DELHI TRANSCO LIMITED vs DELHI ELECTRICITY REGULATORY COMMISSION & Ors on 20 April 2026

JUDGEMENT

PER HON’BLE MRS. SEEMA GUPTA, OFFICIATING CHAIRPERSON

1. The present Appeal has been filed by Delhi Transco Limited, challenging the order dated 31.08.2017 in Petition No. 18/2017 (“Impugned Order”) passed

by the Delhi Electricity Regulatory Commission, dealing with the truing up of the financials of the Appellant for the period Financial Year - FY 2012-13 TO FY 2015- 16 and the Aggregate Revenue Requirement for FY 2016-17 to 2020-21.

2. The Appellant-Delhi Transco Limited is Company incorporated under the Companies Act, 1956 and is engaged in the business of transmission of electricity in the National Capital Territory of Delhi.

3. The Respondent No.1 is Delhi Electricity Regulatory Commission (herein after referred as “State Commission/DERC”) exercising powers and discharging functions under the provisions of the Electricity Act, 2003 in the state of Delhi.

4. The Respondent No.2; the BSES Rajdhani Power Limited (“BRPL”), Respondent No.3; the BSES Yamuna Power Limited (“BYPL”), Respondent No.4; the Tata Power – Delhi Distribution Limited (“TPDDL”) and Respondent No.5 ; the New Delhi Municipal Corporation (“NDMC”) are the distribution Licensees, undertaking distribution of electricity in different areas in the State of Delhi. The Respondent No.6 is Military Engineers Services. Background & Factual matrix of the Case: As noted from the Appeal Paper Book

5. The Appellant, has been initially, vested with the functions of Transmission and Bulk supply of electricity pursuant to the unbundling of the Delhi Vidyut Board (DVB) under the provisions of the Delhi Electricity Reform Act, 2000 and the Statutory Transfer Scheme notified by the Government of NCT of Delhi under the said Act as was prevalent at the relevant time. Besides Transmission of electricity,

Appellant was also undertaking the Bulk Purchase and Sale of electricity to distribution licensees (Respondent Nos. 2 to 6).

6. Since 01.04.2007, the Appellant is responsible solely for the Transmission of Electricity in the NCT of Delhi, including roles related to the State Transmission Utility (STU) and the State Load Dispatch Centre (SLDC).

7. In 2016, the Appellant filed Petition No. 18/2017 with the State Commission seeking to true up financials for FY 2012-13 to FY 2015-16 and for the ARR for FY 2016-17 to FY 2020-21. The State Commission admitted the petition on 26.05.2017 and a public notice was issued for stakeholder comments, and hearing held on 19.07.2017. Vide its Order dated 31.08.2017, the State Commission Trued up the financial of the Appellant for FY 2014-15 and FY 2015- 16, and has determined Annual Revenue Requirements and Transmission tariff for FY 2017-18. Aggrieved by the Order dated 31.08.2017, Appellant has filed present appeal contending that the State Commission did not adequately account for revenue requirements as stipulated in the MYT Regulations 2011 and Tariff Regulations 2017. DISCUSSION AND ANALYSIS

8. Heard Mr. Pradeep Mishra, learned counsel on behalf of the Appellant, Mr Dhananjay Baijal, learned counsel on behalf of the State Commission, and Mr. Rahul Kinra, learned counsel for the Respondent No 2 to 4, perused the Impugned Order dated 31.08.2017, written submission filed by the parties. The Appellant, is aggrieved by incorrect computations in the Impugned Order on following issues:

1) Administrative and General Expenses

2) Return on Capital Employed

3) Non-Tariff Income; (i) inclusion of entire short term open Access (ii) considering the amount earned in the previous year 2015-16 which had one-time adjustments

4) Income Tax on revenue requirements

5) Operation and Maintenance Expenses; Non consideration of impact of the Pay revision, salary paid to the staff deputed from IPGCL, staff being recruited Our consideration and views on each of these issues are deliberated in following paragraphs: ISSUE NO 1 : ADMINISTRATIVE AND GENERAL EXPENSES

9. It has been contended on behalf of Appellant that the State Commission while calculating A&G Expenses for FY 2012-13 to FY 2015-16 has erroneously considered the base amount to be Rs. 19.20 Crore as against the Appellant’s submissions of Rs. 22.19 Crore for FY 2011-12 based on audited financial statements. No reasons have been given for such reduction. This has a consequential impact on all future years from FY 2011-12.

10. The State Commission submitted that calculation of A&G expenses is taken from audited accounts as Rs 19.38 Crore in the Impugned Order and submitted following details. Particulars Amount (Rs in lakh) Electricity & Water charges 402.05 Rent, Rates & Taxes 128.12

Communication Expenses 90.97 Legal & Professional charges 94.15 Travelling & Conveyance 123.5 Advertisement & Publication 220.57 Other expenses 923.91 Misc. expenses 13.79 Auditor 7.3 Property tax 149.25 Total 2153.61 Less 10% for capitalization 215.361 Net A&G 1938.249

11. It is also affirmed on behalf of State Commission that it has already been submitted in its reply that “ Appellant has submitted the A&G expenses as Rs 22.19 Crore against A&G expenses of Rs 21.54 Crore as indicated in financial statement for FY 2011-12. It is submitted that it is open to the Commission to reconsider this issue on the basis of audited financial statements in subsequent tariff orders and therefore this issue requires no interference by this Tribunal at this stage”.

