In the matter of of the CERC (Conduct of Business) and (Terms and Conditions of Tariff) Regulations for NLC-Karaikal line in the Southern Region – EQ

Summary:

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### 1. Case Overview (The Regulatory Event)

* **Petition No.:** 517/TT/2025
* **Date of Order:** January 28, 2026
* **Petitioner:** Power Grid Corporation of India Limited (PGCIL), a deemed transmission licensee.
* **Respondents:** Key beneficiaries of the transmission service, including state distribution utilities (DISCOMs) from Tamil Nadu, Kerala, Karnataka, Andhra Pradesh, Telangana, Goa, and Pondicherry.
* **Asset in Question:** “NLC-Karaikal 230 kV D/C line,” specifically a 94.89 km line created via LILO (Loop-In-Loop-Out) of an existing line at Karaikal.
* **Regulatory Framework:**
* **2019-24 Period:** Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2019.
* **2024-29 Period:** Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2024.

### 2. Purpose of the Petition (The Business Ask)

PGCIL approached the CERC for two primary financial objectives:

1. **Truing-Up for 2019-24:** To get final approval for the actual capital expenditure incurred and the corresponding Annual Fixed Charges (AFC) for the past tariff period. This involves adjusting the provisional tariffs that were in effect.
2. **Tariff Determination for 2024-29:** To set the transmission tariffs for the next five years based on the approved capital cost and regulatory norms.

The petition also includes requests for various adjustments, including tax rate changes, interest on working capital, and the treatment of specific expenses like security and insurance.

### 3. Key Financial Outcomes & Approved Figures

The CERC, after a “prudence check” of PGCIL’s submissions and consideration of objections (e.g., from Kerala SEB), approved the following:

**A. Capital Cost (The Value Base)**
* **As on 01.04.2019:** ₹6329.49 lakh (adjusted for a minor prior error).
* **Additional Capital Expenditure (ACE) allowed (2019-24):** ₹682.86 lakh. This was for undischarged liabilities and final payments to vendors for works executed before the cut-off date, allowed under Regulation 24(1)(a) of the 2019 Tariff Regulations.
* **As on 31.03.2024 / 01.04.2024:** ₹7012.35 lakh. This forms the opening capital cost for the 2024-29 period.
* **No ACE claimed for 2024-29:** The capital cost remains stable throughout the new tariff period.

**B. Debt-Equity Structure**
* The regulator maintained a **70:30 (Debt:Equity)** ratio for the asset throughout both periods, in line with regulations. This is the standard capital structure used for calculating returns.

**C. Annual Fixed Charges (AFC) – The Core Result**
The AFC represents the total revenue PGCIL is allowed to recover from beneficiaries each year. It includes depreciation, interest on loan, return on equity, O&M expenses, and interest on working capital.

* **Trued-Up AFC for 2019-24 (Approved):**
* **2019-20:** ₹1115.08 Lakh
* **2020-21:** ₹1126.85 Lakh
* **2021-22:** ₹1096.51 Lakh
* **2022-23:** ₹1078.92 Lakh
* **2023-24:** ₹1063.72 Lakh
*(The approved figures were generally slightly lower than the originally allowed provisional tariffs, meaning PGCIL may have to refund the difference).*

* **Approved AFC for 2024-29:**
* **2024-25:** ₹1028.35 Lakh
* **2025-26:** ₹1000.67 Lakh
* **2026-27:** ₹973.17 Lakh
* **2027-28:** ₹947.08 Lakh
* **2028-29:** ₹921.40 Lakh
*(The AFC shows a declining trend over the period, primarily due to decreasing interest costs as the loan principal is repaid).*

### 4. Key Regulatory Decisions & Principles Applied

* **Return on Equity (RoE):** The Commission approved a base RoE of **15.50%** . Since PGCIL pays the Minimum Alternate Tax (MAT), the rate is grossed up using the notified MAT rate for each year (approx. 17.47%), resulting in a pre-tax RoE of about **18.78%** . The order clarifies that any variation in tax rates will be trued up later.
* **Interest on Loan (IoL):** Allowed based on PGCIL’s actual weighted average rate of interest (WAROI) on its loan portfolio, which ranged from approximately **7.3% to 7.7%** during the period. For the 2024-29 period, floating rates will be trued up later.
* **Depreciation:** Calculated using the Straight Line Method (SLM) at a weighted average rate of **5.28%** , up to a maximum of 90% of the asset’s capital cost.
* **Operation & Maintenance (O&M) Expenses:** Allowed strictly as per the normative rates prescribed in the 2024 Tariff Regulations (e.g., for a Double Circuit Single Conductor line), not on actuals. For 2024-25, this was ₹35.01 Lakh.
* **Interest on Working Capital (IWC):** Calculated based on normative working capital requirements (receivables, maintenance spares, one month’s O&M) and the SBI 1-year MCLR plus a margin (e.g., **11.90%** for 2024-25).

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