Tamil Nadu Electricity Board vs Tamil Nadu Electricity … on 8 May, 2008

Appellate Tribunal For Electricity
Tamil Nadu Electricity Board vs Tamil Nadu Electricity … on 8 May, 2008
Bench: B T H.L., M Goel

ORDER

1. This is an application for condonation of delay in presenting the appeal. The appeal is preferred against the order dated 06.02.07 passed in Review Petition No. 4 of 2006 titled Tamil Nadu Electricity Board v. Netaji Apparel Park and Ors. by the Tamil Nadu Electricity Regulatory Commission (the commission for short). The appellant in this application submits that there has been an unintentional delay as the local counsel did not apply for a certified copy as was expected by the appellant and subsequently a certified copy was applied for and obtained on 14.03.07. It is further stated that the office of the counsel was shifted around that time which also caused some loss of time. The appeal is presented on 27.04.07 and was re-filed on 21.08.07. The initial delay in presenting the appeal was of 36 days. The delay in re-filing is attributed to the shifting of the lawyer’s office.

2. We have heard the counsel for both the sides. The respondents dispute the sufficiency of the cause for delay. However, the basic thrust for opposition for application for condonation of delay has been that the appeal has become infructuous in view of certain decisions rendered by this Tribunal and also because the impugned order has already been implemented. This takes us to the facts in the appeal. The appellant is an Electricity Board and is responsible for distribution of energy for the area in which the respondents are situated. The respondents Netaji Apparel Park, Palladum Hit-Tech Weaving Park and Tirupur Export Knitwear Industrial Complex are groups of manufacturers. They applied for a single HT connection for their respective areas in which they had grouped themselves intending to take LT connections to individual manufacturers ends from the common HT supply. This was opposed by the appellant. The Commission vide an order dated 20.03.06 granted them the benefit of single point HT supply. The appellant filed a Review Petition contending that this relief would be opposed to the relevant rules. The review petition was dismissed vide the impugned order. On 23.04.08, Mr. Ramji Srinivasan, Sr. counsel appearing for the appellant/applicant stated that single point HT connection to Netaji Apparel Park and Palladum Hi-Tech Weaving park had already been ordered whereas Tirupur Export Knitwear Industrial Complex was required to make some payment of certain outstanding dues in order to get similar connections to be activated. Mr. Srinivasan, submits that the appellant had no option but to comply with the orders of the Commission and therefore, the appellant proceeded to comply with the order without prejudice to its pleas in the appeal.

3. The initial delay in filing the appeal has not been too long. Having heard Mr. Ramji Srinivasan, Mr. Jayanth Muthraj and Mr. Renga Pasityan, we feel that there is a substantial question to be gone into the matter. The appellant claims that the rules would require the three groups of manufacturers to obtain distribution license before they can undertake the function of distribution after having obtained HT supply at a common point. The previous decision of this Tribunal in the case of A. No. 32 of 2007 – Malwa Industries Ltd. v. Punjab State Electricity Regulatory Commission and in the case of Universal Cables Ltd. and Anr. v. Madhya Pradesh State Electricity Regulatory Commission abd Anr. in Appeal No. 20 & 77 of 2007 did not deal with a situation which is entirely similar to the situation in the present case. The two decisions, mentioned above, were decisions on the right of a captive power plant to supply energy to other consumers. The question here is, however, as to whether a group of consumers can obtain a common HT connection and distribute among themselves LT supply out of common connection according to the Rules and Regulations and further whether the Review Petition could be rightly dismissed vide the impugned order. In view of the fact that a substantial question is required to be gone into we feel it appropriate to condone the delay and to entertain the appeal. Hence the Interlocutory Application is allowed.

4. Pronounced in open court on this 08th day of May, 2008.

Delhi Metro Rail Corporation … vs Delhi Transco Limited Through Its … on 8 May, 2008

Appellate Tribunal For Electricity
Delhi Metro Rail Corporation … vs Delhi Transco Limited Through Its … on 8 May, 2008
Bench: K T A.A., M Goel


JUDGMENT

Manju Goel, Member (J)

1. This appeal is directed against the order of the Delhi Electricity Regulatory Commission, respondent No. 6 herein, dated 09th May, 2007, whereby it dismissed the application of the appellant for grant of distribution license.

2. The case of the appellant in brief is as under: The appellant, Delhi Metro Rail Corporation Ltd. (DMRC for short), a joint venture company of the Government of India and the Government of National Capital Territory of Delhi, is in the process of constructing a Mass Transit Rapid System for Delhi and part of the system has already been developed and is operative. Electricity is the only source of energy for operation of the metro system. Any interruption in power supply may have serious repercussions on the safety and security of the system and convenience of the passengers. The power supply on a regular basis is required for running the trains of the metro as well as other purposes like illumination at stations, air conditioning and tunnel ventilation in underground corridors for supply to the kiosks, shops, food mart etc. as well as for operational requirements and workshops within the appellant’s premises. Each metro line is designed to receive power from two or three high voltage supply points to take care of any eventuality of disruption of supply at any point. The appellant, DMRC, will be required to distribute electricity in the metro rail system at different places and has already a distribution system in the DMRC area. The area of operation of appellant (which is a long corridor with the metro railway and stations etc.) is a well defined area. The appellant is required to supply power to all entities who are operating amenities including shops and other establishments in the precincts of the metro railway. Section 6(2) (h) of the DMRC Act 2002 empowers a metro rail administration “to lay down or place electric supply lines for conveyance and transmission of electricity and to obtain license for that purpose”. Accordingly, the appellant has laid supply lines and has commissioned their own system to effectively distribute power in its own area of operation to vendors and other consumers of power. In the area of operation of DMRC no other person including distribution licensee or transmission licensee or any other authority under the Electricity Act 2003 can either interfere or control the working of the appellant or its power system. The operation and maintenance of power system in DMRC area of operation cannot be left to the distribution licensees or others. On 25th July 2002, the appellant filed an application under the Delhi Electricity Reforms Act 2000 for grant of supply license. The application was taken up for consideration and vide a letter dated 20.11.02, the Delhi Electricity Regulatory Commission, the Commission for short, called upon the appellant to take steps for public notice. On account of certain negotiations with the already existing transmission and distribution licensees which are respondents 1 to 5, the appellant amended its application for license and asked for grant of license for distribution and supply of electricity restricted to the area of operation and excluded the area outside the metro system which had been given to the appellant for real estate development. While the application for license was pending, the Electricity Act 2003 came into force on 10th June, 2003. The earlier Acts namely the Indian Electricity Act 1910, the Electricity (Supply) Act 1948 and the Electricity Regulatory Commission Act 1998 were repealed. The State enactments including the Delhi Electricity Reforms Act 2000 continued to apply only to the extent it was not inconsistent with the provisions of Electricity Act 2003. As per Section 12, read with Sections 14, 15 of the Electricity Act 2003, license is required for transmission, distribution and trading in electricity whereas the Delhi Electricity Reforms Act only prescribes license for transmission and supply of electricity. The appellant accordingly amended its application for grant of distribution license. As per requirement of the Commission, the appellant also issued public notice for the application of grant of license inviting objections/suggestions. The respondents 2, 3 & 4 as well as Association of Manufacturers filed objections to the application. However, meanwhile on 23rd March, 2005, the Government of India notified the Distribution of Electricity License (Additional Requirements of Capital Adequacy, Credit Worthiness and Code of Conduct) Rules 2005 hereinafter referred to the Rules under the sixth proviso to Section 14 of the Electricity Act 2003. It is important to mention here that these rules, inter alia, prescribed the minimum area requirement according to which in the area of an already existing distribution licensee, another license can be given provided the second licensee is willing to supply electricity to a minimum area which will be equal to the area of a revenue district. The appellant filed its response to the objections raised by the respondents who opposed the application for grant of license. The Commission rejected the application for grant of license vide the impugned order dated 09th May, 2007.

3. The appellant has challenged the impugned order on various grounds. But the principal question that has been raised can be seen from the ‘facts in issue’ culled out by the appellant as under:

(a) FACTS IN ISSUE:

Whether the area of operation of DMRC as stated in Paragraph 7 (32) herein above falls within the area of operation of the existing distribution licensees so as to attract the sixth proviso to Section 14 of the Electricity Act, 2003 notwithstanding that the area of operation of DMRC is exclusively managed and controlled by DMRC under the provisions of the Delhi Metro Railway (Operation and Maintenance) Act, 2002 and the Rules framed thereunder.

4. The appellant has cited various legal provisions of the Delhi Metro Railway (Operation & Maintenance) Act 2002 (DMRC Act for short) and claims a right to get a license by virtue of provisions of this Act. Further, the appellant claims that it is eligible to get a license despite the operation of the rules as the appellant cannot be treated as a second licensee on account of certain provisions of DMRC Act. All the claims of the appellant were refuted before the Commission. Even before this Tribunal the Respondents 1 to 5, the transmission & distribution licensees have vehemently opposed the prayer for a distribution license made by the appellant. On the basis of contentions of different parties the Commission framed the following issues:

I. Whether the instant application for the grant of Distribution and Retail Supply License for electricity is to be considered under the provisions of Delhi Electricity Reform Act, 2000 or the Electricity Act, 2003?

II. Whether the instant application for the grant of Distribution and Retail Supply License for electricity is to be considered under the provisions of Delhi Metro Railway (Operation & Maintenance) Act, 2002 or under provisions of Electricity Act, 2003?

III. Whether the area of operation of the Applicant is an exclusive area and does it overlap the area of supply of other distribution licensees including the deemed licensee?

IV. Whether the Applicant requires a distribution license?

V. Whether the application of DMRC satisfy the condition of minimum area of supply constituting at least a revenue District as laid down in the Distribution of Electricity License (Additional Requirements of Capital Adequacy, Credit Worthiness and Code of Conduct) Rules, 2005, framed under the 6th proviso to Section 14 of the Electricity Act, 2003.

5. The Commission held that the Electricity Act 2003 and Rules and Regulations made thereunder will govern the application of the appellant for grant of distribution license and not the Delhi Electricity Act 2000. For coming to this conclusion, the Commission relied upon the provisions of Section 185(3) of the Electricity Act 2003 by which the Delhi Electricity Reforms Act 2000 has been saved only to the extent the provisions are not inconsistent with the provisions of the Electricity Act 2003. The Commission further observed that the Electricity Act 2003 is a later Act. In the appeal, again this aspect of the case has been reiterated by the appellant.

6. On the second issue, the Commission held that the DMRC Act only enables the appellant to make an application for obtaining a license. The Commission also observed that Section 173 of the Electricity Act 2003 gives over riding effect to the Act and makes an exception only to the three Acts: The Consumer Protection Act 1986, Atomic Energy Act 1962 and the Railways Act 1989. Further the DMRC Act has no provision for dealing with grant of distribution license. The Commission, therefore, concluded that for grant of distribution license, the provision of Electricity Act 2003 and Rules and Regulations made thereunder will have to be applied. The appellant reiterates in the appeal that DMRC has an over riding effect and therefore license cannot be refused to it by application of Electricity Act 2003.

7. Coming to the issue No. 3, the Commission held that the area of operation of the appellant, DMRC, for which the DMRC wants a license, is not a distinct area and that the area of operation of the DMRC is a super imposition on the geographical area of supply of the three distribution licensees and the New Delhi Municipal Corporation

8. On the fourth issue, the Commission held that DMRC cannot be treated as a deemed licensee on account of various provisions of the DMRC Act and therefore it cannot distribute electricity without a license.

9. Coming to the fifth issue, the Commission found that the appellant is not able to satisfy the condition of the minimum area of supply as provided for by the Rules and therefore was not entitled to a license. This aspect of the finding of the Commission is also under challenge in the appeal. The appellant reiterates that on account of the status of the DMRC as given in the DMRC Act, DMRC cannot be treated as falling in the area of supply of any of the distribution licensee and therefore the minimum area of supply condition need not be satisfied by it. In other words, the appellant claims that it cannot be treated as a second licensee in the area of an already existing licensee and hence not liable to fulfill the minimum area criterion.

10. We have heard the learned Counsel for the parties in respect to the various pleas raised by them. The parties have also given their written submissions. We have carefully examined the various pleas given by the parties and have gone through the legal provisions cited by them.

11. The particular provision relied upon by the appellant for claiming to be entitled to a licence is as under:

6. Powers of metro railway administration.-(1) …

(2) Without prejudice to the generality of the foregoing provision, such power shall include the power to –

(a) …

(b) …

(c) …

(d) …

(e) …

(f) …

(g) …

(h) lay down or place electric supply lines for conveyance and transmission of energy and to obtain licence for that purpose; and

(i) …

12. As against this provision, we encounter the provisions of Section 14 laying down the condition for grant of license. The sixth proviso which is relevant for our purpose is as under:

Provided also that the Appropriate Commission may grant a licence to two or more persons for distribution of electricity through their own distribution system within the same area, subject to the conditions that the applicant for grant of license within the same area shall, without prejudice to the other conditions or requirements under this Act, comply with the additional requirements relating to the capital adequacy, creditworthiness, or code of conduct as may be prescribed by the Central Government, and no such applicant, who complies with all the requirements for grant of licence, shall be refused grant of licence on the ground that there already exists a licensee in the same area for the same purpose:

13. Mr. M. G. Ramachandran, learned Counsel appearing for the appellant states that if the license is declined by application of the sixth proviso to the Section 14, Section 6 (2) (h) of the DMRC Act will be rendered redundant and therefore no such interpretation of law should be made. He has referred to various authorities in support of his plea on the aspect of interpretation of statute.

14. However, in our opinion there is no area in which there is any conflict between the DMRC Act 2002 and the Electricity Act 2003. Section 6 (2) (h) only deals with the requirement of the Rapid Mass Transport System and makes legal provision, enabling the appellant to fulfill that requirement. One of the requirements is to lay electric supply lines for conveyance and transmission of energy. The Metro Rail runs on the electricity energy only and does not depend upon any other energy or fuel. For establishing the metro tracks as well as for running the metro trains it is essential that the electricity supply lines are laid for conveyance and transmission of energy. The function of distribution of energy within the precincts of the metro rail premises, was not one of the functions stipulated by Clause (h) of Section 6 (2) of DMRC Act, 2002. Clause (h) does not refer to distribution of energy. Nor does it refer to the power or obligation regarding the license for the purpose of distribution. Section 6 says that the DMRC would have power to obtain a license. Such a license was for the purpose mentioned in Clause (h). The provision was to lay down or place electric supply lines for conveyance and transmission of energy. The license here is for laying down lines. This is not what the DMRC has prayed in the application for license. DMRC has prayed for a distribution license or, in other words, license for supplying to consumers other than the DMRC. Section 6 (2) (h) does not deal with any such situation. We do not see any reason why we need to go into any question as to whether the DMRC Act or the Electricity Act 2003 has to prevail. The two Acts operates in two distinct spheres of operation. There is no conflict between the two Acts. The Section 6 (2) (h) does not become redundant on account of application of sixth proviso of the Section 14 of the Electricity Act 2003. It may be added here that Section 6 (2) (h) only enables the DMRC to obtain a license. In any case, a license has to be applied for and obtained under the relevant Rules. DMRC Act makes no exception in this regard. Nor does Section 6 (2) (h) create a vested right in the DMRC for any license, far less a distribution license.

15. The next question that we may now deal with is whether the application for license has to be considered under the Delhi Electricity Reforms Act 2000 or under the Electricity Act 2003. The contention of the appellant, DMRC, is that it applied for a distribution license before Electricity Act 2003 came into force and before coming into force the Rules in 2005. The appellant’s contention is that the application is required to be considered on the basis of the enactment and Rules as was in force as on the day when the application was made. The same question came up for consideration before us in a group of cases being Appeal Nos. 179 of 2005, 188 of 2005, 16 of 2006 and 27 of 2006 in which the question was whether M/s. Jindal Steel and Power Ltd., the applicant before the Chhattisgarh State Electricity Regulatory Commission, was entitled to a distribution license without adhering to the Rules regarding the minimum area of supply as an application was made before the Rules had come into force. This Tribunal having considered the arguments put forth by the parties in that case relied upon the judgment of the Supreme Court in the case of Howrah Municipal Corporation and Ors. v. Ganges Rope Company and Ors. and held that the pending application for license has to be considered under the Rules in force at the time when the application is taken up for consideration and not under the Rules which were in force when the application was filed. We can extract paragraph 47 of our judgment in the case of Jindal Steel & Power Ltd. (supra):

47) The rulings cited by Mr. Shanti Bhushan related to the field of service law and in each of these cases some kind of vested interest has been created when the amended/new provision came into existence. The case of Howrah Municipal Corporation (supra) as also that of Indian Charge Chrome (supra) are actually in the arena of administrative law. Both these judgments have unequivocally ruled that filing of an application before any administrative authority will not create any vested right. These judgments also hold that the authority has to apply the rules and legal provisions as in force on the date on which the applications are considered. Accordingly on the date when the application for licence under Section 14 filed by JSPL was under consideration the Commission was required to apply the regulation then in force which included the rule related to minimum area of supply. Hence, the Commission could not have ignored the rule and grant a license in violation thereof. It may further be added that the rules and regulations do not empower the Commission to make any exception in their application and hence the Commission made a mistake in granting the license by making such an exception. Hence, we have no option but to set aside the grant of license.

The same principle is applicable to the case of the appellant.

16. The appellant contends before this Tribunal that the area of operation of DMRC is exclusive as it is protected by various provisions of DMRC Act 2002. Further it is contended that in view of this protection: (a) no distribution company can enter into the area of operation of DMRC, (b) the area of operation of DMRC therefore cannot fall within the area of supply of any of the distribution licensees leading to the conclusion that the DMRC cannot be treated as a second licensee in the area of an already existing licensee. In order to assert this the appellant relies upon the following provisions of the DMRC Act:

a. Sections 31, 64, 67, 68, 74 etc. of the DMRC Act;

b. Chapter X Rules 65 to 80 of the Delhi Metro Railway General Rules, 2002 dealing with power supply and traction arrangement; and

c. Chapter X Rules 37 to 41 of the Opening of Delhi metro Railway for Public Carriage of Passengers Rules, 2002 dealing with Design and Inspection of Equipment for Electric Traction.

17. We can now proceed to see to what extent these provisions debar any distribution license to enter into the area of operation of DMRC. Section 31 gives power to the DMRC to remove persons from the metro railway and its carriages. Section 64 of the DMRC Act 2002 makes any person entering upon the metro railway without any lawful authority liable to imprisonment and fine. Section 67 makes obstructing running of trains a punishable offence. Section 68 prescribes that the person who willfully obstructs or prevents any metro railway official in discharge of his duties will be punished with imprisonment and fine. Section 74 deals with malicious wrecking of train or causing sabotage and makes such acts punishable.

18. Rules 65 to 80 of the Delhi Metro Railway General Rules 2002 prescribe rules for working of the power supply and traction system. It is not necessary to quote all the rules in detail. Only the caption of these rules will suffice to understand the scope of these rules which are as under:

65. Switching on, and off, of traction and power supply distribution

66. Access

67. Arcing and fire

68. Inspection of electrical way and works

69. Issue of Caution Order

70. Protection of trains in case of overhead equipment failure or breakdown

71. Permit-to-work on electrical equipment

72. Work on service buildings and structures in the vicinity of live equipment

73. Warning to staff and public

74. Alterations to track

75. Tripping of circuit breakers of electrical Multiple Units/Other self-Propelled vehicles neutral sections

76. Tower Wagon or Inspection Car

77. Working of ladder trollies

78. Additional rules for electrified sections

79. Sectioning and Siding Switches

80. Procedure for preventing admission of electric rolling stock into or over sections of track with dead or earthed overhead lines

19. We have carefully scrutinized these rules. None of these rules is inconsistent with any of the respondents having distribution license in the area of supply of the DMRC.

20. The 37 – 41 of the Opening of Delhi Metro Railway for Public Carriage Passenger Rules 2002 are contained in Chapter X of these rules which deal with design and inspection of equipments for electric traction. As done in the previous paragraph, we give the subject of each rules as under:

37. Design and inspection of equipment for electric traction

38. Display of caution boards and notices

39. Protection of private property against inductive effects of AC traction

40. Approval of energization of high tension lines

41. Procedure for energization of traction installations

21. None of these rules say that the entry of any distribution company into the area of operation of DMRC is barred. Nor are these provisions inconsistent with the existence of any distribution license other than the DMRC itself.

22. Undoubtedly the DMRC is entitled to protect its area of operation. The law permits the DMRC to remove any unauthorized person who is present in its precincts. Even if the DMRC Act had not made specific provisions for punishing intruders and unauthorized persons in the DMRC’s area of operation, the DMRC would have been entitled to remove them by virtue of the general law available in this regard. Such provisions do not automatically make the presence of a distribution licensee unauthorized. Nor does it make it impossible for a distribution licensee to supply/distribute power to DMRC. The DMRC so far has not disallowed the presence of the distribution licensee within its precincts. So far the DMRC has not declared the presence of any employee of the respondents as unauthorized for any reason. Mr.M.G.Ramachandran initially tried to make out a case that no distribution license has ever been issued for the area of operation of the DMRC. However, when the DMRC started its operation in 2002 the distribution licensees were already in place. The entire Delhi was divided into areas of supply of one distribution licensee or the other or of New Delhi Municipal Committee and the Delhi Cantonment Board. The DMRC is laying tracks through these areas of supply. There is no law which denudes any distribution company of its area of supply the moment the metro tracks are laid by DMRC. Therefore, the DMRC cannot claim that it is not asking for a second license in the area of supply of an already existing distribution licensee.

23. If DMRC is seeking a second license in the area of supply of a distribution licensee, it has to fulfill the conditions of the Rules. Admittedly, it is unable to fulfill the condition of minimum area of supply and hence not entitled to a license.

24. It is contended on behalf of the appellant that the DMRC is a Company of the Central Government and that of the National Territory of Delhi and financially supported by them and that this is sufficient to fulfill the requirement of capital adequacy, creditworthiness provided by the notification. We are unable to agree to this contention of the learned Counsel for the appellant. DMRC is a Company just as any other powerful or rich company in the country. No exception can be carved out for DMRC because the company is entirely owned by the Central Government and the Government of National Capital Territory of Delhi. Neither the DMRC Act 2002 nor the Electricity Act 2003 makes any exception for companies held by the Government.

25. In view of our above analysis, we find that DMRC is not entitled to a distribution license in the area of its operation. The appeal is therefore, dismissed leaving the parties to bear their own costs.

26. Pronounced in open court on this 08th day of May, 2008.

Hyderabad Chemicals Limited Rep. … vs Andhra Pradesh Electricity … on 8 May, 2008

Appellate Tribunal For Electricity
Hyderabad Chemicals Limited Rep. … vs Andhra Pradesh Electricity … on 8 May, 2008
Bench: A D Singh, B T H.L.


JUDGMENT

Anil Dev Singh, J. (Chairperson)

1. These appeals arise from common order dated July 9, 2007 passed by Andhra Pradesh Electricity Regulatory Commission (for short ‘APERC’) in OP No. 40 of 2006 and OP No. 41 of 2006. Therefore these two appeals are being disposed of together. Appeal No. 123 of 2007 is being treated as the lead matter.

Appeal No. 123 of 2007

2. The facts lie in a narrow compass.

3. The appellant has set up wind based power project at Kadavakkallu Village in Anantpur District for its captive consumption and for sale to APTRANSCO. On March 31, 2005, the project was synchronized and the date was treated as the commercial operation date of the project. The A.P. Central Power Distribution Co. Ltd and the appellant entered into power purchase agreement on June 9, 2006. However, before the execution of the agreement and before the COD was given, the appellant approached APTRANSCO by means of a letter dated February 26, 2005 stating to the effect that in case the appellant pumps the energy into the grid of APTRANSCO before commissioning of the project and before entering into a PPA or necessary banking cum wheeling agreement, APTRANSCO will not be required to pay any consideration for the same. Again, by letter dated March 31, 2005, the appellant informed APTRANSCO to the effect that no claim will be made by the appellant for the power pumped by it into the grid of APTRANSCO, without finalization of the PPA or the wheeling cum banking agreement with APTRANSCO.

4. Subsequently, contrary to its aforesaid letters appellant filed petitions before the Regulatory Commission claiming from the licensee payment for the power pumped into the grid from its generating station with effect from March 31, 2005 to June 8, 2006. But the Commission by the impugned order rejected the petition.

5. Short question involved in the appeal is whether the appellant is entitled to payment for the energy pumped into the grid from its generating station with effect from March 31, 2005 to the date PPA was entered into between the appellant and the second respondent.

6. We have heard learned Counsel for the parties. In order to determine the question it will be necessary to refer to two letters of the appellant dated February 26, 2005 and March 31, 2005 and the terms of the PPA with reference to which arguments were addressed by the learned Counsel for the parties. There cannot be any controversy with regard to the meaning of the letters dated February 26, 2005 and March 31, 2005. These letters categorically state to the effect that the power generated by the plants of the appellant and pumped into the grid of APTRANSCO shall be free of cost to APTRANSCO until PPA and wheeling cum banking agreement are executed by them.

7. At this stage, it will be appropriate to set out the relevant parts of the letters:

Letter dated February 26, 2005
In this context we wish to submit that in case we don’t have PPA or necessary Wheeling cum Banking agreement entered into with A.P. Transco before commissioning of the project then the energy that is pumped in to the grid of A.P. Transco on commissioning of the project would be to the account of APTRANSCO only for which APTRANSCO shall not pay any consideration. We also state that if we run the power plant without the necessary PPA or wheeling cum banking agreement in place then all such power that is generated and pumped into the grid of APTRANSCO during such period shall be free of cost to APTRANSCO.

Letter Dated March 31, 2005

With reference to the cited subject we wish to inform your good selves that the generation that is going to be pumped into the grid of A.P. Transco at 132/33 KV Komatikuntala sub station will not be claimed, whenever the plant under operation without finalizing the PPA or banking arrangement or wheeling cum banking arrangement with A.P. Transco.

However we are willing to pay for the consumption during the above operations under HT.I temporary supply.

8. Thus, it is apparent that the appellant clearly stated that it will not charge for the energy pumped into the grid of APTRANSCO before the finalization of the PPA and wheeling cum banking agreement. This means till PPA and wheeling cum banking agreement were not finalized, the energy was to be pumped into the grid by the appellant gratuitously. The aforesaid letters reveal that the energy was not to be paid for by the licensee. Thus, there was no element of sale of energy by the appellant to the licensee.

9. The learned Counsel for the appellant urged that the appellant was entitled to be paid for the energy received by the licensee as per the PPA executed between the appellant and the second respondent. With a view to support its plea, learned Counsel for the appellant drew our attention to the various Articles of the agreement. The relevant clauses read thus:

2.1 All the Delivered Energy at the interconnection point for sale to APCDCL will be purchased at the tariff provided for in Article 2.2 from and after the date of Commercial Operation of the Project. Title to Delivered Energy purchased shall pass from the Company to the APCPDCL at the Interconnection Point.

2.2 The Company shall be paid the tariff for the energy delivered at the interconnection point for sale to APCPDCL at Rs. 2.70 ( Rupees two and seventy paise only) per unit or the Tariff fixed by APERC from time to time; whichever is lower during the Agreement period. Notwithstanding the tariff indicated above there will be a special review of purchase price on completion of 10 years from the date of commissioning of the project, when the purchase price will be reworked on the basis of Return on Equity, O & M expenses.

ARTICLE 7

DURATION OF AGREEMENT

This agreement shall be effective upon its execution and delivery thereof between parties hereto and shall continue in force from the Commercial Operation Date (COD) and until the twentieth (20th) anniversary that is for a period of twenty years form the Commercial Operation Date (COD). This Agreement may be renewed for such further period of time and on such terms and conditions as may be mutually agreed upon by the parties, 90 days prior to the expiry of the said period of twenty years, subject to the consent of the APERC. Any and all incentives/conditions envisaged in the Articles of this Agreement are subject to modification from time to time as per the directions of APERC with the tariff at Rs. 2.70 ( Rupees Two and seventy paise only) per unit or as fixed by APERC from time to time, whichever is lower during the Agreement period.

10. Referring to Clause 2.1, the learned Counsel for the appellant submitted that all delivered energy, at the inter-connection point, to the licensee is to be purchased at the tariff fixed in Article 2.2. The learned Counsel also contended with reference to Article 2.2 that the appellant is to be paid tariff for the energy delivered to the distribution company at Rs. 2.70 per unit. The learned Counsel further argued that the respondent distribution company is liable to pay to the appellant for the energy pumped into the grid with effect from the date of commercial operation of the project viz. March 31, 2005.

11. At the first blush, the argument seems to be attractive and plausible. A close look at Article 2.1 leaves no manner of doubt that at the inter-connection point the delivered energy that is for sale to the distribution company will be purchased by the distribution company. Therefore, it follows that the delivered energy which is not for sale, is also not for purchase and therefore will not be paid for. The letters dated February 26, 2005 and March 31, 2005 show that the energy that was pumped into the grid before execution of PPA & wheeling cum bank agreement was not for sale but was to be supplied free of charge to the licensee. Since there was no sale of energy, consequently, there was no purchase thereof.