12. We are unable to understand the rational/ logic in this statement of State Commission that though the value of A&G expenses is taken from the Audited accounts, still it is open to reconsider the same based on the audited financial statements. However, it is unnecessary for us to delve further into the issue as considering the submissions made on behalf of the State Commission, the issue is remanded to the State Commission to reconsider the calculation of A&G

expenses for base year FY 2011-12 based on audited financial accounts, if not already done.

13. The Appellant has additionally claimed Rs. 3.38 Crore as water charges for the year 2014-15 as Delhi Jal Board has claimed arrears. This amount was not included in the base year and in Para 3.29 of the Impugned Order, same has been disallowed on the ground that it is a part of base year A&G expenses.

14. It has been contended on behalf of State Commission that in terms of DERC Transmission tariff Regulations 2011, O&M is a controllable factor and is treated normatively and any surplus/deficit on controllable parameters is to the licensee’s account; A&G is not an automatic pass-through merely because a figure is claimed. Reliance was placed on the Judgement of the Delhi High Court “Tata Power Delhi Distribution Ltd. v. DERC, 2016 SCC OnLine Del 4165”, in which while examining DERC’s MYT framework in the context of Distribution licensees, it has been upheld that O&M costs are deemed controllable and the scheme does not permit the licensee to carry forward unrecouped O&M beyond the normative allowances. The O&M framework for transmission licensees is peri- materia with the distribution regulations. It is further submitted that this Tribunal in its judgement dated 28.01.2025 in Appeal No. 301/2015 has held that it was bound by the Regulations and the Delhi High Court’s interpretation which hold that O&M expenses is a controllable parameter and no true-up is permissible and that the true-up stage cannot be used to revisit basic premises. It is submitted that the Appellant’s claim of Water Charges, is an attempt to load base-year- related costs again in later years and unless the Appellant demonstrates through audited account segregation that the liability pertains to a period not already reflected in base-year allowances, same cannot be accepted as a pass-through.

15. In the scheme of things, Operation and Maintenance (O&M) expenses fall squarely within the category of controllable factors. It is incumbent upon the

licensees to prudently manage their affairs within the normative charges as determined by the Regulatory Commission. The submission of the State Commission that any additional charges, over and above the normative allowances, can only be entertained if such charges demonstrably pertain to a period not already subsumed in the base year allowances, merits acceptance. In the present case, the Appellant has not placed any material before this Tribunal to establish the precise period to which the arrears of water charges relate to, nor has it been shown that such arrears were not already accounted for in the base year allowances. In the absence of such substantiation, the claim of the Appellant cannot be sustained.

16. We therefore find no infirmity in the reasoning adopted by the State Commission. The disallowance of the additional water charges (arrears) is in consonance with the applicable regulatory framework and the settled principles governing controllable costs. Accordingly, the issue is decided against the Appellant, and the Impugned Order is upheld to the extent of disallowance of the arrears of water charges as claimed. ISSUE NO 2 : RETURN ON CAPITAL EMPLOYED

17. It is submitted on behalf of Appellant that for the FY 2008-09, the State Commission has taken the correct opening RBB of Rs. 638.52 Crore and after adding the additional capitalization of Rs. 119.14 Crore and the change in working capital of Rs. 2.36 Crore and reducing the depreciation of Rs. 36.81 Crore, the resultant figure should be Rs. 723.22 Crore and not Rs. 714.38 Crore, as reflected in Table 36 of Impugned Order. This is an arithmetical mistake which needs to be corrected for the year 2008-09 and also all consequential corrections for the future years thereafter including for the year 2017-18 for which the tariff is determined; the State Commission has deviated from the MYT Regulations, 2011

and Tariff Regulations, 2017 for the calculation of ROCE and same is to be calculated as per the formulae given under the MYT Regulations, 2011 and Tariff Regulations, 2017.

18. There appears to be no dispute with regard to such arithmetic error as observed from the Table 36 of the Impugned Order and the State Commission, in its reply, has also admitted as under: “It is humbly submitted that the impact of change in working capital of previous year is seemingly not reflected in the subsequent year computation of RRB closing. It is submitted that the same will be considered by the Commission in its subsequent tariff order and does not require the interference of the Hon'ble Tribunal at this stage”

19. However, the State Commission has not made any submissions whether as to such arithmetic error has been corrected in its subsequent tariff Orders. In the absence of such clarity, we find it appropriate to remand this issue to State Commission with a direction to rework the RRB closing for the period from FY 2008-09 till FY 2017-18, if not done already. ISSUE NO 3 : NON-TARIFF INCOME; Inclusion of entire short term open Access charges as Non-tariff Income

20. It is submitted on behalf of the Appellant that in terms of Regulation 6.13 of the MYT Regulations, 2011, 25% of the short term Charges for the period FY 2012-13 to FY 2015-16 is to be retained by the Appellant and only 75% is to be considered as non-tariff income. The said Regulation was followed till the FY 2013-14, however, for the FY 2014-15 and FY 2015-16, entire shot-term open access charges has been included in the non-tariff income. It is further contended that State Commission has erred by including an amount of Rs. 1.33 Crore and Rs. 0.90 Crore for FY 2014-15 and FY 2015-16 respectively, as Open Access

charges of SLDC as income of the Appellant despite SLDC being a statutory and separately-approved function and Revenue Requirements of SLDC is separately considered and approved, distinct from the Appellant

21. With regard to inclusion of short-term open access charges in Non tariff Income, it is submitted on behalf of the State Commission that non-tariff income must reduce ARR; the Commission is duty-bound to capture incidental incomes from audited accounts. Regulation 5.24 defines non-tariff income broadly to include incidental income arising from the electricity business (including miscellaneous receipts), and Regulation 5.25 mandates that such amounts be deducted from ARR. The approach adopted by the Respondent Commission in the Impugned Order is, therefore, in consonance with the statutory objective of consumer protection, ensuring that incidental income does not translate into an additional burden on consumers.

