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3. The Appellants purchase 90% to 95% of the power from Central and State Generating Companies. Tariff of Central Generating Stations is determined by the Central Electricity Regulatory Commission (‘CERC’) and, therefore, the Appellants have no control over the tariff to be paid to the Central Generating Stations. Simultaneously, the tariff for the State Generating Companies is determined by the State Regulator i.e. DERC.

4. It is the case of the Appellants that since privatization, the ARR determined by the DERC was not even sufficient to meet the actual power purchase cost which has led to creation of a huge revenue gap. It is also contended that the DERC in repeated disregard to its statutory regulations and its own statutory advice has refused to make periodic increase in the tariff rate. The actions of the DERC have resulted in a situation where the Appellants are deeply indebted and have been forced to borrow/take loans to fund their day­to­day operations which, in turn, have also dried up leaving the Appellants without adequate monies to pay their suppliers.

4. Disallowance of interest incurred on Consumer Security Deposit retained by DPCL.
5. Disallowance of Fringe Benefit Tax.
6. Reduction in MUs in relation to Enforcement sale for the purpose of calculation of AT&C Losses (this issue deals with theft/unauthorized use of electricity).

34. Mr. Arvind P. Dattar and Mr. Dhruv Mehta, learned senior counsel appearing for the appellants, would submit that the findings of the APTEL on Issue Nos.1, 2, 3 and 5 are contrary to the binding DERC Tariff Regulations. It is argued that the Regulator cannot ‘change the rules of the game after it has begun’ in the ‘truing up exercise’. In this regard, they have taken us through the findings of the DERC in the Tariff Order and also the findings of the DERC after the truing up stage. It is further argued that the tariff order is in the nature of a quasi­judicial determination and that in the guise of truing up, the DERC cannot amend a tariff order.

47. On the other hand, Mr. Nikhil Nayyar, learned senior counsel appearing for the respondent­DERC, has submitted that one of the facets of tariff determination exercise is the process of ‘truing up’. Since the initial tariff order is prepared by the DERC based on pro­ jections submitted by the Discoms with its ARR petition, the subse­ quent tariff order is issued after the financial year pursuant to the ‘truing up’ exercise. The process of ‘truing up’ requires the DERC to carry out a prudence check. A prudence check is not a mere ac­ counting or mathematical exercise. A prudence check requires a scrutiny of reasonableness of the expenditure incurred or proposed to be incurred by the Discoms and also such other factors that the DERC considers appropriate for determination of tariff. DERC being an expert body, due deference ought to be given to their under­ standing as recorded in various regulations. It is argued that the controlling factor throughout the entire ‘truing up’ exercise is the MYT Regulations itself. It is further argued that the tariff determina­ tion exercise carried out by the DERC is a continuous process. The tariff determination exercise includes the initial tariff order ­ in the instant case it is 23.02.2008 ­ a ‘truing up’ inter alia the ARR and Multi­Year Tariff Order for the years, F.Y. 2007­08 to F.Y.2010­11, as well as the subsequent Tariff Order dated 26.08.2011, inter alia, ‘true up’ for F.Y. 2008­09 and F.Y. 2009­10. Mr. Nayyar has placed reliance on the judgment of this Court in Gujarat Urja Vikas Nigam Limited v. Tarini Infrastructure Limited & Others 2 in support of his submissions.

50. DERC determines ARR of the licensee i.e. costs of undertaking the licensed business which are permitted in accordance with the requirement specified by DERC which is to be recovered from the tariff in the year end. ARR determined by DERC is based on projec­ tions. Since the tariff and the ARR are regulated, the Discoms can­ not recover anything more than from its consumers than what is al­ lowed by the DERC.

51. As noticed above, a tariff order is quasi­judicial in nature which becomes final and binding on the parties unless it is amended or revoked under Section 64(6) or set aside by the Appel­ late Authority. Apart from this, we are also of the view that at the stage of ‘truing up’, the DERC cannot change the rules/methodol­ ogy used in the initial tariff determination by changing the basic principles, premises and issues involved in the initial projection of ARR.