ASSOCIATION OF DVC HT CONSUMERS OF JHARKHAND vs JHARKHAND STATE ELECTRICITY REGULATORY COMMISSION on 3 July 2026

JUDGEMENT

PER HON’BLE MRS. SEEMA GUPTA, OFFICIATING CHAIRPERSON

1. The present appeal No. 198 of 2017 has been filed by Association of DVC HT Consumers of Jharkhand, (“Appellant”) challenging certain specific findings of the order dated 19.04.2017 in Case No. 02 of 2016 (“Impugned Order”) passed by the Jharkhand State Electricity Regulatory Commission (hereinafter referred as “JSERC/State Commission”), whereby, the State Commission has decided true up of the Annual Revenue Requirement from FY 2006-07 to 2013- 14 and Annual Performance Review for FY 2014-15 for Damodar Valley Corporation. Mr. Shri Venkatesh Mr. Shryeshth Ramesh Sharma Mr. Bharath Gangadharan Mr. Ashutosh Kumar Srivastava Mr. Nihal Bhardwaj Mr. Siddharth Nigotia Mr. Shivam Kumar Mr. Kartikay Trivedi Ms. Aashwyn Singh Ms. Punyam Bhutani Mr. Suhael Buttan Mr. Manu Tiwari Ms. Himangi Kapoor Mr. Vineet Kumar Mr. Nikunj Bhatnagar Mr. Aditya Tiwari Ms. Priya Dhankar Ms. Harsh Vardhan Mr. Anant Singh Ubeja Mr. Abhishek Nangia Mr. Kunal Veer Chopra Mr. Nehal Jain Mr. Vedant Choudhary Mr. Mohit Gupta for Res. 2

Description of Parties: -

2. The Appellant- Association of DVC HT Consumers of Jharkhand is an association of HT consumers having industries in Damodar Valley area falling in the State of Jharkhand.

3. The Respondent No.1/JSERC is the State Commission, the statutory regulatory body for the power sector in the State of Jharkhand and was formally constituted by the Government of Jharkhand in the year 2002, it terms of section 17 of the Electricity Regulatory Commission Act, 1998.

4. Respondent No. 2, the Damodar Valley Corporation (DVC) is a statutory body constituted under the provisions of the Damodar Valley Act, 1948 DVC is engaged in the generation, transmission, bulk supply, and distribution of electricity and performs diverse functions relating to irrigation, flood control, afforestation, soil conservation, etc., in accordance with the provisions of the DVC Act. Factual matrix of the Case:

5. On 22.11.2012, provisional ARR Order for FY 2006-07 to 2012-13 for DVC was issued by JSERC and thereafter, on 04.09.2014, the JSERC passed the Multi Year Tariff Order for FY 2013-14 to FY 2015-16. The JSERC did not undertake the final True-Up of ARR for FY 2006-07 to FY 2012-13 on account of the issues pertaining to the ARR of generation and inter-State transmission business of DVC being pending consideration before the Hon’ble Supreme Court.

6. Pursuant to Hon’ble Supreme Court’s direction dated 26.10.2016, the JSERC undertook true-up of previous years. The Appellant filed Objection

Statement dated 15.12.2016 on various issues including UI charges, Penal UI charges, Non -Tariff Income, water and Pollution Cess, Gratuity and Pension fund.

7. Impugned Order, determining true up for FY 2006-07 to FY 2012-13 was passed on 19.04.2017. Appellant herein is aggrieved by the Impugned Order that JSERC: (a) restricted Non-Tariff Income to Delayed Payment Surcharge only (b) Allowed contribution towards Pension and Gratuity and to Sinking Fund, for FY 2006-07 to 2007-08, without linking/pro-rating the same to actual Availability; (c) allowed UI Charges, including penal charges, as Power Purchase Cost; and (d) allowed Water and Pollution Cess for FYs 2009-10 to 2014-15 for distribution business despite being related to generation, and has filed the present Appeal. Analysis and Discussion

8. Appellant has raised following four issues in the Appeal:

(i) Non-Tariff Income (“NTI”);

(ii) Unscheduled Interchange (“UI”) charges, including penal charges, as part of power purchase cost; and

(iii) Recovery of Water and Pollution Cess in the ARR of the distribution business.

(iv) Power Purchase Cost; At the outset it is submitted on behalf of the Appellant, that issue No. iv relating to the Power Purchase Cost is not being pressed. Heard Mr. Abhijit Debnath, learned counsel appearing on behalf of Appellant, Mr. Apoorva Misra, learned counsel appearing on behalf of State Commission and Mr. Shri Venkatesh, learned counsel appearing on behalf of DVC. The deliberations in the present

Appeal are confined to Issue i, ii and iii, and we heard the learned counsels on these issues, perused written Submissions filed by the parties, Impugned Order and other material placed on record. The three issues are deliberated in following paragraphs: ISSUE (I) - NON TARIFF INCOME- NTI A) Submissions urged on behalf of Appellant

9. It is submitted that the issue relating to determination of NTI is no longer res integra and stands conclusively settled by this Tribunal in its Judgment dated 15.09.2025 in Appeal No. 275 of 2015 & batch, rendered while carrying out the tariff determination of DVC under the West Bengal Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2011 (“WBERC Tariff Regulations, 2011”), wherein this Tribunal categorically held that restricting NTI only to Delayed Payment Surcharge (“DPS”) is contrary to the applicable regulatory framework and legally unsustainable. Despite the aforesaid settled position, the JSERC, instead of adjusting the NTI in the ARR, directed DVC to furnish submissions regarding whether such revenue had been accounted for in DVC’s cost of generation and transmission business.