12. Article 2.2 read with Article 2.1 will apply only in a situation where sale has taken place. Since no sale of energy has taken place, Articles 2.1 and 2.2 are not attracted.

13. The learned Counsel for the appellant laid emphasis on Article 7 of the agreement and canvassed that it gives retrospective effect to the agreement, particularly Articles 2.1 and 2.2. As a sequitur it was submitted that the concession made in the aforesaid letters cannot defeat the claim of the appellant based on actual supply of electricity to the second respondent before the execution of the PPA. We have already held that Clauses 2.1 and 2.2 are not attracted. Therefore, even if it be assumed for the sake of argument that Articles 2.1 and 2.2 have a retrospective operation it will still be of no consequence in so far as the claim of the appellant is concerned. Since there was no sale of energy by the appellant to the licensee till the execution of the PPA between the appellant and the licensee during the period in question, Articles 2.1 and 2.2 have no application.

14. The learned Counsel for the appellant submitted that in any event the respondent is bound to make compensation to the appellant for the use of the energy fed into the grid by the appellant under Section 70 of the Contract Act, 1872. It appears to us that Section 70 of the Contract Act cannot be invoked by the appellant as the appellant intended to deliver the energy gratuitously. It is well settled that where a person delivers anything to another person gratuitously, there is no obligation of the person to whom delivery has been made to make compensation to the former. Compensation can be claimed only in such cases where conditions of Section 70 of the Contract Act are satisfied. In this regard, reference can be had to the decisions of Supreme Court in Mulamchand v. State of M.P. , and State of West Bengal v. B.K. Mandal & Sons .

15. The appellant voluntarily pumped electricity into the grid of the licensee free of charge. Once the power is delivered into the grid, it is instantaneously consumed and the licensee has no choice to reject the supply.

16. In this view of the matter, the appeal fails and is hereby dismissed but without any order as to cost.

Appeal No. 124 of 2007

17. The issues involved in this appeal are similar to the ones raised in Appeal No. 123 of 2007. Since appeal No. 123 of 2007 has been dismissed, the instant appeal shall meet the same fate. Consequently, the appeal fails and is hereby dismissed but without any order as to cost.

Maharashtra State Power … vs Maharastra Electricity … on 10 April, 2008

Appellate Tribunal For Electricity
Maharashtra State Power … vs Maharastra Electricity … on 10 April, 2008
Bench: K T A.A., M Goel


JUDGMENT

A.A. Khan, Member (T)

1. M/s Maharashtra State Power Generation Company Ltd., MSPGCL in short, (the Appellant) is a company formed under the Government of Maharashtra General Resolution no. ELA-003/P.K.8588/Bhag-2/Urja-5 dated 24 January 2005, after re-organization of the erstwhile Maharashtra State Electricity Board. The Appellant is in the business of generation of electricity in the State of Maharashtra. The Appellant submitted its application for approval of Annual Revenue Requirement (ARR) and Tariff Petition for the years 2005-06 and 2006-07 in February 2006 before the Maharashtra Electricity Regulatory Commission (MERC or the Commission). MERC through its order dated 7 September 2006 determined the ARR and tariff for the Appellant. The Appellant sought a review of the above order of the MERC on various issues through petition filed on 19 October 2006, which was disposed of by the MERC through its order dated 07 December 2006. The Appellant was aggrieved by the said order of the MERC, hence has filed the present appeal (86 of 2007 on 22 January 2007) challenging the order dated 07 September 2006 read with 07 December 2006, to the extent relating to the following issues:

A. Administrative and General Expenses

B. Transit Loss of Coal

C. Station Heat Rate

D. Tariff for Small Hydro Power Station

2. Also, the Appellant submitted its petition for approval of ARR and determination of Multi Year Tariff for the first control period of FY 2007-08 to 2009-10. The Commission through its order of 25 April 2007 approved ARR and determined tariff for the period 2007-08. Aggrieved with the said order of the commission, the Appellant on 05 June 2007 filed an Appeal before this Tribunal (Appeal No. 87 of 2007) on the following issues:

E. Truing up for fuel expenses for 2005-06

F. Disapproval of A&G expenses

G. Truing up of Depreciation

H. Truing up of other debits

I. Truing up of Interest expenses and Finance Charges

J. Truing up of Revenue Earned

K. Transit Loss of Coal

L. Station Heat Rate

M. Auxiliary Consumption of Various Station

N. Specific Oil Consumption

O. O&M Expenses for Base Year for MYT Period

P. Hydel Tariff

Q. Tariff for Small Hydro Power Station

R. Reactive Energy Charges

S. Normative O&M Expenses for Hydel Plants

T. Employee Incentive Schemes

3. Since most of the grounds raised in these two appeals are common, we intend to dispose of both the appeals through this combined judgment.

4. From the order dated 07 September 2006 (page 11) of the MERC, we observe that the Commission notified the MERC (Terms and Conditions of tariff) Regulation, 2005, referred to as Tariff Regulations, in the State Government Gazette on 23 August 2005. The said Tariff Regulations superseded earlier Regulations issued in 2004 and became effective from the date of their publication in the Official Gazette. At para B.2, the Commission has stated that:

As per the MERC Tariff Regulations, the MYT regime was to be introduced with effect from FY 2006-07. However, the commission vide its Order dated 20 December 2005 granted exemption to utilities for implementation of MYT by one year and directed utilities to file ARR and Tariff Petition for FY 2006-07.’

5. At para A of Chapter 4 (page 30), it is stated that:

The Commission, in its Order dated April 13, 2006, had indicated that for FY 2005-06, the determination of ARR shall be according to the principles stipulated in the previous Tariff Order for that utility. For MSPGCL, this is the MSEB Tariff Order for FY 2003-04 dated March 10, 2004.’

6. Further, at para A of Chapter 5 (page 39), it is stated that:

The Commission, in its Order dated April 13, 2006, had indicated that for FY 2006-07, the determination of ARR & Tariff shall be according to the MERC Tariff Regulations. Wherever, MERC Tariff Regulations are silent or cannot be directly applied, the Commission has explained in detail its rationale in such cases.

7. From the above, we observe that applicable principles/regulations are as under:

i) Determination of ARR for FY 2005-06 shall be according to the principles stipulated in the previous Tariff Order for that utility. For MSPGCL, this is the Maharashtra State Electricity Board (MSEB) Tariff Order for FY 2003-04 dated March 10, 2004

ii) Determination of ARR and tariffs for the FY 2006-07 shall be according to the Tariff Regulations issued by the Commission on 23 August 2005 in the Official Gazette.

8. In the above background, we may take up the grounds of appeal preferred by the Appellant one by one:

A. & F. Administrative and General Expenses (A&G Expenses)

9. The Appellant in its petition before the MERC had projected a sum of Rs. 24.60 crore for 2005-06 and Rs. 25.83 crore for 2006-07 assuming a nominal increase of 5% per annum over 2004-05 level.

10. The Commission has approved a sum of Rs. 23 crore as A&G expenses for the year 2005-06 by applying an increase of 4.2% per annum over 2003-04 expenses. The Commission has observed that A&G expenses can and should be controlled by the utility and it cannot allow an increase over the actual expenses. The following table gives A&G expenses adopted by MERC during last 4 years:

 

 

 

(Figures in
Rs. Crores)

 

2002-03

2003-04

2004-05

2005-06

A&G
Expenses

23.12

22.53

24.00

24.46

Less
capitalization

1.83

1.83

1.92

2.05

Net A&G
Expenses

21.29

20.70

22.08

22.41

11. The Appellant has supported its claim for actual A&G expenses on the following grounds:

i) At the time of filing of the ARR, the actual A&G expenses incurred were not available. Actual A&G expenses during 2005-06 were stated to be Rs. 35.66 crore;

ii) Actual capitalization being lower at Rs. 3.12 crore than projections at Rs. 5.8 crore (though from page 32 of the ARR petition of the Appellant before the MERC, it is observed that capitalization is projected to be Rs. 5.04 crore for 2005-06); with the above the actual A&G expenses claimed by the Appellant come to Rs. 32.54 crore (Rs. 35.66 crore minus Rs. 3.12 crore capitalized). However as per the Appeal 87 of 2007, the Appellant has submitted the net A&G expenses in FY 2005-06 to be Rs. 29.93 crore after considering capitalization as against approved expenses of Rs. 22.41 crore (para F (ii)) page 24); The Commission, therefore, has allowed Net A&G expenses of Rs. 22.41 crores against the actual amount of Rs. 29.93 crores for FY 2005-06.

iii) Increase in the expenditure was on account of expenditure on security, electricity charges, consultancy charges, rates and taxes, insurance of fixed assets and lease rent for Khaperkheda AHP;

iv) The Appellant has taken up additional programmes such as project and planning work, engaging consultancy services for technical reports, design checks, tendering process for orders, etc. in respect of existing as well as future projects;

v) Outsourcing security personnel during construction of Paras and Parli projects and also staff traveling at the site of these projects;

vi) The Appellant has a larger and huge network compared to other generators in the state namely, Tata Power Co. and Reliance Energy Ltd.

vii) The Commission overlooked the necessity of truing up the Accounts.

12. The Commission in its order of 07 December 2006 has observed (page 5) that ‘as regards A&G expenses, the Commission in all its Tariff Orders has maintained that the A&G expenses can and should be controlled and has approved the expenses based on the principle of reasonable year-on-year increase. The A&G expenses are normative and cannot be passed on to consumers at actuals’.

13. In its response to the Appellant’s submission, the Commission has stated that no norms are fixed even by CERC for A&G expenses because A&G expenses are considered part of O&M expenses…(page 19 of written submission booklet).

14. From the above we find that for the FY 2005-06, the commission has not specified any norms relating to admissibility of A&G expenses and has approved the expenses based on the principle of reasonable year-on-year increase. The impugned order does not explain the reasonableness of selecting escalation rate of 4.2 which is not even sufficient to mitigate the inflation rate.

15. After considering the submissions made by the Appellant and the Respondents, we are of the opinion that the main issue is whether, to determine the quantum of A&G expenses eligible for recovery through tariff in the absence of any laid down norms, the Commission:

i) Should carry out the prudence check on the expenses projected for the year under consideration; or

ii) Should adopt the expenditure allowed in the Tariff Order for dated 10 March 2004 as base and increase by an escalation factor and if yes, then what should be the applicable escalation factor? The Commission has adopted the escalation factor to be 4.2% every year but does not explain the basis for arriving at it.

16. We feel that subjecting the admissibility of various heads under the A&G expenses to prudence check every year would require more efforts on the part of the Commission as well as the utility and would be time consuming but would be closer to the reality and the element of adhocism would be greatly reduced. In this process, extra-ordinary items of expenditure, which are incurred for the first time or are relevant only for a particular period, would get due consideration while firming up the quantum of admissible A&G expenses. This approach is somewhat more flexible in nature. On the other hand, the approach of adopting the base expenditure for a particular year and then applying an escalation factor works on the assumption that nature of expenditure is fairly identifiable and comparable on year-to-year basis. This approach enables the utility to reasonably forecast its cash flows over a period of time but the challenge remains in allowing time-specific expenditure or new items of expenditure and determining the escalation factor which provides adequate safeguard against inflationary factors. Time specific or new items of expenditure expenses could be, for example, in the nature of expenses incurred on study carried out to suggest efficiency improvement in the existing operations of the utility.

17. We feel that considering:

i) that the Appellant is an entity newly created as part of the re-organization of the state power sector;

ii) that the utility has incurred expenditure which is higher partly due to change in business conditions;

iii) the absence of any pre-determined applicable norms in this regard for 2005-06; and

iv) that the escalation factor has not been determined in advance,

The admissibility of A&G expenditure should be determined after carrying out prudence analysis and check instead of adopting the A&G expenses as per the Tariff Order dated 10 March 2004 and then escalating the same by applying 4.2% increase every year without considering the impact of inflation factor.

As regards A&G expenses incurred in respect of projects under construction, we agree with the Commission that A&G expenses incurred towards such projects, cannot form part of the expenditure to be recovered through tariff before these projects are commissioned. Such expenditure need to be capitalized.

18. The Appellant has submitted that the Commission has allowed higher A&G expenses per mega watt of capacity to other generating companies in the state, as under:

Particulars

As approved by Commission for FY 2005-06

Actual FY 2005-06

MSPGCL

TPC

REL

MSPGCL

A&G Expenses relating to generation business
Rs. in crores

24.46

53.39

13.277

33.05

Total Generation capacity – MW

9510

1774

500

9510

A&G Expenses Rs. in lakhs/MW

0.2572

3.0096

2.6554

0.347

19. We feel that on the face of it the claim of the Appellant carries some force as we could not get any reasonable explanation either from the Tariff Order of the Commission or from their submissions during the course of hearing. The Appellant is a Public Sector Power Generating entity which came into existence in 2005-06 as a result of the reform and restructuring of the erstwhile MSEB, to facilitate efficient operation of power generation and promoting competition to protect interest of consumers in the state as mandated in the preambles of the Indian Electricity Act, 2003. We observe that the Appellant has much larger installed generation capacity of 9510 MW which is geographically dispersed through out the state compared to installed generation capacities of 1774 MW and 500 MW of TPC and REL respectively. REL’s entire capacity is installed at single location in Dahanu, Maharashtra. We feel that due to multi-location generation infrastructure the overhead expenses on account of logistics, manpower requirement for general administration, security etc. beside facilities for housing, schooling, health and other welfare activities for employees’ families which largely constitute A&G Expenses will inevitably be higher than the generation infrastructure in single or few locations. Yet, we find that A&G expenses allowed by the Commission in FY 2005-06, to MSPGCL is Rs. 0.2572 lakhs/MW as against Rs. 2.6554 lakhs/MW to REL and Rs. 3.0096 lakhs/MW to TPC. Even with the capitalization of Rs. 3.12 crores, the net A&G expenses of Rs. 29.93 crores claimed by the Appellant gives the gross A&G expense of Rs. 33.05 crores. The gross A&G expenses averaged over the capacity in MW gives A&G expenses per MW to be 0.347 which is still less than what is allowed in the case of TPC and REL. The aforesaid besides being not reasonable also indicates that the same criteria are not being applied for different utilities in the state negating the requirement of providing level playing field conducive for competition. Hence, we allow the appeal in respect of A&G expenses and direct the Commission to take it for truing up.

20. The Commission in its order of 07 December 2006 has stated that ‘the A&G expenses are normative and cannot be passed to consumers at actuals. Therefore, the details of actual A&G expenses submitted by MSPGCL cannot be qualified as ‘new and important matter of evidence’ and A&G expenses will not be considered for truing up.’ We feel that since the Commission has clarified that for the FY 2005-06, no ‘norms’ were specified for recovery of A&G expenses, it is difficult to agree with the Commission’s views that A&G expenses will not be considered for truing up. This Tribunal in a judgment in the case of REL v. MERC and Ors. (Energy Law Report 2007 APTEL 164) dated 04 Apr 2007 has allowed A&G expenses for FY 2004-05 and FY 2005-06 stating that “concedingly, under the Sixth Schedule, Clause XVII of the Electricity (Supply) Act, 1948 ‘any expenditure properly incurred’ on the distribution and sale of energy by the licensee is to be permitted. In the absence of any norms specified by the Commission merely allowing 3.3 per cent (being the (AGR) is not correct as this does not factor inflation which has to be necessarily taken into account and can not be ignored”. In the instant case bereft of specified norms for A&G expenses any expenditure incurred on generation and purchase of energy is to be permitted for pass-through in tariff as per Sixth Schedule of Electricity Supply Act, 1948.

21. In view of the above, we allow the contention of the Appellant in sofar as the actual A&G expenses for FY 2005-06 is concerned and direct the Commission to true up the said expenses subject to prudence check.

B& K. Transit Loss of Coal

22. The following table gives the state-wise transit loss approved by the Commission for 2003-04, actual transit loss during 2003-04, 2004-05 as submitted and projected by the Appellant for 2005-06, 2006-07 in respect of various generating stations of the Appellant:

Station

2003-04

2003-04

2004-05

2005-06

2006-07

 

MERC

Actual

Actual

Projected by MSPGCL

Khaperkheda

1.45%

1.37%

1.55%

1.50%

1.50%

Paras

2.58%

2.94%

3.31%

2.11%

2.11%

Bhusawal

0.98%

0.98%

0.34%

1.77%

2.00%

Nasik

0.96%

0.45%

0.88%

1.00%

1.00%

Parli

2.40%

0.65%

2.13%

3.91%

3.24%

Koradi

1.47%

0.36%

1.23%

0.80%

0.80%

Chandrapur

1.72%

0.74%

1.06%

1.00%

1.00%

23. The Commission in its order of 07 September 2006 has stated that ‘the Commission had specified trajectory of reduction in transit losses for the generation stations in the previous Order. If MSPGCL had reduced the transit losses in accordance with the trajectory specified in the Commission’s Order, the value of transit losses for most of the stations works out close to the normative level of 0.80%. Hence, the Commission has approved a transit loss of 0.80% for all the stations’. The Commission in its response to the Appellants’ contention has submitted that station-wise losses works out to be as under, considering the trajectory approved by the Commission:

Station

2003-04

Reduction p.a.

2004-05

2005-06

2006-07

 

Approved MERC

 

As per the Trajectory approve MERC

Khaperkheda

1.45%

0.30%

1.15%

0.85%

0.55%

Paras

2.58%

0.50%

2.08%

1.58%

1.08%

Bhusawal

0.98%

0.00%

0.98%

0.98%

0.98%

Nasik

0.96%

0.00%

0.96%

0.96%

0.96%

Parli

2.40%

0.40%

2.00%

1.60%

1.20%

Koradi

1.47%

0.30%

1.17%

0.87%

0.57%

Chandrapur

1.72%

0.40%

1.32%

0.92%

0.52%

24. The Appellant has brought out factors attributing to transit loss of coal, which as given below, are very general in nature:

i) evaporation of surface moisture in transit.

ii) error/deviations in weighbridges.

iii) coal theft in transit.

iv) long distances involved in coal transportation.

v) frequent disturbance in the loading and weigh bridge requiring continuous maintenance/checking/calibration of weigh-bridge.

vi) consideration of actual weight of empty wagon to arrive at net weight.

25. The above factors are applicable to all the power generators using coal as the primary fuel. In the absence of any specific reason to be attributed for higher level of coal transit loss, we find no basis to support the Appellant’s contention to claim higher level of losses than those permitted in terms of the loss reduction trajectory approved by the Commission. At the same time, there are no reasons for the Commission to adopt a uniform 0.80% transit loss level once a loss reduction trajectory has been approved by it. Therefore, for the year 2005-06, we allow transit loss level in terms of the loss reduction approved by the Commission station-wise, as given in the table above.

26. The Appellant has submitted that Reliance Energy Limited (REL) has been permitted transit loss at 1.79%, which is higher than the 0.80% normative level set for 2006-07. From the relevant order of the Commission on REL’s ARR and Tariff Petition for FY 2005-06 and 2006-07 we observe that the Commission has found REL’s transit loss level of 2.04% on the higher side and gave reduction target of 0.25% per annum. Further, the Commission has responded that this has to be seen in the context that the Commission had not specified a trajectory of reduction of transit losses for REL earlier, which was done thereafter. In view of the response of the Commission, it is clear that the Appellant and other generators in the state are subject to similar principles.

C& L. Station Heat Rate

27. The main argument of the Appellant is that station heat rate (SHR) targets given by the Commission are not achievable keeping in view the age of the machines, machine characteristics, quality of primary fuel, and operating conditions. From the impugned order of the Commission and further responses received we observe that these issues have not escaped the attention of the Commission while determining the applicable SHR. However, the question that whether the SHR targets set by the Commission are achievable under the circumstances or not, is a question of fact. We observe that the utility has been making claims that ‘it is ready to subject itself to any scrutiny which the Honourable Commission feels appropriate and is ready to appoint any outside agency suggested by the Honourable Commission to run one unit on experimental basis, in order to gauge whether the normative SHR levels suggested by Honourable Commission are really achievable’

28. From the order of the Commission, we observe that the Commission had directed (page 71 of the order dated 07 September 2006) the Appellant, as part of measurement of SHR, to install weightometers at all units for accurate measurement of the amount of coal being fed to boilers and also that a systematic measurement of GCV of coal by taking periodic samples of coal being fired be institutionalized at all the stations. Further, in the order dated 07 December 2006 (pages 12 & 13), the Commission has noted that ‘the SHR estimates of MSPGCL are not accurate to be considered for any review. The SHRs as estimated by MSPGCL are derived figures and their accuracy is influenced by the accuracy of measurement of the quantum and quality of coal used. The Commission has already issued clear directives for ensuring reliable and scientific measurement in this regard and has given sufficient time to MSPGCL. However, MSPGCL has failed to respond so far and the measurement of coal weight and calorific value continue to be simplistic and far from scientific. The Commission therefore does not see any sufficient reason to consider a review of the approved SHRs’.

29. The above leads us to a conclusion that if specific steps are taken to demonstrate before the Commission that data for SHR is not derived backward but rather the SHR is worked out scientifically, the Commission would be in a position to take a considered view on the subject. While quantum of fuel consumed in a station is dependent upon its SHR but the SHR is not dependent upon the fuel consumed in the station. In other words, fuel consumption depends upon the SHR and not the vice-versa. It is a different matter that the practice of deriving SHR by considering the fuel consumption and GCV thereof is being adopted in many stations in the country.

30. The Commission, during the course of the hearing, submitted that the Appellant had not provided details of design heat rate and heat rate degradation curve as per the original equipment manufacturer’s recommendation. The Commission has explained that it had compared SHR of similarly sized and vintage units across the country on the basis of the report of the Central Electricity Authority (CEA). The Commission has further explained that a selective comparison of SHRs approved by various other electricity regulatory commissions cannot be made, with which we fully agree. We have observed that different commissions adopt different practices and considerations while determining the allowable SHR level. Hence, a comparison without considering all the factors leading to determination of allowable SHR for a particular station is neither meaningful nor advisable.

31. We are of the opinion that if the SHR allowed by the Commission is not achievable, then the same would not be in anybody’s interest; entity would suffer by not recovering its reasonable cost of supply of the electricity and the consumers would not get the right signal about the pricing of the product they would be using. It is as much essential for the consumers to know the right price of the product they are using, as much as it is for the entity to recover its cost of operations. Unless the consumer knows the true price of the product, he will not be able to take an informed decision about the quantum of his consumption, particularly the industrial and commercial consumers who recover such costs from their consumers. Determining right price is also essential to send signals to the prospective developers/investors in the sector enabling them to take decision about the investment potential in the sector.

32. Under the circumstance, we feel that the Commission either on its own or through the Appellant engage appropriate independent agency(ies), who can carry out a study in a time bound (preferably within three months) manner to reasonably assess the achievable SHR of the plants owned by the Appellant. Such agency may also be asked to suggest measures to improve the SHRs over a period of time.

33. Based on the above, the Commission is directed to determine the SHRs in respect of plants owned by the Appellant. Till such time, the Appellant may continue with the pre-existing tariff subject to truing up with the revised SHRs when available.

D & Q. Tariff for Small Hydro Power Station

34. The Appellant in its tariff petition before the Commission had projected for annual fixed charges of Rs. 453.02 crores for hydro generating stations for 2006-07 whereas the Commission approved a sum of Rs. 132.84 crore as per the break-up given below:

 

 

Rupees in crores

Items

Claimed by MSPGCL

Approved by MERC

Difference

O&M expenses

69.33

43.00

26.33

Depreciation

2.23

2.23

Lease Charges payabState Government

373.20

85.00

288.20

Interest on working cap

8.26

2.61

5.65

Total

453.02

132.84

320.18

35. As regards admissibility of O&M expenses, the Commission in the order dated 07 September 2006 (page 50) has stated that it has applied the Tariff Regulations and based on the methodology given in the Tariff Regulations, sum of Rs. 43 crore has been worked out. As the Commission has adopted the methodology given in the Tariff Regulations, we would not like to question the O&M expenses approved.

36. There is no difference in the amount claimed by the Appellant and approved by the Commission on account of depreciation.

37. Regarding lease rent for hydel plants, the Commission in the absence of Government Resolution supporting the projections of Rs. 373.20 crore as sought by the Appellant, has restricted the amount to the actual level of Rs. 85 crore. Therefore, we do not find any wrong with the approach adopted by the Commission. However if the Appellant has subsequently received Government Orders for determining lease rentals different from those approved by the Commission, it may approach the Commission with the relevant Government orders for truing up of the sum approved.

38. As regards the sum approved towards interest on working capital, the difference we think is due to the corresponding impact of reduced quantum of O&M expenses and lease rentals. When the Commission takes up truing up of lease charges payable to State Government, the interest on working capital would be required to be calculated again based on the norms adopted by the Commission while approving Rs. 2.61 crores.

39. Therefore, as far as quantum of annual fixed charges in respect of hydel stations is concerned, we do not find any merit in the claims of the Appellant, except relating to ‘lease charges payable to State Government’ and ‘interest on working capital’, which we dealt with above.

40. The Appellant has submitted that the Commission in its order dated 09 November 2005 has approved a tariff of Rs. 2.84 per unit for first year and a levelised tariff of Rs. 2 per unit for small hydro projects. This order was applicable in respect of supply of electricity from small hydro projects up to 25 MW to the distribution licensee in the State of Maharashtra. The appellant has sought that such tariff should be made applicable to electricity supplied from small hydro projects of the Appellant also. The Commission in the impugned order has clarified that order dated 09 November 2005 is primarily for new projects with the intention to promote setting up of additional small hydro projects (SHPs) and was based on the cost details of 42 SHPs yet to be set up or being in the process of set up in the State and does not include the already existing SHPs of the Appellant. The Appellant has also submitted that keeping in view the provisions of Section 61 (h) of the Electricity Act, 2003, the Appellant should have been given the benefit of tariff applicable in terms of order of 9th November of the Commission. Section 61 of the Electricity Act, 2003 is reproduced below:

61. The Appropriate Commission shall, subject to the provisions of this Act, specify the terms and conditions for the determination of tariff, and in doing so, shall be guided by the following, namely:

(h) the promotion of co-generation and generation of electricity from renewable sources of energy.

41. The above provision gives broad policy directions to the Commission, which the Commission should take into consideration while determining the terms and conditions of the tariff. In doing so the Commission would also be guided by the policy direction of the State Government as mandated under Section 108 (1) of the Act, which is reproduced below:

108.(1) In the discharge of its functions, the State Commission shall be guided by such directions in matters of policy involving public interest as the State Government may give to it in writing.

42. We notice that the Commission has submitted that the Appellant did not approach the Commission for review of its order dated 09 Nov 2005. The order of the Commission has to be seen in the context of Government of Maharashtra policy to encourage private sector participation in development of small hydro projects, as per State Government’s Resolution dated 28 Nov 2002, which was revised by the State Government on 15 Sep 2005. The Commission has clarified that the revised policy is applicable to IPPs and CPPs developing hydropower projects up to 25 MW capacity. In view of the rationale given by the Commission, we feel that the Appellant is not entitled to a higher tariff of Rs. 2.84/kWh as the order dated 09 Nov 2005 is applicable only in the case of new projects. We do not agree with the Appellant’s contention that the Commission has disregarded the provisions of Section 61 (h) of the Electricity Act, 2003 while considering tariff fixation of small hydro project.

Billing of incentive on monthly basis.

43. The Appellant has submitted that billing for incentive should be allowed to be made on monthly basis. We find that the Tariff Regulations have not specified any periodicity in this regard. However, as the bill for recovery of fixed and energy charges is to be raised on monthly basis, we find no basis to deny the same treatment in respect of incentive claims. Any under or over recovery on account of such claims may be adjusted on monthly basis.

E. Truing up for fuel expenses for FY 2005-06

44. The Appellant had claimed fuel expenses amounting to Rs. 4989 crore for 2005-06. The Commission in its order of 7 September 2006 approved an amount of Rs. 4880 crore towards fuel expenses. After truing up, the Commission approved sum of Rs. 5001.43 crore against Rs. 5083.35 crore sought by the Appellant. The Appellant has submitted that difference was mainly on account of:

– While adopting the fuel adjustment cost mechanism, other costs have been excluded; and

– Variation on account of actual performance parameters mainly in respect of station heat rate.

45. The Commission in its order of 25 April 2007 has observed that ‘the Commission has accepted the variation on account of other charges such as lubricants, chemicals, water charges, etc. to the extent not allowed during the year due to change from FOCA (Fuel and Other Costs Adjustment) mechanism to FAC (Fuel Adjustment Costs) mechanism, amounting to Rs. 121.43 crore (i.e. Rs. 169.31 crore less Rs. 47.88 crore). However, for truing up, the Commission has not considered the fuel cost variations on account of deviation of actual performance parameters from the normative performance parameters’.

46. From the above, we observe that disallowance has been only on account of variations arising due to actual performance parameters being different from that approved by the Commission. In our opinion, once the Commission has approved certain performance targets to be achieved by the Appellant, determination of tariff would be based on these performance targets unless it is demonstrated there had been circumstances/facts different from those assumed at the time of stipulating the performance parameters or there is change in business conditions that were envisaged earlier. We find nothing of these sorts happening to the Appellant. Hence, the claim of the Appellant for seeking additional fuel cost consequent upon the actual performance parameters turning out to be inferior to those stipulated by the Commission.

