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[Entire Act]
Union of India - Section
Section 9 in The Electricity (Supply) Act, 1948
9.
/475Statement of Objects and Reasons.-The co-ordinated development of electricity in India on a regional basis is a matter of increasingly urgent importance for post-war reconstruction and development. The absence of co-ordinated system, in which generation is concentrated in the most efficient units and bulk supply of energy centralised under the direction and control of one authority is one of the factors that impedes the healthy and economical growth of electrical development in this country. Besides, it is becoming more and more apparent that if the benefits of electricity are to be extended to semi-urban and rural areas in the most efficient and economical manner consistent with the needs of an entire region, the area of development must transcend the geographical limits of a Municipality, a Cantonment Board or a Notified Area Committee, as the case maybe. It 17 as, therefore, become necessary that the appropriate Governments should be vested with the necessary legislative powers to link together under one control electrical development in contiguous areas by the establishment of what is generally known as the "Grid-System". In the circumstances of this country such a system need not necessarily involve inter-connection throughout the length and breadth of a Province; regional co-ordination inclusive of some measure of inter-connection may be all that is needed. An essential pre-requisite is, however, the acquisition of necessary legislative power not only to facilitate the establishment of this system in newly licensed areas but also to control the operations of existing licensees so as to secure fully co-ordinated development.Government feel that it is not possible to legislate for this purpose within the frame-work of the Indian Electricity Act, 1910, which was conceived for a very different purpose. In their view what is needed is specific legislation; on the broad lines of the Electricity (Supply) Act, 1926, in force in the United Kingdom, which will enable Provincial Governments to set up suitable organisations to work out "Grid Schemes" within the territorial limits of the Provinces. Although executive power under the proposed Bill will necessarily vest in the Provinces, two considerations indicate the necessity for Central legislation:-(i) the need for uniformity in the organisation and development of the "Grid System",and(ii) the necessity for the constitution of semi-autonomous bodies like Electricity Boards to administer the "Grid Systems". In the view of Government it is bodies like these which are likely to be the most suitable organisations for working the "Grid Systems" on quasi-commercial lines. Such Boards cannot, however, be set up by Provincial Governments under the existing Constitutional Act as they would be in the nature of trading corporations within the meaning of Entry 33 of the Federal Legislative List...Amendment Act 101 of 1956-Objects and Reasons.-The object of this Bill is to remove anomalies and difficulties which have come to notice in the working of the Electricity (Supply) Act since its enactment in 1948.2. The amendments proposed in the Bill have been under prolonged deliberation and are largely the result of decisions taken at the inter-State conference held in February this year at which the representatives of the electricity supply industry were also heard.3. To ensure the co-ordination of development policies of the State Electricity Boards with those of Government Departments, it is necessary to vest certain supervisory powers in the State Governments. Accordingly, it is proposed to empower the State Governments to exercise control over the activities of the Boards in matters of policy and to require the Boards to consult State Governments in the preparation of schemes estimated to cost over Rs. 10 lakhs. Because of the interest of State Governments in the financial policies of local authorities, it is proposed also to subject to the approval of the State Governments the directions that may be given by the Boards to local authority licensees in connection with their amortisation and tariff policies.4. When the principal Act was passed in 1948, the Reserve Bank rate was 3 per cent, and the standard rate of 'reasonable return' for electricity supply licensees was fixed at 5 per cent, that is, two per cent over the Bank rate. The Bank rate rose to 3 ' /z per cent in 1951 and, therefore, an increase in the standard rate by' /Z per cent is justified. It is proposed to link the standard rate with the Bank rate at 2 per cent above the latter to enable its automatic adjustment with the money market.5. The working of the Act has shown that some of the provisions of the Sixth Schedule to the Act enable the licensees to earn return in excess of that intended under the scheme of the Schedule. These entitle the licensees to earn interest as well as 'reasonable return' on assets created out of debenture and loan capital and from amounts invested out of accruals in the depreciation reserved outside their business of electricity supply. The licensees are also able to earn return on capital assets acquired from consumers' money such as consumers' security deposits and amounts invested in business out of Tariffs and Dividends Control Reserve. The licensees can also charge