10. The approach adopted by JSERC is also contrary to the statutory framework. Under Regulation 21.1 of the JSERC (Terms and Conditions for Determination of Thermal Generation Tariff) Regulations, 2004, Non-Tariff Income is defined as revenue in excess of revenue collected on account of tariff and, therefore, all revenues other than tariff revenue are required to be treated as NTI. The Impugned Order itself records that the NTI reflected in the audited accounts of Respondent No. 2 is higher than the NTI claimed in the Petition but failed to account for the entire NTI. At the stage of determination of ARR in Case

No. 02 of 2016, the Appellant had raised objections before JSERC regarding the incorrect treatment of NTI by DVC relying upon the audited annual accounts of DVC.

11. Regarding the contention of Respondents that NTI attributable to the distribution business is confined only to DPS and all other income, apart from DPS, is either attributable to its generation/transmission business or already adjusted under respective cost heads, such as rebate on power purchase, and therefore cannot be considered as NTI for ARR purposes, is contrary to the applicable Tariff Regulations, which define NTI in broad terms to include all income arising from the core business other than tariff income, except specifically excluded categories. The Distribution licensee’s tariff must be independently determined by the State Commission, and therefore, NTI has to be computed as per State Regulations, and cannot be limited based on CERC’s treatment applicable to generation/transmission. Consequently, the Impugned Order, being in direct contravention of the aforesaid Regulations, has resulted in an inflated ARR to the extent of approximately Rs. 2,250.37 Crore, imposing an unjust and unwarranted burden upon the consumers and need to be interfered with. B) Submissions Urged on behalf of State Commission

12. It is submitted that DVC is a vertically integrated utility engaged in the generation, transmission and distribution of electricity and while the generation and transmission business of DVC is regulated by the CERC, the Commission regulates only the retail distribution business of DVC within the State of Jharkhand. ARR of the distribution business can be determined only on the basis of the business-wise records, accounts and information furnished by Respondent No.2 before the State Commission and, as per the business-wise segregation and material placed before the Commission, only DPS was identifiable and

attributable to the distribution business as NTI. The Appellant, however, seeks inclusion of various income heads reflected in the consolidated audited accounts of DVC, including rental charges, dividend income, interest income, profit on disposal of assets, income from investments and miscellaneous recoveries, though such income heads cannot automatically be treated as NTI attributable to the distribution business.

13. It is further submitted that many of the aforesaid income heads pertain to the generation and transmission business, including fixed assets forming part of the generation/transmission systems, employee-related recoveries, accounting adjustments and activities falling outside the ambit of the regulated distribution business. Therefore, any mechanical deduction of the consolidated NTI without undertaking a proper business-wise attribution would result in distortion of tariff determination and may further lead to duplication of adjustments already considered under the tariff framework determined by CERC.

14. It is further submitted that the issue now stands conclusively settled by this Tribunal in its Order dated 15.10.2024 passed in Appeal No. 332 of 2024 and Judgment dated 24.04.2026 passed in Appeal No. 227 of 2025, wherein it has been held that NTI can include only such income as is attributable to the distribution business and not to the generation or transmission business. This Tribunal has further held that, except for DPS, the various other income heads sought to be included by the Appellant do not qualify as NTI for DVC’s distribution business inasmuch as the same either pertain to employees, contractors or vendors, arise from fixed assets forming part of generation/transmission systems, constitute accounting adjustments or relate to activities falling outside the scope of the regulated distribution business. Accordingly, State Commission rightly considered only DPS attributable to consumers within the command area of

Jharkhand as NTI while determining the ARR and, therefore, the challenge raised by the Appellant on this issue is wholly misconceived and liable to be rejected. C) Submissions Urged on behalf of Respondent No.2 – DVC

15. It is submitted that it is a settled position of law that, for the purpose of determination of ARR of the distribution business of DVC, only DPS can be considered as NTI, and the said position stands affirmed by this Tribunal in its Order dated 15.10.2024 passed in Appeal No. 332 of 2024 for the period FY 2006–07 to FY 2011–12. It is further asserted that the Tariff Order under consideration in the aforesaid Appeal also pertained to determination of category- wise tariff for the same period, i.e., FY 2006–07 to FY 2011–12, and since the present Appeal similarly concerns the overlapping period FY 2006–07 to FY 2011–12, the findings rendered by this Tribunal in the aforesaid Appeal squarely apply to the present issue.

