Tariff Determination and Transmission & Distribution Losses: Insights from Bihar Industries Association v. Bihar Electricity Regulatory Commission

Introduction

The case of Bihar Industries Association v. Bihar Electricity Regulatory Commission adjudicated by the Appellate Tribunal for Electricity on February 12, 2009, centers around the determination of electricity tariffs in the State of Bihar for the fiscal year 2008-09. The appellants, representing associations of induction furnace consumers and other industrial consumers under various categories, challenged the tariff order issued by the Bihar Electricity Regulatory Commission (BERC). The core issues pertained to the calculation of tariffs, accounting for transmission and distribution (T&D) losses, the handling of surplus revenues, and the metering of consumers. The Board, acting as the respondent, had sought tariff revisions to meet an Aggregate Revenue Requirement (ARR) of Rs.2870.60 Crores but faced challenges in providing complete and audited financial data.

Summary of the Judgment

The Appellate Tribunal examined the appeals filed by two associations against BERC's tariff order dated August 26, 2008. The appellants contended that the Commission failed to account for a reported surplus in the Board’s accounts, allowed higher T&D losses than directed, and did not adhere to the statutory requirement of reducing cross-subsidies. Additionally, they argued that the tariff determination process was flawed due to the submission of incomplete and unaudited data by the Board.

The Tribunal, however, dismissed both appeals. It held that BERC had the authority to fix tariffs based on the data available, despite deficiencies, and noted that the appellants were beneficiaries of government subsidies, paying below the average cost of supply. The Tribunal emphasized the precarious state of Bihar's electricity sector, characterized by high T&D losses and inadequate metering, which justified the Commission’s decisions. The judgment underscored the necessity for the Commission to set realistic tariff structures while urging the Board to improve operational efficiencies and reduce technical losses.

Analysis

Precedents Cited

While the Judgment does not explicitly cite specific previous cases, it implicitly relies on the foundational provisions of the Electricity Act, 2003. Sections 61, 62, and 63 empower regulatory commissions to determine tariffs based on aggregate revenue requirements and ensure the financial viability of distribution entities. The Tribunal aligned its decision with these statutory mandates, emphasizing the Commission's role in regulating tariffs even amidst data deficiencies and operational challenges.

Legal Reasoning

The Tribunal's legal reasoning hinged on several key points:

Authority of the Commission: The Tribunal upheld BERC's authority to determine tariffs, asserting that the Commission must proceed with tariff fixes based on available data, notwithstanding the Board's submission of incomplete or unaudited accounts.
Surplus Consideration: The Commission was justified in not accounting for the reported surplus of Rs.56.28 Crores due to the absence of audited financial statements and the uncertainty regarding the surplus's sustainability over subsequent fiscal periods.
T&D Losses: While the appellants argued that higher T&D losses led to a deficit, the Tribunal accepted BERC's revised target of 38%, recognizing the systemic challenges faced by the Board, including inadequate resources and organizational deficiencies.
Average Cost of Supply: The Tribunal noted that the Tariff Regulations mandated the use of combined average cost of supply rather than category-wise, thereby justifying the tariff structures applied to the appellants.
Beneficiaries of Subsidies: By highlighting that appellants were recipients of state subsidies and paying below-average costs, the Tribunal concluded that further tariff reductions were unwarranted.

Impact

The Judgment has profound implications for the electricity sector in Bihar and similar jurisdictions:

Regulatory Precedence: Reinforces the authority of regulatory commissions to make tariff determinations even in the face of incomplete data, provided that necessary due diligence is exercised.
Operational Accountability: Highlights the necessity for distribution boards to maintain audited and transparent financial records, ensuring that surplus revenues are accurately reported and utilized.
Technical Loss Management: Emphasizes the critical need to address T&D losses, directing regulatory bodies and distribution entities to implement strategies for loss reduction, thereby enhancing the financial health of the electricity sector.
Policy Formulation: Encourages the formulation of policies that balance consumer tariffs with the operational sustainability of electricity boards, especially in regions grappling with high losses and infrastructural deficits.
Subsidy Allocation: Underscores the role of government subsidies in stabilizing tariffs, ensuring that large consumers, such as industrial associations, are not unduly burdened while promoting economic activity.

Complex Concepts Simplified

The judgment involves several technical and legal concepts which are crucial for understanding the Tribunal’s decision:

Aggregate Revenue Requirement (ARR): The total revenue that the electricity distribution board needs to cover its costs, including capital investment, operational expenses, and expected returns. ARR serves as the basis for setting tariffs.
Transmission and Distribution (T&D) Losses: Electricity lost during the transmission from power plants to consumers. High T&D losses are indicative of inefficiencies in the grid infrastructure and operations.
Load Factor: The ratio of actual energy consumed over a period to the maximum possible energy that could have been consumed if the load had been consistent at maximum level. A higher load factor indicates more efficient use of the electricity supply.
Metering: The process of measuring electricity consumption using meters. Lack of proper metering can lead to underbilling, theft, and inaccurate accounting of energy usage.
Category-wise Cost of Supply: Different consumer categories (e.g., high tension, low tension) have varying costs associated with supplying electricity. Considering category-wise costs can lead to more equitable tariff structures.
Cross Subsidy: When some consumer categories are charged higher tariffs to subsidize lower tariffs for other categories. The Electricity Act mandates reducing cross-subsidies to ensure tariffs reflect the actual cost of supply.

Conclusion

The Bihar Industries Association v. Bihar Electricity Regulatory Commission judgment underscores the delicate balance regulatory bodies must maintain between ensuring consumer fairness and safeguarding the financial viability of electricity distribution entities. By dismissing the appeals, the Tribunal affirmed the Commission's discretion in tariff determinations amid operational challenges, emphasizing the need for robust regulatory frameworks and diligent operational practices. The decision serves as a critical reminder of the importance of accurate financial reporting, efficient loss management, and transparent metering in the electricity sector. Moving forward, it sets a precedent for regulatory scrutiny and operational accountability, aiming to foster a more sustainable and equitable electricity distribution system in Bihar and beyond.