*THE HONOURABLE Dr. JUSTICE G. YETHIRAJULU + W.P.Nos. 8444, 9226, 9227, 10274, 10323 of 2000 and 3081, 3306, 4449, 4465, 8729, 8835, 9661, 9665, 9669, 9676, 9677, 9678, 9679, 9680, 9681, 9744, 9745, 9747, 9748, 9750, 9751, 9753, 9754, 9756, 9757, 9758, 9760, 10319, 10320, 10342, 10345, 10409, 10432, 10584, 10585, 18545 of 2001 and 54 of 2002 and 14228, 18596, 21608 of 2003 % Dated: 08-08-2008. W.P.No. 8444 of 2000 # M/s.Vinayak Steels Ltd., rep. by its Managing Director, Vinod Kedia, 97/E, Dhargha Road, Kothur, Shandnagar, Mahaboobnagar District. … Petitioner $ Transmission Corporation of A.P. Limited (A.P.Transco), rep. by its Managing Director, Vidyut Soudha, Khairatabad, Hyderabad and two others … Respondents ! Counsel for petitioner: Mr.Duba V.Nagarjuna Babu ^ Counsel for respondents: Mr.O.Manohar Reddy Mr.N.Subba Reddy < GIST: >HEAD NOTE: ?Cases referred: 1. AIR 1984 SC 657 2. AIR 1991 SC 1473 3. AIR 1985 AP 299 THE HON’BLE Dr. JUSTICE G. YETHIRAJULU W.P.Nos. 8444, 9226, 9227, 10274, 10323 of 2000 and 3081, 3306, 4449, 4465, 8729, 8835, 9661, 9665, 9669, 9676, 9677, 9678, 9679, 9680, 9681, 9744, 9745, 9747, 9748, 9750, 9751, 9753, 9754, 9756, 9757, 9758, 9760, 10319, 10320, 10342, 10345, 10409, 10432, 10584, 10585, 18545 of 2001 and 54 of 2002 and 14228, 18596, 21608 of 2003 COMMON ORDER: These writ petitions are filed by the petitioners seeking 1) to declare that the Final Fuel Cost Adjustment of the respondents for the financial years 1996-97, 1997-98 and 1998-99 are contrary to the tariff conditions, arbitrary, unlawful, unconstitutional and liable to be set aside as null and void; 2) that the second demand made by the respondents for 1996-97 and 1997-98 is arbitrary and unlawful and 3) that the inaction of the respondents in not passing and communicating the reasoned reply or order on the representations as illegal and arbitrary and other consequential reliefs. 2. The petitioners are availing electricity supply from the respondents with HT category service. B.P.No.167, dated 01-08-1995 of the APSEB refers to revised tariffs and sale of electricity to persons other than licencees. The said tariff came into effect from 02-08-1995. Clause 11 of the General Conditions of HT supply in the tariff notification relate to Fuel Cost Adjustment. Under B.P.Ms.No.32, dated 29-07-1996, the APSEB notified revised tariffs to take effect from 01-08-1996. B.P.Ms.No.62, dated 28-12-1998 of the APSEB refers to revised tariffs and FCA (Fuel Cost Adjustment). 3. The petitioner contends that even though the aforesaid tariff notifications specifically required the finalization of the provisional Fuel Cost Adjustment demanded and collected be completed by October following the end of the financial year and the excess or shortfall adjustment shall be made in October consumption month. The APSEB neglected and omitted to carry out such finalization in respect of financial years 1996-97, 1997-98 and 1998-99 within the stipulated time. The A.P. Electricity Reforms Act, 1998 came into effect from 01-02-1999 and the A.P. Electricity Regulatory Commission established under the Reforms Act is entrusted with passing the tariff orders under Section 49 of the Electricity (Supply) Act, 1948. 4. By proceedings, dated 10-03-2000, the TRANSCO sought to notify the final fuel cost adjustment for the years 1996-97 and 1997-98. As per the said proceedings, there was to be a refund of 0.457 paise per unit for the year 1996-97 and the additional demand of 7.514 paise per unit for the year 1997-98. Basing on the said proceedings, the Senior Accounts Officer of the first respondent sent a notice making an additional demand for the year 1997-98 and refund for the year 1996-97. The Senior Accounts Officer also sent a telegram threatening to disconnect the electricity supply if the additional demand is not paid within seven days. The petitioners, after making a detailed scrutiny of the final fuel cost adjustments with reference to the tariff conditions of the relevant periods, found that the method of computation adopted by the respondents was not in accordance with the conditions of the tariff and also found that the same was irrational, unreasonable and untenable. The petitioners are entitled to refund for the years 1997-98 and 1998-99 as against the shortfall demanded and a larger refund for the year 1996-97 if the conditions of tariff are properly applied. The petitioner contended that the total additional expenditure incurred by the TRANSCO should have been divided with the total number of units sold during a particular year to HT and LT-III consumers to arrive at the per unit assessment charge to be applied on all the units consumed during the year by the consumers falling within this category. Due credit must be given individually to each consumer in respect of the provisional charges