22. It is apposite to reproduce Regulation 6.13 and 5.24 of the MYT Regulations, 2011. “5.24 All incomes being incidental to electricity business and derived by the Licensee from sources, including but not limited to profit derived from disposal of assets, rents, delayed payment surcharge and miscellaneous receipts from the Beneficiaries shall constitute Non-Tariff Income of the Licensee. 6.13 : 25% of the charges collected from the short term open access customer shall be retained by the transmission licensee and the balance 75% shall be considered as non tariff income and adjusted towards reduction in the transmission service charges payable by the long term and medium term users.”

23. Regulation 6.13 explicitly stipulates that “25% of the charges collected from the short-term open access customer shall be retained by the transmission licensee and the balance 75% shall be considered as non-tariff income and

adjusted towards reduction in the transmission service charges payable by the long-term and medium-term users.” The language of this provision leaves no scope for ambiguity; it clearly mandates that only 75% of such charges are to be treated as non-tariff income, while the remaining 25% is to be retained by the licensee.

24. By contrast, Regulation 5.24 is a general provision, which provides that incidental incomes derived from sources such as disposal of assets, rents, delayed payment surcharge, and miscellaneous receipts shall constitute non- tariff income. This clause is residuary in nature, intended to capture incidental revenues not otherwise specifically dealt with in the Regulations.

25. Applying the settled principle of statutory interpretation generalia specialibus non derogant (the general does not derogate from the specific), Regulation 6.13, being a special provision governing the treatment of short-term open access charges, must prevail over the general clause in Regulation 5.24. To include the entire quantum of short-term open access charges as non-tariff income under Regulation 5.24 would not only disregard the specific apportionment mandated under Regulation 6.13 but would also amount to a contravention of the regulatory framework.

26. Accordingly, the correct and legally permissible interpretation is that only 75% of the charges collected from short-term open access customers shall be considered as non-tariff income. Any attempt to subsume the entire amount under Regulation 5.24 is impermissible in law and contrary to the express mandate of Regulation 6.13.

27. With regard to inclusion of open access charges of SLDC in the Income of the Appellant, it is submitted on behalf of the State Commission that the Transmission Tariff Regulations, 2011 contemplate segregation of Transmission

and SLDC related functions and, where a transmission licensee carries other business (including SLDC-related functions), the ARR is to be supported by an appropriate allocation statement. The Appellant cannot claim “retention” while accounts/functions remain unsegregated contrary to regulatory intent. The Appellant cannot be permitted to selectively invoke the beneficial aspect of retention under Regulation 6.13 while simultaneously continuing to operate SLDC as part of its own accounts, contrary to the separation directions; such a position would defeat the principles of prudence and transparency underlying the regulatory framework. In this factual and regulatory setting, the Respondent Commission’s interim approach, capturing such receipts from audited statements under non-tariff income of the licensee, while allowing SLDC ARR on provisional basis pending separation, cannot be characterised as illegality. It is an interim mechanism to avoid consumer prejudice and prevent double counting and is in full consonance with the requirement of the Respondent Commission to exercise prudence in tariff determination.

28. It is not in dispute that ARR of the Appellant functioning as SLDC is undertaken by State Commission separately, albeit on provisional basis. Such a calculation of ARR for SLDC, in our view would consider expenses as well as income attributable to the SLDC, however open access income of SLDC is also included as income for the Appellant under non tariff income in the Transmission business for the year under consideration i.e FY 2014-15 and FY 2015-16. We are unable to countenance the submission of State Commission that inclusion of these charges in the Appellant Income is to avoid double counting. In our view such inclusion tantamount to penalty for not segregating the accounts of transmission and SLDC function. This Tribunal has, in a catena of judgments, consistently held that State Commission cannot convert Tariff determination exercise as penalty proceedings. The relevant paragraph from one such

judgement “Maharashtra State Electricity Distribution Co Ltd v MSERC ( 2009 SCC OnLine APTEL 73) is extracted below: “ The striking feature of this case is that the disallowance of Rs.96 Crores is in the nature of penalty, not on account of inefficiency but on account of an act perceived as disobedience. The purpose of determining the ARR and designing the tariff is to regulate power purchase, supply and distribution in an equitable manner so that the consumer is able to get the power at the price reflecting the cost while the distributor is able to recover the cost of supply along with the normal profit. The sole attention of the Commission while doing this exercise is to balance the cost of procurement and the revenue. The Commission has to be alert all the time that no distribution licensee is able to pass on to the consumers any cost unwisely or inefficiently incurred. At the same time the Commission has to see that the distribution licensee can survive in the business by getting the due returns and the cost. The Commission has to be entirely objective, dispassionate and professional in its approach in doing this tedious exercise. The Electricity Act has sufficient provision for handling the situation of disobedience. As already mentioned above, section 142, gives the Commission, power for punishment in such a situation. The Commission is a creation of the statute. Even if such power given is considered by the Commission to be insufficient the Commission cannot convert its power of tariff fixation given by section 61 and 62 of the Electricity Act 2003 into a proceeding for imposing penalty”. Thus, inclusion of open Access charges of SLDC, as the income of the Appellant while working out its transmission tariff in the Impugned Order, particularly when ARR of SLDC is worked out separately, cannot be sustained in law.