47. However, as we have brought out earlier for the purpose of determining the parameters, actual operating conditions and plant characteristics should be given due consideration. In this reference we have given direction (at para 32) that the Commission may either directly or through the Appellant engage an independent agency to make a reasonable assessment of the performance parameters achievable by the generating stations owned by the Appellant and then decide about the improvement trajectory. SHR being a dominant factor in deciding the fuel expenses and is one of the performance parameters to be determined through the aforesaid process, we are inclined to allow the appeal in this regard till such time the re-assessed improvement trajectory of parameters is available.

G. Truing up of Depreciation

48. The Appellant has submitted that for the year 2005-06, the Commission allowed a depreciation of Rs. 488 crore considering an average rate of depreciation of 5.17% on gross fixed assets (GFA) of Rs. 9437 crore. However, as per the audited accounts, the actual GFA as on 06 June 2005 was Rs. 9558 crore; hence the Appellant in the review petition before the Commission sought recovery of Rs. 494.14 crore on account of depreciation being 5.17% of Rs. 9558 crore. The Commission restricted the depreciation to Rs. 399.87 crore being the actual depreciation as per the accounts.

49. The Commission in its response has justified its approach by stating that depreciation has to be allowed on actual basis and not normative basis and that truing up has to be done on the basis of actuals subject to prudence check. The Commission has further submitted that depreciation is basically a non-cash expenditure, utilized primarily for repayment of loans in the power sector rather than for replacement of asset.

50. Depreciation for the purpose of finalization of ARR and/or determination of tariff is based on the premise that the full value of the asset, save to the extent of any residual value, is allocated over the useful life of the asset. Such sum of depreciation on year to year basis may differ from the sum of depreciation shown in the annual accounts prepared by an entity. In a particular year, depreciation allowed for the purpose of tariff may be higher or lower than the depreciation admissible for the purpose of preparation of accounts. This is so because the rates of depreciation adopted for tariff purposes and for accounts purposes are different. However, over the entire useful life of the asset, the aggregate depreciation would match the full value or capital cost of the asset. If one approach is adopted consistently, the generator would be assured of the recovery of depreciable amount of the asset over a period of time. In case there is juxtaposition of above-said two approaches, there is every likelihood that the generator would be denied full recovery of depreciable amount of the asset over a period of time. The Hon’ble Supreme Court in its judgment dated 15 Feb. 07 in Civil Appeal No. 2733 of 2006 in the Case of Delhi Electricity Regulatory Commission v. BSES Yamuna Power Limited and Ors. states thus:

Before concluding we may state that basic object of providing depreciation is to allocate the amount of depreciation of an asset over its useful life and not actual life so as to exhibit a true and fair view of the financial statements of an enterprise. Useful life is a period over which a depreciable asset is expected to be used. Useful life of an asset in a capital intensive industry is generally shorter than its physical life. Useful life is pre-determined by contractual limits or by amount of extraction or consumption dependent on the extent of use and physical deterioration on account of wear and tear which depends on operational factors such as the number of shifts, repair and maintenance policy of the utility ad reduced by obsolescence arising fro technological changes, improvement in production methods….

51. The Commission has explained that earlier the depreciation was allowed as per depreciation rates notified by the Ministry of Power, Government of India (circular issued in 1994). The approach should not be deviated from it simply because while truing up as per the accounts, the actual depreciation is coming to be lower. If the Commission has data available before it to show that the depreciation claims allowed in the past is adding up to more than the cumulative depreciation allowable as per the MOP notification, then it would be justified in restricting the allowable depreciation. Similarly, if the Commission believes that the depreciation pertain to an earlier period before the regulatory mechanism was put into effect, then again the recovery of expenditure could be restricted.

52. In the case before us we find no such reason to restrict the amount of deprecation amount. Therefore, we allow the depreciation claimed by the Appellant. However, if the Commission has allowed any extra recovery in the past under the head of depreciation, the same may be adjusted.

H. Truing up of other debits

53. The Appellant has sought truing up of expenditure relating to the following heads for the year 2005-06:

Particulars

Actuals as per MERC order

Actuals as submitted in the Appeal

Material cost variance O&M

0.36

0.76

Coal cost variance accounts

16.32

16.32

Bad & Doubtful Debts written off
provided for

25.11

25.11

Miscellaneous losses & write off

0.79

1.20

Sundry expenses

0.25

0.25

Intangible Assets written off

0.11

0.34

Intangible Assets interest charges for
HVDC

0.81

0.97

Total

43.75

44.95

54. The Commission in its order of 25 April 2007 has allowed only coal cost variance of Rs. 16.32 crore. The major disallowance is in respect of provision made for bad and doubtful debts to the extent of Rs. 25.11 crore as the Commission was of the view that the ‘Appellant is supplying power only to MSEDCL and there should not be any bad debts’.

55. The Appellant has submitted that its statutory auditors observed old outstanding issues and advised to make provisions for bad and doubtful debts. Accordingly the entries for bad debts were passed in the books of the Appellant for the FY 2005-06. The Appellant has further submitted that ‘disallowance of bad and doubtful debts by Respondent No. 1 without allowing the Appellant to explain the reasons for the same in any of the data validation sessions not only denies the principles of natural justice to the Appellant but also reflects the casual, callous and careless nature of the Respondent No. 1 to deal with the issue.

56. The appellant has further submitted that the above provision for bad debts was in respect of transactions prior to unbundling of the erstwhile MSEB (Maharashtra State Electricity Board) and that the bad debts mainly consisted of advances paid to coal companies, advances to other suppliers etc. dating back to up to 15 years and is not because of any pending payments from MSEDCL. It has also submitted that since the Appellant came into existence only from 6 June 2005 from the erstwhile MSEB, it is practically not possible to individually trace the allocation of such expenses for individual stations.

57. As regards truing up expenditure on account of provision made for bad and doubtful debts, we opine that the Appellant should have refrained from using uncalled for and unreasonable comments about the Commission. The Appellant must be careful about the language it is using.

58. Coming back to the issue at hand, it is true that provision for bad debts is part of business operations in a routine course. If such provision were to be made in the course of operations for transactions relating to the period after the Appellant came into existence, the Commission would have taken a view about their admissibility after a prudence check and ensuring that the Tariff Regulations did not contain anything contrary.

59. However, the case of the Appellant is different. We observe that the provision for bad and doubtful debts pertains mainly to a period prior to the existence of the Appellant. The Appellant came into existence on unbundling of the erstwhile MSEB when the Appellant was allocated certain capital assets equivalent to liabilities. It is an established fact that an opening balance sheet was prepared when the Appellant came into existence wherein various liabilities in aggregate were shown to be equal to assets in aggregate. Subsequently the statutory auditors of the Appellant and not the Appellant itself, observed old outstanding issues and advised for making provisions for such issues. This means that there were liabilities without corresponding assets, though not necessarily matching on one to one basis. Going by the contention of the Appellant that such sums are not recoverable from the persons to whom such sums were advanced, the logical conclusion would be that the Appellant was handed over assets which were less in value than what they were stated to be.

60. It can reasonably be inferred that had MSEB continued in its earlier form, the Commission would have taken a decision on the basis of actual facts of the matter but at the same time delay in claiming such irrecoverable sums and then passing on the same to paying consumers results into greater uncertainties for the consumers. Disallowing any pass through in the form of tariff would have an adverse impact of the financial position of the Appellant on the one hand and passing on entire non-recovered amount after such a long period to the consumers would not be fair from the consumers’ point of view on the other. Hence, under the circumstances we feel it to be reasonable that both, the Appellant and the consumers may bear the burden on this account. The sum to be recovered from the consumers may be spread over a period of three years, without any interest, to lessen the burden on the consumers. However, we would like to stress that the above cannot be taken as a precedent for making similar claims in the future.

61. As regards materials cost variance of Rs. 0.36 crore, we would not like to examine it further as the Commission has stated that the material cost variation is an accounting adjustment and not a real expense. The Appellant has not made any further submission/justification in this regard. Hence, we find no reason to deviate from the observations of the Commission.

62. Besides the above, Appellant had also submitted for truing on account of Miscellaneous losses & write off, Sundry expenses, intangible Assets written off and Intangible Assets interest charges for HVDC aggregating to Rs. 1.96 crore (in the Appeals the aggregate amount submitted is Rs. 2.76 crore). We do not find any reason in the order of the Commission while disallowing such expenses. The Commission is directed to examine the claim of the Appellant and decide the admissibility after a prudence check.

I. Truing up of Interest expenses and Finance Charges

63. The Appellant in their petition before the Commission had sought truing up only on the interest on long term loans. The Commission while truing up interest on term loans also trued up interest on working capital on actual basis. The Appellant has submitted that for the financial year 2005-06, the Commission should have allowed interest on working capital on normative basis and not actual basis as has been done by the Commission.

64. The Appellant has submitted that in the tariff order dated 07 September 2006, the Commission has considered interest on working capital on normative basis. However, the Commission in its subsequent order dated 25 April 2007 while determining the ARR for 2007-08 to 2009-10, stated that ‘the Commission has not considered the interest on working capital for FY 2005-06 separately as the Commission has considered the actual interest expenses including interest on short term loans’.

65. We think that such sudden change in the approach to determine the ARR of the Appellant creates uncalled for uncertainties for the Appellant to plan its revenue and resource mobilization programme. This Tribunal in its judgment dated 14 Nov. 06 in case of National Thermal Power Corporation Ltd. v. Central Electricity Regulatory Commission and Ors. 2007 APTEL 828 has decided that the loan repayment should be computed based on normative debt to ensure that whatever normative debt has been considered Tariff should ensure recovery of same normative debt and interest thereon. In the instant case there appears to be no reasonable ground to apply the logic of ‘normative or actual’ whichever is lower. It may be pointed out that normative values are not ceiling norms and the same has been clarified in this Tribunal judgment dated 31 May 07 in the case of U.P. Power Corporation Ltd. v. N.T.P.C. Ltd. and Ors. 2007 APTEL 77, para 22:

…In view of the aforesaid, we are of the opinion that the contention made by the Appellant that the norms applied should be ceiling and actual values of the operational parameters should be considered subject to the ceiling norms, is inconsistent with the provisions of the Act, which mandates encouraging efficiency, competition, good performance etc.

Therefore, we are of the opinion that the interest on working capital should be determined on normative basis, which may sometimes be more or less than the actuals. However, if the Appellant had been allowed interest on short-term loans, which are in the nature of working capital, the same should be disallowed.

J. Truing up of Revenue Earned

66. The Appellant is aggrieved by the order of the Commission truing up of revenue earned by the Appellant. The Appellant has submitted that truing up of revenue is a marked deviation in approach by the Commission which is neither provided in Tariff Regulations of 2004 nor in Tariff Regulations of 2005. The Appellant’s view is that non-tariff income earned by it can be considered as extra profits and can not be adjusted to determine its ARR.

67. The Commission has submitted that ‘while non-tariff income earned by Generation Companies has not been mentioned specifically in the Tariff Regulations, the issue has to be seen in the context of the coverage of the Tariff Regulations, which cannot be expected to cover all eventualities and situations, and the commission has to take a decision on the basis of philosophy and principle involved in the matter’. The Commission has further submitted that Regulation 17 of Tariff Regulations 2005 under the heading ‘Annual review of performance’ provides for truing up of revenue.

68. We have gone through Regulation 17 of the Tariff Regulations. Regulation 17.1 which contains the basic theme of the Regulation, reads as under:

‘where the aggregate revenue requirement and expected revenue from tariff and charges of a Generating Company or Licensee is covered under a multi-year tariff framework, then such Generating Company or Licensee, as the case may be, shall be subject to an annual performance review during the control period in accordance with this regulation.

69. Other clauses of the Regulation lay emphasis on a comparison of the performance of the generating company with the approved forecast of aggregate revenue requirement and expected revenue from tariff and charges.

70. On a combined reading of Regulation 17, we observe that comparison would be on two counts, firstly on the aggregate revenue requirement and secondly on the revenue mobilized through the tariff and charges. Aggregate revenue requirement consists of expenses allowed by the Commission, either normatively or after prudent check, as the case may be, and permissible surplus being return on capital employed by the generating company. Revenue mobilized would depend upon the sale mix of the generating company (in the present case it is not of much relevance as the case before us is of single buyer model) and the tariff and other charges permitted by the Commission.

71. In our view, the other incomes of the Appellant do not fall under ‘revenue mobilized through tariff and charges’, as:

a) such incomes have not come from the buyer; and

b) such incomes are no way linked to the quantum of electricity sold by the Appellant.

72. Part of such other income may have a link with the aggregate revenue approved by the Commission, for example:

a) where the Commission had approved expenditure for certain items, and the Appellant had realized some income by way of residual sale; or

b) Where the Commission had approved interest on certain loans and such loans are partly used to be invested in FDs, other interest bearing securities, given to employees as advances,

c) Where the Commission allows expenditure on maintenance of staff quarters and other buildings, rental incomes from such quarters or buildings;

d) Income by way of sale of tender forms relating to expenditures allowed for execution certain contracts, studies, etc,

73. We feel that in cases where the Commission allows a cost to be recovered after prudent check, any deviation in the amount of such expenditure or recovery of income relating to such expenditure would be eligible to be taken up for truing up. In our view the objective of the Tariff Regulations is broadly to ensure a pre-determined return on the investments made by the utility on the one hand and to ensure availability of electricity with reasonable operational efficiency to the consumer. If in the process the utility is subjected to losses beyond its control or earns extra profits, the Commission has inherent powers to take necessary steps after prudence check. However, if the income can not be reasonably linked to any cost item allowed by the Commission as part of the ARR, the same should not be adjusted against the ARR of the Appellant, in the absence of specific Regulations. In the original order the Commission did not adjust any such other income.

74. In the case before us, the Appellant has claimed that other revenue of Rs. 112 crore arising under various heads other than from sale of electricity should not be considered while determining its ARR. These heads are broadly as under:

Particulars

Rs. in crores

Sale of scrap

14.77

sale of fly
ash

13.69

Interest on
staff loans

0.25

Rental from
staff quarters

0.34

Rental from
other buildings

0.45

Sundry credit
balances written back

0.22

Sale of
tender forms

0.58

Rebate
discount on prompt payment to bulk power supplier

0.43

Miscellaneous
and other Receipts

76.20

Total

106.93

75. The appellant has not submitted any break-up of miscellaneous receipts of around Rs. 75 crore.

76. From the order dated 25 April 2007 (page 37-38, para 3.10) of the Commission, it is observed that the Commission adjusted ‘other income’ of Rs. 112.93 crore while determining the ARR for 2005-06, though in the earlier order the Commission did not adjust ‘other income’ while determining the ARR of the Appellant.

77. Keeping in view of our observations given above, we direct the Commission to look into the details of other incomes and decide the claim for truing up of other income in accordance with our views given above.

K. Transit Loss of Coal;

L. Station Heat Rate;

M. Auxiliary Consumption of Various Stations; and

N. Specific Oil Consumption

78. We have dealt the issues relating to transit loss of coal and station heat rate earlier in this judgment. This Tribunal has through its judgments in the past, consistently maintained that deciding about the correctness of the Regulations framed by different electricity regulatory commissions in the country is beyond the jurisdiction of the Tribunal. In Neyveli Lignite Corporation v. Tamil Nadu Electricity Board and Ors. Appeal No. 14 and 115 of 2005, ‘we have taken a view that this Tribunal has no jurisdiction to determine the validity of the Regulations in appeal as the Regulations are in the nature of sub-ordinate legislation. While holding so, we relied upon the decision of the Supreme Court in West Bengal Electricity Regulatory Commission v. CESC Ltd. , wherein it was held to the effect that the Regulations framed by the Regulatory Commission are under the authority of sub-ordinate legislative functions conferred on it by Section 58 of the Electricity Regulatory Commission Act, 1998. It was further held that the High Court sitting as an appellate court under the Act of 1998 could not have gone into the validity of the Regulations in exercise of its appellate power’.

79. Again this Tribunal in Appeal No. 117 of 2006 (judgment delivered on 30 Mar 2007) in the case of NTPC Ltd v. Transmission Corporation of A.P. and Ors. quoting its judgment in Appeal No. 51, 52, 53 etc. of 2006 delivered on 06 Dec 2006, has held that this Tribunal cannot go into the validity of the Regulations in exercise of its appellate power.

80. However, we find that there is a substantial difference between the norms prescribed by the Commission through the Tariff Regulations and those achieved by the Appellant. We find that the Tariff Regulations give powers to the Commission to amend any provisions of the Tariff Regulations (Regulation 84) and to remove difficulties in implementation of the Tariff Regulations (Regulation 85), which we feel can be used by the Commission to take corrective measures so that the norms set are achievable under the operating environment. Hence, we direct the Commission to take into consideration the independent study which we have directed to be undertaken, and re-set the above operating parameters. This will also help the Commission to align its Regulations with the Tariff Policy issued by the Government of India advising for prescribing achievable norms and not merely ideal norms. At the same time, the Commission has to be cautious to ensure that deliberate inefficiency on the part of the utility is not passed on to the consumers.

O. O&M Expenses for Base Year for MYT Period

81. The Appellant in its petition before the Commission sought approval of Rs. 1137 crore operation and maintenance (O&M) expenses for the year 2006-07. The Commission while determining the allowable O&M expenses for years 2007-08 to 2009-10 (MYT period) considered the estimates of O&M expenses submitted by the Appellant. Subsequently, the Appellant submitted before the Commission to consider revised estimates for the purpose of determining the allowable O&M expenses for the MYT period, which was not accepted by the Commission. The other contention of the Appellant is to consider the escalation rate of 6%.

82. Regulation 34.6.1 of the Tariff Regulations 2005 contains provisions relating to determination of allowable O&M expenses, in respect of old generating stations, as under:

a) The operation and maintenance expenses including insurance shall be derived on the basis of the average of the actual operation and ,maintenance expense for the five years ending March 31, 2004 based on the audited financial statements, excluding abnormal operation and maintenance expenses, if any, subject to prudence check by the Commission.

b) The average of such operation and maintenance expenses shall be considered as operation and maintenance expense for the financial year ended March 31, 2002 and shall be escalated at the rate of 4% per annum to arrive at operation and maintenance expenses for the base year commencing April 1, 2005.

c) The base operation and maintenance expenses for each subsequent year shall be escalated further at the rate of 4% per annum to arrive at permissible operation and maintenance expenses for such financial year.

83. The Commission has considered the estimates of the Appellant for the year 2006-07 and has also allowed escalation at the rate of 5.38%. We observe that the above dispensation results into deviation from the norms by the Commission in favour of the Appellant. The Commission in its submissions has also stated that ‘since the actual audited O&M expenditure in FY 2006-07 was not available with the Commission at the time of the MYT order, and has not been submitted to the Commission till date for the Commission’s prudence check, there was no question of considering the revised estimates of the O&M expenditure for the projection of O& M expenses over the Control Period, as these are only estimates and past experience has shown that there is significant variation between the estimated expenditure and the actual expenditure…the Commission is quite concerned about the Appellant’s practice of booking expenditure of capital nature under Repair and Maintenance expenditure, and has sought a clear segregation of capital related expenditure and revenue expenditure…. Once the desired audited figures are submitted to the Commission under the truing up process, and the Commission has assessed the prudence of the same, the Commission will consider the same for projection of the O&M expenditure over the Control Period’.

84. In view of the submission of the Commission, we advise the Appellant to take up its claim in the matter before the Commission.

P. Hydel Tariff

85. The Appellant has submitted that non-peak tariff of Rs. 1.65 per kWh is a fictional accrual in respect of amount of Rs. 0.34 per unit as ‘excess recovery’ is to be adjusted in accordance with para 4 on page 67 of the tariff order. Extracts from the Commission’s order are given below:

…the Commission directs adjustment of excess recovery of Rs. 617 crore from hydro generating stations in the bills for sale of power between MSPGCL and MSEDCL as a fixed reduction of Rs. 51.38 crore per month. Any variations in the recovery of charges on account of differential peaking tariff from the Commission’s approved values shall not be trued up.

86. The Appellant’s grievance is also about the direction given by the Commission to abide by the peak-off-peak generation proportion target of 89:11 prescribed by the Commission. The Appellant’s case is that dispatch from its Koyna hydro station is governed by the MSEDCL and SLDC subject to the availability of water and the generating station. The Appellant has requested for truing up variations on account of differences in generation during peak hours. If truing up is not allowed in this, the revenue recovery of the appellant would be adversely affected. The Commission in its submission has clarified that this ratio has been arrived at on the basis of the Appellant’s submissions in the previous tariff processes and have not been estimated by the Commission. The Commission has clarified in the impugned order (page 17) that variations on account of hydro generation prior to the date of the tariff order shall qualify to be on account of uncontrollable factors and shall be considered for truing up and further that factors beyond the control of MSPGCL would qualify for truing up.

87. The Commission’s order that ‘any variations in the recovery of charges on account of differential peaking tariff from the Commissions approved values shall not be trued up’ has resulted into a regulatory uncertainty as far as recovery of revenue is concerned. While we may agree with the Commission’s point that the ratio of 89:11 for peak-off-peak power generation has been worked out on the basis of the data submitted by the Appellant, what is more relevant is the regulatory and administrative environment in which the Appellant is operating. If dispatches from the Appellant’s generating stations are subject to instructions of MSEDCL and SLDC (distribution company and the state load dispatch centre, respectively) it is not fair to subject the Appellant to adverse consequences if it is not able to meet the ratio of 89:11 due to instructions received from MSEDCL and SLDC. Alternatively, if the Appellant abides by the directions of the Commission to maintain ratio of 89:11, it should not be subjected to adverse treatment from MSEDCL and SLDC. Therefore, it is essential that the ratio of peak-off-peak is determined after taking into consideration the operational capacity of the Appellant as well as the system pattern and in our view reasonable flexibility is allowed, which should be respected by the Appellant, MSEDCL and SLDC. The Commission is, therefore, directed to devise a mechanism which addresses the concern of the Appellant, and also meets the objective of the Commission to send economic signal about pricing of the electricity.

R. Reactive Energy Charges

88. The Appellant has submitted that it had sought for incentives in respect of recovery of reactive energy charges on the ground that when the stations of the Appellant are called upon by the SLDC at various points of time exclusively for Reactive Energy generation/absorption for grid stabilization, no active power is generated but the Appellant incurs expenditure in the form of increased auxiliary consumption, increased operation and maintenance expenses by way equipment, wear/tear, etc.

89. It has been submitted before us that the Commission through its order dated 27 June 2006 (Case no. 58 of 2005) has stipulated incentive/penalty for reactive energy injection/drawal at Rs. 0.25 per kV/h depending upon the voltage at inter-change points, which is applicable to the Transmission Licensees, Distribution Licensees and the open Access users.

90. The Commission in its submission has stated that the Central Electricity Regulatory Commission also in its background note has clarified that SERCs will have to devise mechanism for reactive power management compensation thereof upon careful deliberation and taking into account state specific factors.

91. In our opinion, if the Appellant is required to extend support for Reactive Energy generation/absorption for grid stabilization, there would be additional burden on the Appellant, which requires compensation. The Commission has already worked out a mechanism for incentive/penalty for reactive energy injection/drawal depending upon the voltage at inter-change points, which is applicable to the Transmission Licensees, Distribution Licensees and the open Access users. We feel that since the Appellant is incurring additional expenditure without being compensated, the Commission should extend the above dispensation to the Appellant or may work out a scheme specifically for state power generators within three months

S. Normative O&M Expenses for Hydel Plants

92. The Appellant has challenged the norms set by the Commission for allowability of O&M expenses in respect of hydel plants. As per Regulation 34.6.1 quoted earlier, the O&M expenses for old generating stations is to be decided based on the past expenditure. It is the Appellant’s case that the O&M expenses allowed by the Commission is working out to be lower than the O&M expenses allowable as per the Regulations in respect of the new hydel stations. Since the existing hydro electric power plants are not covered by the policy of the Government it will be inappropriate to compare the O&M expenses of the existing plant with that of new hydel stations covered under the Regulations.

T. Employee Incentive Schemes

93. The Appellant, in its petition before the Commission, has pleaded that it be allowed for employee incentive schemes to promote operational efficiencies in its stations. The Appellant has stated that the employee incentive scheme in the MYT petition was filed before the Commission in consonance with the directions issued by the Commission in its tariff order dated 10th January, 2002 for the FY 2001-02 wherein the Commission has stated that “the payment of bonus by the MSEB should be linked to incentive schemes designed to improve the operations of the MSEB. The incentive schemes should be implemented for all aspects of MSEB’s operations viz Generation, Transmission and Distribution.” The Appellant has complained that the impugned order remained silent on this issue.

94. The Commission before us has admitted that expenditure on employee incentive schemes will be more than off-set by the savings achieved in the operations due to efficiency improvements. We direct the Commission to consider the issue of employee incentive schemes in accordance with law.

95. In view of our above findings/observations the impugned tariff orders are set aside and the Appeals are partially allowed in terms of our findings/directions in para nos. 14, 19, 21, 25, 29, 31, 33, 37, 39, 42, 43, 46, 47, 52, 60, 61, 62, 65, 71, 77, 80, 84, 93 & 94 and the matter is remitted back to the Commission for re-determination of the tariff of the Appellant.

96. The Appeal Nos. 86 and 87 of 2007 are accordingly disposed off with no costs. Pronounced in the open court on 10th April, 2008.

Powergrid Corporation Of India … vs Central Electricity Regulatory … on 27 March, 2008

Appellate Tribunal For Electricity
Powergrid Corporation Of India … vs Central Electricity Regulatory … on 27 March, 2008
Bench: A D Singh, K T A.A.


JUDGMENT

Anil Dev Singh, J. (Chairperson)

1. This appeal is preferred by the Power Grid Corporation of India Ltd. (for short Corporation) against the order of the Central Electricity Regulatory Commission (for short CERC) dated February 6, 2007. The facts giving rise to the appeal are as follows.

2. The appellant filed a petition, being petition No.157 of 2005, before the CERC for approval of incentive-based tariff on the availability of transmission system for the year 2004-05 for the southern region, treating the shut down of the transmission lines for construction or maintenance of another line of its system as deemed availability. The Commission, however, by the impugned order, on the construction of para 5 of appendix III of the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations 2004 (for short ‘Tariff Regulations’), held that the provisions of para 5 of appendix III are attracted only when there is an outage of the transmission system due to the maintenance and construction by other agency/ agencies and not by the transmission licensee itself. The appellant has challenged this view on the ground that para 5 of appendix III to the Tariff Regulations, operates on the principle that the shut down of a line for construction or maintenance of another line by a transmission licensee should be considered as a deemed availability of transmission elements for the purpose of admissibility of incentives. It was submitted that the CERC has failed to appreciate that there cannot be any justification for penalizing the transmission utility for the outages for the construction or maintenance of its transmission system, or for construction or maintenance of another line. He also submitted that purposive interpretation must be given to para 5 of the appendix III of the Tariff Regulations.

3. We have considered the submission of the learned Counsel for the appellant. In order to determine the question as to whether the outage of a line for maintenance or construction of another line can be taken as deemed availability of transmission elements for the purpose of grant of incentive, it is necessary to look at para 5 of appendix III to the Tariff Regulations. Para 5 reads as follows:

The transmission elements under outage due to following reasons not attributable to the transmission licensee shall be deemed to be available:

(i) Shut down of transmission elements availed by other agency/ agencies for maintenance or construction of their transmission system.

(ii) Manual tripping of line due to over voltage and manual tripping of switched bus reactor as per the directions of RLDC.

4. The learned Counsel for the appellant submitted that the word ‘agency/ agencies’ should be broadly interpreted as meaning ‘work’ or ‘lines’ in the system and the word must not be literally construed as meaning an entity other than the transmission licensee.

5. The learned Counsel for the appellant referred to the decisions of the Supreme Court in Commissioner of Income-tax, Central Calcutta, v. National Taj Traders and Food Corporation of India, Hyderabad and Ors. v. A. Prahalada Rao and Anr. (2001) 1 SCC 165 and decision of House of Lords in Powdril and Anr. v. Watson and Anr. [1995] 2 ALL ER 65 to urge that purposive interpretation shall be given to para 5 of Appendix III to the Tariff Regulations.

6. To accept the argument of the learned Counsel would be doing violence to the language used in para 5 of Appendix III to the Tariff Regulations. It is not possible to construe the term ‘agency’ as meaning ‘lines’ or ‘work’. In case the Commission wanted that the shut down of transmission elements of the transmission licensee availed by it for the purpose of maintenance and construction of its transmission system should be deemed to be available, nothing prevented the Commission from specifically providing for it in the Regulation but designedly the Regulation uses the words ‘other agency/ agencies’ indicating thereby that only when the transmission elements of the transmission licensee are shut down for maintenance or construction of the transmission system of other agency/agencies, they should be deemed to be available. Therefore, we agree with the CERC that the language of the Statute being plain, the intention of the framers of the Statute is to be gathered from the language of the Statute itself and it is not permissible to add words or to fill-in a gap or lacunae or to do violence to the meaning of the words used in the Statute.