that has been levied and paid by the consumer during that year. There can be no aggregation of the provisional charges actually collected from all consumers and averaging the same over the consumers to arrive at the amount for which any individual consumer is given credit. The APSEB/TRANSCO incorrectly took account of the aggregate provisional charges actually received during the year by deducting the same from the total additional expenditure incurred and apportioning the balance to all the units sold. 5. The Board is not authorized or competent to exclude the RESCOs and HT Agriculture categories from the levy of fuel adjustment cost for 1996-97 when the applicable tariff does not provide for any such exclusion. The entire calculation of the additional fuel cost adjustments is logically inconsistent and mathematically incorrect. Though the total additional expenditure of fuel during the financial year is apportioned to all the units sold during the year, the levy and collection of per unit additional charge is only for HT-I and LT-III categories. The Board is absolving the additional charges in respect of the other categories. On this basis, the entire additional expenditure incurred by the board during a particular financial year is to be divided by the total number of units sold to all categories sold in that year to arrive at the applicable per unit fuel cost adjustment charge that is to be levied and collected only from HT-I and LT-III categories. As the impugned proceedings issued by the third respondent are prima facie untenable, arbitrary and unreasonable, these writ petitions are filed for the relief as mentioned above. 6. The respondents filed a common counter with the following averments in brief:- The fuel cost adjustment charge is nothing but the cost of fuel incurred for generating electricity. It forms part of the tariff. The authority has got a wide discretion and can evolve a formula, which it considers expedient and appropriate to recover the expenditure incurred towards cost of fuel by the authorities. The levy of fuel cost adjustment has been upheld by the High Court of Andhra Pradesh in its Judgment, dated 22-08-1994 in W.P.No.13942 of 1993 and batch. The collection of additional expenditure by way of fuel cost adjustment is the authority within the statutory limitations contained in Sections 49 and 59 of Electricity (Supply) Act of 1948. The Board considered all the aspects and arrived at the amounts incurred by the first respondent towards cost of fuel incurred by it. The memo issued by the Chief Engineer discloses the procedure adopted in arriving fuel cost charges with precision and particularity. The annual accounts furnished by the TRANSCO was audited and approved by Accounts General (Audit-II) Andhra Pradesh. The contention of the petitioners that the claim of the respondents is barred by limitation is untenable. The final cost of fuel will be arrived soon after final accounts were audited and the amount expended towards the cost of fuel will be ascertained after the end of each financial year. Thereafter, the demand notices will be served on the consumers for payment of the amounts. The petitioners are under the misapprehension that the claim has to be made soon after the financial year. Soon after respective financial years i.e., 1996-97, 1997-98 and 1998-99 for the period ending 31-01-1999, the amount has been ascertained and since there is surplus amount in 1996-97, the same has been adjusted. Further, it is always open to recover the amount at any time within three years from the date of ascertainment of the amount. This is a policy matter and the fixation of tariff is a legislative act and not amenable to the writ jurisdiction. Fixing of fuel cost adjustment has been done uniformly for all the consumers, therefore, the writ petitions have to be dismissed. 7. The respondents also filed an additional counter with the following averments in brief:- If the cost of coal or oil increases beyond the limits specified above, all HT consumers shall pay additional amounts for the energy billed at the interest rates worked out by the Board. The additional fuel cost will be added to the energy charges billed to the consumers who are liable to pay the amount. Para-11 of the Tariff order provides that the fuel cost adjustment is to be paid by the consumer at the end of financial year i.e., 31st March and the A.P. TRANSCO will workout the actual fuel cost adjustment on the basis of actuals and after giving credits to the amounts already paid towards provisional bills. The main intention of the clarification issued on 17-04-2003 is to refund excess shortfall amount already paid over and above the rate of 5.88 paise per unit. The respondents, therefore, prayed to dismiss the writ petitions with costs. 