APTEL Restores Rs. 210 Crore Pay Revision Cost for DVC, Remands T&D Loss True-Up to JSERC

The Appellate Tribunal for Electricity partly allowed DVC's appeal against JSERC's true-up order, ruling that a CERC-approved pay revision amount cannot be excluded by a State Commission on the basis of a summary table.

The Appellate Tribunal for Electricity (APTEL) has partly allowed an appeal filed by Damodar Valley Corporation (DVC) against the Jharkhand State Electricity Regulatory Commission (JSERC), setting aside two findings in JSERC's true-up order dated 19 April 2017. The appeal, filed in 2017, arose from JSERC's determination of DVC's financials for FY 2006–07 to FY 2013–14 and the Annual Performance Review for FY 2014–15. APTEL held that JSERC could not exclude Rs. 210 crore in pay revision arrears that CERC had expressly allowed, and that JSERC's mechanical application of a 3% T&D loss norm without a prudence check was unsustainable. On the third issue — linking Pension and Gratuity Fund contributions to plant availability — the Tribunal upheld JSERC's approach.

The Dispute Before the Tribunal

DVC is a statutory body constituted under the Damodar Valley Corporation Act, 1948, operating across the Damodar Valley Area in West Bengal and Jharkhand. It is an integrated utility engaged in generation, transmission, distribution, and retail sale of electricity, and also carries out sovereign and non-remunerative functions such as flood control, irrigation, and public health measures.

Following the Electricity Act, 2003 coming into force on 10 June 2003, DVC was deemed a licensee and its generation and transmission tariff fell under the regulatory jurisdiction of CERC under Section 79 of that Act. CERC determined DVC's tariff for the period 1 April 2006 to 31 March 2009 through a series of orders, with the key order being that dated 8 May 2013 in Petition No. 272 of 2010, which fixed the final Annual Fixed Charges (AFC) for DVC's generating stations and transmission systems.

JSERC, as the State Commission, passed provisional retail supply tariff orders for DVC's Jharkhand area for different periods. DVC challenged the order dated 4 September 2014 before APTEL in Appeal No. 255 of 2014. That appeal was decided on 23 March 2016. Both DVC and a consumer, M/s Anjaney Ferro Alloys Ltd., then approached the Supreme Court. By orders dated 26 October 2016 and 2 January 2017, the Supreme Court directed JSERC to undertake the true-up exercise independently, without being influenced by APTEL's judgment dated 23 March 2016. JSERC then passed the impugned order dated 19 April 2017 in Case (T) No. 02 of 2016, which DVC challenged in the present appeal.

At the hearing, DVC confined its submissions to three issues: non-consideration of pay revision expenditure of Rs. 210 crore for FY 2006–09 allowed by CERC; erroneous linkage of Pension and Gratuity (P&G) Fund and Sinking Fund contributions with plant availability for FY 2009–14; and non-consideration of actual T&D losses for FY 2012–13 to FY 2014–15.

Issue A: Pay Revision Expenditure of Rs. 210 Crore

CERC's order dated 8 May 2013, at paragraphs 132 to 136, specifically examined and allowed the impact of pay revision pursuant to the Sixth Pay Commission for FY 2006–07 to FY 2008–09. The amount was quantified at Rs. 210 crore across various DVC projects and stations. CERC directed that this amount be paid by beneficiaries in addition to normative O&M expenses, and consciously declined to charge interest on the arrears in the interest of consumers.

JSERC excluded this amount on the ground that it did not appear in the AFC summary table at paragraph 160 of the same CERC order, and that including it would amount to impermissible re-determination of tariff under Rule 8 of the Electricity Rules, 2005.

APTEL rejected this reasoning. The Tribunal held that an order must be read as a whole, and that a summary table is an aid to comprehension and cannot override operative findings in the body of the order. Paragraphs 132 to 136 contained detailed and reasoned findings; accepting JSERC's approach would render those paragraphs wholly otiose.

The Tribunal further held that Rule 8 of the Electricity Rules, 2005 prohibits re-determination of tariff by the State Commission, but CERC had already determined the pay revision arrears as part of tariff. JSERC's exclusion was therefore not a lawful restraint under Rule 8 — it was a refusal to implement what CERC had already adjudicated. The Tribunal observed that “the bar under Rule 8 cannot be invoked to justify refusal to give effect to what has already been adjudicated.”

The Tribunal also noted that respondents did not point to any deliberation in the CERC order casting doubt on the allowance of Rs. 210 crore or its recoverability from beneficiaries. The impugned order was set aside to the extent of this exclusion, and the matter was remanded to JSERC to consider the Rs. 210 crore as additional O&M expenditure in the true-up for FY 2006–07 to FY 2008–09.

