In a significant judgment, the Supreme Court of India dismissed the appeal filed by Power Grid Corporation of India Limited (PGCIL) seeking to recover ₹24 crore incurred in replacing damaged Inter-Connecting Transformers (ICTs) through an increase in electricity tariffs. The Court held that such replacement constitutes an operational expense and not an 'additional work' warranting tariff revision, thereby emphasizing the responsibility of power utilities to maintain infrastructure without passing routine maintenance costs onto consumers.
The case originated from a 2006 incident where three critical ICTs in PowerGrid's Rihand transmission systems failed during peak summer demand. To maintain uninterrupted power supply to Delhi, the company promptly diverted transformers from other substations. Subsequently, PGCIL sought to recover the incurred costs through additional capitalization claims under the Central Electricity Regulatory Commission (CERC) tariff regulations, revised tariff determinations, and insurance recoveries.
The bench, comprising Justices Abhay S Oka and Ujjal Bhuyan, examined the applicability of Regulation 53 of the CERC Tariff Regulations. This regulation permits additional capitalization for new works, deferred liabilities, or legal mandates, but not for routine maintenance activities. The Court found that the replacement of the damaged ICTs did not qualify as 'additional work/services' under this regulation. Instead, it was deemed a part of routine operation and maintenance responsibilities inherent to PGCIL's role as a central transmission utility.
Justice Bhuyan, authoring the judgment, stated, "Regulation 53 does not include within its scope replacement of ICTs due to damage or failure. The contention that such a provision would apply to the appellant does not appeal to the Court, as all that the appellant had done was diversion and replacement of ICTs. This cannot be construed as doing any additional work/services." The Court emphasized that maintaining a healthy transmission system is a fundamental duty of the utility, and the replacement of damaged equipment falls squarely within operational and maintenance obligations.
This ruling underscores the judiciary's stance on protecting consumer interests by preventing utilities from transferring the burden of routine maintenance costs through tariff hikes. It also clarifies the interpretation of regulatory provisions concerning additional capitalization, ensuring that only costs arising from new developments or unforeseen legal obligations can be considered for tariff adjustments.
The decision has broader implications for the power sector, reinforcing the principle that operational risks and maintenance responsibilities lie with the utilities. It discourages attempts to reclassify routine maintenance expenses as capital expenditures to justify tariff increases. Furthermore, it highlights the importance of clear regulatory frameworks and the role of judicial oversight in maintaining the balance between utility operations and consumer rights.
In conclusion, the Supreme Court's dismissal of PGCIL's appeal serves as a precedent in delineating the boundaries of operational expenses and capital expenditures within the power sector. It reinforces the accountability of utilities in infrastructure maintenance and protects consumers from unwarranted financial burdens resulting from operational failures.
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