8. The petitioners are contending that though the respondents are entitled to collect fuel cost adjustment charges, the calculation made by the respondents is erroneous and if the calculation is made as per the formula mentioned in the B.P.Ms and the tariff order, the petitioners have no grievance and they would get much more amount towards refund than the amount calculated by the respondents. It is the further contention of the petitioners that whenever there is any additional expenditure, the fuel cost adjustment has been made by taking into consideration the total additional expenditure divided by the total units to arrive at the additional expenditure per unit and on the basis of it, the power consumed by each consumer has to be shown separately and the additional expenditure per unit incurred by the A.P. TRANSCO has to be worked out with reference to the units consumed by the respective HT or LT-III consumer after giving adjustment to the amount already paid in pursuance of the provisional demand made by the respondents. 9. The respondents are contending that they calculated the amount according to the formula mentioned in the board proceedings and tariff orders by taking into consideration the total amount of expenditure incurred by the board divided by the total number of units and after deducting the total amounts paid on the basis of the provisional demand, the balance amount has been distributed among all HT and LT- III consumers uniformly, which is correct way of calculating the amount towards fuel cost adjustment and the amount is either refundable to the consumer or recoverable from him. 10. In the light of the contentions of both parties, the point for consideration is: “Whether the method of calculation adopted by the respondents in working out the liability of each HT and LT-III consumer is correct and whether it is in accordance with the board proceedings or tariff order passed by the board from time to time.” 11. Fuel Cost Adjustment (FCA) was a concept evolved by the erstwhile APSEB to avoid making frequent Tariff revisions necessitated by frequent escalations in the costs of fuels like coal, diesel oil, and Transport charges for these fuels incurred by it. The FCA charge is nothing but Fuel Surcharge levied in addition to the stipulated rates of tariff. The cost of fuel is one of the components of price fixation of Electricity generated by the Board and this formula was evolved as a method by which the Board seeks to recover the Additional expenditure incurred by it towards cost of fuel. Prior to its introduction, it was usual for the Board to take into account various escalation charges such as increases in the cost of fuel, pay revisions and O & M Charges etc., and revise its tariffs from time to time. This was done between 1975 and 1981. Thereafter the Board took the view that to avoid making frequent Tariff revisions necessitated by frequent escalation in the cost of fuels like Coal and Diesel oil, a formula known as the “Fuel Cost Adjustment” be evolved. This formula was introduced by the Board for the first time vide BP Ms.No.589, dated 30-07-1982. This formula was introduced as condition No.11 in HT Tariffs part–A. Ever since September 1982, all categories of HT consumers in Part-A including the power intensive consumers are subject to this condition. At that time there were two categories of HT consumers. Immediately after 30-07-1982, the Fuel Cost Adjustment was fixed at 2.74 Ps/Unit and was being gradually increased from time to time. Subsequently the consumers under LT Category III were also subjected to levy of FCA, vide BP Ms.No.321, dated 18-12-1991. Upto 1991-92, the FCA was levied as per the formula prescribed and no further adjustments were contemplated. From 1992-93 onwards the feature of Final Adjustments of FCA at the end of financial year was introduced, vide BP Ms.No.147, dated 18-11-1992. Accordingly, the AP TRANSCO has been making final adjustments of the FCA from 1992-93 onwards in terms of the tariff modifications issued from time to time. 12. The FCA was meant to neutralize the additional expenses on Fuel Costs of Generating Stations of APSEB only. It does not cover the Fuel escalation costs in respect of various power purchases made by APSEB/AP TRANSCO from different sources including NTPC. 13. The levy of FCA has been upheld by the High Court of Andhra Pradesh in its judgment, dated 22-08-1994 in W.P.No.13942 of 1993 and Batch. The High court of Andhra Pradesh in the said decision held: “The cost of fuel is one of the components of price fixation of the electricity generated by the Board and it is for the Board to evolve a formula, which it considers expedient and appropriate in the circumstances by which the expenditure towards cost of fuel is recovered.” The High Court also followed the decision of the Supreme Court in