Appellate Tribunal For Electricity
Daman Industries Association vs Electricity Department Of Daman & Diu & ... on 29 February, 2012
Appeal No.169 of 2011
Appellate Tribunal for Electricity
(Appellate Jurisdiction)
Appeal No. 169 of 2011
Dated: 29th February, 2012
Present: Hon'ble Mr. Rakesh Nath, Technical Member
Hon'ble Mr. Justice P.S. Datta, Judicial Member
In the matter of:
Daman Industries Association .... Appellant(s)
DIA Complex, GDDIDC Industrial Estate
Somnath Road
Daman - 396 215
Versus
1. Electricity Department of Daman & Diu ...Respondent(s)
Daman & Diu, Power Building
2nd Floor, Katharia Nani Daman
Daman - 396 210
2. Joint Electricity Regulatory Commission
for the State of Goa & Union Territories
2nd Floor, HSIIDC Office Complex
Gurgaon - 122 016
Counsel for the Applicant : Mr. M.L. Lahoty
Mr. Paban K. Sharma
Mr. Sukumar Agarwal
Ms. G.B.Bharali
Page 1 of 55.
Appeal No.169 of 2011
Counsel for the Respondent(s) : Mr. M.G. Ramachandran
Mr. Anand K. Ganesan
Ms. Sneha V., for R-1
Mr. Rohit K. Singh for R-1
Mr. Dinesh Kapoor for R-2
Mr. Rajeev Anil for R-2
Mr. R.K. Malik for R-2
JUDGEMENT
MR. RAKESH NATH, TECHNICAL MEMBER This appeal raises the legal issue as to the scope and width of section 62(4) of the Electricity Act 2003, namely, whether power can be given to the any utility that it can impose fuel surcharge according to the formula decided by the State Commission without getting the tariff amended.
2. Daman Industries Association is the appellant.
The appellant represents the interest of the Page 2 of 55. Appeal No.169 of 2011 industries in the Union Territories of Daman and Diu. The first and the second respondents are the Electricity Department of Daman & Diu and the Joint Electricity Regulatory Commission ("Joint Commission") respectively.
3. The respondent no.1 is a department of Government of India responsible for transmission, distribution and retail supply of electricity in the Union Territory of Daman and Diu. The appellant has challenged the tariff order dated 03.10.2011 for the FY 2011-12 passed by the Joint Commission in tariff petition being no.33 of 2011, inter alia, involving the Power Purchase Cost Adjustment.
Page 3 of 55. Appeal No.169 of 2011
4. The brief facts of the case are as under:
4.1 The respondent no.1 filed its ARR before the Joint Commission for determination of tariff for the FY 2011-12 on 28.03.3011.
4.2 The Joint Commission after the public hearing approved the ARR and tariff for the FY 2011-12 by its order dated 03.10.2011. Although the Joint Commission approved the average cost of supply of Rs.3.32 per kwh against Rs.3.86 per kwh projected by the respondent no.1, it permitted the respondent no.1 to realize increase in power purchase cost due to increase in fuel cost from the consumers, according to a formula approved in the tariff order.Page 4 of 55. Appeal No.169 of 2011
4.3 Subsequently, the respondent no.1 issued supplementary bills on account of power purchase cost adjustment to its consumers with retrospective effect from June, 2011 to the extent of 99 paise per kwh causing substantial increase in tariff of the consumers.
4.4 Aggrieved by the tariff order dated 03.10.2011, the appellant has filed this appeal.
5. The appellant has submitted as under:
5.1 The tariff order cannot go beyond the scope of the ARR and the Joint Commission cannot give a vague and uncannelized authority to the respondent no.1 in terms of fuel price adjustment Page 5 of 55. Appeal No.169 of 2011 on its own. This is impermissible especially in view of the fact that the Joint Commission while determining the tariff had already taken into account the actual power purchase cost upto July, 2011.
5.2 Section 62(4) is an exception to the entire scheme of determination of tariff where a utility is mandated to have the tariff amended once only for a Financial Year, but multiple amendments are permissible only in exceptional case of increase/decrease in fuel surcharge. 5.3 Section 62(4) only authorizes the multiple amendment of tariff and cannot be construed so that there is power to the utility exterior to the scheme of the Act.
Page 6 of 55. Appeal No.169 of 2011 5.4 The impugned tariff order dated 03.10.2011 is repugnant to and in violation of section 61 of the Electricity Act, 2003.
5.5 The Joint Commission has also erred in allowing transmission and distribution loss of 9.75% considering that 93% of the electricity is consumed by the industries through dedicated supply line having line loss of 1% to 2%. 5.6 Assuming without admitting the legality of the power vested into the respondent no.1, the respondent no.1 has misused such power as instead of passing only the fuel cost the respondent no.1 has passed all the components of tariff on to the consumers.
