In the matter of the CERC (Conduct of Business) and (Terms and Conditions of Tariff) Regulations for the Combined Asset under “System Strengthening – XXVI” in the Southern Region – EQ

Summary:

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#### Key Details:

– **Petitioner:** Power Grid Corporation of India Limited (PGCIL).
– **Regulatory Authority:** Central Electricity Regulatory Commission (CERC), New Delhi.
– **Date of Order:** 24th February 2026.
– **Project Name:** System Strengthening – XXVI (Southern Region).
– **Assets Involved:**
– **Asset-1:** 2 x 220 kV line bays at Cochin East Substation (COD: 6 March 2021).
– **Asset-2:** 2 x 400 kV line bays at Kozhikode Substation (COD: 9 March 2021).
– **Combined Asset:** For the 2024-29 period, Asset-1 and Asset-2 have been combined for tariff purposes (Effective COD: 7 March 2021).
– **Respondents:** 14 distribution licensees and electricity departments from the Southern Region (Tamil Nadu, Kerala, Goa, Puducherry, Andhra Pradesh, Telangana, Karnataka), who are the beneficiaries of this transmission system.

#### Purpose of the Petition:

1. **Truing Up (2019-24):** To finalize the Annual Fixed Charges (AFC) for the previous tariff period by reconciling estimated costs with actual incurred costs (capital expenditure, interest rates, etc.).
2. **Tariff Determination (2024-29):** To set the AFC for the current tariff period based on the approved capital cost and regulatory norms.

#### Project Background & Investment:

– **Investment Approval (IA):** The project was approved by PGCIL’s Board in June 2019 at an estimated cost of **₹19.18 Crores**.
– **Revised Cost Estimate (RCE):** Updated in July 2022 to **₹18.61 Crores**.
– **Scope:** Extension of substations to terminate transmission lines implemented by Kerala State Electricity Board (KSEBL).
– **Timeline:** Assets were commissioned slightly behind schedule, but delays were condoned by CERC due to the COVID-19 pandemic (as per MoP order).

#### Key Financial Outcomes & Approvals:

##### A. Trued-Up Annual Fixed Charges (2019-24)

The Commission approved the final, trued-up tariffs for the previous block, which involved a detailed reconciliation of capital costs, depreciation, loans, equity, and expenses.

| Asset | Period | Trued-Up AFC Approved (in ₹ Lakhs) |
| :— | :— | :— |
| **Asset-1** | 2020-21 (Pro-rata) | 9.93 |
| | 2021-22 | 154.83 |
| | 2022-23 | 178.40 |
| | 2023-24 | 186.28 |
| **Asset-2** | 2020-21 (Pro-rata) | 10.82 |
| | 2021-22 | 185.81 |
| | 2022-23 | 216.59 |
| | 2023-24 | 234.41 |

##### B. Determined Annual Fixed Charges (2024-29)

The tariffs for the current block were determined based on the combined asset value and forward-looking norms.

| Combined Asset | 2024-25 | 2025-26 | 2026-27 | 2027-28 | 2028-29 |
| :— | :— | :— | :— | :— | :— |
| **AFC Allowed (in ₹ Lakhs)** | **389.77** | **388.34** | **387.09** | **379.95** | **367.35** |

*(Note: The declining trend in later years is primarily due to the completion of loan repayment and depreciation schedules.)*

#### Key Regulatory & Business Considerations:

1. **Capital Cost Prudence Check:** CERC validated the capital cost as on the date of commercial operation (COD) and allowed additional capital expenditure (ACE) incurred before the cut-off date (31 March 2024) for both assets. This forms the rate base for future tariffs.
2. **Debt-Equity Norms:** The standard 70:30 debt-equity ratio was maintained. For existing assets like these, the ratio approved at the end of the previous period is carried forward.
3. **Return on Equity (RoE):** PGCIL is entitled to a base RoE of **15.50%** . Since the company is under the Minimum Alternate Tax (MAT) regime, this rate is grossed up. The effective pre-tax RoE allowed is **18.782%** .
4. **Interest on Loans (IoL):** Interest is calculated on the normative loan amount using the weighted average interest rate from PGCIL’s actual loan portfolio.
5. **Operational Efficiency:** Operation & Maintenance (O&M) expenses were allowed strictly as per CERC norms (per bay rates), not as per actuals claimed, ensuring cost control for beneficiaries.
6. **Working Capital:** Interest on working capital is allowed at a rate linked to SBI’s 1-year MCLR plus a margin (e.g., 11.90% for FY25).

#### Separate Claims & Future Petitions:

The order allows PGCIL to recover certain specific costs separately, either through direct billing or future petitions, ensuring these do not inflate the base tariff now:
– **Pass-through Items:** License fee, RLDC fees & charges, and petition filing/publication expenses can be recovered directly from beneficiaries.
– **Future True-up Petitions:** PGCIL is permitted to file separate petitions for:
– **Security Expenses** (actuals).
– **Insurance Expenses** (actuals).
– **Capital Spares** (costing > ₹10 Lakh).
– **CTUIL Fees & Charges** (until a separate regulation is notified).
– **Goods & Services Tax (GST):** The Commission noted that the prayer for GST recovery is premature as it is currently not levied on transmission services.

#### Business Implications for Stakeholders:

– **For PGCIL:** The order provides revenue certainty for the 2024-29 period by approving a stream of ~₹3.8 Crores annually. It also establishes the final, approved capital cost for the assets, which is crucial for the company’s financial closure and investor confidence.
– **For Discoms (Respondents):** The order provides clarity on the transmission charges they must pay for the next five years. The detailed true-up ensures they are not overcharged for the previous period and that future charges are based on verified, prudent costs.
– **For the Power Sector:** This routine regulatory exercise ensures that transmission infrastructure remains financially viable for developers like PGCIL while ensuring tariffs are just and reasonable for consumers, thereby supporting the stability of the power market.

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