Maharashtra State El... v. Maharashtra Electric..., Appellate Tribunal For Electricity, Judgment, Law, casemine.com

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Case Number

Appeal No. 46 of 2007

Attorney(S)

Mr. Ravi Prakash, Advocate along with Mr. Sanjeev Kumar, Adv., ;
Mr. Buddy A. Ranganadhan, Adv. along with Mr. Arijit Maitra, Advocate,
Mr. Vikas Singh, Sr. Advocate;
Mr. Jayant Bhushan, Sr. Adv.;

Judges

A.A Khan, Technical Member
Manju Goel, Judicial Member

Acts

ELECTRICITY ACT 2003

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Smart Summary

Factual and Procedural Background

The appellant (also known as Mahavitran), the electricity distribution licensee for most of Maharashtra, submitted 122 detailed project reports (DPRs) to the Maharashtra Electricity Regulatory Commission (MERC) anticipating five years of growth and infrastructure upgradation. These DPRs were submitted by letters dated 27.7.06, 26.09.06, 29.09.06 and 04.10.2006. MERC returned 121 projects with observations and required the appellant to submit one pilot project; the appellant submitted a pilot report for the Ahmadnagar Rural Division. Following meetings and additional information, MERC issued an Order dated 12.02.07 granting in-principle clearance to the Ahmadnagar Rural Division project but with certain changes in project magnitude. A further MERC communication dated 22.02.07 altered contract supervision charges (described in the opinion as "slashing the contract supervision charges from 10% of material cost to 15% of labour component"). The appellant sought quashing of MERC's orders dated 12.02.07 and 27.02.07 and claimed entitlement to unconditional clearance of the project. MERC relied on its Tariff Regulations (Terms and Conditions of Tariff) Regulation 2005 and accompanying Guidelines for In-principle Clearance, and specifically cited Regulation 71.5 as authority to grant approval with modifications or conditions.

Legal Issues Presented

Whether MERC, under Regulation 71.5 of its Tariff Regulations, may grant an in-principle approval to a distribution licensee's investment plan subject to modifications or conditions.
Whether the Tribunal's prior decision in Karnataka Power Transmission Corporation Ltd. (KPTCL) v. Karnataka Electricity Regulatory Commission (KERC) & others applies to invalidate or limit MERC's power to impose modifications in this case.
Whether Regulation 71.5 must be "read down" (i.e., interpreted narrowly) to prevent MERC from imposing the specific modifications made in the impugned orders, on the ground that such modifications conflict with the Electricity Act, 2003.

Arguments of the Parties

Appellant's Arguments

The appellant argued that Regulation 71.5 should be read down because, as interpreted in the KPTCL judgment, restrictions by a regulatory commission on a utility's capital investment are contrary to the spirit of the Electricity Act, 2003.
Reliance was placed on the Tribunal's decision in Karnataka Power Transmission Corporation Ltd. (KPTCL) v. KERC & others, which the appellant says held that utilities have a freedom to plan investments and that a regulatory commission cannot impose its own conditions or modifications on intended projects.
The appellant conceded that this Tribunal cannot strike down the regulation as violative of the Electricity Act, 2003, and thus sought that the regulation be read down rather than declared invalid.

Respondent's (MERC's) Arguments

MERC, through its counter-affidavit and submissions by senior counsel, contended that Regulation 71.5 expressly grants the Commission the power to give in-principle approval "with such modifications or conditions as the Commission deems appropriate."
MERC submitted that the KPTCL judgment is not applicable because of distinguishing factual differences and because no comparable regulation empowering modifications was present in the KPTCL case.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Karnataka Power Transmission Corporation Ltd. (KPTCL) Vs. Karnataka Electricity Regulatory Commission (KERC) & others	The Tribunal's holding that utilities have freedom to plan investment, standardization and system upgrading, and that the Regulatory Commission had not acted reasonably or fairly in interfering with intended projects; that project reports of capital investment should be cleared and the Commission cannot impose its own conditions or modifications.	The Tribunal examined that judgment, observed it was written on the peculiar facts of that case, and distinguished it here because Regulation 71.5 in MERC's regulations explicitly empowers MERC to grant clearance with modifications and conditions — a power not examined in the KPTCL case.