Page 7 of 55. Appeal No.169 of 2011
6. The respondent no.1 has made the following submissions in its counter affidavit:-
6.1 The Power Purchase Cost Adjustment ("PPCA") as made applicable by the Joint Commission is a formula for adjustment of power purchase cost of the respondent no.1 on periodic basis so as to ensure due recovery of the power purchase cost incurred by the respondent no.1, instead of the same being postponed to the true up stage after the financial year is over. Such deferment of the power purchase cost, which is an uncontrollable cost, results in serious cash flow and financial problem for the respondent no.1 affecting the maintenance of the distribution system. Deferred Page 8 of 55. Appeal No.169 of 2011 recovery of PPCA will only burden the consumer in future with carrying cost.
6.2 The respondent no.1 does not have any generating station of its own and consequently the power purchase is made by the respondent no.1 from generating stations outside the Union Territory, besides marginal power being procured through short term purchase and Unscheduled Interchange (UI) to maintain uninterrupted power supply to the consumer. Consequently, there is no fuel cost directly incurred by the respondent no.1.
6.3 The Central Commission has also devised a formula for monthly adjustment of tariff based on the fuel cost incurred by the generating companies. Further, there are periodic revisions Page 9 of 55. Appeal No.169 of 2011 in the tariff of the generating companies as approved by the Central Commission. Such costs are uncontrollable in nature.
6.4 According to Rule 8 of the Electricity Rules, 2005 the tariff determined by the Central Commission for generating companies under section 79 of the Act shall not be subject to re-determination by the State Commission in exercise of its function under section 86 of the Act. Accordingly, the Joint Commission has rightly permitted the implication of variation of cost of power purchased from the generating companies where tariffs are determined by the Central Commission as such without any deviation.Page 10 of 55. Appeal No.169 of 2011
6.5 PPCA is a part of the tariff approved by the Joint Commission and is perfectly legal in terms of section 62(4) of the Act and the Tariff Policy.
6.6 In terms of the tariff order the tariff as also the PPCA have been made applicable from 01.06.2011. Therefore, the PPCA bill raised by the respondent no.1 for the period June to August, 2011 was perfectly in order and in consonance with the tariff order.
6.7 The Tribunal has in various decisions upheld the recovery of fuel/power purchase cost adjustment by means of a formula prescribed by the State Commission.Page 11 of 55. Appeal No.169 of 2011
7. The Joint Commission in its counter affidavit has submitted as under:-
7.1 Section 62(4) of the Electricity Act, 2003 and the Regulation 7(1) of the Joint Commission's Tariff Regulations, 2009 provide for realization of fuel surcharge through fuel surcharge formula as specified by the Joint Commission. Regulation 7(2) of the Tariff Regulation permits the licensee to determine and recover fuel surcharge in accordance with the specified formula and that too after following procedure and terms and conditions attached thereto. Accordingly in the tariff order for the FY 2011-12 for the respondent no.1, the Joint Commission has approved the formula for power purchase cost adjustment on actual fuel cost and authorized the respondent Page 12 of 55. Appeal No.169 of 2011 no.1 to recover the same from the consumers as per the conditions laid down in the tariff order. Thus no unregulated power has been given to the respondent no.1 as alleged by the appellant. 7.2 For the block year 2009-10 to 2014-15, the Central Commission determined the tariff on account of annual fixed charge for the NTPC stations in July, 2011 and authorized NTPC to raise energy charges in accordance with the formula specified by the Central Commission. Accordingly, the Joint Commission considered the Annual Fixed Cost as determined by the Central Commission and base energy charges from the bills of the respective central generating stations received in the month of July, 2011 in determining the power purchase cost of the Page 13 of 55. Appeal No.169 of 2011 respondent no.1. In addition to annual fixed cost and base energy charge, the power purchase bills of the respective central generating stations also carry fuel surcharge. The fuel surcharge component of the respective central generating stations was not considered by the Joint Commission while arriving at the power purchase cost. For recovery of this fuel surcharge, a formula was specified by the Joint Commission and the respondent no.1 was authorized in accordance with the Act, Regulations and Tariff Policy to charge the fuel surcharge.
7.3 The T&D loss has been determined by the Joint Commission considering the actual data. The objections of the appellant/objectors regarding Page 14 of 55. Appeal No.169 of 2011 T&D loss received during the public hearing have been dealt with in the tariff order. 7.4 If the appellant is aggrieved by the faulty implementation of the PPCA formula as laid down in the tariff order, the remedy lies elsewhere and not by way of the present appeal.