29. In view of above deliberation, the Impugned Order is liable to be set aside on the aforesaid issues, and the matter is remanded to the State Commission with a direction to: (i)consider only 75 % of income from short term open access customers, as Non tariff income of the Appellant; and (ii) exclude open access income of SLDC from the income of Appellant as part of Non tariff income for the relevant years, FY 2014-15 and FY 2015-16.

(i) Non-Tariff Income for FY 2017-18 considering the amount earned in the FY 2015-16, which had one-time adjustments

30. Learned Counsel on behalf of Appellant submitted that the State Commission has erred in considering the higher projection of Rs. 82.24 Crore as non-tariff income for FY 2017-18 based on True Up Order for FY 2015-16, disregarding the fact that figure of Rs. 82.24 Crore includes an amount of Rs. 44.90 Crore, which are on account of one-time adjustment of STOA charges, Open Access charges, etc. as non-tariff income for FY 2015-16.

31. Per Contra, it has been submitted on behalf of State Commission that forecasting approach adopted, using the latest trued-up year data, is a settled regulatory technique aimed at minimising projection errors and protecting consumers from inflated ARR. The Appellant’s characterization of Open Access/STOA as “one-time” is unsubstantiated, particularly when Open Access consumers shall remain in the system. In any event, the variations in non-tariff income are an “uncontrollable parameter” for the purpose of true-up, and thus are trued up subsequently, eliminating prejudice.

32. We find merit in the submissions of State Commissions and considering that the open access consumer remains in the system and for FY 2017-18, there is possibility of earning this income and moreover in the true-up of FY 2017-18, only the actual non- tariff income shall be considered, thereby protecting the interest of Appellant. It has also been informed, that State Commission in its order dated 31.07.2019, has considered Rs 574.33 Crore in the True up of FY 2017-18 on account of Non –Tariff Income, however same is under challenge before this Tribunal in Appeal 59 of 2021, which is pending adjudication. Accordingly, in our considered view, at this stage when True up exercise for FY 2017-18 has already been completed by State Commission, Impugned Order needs no interference on this issue.

ISSUE NO 4 : INCOME TAX ON REVENUE REQUIREMENTS

33. Learned counsel on behalf of the Appellant submitted that the State Commission has erred in not fully allowing the income tax paid by the Appellant in the revenue requirements of the Appellant; in contravention of the judgement of this Tribunal dated 01.02.2016 in Appeal No. 255 of 2013, wherein it has been held that the entire income tax arising out of the licensed business should be allowed to the Appellant and not restricted only on the return on equity,

34. Per Contra, it has been submitted on behalf of State Commission that such submissions of Appellant are contrary to the Regulatory framework as Regulation 5.22 & 5.23 of Transmission Tax Regulations, 2011 clearly specifies that tax on income, shall be limited to tax on return on the equity component of capital employed. The State Commission, in the Impugned Order has computed the income tax based on return on the equity component of capital employed and Appellant’s submission regarding actual payment of income tax for FY 2012-13 to FY 2014-15 is liable to be rejected.

35. Learned Counsel on behalf of Respondent No 4- TPPDL submitted that in the referred Judgement of this Tribunal dated 01.02.2016, this Tribunal had remanded the issue of income tax to be paid by DTL ( FY 2007-08 to FY 2011-

12) to DERC for considering the tax paid by DTL with due verification and prudence check. This Tribunal, in this judgement has not considered the various judgements on the principle of treating income tax for a licensed business of an entity. However this Tribunal, in its judgement dated 21.07.2025 in Appeal Nos 69-72 of 2018 ( “BRPL v DERC”) considered similar regulations for the same period for Distribution licensee and after considering various judgements on the issue directed the State Commission to allow tax based on return on equity

irrespective of actual tax paid by the entity and accordingly same should be applied in the present case.

36. It is apposite to reproduce the relevant Regulations of DERC Transmission Tariff Regulations, 2011: “5.22 Tax on the income streams of the Transmission Licensee shall be recovered from the beneficiaries. Tax on income, if any, liable to be paid shall be limited to tax on return on the equity component of capital employed. Any additional tax liability on account of incentive due to improved performance like higher availability, lower O&M Expenses etc. and other income shall not be considered: Provided that the deferred tax liability, excluding Fringe Benefit Tax, for the period upto 31st March, 2012 whenever it materializes, shall be recoverable directly from the beneficiaries and the long-term customers.

5.23. The actual assessment of income tax should take into account benefits of tax holiday, and the credit for carry forward losses applicable as per the provisions of the Income Tax Act 1961 shall be passed on to the consumers.”

