Citation Codes

Equivalent Citations

citation codes

Advocates

1. Shri K.K Garg, GM (Comml), NTPC
2. Shri S.K Agarwal, C.E, (Comml), NHPC
3. Shri Prashant Kaul, SM (Comml), NHPC
4. Shri R.K Arora, XEN (Tariff), HVPN
5. Shri S.C Mehta, XEN (ISP), RVPN Ltd.
6. Shri K. Krishna Murthy Naik, CEE (RA), KPTCL
7. Shri D.K Shrivastava, EE, MPSEB
8. Shri Santosh Kumar, NREB
9. Shri A. Velayutham, MS, WREB
10. Shri T.D Mohan Babu, SE, SREB
11. Shri P.K Kumar, SE (O), NREB
12. Shri S.K Sinha, AGM I/C, ERLDC, Powergrid
13. Shri B. Bhushan, Director (Operations), Powergrid
14. Shri R.P Chaudhary, AGM (SO), Powergrid
15. Dr. A.K De Bhowmick, DGM (SO), Powergrid
16. Shri S.R Narasimhan, Manager, NRLDC
17. Shri Sekhar, Manager, NTPC.

Judges

D.P Sinha, Member
G.S Rajamani, Member
K.N Sinha, Member

Acts

ELECTRICITY REGULATORY COMMISSIONS ACT 1998
clauses (a), (b) and (c) of Section 13,
(Regulation) Act, 1955.

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Smart Summary

Structured Summary of the Commission's Opinion on Procedure for Regulation of Power Supply

Factual and Procedural Background

The Commission had earlier prescribed an interim procedure by order dated 21st June, 2000 for regulation of power supply in case of non-payment of dues by beneficiaries, with a note that a final procedure would be prescribed after hearing interested parties. The interim procedure was circulated to Central and State utilities and other bodies for comments. Responses were furnished by central utilities including NLC, NTPC and PGCIL; state utilities including APTRANSCO, DVC, Dept. of Power (Govt. of Tripura), GEB, GRIDCO, KSEB, MPSEB, RVPNL and UPPCL; and regional bodies including EREB, NREB, SREB, WREB and ERLDC. The matter was heard by the Commission on 12.9.2001.

The opinion records that some state utilities have existing Bulk Power Supply Agreements (BPSA) with NTPC under which NTPC has the option to discontinue or reduce supply if bills remain unpaid for more than two months. After considering the comments and legal framework, the Commission formulated a generic procedure (contained in Annexure "A") to govern regulation of power supply on commercial grounds; this procedure is to supersede the interim procedure and come into force from the date of the order for a period of one year (unless extended).

Legal Issues Presented

Whether the existing legal framework (in particular the functions assigned to the Commission under the Electricity Regulatory Commissions Act, 1998) supports the power of the Commission to prescribe a procedure for regulation of power supply in case of default by beneficiaries.
Whether the phrase "regulate the tariff" and the Commission's power to regulate tariff comprehends measures to ensure implementation of tariffs, including enforcement measures such as regulation of power supply to defaulting beneficiaries.

Arguments of the Parties

Views and suggestions recorded from Central and State utilities and regional bodies