8. On the above issues, we heard the Ld. Counsel for the parties. After considering their rival contentions, the following questions would arise for our consideration:
i) Whether the distribution licensee can be permitted by the Joint Commission to realize power purchase cost adjustment from the consumers in accordance with the formula Page 15 of 55. Appeal No.169 of 2011 decided by the Joint Commission in the tariff order without getting the tariff amended?
ii) Whether the Power Purchase Cost Adjustment mechanism determined by the Joint Commission was valid and correct?
iii) Whether the respondent no.1 was correct in raising power purchase cost adjustment bills retrospectively from June, 2011?
iv) Whether the Joint Commission has erred in deciding the Transmission and Distribution losses while approving the ARR and tariff of the respondent no.1 for the FY 2011-12?Page 16 of 55. Appeal No.169 of 2011
9. The first issue is relating to legality of the power purchase cost adjustment mechanism. 9.1 According to Ld. Sr. Counsel for the appellant section 62(4) of the Act only authorizes the multiple amendment of tariff and it cannot be construed to provide power to the utility to impose fuel surcharge of its own.
9.2 According to Ld. Counsel for the respondents the power purchase cost adjustment determined according to the formula specified by the State Commission could be realized by the respondent no.1 from the consumers during the tariff year as per the provisions of the Act, Tariff Policy and the Tariff Regulations.
Page 17 of 55. Appeal No.169 of 2011 9.3 Let us first examine section 62(4) of the Electricity Act, 2003.
"62.Determination of Tariff ........................
"(4) No tariff or part of any tariff may ordinarily be amended more frequently than once in any financial year, except in respect of any changes expressly permitted under the terms of any fuel surcharge formula as may be specified.
According to section 62(4), the tariff may not ordinarily be amended more frequently than once in a financial year, except any changes expressly permitted in terms of the fuel surcharge formula specified by the Appropriate Commission. Variation in price of fuel of a generator supplying power to a distribution licensee will affect the Power Purchase Cost of the distribution licensee. Page 18 of 55. Appeal No.169 of 2011 Thus the change in Power Purchase Cost due to variation in fuel cost could be permitted by amending tariff in terms of the fuel surcharge formula specified by the State Commission more frequently than once in a financial year. 9.4 We shall now examine the provision of the Tariff Regulations, 2007 of the Joint Commission. The relevant Regulation 7 is reproduced below:
7. Fuel Surcharge Formula (1) The fuel cost revisions for the generating companies/units owned by the licensee that are due to reasons beyond the control of the generating companies/the licensee be in accordance with the fuel surcharge formula as may be decided by the Commission from time to time.
(2) The generating company or the licensee may determine such charge in accordance with the specified formula and recover the Page 19 of 55. Appeal No.169 of 2011 same from such categories of consumers or the licensees, as the case may be after following procedure and the terms and conditions attached thereto.
The revision in fuel price at the generating station supplying power to a distribution licensee affects the Power Purchase Cost of the distribution licensee. The Regulation 7 provides for determination of the charge due to such revision in fuel price by the distribution licensee in accordance with the formula decided by the State Commission and recovery from the consumers as per the terms and conditions decided by the Joint Commission.
9.5 Let us now examine the provisions of section 61 of the Act. Section 61 is reproduced below: Page 20 of 55. Appeal No.169 of 2011
"61. Tariff regulations 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:-
(a) the principles and methodologies specified by the Central Commission for determination of the tariff applicable to generating companies and transmission licensees;
(b) the generation, transmission, distribution and supply of electricity are conducted on commercial principles;
(c) the factors which would encourage competition, efficiency, economical use of the resources, good performance and optimum investments;
(d) safeguarding of consumers' interest and at the same time, recovery of the cost of electricity in a reasonable manner;
(e) the principles rewarding efficiency in performance;
(f) multi year tariff principles;
(g) that the tariff progressively reflects the cost of supply of electricity and also, reduces and eliminates cross-subsidies within the period to be specified by the Appropriate Commission;Page 21 of 55. Appeal No.169 of 2011
(h) the promotion of co-generation and generation of electricity from renewable sources of energy;
(i) the National Electricity Policy and tariff policy:"
Sub sections (a), (b), (d) and (i) of section 61 of the 2003 Act stipulate that the appropriate Commission shall be guided by the principles and methodologies specified by the Central Commission, follow commercial principles, safeguard the consumers interest and at the same time ensure recovery of cost of electricity in a reasonable manner, and the National Electricity Policy and Tariff Policy.
9.6 The Central Commission in its Tariff Regulations for the generating companies has specified a formula for computation of energy charge rate Page 22 of 55. Appeal No.169 of 2011 which accounts for actual landed price of fuel and gross calorific value of the fuel as fired. Accordingly, the NTPC, a central generating company which is a major supplier of power to the respondent no.1, recovers the energy charges based on its actual fuel price from the respondent no.1 on month to month basis. Rule 8 of the Electricity Rules, 2005 stipulates that the tariff determined by the Central Commission for generating companies under clause (a) or (b) of the Sub-Section (1) of Section 79 of the Act shall not be subject to redetermination by the State Commission in exercise of its functions under clause (a) or (b) of Sub-Section (1) of Section 86 of the Act.
