SAi BHASKAR IRON LTD. v. A.P. ELECTRICITY REGULATORY COMMISSION & ORS.

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A discrimination of HT consumers with agriculturists to be untenable. Concessional tariff extended to agriculturists as a separate class was held not violative of Article 14.

29Copy pinpoint29. In Rohtas Industries (supra) also this Court had negatived the submission based upon the classification and held that classification B which is legally valid and permissible for grant of concession in the basic rates will equally hold good for the purpose of subsequent scheme of distribution of burden in the form of fuel surcharge and the decision of the Board restricting levy of fuel surcharge to those categories of consumers who were enjoying the benefits of concession in the general rate and in sparing smaller type of consumers such as agriculture, irrigation c and commercial consumers being subjected to that burden was upheld, This Court in Rohtas Industries (supra) has laid down thus : "8. The expression "licensee" means a person licensed under Part II of the Indian Electricity Act, 1910, to supply energy or a person who has obtained licence under Section D 28 of that Act to engage in the business of supplying energy - through definition in Section 2(6). Admittedly, the appellants before us are not licensees. They are consumers receiving high tension supply to their factories. For the • purpose of tariff fixation, the Board has classified the consumers into I 0 categories, viz. "domestic", "commercial (i)",_ "commercial (ii)", "street light", "irrigation", "light tension industrial" (small scale industrial upto I 00 h.p.), "I I k.v. h.t.s.", "33 k.v. h.t.s.", "132 k.v. h.t.s." and "railway traction (25 k.v.)". It is seen from the materials on record for us that the industries between themselves consume nearly 65 per cent of the total quantity of energy supplied by the Board. Apparently with a view to encouraging the establishment of industries in the State, the general tariff rate applicable in respect of high tension supply to industries and factories has been fixed at rates which are much lower when compared to those applicable to other types of consumers. While the general rate applicable for supply of high tension electric energy for industries of the class to which the appellants belong was 22 paise per unit, consumers belonging to "commercial" categories were charged at rates ranging between 48 paise to 58 paise per H

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REGULATORY COMMISSION & ORS. [ARUN MISHRA, J.]

unit, "agricultural" consumers at 29 paise per unit, "low tension" consumers at 34 to 38 paise per unit and "domestic" consumers at rates ranging between 38 to 43 paise per unit. Thus, in the fixation of the general tariff rate, a substantial concession has been shown in favour of industrial low tension and high tension consumers. The appellants have no case that any illegality was involved in treating the industrial consumers, as a separate class and granting them the benefit of a preferential treatment for the purpose of fixing the basic rate of levy for supply of electricity. The stand taken by the Board is that it was found absolutely necessary at the time of the revised tariff fixation effected in 1979 to c augment its revenue by levying of the additional fuel surcharge in order to offset the heavy increase in expenditure and after taking into account all relevant facts and circumstances, it was decided to distribute that burden amongst the privileged class of consumers, namely those belonging to categories of low tension industrial service, high tension service, extra high tension service and railway traction service. Even after taking into account the fuel surcharge so levied under 1979 tariff, the rates applicable to high tension consumers like the petitioners range between 40.31 paise and 58.80 paise per unit only, while the commercial (ii) consumer has to pay 71.33 paise per unit and even the domestic consumer has to pay 48 paise per unit. The position that obtains under the 1981 tariff which also has been challenged by some of the appellants is substantially similar. In our opinion, the Board was perfectly within its rights in deciding to restrict the levy of fuel surcharge to those categories of consumers who were enjoying the benefit of a concession in the general rate and in sparing smaller type of consumers such as the agricultural, irrigation and commercial consumers from being subjected to that burden, in view of the fact that they were already being subjected to a basic levy at substantially higher rates. The true consequence of the action so taken by the Board is only to effect a reduction in the quantum of concession that was being enjoyed by the consumers belonging to the industrial and railway traction categories. A classification H

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A which is legally valid and permissible for the grant of a concession in the basic rates will equally hold good for the purpose ofa subsequent scheme of distribution of the burden in the form of fuel surcharge. In this context, it is also relevant to remember that the levy of surcharge was necessitated by reason of the extra expenditure which the Board had to B incur in the generation of electricity in the two power stations run by the Board and in the purchase of power from the two outside sources, namely, the D.V.C. and the U.P. State Electricity Board and 65 per cent of the total quantity of energy supplied by the Board is consumed by the industrial c and railway traction consumers. A classification of these bulk consumers has a rational nexus with the object and purposes of the levy of surcharge. Having regard to all these facts and circumstances, we find no substance in the contention advanced by some of the appellants that the imposition of fuel surcharge under paragraph 16. 7 of the D 1979 tariff is arbitrary and violative of Article 14 of the Constitution."