Several respondents favored limiting the role of the Central Transmission Utility (CTU) under the interim procedure and sought an increased role for the Regional Electricity Boards (REBs); a suggestion was made that a proposal for regulation initiated by a Central Utility should be prepared in consultation with REBs.
Utilities expressed concern for grid security during regulation of power supply on commercial grounds and the technical difficulty in curtailing supply to a specified beneficiary in an integrated grid.
UPPCL suggested that regulation should start from the costliest source of generation; some REBs asked that sharing of fixed charges during regulation be addressed in the revised procedure.
It was suggested regulation should commence only after reconciliation of amounts due to the Central Utility.
DVC submitted that since the ultimate beneficiary of regulation is likely to be the Central Utility initiating it, any loss as a result of regulation should be borne by that Central Utility.
Comments were made on timing of regulation (round-the-clock versus peak-time), with certain entities opposing peak-time regulation previously used by NTPC.
GRIDCO argued that generation at central stations should not be reduced during regulation because apportionment of fixed charges to lower generation could increase cost per unit; it recommended diverting the available power to other beneficiaries willing to absorb it.
UPPCL countered that if beneficiaries for diverted power cannot be identified, generation should be reduced to the extent the power becomes surplus.
On re-allocation of power made available by regulation, NTPC favored re-allocation by RLDC as a neutral system operator, while WREB proposed that the Member-Secretary of the REB should re-allocate shares upon instruction from the competent authority.
An additional issue raised related to the "availability" of the transmission system during the period of regulation.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
K. Ramanathan v. State of Tamil Nadu ((1985) 2 SCC 116 : AIR 1985 SC 660)	Stated that the term "regulate" is of broad import, comprehensive in scope; power to regulate carries full power over the thing subject to regulation and implies power to rule, direct and control.	The Commission relied on this authority to support a wide interpretation of "regulate" under the ERC Act and to justify that regulatory powers can include procedures to enforce tariff implementation, including regulation of supply.
G.K. Krishan v. State of Tamil Nadu ((1975) 1 SCC 375 : AIR 1975 SC 583)	Held that the word "regulation" has no fixed connotation and varies with the subject; in modern statutes it should receive a wide interpretation.	Used to reinforce the proposition that "regulate the tariff" must be given a wide meaning to include incidental powers necessary to effect regulation.
Sujatha Touring Talkies v. State of Karnataka (AIR 1986 Karn 21)	Held that "regulate" is a word of broad import, comprehending facets not only specifically enumerated but also powers incidental to the regulation envisaged in good faith for public interest.	Cited to support the wide interpretation of "regulate" in the regulatory context and public welfare rationale for incidental powers.
Deepak Theatre, Dhuri v. State of Punjab (1992 Supp (1) SCC 684 : AIR 1992 SC 1519)	Explained that power to regulate may include rule-making to conduct a business properly, including licensing and prescribing reasonable rules, though not power to impose tax without valid legislation.	Applied to establish that regulatory power can include prescribing and enforcing proper and reasonable rules to ensure orderly conduct, supporting the Commission's authority to frame procedural measures.
Harishankar v. UP State Electricity Board (AIR 1974 All 74)	Held that the term "tariff" includes not only fixation of rates but also rules and regulations relating to it.	Used to support the view that the Commission's tariff jurisdiction can encompass related rules and regulations necessary for implementation.
State of UP v. Batuk Deo ((1978) 2 SCC 102)	Held that a power to do a thing carries with it the power to regulate the manner of doing it; regulation is an incident of the power itself.	Relied upon to assert that the Commission's power to regulate tariff carries with it incidental powers necessary for effective exercise of that power.
D.K.V Prasad Rao v. Government of Andhra Pradesh (AIR 1984 AP 75)	Observed that "regulation" comprehends facets not only specifically enumerated but also incidental powers envisaged in good faith for public welfare (in context of AP Cinemas (Regulation) Act, 1955).	Reinforced the conclusion that "regulation" must be given a wide meaning to support incidental measures for public welfare and effective regulation.

Court's Reasoning and Analysis

The Commission began by recording the comments of various utilities and regional bodies and considering those inputs on technical, commercial and procedural issues. Before finalizing technical and procedural aspects, the Commission examined whether the ERC Act provides a legal basis for prescribing a procedure for regulation of power supply.

The legal analysis proceeded by reference to Section 13 of the Electricity Regulatory Commissions Act, 1998, which vests the Commission with functions including regulation of tariff for specified utilities. The Commission surveyed judicial precedents interpreting the word "regulate" and related concepts. Those authorities consistently characterized "regulate" as a term of wide import, often encompassing incidental powers necessary to effectuate the object of regulation (including rule-making, direction and control), and held that a power to do a thing generally carries with it the power to regulate the manner of doing it.

Applying these principles to the ERC Act, the Commission concluded that the phrase "regulate the tariff" must be given a broad meaning that includes measures necessary to ensure that tariffs determined by the Commission are implemented and payments made. The Commission reasoned that tariff determination without supervisory or enforcement powers could render the Commission's functioning ineffective. Consequently, the Commission held that it has the power to prescribe measures to enforce its tariff orders through the regulatory mechanism, and that such measures may include regulation of power supply to defaulting beneficiaries.

The Court also took account of contractual arrangements already in place between some state utilities and central generators (specifically BPSAs with NTPC providing for discontinuance/reduction of supply after bills unpaid for over two months), regarding these contractual terms as reinforcing the Commission's conclusion on its power to prescribe procedure for regulation.