37. Regulation 5.22, allows the transmission licensee to recover income tax from beneficiaries, but only to the extent that it arises from the return on equity (RoE) component of capital employed. In our view, this provision clearly anchors the recovery of income tax to the regulated return, and does not extend to ancillary or incentive-based earnings. Taxes arising from improved performance (higher availability, lower O&M, or other income streams) are explicitly excluded. This ensures that consumers do not bear the burden of taxes on gains that are rewards for efficiency or non-core income. As per this Regulation, for the period up to 31 March 2012, deferred tax liability (excluding Fringe Benefit Tax) is recoverable when it materializes. This provision recognizes deferred tax as a legitimate cost to be passed through, but only for that defined period. In our view,

this Regulation balances the licensee’s right to recover legitimate tax costs with consumer protection, by ring-fencing recovery to the equity return and excluding incentive-related taxes.

38. As per Regulation 5.23, if the licensee enjoys exemptions under the Income Tax Act, those benefits must be passed on to consumers. Similarly, if the licensee offsets taxable income against carried-forward losses, the reduced tax liability must translate into reduced recovery from consumers. Thus, in our view the intent of this regulation is to ensure that consumers are not charged hypothetical or inflated tax burdens; only the net actual tax liability after availing statutory benefits is recoverable. This Regulation operationalizes the principle of “actuals” — recovery must reflect the real tax payable, after accounting for all statutory deductions, exemptions, and credits. It prevents regulatory arbitrage where a licensee might otherwise claim gross tax liability without passing on benefits.

39. The Appellant has relied upon the Judgement of this Tribunal dated 01.02.2016 in Appeal No. 255 of 2013 to contend that entire income tax arising out of the licensed business is to be allowed to the Appellant and not restricted only on the return on equity, as settled by this Tribunal. We have perused the referred judgement and entire deliberation with regard to treatment of income tax is reproduced hereunder: “ Our Consideration and Conclusion on this issue 45.1 The contention of the Petitioner/Appellant is that the Appellant has claimed Rs. 201.14 crore as against Rs. 23.51 crore computed by the Commission as there is a significant difference in the amount claimed by the Appellant and the income tax worked out by Commission on the basis of ROE.

45.2. Let us examine the relevant regulation pertaining to corporate income tax as per the Transmission Tariff Regulations, 2007 which is as under: “5.23 Income Tax, if any, on the Licensed Business of the Transmission Licensee shall be treated as expense and shall be recoverable from its beneficiaries. However, tax on any income other than that through its Licensed Business shall not be a pass through, and it shall be payable by the Transmission Licensee itself. “5.24 The income tax actually payable or paid shall be included in the Tariff computation. The actual assessment of income tax should take into account benefits of tax holiday, and the credit for carry forward losses applicable as per the provisions of the Income Tax Act 1961 shall be passed on to the Beneficiaries. “5.25 Tax on income, if any, liable to be paid shall be limited to tax on return on the equity component of capital employed. However, any tax liability on incentives due to improved performance shall not be considered”. 45.3 The Counsel of the Appellant has submitted in their written submission that the aspect of income tax is pending before the State Commission which is yet to be heard. 45.4 In our opinion, the Commission has to consider the income tax actually paid by the Appellant with due verification and the same has to be included in the Tariff computation and shall be passed on to the beneficiaries. Further, tax on any income other than that through its licensed business shall not be passed through, and it shall be payable by the Transmission Licensee itself. Accordingly, the issue is decided in favour of the Appellant and the issue is remanded back to consider the Income Tax amount paid with due verification and prudence check.”

40. In the said Judgement, the relevant Regulations have been extracted, and it states that State Commission to consider the income tax actually paid with due verification and prudence check, there is no observation/ interpretation of the Regulation 5.25, which clearly stipulates that Tax on income, if any, liable to be paid shall be limited to tax on return on the equity component of capital employed

and any tax liability on incentives due to improved performance shall not be considered.

41. Section 181 of the Electricity Act, 2003 grants State Commissions quasi- legislative power to frame regulations consistent with the provision of the Act and accordingly Regulations framed under Section 181, like referred DERC regulations have the force of subordinate legislation. They bind the Commission itself, licensees, and stakeholders until struck down or modified by a competent judicial authority. The Supreme court in “PTC India Ltd. v. CERC” (2010) 4 SCC 603 has held that regulations framed under Section 178 and181 are binding and have the force of law, however, they are subject to judicial review on the ground of being ultra vires the parent statute. Section 111 of the Electricity act confers appellate jurisdiction upon this Tribunal over orders of State Commissions, however it does not have powers for judicial review of the Regulations framed under section 178 and 181 of the Electricity Act and thus cannot disregard the valid regulations while deciding the Appeals. It is also well settled that regulations, being subordinate legislation, must conform to the Electricity Act, 2003 and constitutional principles. If inconsistent, they can be struck down by constitutional courts. This Tribunal, while interpreting such regulations, may ensure conformity of orders with the Act and regulations, but it does not possess the jurisdiction to invalidate the regulations themselves.. We however find that in the Tribunal’s judgment dated 01.02.2016, no finding was made that Regulation 5.25 was inconsistent with the Electricity Act. Unless such inconsistency is judicially declared, the regulation continues to bind.