Page 23 of 55. Appeal No.169 of 2011 9.7 The Tariff Policy stipulates that the controllable costs which include the fuel costs and power purchase cost should be recovered speedily. The relevant paragraph of the Tariff Policy under clause 5.3(4) is reproduced below:-
"4) Uncontrollable costs should be recovered speedily to ensure that future consumers are not burdened with past costs. Uncontrollable costs would include (but not limited to) fuel costs, costs on account of inflation, taxes and cess, variations in power purchase unit costs including on account of hydro-thermal mix in case of adverse natural events."
9.8 According to section 45 of the Electricity Act, 2003, the distribution licensee is empowered to recover charges for the electricity supplied by him and such charges shall be fixed in accordance with the methods and the principles as may be specified by the concerned State Commission.
Page 24 of 55. Appeal No.169 of 2011 9.9 Thus if a Power Purchase Cost Adjustment formula is specified by the Commission taking into account the variation in power purchase cost due to revision in price of fuel at the generating station the same has to be recovered by the distribution licensee from its consumers. Power purchase cost is a major expenditure of the distribution licensee. Allowing the distribution licensee to recover variation in power purchase cost during the course of the tariff year, would ensure that the uncontrollable cost is passed on as speedily as possible in terms of the Tariff Policy to avoid cash flow problem to the distribution licensee. 9.10. It has to be noted that the authority given to the distribution licensee to recover the Power Page 25 of 55. Appeal No.169 of 2011 Purchase Cost Adjustment is not absolute without any regulatory control. Firstly, the distribution licensee has to compute the adjustment in tariff strictly as per the Power Purchase Cost Adjustment formula specified by the Joint Commission and the terms and conditions decided by the Joint Commission. Secondly, the final Power Purchase Cost to be allowed to the distribution licensee is subject to prudence check at the true-up stage by the Joint Commission. In our opinion, the computation of the Power Purchase Cost Adjustment by the licensee is by mechanical application of the formula specified by the Joint Commission and there would be no illegality in the Joint Commission permitting the distribution licensee to recover the Power Page 26 of 55. Appeal No.169 of 2011 Purchase Cost Adjustment computed by the distribution licensee from the consumers in accordance with the specified formula and other terms and conditions decided by the Joint Commission. In case of Daman & Diu, the Joint Commission's Tariff Regulations specifically provide for determination of such charges by the distribution licensee in accordance with the specified formula and recovery of the same from the consumers as per the terms and conditions decided by the Joint Commission.
9.11 In case, the increase in price charged by the distribution licensee is inconsistent with the Power Purchase Cost Adjustment Mechanism as specified by the Commission resulting in over recovery, the distribution licensee would be Page 27 of 55. Appeal No.169 of 2011 liable to refund the excess amount charged from the consumers with interest in terms of Section 62(6) of the Electricity Act. Section 62(6) of the Act reads as under:-
"62. Determination of Tariff (6) If any licensee or a generating company recovers a price or charge exceeding the tariff determined under this section, the excess amount shall be recoverable by the person who has paid such price or charge along with interest equivalent to the bank rate without prejudice to any other liability incurred by the licensee."
9.12 Delay in allowing the Power Purchase Cost Adjustment will entitle the distribution licensee to charge the carrying cost which will ultimately be borne by the consumers. Besides, the distribution licensee may also face cash flow problem affecting its operations. Thus, delay in recovery of power purchase cost will not be in Page 28 of 55. Appeal No.169 of 2011 the interest of the consumers. The Power Purchase Cost Adjustment mechanism permitting the distribution licensee to recover the fuel cost adjustment as per the PPCA formula will help in passing on the uncontrollable cost to the distribution licensee speedily to help in smooth operation of the distribution system which will also benefit the consumers.
