Re-conductoring & Upgradation Costs are Additional Capital Expenditure, Not New Assets for Tariff Determination: CERC - 2025-07-16

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CERC Rules Re-conductoring Costs are Additional Capital Expenditure, Denies New Tariff for Upgraded Assets

New Delhi – In a significant ruling on tariff determination, the Central Electricity Regulatory Commission (CERC), presided over by Chairperson Shri Jishnu Barua and Member Shri Ramesh Babu V., has clarified that expenses incurred on re-conductoring and upgrading existing transmission lines must be treated as Additional Capital Expenditure (ACE) under the original project, rather than being claimed as new assets eligible for a separate tariff. The decision came in a petition filed by the Power Grid Corporation of India Ltd. (PGCIL) seeking tariff approval for eleven assets under the "Eastern Region Strengthening Scheme XX (ERSS – XX)."

While the Commission approved the transmission tariff for eight of the eleven assets, it disallowed the claims for three specific assets involving upgrades, directing PGCIL to file for these costs under the truing-up process of their parent projects.

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Background of the Case

PGCIL filed Petition No. 9/TT/2023 seeking approval for the transmission tariff for eleven assets from their respective Commercial Operation Dates (COD) until March 31, 2024. The project, with an initial estimated cost of ₹35,883 lakh, aimed to strengthen the transmission network in the Eastern Region through various works, including the installation of new transformers (ICTs), reactors, and the re-conductoring of existing lines.

The respondents in the case were several state power distribution companies and electricity boards from the Eastern Region, who are the primary beneficiaries of the transmission system. Notably, none of the respondents filed a reply to the petition.

Commission's Stance on Re-conductoring and Upgrades

The central issue revolved around the classification of costs for three specific assets:

* Asset-III: Re-conductoring of the 220 kV New Purnea–Purnea transmission line.

* Asset-VII: Conversion of a fixed line reactor to a Switchable Line Reactor (SLR) at New Purnea.

* Asset-IX: Re-conductoring of the 400 kV Rangpo–New Siliguri transmission line.

PGCIL argued that these constituted new assets under the ERSS-XX scheme and sought a separate tariff. However, the CERC disagreed, establishing a crucial regulatory principle.

The Commission observed that these works involved upgrading or modifying existing infrastructure that had not yet completed its useful life. For instance, Asset-III involved stringing new High-Temperature Low-Sag (HTLS) conductors on existing towers.

In its order, the CERC stated, “We observe that the transmission assets covered in the instant Petition are not new transmission assets. Instead, they are re-conductoring and upgrading the already existing transmission assets, which are expenses in the nature of additional capitalization in the transmission assets, for which the tariff has already been approved.”

The Commission directed PGCIL to claim the capital costs for these three assets as ACE under their respective original project petitions (Petition Nos. 207/TT/2020, 327/TT/2019, and 465/TT/2020) during the truing-up process for the 2019-24 tariff period.

Analysis of Time and Cost Overruns

The judgment also addressed significant delays in the commissioning of several assets. The original Scheduled Commercial Operation Date (SCOD) for the project was May 1, 2020. While several assets were completed on or ahead of schedule, others faced substantial delays:

* Asset-VIII: Delayed by 91 days.

* Asset-X: Delayed by 336 days.

* Asset-XI: Delayed by 659 days.

The Commission accepted the impact of COVID-19 and applied a blanket 5-month extension to the SCOD, as per a Ministry of Power directive. This condoned the delay for Asset-VIII. However, significant delays remained for Assets X and XI.

For Asset-XI, the CERC did not condone the delay of 506 days (post-extension), reasoning that the denial of shutdown by the grid operator is a planned activity and does not constitute a force majeure event under the regulations. For Asset-X, the Commission found the justification for the remaining 183-day delay insufficient and has deferred the final decision to the truing-up stage, directing PGCIL to provide further evidence.

Regarding cost, the CERC noted that while five individual assets exceeded their initial apportioned costs, the overall estimated completion cost of the project (₹33,806.64 lakh) remained within the Revised Cost Estimate (₹34,789.00 lakh). Therefore, the Commission concluded there was no cost overrun for the project as a whole.

Final Decision and Implications

The CERC approved the Annual Fixed Charges (AFC) for eight assets for the 2019-24 tariff period, with detailed calculations for depreciation, interest on loan, return on equity, and other components. The tariff for Assets III, VII, and IX was disallowed in the current petition.

This order reinforces the CERC's strict interpretation of capital expenditure rules, preventing utilities from claiming tariffs for upgraded components as new assets. It emphasizes that enhancements to existing infrastructure, unless constituting a completely new system, must be accounted for as additional capitalization within the framework of the original project's tariff structure.