42. Thus in our view the word “actually paid” in the referred judgement cannot be construed to mean that the income tax be allowed over and above the ROE component, which in our view shall be in contravention of the extent Regulations, therefore reliance placed by Appellant on the same is of no avail.

43. This Tribunal in its judgement dated 21.07.2025 in Appeal No 69-72 of 2018 (“BRPL v DERC”), reliance on which has been placed by Respondent, deliberated the approach adopted by the State Commission in allowing lower amongst the (a) income tax computed on 16% Return on Equity (RoE) or (b) income tax actually assessed, during the FY 2007-08 to FY 2015-16. In the said judgment, this Tribunal, considered the Regulation 5.22 MYT Regulations, 2007, Regulation 5.32 of MYT Regulations, 2011, which has similar provision with regard to income tax as noted above in Regulation 5.22 applicable in the present case. After deliberating on the various earlier judgement of this Tribunal observed that issue of Income tax on regulated business to be computed as if it were water tight compartment is already decided and held that Income tax to be calculated considering return on equity. Relevant Paragraphs of Judgement of this Tribunal dated 21.07.2025 is extracted here under : “217. The issue under consideration has already been settled by this Tribunal in a catena of judgments including Judgment dated 04.04.2007 in Appeal No.251/2006 titled REL v. MERC & Ors. in which it has been held that Income Tax on the regulated business will have to be computed as if it were a watertight compartment i.e. to compute the Income Tax of the Regulated Business without its numbers being mixed up with any other numbers, whether of the entity as a whole, much less, with the numbers of its non-electricity businesses.

218. The above principle of treating the Income Tax computation limited to the Regulated/licensed business of an entity, i.e., to treat it as a “watertight compartment” computation, has been reiterated in various Judgments including: - a. Judgment dated 28.11.2013 in Appeal Nos 104, 105 and 106 of 2012 in the case of Tata Power Company Limited v. MERC; b. Judgment dated 02.12.2013 in Appeal No. 138 of 2012 in the case of Reliance Infrastructure Limited v. MERC; ………

221. Regulation 5.22, as quoted above, also mandates the same. It is also important to note that in the above batch of appeals, this Tribunal was considering the relevant Regulations framed by Maharashtra Electricity Regulatory Commission which are identical to the MYT Regulations, 2007 and 2011 framed by the Delhi Commission and applicable to the instant case.

222. Further, this Tribunal vide judgment dated 22.03.2024 in Appeal No. 283 of 2017 has considered the aforesaid appeals as under: “68. The Respondents have contended that Regulation 22.3 provides that the RoE has to be grossed up with actual tax paid whereas the Appellant has contended that RoE is to be grossed up with the applicable tax payable.

69. Undisputedly, the accounts of the Appellant’s generating station have to be considered independent of the accounts of the parent company, this Tribunal in Tata Power Company Limited vs MERC, Appeal No. 104, 105 and 105 of 2012 has held that each regulatory business is to be treated independently, exclusive of other businesses of the company, further, in Appeal No. 251 of 2006 has laid down the ratio that the income tax assessment of the licensee must be done on standalone basis, the relevant extract of the judgment is reproduced below:

53. For example, when on standalone basis the regulated business has taxable income to be taxed at normal rates, there may be losses/tax exemptions in other businesses which may result in overall taxable income being less than the regulated taxable income and, hence, actual tax liability for all businesses being less than that of regulated business on standalone basis. In case, actual tax liability is allowed by the regulator whether in full or in proportion of profit of regulated business, it obviously amounts to less than due tax allowance for regulated business due to exemptions/losses of other business being utilised for subsiding the regulated business, which is not permissible as per the above Judgment. The impact is more pronounced when the overall taxable income becomes so small or even negative that the tax rate applicable is MAT, which not only artificially reduces the tax liability for regulated business due to lower rate, but also creates an incorrect impression that this tax allowed at MAT rate is to be reversed in future as MAT credit allocating MAT credit. This is obviously not permissible and for giving effect to the said Judgment in Appeal No. 251 of 2006 tax computation for regulated

business has to be done on standalone basis at normal rates even though it may result into tax allowance higher than actual tax payment for overall business. …….

57. In the present case, the State Commission has worked out the book profit of each segment separately. It observed that the Appellant has paid MAT. It did not worked why and how the tax liability of the company, under normal income tax rates, got reduced to such a level that it came under MAT. Was it due to regulated business or unregulated business? Was the regulated business enjoying any tax holiday or accelerated depreciation or other tax deductions? Book Profit calculations in the Impugned order do not reflect any such deductions in the regulated businesses of G, T & D. Obviously, it was due to other business (unregulated by MERC) of the Appellant which caused massive permissible deductions. The benefit of such deduction must be shared by the beneficiaries of such business only and not by the consumers of regulated business. Presently, those businesses may be getting tax rebates due to tax holidays or accelerated depreciation. But in the future at the end of tax holidays and reduced depreciation, these deductions would not be available to those companies and their tax liability would increase. Under those circumstances, the tax burden of the unregulated business would not be allowed to be shared by regulated business of MERC.”

58. The Tribunal in Appeal No. 251 of 2006 has laid down the ratio that the income tax assessment of the licensee must be done on standalone basis. In Appeal No. 173 of 2011 the Tribunal has provided the methodology for assessing the income tax liability of the licensee. The State Commission did not follow these directions and got carried away with the observations that the utility must not gain or loose on account of income tax made in the context of grossing up of income tax. It simply allocated the actual tax paid by the Appellant, for the company as a whole, in proportion to their respective book profit.