9.13 This Tribunal in suo motu OP No.1 of 2011 dated 11.11.2011 has held as under:
"64. We also notice that most of the State Commissions have not provided in their Regulations Fuel & Power Purchase Cost Adjustment Formula for allowing the increase in fuel and power purchase cost during the tariff year. The fuel and power purchase cost adjustment mechanism provided in most of the states is after completion of the financial year through a separate proceeding which takes a long time. The power purchase cost is a major Page 29 of 55. Appeal No.169 of 2011 expenditure in the ARR of the distribution licensee. The fuel and power purchase cost is also uncontrollable and it has to be allowed as quickly as possible according to the Tariff Policy. The Electricity Act, 2003 under Section 62(4) has specific provision for amendment of the tariff more frequently than once in any financial year in terms of Fuel Surcharge Formula specified by the Regulations. A major part of power procured by the distribution company comes from the Central Sector Generating Companies whose tariff is regulated by the Central Commission and the State owned Generation Companies whose tariff is regulated by the State Commissions. The Central Commission in its Tariff Regulations has already provided a formula for fuel price adjustment and the charges of the generation companies are increased as and when the fuel prices are increased. In view of the present precarious financial conditions of the distribution companies, it would be necessary that the State Commissions also to provide for Power Purchase Cost Adjustment Formula as intended in the section 62(4) of the Act to compensate the distribution companies for the increase in cost of power procurement during the financial year. In the above situation, as indicated above it has become necessary for this Tribunal to give appropriate directions, to correct this situation by invoking the powers under Section 121 of the Act which is permissible under law. So, the second question is also answered accordingly.Page 30 of 55. Appeal No.169 of 2011
65. In view of the analysis and discussion made above, we deem it fit to issue the following directions to the State Commissions:
(vi) Fuel and Power Purchase cost is a major expense of the distribution Company which is uncontrollable. Every State Commission must have in place a mechanism for Fuel and Power Purchase cost in terms of Section 62 (4) of the Act. The Fuel and Power Purchase cost adjustment should preferably be on monthly basis on the lines of the Central Commission's Regulations for the generating companies but in no case exceeding a quarter. Any State Commission which does not already have such formula/mechanism in place must within 6 months of the date of this order must put in place such formula/ mechanism."
In OP 1 of 2011, this Tribunal after hearing the State/Joint Commissions has directed the State/Joint Commissions to allow Fuel and Power Purchase Cost Adjustment as per the specified formula preferably on the monthly basis on the lines of the Central Commission's Regulations but in no case exceeding a quarter. Page 31 of 55. Appeal No.169 of 2011 9.14 This Tribunal in its judgment dated 18.05.2011 in 2010 in the matter of Bihar Steel Manufacturers Association Vs BSEB has held as under:-
"7. Against these facts it is now contended by the appellant as follows:
................................
e) The orders impugned are violative of section 64 and section 86(3) of the Act read with Regulation 18 and 19 of the Tariff Regulations.
f) The said impugned orders are again in violation of the Regulation 21 of the Tariff Regulations mandating therein that the formula must be "specified "in terms of the regulations notified by the Commission. Under section 2(62) of the Electricity Act the word "specified" means to be specified by the regulations to be made by the Commission.
............................. The matter of the fact is that in the present appeal the formula is challenged not on the ground that the formula as such is bad or illegal but on the ground that it violates the provision of section Page 32 of 55. Appeal No.169 of 2011 62(4) of the Act which provides "no tariff or part of any tariff may ordinarily be amended, more frequently than once in any financial year except in respect of any changes expressly permitted under the terms of any fuel surcharge formula as may be specified". The word 'specified' has been defined in section 2 (62) as: "specified means by Regulations made by appropriate Commission or the authority, as the case may be, under this Act"
..........................................
16.2 Thirdly, the FPPCA in terms of section 62 (4) is required to be specified in the Regulations which has not been done in this case and as a result where there is no regulation providing for FPPCA the Commission cannot lay down any formula in a tariff order. When, it is argued by Mr. Kapur, that law requires a thing to be done in a particular way the thing has to be done in that way or not at all.
.................................. Whether specification in the regulation has to be seen from where the formula has got its berth. If the purpose of the inclusion of the formula in the Regulations is to make one likely to be affected aware of the formula then the purpose in instant case is well served Page 33 of 55. Appeal No.169 of 2011 when the Commission formulates the formula in the tariff order which was pronounced in due construed as a mandate of the Legislature and the consequence of non compliance has to be made the formula non acceptable and nugatory is the question before us. Would the impugned orders fail on that count is to be considered. Inclusion of the formulae in the Regulations has a underlying purpose, it being that all concerned are in a position to know beforehand as to what the formula was or was about. It is only to facilitate the persons concerned or parties concerned to know the formula before fuel surcharge is made in terms of the formula that the Legislature provides for publication of the formulae in the notified Regulations. Instead of the Regulations it is the tariff order dated in compliance with the provisions of section 64 and section 86(3) of the Act. In this connection it is relevant to mention the observation of the Hon'ble Supreme Court In PTC India Ltd., Vs CERC, reported in (2010)4 SCC 603 where it has been observed that framing of regulation is not a condition of making a tariff order. To quote the words of the Hon'ble Court "Making of a regulation under section 178 is not a precondition to passing of an order levying a regulatory fee under section 79(1)(g). However, if there is a Page 34 of 55. Appeal No.169 of 2011 regulation under section 178 in that regard, then the order levying fees under section 79(1)(g) has to be in consonance with such regulation."
.........................................