30Copy pinpoint30. In Hindustan Zinc Ltd etc. etc. v. Andhra Pradesh State Efectricity Board & Ors. ( 1991) 3 SCC 299 placing burden of enhanced tariff on high tension consumers including power intensive industries was held not unreasonable and discriminatory since consumers consisted a separate class. The challenge on the ground of making good the loss on supply of electricity at cheaper rates was also repelled. This Court also laid down that the court could not strike down the upward revision made as arbitrary unless the Board is found to have shed its public utility character and there is a limited scope ofjudicial review and this Court further laid down that there is a Iimited judicial review in the matter of price· fixation. The relevant portion is extracted hereunder : "26. lt is, therefore, obvious that mere generation of surplus by the Board as a result of adjusting its tariffs when the quantum of surplus has not been specified by the State Govemment after the 1978 amendment of Section 59 of the Supply Act, cannot invite any criticism unless it is further shown that the surplus generated as a result of the adjustment of tariffs by the Board has resulted in the Board acting as a private trader shedding off its public utility H

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REGULATORY COMMISSION & ORS. [ARUN MISHRA, J.]

character. In other words, ifthe profit is made not merely A for the sake of profit, but for the purpose of better discharge of its obligations by the Board, it cannot be said that the public enterprise has acted beyond its authority. The Board in the present case has shown that the surplus resulting from upward revision of tariffs applicable to the HT B consumers made in the present case, was for the purpose of better discharge ofits other obligations under the Supply Act and in effect, it has merely resulted in a gradual withdrawal of the concessional tariffs provided earlier to the power intensive consumers which do not in its opinion require continuance of the concessional tariffs any longer. c In fact, no material has been placed before us to indicate that this assertion of the Board is incorrect or there is any reasonable basis to hold that the upward revision of tariffs applicable to HT consumers is merely with a desire to earn more profits like a private trader and not to generate surplus for utilisation of the funds to discharge other obligations of the Board towards more needy consumers, such as agriculturists, or to meet the needs of expansion of the supply to deserving areas. The argument with reference to statistics that the upward revision of tariffs for the HT consumers results in earning amounts in excess of the cost of generation does not, therefore, merit a more detailed consideration.

27. It was also contended on behalf of the appellants that the generation of electricity by the Andhra Pradesh Electricity Board is both thermal as well as hydro, the quantity from each source being nearly equal and the entire electricity generated is fed into a common grid, from which it is supplied to all categories of consumers. On this basis, it was argued that the rise in the fuel cost which led to the fuel cost adjustment applicable only to the HT consumers was unreasonable and discriminatory since the burden of rise in fuel cost was placed only on the HT consumers. In our opinion, this argument has no merit. The HT consumers, including the power intensive consumers, are known power guzzlers and in power intensive industries, electricity is really H

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A a raw material. This category of consumers, therefore, forms a distinct class separate from other consumers like LT consumers who are much smaller consumers. There is also a rational nexus of this classification with the object sought to be achieved. Moreover, the power intensive consumers have been enjoying the benefit ofa concessional B tariff for quite sonie time, which too is a relevant factor to justify this classification. Placing the burden of fuel cost adjustment on these power guzzlers, who had the benefit of concessional tariff for quite some time and have also a better capacity to pay, cannot, therefore, be faulted since c the consumption in the power intensive industries accounts for a large quantity." The decision in Hindustan Zinc Ltd. (supra) has been followed in Pulak Emerprises (supra).

31Copy pinpoint31. This Court in Association of Industrial Electricity Users v. D State ofA.P. & Ors. 2002 (3) SCC 711 has considered and upheld the levy of different tariffs. It has laid down thus : "10. We are also unable to agree with the learned counsel for the appellants that the Act does not envisage classification of consumers according to the purpose for which electricity is used. Sub-section (9) of Section 26 does state that the tariff which is fixed shall not show undue preference to any consumer of electricity but then the said · sub-section itself permits differentiation according to the consumer's load factor or power factor, consumer's total consumption of energy during the specified period, time at which the supply is required or paying capacity of category of consumers and the need for cross-subsidisation or such tariff as is just and reasonable and be such as to promote economic efficiency in the supply and consumption of electricity and the tariff may also be such as to satisfy all other relevant provisions of the Act and the conditions of the relevant licence. This section has to be read along with Section 11 which sets out the functions of the Commission and, inter alia, provides that amongst the functions is the •, power to regulate the tariffand charges payable keeping in H

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REGULATORY COMMISSION & ORS. [ARUN MISHRA, J.]

