Analysis of Section 62 of the Electricity Act, 2003

An Exposition of Section 62 of the Electricity Act, 2003: Principles and Judicial Scrutiny of Tariff Determination in India

Introduction

The Electricity Act, 2003 (hereinafter "the Act") was enacted to consolidate the laws relating to generation, transmission, distribution, trading, and use of electricity and generally for taking measures conducive to the development of the electricity industry, promoting competition therein, protecting the interest of consumers and supply of electricity to all areas, rationalization of electricity tariff, ensuring transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, constitution of Central Electricity Authority, Regulatory Commissions and establishment of Appellate Tribunal and for matters connected therewith or incidental thereto.[Ref 22] A cornerstone of this regulatory framework is the mechanism for tariff determination, primarily governed by Section 62 of the Act. This provision empowers the Appropriate Commission – the Central Electricity Regulatory Commission (CERC) or the State Electricity Regulatory Commission (SERC) – to determine tariffs for various electricity-related activities, unless such tariff is determined through a competitive bidding process under Section 63 of the Act. This article undertakes a comprehensive analysis of Section 62, dissecting its constituent sub-sections, exploring its judicial interpretation by the Supreme Court of India and various appellate bodies, and examining its interplay with other critical provisions of the Act. The analysis draws significantly from the provided reference materials, including landmark judgments and statutory excerpts, to present a scholarly perspective on the principles and practices of tariff determination in the Indian electricity sector.

Overview of Section 62: Determination of Tariff

Section 62 of the Electricity Act, 2003, lays down the foundational framework for the determination of tariffs by the Appropriate Commission. Its provisions are pivotal for ensuring that tariffs are set in a manner that is fair to both consumers and service providers, promoting efficiency and financial viability within the sector. The key sub-sections are as follows:

  • Section 62(1): This sub-section mandates the Appropriate Commission to determine the tariff in accordance with the provisions of the Act for:

    1. Supply of electricity by a generating company to a distribution licensee. A proviso empowers the Commission, in case of electricity shortage, to fix a minimum and maximum tariff ceiling for electricity sale/purchase under agreements (between a generating company and a licensee, or between licensees) for up to one year to ensure reasonable prices.[Ref 8, Ref 13]
    2. Transmission of electricity.[Ref 8, Ref 13]
    3. Wheeling of electricity.[Ref 8, Ref 13]
    4. Retail sale of electricity. A proviso allows the Commission, where two or more distribution licensees operate in the same area, to fix only a maximum tariff ceiling for retail sale to promote competition.[Ref 8, Ref 11, Ref 13]

  • Section 62(2): The Appropriate Commission may require a licensee or a generating company to furnish separate details, as specified, regarding generation, transmission, and distribution for tariff determination.[Ref 8, Ref 11, Ref 13]

  • Section 62(3): While determining tariffs, the Appropriate Commission shall not show undue preference to any consumer of electricity. However, it may differentiate tariffs based on factors such as the consumer's load factor, power factor, voltage, total electricity consumption during a specified period, the time at which supply is required, the geographical position of an area, the nature of supply, and the purpose for which the supply is required.[Ref 8, Ref 9, Ref 11, Ref 12, Ref 13]

  • Section 62(4): Ordinarily, no tariff or part of any tariff may be amended more frequently than once in any financial year, except for changes expressly permitted under the terms of any fuel surcharge adjustment formula.[Ref 9, Ref 13]

  • Section 62(5): The Commission may require a licensee or a generating company to comply with such procedure as may be specified for calculating the expected revenues from the tariff and charges which it is permitted to recover.[Ref 9]

  • Section 62(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.[Ref 9]

Judicial Interpretation and Application of Section 62

The provisions of Section 62 have been subject to extensive judicial scrutiny, leading to a rich body of jurisprudence that clarifies its scope, application, and relationship with other provisions of the Electricity Act, 2003.

Scope of Tariff Determination under Section 62(1)

Section 62(1) forms the bedrock of the Commission's power to determine tariffs. The Supreme Court and various tribunals have repeatedly affirmed that this power extends to the supply of electricity by a generating company to a distribution licensee, transmission, wheeling, and retail sale of electricity.[Ref 8, Ref 9, Ref 10, Ref 11, Ref 12, Ref 13, Ref 22] The proviso to Section 62(1)(a) grants the Commission a specific power to fix minimum and maximum tariff ceilings during periods of electricity shortage for a limited duration to ensure price stability. The Appellate Tribunal for Electricity (APTEL) in CESC Limited v. Central Electricity Regulatory Commission noted that this proviso is a substantive enactment, enabling the CERC to regulate inter-state electricity supply during shortages.[Ref 15] Similarly, the proviso to Section 62(1)(d) allows for fixing a maximum ceiling for retail sale tariff to foster competition among distribution licensees in the same area.[Ref 8, Ref 11, Ref 13]