16. This Tribunal, in its Judgment dated 24.04.2026 passed in Appeal No. 227 of 2025, has conclusively settled the scope of NTI for DVC’s distribution business and, upon a detailed component-wise examination of the items sought to be included beyond DPS, has unequivocally held that only DPS qualifies as NTI, while all other components fall outside the permissible ambit for ARR purposes. For ease of reference and to demonstrate the correct position in law, a comparative analysis of (i) the various income heads forming part of the accounts of DVC as placed before JSERC, (ii) the scope of NTI as contemplated under the applicable JSERC Tariff Regulations, and (iii) the treatment of such income heads in light of the Judgment dated 24.04.2026 passed by this Tribunal in Appeal No. 227 of 2025, has been submitted, which clearly establishes that, barring DPS, none of the other income heads qualify as NTI for the distribution business of

DVC. In view of the aforesaid Judgment dated 24.04.2026 in the said Appeal, as well as the Order dated 15.10.2024 passed in Appeal No. 332 of 2024, the legal position governing determination of NTI for DVC’s distribution business now stands conclusively settled, namely that only such income as is incidental to the distribution business and derived from the use of distribution assets can be considered as NTI, which, in the facts of the present case, is effectively limited to DPS. D) OUR CONSIDERATION

17. The Appellant has contended that the Tariff Orders issued by CERC do not account for NTI in the cost of generation and transmission of DVC and as per Regulation 21.1 of the JSERC Distribution Tariff Regulations, 2004, all revenues other than those collected through tariff constitutes NTI and accordingly, the scope of NTI is not confined merely to DPS. Reference has also been made to the Regulation 6.49 of the JSERC Distribution Tariff Regulations, 2010, which expressly provides that NTI, inter alia includes, “profit derived from disposal of assets, rents, delayed payment surcharge, meter rent (if any), income from investments…..” and thereby NTI is not limited only to DPS; while the JSERC in the Impugned Order has considered only DPS as NTI, while NTI reflected in the audited accounts of DVC is substantially higher than the amount so considered. In support of the aforesaid contention, reliance has been placed upon the Judgement of this Tribunal dated 15.09.2025 passed in appeal 275 of 2015.

18. Per Contra, Respondents have contended that that it is a settled position of law that, for the purpose of determination of ARR for the distribution business of DVC, only DPS can be considered as NTI. In support of this, reliance has been placed on the judgement of this Tribunal dated 15.10.2024 passed in IA No 1282

of 2024 in Appeal No 332 of 2024 pertaining to the period FY 2006-07 to FY 2011- 12, as well as Judgement dated 24.04.2026 passed in Appeal No 227 of 2025. Judgement relied upon by the parties

19. The Appellant has placed its reliance on this tribunal’s judgment passed in Appeal 275 of 2015, titled as “Damodar Valley Power Consumers Association (DVPCA)& Ors vs WBERC”, the relevant paragraph of the judgment is extracted hereunder:- “98. Therefore, we hold that the State Commission has erred in its treatment of non-tariff income by admitting only DPS as NTI for the relevant tariff period.

99. Therefore, we set aside the impugned order on this count and direct WBERC to identify the distribution assets of DVC along with the corresponding costs within the T&D costs as determined by CERC.

100. Further, the State Commission shall determine the NTI of the distribution business after obtaining all the information from DVC in accordance with the relevant Regulation.

101. We also direct the State Commission to distribute the total NTI related to T&D assets between the distribution and transmission business in the ratio of the effective cost ratio of the distribution and transmission business. Till such time the actual NTI is determined, the total T&D NTI shall be distributed between the two businesses, as an approximation after obtaining the transmission and distribution assets ratio in similar States like Bihar, Tamil Nadu, or Chhattisgarh. The same will be subject to adjustment based on the actual determination” In the aforesaid judgement, while dealing with the issue of NTI, this Tribunal held that it would not be correct to restrict the non-tariff income (NTI) solely to Delayed Payment Surcharge for the purpose of retail tariff determination of DVC for the supply of power in the Damodar valley area within the State of West Bengal for

the MYT period from 01.04.2009 to 31.03.2014 and directed WBERC to properly identify DVC’s distribution assets and corresponding costs within the T&D costs determined by CERC, and then to determine NTI of the distribution business in line with the Regulations after obtaining full information from DVC. Further, the Tribunal mandated that in the meantime NTI related to T&D assets be apportioned between distribution and transmission businesses in proportion to their effective cost ratios, with an interim approximation based on asset ratios in comparable States until actual determination is made, subject to later adjustment.

20. The Respondents have relied on the order dated 15.10.2024 in IA No 1282 of 2024 in Appeal No 332 of 2024, (“DVC Vs JSERC”), wherein , this Tribunal while considering the tariff determination of DVC for the period FY 2006-07 to FY 2011-12, and after considering the provision of the JSERC Regulations, 2004 and JSERC Regulations, 2010, observed that these “ Regulations refers the Non tariff Income incidental to the Distribution business and has been derived by the distribution licensee using the distribution assets and the amount received by the Licensee on this account is only to be deducted while calculating the net revenue requirement of the distribution licensee” . It has been held that it is not justified to include entire NTI of DVC as its NTI for distribution business to work out the ARR. This Tribunal, till the disposal of Appeal, in the interim, “held that tariff for the period under consideration be worked out considering only DPS as non-tariff income for distribution business, after apportioning it to Jharkhand area of sales Vs total sales of DVC”.

21. The Respondents have also relied on Judgement dated 24.04.2026 in Appeal No 227 of 2025, titled as “DVC v. JSERC & Ors”, with regard to the True up for FY 2023-24, Annual Performance Review (APR) for FY 2024-25 and Aggregate Revenue Requirement (ARR) for FY 2024-25 involving issue of NTI.

