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16. The supply and use of electricity was first controlled and regulated under the Electricity Act, 1910 thereinafter called as 'the Electricity Act"). The Electricity Act was comprehensive and provided for generating companies, the licensing of suppliers of electricity, the rights and obligations of licensees, the rights and obligations of the consumers, the safety and technical requirements and the matters connected therewith. The Electricity Supply Act, 1948 thereinafter called as "the Supply Act") envisaged the establishment of State Electricity Boards in the States and vesting in them a monopoly for the generation, transmission and distribution of electricity and the functions of regulation relating to electricity. The Supply Act also constituted a license under the Electricity Act for the Board, provided for the take-over of power systems, power of the Boards and the matters connected therewith and also modified several provisions of the Electricity Act in their application to the Board. The Supply Act also, inter alia, envisaged not only functions of development and management of the electricity supply system for the Board, but also the regulatory functions in respect of the electricity supply industry. However, though intended to be independent entities, the Boards were in fact and reality under the control of the State Governments which were given wide, substantial and all pervading powers to issue policy directions which were binding on the Boards. The members of the Board were also appointed and removed at the pleasure of the State Governments. The Andhra Pradesh State Electricity Board thereinafter called as "APSEB") was constituted under the provisions of the Supply Act and operated in such circumstances and environs in the State of Andhra Pradesh. Over the 50 years of operation, though it did serve the objects and purposes of its establishments in many significant ways, it is slated, the APSEB was subjected to much political abuses and manoeuvres. Under the provisions of the Supply Act, particularly Sections 49 and 78-A thereof, there were unduly wide powers given to the APSEB in the matter of fixing tariffs and power to the Government to give directions in that respect. It was an untidy combination that had the potential to promote arbitrariness and irrationality in the matter of fixing electricity tariffs from time to time. Electricity energy was used indiscriminately as a largesse to be given away to certain sections of customers of electricity at untenable prices to gain political mileage by the political parties. Certain sectors were subsidised to undue extents for mere political advantage and in course of time those sectors came to be addicted to the subsidy. On the other hand, other sectors were burdened with cross-subsidy to absorb the impact of subsidy granted by the Government. Higher costs of electricity were injected into the national economy by multiplier effects, and consequently the costs of several goods and services went up. These costs were ultimately borne by the national economy by way of inflationary spirals, uncompetitiveness in international trade, waste and inefficiency. The State Government of Andhra Pradesh promised its budgetary supports from time to time, but they were either not eventually given or were given after such long delays that the cash strapped APSEB suffered considerable damage in the meantime. The APSEB began to borrow heavily and debt service costs further dragged it down. In the circumstance, the cash strapped APSEB had to cut on critical infrastructure and growth fronts, and this resulted in the power supply system to become unduly overburdened and inefficient. Side by side rampant pilferage and theft of electricity grew to frightening proportions under insensitive management of the APSEB and political indifference. The overburdening of the system also led to severe problems in the quality of power. Lack of investment in generation and the ever growing losses, technical and commercial, in the transmission and distribution system resulted in serious shortages in the availability of electricity and thus arrested the growth of the economy on the expected line. Several industrial units and others had necessarily to turn to alternative source of electricity. Over the long period of time, the APSEB was also being managed in a manner, as described by the APTRANSCO themselves, "typical for a State owned enterprise" and with "increasingly greater inefficiencies".

20. By G.O. Ms. No.9 Energy (Power III), dated 29-1-1999, the State Government issued the Andhra Pradesh Electricity Reforms (Transfer Scheme) Rules, 1999 thereinafter called "the Transfer Rules") to come into effect from 1-2-1999. The effect of the Transfer Rules was to, immediately on the coming into effect, vest all the assets, liabilities and proceedings of the APSEB in the State Government. The said Rules also provided for classification of assets into (a) Generation Undertakings and (b) Transmission and Distribution Undertakings (Rule 4); the transfer of the assets and liabilities to the APGENCO and APTRANSCO (Rule 5); the further transfers from APGENCO and APTRANSCO to further licensees or generating companies (Rule 6); transfer of personnel (Rule 7); restricting the rights and obligations of third parties (Rule 8); pending suits and proceedings (Rule 9); and provisionality of the transfers (Rule 10) and the matters related thereto. In particular, Part-I of both Schedules A and B to the Transfer Rules specified the particular assets and liabilities that stood transferred to the APGENCO and APTRANSCO respectively. Part-11 of the said scheduled purportedly state the provisional value of the assets and liabilities that stood so transferred and vested.