the pay of a managing director or manager as an item of business expense in addition to the remuneration and office allowance paid to the managing agents. It is proposed to make suitable provisions to close these loopholes.6. It is further proposed to prevent licensees from paying dividends on share capital in excess of 3 per cent or distributing other profits so long as any arrears of depreciation or previous losses remain to be written off in their books and to require them to reduce their rates when their clear profits exceed the amount of 'reasonable return' by 15 per cent as against the existing limit of 30 per cent.7. It is also proposed to provide for the electricity supply industry to avail of the benefits of the Development Rebate permitted under the provisions of section 8 of the Finance Act, 1955, by allowing the creation of the Development Reserve. The accumulations in this Reserve will be utilised for the development of the undertakings. Licensees, however, are not to be permitted to earn 'reasonable return' on the assets financed from this reserve.8. Under the existing provisions of the Act interest-free loans granted to the Board by the State Government are repayable out of its revenues. With a view to reducing the financial liabilities of the Board, such loans are proposed to be treated on the same footing as interest-bearing loans advanced by the State Government and they will not be repayable out of the revenues of the Board. With the same object, provision is proposed to be made to enable the Board to repay the loans borrowed from sources other than the State Government out of the accumulations in the depreciation reserve instead of its revenues.9. With a view to tightening control over the financial operations of the Boards, it is proposed to subject their accounts to the audit of the Comptroller and Auditor-General of India.10. The Bill also provides for some consequential and minor amendments and clarifications.Amendment Act 30 of 1966-Objects and Reasons.-The object of this Bill is to remove certain anomalies and difficulties which have come to notice in the working of the Electricity (Supply) Act, 1948. Certain changes are being made in order to facilitate raising of capital required for development. Few amendments are also proposed to tighten the control over the financial operations of private licensees.2. The changes that are proposed to be made in the Sixth Schedule to the Act in regard to the measures for regulating the financial operations of licensees are as follows:-(i) In the scheme of the said Schedule at present there is a distinction between the loans obtained by the licensees from Electricity Boards and from other sources. It is proposed to dispense with this distinction by applying the same conditions as are applicable to the borrowings from the Board, to loans borrowed from organisations approved by the State Governments.(ii) It is being clarified that the intangible assets will include expenses on account of new capital issue.(iii) It is provided in the Act that a licensee shall not be deemed to have failed to adjust his rates if the clear profit in any year of account has not exceeded the amount of reasonable return by 15 per cent of the amount of reasonable return. This cushion of 15 per cent has been found to be inadequate and is, therefore, proposed to be raised to 20 per cent without giving the licensee any additional benefit.(iv) It is proposed to provide that the licensees, while fixing the charges for supply of electricity, will be competent to levy minimum charges. This is considered necessary, particularly in the case of industrial consumers, to ensure that the consumer pays at least such monthly charges as would cover the cost on account of arrangements made by the licensee to give the supply.(v) It is now provided that on the purchase of an undertaking of the licensee by the Board or State Government, compensation due to the employees of the licensee under any Act, may be paid out of the Contingencies Reserve.(vi) At present, clear profit of a licensee has been linked with the Reserve Bank rate ruling at the beginning of the year of account through the mechanism of standard rate and reasonable return. Any increase in the Bank rate has a direct effect on the reasonable return which the licensees can earn. If the Bank rate increases, it is justifiable to allow the licensees to earn reasonable return based on increased Bank rate on new investments. But it is not desirable to allow them to earn unduly large return due to the rise in the Bank rate on past investments at the cost of the consumers. It is, therefore, proposed to amend the Act to ensure that return on any block of capital invested in any year of account is limited to the rate of 2 per cent above the Bank rate prevailing at the beginning of that year of account.(vii) With a view to tightening control over the financial operations of the private licensees, it is being provided where an undertaking is purchased by the Board or the State Government, the amount standing to the credit of the Tariffs and Dividends Control, the Contingencies, and the Development Reserves shall be deducted from the price payable to the licensee. It is also being provided that the annual contributions to the Contingencies Reserve shall be invested in securities within a period of six months of the close of the relevant year. Licensees are at present permitted to set apart from revenue, contributions to the provident fund, staff pension, gratuity and apprentice and other training schemes. It is proposed to provide that contributions to the provident fund, staff pension and gratuity will be made in accordance with any scheme approved by the State Government.