7. In Ashwini Kumar Ghoshe v. Arabinda Bose , it was held by Patanjali Shastri, J, that it is not a sound principle of construction to brush aside words in a Statute as being inappropriate. When the words of a Statute are clear, plain or unambiguous, the courts are bound to give effect to that meaning irrespective of consequences.

8. The word ‘agency’ is not capable of conveying a meaning as suggested by the learned Counsel for the appellant. Agency is an instrumentality which is authorized to carry on a business or affairs of another person. Therefore, it is only when the shut down of transmission elements of the transmission licensee is on account of maintenance or construction of transmission system of the other agency, the plea of deemed availability of transmission elements of the transmission licensee can be accepted as per para 5 of appendix III to the Tariff Regulations.

9. The decisions cited by the learned Counsel for the appellant are of no avail to the appellant, since the word ‘agency’ used in para 5 is not capable of a meaning propounded by the appellant. The Supreme Court in CIT v. Sodra Devi AIR 1957 SC 832, expressed the view that purposive interpretation/ Heydon’s Rule is applicable only when the words in question are ambiguous and are reasonably capable of more than one meaning.

10. More over rule laid down in Heydon’s case (1584) 3Co.Rep.7a:76ER637, which is known as ‘purposive construction’ or ‘mischief rule’ lays down that to construe a statute, it is not only legitimate but highly convenient to refer both to the former Act and to the ascertained evils to which the former Act had given rise to and to the later Act that provides the remedy and the true reason of the remedy. It is not pointed out by the learned Counsel for the appellant as to what was the position before the making of para 5 and what was the mischief or defect for which the earlier Rule or Regulation did not provide.

11. In Anderton v. Ryan (1985) 2 ALL ER 355 (HL), Lord Roskill while explaining the rule, held that statutes should be given purposive construction, that is to say that court should identify the ‘mischief’ which existed before passing of the statute and then if more than one construction is possible, favour that which will eliminate the mischief so identified.

12. It is important to note that purposive construction can be placed on a statute or regulation which is capable of being construed in different ways. But in doing so, the court is required to identify the mischief which existed before coming into force of the Statute and by an interpretation of the statute exclude the mischief so identified.

13. The learned Counsel for the appellant has not pointed out the mischief which existed before the making of Regulation 5 of Appendix III of the Tariff Regulation, a pre-requisite for applying Heydon’s rule. In case, the construction placed by the learned Counsel for the appellant is accepted, we will be virtually substituting the words ‘other agency/agencies’ used in para 5 by words like ‘other lines’ or ‘other set of work’, which the words do not convey at all.

14. In the circumstances, the appeal fails and is hereby dismissed.

Grid Corporation Of Orissa Ltd. … vs Southern Electricity Supply … on 29 February, 2008

Appellate Tribunal For Electricity
Grid Corporation Of Orissa Ltd. … vs Southern Electricity Supply … on 29 February, 2008
Equivalent citations: 2008 ELR APTEL 50
Bench: A D Singh, B T H.L.

JUDGMENT

H.L. Bajaj, Member (T)

1. This appeal by Grid Corporation of Orissa (GRIDCO in short) challenges the orders dated August 20, 2005 and July 22, 2006 passed by the Orissa Electricity Regulatory Commission (OERC or the Commission in short) in case No. 13 of 2005 and in review petition case No. 51 of 2006 respectively. The facts of the case leading to the present appeal are given below in brief:

2. Grid Corporation of Orissa Ltd. (GRIDCO) is presently engaged in the business of purchase, trading and bulk sale of power to the distribution companies in the state of Orissa including the first respondent, Southern Electricity Supply Company of Orissa Ltd. (SOUTHCO), which had been granted distribution license by OERC under the provision of Orissa Electricity Reform Act, 1995 as retail supply licensee in the Southern part of the state of Orissa.

3. East Coast Railway is a bulk consumer of electricity of the distribution companies in Orissa and draws electricity at 132 kV at 14 traction Sub-stations for trains hauled by electric locomotives.

4. Dispute arose between the Bulk Supply Licensee GRIDCO and the distribution company SOUTHCO on the issue of metering at Rambha Traction Sub-station and Jeypore- Machhkund Traction Sub-station because GRIDCO billed SOUTHCO as per meter provided at their (GRIDCO) Grid Sub- stations and not at the Rambha Traction Sub-station which is 26 kms away from the GRIDCO Sub-station. OERC vide its order dated August 20, 2005 in case No. 13 of 2005 arising out of the petition filed by SOUTHCO against GRIDCO, directed that GRIDCO should prefer Bulk Supply Tariff Bills (BSTB) to SOUTHCO in respect of Rambha Traction considering the meter reading at Rambha Traction Point. OERC vide its order dated July 22, 2006 in case No. 51 of 2006 regarding the review petition of GRIDCO against SOUTHCO, dismissed the review petition. Hence the present appeal.

5. Mr. Mehta, learned Counsel for the appellant contended before us that the metering to the EHT consumers has been done at the GRIDCO sub-station end as per the Grid Code and that accordingly the consumption of EHT consumers of SOUTHCO is incorporated in the Bulk Supply Tariff Bill based on the meter data installed at the Grid sub-station of GRIDCO. He contended that the Commission has wrongly relied upon their discussions held on February 04, 2003 with the Railway authorities for providing metering arrangement at traction Sub- station as per the requirement of Railways at their cost.

6. He submitted that GRIDCO has provided metering at their Sub-stations to measure the consumption of Traction Points and that the same practice has been followed not only in case of Railways but also in case of EHT consumers having dedicated lines.

7. Mr. Mehta further contended that during the February 04, 2003 discussions the Transmission Planning Wing of GRIDCO merely acted as a contractor who executed deposit works of Railways at Rambha and that for the change for commercial metering point, Railways has to discuss the change of metering point with SOUTHCO who have Bulk Supply Agreement with them.He assertedthatGRIDCO cannot discuss commercial aspects directly with Railways who is the consumer of SOUTHCO. He further stated that GRIDCO cannot enter into agreement with any consumer other than the four distribution companies.

8. Learned Counsel submitted that GRIDCO is no way involved with the transmission loss which occurs in the dedicated lines meant for Railway use with which SOUTHCO does business for its profit and that it is unjust on behalf of the OERC to make GRIDCO responsible to bear this transmission loss. He further submitted that whereas OERC contends that GRIDCO does not loose anything towards transmission loss and the same is allowed recovery in tariff, OERC is not allowing actual loss of 4.5% for FY 2005-06 and has brought it down to 4% on the plea that higher loss has occurred due to inefficiency of the GRIDCO and the same cannot be considered by the Commission.

9. Learned Counsel further submitted that the transmission lines constructed under the ownership of Railways are being maintained by GRIDCO as it is looking after the maintenance of all transmission lines having capacity of more than 33 kV. He said that as per the impugned order of the Commission the transmission loss caused due to the business of SOUTHCO in the dedicated lines will have to be absorbed by GRIDCO which will raise profit of SOUTHCO.

10. Per contra Ms Anjali Chandurkar, learned Counsel for the respondent SOUTHCO stated that GRIDCO had agreed to install all the equipment of GRIDCO inside the Railways Sub- station premises including the meter in the control room of Railway Traction sub-station as contained in the note of discussions held on February 04, 2003 between GRIDCO and Railways.

11. She stated that it is an admitted position that prior to the distribution business being taken over by SOUTHCO from the erstwhile Orissa State Electricity Board (OSEB), various agreements were entered into between the Railways and OSEB and the metering was done at Traction Point. She stated that Railways, in their submission dated September 24, 2007, before this Tribunal have categorically stated that the existing metering at consumer premises was commissioned in 1983, and is available since then and that this is not in dispute. However, after 1999 when SOUTHCO took over the distribution business, metering was unilaterally changed by GRIDCO and was done at two points (Jaynagar Grid Sub-Station and Machhkund Grid Sub-station). As in the case of Rambha Traction Point, there was a difference in the units metered at the aforesaid two grid Sub-stations and the said six traction points for the period April to October, 2003 and November 2004 to January, 2007. She stated that the difference in the energy units as aforesaid between the meter readings recorded at the Grid Sub-station and the Traction Point continues even today and is substantial.

12. Learned Counsel contended that the billing is required to be done at the consumers premises and not at the Grid Sub- station. Insofar as bill in respect of supply made at Rambha Traction was concerned, the relevant period was October 2003 to February, 2005 and insofar as Jaypore Traction was concerned, the bill raised was for the period April, 2003 to October, 2003 and November, 2004 to February, 2005. The bills in respect of the aforesaid were raised on the basis of meter reading done at GRIDCO Sub-station and not at the Railway Traction Point where the supply was made.

13. Learned Counsel submitted that there is no infirmity in the decision of impugned order of the Commission and it has rightly held that there is an agreement between the Railways and GRIDCO which provides for location of the meter inside the Railway Traction sub-station as per minutes of meeting dated February 4, 2003. In this regard OERC has referred to the Grid Code prevailing at that time. The Grid Code which was applicable to the Transmission and Bulk Supply Licensee, inter alia, contained connection conditions which were required to be complied with by any user of the transmission system. “User” was defined in the Grid Code as a person who uses the transmission system and who must comply with the provisions of the Grid Code. Insofar as EHT consumers were concerned, Clause 5.5.4 which specified the connection point for CPPs and Bulk Power Consumers reads as follows:

5.5.4CCPs & Bulk Power Consumers Voltage may be 220/132/33 kV or as agreed with the licensee. Sub-stations are owned by CPPs and Bulk Power Consumers. The connection point shall be the feeder gantry on their premises. The metering point shall be at the licensee’s substation or as agreed with the licensee.

14. She stated that the Clause 5.5.4 clearly provided that the metering point shall be as agreed with the licensee and that there was an arrangement between OSEB/GRIDCO and Railways since 1983 and they were accordingly being billed on the basis of meter reading at consumer premises and that similar provision is in the Orissa (Grid Code) Regulations, 2006 applicable with effect from April 01, 2006. She drew our attention to the relevant extract given below:

4.15(4) CCPs & Bulk Power Consumers Voltage may be 220/132/33 kV or as agreed with the Transmission Licensee. CCPs and Bulk Power Consumers own sub-stations. The connection point shall be the feeder gantry on their premises. The metering point shall be at the licensee’s sub-station or as agreed with the transmission licensee.

15. She submitted that the contention of the GRIDCO that the minutes of meeting dated February 4, 2003 cannot be termed as an agreement between the parties is untenable as a plain perusal of the said minutes of the meeting shows that there is an agreement between the parties for metering at the traction point. The Grid Code clearly provides for connection conditions between the transmission and bulk licensee and an EHT consumer. GRIDCO thus cannot contend that Railways are consumers of SOUTHCO and that GRIDCO cannot discuss commercial aspects with Railways. Grid Code also provides for execution of a Connection Agreement between a transmission licensee such as GRIDCO and EHT consumer such as Railways. In fact, the OERC Distribution (Conditions of Supply) Code, 2004 as also the Supply Code which preceded the Supply Code of 2004 contain various provisions which related to EHT consumers taking supply directly from the transmission licensee, such as GRIDCO. Now the transmission business which was originally a part of GRIDCO vests in Orissa Power Transmission Corporation Ltd. (OPTCL). She drew our attention to the following provisions of the OERC Regulations, 2004.

2. (1) In these Regulations, unless the context otherwise requires:

…(t) “extra high tension consumer” means a consumer who obtains supply from the licensee at Extra High Voltage”. “Chapter III Power Supply:

11 (iii) The licensee shall forward the application for supply at EHT to the transmission licensee within three days of its receipts for its further processing in terms of provisions in the Grid Code. The licensee shall obtain the final reply regarding feasibility from the transmission licensee and communicate the same to the applicant within one month receipt of application”.

Chapter IV Apparatus on Consumer Premises:

32…In case a high tension or extra high tension consumer is directly connected to a Transmission Licensee’s sub-station, the Distribution Licensee shall obtain concurrence of Transmission Licensee before giving approval as above….

56 (4) In case of a feeder directly taken to the consumer’s premises for his exclusive use from the licensee’s sub-station or from the transmission licensee, the metering arrangement shall be done at the consumer’s premises or, at the licensee’s sub-station itself. When the metering arrangements are installed in the consumer’s premises, the position of the service cut-outs or circuit breakers and meters shall be so fixed as to permit easy access to the employees of the licensee at any time. All EHT & HT consumers shall provide independent entry to the meter or metering cubicle. All efforts should be made to ensure unobstructed access to the meter by a representative of the licensee.

16. She asserted that the above said provisions clearly show that while GRIDCO would be bound by the Supply Code, also the metering arrangement would be at the consumer’s premises.SOUTHCO in compliance with the Orissa Distribution(Planning & Operation) Code,1998 has been providing tariff metering at the point of interconnection. Our attention was drawn to Clause 4.8.2 of the said Code relevant part of which is extracted below:

4.8. Metering (Tariff/Commercial)

4.8.2.1 Tariff metering shall be provided at each point of interconnection between distribution system and transmission system in accordance with Grid Code and Connection Agreement

17. She stated that the said code defines in Clause 2.1 (m) a “Connection Point/Interconnection” to mean a point at which a user of electrical system is connected to the licensee’s distribution system. Thus, tariff billing is required to be done at the consumer’s premises which is the Point of Interconnection/Supply.

18. Learned Counsel stated that in view of the above, SOUTHCO has demonstrated that the provisions of the Supply Code apply to GRIDCO insofar as HT consumers are concerned, GRIDCO has wrongly alleged that the provisions of Supply Code are not applicable to GRIDCO.

19. She submitted that reliance on Clause 1.1 of the definition of “Connection” in Bulk Supply Agreement entered into between GRIDCO and SOUTHCO is also misplaced. Connection in case of EHT consumers has been defined to mean each point of interconnection between the transmission system and EHT consumers equipment being either at an incoming feeder gantry or terminal at the relevant EHT consumer’s premises or at outgoing feeder gantry of the relevant Sub-station for the purposes of Clause 7 and 9 of the Agreement. The said clause further merely states that the “connections” existing at the time of execution of the Bulk Supply Agreement during the year 1999 are indicated on the attached geographic map and schematic diagram and that it nowhere states that the business is based on the interconnection point which is only at the outgoing feeder gantry of relevant Sub-station. She stated that this submission of GRIDCO is contrary to established practice/arrangement/agreement when GRIDCO/OSEB were billing EHT consumers prior to SOUTHCO taking over the distribution business at traction point. She submitted that this submission, inter-alia, ignores the fact that the overall tariff exercise while determining the tariff of GRIDCO and SOUTHCO considers the relevant Railway Traction Point as a point of supply to arrive at the transmission loss and allow the same to GRIDCO.

20. She further submitted that difference in the units measured between Grid Sub-Station Meter and Traction Point meter is the transmission loss which ought not to be borne by the consumers. The Commission at the time of the approval of the Annual Revenue Requirement of a licensee factors in such transmission loss which according to the Commission ought not to be borne by the consumers. Such transmission loss, in the present case, is anyway being borne by the consumers such as Railways through tariff as power purchase cost of SOUTHCO includes this loss and, therefore, forms part of ARR. Taking payment for the differential units as aforesaid would amount to once again bearing the transmission loss which is already a pass through to the tariff provided to GRIDCO by the OERC.

21. She asserted that the Commission while approving the ARR of SOUTHCO, does not take into account the transmission losses. The point of purchase from Transco and delivery to the EHT consumers is to take place at the same metering point. The sale of EHT consumers carried a stamp of zero loss and that this has been followed by OERC since 1999 i.e. from the day of operation of the SOUTHCO in respect of Retail Supply Tariff (RST) orders for the periods 1999 to date. She drew our attention to the relevant part of one such order of the OERC in the RST order dated March 23, 2007 for FY 2007-08 extracted below:

5.21.7 While computing the overall distribution loss in the business plan, sale to EHT, HT and LT were together taken into consideration. In Orissa, generation, transmission and distribution activities have been separated in the post reform era. Special mention need to be made that, trading including bulk supply have been separated from transmission in terms of Section 39 of The Electricity Act, 2003. Transmission lines act only as the carrier of power from generating sources to the DISTCOs. Energy input to the DISTCOs is measured at GRID Sub-stations and at metering points of the EHT consumers. Thus, for EHT users DISTCOs point of purchase from Transco and delivery to the consumer is supposed to take place at the same metering point. Thus, any sale at EHT by DISTCOs carries a stamp of zero loss. Distribution loss in respect of NESCO, SOUTHCO and CESU has been calculated excluding sale at EHT level as indicated below as the variation is more than 10%.

22. She stated that the total transmission losses including the transmission loss for the EHT consumers are allowed in the ARR of GRIDCO since 1999 in respect of Bulk Supply Tariff Orders of GRIDCO for the periods 1999 to 2007-08. She drew our attention to the relevant para in one such Bulk Supply Price (BSP) order in the case No. 42 of 2006 dated for FY 200708 extracted below:

6.3 Computation of Transmission Loss.

6.3.1 After examining the transmission loss figures of different months for 2005-06 as submitted by the licensee, the Commission approves it at 4% of energy transmitted for 2006-

07. The details of calculations of transmission loss are furnished in the tariff order for OPTCL for the year 2006-07.

6.3.2 GRIDCO shall purchase power from the generator and at inter-state point from outside sources while OPTCL will bill the customers at the delivery point. There would be a gap between the units treated as lost on account of delivery to the customers on the normative basis approved by the Commission and the actual figure. It will be desirable that existing practice of billing on the basis of actual loss shall be followed and final adjustment shall be carried out at the end of FY 2006-07 between GRIDCO and OPTCL, GRIDCO shall give credit to OPTCL for the units deemed to have been lost on account of export of power, if any.

23. Learned Counsel cited the case No. 36 of 2005, in the matter of suo moto proceeding to address the transmission constraints, where OERC held the following in their order dated July 26, 2006:

28 Those EHT feeders constitute as part and parcel of the EHT transmission line which has to be built, owned and operated by the OPTCL to ensure the optimal utilization of the generation and transmission asset. To avoid delay in construction by the transmission licensee, the prospective consumer can construct a line on behalf of OPTCL and hand over the same to OPTCL perpetually and in such an instance, the OPTCL shall be entitled only to the supervision charge of 6% of the gross estimate. The point of interface between OPTCL and the distribution licensee shall be the point of interconnection at the EHT consumer premises. Following the remunerative norms any expenditure incurred by the prospective consumer on behalf of OPTCL can be reimbursed by OPTCL through energy bill to be served by the concerned DISTCOs through mutual agreement.

24. She submitted that the contention of GRIDCO that the charges for power supplied to various traction points could be recovered from Railways by SOUTHCO, and that no prejudice would be caused is incorrect inasmuch as the Railways being consumers of SOUTHCO, prejudice would be caused to the Railways by such illegal action of GRIDCO.

25. Representatives of Railways submitted that East Coast Railway is no where connected with the present billing dispute and dispute is to be settled between GRIDCO and SOUTHCO as the metering dispute is on bulk supply business and trading only. The existing metering system i.e. at consumer premises (Railway traction substation) may be followed as this system is in vogue for last 25 years in Orissa state and also logically correct.

26. Railway representatives requested that the supply authorities should give uninterrupted power supply to Railway traction sub stations as interruption of power supply will cause detention of trains enroute. The power supply feeding arrangement is under the control of GRIDCO but not under the Railway’s control. Therefore, dispute pertaining to Machhkund traction is purely related to the bulk supply licensee GRIDCO and distribution licensee SOUTHCO and is not at all related to Railways.

27. Our attention has also been drawn to the OERC (Conditions of Supply) Code, 2004, the Grid Code and the provisions of Orissa Distribution Planning and Operation Code, 1998. The appellant has relied on Clause 56 (4) of OERC (Conditions of Supply) Code, 2004, wherein it has been inter alia stated that “the metering arrangements shall be done at the consumers premises or at the licensee’s Sub-station itself….

28. Here it will be pertinent to refer to the following paras extracted from the OERC order dated August 20, 2005:

12. After having gone through the written and oral submissions advanced by both the parties during the course of the public hearing, the Commission finally orders as follows:

(i) Clause 56 (4) of OERC (Condition of Supply) Code, 2004 envisages that “in case of a feeder directly taken to the consumer’s premises for his exclusive use from the licensees’ sub-station or from the transmission licensee, metering arrangement shall be done at the consumer’s premises or, at the licensee’s sub-station itself….

(ii) The relevant extract from GRID Code is reproduced below:

5.5.4 CPPs & Bulk Power Consumers Voltage may be 220/132/33 kV or as agreed with the licensee. Sub-stations are owned by CPPs and Bulk Power Consumers. The Connection Point shall be the feeder gantry on their premises. The metering point shall be at the licensee’s sub-station or as agreed with the licensee.

(iii) In this connection, the relevant portion of the minutes of discussion held between Divisional Engineer Electricity, Visakhapatnam and the Chief Engineer (TP), Bhubaneswar on February 04, 2003 is quoted below:

discussion was held regarding providing metering arrangements at Solari, Rambha and Kaipadar-Road inside the tractin sub-stations premises of Railway. Not withstanding of what contained in Railways earlier letter it was agreed as follows.

(iv) Meter can be installed in the control room of Railway Traction Sub-station.

13. The agreement reached between GRIDCO and Railways are with the provisions of OERC (Condition of Supply) Code as well as the Grid Code with regard to installation of metering at the premises of an EHT consumer.

14. Strangely enough, GRIDCO intends now to wriggle out of the said understanding/agreement on the ground that the same is in conflict with the extant Grid Code. An extract of the Bulk Supply Agreement between GRIDCO and the distribution licensee with regard to metering is given below:

6.1 The parties acknowledge and accept that they are bound by the Regulations including the Grid Code. The parties shall conduct their respective businesses in accordance with the terms of the same.

6.2 Subject to Clause 6.1, the parties shall co-ordinate with each other on a regular basis in order to resolve all operational issues, including connection, metering, load shedding and other day to day matters and for the said purpose shall form such co-ordination committees consisting of such officers as the parties may mutually agree.

15. To buttress up the case, SOUTHCO has quoted the provisions of Orissa Distribution Planning and Operation Code, 1998.

4.8.2 Metering (Tariff/Commercial)

4.8.2.1 Tariff metering shall be provided at each point of interconnectionbetween distributionsystem and transmission system in accordance with Grid Code and Agreement.

4.8.2.2 Tariff metering at Connection Point between user system and distribution system shall be governed by provisions in the Agreement.

16. In terms of the Bulk Supply Agreement between GRIDCO and DISTCO, the parties are bound by the Grid Code and the Orissa Distribution Planning Operation Code as well as the OERC (Conditions of Supply) Code 1998/2004. The Supply Code provides that the consumers shall observe and abide by all the terms and conditions stipulated therein to the extent they are applicable to them. As indicated earlier, metering in case of a Bulk Supply Consumer has to be done at the consumer’s premises or at the licensee’s Sub-station itself. An agreement has been reached between the consumer and GRIDCO for provision of meters inside the Railway Traction Sub- station Grid Code provides that the location of metering has to be agreed between the parties. As GRIDCO and Railway Traction had given consent for location of meter according to Grid Code, the point of metering shall be the metering inside the Railway Traction sub- station. The Commission therefore, direct that GRIDCO should prefer BST bill to SOUTHCO in respect of Rambha Traction, considering the meter reading of traction supply at Rambha Traction Point. Likewise claims for individual traction points under Jayanagar-Machhkund transmission shall be on the basis of meter reading at respective traction Sub-station.

17. The Commission further directs that BST bill raised on the Rambha Supply Traction Point may be suitably revised. However, the Commission does not agree to the levy of surcharge on GRIDCO for any revision as requested by the distribution licensee. Similar rectification of bills should be done in respect of Railway Traction Point under Jeypore Electrical Division for Machhkund Railway Traction Points in Jeypore for the months of April, 2003 to October, 2003 and November, 2004 to February, 2005. This disposes off the matter.

29. From the above quoted paras from the Commission’s impugned order it is clear that the metering arrangement could have been done either at the consumers premises or at the licensee’s Sub-station itself and that there has been an agreement between the Railways and the GRIDCO to make metering arrangements at the Traction Sub-station.

30. In fact the issue in this appeal lies in a narrow compass: Distribution Licensee SOUTHCO supplies power to Railways at 132 kV at various traction points. SOUTHCO sources its power requirement from GRIDCO who owns various Sub-stations and transmissions lines. There are separate feeders supplying power to Railways which are owned and operated by GRIDCO. Metering is being done both at the GRIDCO Sub-stations and at the Railway Traction Supply Points. Due to transmission loss of the intervening 132 kV lines, there is bound to be difference in the meter readings at the two ends. Crux of the issue is as to who should pay for these losses in the 132 kV transmission feeders supplying power for Railway Traction. The Commission has rightly observed that it is a wellestablished fact that distribution licensee’s accountability is only for the loss in the distribution system and not for loss in the transmission lines, at 132 kV in this case. Anyway, the cost of transmission losses is passed on to the distribution licensee in his power purchase cost and eventually gets recovered from the end user.

31. The Commission in its order has clarified that the entire transmission system loss including the losses arising out of the Railway transmission feeders are being allowed to GRIDCO. In case, contention of the GRIDCO is accepted and billing to SOUTHCO is done on the basis of metering at the Grid Sub- station, then there will be duplication of the transmission loss allowed in the Railway feeders. It is, therefore, not logical at all to bill the distribution company on the basis of the meter readings at the GRID Sub-stations.

32. During the hearing, the learned Counsel for the appellant has contended that the actual losses are not being allowed to them. Whereas it is for the Commission to satisfy itself as to whether or not actual losses should be allowed but we make it clear that while working out the losses in the transmission system, losses in the Railway transmission feeders must also be taken into account by the Commission if not being taken into account presently as alleged by the appellant.

33. In view of the aforesaid analysis and discussions, we find no justification for interfering with the Commission’s order and, therefore, in the result, the appeal is dismissed but with no order as to cost.

Spencer’S Retail Ltd. vs Maharashtra Electricity … on 18 February, 2008

Appellate Tribunal For Electricity
Spencer’S Retail Ltd. vs Maharashtra Electricity … on 18 February, 2008
Bench: A K Anwar, M Goel


JUDGMENT

Anwar Ahmad Khan, Member (T)

1. The Appellant, M/s Spencer’s Retail Ltd. a company incorporated under the Companies Act 1956 is having their retail business outlets of different formats such as Express, Daily, Super and Hyper Market Stores across the country. The Appellant has the retail outlets spread across state of Maharashtra and some of them are the consumers of M/s Reliance Energy Limited (for short referred to as ‘REL’) being situated in its area of supply. It has challenged the original impugned tariff order dated 24 Apr. 2007 in Case No. 5 of 2006 read with clarificatory order dated 21 Sep. 07 in Case No. 75 of 2006 passed by Maharashtra State Electricity Regulatory commission (for short referred to as the ‘Commission’). The impugned order dated 24 Apr. 07 relates to determination of Annual Revenue Requirements (ARR) of REL for the FY 2007-08 to 2009-2010 and retail tariff for the FY 2007-08. The Appellant’s Single Ownership Stand Alone/Departmental Stores having a sanctioned load of more than 20 KW, in the earlier tariff regime belonged to the category of LTP-2(LT Industrial), and were reclassified and placed in a newly created LT-9 by the impugned order. The tariff of LTP-2 category consumers carried the demand charge of Rs. 374 per KVA per month and energy charge of Rs. 3.50 per Kwh aggregating approximately to Rs. 6.00 per Kwh per hour. This reclassification has imposed an exorbitant higher tariff on the Appellant consumers with demand charge of Rs. 300/- KVA per month and energy charge of Rs. 8.49 per Kwh aggregating approximately to Rs. 10/- per Kwh. The change in category from LPT-2 to LT-9 has resulted in an increase in the tariff by about 70%.

2. The Appellant has submitted that the Respondent No.2, REL, in its petition for determination of ARR, before the Commission did not propose any separate category for “Multiplexes and Shopping Malls”. The Appellant has submitted that the new class of consumers category namely LT-9, for “Multiplexes and Shopping Malls” as envisaged in the impugned order of 24 Apr. 07 has excluded the Single Ownership Establishment other than Larger Shopping/Departmental Stores like Shopper Stop, Big Bazaar, Shop Rite, Spencer’s etc. Prior to this “Multiplexes and Shopping Malls” were treated as any other commercial/industrial consumers.

3. The Commission when approached by Maharashtra State Electricity Distribution Company Ltd. (hereinafter referred to as ‘MSEDCL’) another licensee, passed a clarificatory order dated 24 Aug. 07 in case no. 65 of 2006 and clarified that Single Ownership Larger Shopping/Departmental Stores like Shoppers Stop, Big Bazaar, Shop Rites, Spencer’s etc. with sanctioned load of about 20 KW shall be classified under LT-9 category.

4. The Appellant has further submitted that the clarificatory order dated 21 Sep. 07 passed by the Commission in instant case drew reference to the above mentioned clarificatory order passed by the Commission on 24 Aug.07 in the case of MSEDCL being Case No. 26 of 2007 and Case No. 65 of 2006 and clarified its position vis-à-vis categorization of consumers under LT-9 category under “Multiplexes and Shopping Malls” for REL as well. The Appellant’s averment is that but for the reclassification the Appellant would have been placed under the old classification of LTP-2, (now LT-4 in the impugned order) and would have been charged tariff of demand charges of Rs. 300/- per KVA per month and energy charges @ Rs. 4.99 per KWh.