ROHTAS INDUSTRIES V. BIHAR STATE ELECTRICITY BOARD , wherein the Supreme Court held: “HT consumers including the power intensive consumers are known power guzzlers and in power intensive industries, electricity is really a raw material.” “Where the Board has acted within the statutory limitations contained in Sections 49 and 59 of the Act and adopted a particular method in imposing FCA charges is valid. The Board has been purchasing electricity from other generating sources like NTPC, NLC, NPC, and whenever they revised the tariff rates, the Board did not pass on the additional burden to the consumers. While bearing this additional burden, the Board has not collected the additional expenditure from the consumers though it was entitled to do so.” 14. In accordance with this judgment, the Board has been collecting provisionally FCA as part of tariffs and demands are being issued to all consumers governed by the BP Ms.No.32, dated 29-07-1996. It is to be stated that the classification of the consumers who are subjected to the FCA is made in accordance with the provisions of Section 49 of the Electricity (Supply) Act, 1948. 15. The procedure for arriving at the Fuel Cost Adjustment is as follows: STEP-I: The Additional Expenditure incurred on the fuels will be computed with respect to the base rates indicated in the Tariff Notification and the actual fuel rates charged by suppliers including the increase in freight charges during the year for the quantities of coal and oils consumed during the year and for the Annual Accounts. STEP-II: The provisional FCA collections made as per the formula notified in the tariff notification, as notified in the annual accounts published by AP TRANSCO will be compared with the Additional Expenditure mentioned in Step-I above. STEP-III: The difference, if any, between the above two values will be distributed on the energy sold to consumers under all HT Categories and LT Category-III to arrive at the Final Adjustment charge per unit. 16. This is a uniform tariff procedure to arrive at the adjustment costs in respect of all the consumers covered under the FCA charge and is being adopted since 1992-93 onwards. The FCA is part of tariff and hence this is a function of the State Electricity Board which is vested with the power of fixation of the tariffs under the provisions of Section 49 read with 59 of the Electricity (Supply) Act, 1948. The guidelines under Section 49 of Supply Act envisage the tariffs to be uniform tariffs. 17. There are 9 Rural Electric Co-operative Societies in the State. All these societies are registered under A.P. Co-Operative Societies Act, 1964 and got licences from Government of Andhra Pradesh for supply of electricity to its members, under Section 3 of Indian Electricity Act, 1910. The tariff for the bulk supply to RESCOS was fixed separately by the State Government vide G.O.Rt.No.786, dated 07-07-1995. The tariff fixation for licensees is governed by separate provisions viz., section 46 read with Section 47 of Electricity (Supply) Act, 1948. Thus the process of tariff fixation for consumers which is under Section 49 of Supply Act is different from the process of tariff fixation for licensees. The tariffs notified by APSEB from time to time for different categories of consumers in exercise of it’s powers under Section 49 of Electricity (Supply) Act, 1948, do not apply to the licensees and hence the FCA is also not applicable to the licensees. 18. Sections 46 and 49 of the Electricity (Supply) Act, 1948 read as follows: 46. The Grid Tariff:-- 1. A tariff to be known as the “Grid Tariff” shall, in accordance with the regulations made in this behalf be fixed from time to time by the Board in respect of each area for which a scheme is in force, and tariffs fixed under this section may, if the Board thinks fit, differ for different areas. 2. Without prejudice to the provisions of Section 47, the Grid Tariff shall apply to sales of electricity by the Board to licensees where so required under any of the First, Second and Third Schedules, and shall, subject as hereinafter provided, also be applicable to sales of electricity by the Board to licensees in other cases: Provided that if in any such other case it appears to the Board that, having regard to the extent of the supply required, the transmission expenses involved in affording the supply are higher than those allowed in fixing the Grid Tariff, the Board may make such additional charges as it considers appropriate. 3. The Grid Tariff shall be so framed as to include as part of the charge, and show separately a fixed kilowatt charges component and a running charges component: Provided that if in respect of any area the electricity to be sold by the Board is wholly or substantially derived from hydro-electric sources, the running charges component may be omitted. 