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Dead Assets, Live Costs: CERC Rules on Stranded Transmission Infrastructure

In a significant order clarifying the financial boundaries of utility compensation, the Central Electricity Regulatory Commission (CERC) has ruled against granting retrospective compensation for transmission assets that were de-capitalized before completing their useful life. The petition, filed by the Power Grid Corporation of India Ltd (PGCIL), sought a resolution for the financial gaps left when infrastructure is taken out of service due to system upgrades mandated by national planning authorities.

The Conflict of Stranded Capital

PGCIL argued that it is often required to replace functioning transmission lines or substation equipment—not because of technical failure or negligence, but to facilitate broader grid improvements, such as shifting to higher voltage AC lines or accommodating renewable power projects. When these assets are withdrawn prematurely, the remaining unrecovered depreciation in their gross block results in sharp financial losses for the utility.

PGCIL contended that since these decisions are driven by systemic planning rather than the licensee's discretion, the financial burden should not fall solely on the transmission owner. They requested that the commission either allow them to continue servicing these assets as part of the new system's capital cost or provide one-time reimbursement for the balance of unrecovered depreciation and dismantling expenses.

A Multi-Stakeholder Resistance

Respondents to the petition, including major state utilities like UPPCL, MPPMCL, and BSES, raised strong pushback. They argued that: * Regulatory Consistency: The existing 2019 Tariff Regulations were explicitly clear: assets taken out of service must be removed from the capital cost calculation, with no room for special dispensation. * Consumer Interest: Allowing tariff recovery for assets that are no longer "used and useful" would undermine the "cost-plus" tariff mechanism and unnecessarily burden the end consumer. * Legislative vs. Judicial Action: The respondents maintained that if a change in policy is needed, it must occur through a formal amendment of the regulations, not by inviting the commission to use "residuary powers."

The Commission’s Legal Scrutiny

In its analysis, the CERC bench, led by Chairperson Jishnu Barua, focused on the specific regulatory framework governing the 2019–2024 tariff period. The commission invoked the precedent set by the Hon’ble Supreme Court in M.U. Sinai v. Union of India , emphasizing that residuary powers (such as the power to remove difficulties) are meant to round off “angularities” and make existing provisions workable—not to create new, substantive rights that contradict the core scheme of the regulation.

The commission reaffirmed that it was constrained by the legislative framework of the 2019 regulations, which clearly mandated the exclusion of de-capitalized assets from the capital base.

Key Observations

• "The existence or arising of a difficulty is the sine qua non for the exercise of power. In no case, can it, under the guise of removing a difficulty, change the scheme and essential provisions of the Act."
• "We find no reason to allow the prayer of the Petitioner for recovery of unrecovered depreciation for the control period 2019-24, as there is no case to exercise the Power of relaxation/Removal of difficulty in the present case."
• "Any measures undertaken by the Commission under Section 79 are required to be in conformity with such regulations."

The Road Ahead: A Prospective Fix

While denying the relief for the retrospective period, the CERC offered a path forward for future infrastructure projects. The commission noted that it had already incorporated provisions for this issue in the newly framed Tariff Regulations, 2024 .

Regulation 35 of the 2024 regulations now allows for the recovery of unrecovered depreciable value on a case-to-case basis for assets that cannot be operated due to system upgrades or safety/environmental concerns, provided the failure is not attributable to the utility.

Consequently, while PGCIL's petition for the 2019-24 period was rejected, the industry now possesses a defined regulatory pathway to handle stranded capital in future modernization efforts, balancing the financial viability of utilities with the necessity of maintaining a modern, robust power grid.