'Replacement Of Damaged Transformers Operational Cost', Supreme Court Dismisses PowerGrid's Plea To Recover ₹24 Crore Through Tariff Hike

In a significant ruling, the Supreme Court on Monday (May 5) dismissed Power Grid Corporation of India's appeal seeking to recover ₹24 crores in replacement costs for damaged transformers through electricity tariffs. The Court held that replacing Inter-Connecting Transformers due to operational failure constitutes an operational expense, not 'additional work', and therefore does not justify a tariff revision to pass the cost onto consumers.

The bench comprising Justices Abhay S Oka and Ujjal Bhuyan heard the case arising from a 2006 incident when three critical Inter-Connecting Transformers (ICTs) in PowerGrid's Rihand transmission systems failed during peak summer demand. The company hastily diverted transformers from other substations to maintain Delhi's power supply, later seeking to recover costs through additional capitalization claims under CERC tariff regulations, revised tariff determinations, and insurance recoveries.

Placing reliance on the Regulation 53 of the Tariff Regulation, the judgment authored by Justice Bhuyan rejected the Powergrid's argument of inclusion of the replacement cost of ICTs as an additional work/services. Instead, the Court said that it remains a routine work covered under operational cost as Regulation 53 permits extra costs only for new works, deferred liabilities, or legal mandates, not routine maintenance.

The Court added that it was the duty of the appellant to maintain a healthy transmission system, replacement of damaged equipment(s) is part of operation and maintenance.

“Thus, it is evident that Regulation 53 does not include within its scope replacement of ICTs due to damage or failure. Regulation 53(2)(iv) says that any additional work/services which have become necessary for the efficient and successful operation of the project but not included in the original project cost may be admitted by the CERC as additional capital expenditure. Contention of the appellant that such a provision would apply to it also 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. On the contrary, we concur with the contention of some of the respondents that as a central transmission utility, it was the duty of the appellant to maintain a healthy transmission system; replacement of damaged equipment(s) is part of operation and maintenance.”, the court said.

Accordingly, the Court dismissed the appeal and upheld the CERC's and APTEL's finding that Powergrid, as a transmission utility, must bear operational risks without passing costs to consumers.

Case Title: POWERGRID CORPORATION OF INDIA LIMITED VERSUS CENTRAL ELECTRICITY REGULATORY COMMISSION & ORS.

Citation : 2025 LiveLaw (SC) 535

Click here to read/download the judgment

Appearance:

For Appellant(s) Ms. Swapna Seshadri, Adv. Mr. Pramod Dayal, AOR Mr. Nikunj Dayal, Adv. Mr. Utkarsh Singh, Adv. Ms. Sneha Singh Baghel, Adv.

For Respondent(s) Mr. Pradeep Misra, AOR Mr. Daleep Dhyani, Adv. Mr. Manoj Kumar Sharma, Adv.