5. In light of the above, the Appellant is aggrieved that it has to bear an excessive and arbitrary increase in the retail tariff for its essentially Single Owner Shopping/Departmental Stores and such exorbitant increase is in complete violation of the provisions of the Electricity Act, 2003 as well as policies notified therein. The Appellant prays to set aside the impugned order dated 24 Apr. 07 and clarificatory order dated 21 Sep. 07 in case No. 75 of 2006 passed by the Commission insofar as it creates a new tariff category of LT-9 for Single Ownership Shopping/Departmental Stores etc. for sanctioned load of more than 20 KW. It seeks direction to Respondent No. 1, the Commission to re-determine the tariff of Respondent NO. 2, REL for FY 2007-08 in accordance with the Section 61, 62(3) and other relevant provisions of National Electricity Policy and National Tariff Policy.

6. It is pertinent to mention that this Tribunal in its judgment dated 19 Dec 07 in case of Spencer’s Retail Ltd. v. MERC and Anr. allowed the Appeal of this very Appellant and set aside the tariff order dated 18 May 07 in Case No. 65 of 2006 and clarificatory order dated 24 Aug. 07 in Case no. 26 of 2007 and Case No. 65 of 2006 passed by the Commission in so far as the Appellant consumer is a direct consumer of the MSEDCL and is located either in “Multiplexes and Shopping Malls” or in Single Ownership Stand Alone Shopping/Departmental Stores, is placed in tariff category LT-9. The said judgment has also directed the Commission to charge tariff applicable to their respective parent categories [i.e. LT-2 (Non domestic) and HT-industrial] from the date on which the new tariff order came into effect and with further direction to adjust the difference in tariff charges in the future bills of the Appellant consumer.

7. Our attention has been drawn to another judgment passed by this Tribunal passed on 26 Nov. 07 in Appeal Nos. 125 of 2007 [Inorbit Mall (India) Pvt. Ltd. v. MERC and Anr.] and 126 of 2007 (Vasudev C. Wadhwa Construction v. MERC and Anr.) whereby the two appeals were allowed directing the Commission to reconsider the matter afresh giving full opportunity to the two Appellants of being heard as to whether they also should fall under tariff category LT-9. This matter has been decided by the Commission vide its order dated 15 Jan. 08. Mr. M.G. Ramachandran, learned Counsel for the Appellant has submitted a copy of the said order alongwith additional affidavit. From this order it is clear that the Appellants in Case No. 78 of 2007 who was in HT-2 category and located in the area of supply of REL, while making submission before the Commission, has made reference to this Tribunal’s judgment dated 19 Dec. 07 to seek relief from the Commission against being placed in the tariff category LT-9. It may be mentioned that this Tribunal judgment dated 19 Dec. 07 deals with the cases of consumers of this very Appellant who were earlier under LT-2 (Non-domestic) and HT-Industrial categories and were shifted to tariff category LT-9 by the Commission’s Order.

8. The order dated 15 Jan. 08 passed by the Commission has referred to this Tribunal’s judgment dated 19 Dec. 07 in case of ARR determination of MSEDCL and has concluded that the applicability of tariff category LT-9 for “multiplexes and shopping malls” getting supplies at HT voltage in the area of supply of REL no more survive. Para -6 of the order dated 15 Jan. 07 reads as under:

Although, it has been submitted on behalf of the Distribution Licensee, i.e. REL, that there was no undue enrichment to REL on account of levy of LT- 9 tariffs to shopping malls and multiplexes, the Commission after having heard the public (including M/s Inorbit Mall (India) Pvt. Ltd. and M/s Vasudev C. Wadhwa Constructions) and REL, the distribution licensee, is of the view that with the subsequent judgment dated December 19, 2007 issued in case of ARR determination of Maharashtra State Electricity Distribution Company Limited, the applicability of tariff category LT-9 for Multiplexes and Shopping Malls getting supply at Ht voltage in the area of supply of REL, can no more survive. Accordingly, the Commission directs that consumers who were being billed (prior to the Errata/Corrigendum Order dated July 26, 2007) under Ht-2 category and who began receiving bills as LT-9 consumers (Multiplexes and Shopping Malls (MSM)) be charged tariff applicable to the parent category [i.e. HT-2] with effect from the date on which the new tariff Order came in effect. The difference in tariff charges be adjusted in the future bills of such consumers

9. The instant Appeal essentially raises issues which are similar to those raised in appeal No. 146 of 2007 in (Case no. 65 of 2006 and 26 of 2007) of Spencer’s Retail Ltd. v. MERC and Anr., which was disposed of by this Tribunal’s judgment dated 19 Dec. 07 except in the instant case the area of supply being of REL and change of category from LPT-2(LT industrial) to LT-9.

10. In view of the above we allow the Appeal and set aside the order dated 24th Apr 07 in Case No. 75 of 2006 and the clarificatory order dated 21 Sep. 07 in Case No. 75 of 2006 in so far as the Appellant is Single Ownership Stand Alone Shopping/Departmental Stores, etc., is placed in LT-9 category and direct that it be charges tariff applicable to their parent category of LPT-2 (presently LT-4) from the date on which new order came into effect and the difference in charges be adjusted in the future bill of the Appellant consumer.

11 I.A. No. 212 of 2007, for interim relief has become infructuous.

12. The Appeal is accordingly disposed of with no costs.

Pronounced in open court on this day of February, 2008.

Bangalore Electricity Supply Co. … vs Karnataka Electricity … on 7 February, 2008

Appellate Tribunal For Electricity
Bangalore Electricity Supply Co. … vs Karnataka Electricity … on 7 February, 2008
Equivalent citations: 2008 ELR APTEL 164
Bench: B T H.L., M Goel


JUDGMENT

H.L. Bajaj, Member (T)

1. This is a common appeal filed on common grounds by the five distribution licensees in the state of Karnataka, against the orders dated October 16, 2006 passed by the Karnataka Electricity Regulatory Commission ( KERC or the Commission in short) whereby it has determined the revenue requirements and tariff applicable to the appellants for the FY 2006-07.

2. In these appeals the appellants have sought the following relief:

(a) allow the appeal and modify the orders dated October 16, 2006 passed by the Commission to hold that the appellants shall be entitled to the additional revenue requirements for the FY 2006-07 as claimed by the appellants;

(b) direct that the appellant shall be entitled to recover the additional revenue requirements as decided by the Tribunal; from the consumers in the state by a proportionate percentage increase in the existing tariff and thereby equitably from all the consumers in the area of supply of the appellant;

(c) direct that the existing tariff as prevalent before the impugned order shall continue to apply with an additional increase in tariff as provided in prayer (b) above.

3. The appellants are all electricity distribution licensees in the Karnataka under The Electricity Act, 2003 (the Act in short) for the respective areas of supply. These are wholly owned Government of Karnataka Enterprises who succeeded to the functions of the Electricity Distribution and Retail Supply from Karnataka Power Transmission Cooperation Ltd. (KPTCL in short), the second respondent under a statutory Transfer Scheme notified by the Government of Karnataka in exercise of the powers under the Karnataka Electricity Reforms Act, 1999 ( the Reforms Act).

4. KPTCL at present undertakes the transmission of electricity and also discharges the statutory functions of the State Load Despatch Centre and the State Transmission Utility as provided in Sections 31 and 39 of the Act. KPTCL had earlier succeeded to the functions of transmission, distribution and retail supply of electricity from the erstwhile Karnataka Electricity Board again under a statutory transfer scheme notified by the Government of Karnataka under the Reforms Act.

5. In May, 2006 the appellants filed petitions before the Commission for determination of their respective revenue requirements and tariff for the year 2006-07. The revenue requirements of the appellant include the costs and expenses payable for purchase of power from different sources and the transmission charges payable to KPTCL, besides other costs and expenses related to the business activities of electricity distribution and retail supply.

6. Earlier in November, 2005 KPTCL had filed a petition before the Commission for determination of its revenue requirements and tariff for the above period 2006-07. By order dated April 7, 2006 the Commission decided on the revenue requirements and tariff of KPTCL for the year 2006-07.

7. Aggrieved by the order dated April 7, 2006 KPTCL filed an appeal being No. 84 of 2006 before this Tribunal which vide order dated August 29, 2006 was allowed in part on the following aspects:

(i) Return on equity should be allowed to KPTCL by the Commission taking into account the reserves and surplus as a part of the capital base. Accordingly, as against Return on Equity allowed by the Commission on the capital base of Rs. 682.55 crores, KPTCL is entitled to the Return on Equity on capital base of Rs. 897 crores also;

(ii) KPTCL should be allowed depreciation at the rate of 6% for the year 2006-07 as against depreciation at the rate of 3% allowed by the Commission.

8. In addition to the above, this Tribunal also directed that the Commission should, in future years, consider the investment approval prima facie as proposed by the utility and in the manner as per guidelines contained in its order dated April 7, 2006.

9. It is the contention of the appellants that KPTCL had claimed the transmission charges from the distribution licensees as per the decision of the Tribunal in appeal No. 84 of 2006 and such charges were included by the appellants as an expense in their respective Revenue Requirements and Tariff proposals.

10. The appellants have submitted that KPTCL and some of them had filed another appeal being No. 107 of 2006 against the Order dated April 24, 2006 passed by the Commission in regard to the revision in tariff on account of additional power purchase cost payable to Messrs Tanir Bhavi Power Corporation Limited(Tanir Bhavi in short), a generating company supplying electricity to the licensees in the State. The purchase of electricity from the said generating company in the past was being undertaken by KPTCL and in turn KPTCL supplied the electricity purchased to the appellants. The Commission had disallowed part of the power purchase cost payable by KPTCL to Tanir Bhavi.

11. By Order dated July 7, 2006, this Tribunal admitted the appeal No. 107 of 2006 filed by KPTCL and pending hearing and decision in this appeal, this Tribunal had stayed the order dated April 24, 2006 passed by the Commission.

12. In the circumstances mentioned above, the appellants claimed the entire amount of power purchase cost payable to Tanir Bhavi for the year 2006-07 and also for the additional power purchase cost paid by KPTCL to Tanir Bhavi in the earlier years which the Commission had not then allowed as a pass through in the Tariff. The appellants had urged the Commission to allow the said power purchase cost as a pass through in its tariff in view of the stay granted by the Tribunal in appeal No. 107 of 2006.

13. By order dated October 19, 2006, this tribunal had allowed the appeal No. 107 of 2006 and directed the Commission to allow the entire power purchase cost payable to Tanir Bhavi as a pass through in the Tariff. With regard to the amount paid by KPTCL to Tanir Bhavi in the previous years which were not then allowed by the Commission as a pass through, the Tribunal had directed the amortization of the amount over a period of 5 years and recovery of the same in Tariff to avoid adverse tariff impact on the consumers if the entire amount was recovered in the Tariff immediately.

14. By the impugned order dated October 16, 2006 (separate orders passed for each of the five appellants) the Commission has decided on the revenue requirements and tariff applicable to the appellants for the year 2006-07.

15. The appellants have submitted that by the impugned orders the Commission has inter alia decided on the following:

(i) The quantum of power purchases proposed (energy required) by the appellants to meet the electricity requirements of consumers and others in their respective areas of supply has been significantly reduced. The appellants had discussed in detail with the officers of the Commission on the initial estimates of power requirements during the validation meetings and revised the estimates. Despite these discussions, the Commission has reduced the quantum of power requirements as given below arbitrarily without appropriate reasons:

In million units

Name of The
Discom

MUs of Power
Purchase proposed by the appellants as revised during validation meetings

MUs allowed
by the Commission

Difference
(disallowed quantum)

BESCOM

19197.45

16908.76

2288.69

HESCOM

7188.18

6873.32

314.86

MESCOM

2838.96

2715.84

123.12

GESCOM

4776.87

4415.94

360.93

CESCOM

4153.03

3624.19

528.84

TOTAL

38154.49

34538.05

3087.60

16. As against the above, the consumption by all the appellants up to August, 2006 is 20422 MU and this leaves only 14116 MU for the remaining seven months which is also the period having high demand for electricity. Thereafter, the consumption per day as of now is around 120 MU. The quantum of power requirements determined by the Commission is grossly inadequate.

(ii) The Power Purchase costs payable to KPTCL by the appellants for the power purchases from Tanir Bhavi has not been fully allowed despite the stay granted by the Tribunal in appeal No. 107 of 2006 on the order passed by the Commission rejecting the claim of KPTCL. The cost of such power purchase disallowed by the Commission related to the Financial Year 2006-07 (inclusive of energy charges for power purchase quantum disallowed) is as under:

Name of the
Discom

Cost claimed
by Discoms for 2006-07

Cost allowed by the Commission

Difference

BESCOM

595.71

241.51

354.20

MESCOM

134.54

54.93

79.61

TOTAL

730.25

306.44

433.81

(iii) In addition to the cost of power purchase from Tanir Bhavi for the year 2006-07, the appellants had also claimed pass through of amounts aggregating to Rs. 720 crores which pertain to the previous periods namely from 2002-03 to 2005-06.

(iv) The distribution loss as claimed by the appellants has not been allowed and in particular the losses suffered by the appellants in the supply of electricity to agricultural consumers have been disallowed to the extent they are categorized as supply to unauthorized pump sets.

(v) The Transmission charges claimed by KPTCL as per order dated August 29, 2006 of this Tribunal in appeal No 84 of 2006 amounting in aggregate to Rs 275.68 crores has not been allowed as a part of the revenue requirements of the appellants.

(vi) The Employees Cost claimed by the appellants has not been allowed in full. The details are as under:

Name of the
Discome

Cost claimed
by Discoms for 2006-07

Cost allowed
by the Commission

Difference

BESCOM

390.63

293.03

97.6

HESCOM

76.88

MESCOM

131.76

98.80

32.96

GESCOM

131.35

102.04

29.31

CESCOM

167.22

106.92

60.30

TOTAL

297.05

(vii) The interest and finance charges claimed by the appellants on Capital Works Programme have not been allowed. The details are as under:

Name of the
Discom

Amount not
allowed

BESCOM

71.86

HESCOM

64.52

MESCOM

8.67

GESCOM

12.80

CESCOM

24.05

TOTAL

181.90

(viii) The Repair and Maintenance Cost claimed by appellants 1 and 5 have not been fully allowed. The details are as under:

Name of the
Discom

Cost claimed
by Discoms for 2006-07

Cost allowed
by the Commission

Difference

BESCOM

59.76

47.65

12.11

CESCOM

13.98

9.16

4.82

TOTAL

16.93

(ix) In the case of appellants 1 and 5 the Commission has not allowed the Administrative and General Expenses to the required extent.

(x) The Commission has also not allowed, to the required extent, the provision made by the appellants for bad and doubtful debts.

(xi) In addition to reducing the revenue requirements of the appellants on the aspects mentioned above the Commission has further reduced the overall tariff for various categories of consumers causing additional uncovered gap of Rs 192 crores in aggregate in the revenue requirements of the appellants without any reasons and merely stating that such reduction in per unit tariff applicable to the different classes of consumers will only have a marginal effect.

(xii) In the circumstances mentioned above, as against the revenue gaps claimed by each of the appellants in the expected revenue requirement, the Commission, in the impugned order, has determined revenue surplus from the existing tariff for each of the appellant and has, therefore, reduced tariff applicable to various classes of consumers to adjust the above revenue surplus.

(xiii) As a consequence of the above the revenue requirements of the appellants for the year 2006-07 determined by the Commission have been significantly reduced as per the following details:

Rs. In crores

Name of the
Discom

Revenue
Requirements proposed

Revenue
Requirement allowed by the Commission

Difference

BESCOM

5341.55

4245.63

1095.92

HESCOM

1722.93

1525.31

197.62

MESCOM

897.50

777.29

120.21

GESCOM

1124.10

902.09

222.01

CESCOM

1088.47

824.36

264.11

TOTAL

1899.87

17. The appellants state that they had submitted their revenue requirements under various heads and that they had discussed and deliberated on the various aspects of the revenue requirements with the officers of the Commission in the validation meetings. The Commission was required to decide the revenue requirements and the Tariff based on the submissions made by the appellants, the points raised during the validation meetings and the specific objections and suggestions raised by the interested persons and stakeholders. The Commission was required to give an appropriate opportunity to the appellants in the event the Commission proposed to decide any of the aspects of the case on the basis different from those urged before it in the proceedings.

18. The Commission, however, did not give any opportunity to the appellants and proceeded to decide on various aspects of the matter on totally different basis and considering matters which were not raised during the proceedings. Thus the appellants did not have opportunity to deal with some of the specific matters raised in the impugned orders. These include decisions on energy requirements, the fact that giving effect to the order dated August 29, 2006 passed by this Tribunal in appeal No. 84 of 2006 concerning the transmission charges does not depend on the truing up exercise, the interpretation of the said order of this Tribunal in regard to investment and financing charges does not imply that no such interest or finance charges can be considered in the tariff for the ensuing period till the investment is actually made, the implication of the order passed by this Tribunal dated July 7, 2006 staying the operation of the order relating to power purchase costs payable to Tanir Bhavi, non consideration of power supply to and distribution losses in regard to the IP sets on grounds that the connection to IP sets have not been regularized when under the decision taken by the Government of Karnataka such regularization has to be achieved by March 31, 2007 and also on matters relating to Employees Cost, R&M Expenses, Bad Debts etc. as detailed above. The appellants submitted that if the Commission had given such an opportunity the appellants would have been able to persuade the Commission that the decision proposed is not just or proper and not in accordance with law.

19. The Commission had engaged consultants such as TERI to advise the Commission on specific aspects. The report submitted by the consultants was not made available and, therefore, the appellants did not have the opportunity to deal with the matters contained in the said reports which had influenced the decision of the Commission.

20. Aggrieved by the impugned orders of the Commission the appellants have filed present appeals for setting aside the orders of the Commission.

21. On consideration of the submissions made on behalf of appellants as well as respondents and the contentions advanced on either side and written submissions submitted by the parties, keeping in view that though number of contentions have been raised in the appeal and the replies, filed the learned Counsel appearing for rival parties, while advancing any contentions restricted themselves to some main issues, the following issues and points emerge for our consideration in these appeals.

(A) Re. Reduction of quantum of power purchase required.

(B) Re. Disallowance of power purchase cost to Tanir Bhavi.

(C) Re. Distribution loss calculation

(D) Re. Interest and finance charges on investment.

(E) Re. Employees cost

(F) Re. Charges payable to KPTCL

(G) Re. Repair and Maintenance Expenses

(H) Re. Additional reduction and tariff

(I) Re. Differential industrial tariff.

(J) Re. Bad Debt Provisions We now proceed to deal with each issue/point.

(A) Re. Reduction of quantum of power purchase required.

22. Mr. M.G. Ramachandran, learned Counsel for the appellant stated that the Commission approved 34538.05 MU of power purchase against proposal of 38154.49 MU for the five distribution companies thereby leaving a gap on the pretext that energy sale projected for some categories of consumers was higher. He pleaded that the Commission should have allowed the energy sales and power purchase as projected by distribution companies and in the event such projections are higher as per actuals during the tariff period, the excess allowed could have been appropriately adjusted with interest at the time of truing up. He submitted that the Commission should have at least considered the energy sales and power projections based on half yearly actual quantum which was available at the time of issuance of the impugned Tariff Orders.

23. Learned Counsel contended that the Commission has not followed the principles laid down by this Tribunal in appeal No. 84 of 2006 dated August 29, 2006 while dealing with investments proposed and as per which judgment the Commission should not ordinarily interfere with the projections by the utility and if the projections go amiss the same could always be adjusted based on actuals instead of disallowing the cost upfront and thereby causing financial strain to the utility.

24. Learned Counsel contended that the Commission had disallowed the power purchase projected to meet supply to unauthorized IP sets on the ground that despite earlier order of the Commission the appellants have not made any attempt to regularize all IP sets. He submitted that the Commission has failed to consider that under the scheme formulated by the Government, the distribution companies were to regularize unauthorized IP sets by March 31, 2007 and that the appellants have undertaken the same in accordance with the said scheme. He asserted that disallowing the power purchases to meet the supply to unauthorized IP sets during 2006-07 is harsh and unjust. In this regard the Government Order dated October 3, 2006 has been placed on record by the appellant. He urged that the Commission should be directed to allow the cost as per actuals with carrying cost in the truing up at the time of determination of MYT for 2007-10 which is pending before the Commission.

25. Per contra learned Counsel for the respondent stated that during the validation meetings KERC pointed out that due to good monsoon, availability of power from hydro sources was substantially high and therefore, requested revision of source-wise power purchase quantity and cost and that the appellant failed to provide the said revised data and the same was subsequently furnished by State Power Procurement Coordination Centre (SPPCC) who was acting on behalf of the appellants. He stated that in the said revised data, the quantum of power to be purchased has been increased by 2022 MU which was not substantiated by the appellant as to whom the extra power would be sold. He further stated that metered sales of all distribution companies have been allowed almost in full. There has been reduction in the unmetered sales namely Bhagya Jyothi/Kutir Jyothi (BJ/KJ), IP sets and street lights. For BJ/KJ installations and street lights the Commission has calculated the consumption based on the data provided for the metered installations by the appellants themselves. The consumption of unauthorized Irrigation Pump(IP) sets had to be disallowed by the Commission as sale to unauthorized installations amounts to theft in terms of Section 135 of The Electricity Act, 2003 (The Act). As per direction of the Commission the appellants were to regularize all the IP sets connections and that they have failed to comply with this direction. He further submitted that neither the distribution companies nor the state Government should encourage such practices of supplying power to unauthorized users.

26. Learned Counsel further stated that the responsibility of metering all the installations lies with the appellants in terms of Section 55 of the Act. In the absence of 100% metering of IP sets the Commission is constrained to estimate the specific consumption for IP sets based on sample DTC meter readings for the previous year. He stated that with respect to sales to water supply, BESCOM had projected 300.50 MU as against the last year’s figure of 238.29 MU. Compounded Annual Growth Rate (CAGR) of 9% against the proposed growth rate of 26% was considered adequate and therefore, sales of 260 MU was approved. He stated that with respect to street lights KERC considered 254 units/kW/month as the specific consumption based on information furnished by BESCOM. He submitted that sales of 300 MU, which was a specific requirement of BESCOM, as additional sales due to efficiency improvements has not been recognized as sale to any specific category of consumers and that such efficiency improvement has to be achieved by cutting down on the technical and commercial losses and not by procuring extra power.

27. Learned Counsel stated that extrapolating grid consumption from the first half of the year to estimate power requirement during the whole year would not be logical as the consumption increase would not be uniform throughout the year. The drawal of power by Irrigation Pump sets, which is about 40% of the total sales in the beginning of the year, cannot be the basis for fixing the total consumption in the entire year.

Analysis and decision:

28. The basic issue before us is as to who should estimate the power requirement. It is the responsibility of the appellant to ensure power supply and also give new connections required during the year. The DISCOM have their own planning departments where experts assess the power requirements. This Tribunal in its judgment in Appeal No. 84 of 2006, dated August 29, 2006, in case of KPTCL v. KERC has decided that it is for the utility to estimate the future demands. Relevant para from our judgment is extracted below:

The Commission overlooked the fact that the appellant being transmission utility transmitting power through out the State for the bulk supply as well as distribution as an obligation to maintain the supply as well as quality supply and when the demand increase, either at the level of distribution or at the level of bulk supply it is the transmission licensee who should provide for the supply. This obviously means that the transmission utility has to plan in advance and should be in a position to supply power as demanded from time to time. Section 42, 43 of The Electricity Act 2003 also should not be lost sight of. To meet the ever increasing demand consequent to development and improvement in the status of the consumer public, industrialization, computerization, heavy industries and requirement increases by geometric proportion, it is for the transmission utility or such other utility to estimate the future demands as well, besides improving the quality and standard of maintenance. This is possible only if the utilities have the freedom to plan with respect to their investment, standardization, upgrading of the system. For such a course it is within the domain of those utilities to undertake to plan, invest and execute the projects or schemes of transmission etc. If the view of the Commission is to be sustained, as already pointed out, the same would mean for each and every investment an approval has to be sought by the utility in advance which is not the objective of the Act.

29. It is not for the Commission to assume day to day duties and responsibilities of the appellant as it is the appellant alone who has to ensure power supply and who should estimate the requirement of power. Any way, at the end of the year the truing up has to be done. The appellants have fairly submitted that in case of any over recoveries they will refund the excess amounts collected by them with interest to the consumers.

30. With regard to 100% metering, it is important and essential that the appellants abide by the provisions of the Act and ensure 100% metering as envisaged in Section 55 of the Act.

31. As far as the IP sets are concerned, the Karnataka Government has taken the decision to postpone the regularization as per their letter dated October 3, 2006, reproduced below:

Government are pleased to accord approval for the following:

1) to extend the time limit for regularization of unauthorized IP sets from August 01, 2006 to March 31, 2007;

2) to collect the regularization charges of Rs. 10,000/- per IP set payable by farmers in five monthly equal installments.

3) Regularization charges payable in installments as above by farmers shall be shown distinctly under separate head as “receivable from farmers” in the Revenue Ledger, without merging this with the periodical electricity charges (revenue);

4) To initiate action as per rules apart from disconnecting the unauthorized IP set installations, if any, existing after March 31, 2007.

32. Once a decision has been taken by the Government it may not be proper to designate the existing connections as unauthorized.

33. In view of the aforesaid discussions and since interest of the consumers is being protected by the appellants, we hold that the Commission should allow the power requirement as estimated by the appellants.

(B) Re. Disallowance of power purchase cost to Tanir Bhavi.

34. Learned Counsel for the appellants contended that the power purchase cost payable to KPTCL for the purchases from Tanir Bhavi has not been fully allowed despite the stay granted by this Tribunal in appeal No. 107 of 2006 and that the cost of such power purchase disallowed by the Commission related to the Financial Year 2006-07. The Purchase Agreements with the generating companies including Tanir Bhavi were assigned by KPTCL to distribution companies and for the tariff period 2006-07 the cost payable to Tanir Bhavi at US 4 cents was to be allowed to the distribution companies. The Commission had not allowed the full US 4 cent payable to Tanir Bhavi despite the fact that on the petition filed by KPTCL for the previous period by order dated July 07, 2006, this Tribunal had stayed the Commission’s decision to disallow such cost.

Analysis and decision:

35. It has been fairly stated by the learned Counsel for the Commission that the additional power purchase cost payable to Tanir Bhavi as allowed by this Tribunal in appeal No. 107 of 2006 could not be taken into account as the judgment in appeal No. 107 of 2006 was delivered on October 19, 2006 whereas the Commission had already vide its order dated October 16, 2006 had stated that the order was subject to the judgment of this Tribunal in appeal No. 107 of 2006. We need not say more and expect the Commission brings out this element of additional cost succinctly brought while implementing this order.

(C) Re. Distribution Loss calculation:

36. Learned Counsel for the appellant contended that the Commission has disallowed the losses for the supply of power to so called unauthorized connections on the ground that despite earlier order of the Commission, the appellants have not made any attempt to regularize all IP sets. He contended that the Commission has failed to consider that under the scheme formulated by the Government the distribution companies were to regularize all unauthorized IP sets by March 31,2007 and that the distribution companies have undertaken the same in accordance with the said scheme of the Government. He asserted that in view of this it is harsh and unjust for the Commission to disallow losses pertaining to supply to IP sets during 2006-07.

Analysis and decision:

37. We have already held above that the power purchase in respect of IP sets is to be allowed and, therefore, the losses associated with such supply also have to be allowed.

(D) Re. Interest and finance charges on investment.

38. This issue has already been decided by this Tribunal in appeal No. 100 of 2007 wherein we have ordered as under:

In view of the above judgment of this Tribunal the payments of interest and finance charges, pending final approval of the Commission, are merely provisional payments and, therefore, the Commission need not discontinue its decades old practice of allowing the interest and finance charges to the licensee till capitalization of the assets. If there is any variation in the expenditure made by the appellant and the approval accorded by the Commission, adjustments can always be made. Moreover, if the interest payments are not allowed till capitalization then the Interest During Construction will also form a part of asset base and for the useful life of the asset the return on the equity portion will be allowed to the licensee and this will not be in the interest of the consumer. It will therefore, be just, fair and equitable to continue to allow the interest and finance charges to the appellant as per Commission’s well established practice and make required adjustments at the time of capitalization of assets as approved by the Commission.

39. We direct that the Commission implements our order in Appeal No. 100 of 2007, mutatis mutandis, in this appeal also.

(E) Re. Employees cost:

40. Learned Counsel for the appellant contended that the Commission has not allowed the arrears paid by the distribution companies to their employees from 2003-04 on account of pay revision on the ground that the distribution companies and their predecessors KPTCL ought to have implemented the pay revision in time and that the Commission has totally ignored that such pay revision implementation takes time because firstly negotiations with the employees and thereafter approval of the Government takes lot of time. He further stated that the delay in pay revision was not on account of any deliberate Act or failure or default on part of KPTCL or the appellants and that such disallowance of legitimate cost incurred by the appellant is harsh, unjust and contrary to the principles laid down by the Hon’ble Supreme Court in West Bengal Electricity Regulatory Commission case . Relevant paras on Employees’ Cost are extracted below from this judgment.