34. In the premises we do not find that the appeal can succeed. We hold that:
a) The impugned orders are not in violation of sections 64 and 86(3) of the Act and regulations 18 and 19 of the Tariff Regulations.
b) The FPPCA formula as have been laid down in tariff order dated 26th August, 2008 cannot be defeated because of not being specified in the tariff regulations in terms of regulation 21 thereof.
c) The Commission has not ignored the provisions of section 61 (a) and section 62(4) of the Act.
d) Principle of natural justice has not been violated.
e) The question of approval of parameters before implementation of the FPPCA formula does not arise because operational parameters have been laid down in the tariff order itself.Page 35 of 55. Appeal No.169 of 2011
f) Computation of the FPPCA though it is related to the chapter on determination of tariff is virtually a mechanical application of the formula already specified and made known to all concerned.
g) Principle of constructive res judicata and the provision of Order 2 Rule 2 CPC are applicable vis-à-vis the earlier two appeals where FPPCA as formulated in the tariff order dated 26th August, 2008 was not challenged."
By the above judgment the Tribunal upheld the Fuel and Power Purchase Cost Adjustment as per the formula decided by the State Commission in the Tariff Order.
9.15 This Tribunal in Rohit Ferro Alloys Vs West Bengal Electricity Regulatory Commission reported in 2011 ELR (APTEL)137 has decided as under:-
"15 According to the Appellant, the impugned order which is purported to have been issued under Fuel and Power purchase cost Page 36 of 55. Appeal No.169 of 2011 adjustments, is virtually an order issued in exercise of the powers under section 61, 62, 64 and 86 of the Act read with the Tariff Regulations and such an order could not have been passed without complying with the mandatory requirements of transparency, predictability and due process which are required under Section 64(3) and 86(3) of the Act.
...............................
18.The perusal of these Regulations would make it evident that these Regulations provide discretionary powers with the Commission to decide about the necessity of hearing in any of the particular proceedings. But it should not be forgotten that the said powers vested on the State Commission by the said Regulations has to be exercised consistent with the parent statute and subject to the Act. If the Act were to require a public hearing for a particular purpose, as provided u/s 64 of the Act, the State Commission would not dispense with such requirements arbitrarily without adducing any reasons for the same. Even for dispensing with the due process as well as the principles of natural justice required by the Act, the State Commission has to apply its mind and then to decide whether such an opportunity to the consumers and the mandatory requirements to be complied with have to be dispensed with or not. ....................................Page 37 of 55. Appeal No.169 of 2011
30. We notice that all the above costs relate to Power Purchase Cost of the Second Respondent. The capacity charge of WBPDCL is also a component of its generation tariff and is a power purchase cost for the distribution licensee (R-2). WBPDCL is a state owned generating company which supplies its output to the second Respondent at a tariff which is regulated by the State Commission. Thus, any expenses allowed by the State Commission to WBPDCL will be reflected in its generation tariff and have to be a pass through for the second Respondent as power purchase cost. Thus the ad hoc increase in tariff allowed by the State Commission in the impugned order is on account of Power Purchase Cost.
31. According to Section 62(4) of the Act, the State Commission could amend the tariff more than once in a financial year in respect of charges permitted under any fuel surcharges formula as specified. The State Commission's Regulations provide for FPPCA at the end of the year based on a formula but also allow under Regulation 2.8.7.3 ad- hoc fuel cost or power purchase cost at any time subject to adjustment of the same in FPPCA for that year. Thus such ad-hoc increase in fuel and power purchase cost under Regulation 2.8.7.3 may not require pre-publication and inviting objections and Page 38 of 55. Appeal No.169 of 2011 suggestions from public and their consideration as envisaged for tariff order under section 64(3) of the Act.
32.Let us now consider the provisional enhancement of tariff on merit. Learned Senior Counsel for the Appellant has not established that the Power Purchase Costs as allowed by the State Commission are unreasonable and if they had been heard by the State Commission they could have established that certain costs were unreasonable or unadmissible for inclusion in Fuel & Power Purchase Cost for the FY 2009-10. It is noticed that all the components of costs allowed by the State Commission are components which have to be allowed in the formula for Fuel & Power Purchase Cost given in Schedule-7 of the Regulations according to which the FPPCA has to be allowed at the end of FY 2009-10 in terms of Regulations 2.8.7.1 & 2.8.7.2.
33. We find that the provisional increase in tariff has been worked out by the State Commission by simple addition/subtraction and division, which does not require any application of mind. In any case it is only a provisional increase in tariff allowed only for 5 months out of 12 months of FY 2009-
10 for which it was claimed by the second respondent and is subject to final determination of FPPCA after taking into account the actual cost of fuel and power Page 39 of 55. Appeal No.169 of 2011 purchase incurred by the second Respondent during the FY 2009-10, subject to prudence check by the State Commission"
.
In the above judgment the Tribunal held that the Ad-hoc increase in tariff due to Fuel and Power Purchase Cost in terms of the formula specified by the State Commission during the tariff year may not require pre-publication and inviting objections and suggestions from public and their consideration as envisaged for Tariff Order under Section 64(3) of the Act.
