum, which according to GRIDCO is on higher side. Therefore, the PPA executed in 1996 seems to be part of a negotiated settlement to minimise the uncertainty in any of the elements of tariff.

61. Further, there is no specific mention of additional capital expenditure in the original PPA, Government notification dated 21.06.2008 and the modifications made in the PPA consequent to aforesaid Government notification. OPGC in its

submission has argued that capital cost is input for tariff fixation and not a parameter; and that the “other costs” as mentioned in the order of Hon’ble Supreme Court would cover additional capital expenditure. This argument would effectively mean that unlike parameters such as return on equity, auxiliary consumption, rate of depreciation, rate of O&M expenses etc., which were to remain fixed during PPA tenure, the capital cost can increase due to additional capitalization. The relevant extract of the item 8.0 (Computation of Tariff) in Schedule-II of the PPA executed in 1996 is as under: “Tariff shall be calculated based on the following parameters when both units are in Commercial Operation:

1. Installed Capacity MW

4. Capital Cost including Share Facilities for Units 3,4,5 & 6 Rs Crores

5. Capital Cost of Tariff Rs Crores (1060) to be adjusted for sharing Units 5 & 6”

(Emphasis Supplied)

62. It is evident from the above extract that the contention of OPGC that capital cost is not a parameter for tariff determination is inconsistent with the express terms of the PPA. Although this contention may reflect the general practice, the parties in the present case consciously departed from that practice by expressly identifying capital cost as a tariff parameter and by stipulating its value in the PPA. Not only that but the paragraph 3 (a) of the Government of Odisha notification

dated 21.06.2008 after modifying the norm for calculation of incentives from PLF of 68.5% to 80% goes on to freeze all other terms and parameters for determination of tariff till validity of the PPA not withstanding modification in tariff norms by CERC from time to time. Moreover, additional capital expenditure is not an independent category of cost. Upon approval, it is absorbed into and forms part of the capital cost. Therefore, the submission of OPGC that additional capital expenditure is covered by the expression “other costs” employed in the directions of the Hon’ble Supreme Court is misconceived and cannot be accepted.

63. Further, it is clear from the Government of Odisha notification dated 21.06.2008 (paragraph 2) that in order to resolve the dispute regarding tariff setting for the Units #1 & 2 and other related matters, a task force was constituted by the Government of Odisha. To be specific, the dispute was about amendment to the PPA as per “CERC guidelines” (paragraph 1 of the aforesaid notification). It is matter of record that 49% equity in this power station was divested through competitive bidding in the late 1990’s. We were given to understand during the course of the hearing that since CERC tariff norms are set for each control period, this was viewed as source of uncertainty by the foreign investor. From para ix) of the recital of the supplemental agreement dated 19.12.2012 (effective from 01.04.2007), it is clear that changes made in the PPA were part of overall settlement of all the disputes and differences.

64. The underlying premise appears to be that the Government of Odisha notification dated 21.06.2008 and consequent Supplemental PPA were part of a well thought commercial settlement. While the tariff parameters, including the capital cost, were frozen, thereby precluding any future increase in tariff on account of additional capitalization, the tariff continued to be governed by the existing norms and was not subjected to the more stringent operational and financial norms that may get introduced under the subsequent CERC Tariff Notifications (which act as guideline to the State Commission in accordance with Section 61 (a) of the

Electricity Act, 2003). The two formed part of a single negotiated settlement and cannot be viewed in isolation.

65. However, we must point that the provisions of PPA, including the freeze on tariff parameters does not appear to be cast in stone. The Supplemental PPA leaves doors open for taking care of contingencies with fairness and without detriment to interest of any party. The paragraph E) of the Supplemental PPA, which records this understanding is extracted below:

“E) In the PPA the following clause be added as 17.01

In entering into this PPA, the parties recognize that it is impractical to provide for every contingency that may arise in the course of the performance thereof. Accordingly, the parties declare it to be their intention that this PPA shall operate between them with fairness and without detriment to the interest of any of them and if in the course of the performance of this PPA unfairness to any party hereto shall be manifest, either financially or otherwise, the parties will use their best endeavours to remove the cause or causes of the same: It is hereby agreed that any adverse impact to either party shall be mutually discussed and steps taken to ensure that the intent and the objects as set out herein are not disturbed.”