87. ASCI in its report in regard to the above item held that the number of employees in New Cossipore and Mulajore is very high by any standard. It observed that the running of these institutions has become uneconomical and, hence the Company has been advised to take action to reduce the number of employees by proper deployment or Voluntary Retirement Schemes (VRS) particularly, in the context of the proposal for closing down the Mulajore plant. It also observed that the overtime payment made to the employees was a worrying feature. It also noticed that because of the settlement with the workmen, the Company was paying the workmen overtime irrespective of the need for the same and such payment had no justification especially when the same has to be passed on to the consumers. Therefore, it recommended a drastic cut or alternatively phasing out of this system of overtime payment. The Commission in its report agreed with the views expressed by the consultant. It however, did not agree with the consultant as to the closure of Malajore and New Cossipore plants, unless it was established that the cost of generation of electricity in those plants was higher than the cost of purchase of electricity by the Company from other sources. For the said reason it deferred the finding in regard to closure of the abovementioned two plants. It however, agreed with the consultants that the overtime payment that was being made by the Company was extremely high and hence for the year 2000-01 it imposed an ad hoc cut from the actual expenditure under this head, to the extent of Rs. 447 lakhs towards overtime. Rs. 600 lakhs towards pension contribution and Rs. 208 lakhs towards provision for leave encashment. The High Court reversed this finding on the ground that the payment of wages including overtime and other welfare benefits was made by the Company under lawful agreements entered with the workmen. Therefore, during the pendency of these agreements, it was legally not possible for the Company to stop these payments. Therefore, the amounts spent towards this purpose, namely, towards the employees’ cost should not be treated as amounts not properly incurred. The High Court on this basis allowed the entire expenditure incurred by the Company under this head.

88. We are in agreement with this finding of the High Court. Since it is not disputed that the payments made to the employees are governed by the terms of the settlement from which it will not be possible for the Company to wriggle out during the currency of the settlement, therefore, for the year 2000-01 the actual amounts spent by the Company as employees’ costs will have to be allowed. However, we agree with the findings of the consultants as also the Commission that the amounts spent towards wages are highly disproportionate to the energy generated as also the amounts paid as overtime to the workmen is wholly unrealistic. We also notice that the two plants of the respondent Company namely those at Mulajore and New Cossipore are stated to be economically not viable. Therefore, the Company should take steps either to make the said plants economically viable or to close down if necessary. In this regard, we note that the Commission has for the relevant year not granted the request of the Company for introducing VRS by allocating required sums of money on this account, which under the circumstances seems to be a good one-time investment for reducing the cost under the head Émployees Cost”. While considering the tariff revision for the year 2002-03 we direct the Commission to bear this fact in mind. However, we further direct the Company that should there be any need for entering into a fresh settlement with the workmen, then any agreement which entitles the workmen to get overtime payment even when overtime work is unnecessary should be done away with. With the above observations as a future guidance, we accept the finding of the High Court on this account.

41. Learned Counsel prayed that the Commission be directed to allow these employee related expenses as per actuals with carrying cost during the truing up of revenues for 2006-07 at the time of approval of the distribution tariff for 2007-08 to 2009-10.

42. Per contra learned Counsel for the respondent Commission stated that the appellants had claimed arrears of past three years payable towards pay revision to its employees and the same was included in the Annual Revenue Requirements (ARR) of the distribution companies after delay of more than three years and that the Commission had held that the appellants should have initiated action for revision of pay earlier and should have finalized the same in time and that in view of this delay liability of Rs. 122.10 crores has accumulated which would burden the consumers and they cannot be penalized on account of delay by the appellants. He further submitted that the Commission in its tariff order dated March 10, 2003 has held that any pay revision has to be linked to employee productivity and should be paid by the licensee through efficiency gains and that in view of this the Commission has disallowed arrears of pay revision for FY 2004-06 and that the pay revision for the current fiscal year has been allowed subject to the appellant’s furnishing details of increased employee productivity. Analysis and Decision.

43. We appreciate concern of the Commission regarding employees productivity and its endeavor to increase the same. Increasing the employees productivity will enhance efficient working of the organization, cut costs and improve reliability and quality of supply. We hope that the appellants take up the task of improving the productivity levels in their respective organizations and ensure continued improvements in the productivity levels as expected by the Commission. Having said that, we do not agree with the decision of the Commission not to allow the employees cost as pay revisions take into account factors such as: cost of living, salary levels in similar sectors etc. and are not necessarily linked to employee productivity alone. The Commission has sufficient powers under Section 142 of the Act to enforce its directions regarding improvement of employee productivity. Wage revisions invariably require very long and protracted negotiations and, therefore, we do not find any justification in disallowing arrears of pay revisions to the appellants. In today’s industrial environment the appellants cannot postpone the payment of arrears and, therefore, will be exposed to crippling cash flow constraints if the wage related payments are not allowed.

44. In view of the aforesaid discussion we hold that all payment of arrears arising as a result of the pay revision should be allowed with carrying cost in the next truing up exercise.

(F) Re. Charges payable to KPTCL.

45. Learned Counsel for the appellant contended that the Commission is required to allow, in the ARRs, revenue requirements of the appellants all amounts payable to KPTCL as per orders of this Tribunal dated August 29, 2006 in appeal No. 84 of 2006 and order dated October 19, 2006 in appeal No. 107 of 2006 and order dated December 04, 2007 in appeal No. 100 of 2007. The financial outflow to the appellant on account of these expenses during 2006-07 may be directed to be allowed as per actuals with carrying cost in the truing up at the time of MYT tariff for 2007-08 to 2009-10.

Decision.

46. Once a decision has been taken by a higher authority in judicial hierarchy, it is necessary that these decisions are implemented expeditiously with alacrity. We direct that the Commission expeditiously takes up implementation of this Tribunal’s orders as mentioned in the aforesaid para No 45 above during the next truing up.

[[ (G) Re. Repair and Maintenance Expenses.

47. Learned Counsel for the appellants stated that the Commission has not allowed the quantum of R&M expense claimed by the appellants only on the ground that the same would increase the Repair and Maintenance Cost by 50% and that the Commission has not followed the principles laid down by this Tribunal in appeal No. 84 of 2006 vide its judgment dated August 29, 2006 namely that the Commission should not ordinarily interfere with the projections by the utility and if the projections are wrong the same could always be adjusted based on actuals instead of disallowing the cost upfront and thereby causing financial strain to the utility. He further submitted that the actual R&M expenses of the appellants during the tariff period 2006-07 were more than what has been allowed by the Commission. He pleaded that the financial outflow to the distribution companies on account of the actual R&M expenses during 2006-07 should be allowed along with carrying cost in the truing up during determination of tariff for MYT 2007-08.

48. Per contra learned Counsel for the Commission contended that R&M cost of 15-20 % over and above the actuals of the previous year has been allowed and that the BESCOM and CESC have claimed increase of 50.49% and 83.22% which is unreasonable and, therefore, the Commission has allowed 20% increase which is fully justified. He fairly stated that the actual for FY 2006-07 are available and the Commission would consider the same subject to prudence check during truing up as and when truing up proposals are filed by the appellants.

Analysis and decision:

49. Repair and Maintenance is very important for optimal utilization of machinery and equipment on long term basis. It is important that proper repair, overhaul and maintenance is carried out regularly and wherever replacements are required the same are effected to ensure reliable supply of power and to achieve the fair life of the equipment. Therefore, it should be left to the wisdom of the management of the utility to make cash projections required for R&M. Concedingly, the Commission has fairly stated that the actual for R&M expenses for FY 2006-07 which are already available shall be considered subject to prudence check after the truing up proposals are filed by the appellants. We expect the Commission takes up this exercise expeditiously and allows actual R&M expenses with carrying cost subject to prudence check.

(H) Re. Additional reduction in tariff:

50. Mr. M.G. Ramachandran, learned Counsel contended on behalf of the appellants that the Commission has made an ad hoc reduction in tariff by stating that such reduction will have marginal effect which results in reduction in the revenues of the appellants to the extent of Rs. 192 crores.

51. Learned Counsel for the Commission stated that considering the huge surplus of Rs. 1162 crores the reduction of Rs. 192 crore is insignificant.

Analysis and decision:

52. We consider that Rs. 192 crores, by no means, is a small amount to be cut with one stroke. Whether or not, there is a surplus, any reduction of this magnitude has to be explained. We are not probing into the question of surplus which has been contested by the appellants. We do not agree with this ad hoc reduction of Rs. 192 and direct the Commission to restore the same.

(I) Re. Differential industrial tariff.

53. Learned Counsel for the appellant contended that the Commission has implemented differential industrial tariff on the ground that the same will encourage shifting of the industries from Bangalore and that this is outside the purview of the function of the Commission. He stated that such decisions are for the Government of Karnataka to consider as a matter of industrial policy and it is not for the Commission to unilaterally decide while dealing with the electricity tariff.

54. In this regard, the Commission, in its order dated 16th October, 2006 has stated as under:

Commissions Views:

The Commission had introduced in the tariff order 2005, separate tariffs under LT 5(a) for Bangalore Metropolitan and under LT 5(b) applicable to all the areas other than Bangalore Metropolitan Area and village panchayats. The consumers in areas other than Bangalore Metropolitan Area pay lower fixed and demand charges. Energy charges are the same for both the sub-categories. This lower tariff in fixed charge for the areas other than Bangalore Metropolitan Area, was introduced to encourage mainly the rural industry and also partly to compensate for poor quality of supply.

Fixed Charges in Higher Range connected loads: The present fixed charges for connected load of 67 HP and above is Rs.110 per HP per month under LT5 (a) and Rs.100 per HP per month under LT5 (b) categories.

Further, a large no. of Rice millers have represented that the existing tariff is very high especially for loads exceeding 67 HP and urged the Commission to grant substantial relief in the tariffs.

Keeping these representations in view, the Commission reduces the fixed charges from Rs. 100 per HP per month to Rs. 80 per HP per month under LT5 (b) category while retaining the existing tariff under LT5(a) category. Also in the case of demand based tariff, the Commission agrees to reduce the fixed charges in respect of 67 HP & above from the existing Rs. 150 per KW of billing demand to Rs. 130 per KW under LT5(b) category.

The Commission does not see any need to increase the energy charges by 40 paise per unit for this category as proposed, as the ESCOMs would have surplus with subsidy with the existing tariff. The Commission proposes to retain the tariff under 5 (a). Commission on hearing public representations, feels it necessary to reduce energy charges by 15 paise per unit to consumers under 5(b) in all area other Bangalore Metropolitan areas.

Further, in order to encourage rural industries the Commission decides to reduce the energy charges by 15 paise per unit in respect of LT5 (b) category.

55. At this juncture, it is necessary to advert to Sub section 62(3) of the Act extracted blow for our reference.

The State Commission, while determining the tariff under this Act, shall not show undue preference to any consumer of electricity, but may differentiate according to the consumer’s load factor, power factor, total consumption of energy during any specified period or the time at which the supply is required or the geographical position of any area, the nature of supply and the purpose for which the supply is required.

56. As per sub Section 62(3) above, the Commission may determine differential tariffs according to the geographical locations of the Consumers. Though promoting rural industry may be in the purview of the policy of the Government yet we cannot find fault with the Commission as long as it has acted in accordance with the Act, and its action may have helped in waning the industrial activity in the Metropolitan area of Bangalore. Accordingly, we uphold the decision of the Commission with regard to the Differential Tariff.

(J) Re. Bad Debt. Provisions.

57. Learned Counsel for the appellants contended that the Commission has erred in not allowing proper provisions for bad debt for some of the appellants without giving proper reasons. The Commission in its order dated October 16, 2006, in case of BESCOM has stated that the provisions of bad debt would not be allowed on ad hoc basis and that actual bad debt could be claimed by the appellant by providing full details which would be allowed by the Commission subject to prudence check.

Analysis and decision:

58. It is normal accounting practice to allow bad debts. The Commission has fairly stated in its order for allowing the same on receipt of full details and, therefore, we need not interfere with the order of the Commission with regard to the provision for bad debts.

59. In the result, the appeals are allowed in part in respect of issues (A), (B), (C), (D), (E), (F), (G), (H) & (J) to the extent indicated hereinabove but with no order as to costs.

Jaipur Vidyut Vitran Nigam Ltd. vs Rerc And Ors. on 13 November, 2007

Appellate Tribunal For Electricity
Jaipur Vidyut Vitran Nigam Ltd. vs Rerc And Ors. on 13 November, 2007
Bench: K T A.A., M Goel


ORDER

I.A. No. 154 of 2007

1. The present appeal has been filed after a delay of 361 days. The appellant wants the delay to be condoned and the following facts are offered as sufficient causes.

2. When the impugned order dated 25.7.2006 was passed in petition no. 101 of 2006 by the RERC [‘Commission’ for short], the petition no. 100 of 206 was pending. In petition no. 100 of 2006 the question of law involved was the same, i.e, involving banking arrangement accounting principles. In petition no. 100 of 2006 which was filed by Rajasthan State Mines & Minerals Ltd against the Ajmer Vidyut Vitran Nigam Ltd., the Commission issued notices to all the other distributing companies of the State although the distributing companies other than Ajmer Vidyut Vitran Nigam Ltd. did not have any privity of contract with the Rajasthan State Mines & Minerals Ltd. It is commonly understood by both sides that the Commission did so to facilitate a fuller discussion on the issue. In petition no. 100 of 2006, the Commission passed judgment on 4.11.2006 which was similar to the impugned order dated 25.7.2006. A review petition was filed in petition no. 100 of 2006 in March, 2007 by Ajmer Vidyut Vitran Nigam Ltd. The review petition was dismissed on 13.4.2007. An appeal was filed soon thereafter on 10.5.2007 with the application for condonation of delay. The delay has since been condoned in that appeal, being appeal no. 74 of 2007.

3. The appellant contends that the appellant believed that since the Commission had impleaded the appellant in Petition no. 100 of 2006, the interest of the appellant in petition no. 101 of 2006 was being taken care of, while deciding the petition no. 100 of 2006 and therefore the appellant was advised not to take any further step to challenge the impugned order dated 25.7.2006. Only subsequently, after the appeal was filed by the Ajmer Vidyut Vitran Nigam Ltd. and the appellant was impleaded as party in that appeal that the appellant thought it proper to file the present appeal and hence the appeal.

4. We are not impressed by the explanation advanced by the appellant. The parties to the dispute in petition no. 100 of 2006 were entirely different from the parties to the dispute in petition no. 101 of 2006.

5. Even if in petition no. 100 of 2006, the Commission had taken a different view that would not have set aside the Commission’s impugned order in petition no. 101 of 2006. It cannot be believed that the appellant was advised that the Commission might set aside the impugned order while deciding petition no. 100 of 2006.

6. Further, in Ajmer Vidyut Vitran Nigam Ltd, a review petition was filed. The appellant did not take any steps to file any review petition either in Petition no. 100 of 2006 or in the Petition no. 101 of 2006. Even after the Review petition was dismissed in Petition no. 100 of 2006 the appellant did not wake up. Ajmer Vidyut Vitran Nigam Ltd. filed its appeal within 45 days of the order passed in its review petition. The appellant repeatedly contends in the application for condonation of delay that it was pursuing its case through the petition no. 100 of 2006. Such a plea has to be stated to be rejected. The facts above show that the appellant remained entirely dormant after the impugned order was passed on 25.7.2006. None of the facts mentioned above construes sufficient cause for condonation of delay. The I.A. No. 154 of 2007 is, accordingly dismissed.

AFR No. 1029 of 2007

7. The appeal being barred by limitation cannot be admitted. Hence, the appeal is dismissed in limini.

Uttar Pradesh Power Corporation … vs Noida Power Company Ltd. And Uttar … on 25 October, 2007

Appellate Tribunal For Electricity
Uttar Pradesh Power Corporation … vs Noida Power Company Ltd. And Uttar … on 25 October, 2007
Bench: K T A.A., M Goel


JUDGMENT

Manju Goel, Member (J)

1. This judgment is to decide two appeals being Appeal No. 26 of 2007 and Appeal No. 36 of 2007. Both the appeals arise out of the same impugned order namely the order of the Uttar Pradesh Electricity Regulatory Commission (UPERC or Commission for short) dated 08.02.2007. The order was passed on a Petition by M/s. Noida Power Company Ltd. (NPCL for short), appellant in Appeal No.36/07, under Section 86 of The Electricity Act 2003, read with Section 34 of Uttar Pradesh Electricity Reforms Act 1999, seeking a direction from the Commission restraining the UP Power Corp. Ltd. (UPPCL for short) from taking any coercive action by withdrawing 10 MW of additional power that was being supplied by the UPPCL to the NPCL under an agreement arrived at in May, 2006.

Facts:

2. From the facts available on record it appears that the parties, namely NPCL and UPPCL, have been in perpetual conflict over the rate on which NPCL had been getting bulk supply of electricity from UPPCL. NPCL obtained a license from Govt. of Uttar Pradesh for carrying out distribution in the area of Greater Noida as a private sector player in the distribution of electricity on 30th August, 1993. Its entire power requirement was met by UP State Electricity Board (UPSEB or Board for short) and there after by UPPCL, a successor of UPSEB. UPPCL allowed NPCL to draw power load up to 45 MW only in view of power constraints. The two entered into an agreement on 15.11.1993. UPPCL agreed to supply power of 45 MW for a maximum period of 4 1/2 years. Under the terms of the agreement, the stipulated tentative power purchase price was Rs.1.66 per unit. This rate was to remain operative for only six months. The agreement included a term that the rate would be subject to revision as extracted below:

The above rates of Company are tentative which will be studied and revised after six months by an independent authority to be nominated by State Government and mutually acceptable to NPCL and Supplier for this purpose. If during the period of these six months this Body fixes more/less charges on the basis of the above, it will be adjusted accordingly.

3. An un-certainty about the rate of tariff payable to NPCL by UPPCL was left in the agreement at the very inception of the business of NPCL. The agreement was thus pregnant with the possibility of conflict between the two parties over the rate to be applied for power purchase. Since the parties could not arrive at any mutually acceptable rates, the Govt. appointed first a Committee known as a Nair Committee and then another known s Beg Committee. The report given by Beg Committee was challenged by the NPCL before the High Court of Allahabad in Writ Petition No.1048/2000. In the meantime, UP Electricity Reforms Act 1999 had also come into being and UPERC was constituted vide gazette notification dated 10.09.1998. The UPERC had the responsibility of determining the tariff for retail as well as bulk supply of electricity. The High Court passed an interim order on 31.03.2000 directing UPERC to fix the power purchase price for NPCL within ten days. The UPERC vide an order dated 05.02.2001 fixed rates for the period 1993-94 to 1999-2000. NPCL also paid certain amounts as per this determination under the order of the High Court. The High court heard the parties before accepting the report of the Commission. The Commission, for determining the tariff payable by NPCL, had applied the principles of VIth Schedule of The Electricity (Supply) 1948. Since the retail tariff at which NPCL supplied electricity to its consumers was fixed (NPCL being made to supply electricity at the same rate at which all other consumers of the State were entitled to electricity) the principles of VIth Schedule could be applied in reverse only. Shri Shanti Bhushan, Sr. Advocate then appearing for NPCL vehemently supported application on VIth Schedule by reverse process. The application of VIth Schedule ensured reasonable return to the distributing companies. It was submitted on behalf of NPCL that following the principles laid down in the VIth Schedule, the UPSEB would get a reasonable price towards the cost of supply and NPCL would also get reasonable return by making the determination on taking into account various heads under VIth Schedule, which would balance the equity between the two namely Board and NPCL and none would remain in loss. The High Court observed that the VIth Schedule may not be applicable in literal form but the NPCL was entitled to retain reasonable return or otherwise it will not be possible for NPCL to survive. The High Court approved the application of VIth Schedule by reverse application and accepted the report of the Commission vide judgment dated 10th November, 2005. The Agreement between NPCL and UPPCL was for a period of 4 1/2 years which would have ended in 1998. It was however extended from time to time till 10th November, 2005. However, the tariff determined by the UPERC and approved by the High Court was for the period 1993-94 to 1999-2000. The tariffs for the subsequent period also have been fixed by reverse application of the VIth Schedule. The Tribunal is informed that with the latest tariff order for the current year 2006-07 (the period in which controversy has arisen), the bulk supply tariff payable by NPCL to UPPCL has again been fixed by reverse application of the VI Schedule.

4. The present controversy which arises out of contract dated 08th May, 2006 may be independent of the above chronology but I feel it necessary to mention the above chronology because it has been referred to by both the parties and because the impugned order also affects the bulk supply tariff payable by NPCL to UPPCL determined as above. The present controversy is based on the contract between the parties arrived at in May, 2006 over additional supply of power to NPCL over and above 45 MW for which the earlier power purchase agreement had been entered into. The power requirement for NPCL having increased, the NPCL for sometime has been making efforts to procure more power through open access since 2003-04. By a letter dated 13th January, 2006, the UPPCL informed that additional allocation of power would be possible after 400 kV s/s Greater Noida, being constructed by M/s.BHEL, was commissioned which was expected to be completed by March, 2006 and that the NPCL could apply for open access to State Load Dispatch Centre in the prescribed format. The NPCL however, entered into the agreement in dispute for purchasing additional power of 15 MVA at marginal cost. The relevant document in this regard issued by the NPCL is as under:

Ref: E-9/06-07/ May 8, 2006
Ashok Khurana, IAS
Principal Secretary (Energy) & Chairman
UP Power Corporation Limited
Shakti Bhawan, 14, Ashok Marg
Lucknow-226 001
Dear Sir,
Additional Supply of 15 MVA

This has reference to our various meetings and correspondences resting with our letter No. E-9/06-07/002 dated April 5, 2006 [Copy enclosed for ready reference] on the captioned subject. In this connection, we refer to our meeting of date, wherein you have offered to supply 15 MVA additional power at marginal cost to UPPCL, which we accept and will appreciate if necessary instructions are issued to make this additional power available forthwith.

Kind regards,
Yours faithfully,
For Noida Power Company Limited
(R. C. Agarwala)
Chief Executive
Encl: As above”

* * * * * * * * * * * *

5. Pursuant to this agreement between the parties, UPPCL started supplying power of additional 10 MW to the NPCL from 10th May, 2006. The first bill for the additional power supply was raised by UPPCL on 20th September, 2006 for Rs.14.7 Crores of which Rs.4 Crores had already been paid by NPCL. The bill was subsequently revised to Rs.11.6 Crores vide a letter dated 04th November, 2006. Vide a letter dated 15th November, 2006, UPPCL reiterated its demand and threatened to restrict the power supply to the original 45 MW if the payment was not received by 21st November, 2006.

6. NPCL approached the Commission, with Petition No. 414 of 2006 for an order to restrain UPPCL from withdrawing this supply of 10 MW of power. The Commission directed the UPPCL not to restrict the power of NPCL and simultaneously directed NPCL to make the provisional payment of Rs.5 Crores. The Commission further directed the parties to find an amicable solution. It also directed NPCL to arrange for alternative sources of power by 31st January, 2007. The matter was taken to the High Court and under the orders of the High Court, NPCL deposited further sum of Rs.5 Crores and UPPCL continued the additional supply of 10 MW. The impugned order was passed under the direction of High Court requiring the Commission to finalise the proceedings and to pass an order on the Petition of the NPCL within a period of four weeks. By the impugned order, the Commission directed that the NPCL shall pay to the UPPCL the price for the additional 10 MW of power at marginal cost. It also simultaneously directed that for the period of additional supply i.e. 10th May, 2006 to 31st January, 2007, the bulk supply tariff payable by NPCL instead of being at the rate of Rs.2.9361 as fixed by the tariff order of the UPERC would be reduced to Rs.1.897 per unit. Both the parties are aggrieved with the order. Impugned Order:

7. The impugned order has gone into various aspects beyond controversy in question, namely whether the NPCL was bound to pay for the marginal cost for 10 MW of power. It holds that NPCL was bound to pay the UPPCL at marginal cost but simultaneously holds that the tariff for NPCL for the original 45 MW of power would be reduced. While UPPCL is aggrieved with that part of the order which reduces the tariff for the original 45 MW of power, the NPCL is aggrieved with the direction to pay the marginal cost for the 10 MW of power. The impugned order and the conclusions deduced can be summarized as follows:

a) The order virtually starts with the portion captioned “UPPCL’s role as STU”. It emphasizes that UPPCL as a transmission utility has to grant non-discriminatory open access to all the distributing companies but it is discriminating against NPCL by putting the entire cost burden of costliest power purchase on NPCL while the other distributing companies are getting power on average cost basis. It opines that the contract in question is in the nature of long term commitment whereas such procurement at marginal cost would most certainly be done on account of some other happening in the overall system connected with the UPPCL grid at a particular time.

b) The order then proceeds to discuss the validity of the contract and narrates the pleas of the respective parties in this regard. This part of the judgment is captioned “Validity of the undertaking in terms of contract Act”. It observes that there was an element of uncertainty inasmuch as ‘marginal cost’ was not disclosed. The UPPCL submitted that ‘marginal cost’ has an unambiguous connotation in the field of electricity economics and electricity cost accounting while the NPCL submitted that it never expected the marginal cost to be so high and that it came to know of it only at the end of four months when the first bill was raised. This part of the judgment ends with the remark “The issue of validity of “marginal cost agreement” with respect to Section 29(e) of the contract Act will be analyzed further after discussing the structural responsibilities cast upon the parties to this dispute under Electricity Act 2003 in order to examine the validity of the agreement vis-à-vis the provisions of Electricity Act 2003 which is a requirement of Section 23 of the Contract Act.”

c) In part 3 of the order the Commission has proceeded with discussions on “Allocation of PPA’. It recalls that the “Tariff Policy” which is itself based on the National Electricity Policy requires assignment of the Power Purchase Agreement by the Electricity Boards to the Distribution Companies. The PPAs in U.P. have not been allocated in accordance with the load factors of the distributing companies which, the Commission observes, was strangulating the NPCL. It recalls further that retail tariff for NPCL being the same as in the rest of the States the power purchase cost could be ascertained only by reverse calculation. The Commission then recalls the following part of High Court’s order dated 10.11.2005:

The principle enunciated in the Sixth Schedule to govern such determination of tariff by the licensee for its consumers. Since the Board is not the licensee within the meaning of Section 57 and NPCL is though a licensee but is not to determine the tariff for its consumers, the provision of Sixth Schedule can only be applied by reverse application. Even if the price or the rate of tariff is to be fixed on the basis of through rate, this also would have to be done in substance by keeping in mind the rate on which the NPCL is supplying electricity to its consumers. Final rate of supply to consumers being fixed by the Board, any formula made for determining the power purchase price would necessarily mean reverse application.” The Commission then observes that if the power purchase price is allowed to rise to astronomically high figure the NPCL’s existence will be endangered.

d) In the following Section of the order subtitled ‘Denial of Open Access’, the Commission considers the denial of open access to NPCL despite NPCL’s repeated request to UPPCL. It recalls Commission’s letter of 02.09.04 directing UPPCL to take necessary action in accordance with the statutory provision of the Act. By a letter of 22nd Feb. 2005 the Commission had reminded the UPPCL of its obligation to provide non-discriminatory open access and opined that the excuse of UPPCL being not in good financial condition was not acceptable. On 15th Dec. 2006 the Commission directed the UPPCL to allow 5 MW open access to NPCL through 220 kV transmission network emanating from 400 kV sub station Muradnagar and connecting to 132 kV sub station at Surajpur immediately and thereafter 10 MW through new transmission system with commissioning of 400 kV Pali sub station. The Commission then remarks that instead of giving open access to NPCL, the UPPCL compelled NPCL to give the undertaking without even giving a hint as to what would be the marginal cost.

e) In part 5 of the order sub-titled “Power Procurement Agreement & Jurisdiction of the Commission”, the Commission reflects on the provisions of Section 86(1)(b) of The Electricity Act 2003 read with Section 60 of the Act and observes that the power procurement rate has to be approved by the Commission which was not done in this case and that the Commission has the authority to issue appropriate directions if a company enters into an agreement by abusing its dominant position causing adverse effect on competition.

f) What is the impact of the contract, in question on competition is considered in part 6, which is captioned “Impact on Competition”. The Commission concludes that the UPPCL had abused its dominant position by rejecting the request for open access and offering 10 MW at marginal cost and this will hamper competition by loading the odds heavily against NPCL which had no additional source of revenue to support it.

g) The part 7 of the order “Validity of the Undertaking under Electricity Act’ then says that the contract in question lacks approval of the Commission and in view of Section 86(1)(b) of the Act the agreement is void being hit by Section 23 of the Contract Act. It further observes that it is difficult to ascertain the marginal cost in view of swift changes in demand. Hence, it holds that the contract in question was bad also on account of uncertainty.

h) In the subsequent part of the order the Commission then proceeds to pay attention to “Other Concerns”. It found that although the contract is violative of Sections 23 & 29 of the Contract Act, the UPPCL has to be compensated for the ‘sunk cost’ since UPPCL had already incurred the cost on account of additional 10 MW power allegedly at ‘marginal cost’, it would not be appropriate to disregard this cost. Secondly, the NPCL had also not acted in accordance with law by failing to submit the agreement in question before the Commission for its approval.