view both the interest of the consumer as well as the consideration that the supply and distribution cannot be maintained unless the charges for electricity supplied are adequately levied and duly collected. Depending upon the various factors stipulated in Section 26(7), categorisation between industrial and non-industrial, agricultural or domestic consumers c·an certainly take place. This is precisely what has been done in the present cases. The High Court has at length considered all aspects of the cases and has examined in detail the exercise which was undertaken by the Commission in fixing the tariff and, in our op in ion, the view expressed by the High Court calls for c no interference." In view of the aforesaid discussion, the submission with respect to favourable treatment and discrimination vis a vis the agricultural sector is hereby repelled. In Re : Variation in cost of Rupee : D

32Copy pinpoint32. It was also submitted on behalfofthe appellant that Regulation 45B that letter 'Z' in the formula for which the Commission to apply the change in cost of rupee for a period beyond the period of s,u_pply of electricity to the consumers without any time limit, the submission in this regard is baseless and cannot be accepted. As a matter of fact the fuel surcharge is determined as per the formula which takes into accountthe change in cost of rupee for a period extending in the past beyond the relevant quarter. There is nothing bad in it as there is change in the cost of rupees which can be allowed by the Commission for realization of fuel surcharge as and when it is determined. It is a method of determining the actual value to be paid in rupees and cannot be said to be illegal or arbitrary at all. It is in consonance with business norms. In Re : Vagueness of Formula :

33Copy pinpoint33. It was also submitted that letter 'A' in the formula is vague and unrealistic so as to permit the Commission to impose additional burden unrelated to escalation of fuel cost under the guise of FSA. The submission is too tenuous to be accepted and proceeds on assumption that only escalation in fuel cost can be levied even the financial year impact of demonstrated incidents of merit order violations on account of H

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A controllable factors and any other event which had the financial impact can be given appropriate treatment and can also form part of FSA as · laid down by this Court in Rohtas Industries (supra) and P11lak Enterprises (supra). In Re : Metering of consumption :

34Copy pinpoint34. Coming to the submission that as metering is mandated on completion of two years, as such agricultural aspect cannot be included on lapse of said period. Section 55 of the Act of2003 deals with the use of meters and it is provided that no licensee shall supply electricity after expiry of two years from the appointed date except through installation c of a correct meter in accordance with the regulations. The said Commission may also extend the period up to two years for a class or class of persons as may be specified in the notification. The provision made in condition No. I of Regulation 45-B cannot be said to be repugnant to section 55( I) as it deals with the licensee's obligation to supply electricity after two years only on the basis of metered supply. It has not D been achieved so far. However, electricity is being consumed and the authorities are not able to do the complete metering of agricultural services. In our opinion, in the prevailing conditions, in particular plight of agricultural sector and purpose of enactment, it is open to the Commission to make such a wholesome provision carved out in condition E No. I. Thus there is no violation of the provisions contained in section 55(1) of the Act of 2003. The consequence of section 55 of the Act of 2003 cannot be that if metering is not achieved within two years the consumption in agricultural sector cannot be provided within the purview of FSA formula. Thus condition I did not cease to have effect after I 0.6.2005 as submitted on behalf of the appellants. F In Re : Subsidy :

35Copy pinpoint35. Coming to submission of violation of section 65, section 65 of .the Act of2003 which enables the State Government to make a provision for subsidy to any consumer or class of consumers. The State Government G has to pay in advance in such manner the amount to compensate the person affected by the grant of subsidy. Section 65 is extracted hereunder: "65. Provision of subsidy by State Government.-If the State Government requires the grant of any subsidy to H

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REGULATORY COMMISSION & ORS. [ARUN MISHRA, J.]

any consumer or class of consumers in the tariff determined A by the State Commission under section 62, the State Government shall, notwithstanding any direction which may be given under section 108, pay, in advance and in such manner as may be specified, the amount to compensate the person affected by the grant of subsidy in the manner the B State Commission may direct, as a condition for the Iicence or any other person concerned to implement the subsidy provided for by the State Government: Provided that no such direction of the State Government shall be operative ifthe payment is not made in accordance with the provisions contained in this section and the tariff c fixed by the State Commission shall be applicable from the date of issue of orders by the Commission in this regard."

36Copy pinpoint36. Considering the condition of farmers which is pathetic and they are unable to face the burden, it is rightly pointed out on behalf of the Commission that the State Government had given them certain concessions in the form of subsidy. However the Commission had excluded them from meeting the fuel surcharge adjustment charges. Provision of section 65 relating to subsidy by the State Government is not at all attracted. The matter involved in the present cases is not of subsidy but determination of fuel surcharge formula. Thus, the submission based upon the violation of the provision of section 65 is wholly unwarranted and is liable to be rejected as subsidy has not been included in the determination of fuel surcharge. It cannot be invalidated on the ground of violation of provisions contained in section 65 of the Act of 2003. F In Re : Lapse of Regulations of 1999 :