(viii) It is proposed to empower the Central Government to allow, in computing the reasonable return, such amount as may be considered necessary having regard to the prevailing taxation policy.It is proposed to bring into force the new provisions relating to the financial operations of the licensees retrospectively with effect from the 1st day of April, 1965.3. Under the existing provisions of the Act, Members of Parliament or of the State Legislatures and members of local authorities have to wait for a period of 12 months after they cease to be such members before becoming eligible for appointment as members of the State Electricity Boards. Some of the State Governments have, in view of this provision, been complaining about the difficulty in finding suitable personnel for manning the Boards on full-time basis. With a view, therefore, to enlarging the field of choice of membership for the Boards, it is proposed to amend the Act to permit appointment of Members of Parliament, etc., as members of the Board immediately after they cease to be such members.4. The Bill also makes the following amendments in certain provisions of the Act which relate to the activities of the Electricity Boards:-(i) In accordance with the procedure laid down in the Act in respect of sanctioning of its schemes by the State Electricity Board, all schemes are required to be published in the Official Gazette and local newspapers twice; first as draft schemes, and again as sanctioned schemes. This procedure has been found to be wasteful and unnecessary in the case of small schemes. Provision has, therefore, been made in the Bill to provide that schemes costing up to rupees 25 lakhs need not be published at all. It is also proposed to amend the relevant provisions of the Act to provide that the schemes costing between rupees 25 lakhs and rupees 1 crore each may be published only once after they are sanctioned; the schemes costing more than rupees 1 crore will continue to be published twice as at present.(ii) The Electricity Boards, as soon as they were established in the various States, took over the business of generation, supply and distribution of electricity from the State Electricity Departments, along with their assets and liabilities. The period of limitation, under the Indian Limitation Act, 1908, applicable in the case of the Boards is only three years, whereas it was 60 years in the case of the State Government Electricity Departments. Because of the longer period of limitation applicable in their case, the Government Electricity Departments did not find it necessary to initiate legal proceedings for recovery of certain dues from the consumers even though they had not been paid for periods longer than three years. Such cases stood time-barred as soon as the business was taken over by the Boards, and resulted in substantial financial loss to the Board. In view of this difficulty, it is proposed to extend the period of limitation applicable to the State Electricity Boards under the Indian Limitation Act, 1908, so that the time-barred dues, as explained above, can be recovered by them.(iii) It is proposed to provide that the revenue of the Board after meeting the operating, maintenance and management expenses and other liabilities regarding interest, depreciation, etc., as laid down in clauses (i) and (ix) of section 67, shall be credited to a fund to be utilised for purpose beneficial to electrical development in the State and for repayment of loans advanced to the Board by the State Government. It has also been provided that where the loans are not required to be repaid, contributions to the aforesaid fund will be cut down to one-half, and the remaining one-half shall, as at present, be credited to the Consolidated Fund of the State.(iv) The maximum accumulation permitted in the general reserve of the Boards is 8 per centum of the cost of the fixed assets. With a view to providing larger internal finance, the aforesaid ceiling is proposed to be raised to 15 per centum.(v) Contributions to the Depreciation Reserve of the Board are, at present, required to be made on the basis of the compound interest method which involves complicated calculations and accounting. It is proposed to replace this procedure of computing depreciation by the simpler straight-line method.(vi) It has recently been held by the Bombay High Court that section 49 of the Act does not permit the framing of a uniform tariff with a view to helping consumers in sparse areas by substantially overcharging the consumers in compact areas. In the interest of power development in the country, the general policy is towards adoption of uniform rates throughout the State for each class of service or purpose. But at the same time there may be need for divergent rates in some areas, because of certain special circumstances. The Act is, therefore, proposed to be given retrospective effect in order to remove the legal lacunae, if any, in the action taken by various Boards to adopt uniform tariff in the past.Amendment Act 115 of 1976-Objects and Reasons.