On technical considerations, the Commission analysed practical difficulties: in an integrated grid, controlling power flow to curtail supply to a specified beneficiary is difficult because power may take alternative paths; cooperation of the beneficiary in reducing drawal is necessary; opening of lines/ICTs could impact grid security; essential services must be maintained; round-the-clock regulation was considered more practical for implementation; and hydro stations present particular concerns (need to avoid spillage).

On commercial aspects, the Commission acknowledged potential adverse commercial impacts on other central or state utilities in the region and therefore set out that commercial aspects would be elaborately addressed and enforced during the period of regulation.

The Commission then formulated a generic procedure (Annexure "A") taking into account the technical, commercial and procedural issues raised in comments and hearings. The procedure was intended to govern regulation on commercial grounds and to be effective from the date of the order, superseding the interim procedure and remaining in force for one year unless extended. The Commission specified that regulation shall be resorted to only when billed dues for at least two months remain unpaid from the date of service of bills.

Holding and Implications

Core Holding: The Commission held that, under the Electricity Regulatory Commissions Act, 1998, its power to "regulate the tariff" must be interpreted broadly and includes the power to prescribe procedural and enforcement measures to ensure implementation of tariff orders; this power encompasses prescribing a procedure for regulation of power supply to defaulting beneficiaries.

Practical Orders and Direct Effects:

The Commission adopted a generic procedure for regulation of power supply on commercial grounds, contained in Annexure "A" to the order.
The procedure in Annexure "A" shall come into force from the date of the order and supersede the interim procedure laid down in the Commission's order dated 21st June, 2000.
The procedure shall remain in force for a period of one year, unless extended further, with or without modifications.
The Commission specified that regulation of power supply shall be resorted to only when billed dues for at least two months remain unpaid from the date of service of bills.
The existence of Bulk Power Supply Agreements (e.g., with NTPC) that permit reduction/discontinuance after two months' non-payment was noted as reinforcing the Commission's conclusion and as relevant to application of the procedure.

Implications beyond these direct effects were not expressly formulated in the opinion as establishing a new rule of broader application beyond the interpretation of the statutory power and the adoption of the specific procedure; the order focuses on statutory interpretation, procedural prescription (Annexure "A") and its operative effect between utilities and the Commission.

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Regulation Of Power Supply To The Beneficiaries, In Re

The Commission vide its order dated 21st June, 2000 had prescribed an interim procedure for regulation of power supply in case of non-payment of dues of the central power utilities by the beneficiaries. The procedure for this purpose was to be finalised after hearing the interested parties. Accordingly, the interim procedure was circulated amongst Central/State Utilities and others, for their views on the interim procedure. NLC, NTPC and PGCIL among the Central Utilities and APTRANSCO, DVC, Dept. of Power (Govt. of Tripura), GEB, GRIDCO, KSEB, MPSEB, RVPNL and UPPCL from among the state utilities have furnished their views on the draft procedure. In addition, EREB, NREB, SREB, WREB and ERLDC have also filed their comments on the subject. The matter was finally heard by the Commission on 12.9.2001

2. A perusal of the responses received from different entities, including that from PGCIL reveals that they favour to limit the role of the Central Transmission Utility (CTU) assigned to it under the interim procedure and have argued for increased role for the Regional Electricity Boards (REBs) in the process of regulation. A suggestion has been made that the proposal for regulation initiated by a Central Utility should be prepared in consultation with the REBs. The utilities, have also expressed their concern for grid security during regulation of power supply on commercial grounds. UPPCL has suggested that regulation should start from the costliest source of generation, while some of the REBs have submitted that the issue of sharing of fixed charges during the period of regulation should be taken care of by the Commission while formulating the revised procedure. It has also been suggested that regulation of power supply should start only after the reconciliation of the amount due to the Central Utility. DVC is of the opinion that since the ultimate beneficiary of the regulation of power supply is likely to be the Central Utility at whose behest power supply is being regulated, loss, if any, as a result thereof should be borne by such an utility. The question of round-the-clock regulation vis-à-vis the peak-time regulation has also been raised in the comments received and certain entities have expressed their views against the peak-time regulation earlier resorted to by NTPC. GRIDCO in its comments has stated that generation at the central generating station should not be reduced during the period of regulation since it could lead to increase in cost of generation for the reason that fixed charges would get apportioned to lower quantum of electricity generated. It has recommended that the power available as a result of regulation should be diverted to other beneficiaries willing to absorb the additional power. On the other hand, UPPCL has stated that in case the beneficiaries for the diverted power cannot be identified, the generation should be reduced to the extent of power becoming surplus. On the question of re-allocation of power becoming available as a result of regulation, NTPC has favoured that such re-allocation should be made by RLDC as a system operator and a neutral body, though WREB has stated that Member-Secretary of REB should re-allocate the shares on receiving instructions from the competent authority. Another issue that has been raised is regarding the “availability” of transmission system during the period of regulation.

