Electricity Board Vs. M/S. SIEL Ltd. & Ors.  INSC 1378 (18 August
JURISDICTION CIVIL APPEAL NOS. 5380-5389 OF 2005 Punjab State Electricity Board
..Appellant Versus M/s SIEL Ltd. and Ors. ..Respondents WITH (Civil Appeal Nos.
5394, 5395, 5392, 5397, 5390, 5391, 5393, 5396, 5379 and 5398 of 2005)
Dr. ARIJIT PASAYAT,
in these appeals is to the judgment of the Division Bench of the Punjab and
Haryana High Court allowing the statutory appeals filed by the respondents in
these appeals questioning the order of the Punjab State Electricity Regulatory
Commission (in short the `Commission').
The determination of
tariff by the Commission was the subject matter of challenge.
High Court held that the Commission had not addressed itself to the relevant
parameters and, therefore, the order suffers from infirmities. The matter was
remitted to the Commission to decide the issues afresh keeping in view the
observations made and after eliciting the appropriate information from the
appellant-Punjab State Electricity Board (in short the `Board') wherever it has
been found the deficient on the part of the Board. Stress in these appeals,
essentially is focused on various conclusions on specific issues.
dispute relates to the period from 1.8.2002 to 31.7.2003. The annual cost
requirement as per the Board was Rs.7,437.78 crores while the Commission
allowed Rs.6,341.14 crores. The challenge was essentially by industrial
consumers before the High Court. The dispute as noted above relate to (i)
estimation of agricultural consumption and transmission and distribution loss
(in short `T&D Loss'), (ii) energy input and coal transportation, (iii)
manpower requirement, (iv) investment and rate of return.
far as the last head is concerned, the rate claimed is 3% of net fixed assets
and 14% of equity.
basic premises on which the Commission proceeds is to find out whether existing
tariff generates surplus revenue or not. If it is more, then there is scope for
reduction in tariff and if it is less it leads to increase in tariff. One of
the basic issues relates to cross subsidization. In other words, industrial
consumers pay more than actual average cost of supply and subsidize the
consumers in the agricultural and domestic sectors.
to learned counsel for the appellant-Board cross subsidization is a tariff
design issue. The Government has no role to play in cross subsidy. It is not
an element of cost and essentially is redesigning of tariff. Hypothetically,
High Court is not correct in saying it is a loss of revenue measure.
counsel for the respondents submitted that the High Court has rightly stressed
on certain aspects like cross subsidy, inadequacy of materials produced, and
rational and down to earth approach has been adopted. The Government has really
no role to play. It is a legacy of the past and principally aims at
progressively reducing the element of cross subsidy. The cost of supply is
different to different classes of consumers. The average cost of supply can be
categorized into (i) the average cost to every consumer and (ii) the average
cost to a class of consumers. It is pointed out and in fact there is no dispute
that cost of supply varies depending upon the consumption i.e. in case of lower
voltage relatable to domestic consumers, the cost of supply is higher vis-`-vis
the cost and at higher voltage by industrial consumers it is less. The
technical and commercial losses are lower because of high voltage and it
becomes higher if it is a case of low voltage. Till now, there appears to be no
authoritative determination on a particular class of consumers. Thus, one of
the methods can be by adoption of average cost principle. The basic issues
which the High Court tried to address related to cross subsidy. But it
introduced a concept of ideal situation which in our opinion is not the correct
approach. Subsidy in essence is a privilege which can either be given or not to
Commission which has been appointed under the Electricity Regulatory
Commissions Act, 1998 (in short the `1998 Act') or the Electricity Regulatory
Commissions Act, 2003 (in short the `2003 Act') exercises the statutory powers
for determination of tariff. The guidelines and parameters have been provided
under Section 9 of 1998 Act and Sections 29, 61 and 82 of 2003 Act.
Commission is primarily concerned with determining the annual revenue
requirement (in short `ARR'). The Commission designs the tariff and by
rationalizing the same is sent to the Government which takes a decision
annually as to the quantum of subsidy and the class of beneficiaries.
Commission finalises the tariff.
of the basic issues raised in these appeals was whether the interest on
borrowing because of non receipt of subsidies can be taken as a part of ARR.
The Commission is required to work out the details. It was stated that being
the first year of fixation of tariff, the Commission was faced with various
problems. If it is established that the borrowings are general in nature it
certainly forms parts of the ARR, but where it is apparently made because of
non receipt of subsidy amount from the Government, the question may arise
whether it can be taken into account by fixing the ARR. If the Board by cogent
material established that the interest is relatable to general borrowing, it
would definitely form part of the ARR. If on the other hand the consumer is
able to establish that the interest is relatable to borrowing on account of non
receipt of subsidy, the details have to be worked out by the Commission.
expediency test has to be applied by the Commission. Difficulties arise when it
relates to determination for the first year. At the beginning of the year the
question of delay in receipt cannot be gone into. This is a matter for the
relation to agricultural meter and T&D losses it is to be noted that in the
past agricultural consumers were not having meters. Therefore, per force
estimate had to be done.
