- (1.) P .S. DATTA 1. The Central Electricity Regulatory Commission who was the respondent no 1 in the Appeal No. 193 of 2010 which by the decision of this Tribunal dated 5th. April,2011 was decided in favour of the appellant of the said appeal namely, Powergrid Corporation of India Limited ,is the Review Petitioner in this review petition under section 120(2)(f) of the Electricity Act,2003 . 3
(2.) THE Powergrid Corporation of India Limited (for short, the Corporation) being aggrieved with the CERC's order dated 20.8.2010 whereby the CERC in Petition No.235 of 2009 determined the revision of transmission tariff for the period 2004 - 09 on account of additional capitalisation incurred during FY 2008 - 09 by the said Corporation preferred the Appeal No.193 of 2010 in which two questions emerged for consideration of the Tribunal, namely a) whether the Central Commission was right in following the principle of depreciation amount to be considered for adjustment against the repayment of loan and b) whether in terms of Regulation 54 and 56 of the Tariff Regulations,2004, while considering the apportionment of interest on loan to be allowed the CERC can determine the adjustment of depreciation amount of the entire asset against the repayment of loan connected with the additional capitalisation.
(3.) BY the order dated 5th of April, 2011 the Tribunal inter alia held as follows: - "10. Having heard the learned Counsel for the Appellant, it appears that the Commission proceeded on the basis that depreciation allowed is intended for repayment of loan and there will be deemed repayment of loan to the extent of the depreciation as made available. So far as this Tribunal is concerned, it had occasion to examine this 4 exact issue in a batch of appeals being No. 139 and 15 others of 2006 and 10, 11 to 23 of 2007 (NTPC Ltd. V/s. CERC and Others) where it was held that the computation of outstanding loan would be on a normative basis only instead of normative or actual whichever is higher, and this being so, there is no question of any adjustment of the depreciation amount to a deemed repayment of loan. It was clarified that the depreciation is an expense and not an item allowed for repayment of loan because if an entity does not borrow, it would not mean that it would not be given any depreciation. Being an expense, it represents a decline in the value of asset because of wear and tear. In this decision there is reference to the Accounting Principles Board of USA defining depreciation as under: ''The cost of productive facility is one of the costs of the service it renders during its useful economic life. Generally accepted accounting principles require that this cost be spread over the expected useful life of the facility in such a way as to allocate it as equitably as possible to the periods during which services are obtained from the use of the facility. This procedure is known as depreciation accounting, a system of accounting which aims to distribute the cost or other basic value of tangible capital assets, less salvage (if any), over the estimated useful life of the unit (which may be a group of assets) in a systematic and rational manner. It is a process of allocation, not of valuation". This position was confirmed by the Hon'ble Supreme Court in the decision reported in Delhi Electricity Regulatory Commission V/s BSES Yamuna Power Limited and Others (ibid). It appears that the Central Commission referred to Regulations 54 and 56 of the CERC (Terms and Conditions of Tariff) Regulations 2004 in support of their proposition that depreciation is considered for repayment of loan. Regulation 56(i)(f) of the said Regulation runs thus ''In case of any moratorium period is availed of by the transmission licensee, depreciation provided for in the tariff during the years of moratorium shall be treated as repayment during those years and interest on loan capital shall be calculated accordingly" The Commission referred to Regulation 56 (ii)(a)(iii) to say that on repayment of the 5 entire loan, the depreciable value shall be spread over the balance useful life of the asset. The Commission further read Regulation 56 (ii)(b) which provides that the transmission licensee shall be entitled to advance against depreciation in the manner as laid down therein. The learned Counsel for the appellant rightly submitted that Regulation 56 (i)(f) is totally inapplicable in the instant case. There was no question of transmission licensee having availed of moratorium period, as such, there is no question of depreciation being considered as repayment and accordingly interest on loan capital cannot be calculated in the manner as made by the Commission. None of the provisions of regulation 56 of the Regulation, 2004 account for the factual conditions as presented above, and they do not give rise to any premise that depreciation has to be linked to repayment of loan. The finding of the Commission militates against the decision of this Tribunal according to which depreciation is an expense and cannot be deployed for deemed repayment of loan. The appellant incurred capital expenditure on additional capitalization of Rs.293.07lacs and after adjusting the value of de -capitalized assets, the net capital expenditure came to Rs.205.21lac. It implies that transmission licensee was denied interest on loan of additional capitalization by adjusting the total depreciation that covered the entire capital assets. In the normative debt equity ratio of 70 : 30 the amount of interest on the normative loan of Rs.143.65lac would have been legitimately due to the appellant. 11. In this view of the matter, the respondent No. 1 is required to make a fresh computation of interest on loan in the light of the settled principle as formulated in the decision above. 12. Accordingly, the appeal is allowed and the impugned order is set aside. The matter is remitted back to the respondent No.1 for fresh decision in the light of the observations made above." Against this order dated 5th of April, 2011 the CERC preferred the instant review petition on the following grounds: - a) The Corporation did in fact avail itself of the moratorium period during the year 2008 -09 and the information furnished by the said Corporation was incorrect and the Tribunal has per force relied upon such incorrect representation of the Corporation. b) If the order is allowed to stand then grave prejudice will be caused in as much as non -adjustment of depreciation against repayment of loan where depreciation is more will lead to illogical results and may afford an opportunity to the transmission licensee for manoeuvring their affairs in such a manner that that they contract loans in such a manner that the loan repayments always remain outstanding, and this is not the intention of the Regulations, 2004. Where depreciation recovered in year is more than the amount of repayment during that year, the entire amount of depreciation is to be considered as repayment of loan for tariff computation. ;