66. OPGC has placed reliance on the judgment of the Hon’ble Supreme Court in PTC India Limited v. CERC, (2010) 4 SCC 603, to contend that the regulations framed under the Electricity Act, 2003 constitute binding subordinate legislation. While there can be no quarrel with this proposition, the present case stands on a different footing. The issue in question has already been adjudicated by the Hon’ble Supreme Court in proceedings between the same parties. In this judgement, Hon’ble Supreme Court had set aside judgement of this Tribunal, which was based on the principle that the regulations prevail over agreement as laid down in the PTC cited above. The judgment, rendered by the Hon’ble Supreme Court after considering the relevant facts and circumstances, including the Government of Odisha Notification, contains specific directions governing the

rights and obligations of the parties. Accordingly, the adjudication by the Hon’ble Supreme Court on the issue operates as res judicata between the parties, and the directions contained therein are binding upon them. Consequently, the matter cannot be reopened by placing reliance on the general proposition regarding the binding nature of statutory regulations.

67. OPGC has also pointed out that later, OERC vide Order dated 03.11.2021 in Case No. 66 of 2021 and Order dated 15.01.2022 in Case No. 99 of 2021 itself has allowed additional expenditure on R&M, FGD and on ash pond expenditure for OPGC’s Units 1 and 2; and has contended this to be as inconsistent stand of the State Commission. Though, we would like to refrain from passing any remark on the aforesaid orders since these orders are not subject matter of the current proceedings, from the submissions of the GRDICO and a glance at these orders which are on record, prima facie it appears that in the proceeding before the State Commission, GRIDCO had consented for expenditure on R&M and FGD, which is in the spirit of the paragraph E) of the Supplemental PPA referred earlier. Further, it appears that the expenditure on ash pond were approved by OERC as a consequence to change in law.

68. OPGC has placed reliance on this Tribunal’s judgment dated 28.08.2023 in Appeal No. 304 of 2016 & batch (NTPC Limited v. CERC & Ors.), wherein it was held that additional capitalization, renovation and modernisation (R&M), special allowance and the normative components of Annual Fixed Charges (AFC) constitute distinct statutory concepts under the applicable tariff regulations. On that basis, OPGC contends that the OERC could not have rejected its statutory claim for additional capitalization.

69. In our considered view, the said judgment is distinguishable on facts and has no application to the present case. The controversy before us arises in a materially different factual and legal setting, where the rights and obligations of the parties

are governed by the terms of the PPA, which expressly freezes the capital cost, read in conjunction with the specific directions contained in the judgment of the Hon’ble Supreme Court. The Hon’ble Supreme Court has, after considering the Government Notification and the contractual framework, delineated the respective instruments governing different categories of costs. In these peculiar circumstances, the general principles enunciated in the judgment relied upon by OPGC cannot override the binding contractual arrangement and the specific adjudication of the Hon’ble Supreme Court governing the parties.

70. For the foregoing reasons, we hold that the pegging of the capital cost for the purpose of tariff determination constituted an essential element of the negotiated settlement embodied in the PPA. Any subsequent allowance of additional capitalization, leading to an increase in tariff, would alter the contractual allocation of risks and benefits reflected in that settlement. We, therefore, affirm the conclusion reached by the State Commission, albeit for a reason different from that assigned by it.

71. Before parting with the matter, we consider it appropriate to observe upon one further aspect. As noticed earlier, it was submitted during the course of hearing that the constitution of the Task Force, culminating in the issuance of the Notification by the Government of Odisha and the execution of the Supplemental Agreement, was primarily intended to provide tariff certainty to the foreign investor. We were also given to understand that the foreign investor has since divested its equity holding and that the Government of Odisha now holds the entire equity in the Power Station. In the aforesaid circumstances, the rationale, if any, for the continuance of any special dispensation in favour of the said generating station appears to have substantially ceased to exist. The continuance of such special treatment may not only give rise to otherwise avoidable disputes on account of differing interpretations, as demonstrated in the present proceedings, but may also be inconsistent with the scheme and underlying spirit of the Electricity Act, 2003.

Accordingly, we observe that it would be open to the parties to bring this aspect to the notice of the Government of Odisha so that it may examine the matter and, if considered appropriate, take suitable steps to review the continuance of any special dispensation applicable to the Power Station.

ORDER

For the foregoing reasons as stated above, we have come to the conclusion that the State Commission was right in disallowing the additional capitalisation and accordingly the captioned Appeal No. 335 of 2021 is disallowed. The Captioned Appeal and pending IAs, if any, are disposed of in the above terms. PRONOUNCED IN THE OPEN COURT ON THIS 16th DAY OF JULY, 2026.

(Ajay Talegaonkar) Technical Member (Virender Bhat) Judicial Member

REPORTABLE / NON-REPORTABLE kns/mkj/kks