The Interplay between Section 62 (Regulated Tariff Mechanism - RTM) and Section 63 (Tariff Based Competitive Bidding - TBCB)

A significant area of judicial interpretation concerns the relationship between Section 62 and Section 63. Section 63 mandates the adoption of tariffs determined through a transparent competitive bidding process. The Supreme Court in The Tata Power Company Limited Transmission v. Maharashtra Electricity Regulatory Commission[Ref 1] and Energy Watchdog v. Central Electricity Regulatory Commission And Ors.[Ref 5] clarified that Section 63 does not override Section 62 but provides an alternative pathway for tariff determination. Both sections operate independently.[Ref 1] The Appropriate Commission retains the discretion to choose between the Regulated Tariff Mechanism (RTM) under Section 62 and the TBCB route under Section 63, guided by policies like the National Tariff Policy, which serves as a material consideration but not an absolute directive.[Ref 1] As observed by APTEL in Cogeneration Association Of India (S) v. Maharashtra Electricity Regulatory Commission And Others (S)., projects under Section 62 (cost-plus basis) have statutory assurances of reasonable returns guided by Section 61 principles, contrasting with Section 63 projects where developers quote tariffs based on competitive market assessments.[Ref 14] If a Power Purchase Agreement (PPA) is finalized through negotiations rather than a transparent bidding process compliant with Central Government guidelines, the tariff determination would fall under Section 62, not Section 63.[Ref 18]

Information and Procedural Aspects (Sections 62(2) and 64)

Section 62(2) empowers the Commission to require licensees or generating companies to furnish specified details for tariff determination, ensuring that the Commission has adequate information to make informed decisions.[Ref 8, Ref 11, Ref 13] Section 64 of the Act outlines the procedure for tariff orders when an application is made under Section 62, requiring publication of the application and a time-bound decision by the Commission.[Ref 14, Ref 21] This procedural framework aims to ensure transparency and public participation in the tariff-setting process.

Non-Discrimination and Permissible Differentiation (Section 62(3))

Section 62(3) enshrines the principle of non-discrimination, prohibiting undue preference to any consumer. However, it explicitly permits differentiation based on a range of factors, including load factor, power factor, voltage, total consumption, time of supply, geographical location, nature of supply, and purpose of supply.[Ref 8, Ref 9, Ref 11, Ref 12, Ref 13] The Supreme Court, in The Tata Power Company Limited Transmission v. Maharashtra Electricity Regulatory Commission, emphasized that Section 62(3) fetters the Commission's discretion by mandating non-preferential treatment while allowing for reasoned differentiation.[Ref 12] APTEL, in Delhi Voluntary Hospital Forum v. Delhi Electricity Regulatory Commission, upheld the classification of consumers based on the purpose of supply, recognizing that charitable institutions could form a distinct class, citing Supreme Court precedents like Association of Industrial Electricity Users v. State of AP & Ors and State of AP v. Nallamilli Rami Reddi & Ors.[Ref 25]

Tariff Amendment and Stability (Section 62(4))

To ensure tariff stability and predictability, Section 62(4) stipulates that tariffs should not ordinarily be amended more than once in a financial year.[Ref 9, Ref 13] This provision aims to protect consumers from frequent tariff revisions while allowing for necessary adjustments, particularly those related to fuel costs through pre-approved fuel surcharge adjustment (FSA) formulas.[Ref 9, Ref 13]

Compliance, Recovery of Excess Charges, and Interest (Sections 62(5) and 62(6))

Section 62(5) enables the Commission to specify procedures for calculating expected revenues from tariffs, ensuring financial discipline.[Ref 9] Section 62(6) provides a crucial consumer protection mechanism: if a licensee or generating company recovers charges exceeding the determined tariff, the excess amount must be refunded to the consumer with interest at the bank rate.[Ref 9] In Him Urja Private Limited v. Uttarakhand Electricity Regulatory Commission, APTEL clarified that Section 62(6) applies when a price exceeding the *finally determined tariff* is recovered.[Ref 24] The Supreme Court's decision in National Thermal Power Corporation Limited v. Madhya Pradesh State Electricity Board And Others dealt with situations where the finally determined tariff was lower than a pre-existing or interim tariff, leading to refunds.[Ref 20] The interest under Section 62(6) is "without prejudice to any other liability incurred by the licensee," indicating that other penalties or actions may also be applicable.[Ref 9, Ref 24]

