In Powergrid Corporation of India Limited vs Central Electricity Regulatory Commission & Others, the Supreme Court on 5 May 2025 dismissed two appeals filed by Powergrid Corporation, holding that the replacement of damaged Inter-Connecting Transformers (ICTs) is not admissible as additional capital expenditure under Regulation 53 of the CERC Tariff Regulations, 2004. The Court also held that the loss from the damage was covered under the appellant’s self-insurance policy.
Background:
The case arose from two appeals (Civil Appeal Nos. 5857-5858 of 2011) filed by Powergrid Corporation of India Limited under Section 125 of the Electricity Act, 2003, challenging the Appellate Tribunal for Electricity’s order dated 23 March 2011. The appeals stemmed from the dismissal of Powergrid’s Petitions No. 68 and 80 of 2008 by the Central Electricity Regulatory Commission (CERC).
Powergrid, a central transmission utility, sought approval from CERC for additional capitalisation in respect of transformers damaged in its Rihand I transmission system in 2006. The appellant claimed expenses for replacement transformers and requested revised transmission charges and availability certificates.
Arguments:
Powergrid argued that:
- The damaged ICTs at Ballabgarh and Mandola were urgently replaced due to peak summer electricity demand in Delhi.
- The costs of these replacements were capital in nature and fell under Regulation 53(2)(iv), which allows for additional works essential for successful project operation.
- The self-insurance reserve should not apply, as the transformers failed due to machinery breakdown and not directly due to fire.
- CERC and the Appellate Tribunal misinterpreted the Tariff Regulations, leading to a financial loss of over ₹23 crores.
Respondents (beneficiaries and CERC) contended that:
- The replacement of ICTs was a routine maintenance obligation and did not provide any new benefit to beneficiaries.
- Regulation 53 applies to additional works, not mere replacements of failed assets.
- The insurance reserve policy did cover fire-related damages, and the appellant could not seek tariff recovery for losses covered under internal reserves.
- The tribunal rightly refused to direct the Northern Regional Power Committee to revise availability certificates, since there was no basis for decapitalisation.
Court’s Analysis:
The Bench comprising Justice Abhay S. Oka and Justice Ujjal Bhuyan framed three questions:
- Whether additional capitalisation could be allowed for the replaced ICTs.
- Whether the self-insurance policy covered the cost of replacement.
- Whether revised availability certificates should have been directed.
The Court held:
- On Question 1: Replacement of damaged ICTs does not qualify as additional work under Regulation 53(2)(iv). “All that the appellant had done was diversion and replacement of ICTs. This cannot be construed as doing any additional work/services,” the Court observed. It reaffirmed that maintaining system health is Powergrid’s statutory obligation.
- On Question 2: The self-insurance policy of Powergrid did cover losses due to fire, and the damage to the ICTs occurred due to fire caused by internal breakdowns. Citing New India Assurance Co. Ltd. v. Zuari Industries Ltd., the Court explained that fire was the proximate cause of damage, and the loss was to be borne from the insurance reserve.
- On Question 3: Since the expenditure was not eligible for capitalisation, the question of issuing directions for revised availability certificates did not arise.
The Court also distinguished the cited precedent of Gujarat Urja Vikas Nigam Ltd. v. Renew Wind Energy (Rajkot) Pvt. Ltd., stating that the Appellate Tribunal in this case had provided cogent reasoning and did not merely endorse CERC’s view.