37Copy pinpoint37. Next submission raised on behalf of the appellants is that the Regulations of 1999 as amended in 2003 being the tariff regulation under the Act of 1998, ceased to have effect on I 0.6.2004 after one year from the date of coming into force of the said Act, by reason of proviso to G section 61 of the Act of2003. The submission raised is untenable for various reasons. First is that regulations have been framed with effect from 10.6.2004. The proviso to section 61 of the Act of2003 makes it clear that the terms and conditions for determination of tariff and the enactment specified in the Schedule as they stood before the appointed H

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A date, shall continue to apply for a period of one year or until the terms and conditions for tariff are specified under section 61, whichever is earlier. Thus, the tariff regulations framed under the Act of 1998 would remain in force for maximum period of one year and the regulations had been framed with effect from 10.6.2004 and the Transitory Regulations have been enacted vide Regulations of 2004 by the Commission. B Regulation 2 of said Regulations of2004 clearly provides that Regulations of 1999 as amended from time to time under the Act of 1998 shall apply as regulation under the Electricity Act, 2003 and shall remain in force or till new regulations are notified by the Commission under the Act of

2003. Even if earlier Regulations of 1999 came to an end on I 0.6.2004 c and if it is further assumed without deciding that the Commission had no authority to enact retrospectively, in our opinion, it could have adopted the Regulations of 1999 as amended, framed under the Act of 1998 shall continue, to apply for future. Considering the period in question involved in the matter, it cannot be said to be Regulations of 1999, as amended, are inoperative as they have been adopted vide Regulation No.9/2004. D With respect to the fuel surcharge adjustment no provision has been made in the regulations framed in the year 2005. On facts also, the Regulation 45-8 was implemented subsequently and had been again amended in the year 2013. It has operated for more than a decade for determination of FSA. E In Re : Procedural lapse in framing Regulations :

38Copy pinpoint38. The submission raised that amended Regulations were without previous publication as envisaged under section 181 (3) of the Act of 2003, as such they are void due to non-compliance of the said provision. It is apparent that Regulation 9/2004 was previously notified as mentioned in the notification itself. A draft of regulations was published seeking suggestions and comments. No suggestions for changes/modification were submitted. As such the regulations are in compliance with the provision of section 181 read with section 61. Thus we find no violation of the provision of section 18 I(3). The contention that there was no previous publication is factually incorrect. Effect of Regulations of 2005 : 39-. Submission raised that the FSA can be realized in terms of the Regulations of 2005 cannot be accepted for the simple reason that the Regulations of2005 do not deal with FSA and there is a saving clause as H

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REGULATORY COMMISSION & ORS. [ARUN MISHRA, J.]

provided in Regulation 24. Moreover, the Act of 1998 had not been A repealed and there was re-adoption of the Regulations of 1999 in the year 2004. It is also factually incorrect submission that FSA had been realized under the Regulations of2005 after framing ofthe said regulations. In fact FSA had been determined as rightly contended on behalf of the Commission under Regulation 45-B as amended in 2003 for more than a B decade. A challenge had been raised for the first time after 10 years. It is obvious that the parties clearly understood Regulation 45-B is in vogue and in fact it legally prevailed and rightly followed.

40Copy pinpoint40. It was also submitted that Regulation 6(4) of Regulations of 2005 provides that ARR shall contain power purchase cost for each year of the controlled period. It is clear from ARR as defined in c Regulations of2005 and FSA that they do not run counter to each other · but are supplementary. The Regulations of 2005 do not deal with determination of fuel surcharge. Regulation 45-B cannot be said to be invalid for the aforesaid reason.

41Copy pinpoint41. There is a saving clause contained in Regulation 24 of D Regulations of2005. Regulation 12.4 provides that the distribution licensee shall be entitled to recover or refund as the case may be the charges on account of fuel surcharge adjustment as approved by the Commission from time to time suo 1110/U or based on the filing made by the institution company as the Commission may deem fit. The provisions of the Act E provided that the formula has to be specified by the Commission for FSA and this has been specified only in Regulation 45-B which has been adopted in the year 2004 for continuance by the Commission. The Commission had adopted the said regulations and the same continues to be _in operation. F Conclusion :

42Copy pinpoint42. In our opinion, the challenge made by the appellants is unworthy of acceptance. Fuel surcharge is really a surcharge levied to meet increased cost of generation and purchase of electricity and the scope cannot be circumscribed by its nomenclature. Thus the formula in G Regulation 458 and the FSA determined by the Commission would take into consideration various factors which result in the increased cost of generation and purchase of electricity.

43Copy pinpoint43. The appeals are found to be devoid of merits and are hereby dismissed. The appellants are directed to make the deposit along with 1-1

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A interest; if no other rate is prescribed at the rate of8 percent per annum, and other charges for delay, as may be permissible to recover within a period of one month from today. In addition, the respondents are at liberty to take coercive steps to recover the amount.

B Devika Gujral Appeals dismissed.