59. The issue is decided accordingly. The Commission is directed to reassess the Income tax liability of the Appellant as per our findings above and issue consequential orders.

70. From the afore-quoted judgment, it is clear that the tax assessment of the regulated business must be done on standalone basis and if, tax as per the regulations is to be considered on applicable basis, it cannot be considered on actual basis.

223. It is evident that the Commission has not followed these directions and got carried away with the observations that the utility must not gain or lose on account of income tax made in the context of grossing up of income tax. It simply allocated the actual tax paid by the Appellant, for the company as a whole, in proportion to their respective book profit; therefore, there is no consideration of choosing different methodologies and deciding the lower of those.

224. In any event, whether the tax to be allowed on RoE or the actual Tax paid has to be consistent. Either it is on RoE or actual. The ‘lesser of the two’ as adopted by the Commission is not only contrary to the above noted Judgments of this Tribunal but also contrary to the regulations framed by the Commission itself.

225. Hence the Commission is directed to compute and allow the Tax based on ROE. The issue, thus, is decided in favour of the Appellant “.

44. It is to note that in the judgement of this Tribunal dated 21.07.2025 , the matter was confined to examining whether the State Commission was justified in adopting the lower of the two figures, namely (a) the income tax computed on the normative Return on Equity of 16%, or (b) the income tax actually assessed, for the period FY 2007–08 to FY 2015–16. The present lis raises a more fundamental question, namely, whether the income tax liability is to be computed on the normative Return on Equity in the capital employed or on the actual tax paid by the utility. In this judgement dated 21.07.2025, upon consideration of the earlier pronouncement of this Tribunal as well as the relevant Regulations, it was held that income tax is to be computed on the Return on Equity irrespective of the actual tax paid. In our view, the rationale underlying this position is that tariff determination is premised on normative parameters, designed to ensure uniformity, predictability, and insulation from the vagaries of individual tax

planning or contingent assessments; to hold otherwise would be to introduce variability and uncertainty into the tariff framework, contrary to the settled regulatory philosophy.

45. Therefore, the governing principle, as crystallised through judicial precedent and applicable regulatory design, is that the income tax liability is to be determined on the Return on Equity, and not on the actual tax outflow of the utility. We, accordingly, find no merit in the contention on the Appellant that actual income tax paid should be allowed in the tariff. In view of above deliberations, we hold that income tax is to be confined to the tax computed on the Return on Equity component employed for tariff purposes, irrespective of the quantum of actual tax paid by the regulated entity. We accordingly find no infirmity in the impugned order on this issue and same is hereby upheld. ISSUE NO 5 OPERATION AND MAINTENANCE EXPENSES; NON CONSIDERATION OF IMPACT OF THE PAY REVISION, SALARY PAID TO THE STAFF DEPUTED FROM IPGCL, STAFF BEING RECRUITED

46. Learned Counsel for the Appellant has confined its submission to non- consideration of IPGCL staff salary and salary of staff under recruitment only and submitted that the State Commission has rejected an amount of Rs. 4.50 Crore for the FY 2016-17 on account of salary for the staff deputed from Indraprastha Power Generation Company Ltd. ( IPGCL), who actually worked for the Appellant. The State Commission has also erred in not considering the financial impact due to salary of staff under recruitment of approximately Rs. 28.87 Crore, which was additionally claimed. It is submitted that Appellant has a sanctioned strength of 2737 staff out of which only 1438 staff including 77 deputed from IPGCL were working as in June-2017 and recruitment of 429 employees of various categories is under progress, details of which were submitted to State Commission. The Appellant is seriously under-staffed and requires further staff to continue to

provide efficient services and for further expansion of services. In addition, since the revenue requirements and tariff is on Multi Year basis, the non-inclusion also affects the base figure which would affect the revenue requirements for the future also.

47. Per Contra, it is submitted on behalf of the State Commission that O&M (including employee expenses and A&G) is treated as controllable and normative in the Delhi MYT framework. The Delhi High Court has already upheld that O&M is deemed controllable and is not subject to true-up; normative formulation is intended to incentivise efficiency and disincentivise inflated cost recovery. This Tribunal in Appeal No. 301/2015 has reiterated the above, holding that O&M is a controllable parameter and surplus/deficit on controllable parameters cannot be trued up. The Supreme Court has further held that true-up cannot be used to revisit basic premises of the tariff order and cautions against unsettling a legal fiction by letting the mind “boggle”. On applying these principles, the Appellant’s attempt to secure additional employee costs (beyond the normative framework) under the head of O&M is impermissible unless the Regulations themselves provide a specific pass-through mechanism. With specific reference to disallowance of salary of IPGCL staff, it is further submitted that the IPGCL’s normative O&M is already higher than actual, partly due to reduced employee expense burden and allowing the same cost again under the Appellant would amount to double counting. With regard to the staff under recruitment, it is submitted that the Appellant’s claim on this account is expressly described as “likely impact” and recruitment “ongoing”. Such a claim is speculative at the ARR stage and seeks an ex ante allowance without actual incurrence and prudence. Under the Business Plan Regulations, 2017, O&M is allowed on a network-linked normative basis; manpower planning decisions are within management control and do not automatically justify deviation from norms.