-The country experienced serious power shortages during the last few years affecting the overall economy. A study in depth revealed that it was necessary to restructure and reorganise the electricity supply industry. The Electricity (Supply) Act, 1948, forms the basis for the organisational structure of the electricity supply industry in the country. It was, therefore, considered necessary to amend certain provisions of that Act and the Electricity (Supply) Amendment Bill, 1976, was introduced in the Rajya Sabha mainly to achieve the following objectives.2. It was proposed to enlarge the scope and functions of the Central Electricity Authority in the interest of overall power development and to strengthen the Central Electricity Authority to undertake much larger responsibilities in evolving a national power policy, preparation of perspective and rolling plans, assisting in the timely completion of the power projects, maximising output from the existing power plants, developing a national grid and initiating programmes for research, development and training of personnel, etc.3. With a view to develop expertise in the construction and operation of power generating stations, it was considered necessary to provide for creation of Generating Companies both by the Centre and the States mainly for power generation. Provisions were, therefore, proposed to be made in the Act for the establishment of Generating Companies by the Central and State Governments, individually or jointly, which would be responsible for the construction and operation of power stations, as well as for the allocation of functions and duties in relation to the generation and supply of electricity between the Generating Companies and the State Electricity Boards.4. Certain modifications also were proposed to be made as to the existing procedure relating to the preparation and sanctioning of schemes for the establishment, and the acquisition of generating stations, tie-lines, sub-stations or transmission lines. Itwas proposed to provide that every scheme prepared by a State Electricity Board or Generating Company and estimated to involve a capital expenditure exceeding one crore of rupees shall be submitted to the Central Electricity Authority for its concurrence so that the scheme may conform to the national power policy evolved by the Authority.5. Since the Bill was not passed before both the Houses of Parliament were prorogued and as the matter was of great urgency, an Ordinance, namely, the Electricity (Supply) Amendment Ordinance, 1976, was promulgated for the same purpose. The Bill seeks to replace the said Ordinance.AmendmentAct23 of 1978-Objects and Reasons.-In order to ensure that the Electricity Boards are able to function on sound commercial principles, the financial provisions of the Electricity (Supply) Act, 1948, are proposed to be amended by the Bill. The main changes proposed to be made in that Act by the Bill are the following.2. With a view to make the Electricity Boards financially viable, it is proposed that a State Government may provide funds to the State Electricity Board in the form of equity, if the State Government so desires. This is necessary because the interest liability devolving on the State Electricity Boards makes it difficult for them to present a picture of financial stability. For this purpose, a new section 12-A is proposed to be inserted in the Act by clause 4 of the Bill.3. Section 59 of the Electricity (Supply) Act, 1948 is proposed to be amended by clause 8 of the Bill to give a positive direction to the Electricity Boards that after meeting all their expenses, there should be provision for surplus for contribution towards immediate investment needs. A similar amendment is also proposed to be made in regard to the Generating Companies by inserting a new sub-section (3-A) in section 75-A by clause 18 of the Bill.4. A new section 66-A is proposed to be inserted in the Electricity (Supply) Act, 1948 by clause 13 of the Bill so as to enable the State Government to convert any loan advanced by it to the State Electricity Board into share capital.5. The amount of capital provided by a State Government under section 12-A (3) or that capital together with the amount converted into capital under section 66-A should not exceed the aggregate of the outstanding loans of the Electricity Board.6. Clause 14 of the Bill seeks to amend section 67 of the Act to re-arrange the priorities for distribution of the revenues of the State Electricity Boards after meeting the operation, maintenance and management expenses and the liabilities, if in any year the revenue receipts are not adequate to enable compliance with the requirements of section 59. This is being done to ensure that the Boards discharge their liability towards interest on loans from financial institutions as well as repayment of principal amount before the operating surplus is appropriated towards depreciation and general reserve.7. Section 68 of the Act is proposed to be amended by clause 15 of the Bill to provide that the method of calculating depreciation should be in accordance with the principles laid down by the Central Government in consultation with the Central Electricity Authority. A similar provision is proposed to be made in regard to licensees by the amendment of the Sixth Schedule by clause 23 (2) of the Bill.Amendment Act 16 of 1983-Objects and Reasons.