In the said judgement, this Tribunal considered and extensively deliberated upon its various earlier decisions, including the judgement dated 15.09.2025 in appeal 275 of 2015, upon which reliance has been placed by Appellant. With Regard to the directions contained in the judgement dated 15.09.2025 concerning comparison of DVC’s network with those of comparable states like Bihar, Chhattisgarh and Tamil Nadu, it is observed that transmission and distribution network of DVC is structurally distinct and not comparable with the network configurations existing in the aforesaid States. It was further observed that ratio of Transmission to distribution asset is not comparable to any state including Bihar Chhattisgarh and Tamil Nadu, mainly on the fact that DVC’s network is entirely 33 kV and above, while others have network at 11 kV and below as well. Accordingly, it was been held that direction contained in Para 101 (as extracted above) of judgement dated 15.09.2025 being interim in nature, did not constitute a final or binding determination warranting implementation.

22. The judgement also emphasized the necessity of segregating the accounts of DVC into separate business segments so as to ensure accurate determination of tariff and allocation of costs between transmission and distribution functions. In this regard, this Tribunal laid down a guiding framework for identification and segregation of DVC’s network assets into transmission and distribution systems and further directed that tariff determination for the identified distribution assets be undertaken separately with effect from 01.04.2027.

23. In this judgement, after detailed examination and analysis of the various components constituting the Non-Tariff Income of DVC, this Tribunal conclusively held that only the component relating to DPS qualifies for consideration as NTI attributable to the distribution business. The said findings affirm the settled principle that only such income which is directly relatable and incidental to the

licensed distribution activity can be considered for deduction while computing the ARR of the distribution business. The final direction, relevant in the present context are extracted hereunder: “(ii) The JSERC is directed to re-compute the tariff by considering Delayed Payment Surcharge (DPS) alone as NTI.

(iii) The JSERC shall carry out the process of identifying DVC’s assets forming distribution system within the state of Jharkhand and determination of its tariff with effect from 01.04.2027 in accordance with directions contained in this judgement.

(iv) DVC shall carry out segregation of its accounts into distribution, transmission and generation within the activity of “electrical energy” w.e.f. 01.04.2027 in consultation with CAG.”

24. In light of the pronouncement in this Tribunal’s judgment dated 24.04.2026, and upon a detailed scrutiny of the items classified under Non-Tariff Income (NTI), it is manifest that the treatment of such items must be harmonized with the scheme and framework embodied in the JSERC Distribution Tariff Regulations, 2004 and the JSERC Distribution Tariff Regulations, 2010, which govern the relevant control period in the present Appeal. The Tribunal has categorically held that, for the purposes of NTI relatable to the Distribution business, only Delayed Payment Surcharge (DPS) is to be reckoned. The Impugned Order has confined NTI to DPS alone, thereby ensuring conformity with the governing regulations and binding judicial precedent.

25. Accordingly, we find no error apparent on the face of the record in the Impugned Order. The findings recorded in the Impugned Order on the aforesaid issue are, therefore, upheld. ISSUE II - UNSCHEDULED INTERCHANGE (UI ) CHARGES

A) Submissions urged on behalf of Appellant

26. It is submitted that UI Charges arise on account of deviation from scheduled drawal of power from the grid and constitute merely a deviation settlement mechanism, rather than a planned or contractual source of procurement of power. It is a settled position of law that UI is not a recognised source of procurement of power and, therefore, short-term power purchase undertaken without seeking approval of the State Commission in terms of Regulation 5.22 of the Tariff Regulations, 2010 ought to have been disallowed. Under Tariff Regulations, 2010, particularly Regulations 5.20 to 5.22, only such power purchase costs as are approved, planned and prudently incurred are admissible in the ARR. UI Charges, which arise from unscheduled overdrawal or deviation from schedule, do not meet this standard.

27. JSERC erred in failing to appreciate that short-term power purchase constitutes a controllable element and not an uncontrollable element. Unlike long- term tied-up power, which may be subject to legacy constraints, short-term power purchases are discretionary in nature and are capable of being optimised through efficient load forecasting, scheduling and portfolio management. Consequently, any additional cost incurred on account of short-term power procurement is a direct result of the operational and commercial decisions of the licensee and cannot be regarded as a factor beyond its control. The applicable Tariff Regulations draw a clear distinction between controllable and uncontrollable factors and permit pass-through only in respect of such costs as arise due to external, unforeseen and uncontrollable circumstances, including force majeure events and statutory changes. Short-term power purchase does not fall within the ambit of such uncontrollable factors.

28. JSERC erred in failing to undertake a prudence check so as to disallow the UI Penal Charges, which, in terms of the Judgment dated 20.07.2016passed by this Tribunal in Appeal No. 271 of 2013 titled as “Tata Power Delhi Distribution Limited v. DERC” cannot be passed on to the consumers. The Penal UI Charges are solely attributable to the inefficiencies of DVC and, therefore, cannot be permitted as a pass-through in the ARR. B) Submissions Urged on behalf of Respondent No 1 -State Commission & Respondent No 2 – DVC

29. It is submitted that the regulatory framework expressly recognises UI transactions as forming part of the ARR mechanism and Regulation 6.37 of the JSERC (Terms and Conditions for Determination of Distribution Tariff) Regulations, 2010 specifically provides that power procurement cost shall take into account net revenues through bilateral exchanges and UI transactions. Under the Availability Based Tariff (“ABT”) mechanism, UI charges, representing the difference between scheduled and actual drawal or injection of electricity, constitutes an unavoidable feature of real-time grid operations. UI is, therefore, a recognised balancing mechanism and not an independent or planned source of procurement. Depending upon the load-generation profile, UI may either result in import or export of power and consequently may lead to either additional cost or revenue. DVC has considered only the net UI impact while computing the ARR, thereby reflecting only the actual financial implication arising out of such transactions.