The Commission then sets the following task before itself:

a) Compensation of additional power procurement by UPPCL on marginal cost

b) Balancing the commercial interest of both NPCL and UPPCL

c) To ensure that the consumers of both UPPCL and NPCL area get a fair deal and accordingly burden of the dispute should be spread thin and uniform, as far as possible.

i) The concluding part of the order is captioned ‘Upshot’. The order recalls that bulk supply tariff for NPCL, by reverse application of the VIth Schedule (i.e. by deducting total prudent cost element of NPCL from total revenue of NPCL) had been determined at Rs.2.9361 for 2004-05. The bulk supply tariff continued to be so for the subsequent years namely for 2005-06 and also for the ensuing years 2006-07 which is in question. The Commission observes that the bulk supply cost was Rs.1.897 per unit as per UPPCL tariff order for 2004-05 whereas bulk supply tariff paid by NPCL was Rs.2.9361 and in this manner NPCL was transferring its “efficiency gains” to the tune of Rs.1.03 per unit to UPPCL for the existing supply of 45 MW. The Commission feels constrained to work out the tariff for 2006-07 in order to dissolve dispute between the parties. It came out with a solution that the NPCL should compensate the UPPCL for the entire 60 MW of power and thus while for the additional 10 MW the payment would be made at the marginal rate, for the original 45 MW payment would be made at the rate of Rs.1.897 per unit. To this extent it amended the bulk supply tariff of NPCL, against 45 MW demand, for the disputed period and allowed the UPPCL to charge for the 10 MW at a marginal cost at which power was procured by NPCL.

The Grounds of appeal:

8. During the arguments before this Tribunal, the challenge to the impugned contract has gone far beyond the findings of the Commission. The Commission found the contract bad because in the offer and acceptance neither the marginal cost was disclosed nor any cost band was specified but it hastened to add that the agreement would not be void if marginal cost was ascertainable. The order does not say that the NPCL did not understand what was marginal cost. Nor does it say that NPCL had assailed the contract to be bad on that ground. The ground on which NPCL had assailed the contract can be found from the following sentence:

The Petitioner, however, argued that he never expected marginal cost of power to be so high and that he became aware of such high cost of additional power at marginal cost when UPPCL for the first time raised the bill after a gap of four months.

9. Before this Tribunal the NPCL has come out with further challenges to the contract in question and to the decision of the Commission in imposing the marginal cost on NPCL. Mr. Shanti Bhushan has supplemented his oral arguments with a written submission wherein he has crystalised the challenges to the transaction in question. His challenges, in his language are as under:

i) The agreement dated 08.05.2006 was obtained by UPPCL from NPCL by undue influence as defined under Section 16 of the Contract Act and did not amount to a contract under Section 10.

ii) The claim of UPPCL to charge power supply to one distribution company in the State @ Rs.8.80 per unit while it is supplying to all other distribution companies in the State at the rate of Rs.1.897 per unit which is clearly discriminatory and un- constitutional.

iii) The agreement dated 08.05.2006 was contrary to law and therefore not binding and enforceable being hit by Section 23 of The Contract Act.

iv) UPPLC being a State transmission utility is not permitted to trade in electricity.

v) There is no clear concept of marginal cost, therefore so called agreement dated 08.05.06 could not amount to a valid contract

10. The challenge of UPPCL to the part of the order reducing the bulk supply tariff for the 45 MW originally contracted is based on applicable procedure for altering tariff and jurisdiction of the Commission.

Findings with reasons:

11. The contract in question and of Section 23 of the Contract Act: I will first take up the third submission of NPCL and examine whether the contract is void because it is hit by specific provision of statute. Section 23 of The Contract Act says that the consideration or object of an agreement is lawful, unless it is forbidden by law or is of such a nature that if permitted, it would defeat the provisions of any law or its fraudulent or involves or implies injury to a person or property of another or the Court records it as immoral or opposed to public policy. It says further that in each of these cases the consideration would be unlawful and the contract void. The challenge to the present agreement is based on Section 86(1)(b) of The Electricity Act 2003 which is to be read along with Section 62(1) of the same Act. Both the Sections are extracted below:

86. Functions of State Commission – (1) The State Commission shall discharge the following functions, namely:

(a) …

(b) regulate electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured from the generating companies or licensees or from other sources through agreements for purchase of power for distribution and supply within the State;

C) …

62. Determination of tariff – (1) The Appropriate Commission shall determine the tariff in accordance with the provisions of this Act for-

(a) supply of electricity by a generating company to a distribution licensee:

Provided that the Appropriate Commission may, in case of shortage of supply of electricity, fix the minimum and maximum ceiling of tariff for sale or purchase of electricity in pursuance of an agreement, entered into between a generating company and a licensee or between licensees, for a period not exceeding one year to ensure reasonable prices of electricity;

(b) transmission of electricity;

(c) wheeling of electricity;

(d) retail sale of electricity: Provided that in case of distribution of electricity in the same area by two or more distribution licensees, the Appropriate Commission may, for promoting competition among distribution licenses, fix only maximum ceiling of tariff for retail sale of electricity.

12. On behalf of NPCL it is contended that the State Regulatory Commission has to regulate the procurement and purchase of electricity of the licensee including the price at which electricity can be procured from any source through agreement of purchase power for distribution of power within a State. It is contended further that in view of the above provisions a distribution company cannot enter into an agreement to purchase power without approval of price of purchase of power by a Regulatory Commission. This proposition is extended by saying that no one can supply power to a distribution company without price having been approved of by the Regulatory Commission. It is contended that the present agreement to purchase power at marginal cost without approval of the Regulatory Commission was illegal and not enforceable.

13. On behalf of UPPCL it is submitted that Section 86 requires the Commission to regulate the price for procurement of electricity, but Section 86 is to be read with 62 which requires the Commission to fix the tariff for supply of electricity by a generating company to the distribution licensee, for transmission of electricity, for wheeling of electricity as well as for retail sale of electricity. According to him the UPPCL has been functioning as a trading company vis-à-vis the contract and neither Section 86 nor Section 62 makes any provision for determining the tariff for such a trading concern. Section 64 which lays down the procedure for fixing the tariff also only mentions that an application for determination of tariff under Section 62 shall be made by a generating company or licensee and makes no provision for determining the tariff of a trading company. Section 64 is reproduced below:

64. Procedure for tariff order – (1) An application for determination of tariff under Section 62 shall be made by a generating company or licensee in such manner and accompanied by such fee, as may be determined by regulations.

(2) Every applicant shall publish the application, in such abridged form and manner, as may be specified by the Appropriate Commission.

(3) The Appropriate Commission shall, within one hundred and twenty days from receipt of an application under Sub-section (1) and after considering all suggestions and objections received from the public,-

(a) issue a tariff order accepting the application with such modifications or such conditions as may be specified in that order;

(b) reject the application for reasons to be recorded in writing if such application is not in accordance with the provisions of this Act and the rules and regulations made thereunder or the provisions of any other law for the time being in force:

Provided that an applicant shall be given a reasonable opportunity of being heard before rejecting his application.

(4) The Appropriate Commission shall, within seven days of making the order, send a copy of the order to the Appropriate Government, the Authority, and the concerned licenses and to the person concerned.

(5) Notwithstanding anything contained in Part X, the tariff for any inter-State supply, transmission or wheeling of electricity, as the case may be, involving the territories of two States may, upon application made to it by the parties intending to undertake such supply, transmission or wheeling be determined under this section by the State Commission having jurisdiction in respect of the licensee who intends to distribute electricity and make payment therefore.

(6) A tariff order shall, unless amended or revoked, continue to be in force for such period as may be specified in the tariff order.

14. I am unable to locate any provision in The Electricity Act which controls the price at which a trader in the market of electricity is required to get his schedule of price approved by an appropriate commission. This Tribunal, in Petition No. 1 of 2005, decided on 22.12.06 held that the Electricity Act does not impose any restriction of tariff on the generating company or the distribution licensee to sell electricity to a trader or an intermediary or on a trader to sell electricity to any person.

15. In order to examine the validity of the contract in the light of Section 23 of The Contract Act, I have to examine whether the contract is forbidden by any law or whether it would defeat the provisions of any law. It is submitted; on behalf of UPPCL that the contract is neither forbidden by any law nor does it defeat the provisions of any law.

16. Do the above provisions of Section 86(1) (b) or Section 62 of The Electricity Act bar any agreement between a distribution company and a trader / transmission utility / generator to fulfill an urgent requirement for power? Do the above provisions mean that no agreement can be entered into between the distributing company and the electricity supplier without first obtaining the approval of the Regulatory Commission? The two provisions do not categorically say so.

17. I am unable to see how these provisions make the contract barred by law. The provision of Section 86 actually lays down the functions of the State Commission. Clause (b) of subsection 1 quoted above merely states that one of the functions of the State Commission is to regulate the price at which the electricity would be procured from the generating companies or a licensee or from other sources and through agreements for purchase of power for distribution and supply within a State. Section 62 of The Electricity Act also entrusts the function of the determination of tariff on the appropriate commission. The procedure for determination of tariff has been prescribed in Section 64 of the Act. Tariff has to be fixed on an application made by a licensee in the manner prescribed. Regulation of procurement of electricity does not necessarily mean seeking prior approval of all power purchases by a distribution licensee. The nature of business of supplying electricity is such that the licensees have to take decision on real time basis regarding procurement and supply of electricity. If prior approval of the Commission is to be mandatorily taken for all power purchases, the licensees would be severely constrained to make use of the surplus power available in the market to meet their load requirement. This inherently would require availability of flexibility in procurement February, 2004 by the Uttar Pradesh Electricity Regulatory Commission. Chapter VI of these regulations deals with fixation of tariff. It is further submitted by the counsel for UPPCL that the approval of the Commission in the matter of fixing of tariff is required only when the purchase of power is on a long term basis and not on a short term basis. and supply of electricity by the licensees. The extent of flexibility would, however, depend upon the policy framework put in place by the appropriate Commission. The Commission had notified UPERC (Conduct of Business) Regulations, 2004 and Guidelines for Load Forecasts, Resource Plans and Power procurement process, 2001 laying the procedure for procurement of power by the licensees. The requirement of approval by the Commission of any power purchase agreement does not find any mention in Section 86 (1) (b) which has been quoted above although the impugned order says that Section 86 (1) (b) requires such an approval. The requirement for approval is shown to exist in the Uttar Pradesh Electricity Regulatory Commission (Conduct of Business) Regulations 2004 which is issued on 06th

18. Regulation 132 prescribes that the Commission shall notify the methodology and procedure for calculating expected revenue for the period which a licensee shall be permitted to recover in line with National Electricity Policy and Tariff Policy issued by the Central Government. Regulation 133(1) (e) of Uttar Pradesh Electricity Regulatory Commission’s (Conduct of Business) Regulations 2004 prescribes that “no distribution licensee within the State shall purchase electricity from a generating company or a licensee under a long term supply agreement without the general or specific approval of the Commission.” No provision could be shown to the Tribunal which compulsorily requires approval of the Commission to enter into a power purchase agreement before an agreement is actually executed. Nor is any provision brought to our notice which requires a short term power purchase contract needing approval of the Commission. In this connection, one may also refer to the Guide Lines for Load Forecasts, Resource Plans and Power Procurement Process, 2001 notified by the Uttar Pradesh Electricity Regulatory Commission. Para 4, the Guide Lines deal with power procurement. Para 4 mentions long term procurement and Para 4.1.2 deals with short term procurement.

4.1.1 Except as otherwise permitted by paragraphs

4.1.2 and 4.1.3 the Licensee shall not enter into a power purchase agreement or purchase or solicit offers for supply of power until 60 days after it has notified the Commission of its intention to do so and its compliance with requirements laid down in paragraphs 4.2 and

4.3, after complying with requirements of 4.4.3.

4.1.2 Licensee may make short-term purchases of power for emergency support and to realize short-term operating cost saving, without first notifying the Commission and providing the information required by paragraphs 4.3 and

4.4.2. …

19. The above provisions shows that for short term procurement no prior intimation was required to be given to the Commission although such intimation was required for long term procurement. Obviously the NPCL wanted the additional 10 MW at marginal cost only for a short term, that is, to meet the summer season shortage although in the written terms the same was silent. In the absence of any specified period, the contract can be interpreted as one on day today basis, which will again make it a short term contract.

20. The above provisions indicate that the distribution licensee shall not purchase electricity under a long-term supply agreement without the general or specific approval of the Commission. However, for short-term purchases of power, the licensee may make purchase without first notifying the Commission. We observe from the correspondence exchanged between NPCL and UPPCL that the NPCL needed additional power to meet the growing demand of the consumers of the distribution area of NPCL. Thus the growing demand of NPCL was to be met either from other suppliers through open access provided by UPPCL or from the UPPCL itself. It is true that the correspondence exchanged between them do not specifically use the words as ‘long-term’ or ‘short-term’ for indicating the nature of supply. It was incumbent on NPCL to approach the Commission for seeking approval of the agreement for purchase of power from UPPCL if its intention was to enter into a long term agreement and since it did not approach the Commission, it appears NPCL itself considered the deal with UPPCL to be of ‘short-term’ nature.

21. On behalf of the NPCL it is submitted that it was a long term contract and it was so treated as by UPERC in the impugned order. On behalf of UPPCL it is vehemently submitted that this contract could not have been a long term contract as neither party could ever be believed to have purchased or sold at marginal cost on long term basis. It is submitted that marginal cost agreements are meant for meeting short term emergency situations whereas for long term situations the cost of power could depend upon the average cost of production and supply or on tariff fixed by the Commission. On behalf of NPCL, it is submitted that NPCL’s demand was being pressed for a long time and hence it could not but have purchased the power of additional 10 MW on a short term basis. The NPCL has drawn attention of this Court to a letter by NPCL to UPPCL in the years of 2004-05 and the application made by NPCL to the Commission asking for open access so that it could January, 2007 i.e. for nearly nine months. The agreement itself does not specify the period for which the 10 MW would be purchased at such marginal cost. In fact NPCL itself must have treated the purchase as a short term purchase as NPCL itself did not proceed to take the approval of the Commission for this purchase price. In the NPCL’s counter affidavit it said “Since, by that time due to full onset of the summer season the consumer unrest had grown to huge proportions and the Respondent No.1 at that stage was left with no option but to concur under duress for marginal cost.” So it is clear that NPCL entered into the contract of additional 10 MW to meet the emergent need for the summer season. meet the requirements for power by purchase from other sources. It is true that the demand for power was long term. This does not necessarily mean that the arrangement for the additional supply of 10 MW was a long term arrangement. In fact the arrangement of this 10 MW of power continued only till 31st

22. Before classifying the power purchases under consideration as of ‘long-term’ or ‘short-term’ nature, it is relevant to observe that NPCL did not approach the Commission before entering into such power procurement arrangement as is required of distribution licensee under Regulation 133, while making long-term purchases. Prior approval of the Commission is not essential when the power purchases are of ‘short-term’ nature. Therefore, it is deduced that the NPCL itself treated the purchases as of ‘short-term’. Also, the price of electricity at Rs. 8-9 per kWH in the case of long-term purchases is not sustainable.

23. The Regulation does not anywhere say that unless approved by the Commission the agreement to purchase electricity between a distribution licensee and a generating company or some other licensee will become void. The general or specific approval mentioned in this clause has reference to only fixation of tariff. The VIth Schedule of The Electricity (Supply) Act 1948 inter alia, prescribes that tariff has to be fixed by keeping a clear profit which should not exceed the reasonable return. Clear profit is defined as difference between income and expenditure. Expenditure properly incurred includes the cost of purchase of electricity. It is only in order to determine as to what should be the expenditure properly incurred that the regulator has to take into consideration, the cost of purchase of energy. It is in this context that one has to read the provisions relating to fixation of tariff as given in Regulation 133, mentioned above. Non adherence to Clause (e) in case of a long term supply agreement may result in the Commission treating the expenditure as not properly incurred and therefore not recoverable through tariff. The approval or disapproval of the Commission to a power purchase agreement has no bearing on the validity of the agreement under the Contract Act. The Electricity Act does not make such a contract void. The impact the aforesaid Regulation will be only on the revenue recoverable by the distribution licensee. May, 2006 is forbidden by any law and so void as per Section 23 of the Contract Act. It is a total fallacy to say that the contract of 08th Concept of marginal Cost – Is it vague?

24. I now come to the fifth contention of NPCL that no contract came into existence as there was no clear concept of marginal cost leading to want of consent. Consent is meeting of mind of the two contracting parties. The question is whether the parties had the same concept in mind while using the term marginal cost. Here the parties did understand what is meant by marginal cost. NPCL only complained that it did not expect the marginal cost to be so high.

25. In elaboration of this point one can refer to Para 7, 14 and 20 of NPCL’s “Additional Submission” before the UPERC. In Para 7 the NPCL stated as under:

7. That, thereafter, in the meeting in Lucknow where the representative of the Petitioner and Respondent were present. Petitioner was offered the additional power at the marginal cost and keeping in the view the acute shortage in Greater Noida, the Petitioner was left with no option but to agree to the unreasonable proposal of the Respondent keeping in mind the supreme interest of the consumers. The aforesaid proposal of the Respondent was also contrary to their letter No. 4483/CGM (T) dated November 8, 2005 referred in Para 6 of the petition.”

8. …

9. …

10. …

11. …

12. …

13. …

14. That in the meantime, the Petitioner attempted to workout the cost of additional power supply based on the letter of Respondent and was shocked to find that such cost is abnormally higher at Rs.10.73 per unit approx. as against its average side rate of Rs.3.56 per unit.

15. …

16. …

17. …

18. …

19. …

20. That, if the rates sought to be imposed by the Respondent are actually applied, it will create serious imbalance and hardship on the Petitioner financial position and derail its entire operations in view of the fact that the Petitioners’ average rate of sale is only Rs.3.56 per unit as against abnormally high rates claimed by the Respondent.

21. …

The mistake or misconception on the part of NPCL was thus not in respect of the meaning of marginal cost but in respect to its quantum.

26. Is the term marginal cost vague and not generally understood by the different stake holders in the electricity market? The answer is clearly no. The learned Counsel for the UPPCL has drawn our attention to the minutes of a meeting held on 17th & 18th December, 2004 of the Forum of Indian Regulators. The UPERC is one of the members of this Forum. In the Minutes the method of computation of marginal cost was discussed. At Para ‘C’, it deals with marginal cost, which is as under:

c. Marginal Cost Method:

An alternative method of computing the quantum of surcharge is by taking the difference between the average realization for the respective consumer and the Marginal cost of supply by the Distribution Company. The different assumptions involved and the methodology adopted are:

1. The Marginal cost of supply by a distribution company is equivalent to the sum of –

(i) Marginal cost of purchase of electricity by the distribution Company

(ii) Applicable Transmission and Wheeling charges

(iii) Applicable system losses

2. The Marginal cost of purchase of electricity to be equated to the highest power purchase cost of the utility including fixed and variable costs

27. It is not understood as how, despite marginal cost having been a frequently used term in the electricity market and it having been properly defined by the Forum, the Commission could remark in the impugned order “it is bizarre to talk about marginal pricing”. Nor it is understood, how in the context of Uttar Pradesh the marginal cost was not ascertainable. The Commission has also introduced the concept of lack of demand response. There was no occasion to look for demand response in the present case. Nonetheless, it was only the demand for power that required purchase by the UPPCL which in turn called for extra production or procurement of power which was available at the cost higher than the average cost of production and supply. In any case marginal cost is an ascertainable concept.

28. As stated earlier, NPCL itself did not claim that it is not ascertainable and therefore contract was bad on account of any ambiguity or uncertainty. All it said was that the marginal cost was too high and beyond what it had expected. This misconception on the part of NPCL will not make the contract void or voidable.

29. The UPPCL took care to notify to the NPCL the manner in which marginal cost would be calculated. The letter of UPPCL in this regard is the one dated 10.05.06 which reads as under:

U.P. Power Corporation Ltd Shakti Bhawan
(A. U.P. Govt. Undertaking) 7th Floor, 14, Ashok
Nagar, Lucknow.

 No. 678/PASMD/2006                                           Dated 10th May, 2006
 

The Dy. General Manager  
 E. Distribution Division, NOIDA  
 Paschimanchal Vidhyut Vitran Nigam Ltd.,  
 NOIDA (Ghaziabad).
 

Subject: Regarding making available additional Electricity to NOIDA Power Co. Ltd.
 

Sir,
 

Keeping in view, the increased demand of electricity in Greater NOIDA, it has been decided to provide 10 MV additional electricity to Greater NOIDA Authority and NOIDA Power Company Ltd. with immediate effect. This additional electricity will be made available subject to following terms and conditions:

1. The Noida Power Company Limited shall make payment of electricity rate for additional electricity through letter of credit which rate will be worked out after adding marginal electricity cost, transmission expenses and losses of each month incurred by Power Corporation.

2. Power Corporation shall make all efforts to provide 10 MV additional electricity. However, in case, it is not possible to provide additional electricity due to availability of power in the grid and grid frequency or for any other reason, the Power Corporation shall not be responsible for any liability whatsoever on this account.

3. The information required by the Power Corporation regarding electricity rates will be provided to Dy. General Manager, Electricity Distribution Division, NOIDA and he will do the billing at old rate for the power allotted in past and billing for this additional electricity at the rate to be worked out as stated in Para 1 above.

4. For the purpose of calculating the marginal cost, the highest cost for power drawn from different sources shall be treated as marginal cost for additional 10 MV power. You are requested that for the time being Rs. 4.00 crore additional L.C. may be obtained from Noida Power Company for supply of 10 MV additional electricity and after deducting the amount received as L.C. from the Bill at the end of the month, the balance amount of Bill may be received in cash. The supply of electricity will be commenced immediately on receiving L.C. You may please immediately inform the undersigned of the action taken in this context.

Yours faithfully,
Sd/- I11eg.

(Avneesh K. Awashti)
Managing Director

30. In view of this letter, it does not lie in the mouth of NPCL to allege that there was any uncertainty in the term ‘marginal cost’ and so the contract was void or that there was no consent and hence the contract never came into being. Mr. Shanti Bhushan contends that UPPCL is claiming a rate from NPCL in which it is including the transmission and wheeling charges and system losses also, which is not to be included while determining the marginal cost of purchase of electricity by the distributing companies even as per the above definition. I do not think so. The letter of 10.05.2006 clearly says that the highest cost for power drawn from different sources shall be treated as marginal cost for additional 10 MW power. But, more importantly, this was not the grievance of the NPCL at any stage. NPCL never even offered to pay the amount billed sans those charges. Nor is the dispute between the parties related to transmission wheeling charges.

31. Be that as it may, so far as existence of a contract is concerned, the same is not at all in doubt as the parties fully understood what they were agreeing to.

32. Can the contract be said to be void on account of uncertainty? Section 29 of the Contract Act says:

29. Agreements void for uncertainty:

Agreements, the meaning of which is not certain, or capable of being made certain are void.

The Commission is of the opinion that the contract in question was void on application of Section 29. In the written submission Mr.Shanti Bhushan has not pressed his plea under Section 29 of the Contract Act. Marginal cost of electricity supplied could not be ascertained in advance and could not be mentioned in the agreement but it was ascertainable and hence the contract could not be void. In Khivraj Chortia and Ors. v. Esso Standard Eastern Inc , the High Court dealt with a similar defence in a suit for specific performance of contract in which the consideration i.e. rent was “to be mutually agreed between the parties hereto regard being paid to the rents then prevailing in the same locality.” It was held that “it cannot be said that such rent can not be found or it would be impossible for the parties to agree upon the just rent found. The judgment, on the basis of earlier precedents, held “in determining objections founded on the alleged uncertainty of a term in a contract the test is not whether the term is in itself certain but whether it is capable of being made certain. The case in hand is much better where the UPPCL had actually spelt out the method of calculating marginal cost. Marginal cost was actually ascertainable. Hence the contract was not void under Section 29 of Contract Act. Undue influence:

33. I can now examine the first contention viz. whether there was any undue influence used by UPPCL in the transaction in question which can make the transaction void or voidable. In order to establish any undue influence the NPCL has to show that UPPCL was in a position to exert undue influence. The impugned order does not use the word ‘undue influence’. It uses the term ‘abuse of dominant position’. In order to establish undue influence the NPCL has to establish that (1) UPPCL was in a dominant position and (2) it abused the dominant position. The dominant position, according to the impugned order, was secured by (1) refusal to allocate power purchase agreement theretofore held by the erstwhile UPSEB and (2) by withholding the open access. So far as allocation of power purchase agreement is concerned, the UPPCL can be blamed if it or its predecessor was liable to allocate any of its power purchase agreement to the NPCL. Our attention has been drawn by Mr.Sitesh Mukherjee, counsel for UPPCL, to the provisions relating to allocation of power purchase agreements. Section 131, of The Electricity Act, 2003, deals with reorganization of the Boards. Section 131(1) provides that on reorganization of the Board, the properties and interest in the property as well as rights and liabilities would vest in the State Government. Section 131(2) thereafter prescribed how such property has to be re-vested. The opening Clause of Section 131(2) is as under:

131(2). Any property, interest in property, rights and liabilities vested in the State Government under Sub-section (1) shall be re-vested by the State Government in a Government company or in a company or companies, in accordance with the transfer scheme so published along with such other property, interest in property, rights and liabilities of the State Government as may be stipulated in such scheme, on such terms and conditions as may be agreed between the State Government and such company or companies being State Transmission Utility or generating company or transmission licensee or distribution licensee, as the case may be”. Provided….

(3) …

(4) …

(5) …

(6) …

(7) …

Explanation – For the purposes of this Part, –

a) “Government company” means a Government company formed and registered under the Companies Act, 1956 (1 of 1956);

b) “company” means a company to be formed and registered under the Companies Act, 1956 (1 of 1956) to undertake generation or transmission or distribution in accordance with the scheme under this Part.

34. NPCL is neither a Government Company nor a company formed to undertake transmission, distribution and supply in accordance to the scheme of unbundling (i.e. reorganization). NPCL is an independent company and its origin has nothing to do with the reorganization of electricity sector or of the UPSEB under The Electricity Act, 2003. Therefore, NPCL could not legitimately claim to be entitled to succeed to any of power purchase agreement held by the UPSEB or the UPPCL. Therefore, this part of the plea that UPPCL unduly secured the dominant position by not allocating any power purchase agreement to NPCL is not a valid proposition.

35. The Commission had directed UPPCL vide its letter dated 02nd September, 2004 to take necessary action on the proposal of NPCL for grant of open access and UPPCL was directed to submit an action taken report. UPPCL then had expressed its inability to provide open access to NPCL in view of the transmission constraint. Subsequently, vide order dated 22nd February, 2005, the Commission said that the UPPCL was obliged under law to develop infrastructure to provide non discriminatory open access and that it could not seek the excuse of not being in good financial condition to discharge its obligations.

36. The Commission again made an order on 15th December, 2005 directing UPPCL to allow 5 MW of open access to NPCL through 220 kV transmission network emanating from 400 kV sub station at Muradnagar and connecting to 132 kV sub station at Surajpur till the commissioning of 400 kV sub station at Pali. Admittedly UPPCL did not provide open access then. The Commission does not appear to have taken any punitive action to enforce the compliance of this order for immediate supply of 5 MW open access. However, UPPCL, by January 2006, became sufficiently efficient to provide open access and made an offer accordingly which is evident from the letter written to Mr. Rakesh Bahadur, Chairman of Greater Noida Development Authority, dated 13th January, 2006. The letter has been placed on the record and the same is reproduced below:

Ashok Khurana, IAS
Principal Secretary (Energy) & Chairman
UPPCL D.No. 696/PSCHM/2006
Dated: 13.01.2006
Dear Rakesh,

Reference your letter No. Proj/WC-7/05/722 dated 09.01.2006 regarding open access to NPCL. You are aware that in the last meeting, we have agreed to allocate additional power to NPCL to meet the growing demand. This additional allocation would be available after 400 kV S/S Greater Noida, being constructed by M/s. BHEL, is commissioned which is expected to be completed by March, 2006. Regarding open access, UPERX has already announced the open access regulation for intra-state wheeling of energy. As per these regulations, the wheeling charges, State Load Despatch Centre Charges, Surcharge and reactive energy charge is payable as determined by UPERC on year to year basis. The applicant for open access will have to bear the transmissions losses also. For FY 05-06 the wheeling charge is expected around 22 pase per Kw/H. The details can be obtained by NPCL from UPERC and SLDC of UPPCL. They will have to apply to State Load Despatch Centre in the prescribed format.

Yours sincerely,
Sd/-

(Ashok Khurana)
Shri Rakesh Bahadur,
Chairman, NOIDA
Chairman cum CEO, Greater Noida
169, Chitvan Estate, Sector Gamma
Greater Noida – UP
* * * * * * * * * * * *

37. Thus by this letter UPPCL not only offered to allocate additional power to NPCL but also informed that open access was available and if the NPCL so wanted it could apply for the same to the State Load Despatch Centre in the prescribed format. So far as the additional allocation of power was concerned the same was to be available after 400 kV substation of Greater Noida, being constructed by M/s. BHEL, was commissioned and which was expected to be completed by March, 2006.