In assailing the constitutional validity of Section 26(1) and (2), the argument is that there two sub-sections grant arbitrary and unguided powers to the Commission and that if sub-section (2) is not mandatory as held by the Commission, it would consequently appear that the proviso to subsection (2) of Section 26 would not be binding on the Commission, and in that event, the parameters specified in the proviso to Section 26(2) would not be binding on the Commission in determining the tariff. The contentions of the learned Counsel in that regard is already noticed by us in detail above. What virtually the learned Counsel would contend is that if the opinion of the Commission that there is no mandatory legal obligation to prescribe the terms and conditions for the determination of the licensee's revenue and tariffs by regulations and that that sub-section is only an enabling provision is correct, then sub-section (2) would become unconstitutional. This ground, even if it is sound, could hardly be a valid ground for the Court to declare an enactment unconstitutional. The contention that since the Commission has held that there is no mandatory duty to prescribe the terms and conditions for the determination of tariff before it takes up the determination of tariff, it would lead to the conclusion that the parameters specified in the proviso to Section 26(2) would not bind the Commission in determining the tariff is not acceptable to us. A clear reading of the provisions of sub-section (1) and (2) make it very clear that the parameters specified in the proviso to sub-section (2) of Section 26 are mandatory in nature. Be that as it may, it is not the contention of the learned Counsel that the above parameters are ignored by the Commission in determining the impugned tariff. The exercise previously being carried out by the APSEB has now been entrusted to the Commission under Section 26. The nature of the exercise of power is basically the same as that which was being earlier carried out by the APSEB. Section 26(1) does not grant unguided discretionary power to the Commission to prescribe the methodologies and procedures to be followed by the licensees. The power to the Commission to prescribe and notify the terms and conditions for the determination of the licensee's revenue and tariffs by way of regulations and the principles to be applied by the Commission, in the absence of the terms and conditions prescribe by the Commission, in determination of the tariffs are set out in Section 26. The contention that since the Commission has determined the impugned tariff without prescribing the terms and conditions for the determination of the tariff as envisaged under subsection (2), the impugned tariff is illegal and ultra vires of sub-section (2) will be considered separately herein below. For the purpose of considering the constitutional validity of these two sub-sections, suffice it to notice that the power granted to the Commission under sub-section (1) could not be said to be arbitrary and unguided power. The power of the Commission to prescribe methodologies and procedure under subsection (1) is subject to the limitations prescribed under the proviso to subsection (2). Simply because the Commission had not chosen to prescribe any terms and conditions by regulations and acted as per the parameters mentioned in the proviso to sub-section (2) of Section 26 and held that sub-section (2) is only an enabling provision, it cannot be said, on that count, that sub-section (2) is unconstitutional. A reasonable reading of sub-section (2) shows that it does not mandate the Commission to prescribe the terms and conditions for the determination of the licensee's revenue and tariffs as a condition precedent for determination of the licensee's revenue and tariffs. Sub-section (2) is only an enabling provision for the Commission to prescribe the terms and conditions, if it so desires.

108. We shall now deal with the contention that the consumer contribution to the tune of Rs.488 crores shown in the balance sheet of APSEB has not been taken into account in the ARR filings of the licensee. It was clarified in the course of hearings that the amount representing consumer contribution does not include the deposits made by the consumers, but they are non-refundable service line charges. The contention of the learned Counsel for petitioner in WP No.10245 of 2000 is that by not deducting the contribution from the capital base, reasonable return is allowed to be inflated. It is further submitted that G.O. No.11, Energy (Power-Ill) dated 31-3-2000 insofar as it purports to adjust the consumer contribution to meet the Government's liability to provide for terminal benefits of the employees of erstwhile APSEB is irrational and arbitrary. By the said GO, certain amendments were issued to the A.P. Electricity Reforms (Transfer Scheme) Rules, 1999 with effect from 1-2-1999.