30. The reliance placed by the Appellant on the judgment of this Tribunal in Appeal No. 271 of 2013 is wholly misplaced inasmuch as the said judgment pertained to penal UI arising on account of excessive overdrawal and inefficiency

and does not lay down any proposition that all UI transactions are liable to be excluded from the ARR.

31. Learned counsel for DVC placed reliance upon the Judgment of Hon’ble Supreme Court in “Central Power Distribution Co. v. Central Electricity Regulatory Commission” (2007) 8 SCC 197, wherein it has been held that UI charges constitute a commercial mechanism for maintaining grid discipline and not in the nature of penalty and operate as a regulatory and grid-discipline settlement mechanism rather than a penal levy.

32. It is submitted that Appellant has erroneously equated all UI charges with penal charges. Under the CERC UI Regulations, 2009, as amended in 2012, a clear distinction is maintained between UI Charges under Regulation 5 and Additional UI Charges under Regulation 7. While Additional UI Charges under Regulation 7 are leviable on account of excessive overdrawal or grid indiscipline, the UI Charges under Regulation 5 merely represent the commercial settlement mechanism for deviations between scheduled and actual drawal/injection under the ABT framework. Accordingly, the UI charges considered by DVC as part of the ARR cannot, by themselves, be construed as penal in nature. It is further submitted that, in the Impugned Order, JSERC, has held that no Additional UI Charges were payable by DVC, and therefore no penalty of any nature can be said to have been imposed upon DVC. In any event, the Appellant has failed to establish that any penal or Additional UI Charges were imposed upon DVC and thereafter passed on to the consumers.

33. The Respondent No.2, DVC submitted that Short Term Power Purchase undertaken by DVC is necessitated to address real-time demand-supply variations and to ensure reliable supply to consumers, and therefore cannot be viewed in isolation as a purely controllable element. Such procurement cannot be

viewed in isolation as a controllable element, as it is necessitated by various exigencies, including unforeseen demand fluctuations, outages and system constraints. The Appellant has failed to establish any perversity, illegality or infirmity in the prudence check exercised by the Commission while approving the actual power procurement cost and, therefore, the challenge raised by the Appellant in relation to UI Charges and short-term power purchase is liable to be dismissed. OUR CONSIDERATION

34. The Appellant has mainly contended that Short Term Power Purchase Cost is a controllable element and that the JSERC has erred in not appreciating that short term power purchased without seeking pre or post facto approval of the commission as contained in terms of Regulation 5.20 of the JSERC Tariff Regulations, 2010, ought to have been disallowed and JSERC has wrongly passed the Penal UI charges upon the consumers, which is contrary to the law laid down by the judgment of the Tribunal dated 20.07.2017 in Appeal No. 271 of 2013.

35. Unscheduled Interchange (UI) in India’s electricity sector refers to deviations between the scheduled and actual generation or drawal of power, the same being settled financially through frequency-linked charges under the Availability Based Tariff (ABT) mechanism. It is designed to maintain grid discipline by incentivizing adherence to schedules and penalizing deviations therefrom. It is a settled position that UI is not a planned source of procurement, but is a recognized balancing mechanism having financial consequences, which may result either in a cost (import) or a gain (export). It incorporates Frequency-linked Pricing i.e., at low grid frequency, UI charges are higher,

discouraging over-drawal and rewarding injection and at high grid Frequency UI charges are lower, discouraging excess injection and over-supply.

36. The issue before us concerns the characterization of Unscheduled Interchange (UI) vis-à-vis short-term power procurement. UI charges, being frequency-linked deviation settlements under the Availability Based Tariff (ABT) framework, are an inherent feature of grid discipline. Minor mismatches between scheduled and actual drawal are inevitable in grid operations, and while utilities may minimize such exposure through accurate forecasting and disciplined scheduling, UI cannot be wholly avoided. However, UI does not partake the character of planned procurement of electricity. It is a corrective regulatory mechanism designed to settle deviations and to enforce grid discipline, not a contractual source of supply.

37. Distribution licensees, cannot rely upon UI as a means of meeting their demand. Their obligation under the Electricity Act, 2003 and the applicable regulatory framework is to secure supply through long-term, medium-term, or short-term power purchase agreements. Short-term procurement, in particular, refers to contractual purchase of electricity for a period not exceeding one year, whether through bilateral contracts, transactions on power exchanges, or competitive bidding. Such procurement is voluntary, planned, and enforceable, and stands on a wholly different footing from UI, which arises automatically from deviations between schedule and actual drawal and is incapable of being treated as procurement.