-The Electricity (Supply) Act, 1948 provides the statutory basis for the functioning of State Electricity Boards and lays down the basic framework for the constitution, functions, financial performance and accounts of State Electricity Boards. The financial provisions contained in the Act with respect of the Boards were last amended in 1978 with a view to ensuring that Electricity Boards are able to function on sound commercial principles. Experience since then has shown the need for further changes for achieving this object.2. Though section 59 of the Act, as amended in 1978, casts an obligation on the State Governments to specify the surplus to be earned by the State Electricity Boards, no State Government has so far specified the quantum of such surplus. At present there is no uniformity in the manner of classification and presentation of accounts of the Boards and this renders inter-Board comparison of financial performance difficult. It is also considered necessary to re-arrange the priorities with regard to distribution of revenues of the Boards. It is, therefore, proposed to amend the Act-(a) to provide that each Board shall have a surplus which shall not be less than three per cent, or such higher percentage as the State Government may specify, of the value of the fixed assets of the Board in service at the beginning of the year;(b) to re-arrange the priorities for distribution of revenues of the Boards;(c) to bring the financial reporting system of the Boards in line with commercial accounting practice; and(d) to empower, with a view to securing uniformity in the manner of classification and presentation of accounts, the Central Government to prescribe the forms in which the accounts of the Boards and other records in relation thereto may be maintained.Amendment Act50 of 1991-Objects and Reasons.-The Indian Electricity Act, 1910 deals with the supply and use of electrical energy and the rights and obligations of the licensees. The Electricity (Supply) Act, 1948 deals with the statutory powers and functions of the Central Electricity Authority, State Electricity Boards and Generating Companies.2. It is proposed to widen the scope of private sector participation in power generation, supply and distribution by suitably amending the aforesaid Acts. The main amendments are as follows,(a) Section 6 of the Indian Electricity Act, 1910 which deals with the period of license is sought to be amended to enhance the said period of license to 30 years followed by subsequent extensions for 20 years at time. This will ensure reasonable stability in the operation of the license.(b) Section 2 of the Electricity (Supply) Act, 1948 (hereinafter referred to as the said Act), which defines various expressions, is proposed to be amended to give effect to certain changes in the definitions and also to define certain new expressions. Clause (4-A) is proposed to be substituted to remove the exclusion of private sector from the definition of "Generating Company", as it permits only the companies formed by the Central Government or by any State Government or jointly by the Central Government and one or more State Governments.(c) Section 15-A of the said Act which deals with the formation, objects, etc., of Generating Companies is proposed to be amended so as to provide for the establishment of Generating Companies in the private sector as well as in the joint sector.(d) Section 29 of the said Act which deals with the submission of schemes involving capital expenditure exceeding rupees five crores to the Central Electricity Authority is proposed to be amended in the interest of flexibility, keeping in view the escalation in the cost of projects and to provide for revision from time to time of the prescribed limit of project cost requiring such clearance.(e) A new section 43-A is proposed to be inserted to the said Act to provide for the terms and conditions and tariff for sale of electricity by the Generating Companies.(f) Section 55 of the said Act which provides for the licensees' compliance with the Board's directions is proposed to be amended to ensure that the licensees as well as Generating Companies shall comply with the directions issued by the designated coordinating agencies in the matter of generation and supply of power.(g) Paragraph XVII (10)(b) of Schedule VI to the said Act is proposed to be amended to raise the standard rate from the existing level of 2 per cent over the Reserve Bank of India rate to 5 per cent over the Reserve Bank of India rate to motivate equity investment in the power projects set up by licensee companies.[10th September, 1948]An Act to provide for the rationalisation of the production and supply of electricity, and generally for taking measures conducive to [electrical development] [ Substituted by A.O. 1950, for " the electrical development of the Provinces of India" .].Whereas it is expedient to provide for the rationalisation of the production and supply of electricity, for taking measures conducive to [electrical development] [Substituted by A.O. 1950, for " the electrical development of the Provinces of India" . ] and for all matters incidental thereto;It is hereby enacted as follows:-| The Act has been extended to the new Provinces and Merged States by the Merged States (Laws) Act, 1949 and to the States of Manipur, Tripura and Vindhya Pradesh by the Union Territories (Laws) Act, 1950. The Act has been extended to Dadra and Nagar Haveli by Regn. 6 of 1963, Section 2 and Sch. I (w.e.f. 1.7.1965). |