Court's Reasoning and Analysis

The Tribunal reviewed the parties' submissions and the relevant regulatory text. It reproduced and relied on Regulation 71.5 (quoted in the opinion) which provides that the Commission "shall either (a) give an in-principle approval to the investment plan submitted by the Distribution Licensee, with such modifications or conditions as the Commission deems appropriate; or (b) reject the investment plan..." The Tribunal concluded that:

The KPTCL judgment was considered but found to rest on the peculiar facts of that case and on the procedure adopted by KERC there; the Tribunal noted that KPTCL specifically disapproved KERC's procedure and described how a regulatory commission could prudently check utility plans.
The central distinguishing factor is that MERC's Regulation 71.5 explicitly empowers MERC to impose modifications or conditions when granting in-principle approval. In contrast, the KPTCL matter did not involve or examine such a regulation empowering the regulator to modify approved plans.
Arguments by the appellant seeking a reading down of Regulation 71.5 were, in substance, directed toward effectively striking down the regulation. The Tribunal observed that striking down the regulation is beyond its jurisdiction in the present appeal.
Because Regulation 71.5 remains in force and authorizes MERC to impose modifications or conditions, the Tribunal found no basis to grant the appellant the relief sought against the specific modifications made in the impugned orders.
However, recognizing ongoing factual and technical questions, the Tribunal accepted the parties' suggestion that MERC should give the appellant a fresh opportunity to explain the technical and commercial significance, associated economic benefits, and to justify estimated costs and other factors for the full scope of the project proposals.

Holding and Implications

Holding: The appeal is rejected as having no force, and no relief is granted against MERC's exercise of power under Regulation 71.5. The Tribunal disposed of the appeal by directing MERC to afford the appellant a fresh opportunity to justify and explain the project proposals; MERC may, on being satisfied, revise the impugned sanction orders.

Implications:

Direct effect on the parties: The appellant does not obtain quashing of MERC's orders or an unconditional clearance; instead, MERC retains the authority under Regulation 71.5 to approve projects with modifications or conditions. The appellant is to be given a fresh opportunity to present technical and commercial justification, and MERC may revise its sanction if satisfied.
Jurisdictional and precedent effect: The Tribunal distinguished the KPTCL decision on its facts and emphasized that it cannot strike down or invalidate Regulation 71.5 in this appeal. The opinion does not announce a broader rule overriding the regulation or set aside MERC's regulatory power; it limits the remedy to procedural relief (a further opportunity to justify the project) rather than a substantive change in regulatory authority.

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Maharashtra State Electricity Distribution Co. Ltd. v. Maharashtra Electricity Regulatory Commission

The present appeal challenges the Orders of Maharashtra Electricity Regulatory Commission (MERC) dated 12.2.2007 and 27.02.07, whereby MERC granted permission to the appellant to proceed with the infrastructure plan for Ahmadnagar Rural Division, but made certain modifications in the proposal.

The appellant also known as Mahavitran and is responsible for distribution of electricity in the State of Maharashtra except for areas which expressly fall within the responsibility of Utilities like BEST, Tata Power Co. & Reliance Energy Ltd. The appellant came up with 122 detailed project reports in anticipation of growth of electricity requirement in the next five years as well as to meet the requirement of up-gradation of the present infrastructure. The detailed project reports Np/vg Page 1 of 4 were submitted to the MERC vide letters dated 27.7.06, 26.09.06, 29.09.06 and 04.10.2006.

MERC has framed regulations (Terms and Conditions of Tariff) Regulation 2005 referred to as Tariff Regulations, which have statutory force. The MERC has also framed Guidelines For In-principle Clearance of Proposed Investment Scheme. The appellant also submitted Feasibility Reports (FR) for investment Schemes as required by the Guidelines.

MERC returned 121 projects with certain observations. MERC required the appellant to submit one project as a pilot project. The appellant submitted pilot report in respect of Ahmadnagar Rural Division. The submission was followed up with meetings and submission of more information. Vide Order dated 12.02.07, MERC accorded in- principle clearance with certain changes in the magnitude of the project.