38. It appears that the Commission totally lost sight of the fact that it itself had announced availability of open access to NPCL. It also ignored that NPCL after such availability of open access did not make the demand for the same in the prescribed format. Yet the NPCL continued to blame the UPPCL for denial of open access and the Commission accordingly held that UPPCL denied open access and there by secured the dominant position.

39. Mr. Shanti Bhushan has submitted that NPCL had offer from Power Trading Corporation for additional power but the contract could not be signed because open access was not available. This cannot be true. In fact to obtain open access a power purchase agreement has first to be signed. 40. On 07th June, 2005 the UPERC had announced Regulations called “Uttar Pradesh Electricity Regulatory Commission (Terms & Conditions for open access) Regulations 2004. I am extracting here the regulations 11, 12 & 13 of the Regulations –

11. Procedure for Long term Open Access customer

(1) A long term intra state open access customer shall file an application to the Nodal Agency, with details such as capacity needed, generation planned or power purchase contracted, point of injection, point of drawal, duration of open access, peak load, average load and any other additional information that may be required by the Nodal Agency;

(2) A consumer may also approach the Commission of his intention of availing open access as per the procedure prescribed under UPERC (Conduct of Business) Regulation, in case charge for open access not determined or there is a dispute with the Nodal Agency, and also provide a copy of his application to the distribution licensee who is supplying electricity to him as well as to state transmission utility;

(3) The relevant Nodal Agency shall issue guidelines, procedures and prescribe an application form for applying for open access, both short-term and long- term, within 90 days of issue of these regulations;

(4) The application shall be accompanied by a non- refundable fee of Rs.50,000/- 1.0 Lac or as determined by the Commission from time to time payable in the name and in the manner laid down in the guidelines by the Nodal Agency;

(5) The Nodal Agency shall, in consultation with State Load Dispatch Centre, Transmission and Distribution licensees and based on system studies by the concerned licensee or otherwise, assess the capacity available and communicate the decision to the applicant within 60 days of the receipt of the application;

(6) If, in the opinion of the Nodal Agency, further system strengthening is essential before providing long-term access, the applicant may request the Nodal Agency to carry out system studies and preliminary investigation for the purpose of cost estimates and completion schedule for system strengthening;

(7) The Nodal Agency shall carry out the studies immediately on receipt of request from the applicant under Sub regulation (6) and intimate results of the studies within 90 days of receipt of request from the applicant;

(8) The applicant shall also reimburse the actual expenditure limited to Rs.1.0 Lac or as determined by the Commission from time to time incurred by the Nodal Agency for system strengthening studies.

12. Procedure for Short-term open access Customer

(1) A short-term intra state open access customer shall submit an application for open access to the Nodal Agency;

(2) A consumer shall also furnish a copy of his application to the State Transmission Utility and distribution licensee who is supplying electricity to him;

(3) The application shall contain the such details, like capacity needed, point of injection, point of drawal, duration of availing open access, peak load, average load and such other additional information that may be laid down by the Nodal Agency in its guidelines issued under regulation 11;

(4) The application shall be accompanied by non- refundable fee of Rs.5000/- or as determined by the Commission from time to time payable in the name and in the manner laid down in the guidelines by the Nodal Agency;

(5) State Load Dispatch Centre, in consultation with the State Transmission Utility and distribution licensee, as the case may be, shall take a decision on the application based on the following schedule: S. No. Tenure of the contract Maximum Processing Time (from end of thecalendar month of submission) Up to one day 12 hours Up to one week Three days Up to one month Seven days Up to six month to one year Fifteen days

(6) The reserved capacity shall not be transferred by a short-term customer to any other customer.

13. Open Access Agreement

(1) An open access customer shall enter into commercial agreements with the transmission and distribution licensees, generators, traders and others, as the case may be, for use of their transmission and distribution systems;

(2) The agreement shall provide, amongst other things for the eventuality of premature termination of agreement and its consequences on the contracting parties,

(3) After agreements have been entered into and copies furnished to State Load Dispatch Centre, the State Load Dispatch Centre shall inform the open access customer the date from which open access will be available which will not be later than 7 days from the date of furnishing of agreements.

41. Regulation 11 of these regulations prescribed the procedure for long term open access customers and Regulation 12 prescribed the procedure for short term open access customers. Regulation 13 provide for open access agreement. As per these regulations an application is required to be filed to the nodal agency with details such as capacity needed, generating plant or power purchase agreement, contract, point of injection, point of drawal, duration of access, peak load, average load and any other additional information that may be required by the nodal agency. For short term access also a customer is required to make an application to the nodal agency with similar details. Regulation 13 prescribes that an open access customer was required to enter into an agreement with transmission and distribution licensees, generators and traders for use of their transmission and distribution system. Copies of such agreements were required to be furnished to the State Load Despatch Centre before open access could be granted. It appears, however, that NPCL did not actually enter into a contract with any other company and did not submit any application for open access.

42. The learned Counsel for NPCL perhaps presumed that every licensee has absolute right to open access and no constraints in the system can prevent a licensee from getting open access. This belief is certainly not true, as can be seen from the correspondence between the Commission and the UPPCL. On 02nd September, 2004, the UPPCL was asked to take necessary action on the proposal of NPCL for grant of open access and UPPCL was directed to submit an action taken report. The next letter in this connection dated 22nd February, 2005 only exhorted the UPPCL to develop infrastructure to provide non discriminatory open access. It December, 2005 that the Commission made the categorical order to grant open access to the extent of 5 MW after examining that the system was capable of providing such open access. Further facility was to be provided only after Pali substation was to be completed. was only in the order dated 15th

43. The Uttar Pradesh Regulatory Commission, Terms and Conditions of open access, Regulation 2004 lays down various criteria for obtaining open access. The capacity in the system is one important criterion for sanction of open access.

44. In view of this situation, it was for NPCL, after the UPPCL had acquired the capacity for open access, to apply to the appropriate agency in the prescribed format with all the required details along with open access agreement, if any, and obtain the facility on payment of charges. NPCL is totally silent as to why NPCL did not adopt this course. If the UPPCL held any dominant position on account of denial of open access, it came to an end in January, 2006. UPPCL did not hold any dominant position on 08th May, 2006 when the contract in question was entered into.

45. In view of the above, it is clear that the Commission had totally gone on incorrect assessment of facts and law on holding that the UPPCL was in any dominant position at the time of the contract of 08th May, 2006. The NPCL was not entitled to allocation of any of the power purchase agreements erstwhile held by the UPSEB nor was open access withheld from NPCL. With open access being available in early 2006 the NPCL was no longer compelled to buy power exclusively from UPPCL. Therefore, if the NPCL still enters into an agreement with UPPCL, NPCL must have done it voluntarily keeping its interest in view.

46. Further, even if it is assumed that UPPCL was in dominant position the contract would be voidable only if the dominant position was abused or undue influence was exercised. Section 16 of the Contract Act defines undue influence and the same is extracted below for ready reference:

16. ‘Undue influence’ defined – (1) A contract is said to be induced by ‘undue influence’ where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

47. It is not the case of NPCL that UPPCL had exerted pressure on NPCL either to buy power or to agree to buy power only at the marginal cost. UPPCL offered an additional 10 MW at the marginal cost. There is nothing to show that UPPCL exerted any pressure on NPCL to buy power at the marginal cost.

48. The illustrations added to Section 16 can be seen to understand the ambit of the expression “undue influence”.

Illustration: a) A having advanced money to his son, B, during his minority, upon B’s coming of age obtains, by misuse of parental influence a bond from B for a greater amount than the sum due in respect of the advance. A employs undue influence.

b) A, a man enfeebled by disease of age, is induced by B’s influence over him as his medical attendant, to agree to pay B an unreasonable sum for his professional services, B employs undue influence.

c) A, being in debt to B, the money-lender of his village, contracts a fresh loans on terms which appear to be unconscionable. It lies on B to prove that the contract was not induced by undue influence.

d) A applies to a banker for a loan at a time when there is stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. This is transaction in the ordinary course of business, and the contract is not induced by undue influence.

49. The illustration ‘C’ is the case between the moneylender and the debtor where the moneylender is in a dominant position on account of debt owned by the debtor. Even then the fresh agreement of loan would not be voidable on account of undue influence unless transaction was based on un- consionable terms. In the present case, if the UPPCL, having obtained power at a marginal cost, had charged much more than the marginal cost the terms could be said to be un- consionable. Even the Commission accepts in the impugned order that UPPCL had actually incurred such costs in order to supply additional 10 MW to NPCL. The illustration (d) is a case where in a stringent money market a loan is advanced at an unusually high rate. Even this is not induced by influence. The terms of the contract were not un-consionable. The supplier, i.e., UPPCL, agreed to supply at the cost that was incurred by it for making such supply. I am unable to see any undue influence in the contract of 08th May, 2006.

50. Further, Section 19A of Contract Act, only makes the contract induced by undue influence voidable (not ‘totally void’ as claimed by Mr.Shanti Bhushan). The provision is extracted below:

19A. Power to set aside contract induced by undue influence When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefits thereunder, upon such terms and conditions as to the court may seem just.

51. If NPCL was not willing to abide by the contract it was open for it to rescind the contract. The voidable contract can be rescinded at the instance of the party whose consent has been secured by fraud coercion or undue influence. The mode of communication of revocation or rescission is provided in Section 66 of the Contract Act. In the present case, at no point of time NPCL revoked or rescinded the contract. Assuming that NPCL came to know of the very high marginal cost on obtaining the first bill on 20th September, 2006, it should have immediately rescinded the contract by asking the UPPCL to stop the supply. Instead of doing so, NPCL approached the Commission seeking an order of restraint on the UPPCL so that UPPCL could be compelled to continue the supply. This cannot be the conduct of the contracting party who considers the contract to be voidable. In fact, NPCL intended to force the UPPCL to specifically perform the contract when UPPCL threatened to withdraw. Thus even the NPCL did not consider the contract to be voidable. It only looked for receiving the same amount of power at a lesser cost.

52. In view of the above analysis, the contract of 08th May, 2006 is neither void nor voidable. The contract is capable of being enforced in law. Accordingly, UPPCL has the right to recover the amount due to it under the contract, in question as contained in the letter of 08.05.06. Discrimination:

53. So far as the second plea namely the contract being discriminating and unconstitutional is concerned NPCL can only assert its point if it is able to show that while at a same point of time another distributing company was given additional power on emergent circumstances at average cost, NPCL was charged at marginal cost. The plea of discrimination can be substantiated only by showing different treatment to similar or equal transactions. Only equal deserve equal treatment. Unequals cannot be compared for examining the question of discrimination. The NPCL wants to compare the price for the additional 10 MW of supply with the average pooled cost which is the price for the long term power supply on regular basis controlled by the tariff order issued by the Commission. This is not the correct application of the principle of equality. It cannot be said that simply because the pooled cost is Rs.1.897, the UPPCL is bound to supply to everybody at the pooled cost at every situation. Even going by simple arithmetic, if UPPCL itself has to buy additional power at the cost higher than the average cost the average cost would increase. If the UPPCL was not entitled to charge beyond the average pooled cost of Rs.1.897 then the UPPCL would not have bought the additional power for NPCL and would not have sold the same to NPCL. Further it was a question of additional power supply and as mentioned earlier on emergent circumstances. UPPCL had purchased power to supply to NPCL and UPPCL therefore, charged the NPCL for the same. It can be seen that even Section 62(3) of The Electricity Act 2003, says that differential tariff can be fixed keeping in view the nature of supply. In the present situation, the nature of supply itself was so different from the usual supply that a different price was chargeable. If the contention of NPCL is accepted, all purchases at marginal cost would have been discriminatory. So far as the contract of the additional 10 MW of power is concerned, one has to examine whether charging of marginal cost itself is discriminatory. It is not the contention of NPCL that all marginal cost contracts are by themselves discriminatory. Marginal cost will always be above the pooled average cost. If charging any price above pooled average cost is discriminatory, the Act or rules or regulations framed thereunder would have barred any agreement of sale of electricity by any trader on producer at price above the pooled average cost. All agreements of sale at marginal cost would then have been barred as discriminatory. The electricity market however, recognizes marginal cost agreements and they have not been branded as discriminatory.

54. In this connection, Mr. Shanti Bhushan has also referred to a judgment of this Tribunal, in Petition No. 01 of 2005, in which this Tribunal ruled that a generator can sell power directly to the traders and intermediaries at a mutually agreed price but that such price should not exceed the base price plus 4% there of. The judgment also stated that the distributors and traders while trading in electricity should ensure that they abide by the trading margin fixed by an appropriate Commission. I do not see how this finding comes to the benefit of NPCL. The UPPCL has charged the marginal cost namely the cost at which it purchased, as per the given calculations. It is not the case of NPCL that UPPCL, for the purpose of additional 10 MW of poer, has made a profit which is violative of the directions of this Tribunal. In fact Memorandum of Appeal makes out no such case.

55. So far as bulk tariff for the original 45 MW of power supply is concerned, NPCL has been paying more than other distributing companies. NPCL had not approached the Commission for setting aside the bulk tariff rate. In fact, NPCL all along accepted the bulk tariff fixed by the Commission. Whether such tariff was violative of the Article 14 of the Constitution was not a subject for decision before the Commission when it considered the Petition 414 of 2006 in which the impugned order was passed. The rate was fixed by the Commission itself by application of accepted principles for tariff fixation vis-à-vis NPCL. Since the NPCL itself did not challenge it the Commission could not have gone into the question while determining the amount to be paid by NPCL for the additional 10 MW of power. The question of violation of Article 14 was not at all an issue before the Commission. If NPCL wants to challenge the tariff payable by it on ground of discrimination, it may take appropriate steps to do so. The issue in any case was totally foreign for the purpose of disposal of petition before the Commission. So far as the marginal cost is concerned, I have already said that the NPCL has failed to show that there was any discrimination. A copy of the ‘Additional Submissions” of NPCL before the Commission in the matter which the impugned order is passed has been filed by NPCL as Annexure A-11 to its appeal petition. After the introductory paragraph, the NPCL says in its petition that in order to growing demand it approached the respondent, i.e. UPPCL, for additional power supply over and above the 45 MVA that it had been supplying to the NPCL, that on November 08, 2005 the respondent agreed that once a new 400/132 kV Pali sub station was commissioned the supply of 15 MVA would be made available to the petitioner, that in the meeting in Lucknow the petitioner was offered an additional power at marginal cost and keeping in view the acute shortage in Greater Noida, the petitioner was left with no option but to agree to the “unreasonable proposal” of the respondent keeping in mind the supreme interest of the consumers. It then proceeds to say that on May 10, 2006, the UPPCL advised DGM, Paschimanchal Vidyut Vitran Nigam Ltd., Noida to supply 10 MVA power as against 15 MVA agreed to the petitioner, after the Pali sub station was commissioned. The petitioner then narrates that the petitioner NPCL asked the respondent UPPCL vide its letter dated September 26, 2006 and September 29, 2006 for the calculation of the cost of the additional power and on receiving no response the petitioner attempted to work out the cost of additional power based on the letter of the respondent and was shocked to find that such cost was abnormally higher at 10.73 per unit as against the average side rate of 3.56. The NPCL then proceeds to narrate the correspondence related to the bills. It then alleges that if rates offered to be imposed by the respondent were actually applied, it would create serious imbalance and hardship on the petitioner’s financial position as the petitioner’s average rate of sale was 3.56 per unit as against abnormally high rates claimed by respondent. In the penultimate paragraphs, the NPCL alleged that it perceived a genuine threat that the UPPCL may stop trading the additional power which will jeopardize all economic and domestic activities and cost irreparable damage to the consumers in Greater Noida which would be against the objectives of Uttar Pradesh Electricity Reforms Act 1999 and Electricity Act 2003. The NPCL made the following prayer in the petition:

A. Appropriate orders directing the Respondent not to interrupt / diminish the supply of bulk power for any reason whatsoever.

B. Appropriate orders restraining the Respondents from taking any coercive steps as reflected in the respondents letters more particularly their letter dated 26.10.2006.

C. Ad-Interim orders in respect of prayers (A and

B) above.

D. Such other appropriate order / orders as this Hon’ble Commission may deem fit and proper in the interest of justice.

Thus NPCL did not make any grievance of the bulk supply tariff what to talk of it being discriminatory. Nor did it claim any relief regarding the bulk supply tariff. UPPCL not allowed to trade:

56. Coming to the fourth contention, about UPPCL not being permitted to trade, I only have to say that this question has no relevance to the point in issue. I now understand that UPPCL is no more a State transmission utility and is presently engaged in trading. Amount payable for the supply of 10 MW of additional power:

57. The impugned order grants the marginal cost despite having found the contract to be bad in law. It has done so on the basis of ‘sunk cost’. Even when the contract is void or voidable Section 64 and 65 of the Contract Act provides that the person who has received any advantage under such agreement is bound to restore it or make compensation for it to the person from whom he has received the same. Section 70 of the Contract Act also provides similar compensation to the person who has received some obligation from other person enjoying the benefit of non-gratuitous act. Even Section 19A quoted above lays down the same principle. Although, the impugned order does not directly employ the provisions of Section 64, 65 or 70 of the Contract Act, it has used the same concept of compensation for providing some benefit under a void or voidable contract. The Commission has arrived at the conclusion that the amount that has to be paid is equal to the marginal cost, namely the cost at which the additional power has been purchased by UPPCL for the purpose of supplying to NPCL. NPCL wants the same supply at the cost at which power is supplied, by UPPCL, to other distribution companies in normal circumstances. NPCL does not allege that any other party has received such additional power during the same period at a lesser cost which could justify the NPCL’s claim for supply at lesser price or compensation at lesser rate. At the time of arguments, the learned Counsel for NPCL disputed even the accuracy of marginal cost calculations submitted by the UPPCL. No such plea was raised before the Commission. Even before this Tribunal, the NPCL could not come out with an alternate figure as to what would have been the marginal cost, if not the amount at which the UPPCL billed the NPCL. The UPPCL is therefore, entitled to an amount for which it has billed the NPCL whether under the contract or under the provisions of Sections 64, 65 or 70 of the Contract Act. Nature of NPCL’s prayer:

58. It is to be noticed that the NPCL itself wanted the 10 MW of power to be supplied to it continuously. The Commission issued an order directing the UPPCL to do so. This was done only by way of specific performance of the contract. If the NPCL wanted the contract to be specifically enforced it has to remain ready and willing to perform its part of the contract. The NPCL cannot be entitled to receive the additional supply of power and yet be exempted from paying the agreed cost of such additional supply of power. Bulk Supply Tariff:

59. The question that is required to be answered now is whether the Commission was right in reducing the bulk supply tariff for the original 45 MW, for the period in question, to the pooled cost of UPPCL’s procurement. The above discussion is sufficient to show that the normal tariff at which NPCL would pay the UPPCL had no connection of any kind with the price at which the additional 10 MW of power was being traded. The Commission observed that although the cost of procurement was Rs.1.897 per unit it was actually getting Rs.2.9361 per unit on account of the reverse calculation on application of principles of VIth Schedule and this the Commission termed as efficiency gain. The Commission found that although the marginal cost was the amount necessary to be paid to compensate the UPPCL for the additional 10 MW of power, the UPPCL should return the ‘efficiency gain’. In this process, the Commission perhaps felt, that real compensation could be worked out. Unfortunately, this type of adjustment was not at all warranted. There is a procedure to fix the tariff for any utility or licensee. Once the tariff is fixed it can be altered only in accordance with the prescribed procedure and on grounds available for review or amendment. In the present case, the tariff at the relevant time for the normal supply of 45 MW had been fixed by none other than the Commission itself for the year 2004-05, which continued to be in force at relevant time. Neither the tariff order, nor the principles on which it was based was ever challenged by NPCL. The principles on which this tariff was fixed had been approved by High Court of Allahabad. The Commission could not reduce such tariff without following the prescribed procedure and without taking into account the relevant principles. It was not within the jurisdiction of the Commission to reduce the tariff lawfully fixed that too in such perfunctory manner.

60. The UPPCL contends that it had to make payment to NTPC and other central organizations for supply of additional 10 MW of power and accordingly, it is entitled to recover the amount spent by it for supplying additional 10 MW of power. By reducing the bulk supply tariff the Commission has caused a loss of Rs.28.33 Crores to the UPPCL. Thus the UPPCL in effect has to suffer a loss of Rs.28.33 Crores for having supplied additional power to NPCL part of which was supplied under the very direction of the Commission which the Commission passed only by way of specific performance of the contract. Had the NPCL not entered into the contract with UPPCL, there was no legal obligation for the UPPCL to supply the additional 10 MW of power. Nor did the Commission have any authority to direct the UPPCL to supply such power to NPCL that too on average pooled cost. Having held that UPPCL had sunk the cost of 10 MW of power and therefore was entitled to recover it, the Commission proceeded to reduce the bulk supply tariff in the name of removing discrimination. This is a confused understanding law.

61. The Commission in the impugned order justifies the reduction of tariff by saying that the tariff had not been fixed after 2004-05 on account of default attributable to UPPCL. Nonetheless, the Commission also acknowledges that meanwhile fuel cost has gone up. The Commission was thus aware that even if the tariff had been fixed for the year 2005- 06, it would have been more than Rs.1.897 per unit.

62. The reason for changing the tariff given in the impugned order is as under:

keeping in view, the non allocation of PPAs, the condition of uniform retail tariff and the denial of open access, imposition of the burden on account of the extreme high cost on NPCL would be un- reasonable, discriminatory and unfair to the petitioner. Therefore, in order to rectify the position and also looking into the facts that the respondents are themselves not adhering to the statutory structural requirements and are also not submitting the tariff filing, leading to no revision in NPCL’s tariff, the Commission under this extra ordinary situation, has amended bulk supply tariff of NPCL, against its 45 MW demand for the disputed period by bringing it down to the cost of supply at 33 kV as indicated above….

63. The conclusion of the Commission totally lacks logic. Having first held that marginal cost was required to be paid to compensate the UPPCL for the 10 MW of additional power supply it cannot say that paying such marginal cost would be unreasonable, discriminatory or unfair. Further such payment cannot become unreasonable, discriminatory or unfair because of absence of allocation of power purchase agreements or because of condition of uniform retail tariff and on account of alleged denial of open access. Similarly, there is no rationale in saying that because the UPPCL is not adhering to the statutory requirements and has not submitted to tariff filing the Commission can amend the bulk supply tariff of NPCL. The Commission has to use appropriate measures to compel the UPPCL to adhere to statutory requirements or to force filing of the tariff petition. It has no power to reduce the tariff which has been fixed according to law because of such non-compliance.

64. Be that as it may, the propriety or reasonableness of tariff order in force at that time was not at all in question before the Commission. It was not the lis before it so to say. Thus the Commission has shot entirely wide the mark.

65. It can be added here that the first contract for 45 MW of power dated 15.11.1993 and the agreement in question for 10 MW of power dated 08.05.06 are two entirely distinct contracts. The two could not be combined to assess the compensation that became payable under the second contract. I have already held that the contract in question was neither void nor voidable and hence the UPPCL is entitled to its dues under the contract. Section 60 Electricity Act 2003, Market domination / competition:

66. The Commission has referred to Section 60 of the Electricity Act and to the effect of the transaction in question on competition. Neither of the two parties have referred to section 60. During arguments NPCL has submitted “written submissions” to comprehensively summarise the oral argument addressed in court. No mention to section 60 is at all made in the “written submissions” either. However, it will be proper to make a reference to section 60 of the Act in order to comprehensively deal with the impugned order. The relevant section is reproduced below:

60. Market domination – The Appropriate Commission may issue such directions as it considers appropriate to a licensee or a generating company if such licensee or generating company enters into any agreement or abuses its dominant position or enters into a combination which is likely to cause or causes an adverse effect on competition in electricity industry.

67. As can be seen from a plain reading of the section, several concepts have been rolled into one section without any aid of definition or explanations. The Act does not define:

(a) dominant position,

(b) abuse of dominant position,

(c) combination,

(d) competition,

(e) adverse effect on competition,

(f) when and what kind of directions can be ‘issued’ in case an occasion arises Under Section 60

68. Can the impugned order be saved on the touch stone of section 60? In the first place ‘directions’ are for compliance in the future. Can the power to issue direction include the power to deny the seller the contracted price after the sale is complete and the product consumed? In my considered opinion, the answer is ‘NO’.

69. Secondly, has the UPPCL abused its dominant position (assuming that it has a dominant position)? It is alleged that UPPCL has abused its dominant position by selling to NPCL at a price higher than that at which it has sold to other distributing companies. Now, there are two contracts. The long term power purchase agreement for 45 MW is subject to tariff orders made by the Commission in compliance with the direction of the High Court and on principle approved by the High Court. Grievance of the NPCL for the procurement price of the 45 MW of power has to be addressed to the appropriate quarters and the Commission could not have exercised any such jurisdiction while disposing of the application of NPCL being No. 414 of 2006. This price cannot be interfered with by applying Section 60 of the Electricity Act 2003.

70. UPPCL as a trader has purchased and sold power. For this additional power, UPPCL has made actual purchase over and above the purchase made by it immediately before entering into the deal with NPCL of 08.05.06. It is not the case of NPCL that the UPPCL obtained the last 10 MW of power at average pooled cost what it now offers to pay. Nor is it the case of NPCL that UPPCL is making any abnormal profit viz. selling to NPCL above the price at which the final 10 MW power is obtained by UPPCL.

71. On the relevant date open access was available. The NPCL itself claims that it had offers from other producers of power. If the others were willing to sell additional power to NPCL at any lesser price, it should have entered into the deal with those other producers. Its plea, that such contracts with other producers could not be entered into for want of open access, does not hold any water. The only conclusion that can be drawn from this situation is that the term offered by UPPCL were not worse than those offered by other producers. Hence I am unable to see any abuse of dominant position by UPPCL.

72. Further Section 60 requires the appropriate Commission to issue direction where the abuse of dominant position causes adverse effect on competition. NPCL has never alleged, nor is there anything on record to show, that the impugned agreement has had any adverse effect on competition so far as NPCL is concerned. UPPCL and NPCL are not competitors. The agreement in question is not assailed by the competitors of UPPCL. So far as NPCL is concerned, it was not in competition with other discoms in the sense it is understood in economic theory as each distribution company has its area of operation duly defined and the distribution companies do not compete with each other to increase their sale or profit. I have already observed that the contract in question was not discriminatory. Therefore, it cannot be said that any presumed abuse of dominant position by UPPCL has had any adverse effect on competition. Nor can the impugned order be justified as one passed under section 60 of the Electricity Act 2003. Conclusion:

73. The Commission set before itself the following objectives while coming to the solution to the problems before it:

(a) Compensation of additional power procurement by UPPCL on marginal cost,

(b) balancing the commercial interest of both NPCL and UPPCL,

(c) to ensure that the consumers of both UPPCL and NPCL area get a fair deal and accordingly burden of the dispute should be spread thin and uniform as far as possible.

74. I have no quarrel on the high objectives set by the Commission before it. But such objective could not have absolved the Commission from adhering to the legal regime. The Commission is to act within the legal framework in the country. It could not overlook the area of its jurisdiction or the law of contract or the Constitution or power and jurisdiction of the High Court in order to balance the commercial interest of NPCL and UPPCL or to spread the burden of the marginal cost on all the consumers.

75. To summarise the above discussion, I say that the contract of 08th May, 2006 was legal and valid and for the purchase of power under the agreement, NPCL is legally bound to pay the agreed price. Even if the objections to the validity of the contract are sustained, the NPCL has to compensate the UPPCL and such compensation would be the same as marginal price as held by the Commission. No mistake in the calculation of marginal cost having been pointed out, the NPCL is bound to pay the amount for which UPPCL raised the bill. The impugned order to this extent has to be upheld. The part of the order which amends the bulk supply tariff for 45 MW cannot be sustained and has to be set aside.

76. My draft judgment was submitted to my brother Hon’ble Shri.A.A.Khan for his perusal. I also had an opportunity of perusing the draft of his judgment. The assumption and inferences drawn generally and particularly in relation to non- adherence to the provisions of Uttar Pradesh State Electricity Regulatory Commission (Conduct of Business) Rules 2004 are not borne out from the material available on record. The NPCL has succinctly set up its case in its written submissions which have been dealt with in entirety in my judgment whereas the conclusions of my brother are based on entirely different premises. In view of this and material existing on record, in my view, the conclusions reached by my brother are not sustainable or warranted. I regretfully differ with him and reach my own conclusions for the reasons set out in the above judgment.

77. In the result I dismiss the appeal of NPCL being Appeal No. 36 of 2007 with cost and allow the appeal filed by UPPCL being 26 of 2007 with cost. The impugned order is set aside in part to the extent it reduces the bulk tariff payable by NPCL for the original 45 MW of power. The part of the order directing payment of marginal cost is upheld but for different reasons. Pronounced in open court on this 25th day of October, 2007.