9.16 According to the decision of the Tribunal, the Power Purchase Cost Adjustment is required to be allowed to the distribution licensee on monthly basis on the lines of the Central Commission's Regulations for the Page 40 of 55. Appeal No.169 of 2011 generating companies but in no case exceeding a quarter.
9.17 Thus, the first question is answered against the appellant.
10. Let us now examine the second issue regarding the correctness of the PPCA formula specified by the Joint Commission in the impugned order.
10.1 Let us now examine the relevant portion of the impugned order.
10.2 We notice from paragraph 5.9.2 of the impugned order that the Joint Commission has computed the power purchase cost of the appellant on the basis of tariff charges as Page 41 of 55. Appeal No.169 of 2011 approved by the Central Commission for the FY 2011-12. The fixed costs approved by the Central Commission for various central stations have been obtained from the website of the Central Commission. Variable charges per unit have been taken from the bills of the respective central generating stations for the month of July, 2011. The cost of power from other sources has also been estimated. Accordingly, the average power purchase cost per unit excluding the arrears to be paid by the appellant has been computed by the Joint Commission as Rs.2.73 per kwh.
10.3 The Joint Commission has also specified a Power Purchase Cost Adjustment (PPCA) formula to allow increase in power purchase cost. The formula and the conditions as decided Page 42 of 55. Appeal No.169 of 2011 by the Joint Commission in the impugned order are reproduced below:
"6 Power Purchase Cost Adjustment The Electricity Department, Daman and Diu (ED- DD) depend for its power entirely on Central Power Generating Stations, viz., NTPC, NPC and NSPCL, Bhillai. ED-DD has no control over any increase in price of the power from these sources due to any increase in fuel costs etc. The Commission is of the view that any increase in power purchase cost on account of increase on fuel cost etc., has to be passed over the consumer as per approved formula.
The approved power purchase cost adjustment (PPCA) formula is given below QPP(RPP2-RPP1) PPCA (Rs/kWh) = QPP X (1-L)-PSE Where:
QPP = Quantum of power purchase from different sources and fed to ED-DD system (in MUs) RPP1= Average rate of power purchase as approved by the Commission (in Rs./KWH) Page 43 of 55. Appeal No.169 of 2011 RPP2 = Average rate of power purchase during the adjustment period (in Rs./KWH) L=T&D loss as approved by the Commission or actual whichever is lower PSE=Power sold to exempted categories.
The approved (PPCA) formula is subject to the following conditions:
(i) The basic nature of PPCA is 'adjustment' i.e. passing on the increase or decrease, of Fuel cost.
(ii) Any cost increase by the ED-DD by way of penalty interest due to delayed payment etc., and due to operational inefficiency shall not be allowed.
(iii) PPCA charges shall be levied on all categories of consumers, except LIG (BPL) Category and agricultural consumers.
(iv) The data in support of PPCA claims shall be duly authenticated by an officer of the ED-DD authorized for the purpose.
(v) Variation of PPCA charge will be allowed only when it is five (5) paise and more per unit.Page 44 of 55. Appeal No.169 of 2011
(vi) The PPCA charges shall be revised by the ED-
DD Quarterly from the date of implementation of the order.
(vii)The approved formula is subject to review as the Commission may deem fit."
Paragraph 6 of the impugned order clearly specifies that the increase in power purchase cost on account of increase in fuel cost for the generation stations supplying power to the respondent no.1 has to be allowed to be passed over to the consumer. The Joint Commission in its counter affidavit has also submitted that only fuel surcharge due from 01.06.2011 onwards is recoverable as per the formula. Regulation 7(1) of the Tariff Regulations also permits fuel cost revisions for the generating companies to be recovered by the licensee as per the fuel surcharge formula.
Page 45 of 55. Appeal No.169 of 2011 10.4 However, the formula devised by the Joint Commission applies to the Power Purchase Cost Adjustment on quantity of power purchased from different sources on the basis of the difference between the average rate of power purchase during the adjustment period and the average rate of power purchase as approved by the Commission in the impugned order. Thus the formula specified is not in consonance with the intent and conditions indicated in paragraph of 6 of the impugned order. The formula as specified by the State Commission also cannot be mechanically applied to calculate the variation in Power Purchase cost per kwh on account of revision in fuel cost as charged by the generating companies from the Page 46 of 55. Appeal No.169 of 2011 respondent no.1. By mechanical application of the specified formula the variation in entire Power Purchase Cost of the respondent no.1 which includes fixed and variable charges will be recoverable from the consumer whereas the intent and the conditions specified by the Joint Commission and the Regulation indicate PPCA to be recovered on account of revision in fuel cost at generating stations only. No wonder, the respondent no.1 has worked the Power Purchase Cost Adjustment taking into account the entire variation in Power Purchase Cost including the UI charges for the adjustment period, which was not admissible. 10.5 Thus, the formula devised by the State Commission is inconsistent with the Tariff Regulations and the conditions specified in the Page 47 of 55. Appeal No.169 of 2011 PPCA clause. Accordingly, the PPCA formula specified by the Joint Commission in the impugned order is set aside.