Relationship with Power Purchase Agreements (PPAs) and Section 86(1)(b)

The Commission's power under Section 62 interacts with existing PPAs. While Section 63 allows adoption of tariffs from competitively bid PPAs, tariffs under other PPAs may be subject to determination or regulation under Section 62. However, the Supreme Court in Transmission Corporation Of Andhra Pradesh Limited And Another v. Sai Renewable Power Private Limited And Others held that where a Commission had approved and regulated a purchase price under specific provisions of a State Reform Act read with Section 86(1)(b) of the Electricity Act, 2003 (which empowers SERCs to regulate electricity purchase and procurement process of distribution licensees including the price), it could not then refix such a price by resorting to tariff fixation under Section 62 read with Section 86(1)(a).[Ref 21] This highlights that Section 86(1)(b) can operate as a special provision in certain contexts. Amended PPAs executed after the 2003 Act came into force, if not routed through Section 63, would require Commission approval, and their tariffs could be determined under Section 62.[Ref 18]

Jurisdictional Considerations and Regulatory Powers

Tariff determination under Section 62 is a core function of the CERC (for inter-state matters under Section 79) and SERCs (for intra-state matters under Section 86).[Ref 5, Ref 14, Ref 15, Ref 19] State Government directions under Section 108 of the Act can influence Commissions, but as held in The Tata Power Company Limited Transmission v. Maharashtra Electricity Regulatory Commission, such directions must be statutory directives issued under Section 108 to be binding; mere government resolutions may not fetter the Commission's discretion under Section 62.[Ref 1] Furthermore, the Supreme Court in Andhra Pradesh Power Coordination Committee And Others v. Lanco Kondapalli Power Limited And Others clarified that the Limitation Act, 1963, does not automatically apply to proceedings before the SERC, although principles of fairness and justice are to be observed.[Ref 4] It is also important to distinguish the Commission's tariff determination function under Section 62, which results in an "order," from its power to frame "regulations" under Section 178 (e.g., for trading margins, as seen in Ptc India Limited v. Central Electricity Regulatory Commission[Ref 3] and Gajendra Haldea v. Central Electricity Regulatory Commission[Ref 17]). The review mechanisms and scope of appeal differ for orders and regulations.[Ref 3]

Discussion of Key Themes Arising from Case Law

The judicial interpretations of Section 62 reveal several recurring themes critical to the functioning of the electricity sector in India:

  • Regulatory Discretion and Autonomy: Courts have consistently upheld the discretionary powers of Regulatory Commissions in tariff matters, particularly in choosing between tariff determination mechanisms (Section 62 v. Section 63), provided such discretion is exercised reasonably, transparently, and in line with statutory objectives and guiding policies.[Ref 1]
  • Balancing Diverse Interests: Section 62, especially sub-section (3), mandates a delicate balance. The Commission must protect consumer interests by preventing undue preference and ensuring reasonable tariffs, while also allowing for permissible differentiation that reflects cost variations and promotes efficiency. This ensures the financial viability of generators and licensees.[Ref 12, Ref 25]
  • Transparency and Procedural Fairness: The procedural requirements embedded in Section 64 for tariff applications under Section 62, coupled with the Commission's power to seek information under Section 62(2), underscore the importance of transparency and informed decision-making in the tariff determination process.
  • Sanctity of Determined Tariff and Consumer Redressal: Section 62(6) provides a robust mechanism for consumer redressal against overcharging, reinforcing the binding nature of tariffs determined by the Commission and promoting compliance by utilities.[Ref 9, Ref 20, Ref 24]
  • Harmonious Construction of Statutory Provisions: The judiciary has often emphasized the need to read Section 62 harmoniously with other provisions of the Act, such as Section 61 (Tariff Regulations), Section 63 (Competitive Bidding), Section 64 (Procedure for Tariff Order), Section 79 (Functions of CERC), and Section 86 (Functions of SERC), to ensure a cohesive and effective regulatory framework.

Conclusion

Section 62 of the Electricity Act, 2003, stands as a pivotal provision in the Indian electricity regulatory landscape. It endows the Appropriate Commissions with the crucial responsibility of determining tariffs in a manner that is equitable, transparent, and conducive to the healthy development of the electricity sector. The extensive body of jurisprudence surrounding this section has progressively clarified its operational nuances, the extent of regulatory discretion, the principles of non-discrimination, and its interplay with other statutory mechanisms like competitive bidding and Power Purchase Agreements. Through meticulous application of Section 62, guided by judicial pronouncements, Regulatory Commissions strive to balance the interests of consumers, licensees, and generating companies, thereby fostering an environment of efficiency, competition, and sustainability in the Indian power sector. The continued evolution of regulatory practice and judicial interpretation will undoubtedly further refine the application of this cornerstone of electricity law.