Issue B: P&G Fund and Sinking Fund Linked to Plant Availability

DVC argued that contributions to the P&G Fund and Sinking Fund are statutory obligations under Section 40 of the DVC Act, distinct from ordinary O&M expenses, and must be recovered in full irrespective of plant availability. It relied on APTEL's judgment dated 23 November 2007 in Appeal No. 271 of 2006, which directed 100% recovery of P&G contributions from beneficiaries, and on Regulation 43(2)(iv) of the CERC Tariff Regulations, 2009, which recognised these funds as items of expenditure to be recovered through tariff. DVC also contended that JSERC's reliance on APTEL's judgment dated 23 March 2016 was impermissible given the Supreme Court's directions to conduct the true-up independently.

Respondents submitted that P&G contributions form part of AFC, and under the availability-based tariff framework, recovery of AFC is linked to the Normative Annual Plant Availability Factor (NAPAF). Allowing P&G costs as an unconditional pass-through would impermissibly de-link a component of AFC from the statutory tariff framework.

APTEL examined the regulatory history in detail. It noted that APTEL's 2007 judgment had directed 100% recovery from beneficiaries, and that CERC's order dated 8 May 2013 allowed P&G contributions without availability linkage. However, the Tribunal found that once these contributions were subsumed within AFC, their recovery became governed by the availability-based tariff framework. To carve out an exception would undermine the cost-reflective character of tariff determination.

On the Supreme Court directions, APTEL held that in its 2016 judgment, the Tribunal had merely affirmed JSERC's own findings without laying down independent reasoning. JSERC's impugned order therefore reiterated its own earlier reasoning from the ARR order dated 4 September 2014, which was consistent with the Supreme Court's mandate to conduct the true-up independently. No infirmity was found on this issue, and the impugned order was upheld.

Issue C: T&D Losses — Prudence Check Not Conducted

For FY 2012–13 to FY 2014–15, DVC claimed T&D losses of 4.82%, 4.86%, and 3.58% respectively. JSERC restricted all three years to the normative target of 3%, citing the MYT order dated 4 September 2014. DVC pointed out that the MYT order itself stated the 3% target was subject to true-up on actuals, and that JSERC had historically allowed higher losses — ranging from 3% to 4.8% — for FY 2006–07 to FY 2011–12. DVC also drew attention to JSERC's own Tariff Regulations 2015, which prescribed a distribution loss ceiling of 5% for all licensees including DVC for FY 2016–17 to FY 2020–21.

APTEL agreed that JSERC is entitled to impose efficiency benchmarks and is not bound to accept actual losses. However, the Tribunal found that the MYT order had expressly stipulated that the 3% norm was subject to true-up on actuals, and that JSERC had itself acknowledged in that order that DVC had not achieved the 3% target in FY 2012–13, deferring examination to the true-up stage. Despite this, no prudence check of actual losses was carried out in the impugned order.

The Tribunal held that fixation of T&D loss levels must be grounded in rational methodology, empirical data, and statutory mandate under Section 61 of the Electricity Act, 2003. A ceiling divorced from actual system conditions, historical performance, or technical feasibility would be arbitrary. The Tribunal observed that DVC achieved 3% losses only in FY 2008–09, and that JSERC itself allowed higher losses in the immediately following years. No rationale was provided by JSERC for fixing 3% during true-up other than the MYT order, which itself required examination of actuals.

The findings on this issue were set aside and remanded to JSERC to undertake a prudence check of T&D losses claimed by DVC for FY 2012–13 to FY 2014–15.

Order

APTEL disposed of Appeal No. 163 of 2017 and pending IAs with the following directions:

On Issue A, the impugned order was set aside to the extent of exclusion of Rs. 210 crore. The matter was remanded to JSERC to consider this amount as additional O&M expenditure allowed by CERC in its order dated 8 May 2013 for the true-up for FY 2006–07 to FY 2008–09.

On Issue B, the impugned order was upheld. The linkage of P&G Fund and Sinking Fund contributions to normative plant availability was found to be in order.

On Issue C, the findings in the impugned order were set aside. JSERC was directed to undertake a prudence check of T&D losses claimed by DVC for FY 2012–13 to FY 2014–15 and pass consequential orders.

JSERC was directed to pass consequential orders on the remanded issues as expeditiously as possible, along with applicable carrying cost in terms of the Regulations, within three months of receiving a copy of the judgment. DVC was directed to provide further details as required by JSERC for the T&D loss prudence check.