10.6 The Joint Commission is directed to re-
determine the formula taking into account the Regulations and the conditions specified under the PPCA formula. The formula should be such that there is no scope for ambiguity and it determines the PPCA by mechanical application of the formula. The State Commission may also direct the respondent no.1 to display the computation for PPCA in a consumer friendly format on its website for the benefit of the consumers. As the FY 2011-12 is going to end shortly, the State Commission is also at liberty to decide the PPCA for the FY 2011-12 and Page 48 of 55. Appeal No.169 of 2011 consequential modification in retail supply tariff after hearing the concerned parties and our directions for specifying the correct formula may be noted for future.
11. The third issue is regarding raising of PPCA bills retrospectively. In view of our findings setting aside the PPCA formula this issue does not survive.
12 The fourth issue is regarding the T&D losses. 12.1 According to Ld. Sr. Counsel for the appellant the T&D loss of 9.75% as determined by the State Commission is not justified in view of 93% of the electricity being consumed by the industries through their dedicated supply having line loss of 1% to 2%.
Page 49 of 55. Appeal No.169 of 2011 12.2 According to the Ld. Counsel for the respondent no.1, the loss level of 9% is amongst the lowest in the country.
12.3 Let us examine the findings of the State Commission regarding T&D losses. The relevant paragraph of the impugned order is reproduced below:
"5.6 Transmission and Distribution (T&D) losses It is submitted by ED-DD that it has achieved significant reduction in transmission and distribution loss during recent years by implementing system improvement works under the plan schemes, which resulted in reduction of loss as under:
FY 2009-20 - 11.77%(Actual)
FY 2010-11 - 10.87 (Actual as against
11% approved)
The ED-DD has projected the losses at 10.50% for FY 2011-12 Page 50 of 55. Appeal No.169 of 2011 Commission's Analysis It has been observed that the T&D losses during FY 2010-11 were reduced from 11.77% in FY 2009-10 to 10.87% with a reduction of 0.9%. Considering similar pattern of reduction in T&D loss, it would further reduce to below 10% for FY 2011-12. The Abraham Committee in its Report on RAPDRP suggested reduction of distribution losses at 2% per annum for losses between 20%. To 30% and at 1% per annum, where the losses are less than 20%. Keeping this in view, the Commission approves the T&D loss for ED- DD at 9.75% for FY 2011-12. It should be possible to reduce the loss to 9.75% since 85% of energy sales pertains to EHT/HT Industrial consumers and moreover distribution network being spread in smaller areas".
12.4 We notice that the State Commission after considering the suggestions and objections of the objectors has given a speaking order regarding determination of T&D losses. On the other hand, the averments of the appellant are vague without any substance. It is also noticed that the T&D Page 51 of 55. Appeal No.169 of 2011 losses of the respondent no.1 cannot be considered high by any standard. The Joint Commission has also been reducing the T&D loss target for the respondent no.1 gradually. The Joint Commission has given proper reason while deciding the T&D loss target for the FY 2010-11 and we do not find any reason to interfere with the same.
13. Our findings are summarized as under:
(i) In view of the provisions of the 2003 Act, Tariff Policy, Tariff Regulations and findings of the Tribunal in OP 1 of 2011 and other judgments, there is no illegality in the Joint Commission permitting the Electricity Department (R-1) to compute Page 52 of 55. Appeal No.169 of 2011 the Power Purchase Cost Adjustment according to the formula and conditions specified by the Joint Commission and recover the same from the consumers.
Computation of PPCA is only by mechanical application of the formula.
The authority given to the distribution licensee is not absolute without any regulatory control of the Commission. The final Power Purchase Cost to be allowed to the distribution licensee is subject to prudence check at the true up stage by the Joint Commission.
(ii) The formula specified by the Joint Commission in the impugned order is set aside as it is inconsistent with the Page 53 of 55. Appeal No.169 of 2011 conditions specified therein and the Tariff Regulations. However, we have given some directions to the Joint Commission in paragraph 10.6 above in regard to allowing the Power Purchase Cost Adjustment to the respondent no.1.
(iii) The third issue regarding retrospective increase in tariff due to PPCA does not survive in view of our findings in (ii) above.
(iv) There is no reason for us to interfere in the findings of the Joint Commission with regard to Transmission & Distribution losses.
Page 54 of 55. Appeal No.169 of 2011
14. In view of above, the appeal is allowed in part as indicated above, without any cost.
15. Announced in open court on 29th day of February of 2012.
(Mr. Justice P.S. Datta) (Mr. Rakesh Nath) Judicial Member Technical Member REPORTABLE/NON-REPORTABLE mk Page 55 of 55.