The Supreme Court dismissed the appeals, upholding the decisions of the Appellate Tribunal for Electricity and the Central Electricity Regulatory Commission (CERC). The Court ruled that replacement of damaged transformers did not qualify for additional capitalization under Regulation 53 of the Tariff Regulations, as it was part of the appellant’s duty to maintain the transmission system. The self-insurance policy covered the cost of replacement, and the claim for revised availability certificates was rendered redundant. The Court affirmed that the Appellate Tribunal’s decision was well-reasoned and not a mere rubber-stamping of CERC’s findings.
Facts Of The Case:
The case involves Powergrid Corporation of India Limited (appellant) challenging orders of the Central Electricity Regulatory Commission (CERC) and the Appellate Tribunal for Electricity regarding claims for additional capitalization and tariff revision. The dispute arose when three Inter-connecting Transformers (ICTs) in the Rihand I transmission system failed and were damaged by fire due to internal faults in 2006. To restore operations, Powergrid diverted transformers from other substations and sought approval from CERC for additional capitalization under the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004. CERC rejected the claim, stating that replacement costs should be covered by Powergrid’s self-insurance reserve, funded by beneficiaries as part of operational expenses.
The Appellate Tribunal upheld CERC’s decision, emphasizing that maintaining transmission systems was Powergrid’s statutory duty, and replacement of damaged assets did not qualify as additional capitalization under Regulation 53. The Supreme Court dismissed Powergrid’s appeal, ruling that the self-insurance policy covered fire-related damages, and the proximate cause of the ICTs’ failure was fire, not machinery breakdown. The Court also declined to direct the issuance of a revised availability certificate, concluding that the appeals lacked merit. The judgment reaffirmed the regulatory framework under the Electricity Act, 2003 and the limits of additional capitalization claims.
Procedural History:
The case originated when Powergrid Corporation of India Limited (the appellant) filed two petitions before the Central Electricity Regulatory Commission (CERC). The first, Petition No. 68 of 2008, sought approval for transmission charges related to the replacement of damaged Inter-connecting Transformers (ICTs) in the Rihand I transmission system. The second, Petition No. 80 of 2008, requested a revision of the tariff for the Rihand transmission system, citing net additional capitalization due to the replacement of the damaged ICTs, and further sought directions to the Northern Regional Power Committee (NRPC) to issue a revised availability certificate.
On 03.02.2009, the CERC dismissed both petitions, rejecting the appellant’s claims for decapitalization and additional capitalization. The CERC held that the cost of replacing the damaged ICTs should be covered by the appellant’s self-insurance reserve, funded through operations and maintenance expenses paid by beneficiaries.
Aggrieved by the CERC’s decision, the appellant filed Appeal Nos. 91 and 92 of 2009 before the Appellate Tribunal for Electricity. The Tribunal, after hearing the appeals together, dismissed them on 23.03.2011, upholding the CERC’s findings.
The appellant then approached the Supreme Court of India by filing Civil Appeal Nos. 5857-5858 of 2011 under Section 125 of the Electricity Act, 2003. The Supreme Court, after examining the submissions and relevant regulations, dismissed the appeals on 05.05.2025, affirming the decisions of both the CERC and the Appellate Tribunal. The Court ruled that the replacement of damaged ICTs did not qualify for additional capitalization under the Tariff Regulations and that the self-insurance policy covered the losses, rendering the appellant’s claims unsustainable.
Court Observation:
The Supreme Court examined the case in detail and made several key observations. First, it noted that Regulation 53 of the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004, does not permit additional capitalization for the mere replacement of damaged equipment, such as the Inter-connecting Transformers (ICTs) in this case. The Court emphasized that the appellant, as a central transmission utility, had a statutory obligation to maintain a functional transmission system, and the replacement of damaged assets fell under routine operation and maintenance rather than an “additional work or service” under Regulation 53(2)(iv).
Regarding the self-insurance policy, the Court observed that the policy explicitly covered losses due to fire, whether caused by internal faults, machinery breakdown, or external factors. Since the damage to the ICTs resulted from fire—regardless of the initial cause—the appellant was obligated to utilize its self-insurance reserve to cover the replacement costs. The Court rejected the appellant’s argument that machinery breakdown was the proximate cause, citing its earlier decision in New India Assurance Co. Ltd. v. Zuari Industries Ltd. (2009), which established that fire, as the immediate and efficient cause of damage, triggered insurance coverage.
Additionally, the Court upheld the Appellate Tribunal’s rejection of the appellant’s claim for a revised availability certificate from the NRPC, reasoning that since the replacement costs were not admissible for additional capitalization, there was no basis for recalculating the availability incentive. The Court also distinguished the case from Gujarat Urja Vikas Nigam Ltd. v. Renew Wind Energy (Rajkot) Pvt. Ltd. (2023), noting that the Tribunal had provided reasoned findings rather than mechanically endorsing the CERC’s decision.
Ultimately, the Court concluded that the appeals lacked merit, as the appellant’s claims were inconsistent with the Tariff Regulations and the terms of its self-insurance policy. The dismissal reinforced that transmission licensees must bear the costs of maintaining operational assets, with beneficiaries liable only for expenses linked to tangible system enhancements.