38. Therefore, the distinction between the two is fundamental and well settled; while the short-term procurement is a contractual arrangement governed by regulatory approval and give rise to enforceable obligations between parties, UI

is a regulatory settlement mechanism without the attributes of a contract. Any conflation of UI with short-term procurement would be contrary to the statutory and regulatory scheme mandating planned procurement of power by distribution licensees and would also dilute the discipline envisaged under the ABT framework.

39. In this context, it is apposite to extract relevant Regulations of JSERC ( Terms and Conditions for determination of Distribution Tariff) Regulations 2010; (“JSERC Distribution Regulations 2010”)) “6.37 The Licensees shall be allowed to recover the net cost of power it procures from sources approved by the Commission, viz. Intra-state and Inter-state Trading Licensees, Bilateral Purchases, Bulk Suppliers, State generators, Independent Power Producers, central generating stations, non-conventional energy generators, generation business of the Licensee and others, assuming maximum normative rebate available from each source for payment of bills through letter of credit (LC) on presentation of bills for supply to consumers of the Retail Supply Business; Provided that the Licensee shall propose the cost of power procurement taking into account the fuel adjustment formula specified for the generating stations and net revenues through bilateral exchanges and unscheduled interchange (UI) transactions;” It is evident from above, that Cost of Power Procurement include net revenue from unscheduled interchange transactions.

40. In the present case it is observed from the Impugned Order that for FY 2006-07 to FY 2008-09, there was a net gain from UI, which was netted off from the gross power purchase cost and in case of FY 2009-10 & FY 2010-11, the State commission has approved gross power purchase from UI, thus benefits accrued under UI mechanism for certain period has been accounted for in the

ARR, the relevant paragraph from the Impugned Order is extracted hereunder : “5.33 On further scrutiny of the information submitted by the Petitioner, the Commission noted that for the FY 2006-07 to FY 2008-09, the Petitioner has earned revenue from sale of power through UI but has not netted off this revenue from the gross power purchase cost. The revenue from sale of power under UI for the aforementioned years was Rs.106 Cr, Rs. 37 Cr and Rs. 60 Cr, respectively. The revenue from Ul was then netted off from the gross power purchase from CSGS and other sources to arrive at net power purchase cost (including UI) for FY 2006-07 to FY 2008-09. In case of FY 2009-10 & FY 2010-11, the Commission approved the gross power purchase from UI sources as submitted by the Petitioner.”

41. In the Judgement of this Tribunal dated 20.07.2016 in Appeal 271 of 2013, reliance on which has been placed by the Appellant, the issue involved pertained to the levy and admissibility of Penal UI charges and same was not allowed. Paragraph 7.6, of the said judgement is extracted hereunder: “7.6) Penal interests are applicable at the specified rates for over- drawal of electricity for each time block when grid frequency is below 49.5 Hz. The time block under UI Regulations is 15 minutes. We are totally unable to accept the contention of the appellant that the appellant has taken all the necessary steps to ensure compliance with the requirements of UI Regulations, over-drawal from grid below 49.5 Hz frequency is inevitable despite efficient management of the appellant. These are the problems which are to be sorted out by a Discom by making efficient management, proper scheduling of power and procurement etc. What is provided under the Regulation is that the State Commission is bound to follow those Regulations, without giving any dilution or relaxation in the provisions of Act or Rules. We are unable to accept the appellant’s contention that over-drawal or under- drawal depends on the scheduled generation available, since, the generation available changes constantly and further due to loss of generation the schedules are affected resulting in over drawal by Discoms. In view of the above discussions, we do not find any merit in

the contentions of the appellant and hence, this Issue No.8 is decided against the appellant.”

42. In this context, it is of relevance to refer to the distinction between UI charges and Penal UI charges as stipulated in CERC (Unscheduled Interchange Charges and related matter) (Second Amendment) Regulations 2012 (“CERC UI Regulations 2012”). Regulation 5 and & 7 thereof are extracted hereunder: “5 Unscheduled Interchange Charges”

(1) stipulates the “charges for unscheduled interchanges for all the Time blocks shall be payable for over drawal by the buyer or the beneficiary and under injection by the generating station or the seller and receivable for under drawal by the buyer or the beneficiary and over injection by the generating station or the seller and shall be worked out on the average frequency of a time block at the rates specified in the Schedule “A” of these as per the methodology specified in clause (2) of this Regulation.” Regulation 7 stipulates the “limit on UI Volume and Consequences of crossing the Limit”

(1) The over-drawal of electricity by any beneficiary or a buyer during a time block shall not exceed 12% of its scheduled drawal or 150 MW, whichever is lower, when frequency is 'below 49.80' Hz and 3% on a daily aggregate basis for all the time blocks when the frequency is 'below 49.80 Hz'. Explanation: The limits specified in this clause shall apply to the sum total of over-drawal by all the intra-State entities in the State including the distribution companies and other intra-State buyers, and shall be applicable at the inter-State boundary of the respective State.

(2) The under-injection of electricity by a generating station or a seller during a time-block shall not exceed 12% of the scheduled injection of such generating station or seller when frequency is 'below 49.80 Hz' and 3% on daily aggregate basis for all the time blocks when the frequency is 'below 49.80 Hz'.