References

  1. [Ref 1] THE TATA POWER COMPANY LIMITED TRANSMISSION v. MAHARASHTRA ELECTRICITY REGULATORY COMMISSION (2022 SCC ONLINE SC 1615, Supreme Court Of India, 2022)
  2. [Ref 2] Sesa Sterlite Limited v. Orissa Electricity Regulatory Commission And Others (2014 SCC 8 444, Supreme Court Of India, 2014)
  3. [Ref 3] Ptc India Limited v. Central Electricity Regulatory Commission, Through Secretary . (2010 SCC 4 603, Supreme Court Of India, 2010)
  4. [Ref 4] Andhra Pradesh Power Coordination Committee And Others v. Lanco Kondapalli Power Limited And Others (2016 SCC 3 468, Supreme Court Of India, 2015)
  5. [Ref 5] Energy Watchdog v. Central Electricity Regulatory Commission And Ors. Etc. S (2017 SCC ONLINE SC 378, Supreme Court Of India, 2017)
  6. [Ref 6] All India Power Engineer Federation And Others v. Sasan Power Limited And Others (2017 SCC 1 487, Supreme Court Of India, 2016)
  7. [Ref 7] Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd. . (2008 SCC 4 755, Supreme Court Of India, 2008)
  8. [Ref 8] C.I.T., Jabalpur v. MS. J.P. Tobacco Product Pvt. Ltd (Supreme Court Of India, 2014)
  9. [Ref 9] Sai Bhaskar Iron Limited v. A.P. Electricity Regulatory Commission And Others (Supreme Court Of India, 2016)
  10. [Ref 10] Kerala State Electricity Board And Others (s) v. Thomas Joseph And Others (s). (Supreme Court Of India, 2022)
  11. [Ref 11] Paschimanchal Vidyut Vitran Nigam Limited And Others v. Adarsh Textiles And Another (Supreme Court Of India, 2014)
  12. [Ref 12] THE TATA POWER COMPANY LIMITED TRANSMISSION v. MAHARASHTRA ELECTRICITY REGULATORY COMMISSION (Supreme Court Of India, 2022)
  13. [Ref 13] Sriramagiri Spinning Mills Limited v. The State Of Andhra Pradesh, Department Of Energy, And Others (Andhra Pradesh High Court, 2012)
  14. [Ref 14] Cogeneration Association Of India (S) v. Maharashtra Electricity Regulatory Commission And Others (S). (Appellate Tribunal For Electricity, 2022)
  15. [Ref 15] Cesc Limited. v. Central Electricity Regulatory Commission (Appellate Tribunal For Electricity, 2010)
  16. [Ref 16] Energy Watchdog v. Central Electricity Regulatory Commission And Ors. Etc. S (Supreme Court Of India, 2017) [Snippet related to PPA and Change in Law]
  17. [Ref 17] Gajendra Haldea v. Central Electricity Regulatory Commission (Appellate Tribunal For Electricity, 2006)
  18. [Ref 18] Tamil Nadu Generation And Distribution Corporation Ltd. v. Penna Electricity Ltd. (2013 SCC ONLINE APTEL 110, Appellate Tribunal For Electricity, 2013)
  19. [Ref 19] Dans Energy Pvt. Ltd. v. Uttarakhand Electricity Regulatory Commission (2017 SCC ONLINE APTEL 72, Appellate Tribunal For Electricity, 2017)
  20. [Ref 20] National Thermal Power Corporation Limited v. Madhya Pradesh State Electricity Board And Others (2011 SCC 15 580, Supreme Court Of India, 2011)
  21. [Ref 21] Transmission Corporation Of Andhra Pradesh Limited And Another v. Sai Renewable Power Private Limited And Others (2011 SCC 11 34, Supreme Court Of India, 2010)
  22. [Ref 22] Tata Power Company Limited v. Reliance Energy Limited And Others (2009 SCC 16 659, Supreme Court Of India, 2009)
  23. [Ref 24] Him Urja Private Limited v. Uttarakhand Electricity Regulatory Commission (Appellate Tribunal For Electricity, 2016)
  24. [Ref 25] Delhi Voluntary Hospital Forum v. Delhi Electricity Regulatory Commission (Appellate Tribunal For Electricity, 2014)