3. We have carefully considered the comments made by the utilities on the draft procedure. The state utilities are generally not opposed to the concept of regulation of power supply in case of default in payment While prescribing the revised procedure for regulation of power supply, the comments and the issues raised by the utilities have been duly considered and taken care of. Before proceeding with the technical, commercial and the procedural aspects of regulation of power supply, we propose to examine whether the existing legal framework supports prescription of procedure for regulation by the Commission.

4. It has also been brought to our notice that the state utilities have already entered into Bulk Power Supply Agreement with NTPC, one of the Central Utilities for supply of power. According to BPSA, NTPC has the option to discontinue/reduce supply of power to the state utilities whose bills remain unpaid for a period exceeding two months from the date of issue of bill.

LEGAL FRAMEWORK

5. Under the Electricity Regulatory Commissions Act, 1998 (ERC Act), the Commission is vested, inter alia, with the function to regulate tariff of the utilities referred to in clauses (a), (b), and (c) of section 13. The power to prescribe procedure for regulation of power supply in case of default by the beneficiaries in payment of tariff is proposed to be considered in the light of these functions assigned to the Commission.

6. It is well settled that the term ‘regulate’ is of a wide import. In this context, the Hon'ble Supreme Court in K. Ramanathan v. State of Tamil Nadu ((1985) 2 SCC 116 : AIR 1985 SC 660) held that the word ‘regulate’ is “of broad import having a broad meaning and is very comprehensive in scope”. A similar view was expressed by Mathew, J. in G.K Krishan v. State of Tamil Nadu ((1975) 1 SCC 375 : AIR 1975 SC 583), laying down that the word regulation has no fixed connotation and that its meaning differs according to the nature of the thing to which it is applied. The Hon'ble Judge observed that “in modern statutes, concerned as they are with economic and social activities, ‘regulation’ must, of necessity receive a wide an interpretation”.

7. In Sujatha Touring Talkies v. State of Karnataka (AIR 1986 Karn 21) a Full Bench of the Karnataka High Court after considering the dictionary meanings and the earlier decisions of the courts held that “it would, therefore, seem to be reasonable to deduce that the word ‘regulate’ is a word of broad import having wide meaning comprehending all facets not only specifically enumerated in the Act but also embraces within its fold the powers incidental to the regulation envisaged in good faith in the interest of general public”.

8. In K. Ramanathan v. State of Tamil Nadu (supra), the Supreme Court further held that “the power to regulate carries with it full power over the thing subject to regulation and in absence of restrictive words, the power must be read over the entire subject. It implies power to rule, direct and control and involves the adoption of a rule or guiding principle to be followed or making of rule with respect to the subject to be regulated”.

9. Similarly, in Deepak Theatre, Dhuri v. State of Punjab (1992 Supp (1) SCC 684 : AIR 1992 SC 1519), the Hon'ble Supreme Court held as under:

“………… The question emerges whether the word regulation would encompass the power to fix rates of admission and classification of the seats. The power to regulate may include the power to license or to refuse or to requiring taking out a license and may also include the power to tax or exempt from taxation, but not the power to impose a tax for the revenue in the rule making power unless there is valid legislation in that behalf. Therefore, the power to regulate a particular business or calling implies the power to prescribe and enforce all such proper and reasonable rules and regulations as may be deemed necessary to conduct the business in a proper and orderly manner. It also includes the authority to prescribe the reasonable rules, regulations or conditions subject to which the business may be conducted…………………”

10. In Harishankar v. UP State Electricity Board (AIR 1974 All 74) dealing with the term tariff, Allahabad High Court held that the term tariff includes within its ambit not only the fixation of rates, but also rules and regulations relating to it. In the State of UP v. Batuk Deo (1978) 2 SCC 102, the Hon'ble Supreme Court has held that a power to do a thing necessarily carries with it the power to regulate the manner in which the things may be done. It is an incident of the power itself and indeed without it the exercise of the power may in practice be fraught with difficulties which will frustrate rather than further the objects of such power.