(3) in addition of Unscheduled Interchange charges as specified in Regulation 5 of these Regulations, Additional interchange Charges shall be applicable for over drawal or under injection of electricity for each time block when grid frequency is below 49.7 at the rates specified in the schedule A of these regulations in accordance with methodology specified in clause (3a) of this Regulation Provided further that Additional Unscheduled Interchange Charge for under-injection of electricity, during the time-block when grid frequency is 'below 49.7 Hz', by the generating stations using coal or lignite or gas supplied under Administered Price Mechanism (APM) as the fuel shall be at the rates specified in the schedule A of these regulations in accordance with the methodology specified in clause (3b) of this regulation. Explanation: Additional Unscheduled Interchange Charges shall not be applicable for net over drawls by a region as a whole from other regions when grid frequency is 'below 49.7 Hz'. It is evident from Regulation 5 & 7 of CERC UI Regulations, 2012, that the Additional UI charges or Penal UI charges under Regulation 7 are applicable on account of excessive overdrawal or grid indiscipline, while normal UI charges under Regulation 5 represent the commercial settlement of the deviation between scheduled and actual drawal/injection under the ABT mechanism.

43. The Hon’ble Supreme court in “Central Power Distribution Co. v. CERC, (2007) 8 SCC 197, reliance placed by Respondent -DVC, has held that UI charges are in the nature of a commercial mechanism for maintaining grid discipline and are not in the nature of penalty. Relevant Para is extracted hereunder: “11. It is thus clear from the above that UI charges are a commercial mechanism to maintain Grid discipline. UI charges penalise whosoever caused Grid indiscipline, whether generator (NTPC) or distributor, is subject to payment of UI charges who are not following the schedule. UI charges are not payable if the appellants maintain their drawal of

electricity consistent with the schedule given by themselves. Therefore, there is no merit in the contention of the appellants that UI charges are by way of penalty.”

44. The issue involved in the Judgement of this Tribunal dated 20.07.2016 pertains to disallowance of Penal UI charges, while in the Impugned Order there is no mention that allowed UI charges in power procurement pertains to penal UI charges and accordingly same is assumed to be normal UI charges. Appellant has also not drawn our attention to this specific aspect that UI charges considered in Impugned Order are penal UI charges and not normal UI charges. In view of above, the UI charges considered in the Impugned Order as part of ARR cannot be construed as penal in nature and the ratio laid down in the aforesaid judgement dated 20.07.2016 is clearly distinguishable on facts and is not applicable to the present case.

45. In view of above deliberations, we do not find merit in the submission of the Appellant that UI constitutes a form of short-term procurement of power. UI, being a deviation settlement mechanism under the ABT framework, cannot be equated with planned or contractual procurement of electricity. Accordingly, the contention of the Appellant that UI Charges ought to have been disallowed is found to be untenable. We do not find any infirmity, illegality, or perversity in the Impugned Order on this issue. The Impugned Order is, therefore, upheld to this extent., ISSUE III - WATER AND POLLUTION CESS

46. The issue involved is the allowance of Water and Pollution Cess amounting to Rs. 14.74 Crore for the period FY 2009-10 to FY 2014-15 as part of the ARR of the distribution business of DVC. It has been contended on behalf of Appellant that the Water and Pollution Cess are expenses intrinsically linked to the generation

business, and such charges arise on account of water usage and compliance with environmental norms applicable to thermal generating stations. The Electricity Act, 2003 and the applicable Tariff Regulations mandate segregation of generation, transmission and distribution functions and require that only those costs which are directly relatable to a particular licensed activity can be included in the ARR pertaining to such activity. Accordingly, inclusion of such generation- related expenses in the ARR of the distribution business has resulted in a clear misallocation of costs and consequent distortion of tariff, thereby compelling consumers of the distribution segment to bear expenses which are not incurred for the purpose of supply of electricity to them. The contention of State Commission that similar treatment had been accorded in the MYT Order dated 04.09.2014, is wholly misplaced and legally untenable, inasmuch as the said MYT Order pertained only to the period FY 2013-14 to FY 2015-16, whereas the present proceedings also concern earlier financial years. It is further submitted that the regulatory practice prevailing in other jurisdictions unequivocally recognizes Water Cess as a generation-related expense and placed reliance on WBERC Order dated 25.05.2015, wherein it has been held that water requirement in bulk quantity is primarily an element of generation and bears no nexus with distribution activity.

47. Per Contra, it has been submitted on behalf of the Respondents that Water and Pollution Cess constitutes a statutory levy paid by DVC to the State Government authorities and was actually incurred in relation to electricity made available for distribution purposes and the tariff determined by CERC for DVC’s generating stations operates as the input cost for DVC’s distribution business and that the applicable CERC Tariff Regulations did not provide any separate mechanism for recovery of Water and Pollution Cess as part of the station-wise fixed charges or energy charges. Accordingly, once such statutory levies were actually incurred and were not otherwise recovered under the generation tariff

determined by the CERC, the same were allowed by the Commission in the ARR to the extent proportionately attributable to electricity supplied for distribution purposes. It is contended by DVC that the State Commission had consistently allowed Water and Pollution Cess in DVC’s earlier retail tariff orders dated 22.11.2012 and 04.09.2014 on the basis of audited annual accounts, and once the findings and methodology adopted in the MYT Order dated 04.09.2014attained finality and were never challenged by the Appellant, the same methodology cannot now be assailed in the present true-up proceedings, and placed reliance upon the Judgment dated 11.12.2024 passed by this Tribunal in Appeal No. 140 of 2024 titled “Tamil Nadu Transmission Corporation Limited v. Central Electricity Regulatory Commission” , that alteration of methodology at the true-up stage is impermissible in law.