4. The fixed kilowatt charges component in the Grid Tariff may be framed so as to vary with the magnitude of maximum demand. 5. Where only a portion of a licensee’s maximum demand for the purpose of his undertaking is chargeable at the Grid Tariff, the price payable for that portion shall not be greater than the average price which would have been payable had the whole of the said maximum demand of the licensee been chargeable at the Grid Tariff. 6. The Grid Tariff may contain provisions for— a. adjustment of price having regard to the power factor of supply taken or the cost of fuel or both; b. a minimum charge related to a past or prospective demand of a licensee on the Board. 7. The Grid Tariff may contain such other terms and conditions, not inconsistent with this Act and the regulations, as the Board thinks, fit. 49. Provision for the sale of electricity by the Board to persons other than licensees:-- Subject to the provisions of this Act and of regulations, if any made in this behalf, the Board may supply electricity to any person not being a licensee upon such terms and conditions as the Board thinks fit and may for the purposes of such supply frame uniform tariffs. 2. In fixing the uniform tariffs, the Board shall have regard to all or any of the following factors, namely: c. the nature of the supply and the purposes for which it is required; d. the co-ordinated development of the supply and distribution of electricity within the State in the most efficient and economical manner, with particular reference to such development in areas not for the time being served or adequately served by the licensee; e. the simplification and standardization of methods and rates of charges for such supplies; f. the extension and cheapening of supplies of electricity to sparsely developed areas. 3. Nothing in the foregoing provisions of this section shall derogate from the power of the Board, if it considers it necessary or expedient to fix different tariffs for the supply of electricity to any person not being a licensee, having regard to the geographical position of any area, the nature of the supply and purpose for which supply is required and any other relevant factors. 4. In fixing the tariff and terms and conditions for the supply of electricity, the Board shall not show preference to any person.” 19. Similarly certain sales to other States are governed by provision under Section 43 of Supply Act and do not come under the provision of Section 49 of Supply Act and hence they do not attract the FCA condition notified in the tariff notifications issued by Board from time to time in exercise of the powers under Section 49 of the Supply Act, 1948. 20. There are 6 categories HT consumers (1) HT Industrial (2) Non-Industrial (3) Power Intensive (4) Agriculture (5) Railway Traction (6) Colonies and Townships and all these categories are subject to levy of FCA. Further the consumers under LT category III (Industrial) are also subject to levy of FCA. This is as per B.P.Ms.No.32, dated 29-07-1996 which clearly stipulates the categories on which FCA is leviable. 21. The provisional FCA as well as final adjustment are to be charged to all HT consumers and LT Category-III consumers as per the provisions under B.P.Ms.No.32, dated 29-07-1996. It is to be noted her that the Rural Electric Supply Corporations (RESCOS) and Inter State Supplies are not covered by the tariff notification issued in B.P.Ms.No.32, dated 29-07-1996. 22. Whenever the consumer approaches the electricity board for supply of electricity, the board will enter into an agreement with such consumer for supply of electricity on such terms and conditions as may be agreed upon by them as mentioned in Section 49 of the Indian Electricity Act, 1910, which reads as follows: “49. Agreements with respect to supply or purchase of electricity.— Where the Appropriate Commission has allowed open access to certain consumers under Sec.42, such consumers, notwithstanding the provisions contained in Cl. (d) of sub-section (1) of Sec.62, may enter into an agreement with any person for supply or purchase of electricity on such terms and conditions (including tariff) as may be agreed upon by them.” 23. B.P.Ms.No.167, dated 01-08-1995 issued by the APSEB came into force with effect from 02-08-1995 and clause 11 of the above proceedings mentions about the fuel cost adjustment in respect of HT consumers, which reads as follows: “11. Fuel Cost Adjustments The above tariffs are applicable at an average cost of coal and oil ex-bunkers at the Thermal Generating Stations of the Board at Rs.793/- per metric tonne and Rs.5972/- per Kilo Litre respectively. If the cost of coal and/or oil increase beyond the limits specified above all H.T. consumers shall pay additional amounts for the energy billed as indicated below.