11. In D.K.V Prasad Rao v. Government of Andhra Pradesh (AIR 1984 AP 75), Andhra Pradesh High Court dealt with the meaning of the expression ‘regulation’ appearing in AP Cinemas (Regulation) Act, 1955. It was stated that the word ‘regulation’ comprehends all facets not only specifically enumerated in the Act but also embraces within its fold the powers incidental to the regulation envisaged in good faith with an eye on the public welfare.

12. In the context of the above decisions and considering the scheme of the ERC Act, its objects and purposes and other relevant factors, the term “regulate the tariff” figuring in clauses (a), (b) and (c) of Section 13, has to be given a wider meaning, which will encompass all matters which need to be specified for ensuring that tariffs determined by the Commission are actually implemented and the objects for which the tariffs are determined are actually achieved. It is not merely a fixation of rate that is envisaged by the statutory provisions but also include the enumeration of consequences that would follow if the dues are not settled in time. Indeed transaction is complete only when the payments in accordance with the tariff are made. Absence of powers of supervision or control to ensure payment of dues would lead to an anomalous situation, which may render the functioning of the Commission to nugatory.

13. To conclude, the power to regulate tariff in the context of the ERC Act would include all activities which would effectively implement the tariff of the utility qua the purchaser. The Commission has the power to prescribe measures to enforce its order on tariff through the regulatory mechanism, which may include regulation of power supply to the defaulting beneficiaries. As we have already noted, the state utilities have signed agreements with NTPC, a major central generation utility, providing for regulation of power supply in case of defaults in payment of dues. The terms in the agreements reinforce our conclusion on prescription of procedure for regulation of power supply and other related aspects.

TECHNICAL ASPECTS

14. We are of the view that regulation of power supply is an extraordinary step to be resorted to only in extreme conditions after exhausting all available avenues for recovery of dues. We are also aware that in an integrated grid, it is extremely difficult to control power flow for the purpose of curtailment of power supply to a specified beneficiary during the time of regulation in view of the fact that power would find alternative paths. It is also recognized that regulation will be successful only with the co-operation of the beneficiary who is getting regulated by proper reduction of its drawal from the grid. Opening of lines/ICTs in the process of regulation may have its impact on grid security during regulation of power supply. A reliable supply to essential services and sensitive installations also has to be ensured during regulation of power supply. The scheme with round the clock regulation of power supply will be more practical from the point of view of implementation. The scheme for regulation will have to be formulated in such a manner that it does not cause spillage of water in case of hydro generating stations.

COMMERCIAL ASPECTS

15. The commercial aspect of regulation of power supply is another important issue which also needs to be addressed so that regulation does not have any adverse commercial impact on any other central or state utility in the region. We have, therefore, considered it appropriate to elaborately outline the commercial aspects to be enforced during the period of regulation of power supply.

PROCEDURE FOR REGULATION OF POWER SUPPLY

16. The procedure for regulation of power supply has been formulated considering these aspects. The generic procedure for regulation of power supply on commercial grounds is contained in Annexure “A” to this order, which shall be followed while regulating power supply on the ground of non-payment of dues by any of the beneficiaries.

17. The procedure given in Annexure ‘A’ shall come into force from the date of this order and shall supersede the interim procedure laid down in the Commission's order dated 21st June, 2000. This procedure shall remain in force for a period of one year, unless extended further, with or without modifications.

18. The technical and commercial issues involved in the process of regulation are also incorporated in Annexure “A”, which are based on consideration of the issues, which were raised in the comments received or came up during the process of hearing.

19. The regulation of power supply shall be resorted to only when the billed dues for at least 2 months remain unpaid from the date of service of bills.

Regulation Of Power Supply To The Beneficiaries, In Re

Structured Summary of the Commission's Opinion on Procedure for Regulation of Power Supply

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Views and suggestions recorded from Central and State utilities and regional bodies

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Regulation Of Power Supply To The Beneficiaries, In Re

Comments