CERC Approves Trued-Up and New Transmission Tariffs for Power Grid's Vizag HVDC Assets Under Electricity Act S.62 & S.79 - 2025-04-17

CERC Grants Tariff Relief for Power Grid’s Vizag HVDC System

New Delhi, April 16, 2025 – The Central Electricity Regulatory Commission (CERC) has issued an order approving the trued-up transmission tariff for the period 2019-24 and determining the transmission tariff for 2024-29 for Power Grid Corporation of India Limited (PGCIL). The decision, made by a bench comprising Shri Ramesh Babu V. and Shri Harish Dudani, addresses the tariffs for combined assets under the “Procurement of Spare Converter Transformer for Vizag HVDC System” in the Southern Region.

Case Overview and Background

PGCIL filed Petition No. 35/TT/2025 seeking approval under Section 62 read with Section 79 (1)(d) of the Electricity Act, 2003, and relevant regulations. The petition concerned the truing up of tariffs for the 2019-24 period and the determination of tariffs for the 2024-29 period for two spare converter transformers (Asset-1 and Asset-2) for the Vizag High Voltage Direct Current (HVDC) system. These assets were combined for tariff purposes in the 2024-29 block.

The project was initially approved in 2017, and while scheduled for commercial operation in 2019, faced delays, becoming operational in 2020. CERC had previously approved tariffs for these assets up to March 31, 2024, in an order dated March 2, 2022. This new petition sought to reconcile the tariffs for the past period and set them for the upcoming five years.

The respondents in this petition are various state electricity boards and distribution companies from Tamil Nadu, Kerala, Goa, Pondicherry, Andhra Pradesh, Telangana, and Karnataka, who are beneficiaries of these transmission services.

Key Arguments and Commission's Analysis

PGCIL’s petition requested the Commission to approve trued-up tariffs for 2019-24 and determined tariffs for 2024-29, admit capital costs, allow recovery of shortfall/refund of excess Return on Equity (RoE) due to tax rate changes, and approve reimbursements for petition filing fees and publication expenses. They also sought allowances for RLDC fees, license fees, interest on loan adjustments, and GST recovery.

The Commission meticulously examined the capital costs claimed by PGCIL. While there was a time overrun in project completion, the overall completion cost remained within the approved cost estimates, thus no cost overrun was observed. The Commission considered aspects such as Interest During Construction (IDC), Incidental Expenditure During Construction (IEDC), and Additional Capital Expenditure (ACE).

Notably, Liquidated Damages (LD) recovered from contractors due to delays were appropriately adjusted against the capital cost, a treatment the Commission found to be in order and compliant with the 2019 Tariff Regulations.

On the critical components of tariff calculation, the Commission made the following observations:

Capital Cost : The trued-up capital cost as of March 31, 2024, was approved as ₹5057.71 lakh for the combined assets, serving as the opening capital cost for the 2024-29 tariff period.

Debt-Equity Ratio : A 70:30 debt-equity ratio was maintained for tariff computation, consistent with regulatory norms.

Depreciation : Depreciation was calculated using the Straight Line Method, based on the Weighted Average Life (WAL) of the assets, determined to be 25 years from the effective commercial operation date of June 1, 2020.

Interest on Loan (IoL) : The Weighted Average Rate of IoL was calculated based on PGCIL’s actual loan portfolio, with adjustments for floating interest rates to be considered at the time of true-up.

Return on Equity (RoE) : The Commission considered the Minimum Alternate Tax (MAT) rate applicable to PGCIL for grossing up the RoE, ensuring alignment with income tax regulations. The effective tax rate of 17.472% was applied for all years within both tariff periods.

Operation & Maintenance (O&M) Expenses : No O&M expenses were claimed by PGCIL for these assets.

Interest on Working Capital (IWC) : IWC was calculated as per regulations, using prevailing SBI MCLR rates plus a 350 basis points spread.

Key Excerpts from the Judgment

> “We have considered the submissions made by the Petitioner. When time over- run is attributable to the project developer, or its contractors, the cost of time over-run, i.e., IDC and IEDC has to be borne by the project developer and the LD, if any, recovered can be retained by the Petitioner. In the instant case, time over-run in case of the transmission assets was not condoned. Accordingly, the IDC and IEDC for the period of time over-run not condoned in case of the transmission assets is deducted from the capital cost. The amount of LD recovered to the extent of IDC and IEDC disallowed has already been adjusted by the Petitioner from the ACE (as certified by the Auditor) for 2022-23 and 2023-24. As such, the treatment of the LD recovered by the Petitioner is in order for the years FY 2022-23 and 2023-24 and is in line with the 2019 Tariff Regulations.”

This excerpt highlights the Commission's scrutiny of cost adjustments related to project delays and LD recovery, affirming PGCIL's accounting practices.

Commission’s Decision and Implications

Ultimately, CERC approved the trued-up Annual Fixed Charges (AFC) for 2019-24 and determined the AFC for 2024-29 as requested by PGCIL, with minor adjustments in some years of the 2019-24 period.

Approved Annual Fixed Charges (₹ in lakh):

Tariff Period	Asset	2019-20 (Pro-rata)	2020-21	2021-22	2022-23	2023-24	2024-25	2025-26	2026-27	2027-28	2028-29
2019-24	Asset-1	3.93	370.08	376.90	368.65	360.17	-	-	-	-	-
2019-24	Asset-2	-	271.64	414.36	407.45	398.50	-	-	-	-	-
2024-29	Combined	-	-	-	-	-	738.46	719.76	701.43	681.06	660.76

The order also allows PGCIL to claim reimbursements for petition filing fees, publication expenses, license fees, and RLDC fees. Recovery of CTUIL expenses as additional O&M expenses through a separate petition was also permitted. The issue of GST recovery was deemed premature but acknowledged for future consideration if GST becomes applicable to transmission services.

This order provides tariff certainty for PGCIL's Vizag HVDC assets, ensuring continued operation and maintenance of critical transmission infrastructure in the Southern Region. The approved tariffs will be shared by the beneficiary states as per the applicable sharing regulations. Petition No. 35/TT/2025 stands disposed of.