Petition of the CERC (Conduct of Business) and (Terms and Conditions of Tariff) Regulations for “Provision of Series Reactors” – EQ

Summary:

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#### Business & Regulatory Summary

This order represents a final regulatory determination by CERC on the tariffs that PGCIL can charge for a specific set of transmission assets. Key business highlights include:

– **Core Assets:** The petition covers two assets that have been combined for tariff purposes:
– **Asset I:** One 12Ω Series Bus Reactor at Mandola 400/220 kV substation with associated bays.
– **Asset II:** One 12Ω Series Bus Reactor at Ballabhgarh 400/220 kV substation with associated bays, plus two Series Line Reactors (12Ω each) on the Dadri-Mandola 400 kV circuits (Ckt-I and Ckt-II).
– **Purpose of Assets:** Series reactors are critical grid components installed to limit short-circuit currents and manage power flows, enhancing system stability in the Northern Region grid.
– **Investment Approval:** The project was approved by PGCIL’s Board in August 2016 with an estimated cost of ₹177.52 crore (including IDC of ₹10.67 crore) at April 2016 price levels.
– **Commercial Operation Dates (COD):** Asset I COD: November 4, 2018; Asset II COD: December 7, 2018. The “effective COD” for the combined assets was determined as November 26, 2018.
– **Regulatory Process:** This is a “true-up” and forward-looking tariff determination. PGCIL had previously received interim tariffs; this order finalizes the actual allowable costs for 2019-24 and sets the tariff for 2024-29.
– **Key Outcome:** The Commission approved a capital cost of **₹11,747.80 lakh** as on March 31, 2024, and determined the Annual Fixed Charges (AFC) that PGCIL can recover from beneficiaries for both tariff periods.

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#### Detailed Financial Analysis & Key Regulatory Findings

**A. Truing Up for the 2019-24 Tariff Period**

The Commission scrutinized PGCIL’s actual expenditure against previous approvals and made several key adjustments:

1. **Capital Cost & Additional Capitalization (ACE):**
– **Opening Capital Cost (as on 1.4.2019):** Adjusted to **₹10,409.10 lakh** after disallowing excess Initial Spares.
– **ACE Allowed (2019-24):** Total ACE of **₹1,338.70 lakh** was allowed across the five years. This included payments for undischarged liabilities, works deferred for execution, and works executed prior to the cut-off date.
– **Closing Capital Cost (as on 31.3.2024):** Finalized at **₹11,747.80 lakh**.

2. **Initial Spares – A Critical Prudence Check:**
– PGCIL had claimed initial spares at an asset-wise level. Following the APTEL judgment (Appeal No. 74/2017), CERC directed that spares must be allowed as a percentage of the **overall project cost**.
– This led to a finding of **excess Initial Spares of ₹113.34 lakh**. After adjusting for ₹0.70 lakh already deducted in a previous order, the remaining **₹112.64 lakh** was deducted from the capital cost and ACE across FY20, FY22, and FY23.

3. **Annual Fixed Charges (AFC) – True-up:**
– The Commission recalculated each component of the AFC: Depreciation, Interest on Loan (IoL), Return on Equity (RoE), Interest on Working Capital (IWC), and Operation & Maintenance (O&M) Expenses.
– **Result:** The trued-up AFC allowed by CERC was slightly lower than PGCIL’s claim in most years. For example, in 2023-24, PGCIL claimed ₹1,883.09 lakh, while CERC allowed ₹1,879.09 lakh.

| Particulars (₹ in lakh) | 2019-20 | 2020-21 | 2021-22 | 2022-23 | 2023-24 |
| :———————- | ——- | ——- | ——- | ——- | ——- |
| **AFC Allowed (True-up)** | **1,862.31** | **1,858.39** | **1,879.55** | **1,899.42** | **1,879.09** |

**B. Determination of Tariff for the 2024-29 Tariff Period**

For the current tariff period, the Commission set the tariffs based on the newly finalized capital cost and the 2024 Tariff Regulations.

1. **Opening Capital Cost (as on 1.4.2024):** Set at the trued-up value of **₹11,747.80 lakh**.
2. **Projected ACE (2024-29):** An additional **₹43.92 lakh** was allowed for FY25 to cover undischarged liabilities from works executed prior to the cut-off date, subject to future true-up.
3. **Debt-Equity Ratio:** Maintained at the standard 70:30 ratio for the entire period.
4. **Annual Fixed Charges (AFC):** Tariffs were determined for each year, showing a declining trend as loans are repaid and assets age.

| Particulars (₹ in lakh) | 2024-25 | 2025-26 | 2026-27 | 2027-28 | 2028-29 |
| :———————- | ——- | ——- | ——- | ——- | ——- |
| **AFC Allowed** | **1,885.08** | **1,850.62** | **1,812.58** | **1,775.51** | **1,739.59** |

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#### Key Directives & Implications for Stakeholders

**For PGCIL (The Petitioner):**

– **Revenue Stream Confirmed:** The order provides certainty on revenue recovery for these assets for the entire 2024-29 period.
– **Compliance Burden:** PGCIL must adhere to strict regulatory accounting. The detailed scrutiny of Initial Spares and ACE demonstrates that claims must be meticulously documented and compliant with broader regulations (like APTEL judgments).
– **Future Petitions Allowed:** The Commission permitted PGCIL to file separate petitions for:
– Security expenses (both periods).
– Insurance expenses (2024-29).
– Capital spares costing more than ₹10 lakh (2024-29).
– Recovery of CTUIL fees and charges.
– **Tax and Cost Pass-Through:** Allowed recovery of license fee, RLDC fees, and petition filing expenses. The prayer for GST was deemed premature as it is not currently levied on transmission.

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