POWER GRID CORPORATION OF INDIA versus TAMIL NADU GENERATION AND DISTRIBUTION CO. LTD. & ORS. ETC. ETC on 9 May 2019

Issues

1. The present appeal arises out of the decisions of the CentralElectricity Regulatory Commission, New Delhi [“CERC”] wherein anissue relating to capitalization of Foreign Exchange Rate Variation H

[“FERV”] was determined by the Commission and thereafter affirmedin a review petition, vide orders dated 30.06.2003 and 04.12.2003respectively. On appeal, the Appellate Tribunal for Electricity, New Delhivide judgment dated 04.10.2006 in Appeal Nos. 135-140 of 2005,approved the methodology for ascertaining the FERV; however, withrespect to apportionment of the FERV, the appeal was allowed and FERVwas directed to be apportioned only in respect of debt liability. It is thisjudgment of the Appellate Tribunal for Electricity, New Delhi which is inchallenge before us.

2. The appellant is a transmission company which plans, executesand makes available transmission systems for conveyance of powerfrom one place to another. The tariff which it charges for the conveyanceis fixed by the CERC. FERV is a pass through which is kept to ensurethat any liability or gain by virtue of fluctuation in foreign exchange ratespasses to the beneficiary in a staggered manner.

3. The limited issue before us is apportionment of FERV into debtand equity after FERV has been calculated and added to capital cost.

4. The learned counsel on behalf of the appellant contended thatany foreign exchange gets added to the capital cost and not individuallyto debt or equity. This capital cost is thereafter divided into debt andequity, on the basis of a normative debt-equity ratio. As a natural corollary,even the FERV needs to be apportioned both towards debt and equity.Further, he contends that FERV has been apportioned as such, as amatter of practice.

5. On the other hand, the learned counsel for respondent no.1disputed the existence of such practice. He contended that the ElectricityRegulatory Commissions Act, 1998 [“the Act”] was enacted to do awaywith such practices. He referred to Regulations 1.3 and 1.7 of TariffRegulations, 2001 and argued that liability accrued on account of FERVcan be recovered by the appellants directly from respondent no.1 andthe question of capitalization of FERV does not arise.

6. Having heard the counsels and from a detailed perusal of therecord, at the outset, we note that the present question regarding theapportionment of FERV between debt and equity is not a question oflaw, much less a substantial question of law. Regulation 1.13(a) of CentralElectricity Regulatory Commission (Terms and Conditions of Tariff)Regulations, 2001 [“Tariff Regulations, 2001”] which has been cited A

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Abefore us to buttress the argument of apportionment of FERV does notin fact provide for apportionment of FERV and rather, is restricted onlyto the methodology of calculation of FERV. This methodology of FERVcalculation is not in challenge before us and has already been affirmedby the CERC as well as the Appellate Tribunal for Electricity, NewDelhi. No rule, regulation, statute or precedent has been cited before usBto substantiate the argument that post calculation FERV needs to benecessarily apportioned in a debt-equity ratio, much less to substantiatewhat exactly this ratio is and on what factors the same is determined.Thus, on this ground alone, for lack of a substantial question of law,these appeals ought to be dismissed.

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7. In any case, once the FERV is calculated, in terms ofRegulations 1.3 and 1.7 of the Tariff Regulations, 2001, the same can berecovered by the appellants from respondent no.1 without even filing apetition before the CERC. Regulations 1.3 and 1.7 of Tariff Regulations,2001 provide as under:

D“1.3 These Regulations shall apply where the capital cost-basedtariff is determined by the Commission.

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1.7 Recovery of Income Tax and Foreign Exchange RateEVariation shall be done directly by the utilities from thebeneficiaries without filing a petition before theCommission. In case of any objections by the beneficiaries tothe amounts claimed on these counts, they may file an appropriatepetition before the Commission.”

(emphasis supplied)

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8. This has not been done in the present case, i.e., Civil AppealNo. 684 of 2007. Further, FERV is sought to be capitalized by the appellantin the normative debt-equity ratio of 50:50 as a matter of practice, withoutciting any rule, regulation, statute or precedential law.

9. This observation becomes pertinent in light of the fact that theAct was introduced to reform the problems in the power sector prior to1998, inter alia, the lack of rational retail tariffs, poor planning andoperation, the neglect of the consumer and the absence of an independentregulatory authority. The Act also aimed at protecting and improving thefinancial health of the State Electricity Boards, which were losing heavily G

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POWER GRID CORPN. OF INDIA V. TAMIL NADU GEN. ANDDIST. CO. LTD. [N. V. RAMANA, J.]

on account of irrational tariffs and lack of budgetary support. Thus, notingthe premise on which the Act was enacted and the fact that the TariffRegulations, 2001 prescribed under the aegis of this Act do not providefor apportionment of FERV in a particular debt-equity ratio, this Court isnot inclined to interfere in the matter.

10. Further, the present dispute arises with respect to tariff chargedbetween 01.04.2001 and 31.03.2004 on account of FERV calculationand apportionment. Any variation in the apportionment of FERV now,for the abovementioned period, will consequently be passed on to theconsumers. This will be unfair to the consumers who were not consumersfor the abovementioned period but will eventually bear the brunt oftransactions which took place 15-18 years ago. This is another groundfor non-interference in the present matter [See U.P. Power Corpn. Ltd.v. NTPC Ltd., (2009) 6 SCC 235].

11. In light of the abovementioned observations, the appeal isdismissed. No order as to costs.

Civil Appeal No. 13452 of 2015

12. This appeal is preferred against the impugned judgment andorder dated 18.08.2015 passed by the Appellate Tribunal for Electricitywhereby the appeal preferred by the appellant was dismissed. Further,the order of the CERC was upheld by observing that the CERC hasrightly applied the decision dated 04.10.2006, which is the same orderthat is impugned in Civil Appeal No. 684 of 2007, to the instant matterand directed that the entire FERV should be apportioned only in respectof debt liability. Thus, the issue being the same, this appeal is alsodismissed in a sequel to the discussion set out above. No order as tocosts.

Ankit Gyan

Appeals dismissed.

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