The MERC sent another letter dated 22.02.07 making further changes by slashing the contract supervision charges from 10% of material cost to 15% of labour component. The appellant prays for quashing of orders dated 12.02.07 and 27.02.07 and claims that the appellant is entitled to unconditional clearance for the project.

The respondent, MERC in its Counter Affidavit has alleged that Regulations 71.5 grants power to Commission to give in-principle approval to the investment plan of the distribution licensee with modifications or conditions as it may deem appropriate. The relevant provision is quoted below: 71.5 The Commission shall review the investment plan submitted by the Distribution Licensee taking into consideration the prudence of the proposed expenditure and estimated impact on tariff and thereafter, shall either- (a) give an in-principle approval to the investment plan submitted by the Distribution Licensee, with such modifications or conditions as the Commission deems appropriate; or (b) reject the investment plan submitted by the Distribution Licensee and require the Distribution Licensee to submit a fresh investment plan taking into consideration such factors as the Commission may deem necessary.

Mr. Jayant Bhushan, Sr. Advocate appearing for MERC submits that the KPTCL judgment is not applicable to this case in view of the distinction in facts. It is contended on behalf of the appellant that the Regulations 71.5 to the extent, it allows modifications and conditions to be imposed by the MERC has to be read down as the same is not in Np/vg Page 2 of 4 consonance with the Electricity Act, 2003. Reliance is placed on the judgment of this Tribunal in the case of Karnataka Power Transmission Corporation Ltd. (KPTCL) Vs. Karnataka Electricity Regulatory Commission (KERC) & others in which this Tribunal has held that utilities have the freedom to plan with respect to their investment, standardization and upgrading of the system and that the KERC had not acted reasonably and fairly in interfering with the intended projects, which was only within the domain of the transmission utility. It is contended that the judgment in the case of KPTCL (supra) has laid down that the project reports of capital investment will have to be cleared by the Regulatory Commission and that Regulatory Commission can not impose any conditions or modifications of their own.

We have gone through the judgment and we find that the judgment was written on the peculiar facts of that case. This Tribunal specifically disapproved the procedure adopted by the KERC and laid down in what manner prudent check can be employed by a Regulatory Commission.

The basic difference between the cases of that of the KPTCL and the present one is that the Regulations specifically empowers the MERC to grant clearance with modifications and conditions as it may deem appropriate. In the case of KPTCL judgment, no such regulations have been cited or examined.

On behalf of the appellant Mr Vikas Singh, Sr. Advocate submits that the KPTCL judgment has laid down that the restrictions imposed by the Regulatory Commission, on capital investment of a utility, is against the spirit of The Electricity Act 2003. He contends that since this Tribunal has so held, the regulations should be read down to say that the conditions and modifications raised by MERC in approving the project are bad. He does not dispute that this Tribunal does not have the power to strike down the regulations, as violative of The Electricity Act 2003.

Nonetheless, he says that to the extent, the regulation is against the spirit of the Act, it should be read down without actually declaring the regulations to be bad.

All the Arguments advanced by Mr. Vikas Singh for reading down the above regulations No. 71.5 appear to be directed towards striking down the said regulation, which, however, is beyond the jurisdiction of this Tribunal. None of his arguments allow us to accept the plea that the Commission has the right to impose conditions and modifications but not the specific modifications made by it in the impugned order. So long as the regulations 71.5 is in place, the appellant can expect no relief from this Tribunal. The appeal therefore, has no force.

Np/vg Page 3 of 4 The parties are amenable to the suggestion that the Commission will give a fresh opportunity to the appellant to explain the technical and commercial significance of the full scope of the project proposals with associated economic benefit and to justify the estimated cost as well as other factors involved in the same. Hence, we dispose of the appeal by directing the respondents to allow a fresh opportunity to the appellant to explain technical and commercial impact of the project proposal with economic advantage and justify the entire project in question and in case the respondent is satisfied, it may appropriately revise the impugned sanction orders.

(Justice Manju Goel) (A. A. Khan) Judicial Member Technical Member Np/vg Page 4 of 4

Maharashtra State El... v. Maharashtra Electric...