48. It is submitted on behalf of Respondent No 4- TPDDL that Impugned Order relates to true-up of ARR for FY 2014-15 and FY 2015- 16 and ARR for the 2017-

18. However, the aforementioned issues raised by DTL pertain to true up of FY 2016-17 and accordingly cannot be considered in the Impugned Order. Therefore, any grievance with respect to IPGCL’s staff salary & Salary of staff under recruitment need to be raised by DTL in an Appeal against DERC’s Tariff Order dated 28.03.2018 (True Up of FY 2016-17 and ARR of FY 2018-19).

49. It is noted from the Impugned Order that the Appellant has considered employee expenses for FY 2015-16 as base year expenses for computation of Employee expenses FY 2017-18. The Appellant has considered an amount of Rs 4.5 Crore on account of salary of IGPL staff in FY 2016-17 and same has been included in the base cost after escalation factor from FY 2017-18 onwards and after considering Employee expenses, A&G expenses and R&M expenses, O&M expenses of Rs 364.62 Crore has been claimed by the Appellant.

50. The State Commission, after referring to the Business Plan Regulations, 2017, as extracted below, has approved the O&M expenses for the FY 2017-18. “4.11 Further the Commission has notified Business Plan Regulation 2017 wherein O&M Expenses has been approved by the Commission based on Network details (No. of bays and Line Lengths in circuit kilometres) of the Petitioner as follows: "14. OPERATION AND MAINTENANCE EXPENSES

(1) The Normative, Bay wise and Circuit kilometres wise, Operation and Maintenance expenses of a Transmission Licensee, including Own consumption of energy for Transmission Licensee's installations and offices, shall be as follows: Table 7: Bay wise Norms for HVAC (Rs. Lakh/bay) Voltage Levels 2017–18 2018–19 2019–20 400 kV 45.23 47.76 50.44

220 kV & below 15.30 16.16 17.06 Table 8: Circuit km wise Norms for HVAC lines (Rs. Lakh/ckm.) Voltage Levels 2017–18 2018–19 2019–20 400 kV 8.13 8.59 9.07 220 kV 2.03 2.15 2.27

(2) Impact of any statutory Pay revision on employee's cost as may be applicable on case to case basis shall be considered separately, based on actual payment made by the Transmission Licensees and prudence check at the time of true up of ARR for the relevant financial year."

51. We note that, in terms of Business Plan Regulations 2017, the O&M expenses are normative based on bay wise and circuit kms wise and it is understood that O&M expenses so worked out include employee expenses also, and no separate employee expenses, except those expenses as mentioned under (2) above are allowed. The normative formulation is intended to incentivise efficiency and dis-incentivise inflated cost recovery. As such, manpower planning decisions are within management control and once in terms of Regulations, O&M expenses are on normative basis, there cannot be any rational in allowing any additional cost whether, on account of employee from IPGCL or fresh recruitment as entire employee cost is to be managed within the O&M expenses so worked out on normative basis except when exceptions have been carved out in the Regulations. In the present case, the Appellant has itself submitted that the issue of 7th pay commission arrear has been resolved in Tariff order dated 31.07.2019 in true up of FY 2017-18.

52. In view of above observations, we find no infirmity in the Impugned Order on this issue, and the same is hereby upheld.

CONCLUSION

In view of the above deliberations, decision on all the issues is summarized in following table: S. No Description

Order

1. ISSUE NO 1 : ADMINISTRATIVE AND GENERAL EXPENSES – non consideration of audited accounts and disallowance of water charges Impugned Order interfered. The issue of non consideration of audited figures with respect to A&G expenses is remanded to the State Commission to reconsider the calculation of A&G expenses for base year FY 2011-12 based on audited financial accounts, if not already done. Impugned order upheld with regard to disallowance of water charges

2. ISSUE NO 2 : RETURN ON CAPITAL EMPLOYED Impugned Order interfered. The issue is remanded to the State Commission to rework the RRB closing from FY 2008-09 till FY 2017-18, if not done already.

3. ISSUE NO 3: NON-TARIFF INCOME;

(i) inclusion of entire short-term open Access Impugned Order interfered

(i) only 75 % of income from short term open access customers to be considered as non tariff income of the Appellant and to exclude open access income of SLDC from the income of Appellant as part of Non tariff income for the year for the year FY 2014-15 and FY 2015-16.

(ii) considering the amount earned in the previous year 2015-16 which had one-time adjustments

(ii) Impugned Order upheld

4. ISSUE NO 4 : INCOME TAX ON REVENUE REQUIREMENTS Impugned Order Upheld

5. ISSUE NO 5 OPERATION AND MAINTENANCE EXPENSES; Non consideration of impact of the Pay revision, salary paid to the staff deputed from IPGCL, and staff being recruited Impugned Order Upheld The captioned appeal is partly allowed. The State Commission, is directed to pass consequential order on the issues remanded, as expeditiously as possible, preferably within a period of four months from the date of receipt of this judgement. Captioned Appeal, along with all pending IAs, if any, are disposed of in above terms. PRONOUNCED IN THE OPEN COURT ON THIS 20th DAY OF APRIL, 2026. (Virender Bhat) Judicial Member (Seema Gupta) Officiating Chairperson REPORTABLE / NON-REPORTABLE Pr/dk/ag