The Commission fixed
25.52% to be T& D losses. The High Court proceeded on the basis that meters
should have been there. In the absence of meters, the consumers should not
suffer. This is what is normally known as ideal situation test.
Such test as
indicated above has no place in the case of commercial evaluation.
the case of industrial and domestic consumers, the exact figures are known
because meters are there. It is pointed out that the technical loss is fixed at
15% whereas at the distribution level it is 10 to 11% and 4 to 5% loss on
account of transmission.
far as the commercial losses and un-metered agricultural consumers are
concerned, the same cannot be precisely quantified for the losses.
is to be noted that when the Board's stand was that the loss is less than the
national level load factor and the energy input is best in the country, the
High Court again proceeded to apply the ideal situation test to say that there
was scope for improvement and found no defect in the conclusions of the
Commission by stating that the production should be optimum.
cross subsidy is an accepted principle. In Hindustan Zinc Ltd. etc.etc. v.
Andhra Pradesh State Electricity Board and Ors. (1991 (4) SCC 299) in para 33
it was observed as follows:
"33. Shri Kapil
Sibal appearing on behalf of some of the appellants confined the challenge to
the mode of exercise of power by the Board.
He laid great
emphasis on the effect of absence 8 of consultation with the Consultative
Committee under Section 16 of the Electricity.
(Supply) Act, 1948.
He also claimed that the quantum of increase could at best be justified only to
the extent of one-half and no more.
Shri Sibal claimed
that certain extraneous factors had been taken into account for the purpose of
revising the tariffs. The irrelevant considerations, according to Shri Sibal,
taken into account are the capital sums owed by the Board and the overall
losses incurred by the Board which according to him is impermissible under
Section 59 of the Electricity (Supply) Act. He also argued that the upward
revision of HT tariffs is intended to subsidies another class of consumers
which is not permissible.
His arguments are
already covered by our earlier discussion. Similarly, the arguments of Shri
K.N. Bhat, for the appellant in C.A. No. 5379 of 1985 to the same effect need
no further discussion. The details of the several factors taken into account
for the revision in tariffs, to the limited extent they can be gone into within
the permissible scope of judicial review in such a manner also do not require
any further consideration."
observations of this Court in West Bengal Electricity Regulatory Commission v.
CESC Ltd. (2002 (8) SCC 715) need to be noted:
"91. A perusal
of Sections 29(2)(d), 29(3) and 29(5) of the 1998 Act shows that the consumers
should be charged only for the electricity consumed by them on the basis of
average cost of supply of energy, and the tariff should be determined by the
State Commission without showing any undue preference to any consumer. The
statute also obligates the State Government to bear the subsidy which if it
requires to be given to any consumer or any class of consumers, should be only
on such conditions that the Commission may fix and such burden should be borne
by the Government. However, the High Court in its judgment has directed the
Company to maintain its tariff structure in regard to different types of
supplies as it was prevailing before the Commission fixed the new tariff. It
also directed the increase in the average rate of tariff which it had permitted
to be distributed pro rata by the Company amongst different consumers, so that
the percentage of increase of each rate is the same. In effect, therefore, the
High Court has directed the continuance of cross-subsidy.
One of the reasons
given by the High Court in this regard is that Calcutta Tramways which is
otherwise running a cheap transportation system might have to increase its fare
and the same cannot be permitted since Calcutta Tramways were not heard in the
matter of fixation of tariff and there is, therefore, a likelihood of wide
discontentment if the fares are to be increased. We have noticed that the
object of the 1998 Act is to prevent discrimination in fixation of tariff by
imposing cross-subsidy, but at the same time under Section 29(5) of the 1998
Act, if the State Government so chooses to subsidise the supply of energy to
any particular class of consumers, the same can be done provided of 10 course
the burden of loss suffered by the Company is borne by the State Government and
not imposed on any other class of consumers. In this view of the matter, we are
of the opinion that while the Commission was justified in its view as to the
non-applicability of cross-subsidy, the High Court was in error in issuing a
direction to the Commission, contrary to the object and provisions of the 1998
Act to maintain a tariff structure which was prevailing prior to the
Commission's report. It is still open to the State Government if it so chooses
to direct the Commission to fix the tariff of supply of electricity to any
class of consumers at a reduced rate provided the State Government itself
subsidises the same".
Association of Industrial Electricity Users v. State of A.P. and Ors. (2002 (3)
SCC 711) also the position was examined in detail.
make it clear that actual expenditure has to be the basis and not the
hypothetical ideal situation. Ideal situation is essentially contemplation of
the future. Additionally, the computation of input is the actual cost on the
basis of per unit.
the High Court's approach is not correct and analysis was not done in the
correct prospective, we set aside the order of the High Court and remit the
matter to the Commission to examine the matter afresh keeping in view the
parameters of 2003 Act in the light of what has been stated above on specific
appeals are allowed to the aforesaid extent.
(Dr. ARIJIT PASAYAT) .