48. It is observed that under the prevailing regulatory framework, the tariff determined by the Central Electricity Regulatory Commission (CERC) for the generating stations of Damodar Valley Corporation (DVC) constitutes the input cost for DVC’s distribution business. The Appellant has not disputed the position that Water and Pollution Cess charges were indeed accrued. Nor has the Appellant established that the allowance of such charges under the distribution tariff, as approved in the Impugned Order, has resulted in double recovery on account of their prior inclusion in the generation tariff determined by CERC. The State Commission has categorically confirmed that it undertook a prudence check of the data submitted by DVC. Upon such scrutiny, it was found that the Water and Pollution Cess charges were neither incorporated in the station-wise fixed charges nor in the energy charges determined under the tariff framework of CERC.

49. Thus from the above, it stands established that Water and Pollution Cess, are the statutory charges, and such charges have been paid by the DVC to the State Government authorities in relation to the electricity made available for distribution purposes and it is further evident that the said statutory charges have not been recovered through the generation tariff determined by CERC and therefore, their consideration in the distribution tariff does not result in any duplication of recovery.

50. In terms of Section 61 of Electricity Act 2003, under Tariff determination, the Appropriate Commission is to safeguard the consumer interest but at the same time also ensure recovery of the cost of electricity in a reasonable manner. Our attention has not been drawn to any provision in the JSERC Regulations, which prohibits the recovery of such charges in the distribution tariff. It has been brought to our notice that JSERC has allowed recovery of Water Cess in the MTR Order dated 04.09.2014 for the period FY 2013-14 to FY 2015-16 as claimed by DVC, albeit provisionally subject to True up based on actuals and the said tariff order said to have finality. Therefore, the alteration of methodology at the True up stage is not permitted (“BSES Rajdhani Power Ltd. vs. Delhi Electricity Regulatory Commission, (2023) 4 SCC 788) as far as FY 2013-14 to FY 2014-15 in the Impugned Order is concerned. DVC has also contended that JSERC has consistently allowed Water and Cess charges in DVC’s earlier Tariff Orders dated 22.11.2012.

51. The Appellant has placed reliance on WBERC order dated 25.05.2015, wherein such charges were disallowed observing that it does not have bearing on distribution business. In the judicial hierarchy, while the orders of a State Commission are amenable to appeal under Section 111 of the Electricity Act, 2003 before this Tribunal, the adjudication of such appeal is not fettered by the determinations of another State Commission rendered in a different proceeding.

Each State Commission exercises jurisdiction within its territorial and statutory remit, and its orders are confined to the parties and facts before it. The Appellate Tribunal, in exercising its appellate jurisdiction, is not bound by the reasoning or conclusions of another State Commission, which do not constitute precedent in the strict sense. At best, such orders may have persuasive value where the reasoning is found to be cogent or consistent with statutory principles. However, they cannot operate as binding authority upon this Tribunal while adjudicating the legality or propriety of an order passed by a different Commission. The Tribunal must independently assess the impugned order on its own merits, in conformity with the parent statute, applicable regulations, and settled judicial principles of law.

52. In the present case, it is evident that the levy of water and pollution cess constitutes a statutory charge, the incidence of which is not within the discretion of either the generating company or the distribution licensee. Such cess, being a statutory impost, necessarily forms part of the input cost of the electricity business. It is further noted that the generation tariff determined by the Commission does not provide for recovery of these charges, thereby rendering them unrecoverable at the generation stage. In consequence, their treatment as an admissible expense in the distribution business assumes significance.

53. The regulatory framework of the Jharkhand State Electricity Regulatory Commission (JSERC) does not contain any express prohibition against the inclusion of statutory levies such as water and pollution cess in the distribution tariff. On the contrary, it is noted that the consistent practice of the Commission has been to allow such charges in the distribution tariff, and the Mid-Term Review (MTR) orders wherein this practice has been adopted have attained finality, having not been assailed or set aside. Once such orders have crystallized, they acquire binding force and establish a settled regulatory position.

54. In light of the statutory nature of the cess, the absence of any regulatory embargo, and the established practice affirmed in prior MTR orders, we find no infirmity in the approach adopted by the State Commission in permitting recovery of water and pollution cess in the True-up exercise for the relevant period. The findings in the Impugned Order are, therefore, in consonance with the applicable legal framework, regulatory practice, and established principles governing tariff determination, and do not call for any interference by this Tribunal.

55. Accordingly, the Impugned Order is upheld on this issue.

ORDER

In view of the above deliberation, we do not find any error or infirmity in the impugned order on the issues under consideration and Impugned Order dated 19.04.2017 is upheld on these issues. The appeal is devoid of any merit and is dismissed, The pending IAs, if any, are disposed of in these terms. PRONOUNCED IN THE OPEN COURT ON THIS 03rd DAY OF JULY, 2026. (Virender Bhat) Judicial Member (Seema Gupta) Officiating Chairperson REPORTABLE / NON-REPORTABLE _________________________________________________ Pr/dk/ag/ak