RAKESH NATH,J. - (1.) THIS Appeal has been filed by Orissa Power Transmission Corporation Limited against the order dated 20.03.2010 passed by the Orissa Electricity Regulatory Commission ("State Commission") determining the Annual Revenue Requirement and Transmission Tariff of the Appellant for the FY 2010 -11.
(2.) THE Appellant is a wholly owned company of the Government of Orissa and a transmission licensee.
(3.) THE Appellant has challenged the disallowance under the following heads: i) Employees Cost; ii) Terminal Benefits; iii) Repair and Maintenance (R&M) Expenses; iv) Administration and General (A&G) Expenses; v) Interest on Loan; vi) Depreciation and Special Appropriation; vii) Pass through Expenses; viii) Contingency Reserve; and ix) Misc. Receipts. Ld. Counsel for the Appellant has made the following submissions on the above issues: 4.1 Employees Cost: i) The State Commission has allowed the arrears of salary and pension on account of the 6th Pay Commission in three equal instalments for a period of three years from the FY 2010 -11 to FY 2012 -13. The amount allowed for the FY 2010 -11 was Rs. 49.04 crores. However, in accordance with the decision taken by the Government of Orissa, the Appellant had disbursed the arrears in two instalments, i.e. Rs.58.85 crores (40%) in the FY 2009 -10 and Rs.88.28 crores (60%) in the FY 2010 -11. The State Commission was, therefore, not justified in allowing the 6th Pay Commission arrears in a staggered manner over three years. Accordingly, the Appellant is entitled to carrying cost on account of deferment of recovery of the arrears in the ARR. ii) The present rate of DA approved by the Government of India is 45% with effect from 01.07.2010. The DA rate was 27% at the time of filing of the ARR application during November, 2009. On the basis of the anticipated rise of 3% in each dose of DA, the annual average DA for 2010 -11 was evaluated by the State Commission at 33%. Thus, the State Commission incorrectly disallowed Rs.14.61 crores under the head of Dearness Allowance. 4.2 Terminal Benefits: The State Commission allowed a sum of Rs.140.20 crores only towards the terminal benefits as against the claim of the Appellant for Rs.589.45 crores. The State Commission did not accept the report of the Actuary appointed by the Appellant and appointed M/s. Darashaw & Company as Actuary. The report of M/s. Darashaw & Company was considered by the State Commission in the Tariff Order for the FY 2011 -12. According to the Appellant, the State Commission should have accepted the report of the Actuary appointed by the Appellant. The Ld. Counsel for the Appellant has submitted that since the report of M/s. Darashaw & Company has been accepted by the State Commission in the Tariff Order for the FY 2011 -12, this issue may be left open to be considered in Appeal No. 186 of 2011 arising out of the said Tariff Order for the FY 2011 -12, after copies of report of both the Actuaries are placed on record. 4.3 Repair and Maintenance Expenses: - The State has allowed a sum of Rs.60 crores for Repair & Maintenance Expenses against the claim of the Appellant of Rs.98.14 crores. The State Commission ought to have allowed the amount claimed by the Appellant to undertake replacement of old, defective/obsolete equipments that have outlived their useful economic life and upgrade the equipments in the existing system. 4.4 Administrative and General (A&G) Expenses: The State Commission has allowed a sum of Rs.15.14 crores towards A&G expenses against the claim of the Appellant for Rs.26.99 crores. The claim of the Appellant towards A&G expenses on the basis of 6% escalation of the audited figure of the previous year ought to be allowed. 4.5 Interest on Loan: i) As regards the State Government loan, the moratorium on debt service has been kept in abeyance by State Government. Therefore, the claim of the Appellant under this head would not survive. ii) The Appellant had claimed a sum of Rs.38.39 crores towards interest on new long term infrastructure loan. The State Commission has incorrectly disallowed the entire amount of interest on long term loan on the ground that the receipt of loan amount during the FY 2010 -11 was uncertain. The projection towards interest on loan capital was based on facts and evidential documents and, therefore, the State Commission should have allowed the same. 4.6 Depreciation and Special Appropriation: In the ARR petition the Appellant had claimed a sum of Rs.153.31 crores towards depreciation and Rs.18.33 crores as Special Appropriation i.e., the difference between total repayment of loan amount (principal) for the FY 2010 -11 and depreciation (Rs.171.64 crores - Rs.153.31 crores). By the impugned order, the State Commission has reduce the figure of Rs.171.64 crores to Rs.144.26 crores after deducting Rs.20 crores towards Government Bonds and Rs.7.28 crores towards infrastructure loan. The State Commission allowed Rs.115.97 crores towards Depreciation (Rs.76.6 crores) and Special Appropriation (Rs. 39.37 crores) . The State Commission has not allowed the balance amount of Rs.28.29 crores on the ground that the Appellant had a balance of Rs.24.77 crores as per the Cash Flow Statement by the end of January, 2010. The State Commission should have appreciated that the Appellant has inherited massive ageing transmission assets and hence it is crucial for the Appellant to meet its debt service obligation only through the depreciation which falls short for meeting its principal servicing obligation and accordingly should have allowed a sum of Rs.28.29 crores towards special appropriation. 4.7 Pass Through Expenses and truing up: The Appellant had claimed Rs.74.46 crores towards pass through expenses on the ground of past losses upto the FY 2007 -08. The State Commission has erroneously disallowed the claim on the ground that on the basis of truing up for the FY 2006 -07 to 2008 - 09 showing a surplus of Rs.92.55 crores. The State Commission has erred in coming to the conclusion that there is a surplus of Rs.92.55 crores with the Appellant in the truing up exercise. The State Commission while truing up had disallowed expenses under the heads like Employees cost including Terminal Benefits, A&G, Depreciation etc. as per the audited accounts for the period from FY 2006 -07 to 2008 -09, resulting in the alleged surplus position. Thus, the State Commission was not justified in disallowing the Pass through Expenses amounting to Rs. 74.46 crores. 4.8 Contingency Reserves: According to the law, Contingency reserve has to be created @ 0.5% on Gross Block upto maximum of 5% of Gross Block. The State Commission should have allowed contingency reserve as per the claim of the Appellant. 4.9 Miscellaneous Receipts: The State Commission had taken a sum of Rs.48.30 crores on account of Miscellaneous Receipts based on the Cash Flow Statement of the Appellant for the period April, 2009 to January, 2010, which also included income from supervision charges, short term open access charges and other receipts. Estimating the miscellaneous receipts from inter -state wheeling based on the Cash Flow Statement for the FY 2009 -10 by the State Commission was incorrect. According to the CAG audit, actual figure comes to Rs.25.50 crores. Thus the balance of Rs.23 crores needs to be allowed in the ARR.;