*THE HONOURABLE SRI JUSTICE V.V.S.RAO +WRIT PETITION No.11097 and 11098 of 2004 %27-07-2005 # A.P. Gas Power Corporation Ltd., Hyderabad (in both the writ petitions) ..PETITIONER Vs. $ A.P.Electricity Regulatory Commission, Hyderabad and another (in both the writ petitions) ..RESPONDENTS ! COUNSEL FOR PETITIONER: Mr. C.V.Nagarjuna Reddy (in both the writ petitions) ^ COUNSEL FOR RESPONDENT No.1 : --- COUNSEL FOR RESPONDENT No.2 : T.Anantha Babu <GIST >HEAD NOTE: ?CASES REFERRED: 1. AIR 2004 SC 3090 = 2003 (4) SCALE 616 2. (2004) 1 SCC 195 THE HON’BLE SRI JUSTICE V.V.S.RAO WRIT PETITION NOS.11097 AND 11098 OF 2004 COMMON ORDER: Both these writ petitions are filed by A.P.Gas Power Corporation Limited (APGPCL), aggrieved by a common order passed by A.P. Electricity Regulatory Commission (APERC), the first respondent herein, in O.P(SR) Nos.19 and 20 of 2004 dated 04.06.2004. This common order shall dispose of both the writ petitions. O.P(SR) No.19 of 2004 was filed by A.P.Transmission Corporation Limited (A.P.TRANSCO) under Section 86(1)(f) of the Electricity Act, 2003 (the Act, for brevity) seeking orders from APERC to direct APGPCL to allocate surrendered energy to A.P.TRANSCO from latter’s 172 MW, Stage II Power Plant on pro rata basis from the date of Memorandum of Understanding-II (MoU-II). O.P(SR) No.20 of 2004 was also filed by A.P.TRANSCO under Section 86(1)(f) of the Act praying APERC to pass orders directing APGPCL that allocation of power from latter’s power plants cannot be made to consumers other than HT Industrial Consumers as per provisions of MoU-I and MoU-II. A.P.TRANSCO in its application being O.P(SR) No.19 of 2004 contended that as per clause 6 of MoU-II, it is entitled for full allocation of unutilized power by any participating industry and that in spite of repeated demands made by it, APGPCL did not allocate unutilized/surrendered energy by participants to A.P.TRANSCO. In its application, O.P(SR) No.20 of 2004, A.P.TRANSCO pleaded as follows. APGPCL has two Gas Power Plants at Vijjeswaram of capacity 100 MW and 170 MW. The power generated by APGPCL is shared by participating industries in proportion to the equity contributed by them in the power plants. As per MoU-II, a participating industry can transfer their shares to medium and large scale industries having industrial connections with A.P.TRANSCO. But M/s.VBC Ferro Alloys, a participating industry sold 1.0 MW share in Stage II to M/s.Tata Tele Services Limited which comes under commercial category. By reason of this, A.P.TRANSCO will lose revenue equivalent to difference between tariff of HT commercial and industrial consumers and the loss of revenue Rs.0.90 ps per unit. Though A.P.TRANSCO refused to give effect to transfer of shares by M/s.VBC Ferro Alloys to M/s.Tata Tele Services Limited on the ground that the latter is a commercial category consumer, APGPCL continued to allocate power to M/s.Tata Tele Services Limited and therefore a direction was sought to APGPCL not to allocate power to consumers other than HT Industrial consumers as per MoU-I and MoU-II. APERC thought it necessary to issue notice to A.P.TRANSCO and APGPCL before admitting the two original petitions. Accordingly, notices were issued. In response to notices, APGPCL filed counters in both the original petitions, inter alia, making identical averments on the question of jurisdiction. APGPCL contended that the disputes raised by A.P.TRANSCO did not fall within the jurisdiction of APERC as per Section 86(1)(f) or Section 158 of the Act, that the relationship between A.P.TRANSCO and APGPCL in the matter of power allocation, power sharing and power transfer are governed by MoU-I or MoU-II entered among the shareholders and APGPCL and therefore the dispute, if any, does not fall within Section 86(1)(f) of the Act. It was also urged that any dispute in relation to or arising out of MoU-II has to be settled by way of arbitration and that APERC has no jurisdiction to resolve the dispute under 86(1)(f) of the Act. The APERC considered these aspects in the background of the provisions of the Act and came to the conclusion that disputes raised by A.P.TRANSCO are those which arose between the licensee and generating company and therefore APERC has got jurisdiction to adjudicate upon the disputes. The learned counsel for APGPCL, Sri C.V.Nagarjuna Reddy, submits that APERC has no jurisdiction to entertain and adjudicate the dispute raised by A.P.TRANSCO as no dispute pertaining to functions of A.P.TRANSCO arose. As investment made by it in the captive generating plant or generating company for the purpose of pro rata sharing of power is not part of its duties/functions under Section 39(2) of the Act. The relationship between the petitioner and second respondent is that of a company and its shareholder and therefore second respondent cannot assert its position as licensee under the provisions of the Act. All the rights of the second respondent flow from two MoUs and no dispute as such exists between petitioner and second respondent. It is nextly contended that the petitioner is a captive generating plant which is distinct from generating company. Therefore, any dispute between A.P.TRANSCO and petitioner in relation to MoU cannot be a dispute for the purpose of Section 86(1)(f) of the Act. Thirdly, it is contended that as per Article/clause 7 of MoU-II, all differences or disputes between the parties to MoU shall have to be settled through the arbitration and therefore the jurisdiction of APERC is not attracted. He relied on A.P.Gas Power Corporation Limited v. A.P.State Regulatory Commission. The learned Senior counsel, Sri T.Anantha Babu, appearing for the second respondent submits that A.P.TRANSCO and its direct predecessor are licensees and this statutory status is not inconsistent with its being a shareholder in APGPCL. Such status as a shareholder does not deprive second respondent of its entitlement to invoke the jurisdiction of APERC. Secondly, he would urge that as per ‘Memorandum of Association’ of the petitioner company, it is a generating company set up with the sole purpose of generating electricity and it is not open to it to describe itself as anything other than generating company. The stand taken by the petitioner that it is a captive generating plant and not a generating company is contradictory to the stand taken by it in the earlier litigation which went up to Supreme Court. The petitioner contended before the Supreme Court that being a generating company, it does not require licence. Therefore, the petitioner cannot now be permitted to raise the plea that it is not a generating company. The dispute raised by A.P.TRANSCO is in relation to its revenue loss incurred as a licensee with regard to the acts of commission and omission of APGPCL and therefore APERC has jurisdiction to entertain the dispute. Learned counsel placed reliance on APGPCL v APSERC (supra) and BSES Limited and TATA Power Company Limited. In the background facts and in the light of rival submissions, the only point that would arise for consideration is whether the dispute raised by A.P.TRANSCO before APERC is a dispute within the scope of Section 86(1)(f) of the Electricity Act, 2003? The Electricity Act, 2003 is an Act to consolidate the laws relating to generation, transmission, distribution, trading, use of electricity and for development of electricity industry promoting competition even while ensuring supply of electricity to all areas duly protecting the interests of the consumer. It also is a law to ensure transparent policies and for providing two-tier redressal mechanism at the Central as well as the State levels. The statement of objects and reasons for the Act would show that radical reforms in generation and transmission of electricity are sought to be ushered in by the new legislation on the principles of de-licensing and open access in transmission. It also provides for; as noticed - State Regulatory Commission, Central Regulatory Commission and an Appellate Tribunal to review the decisions of Regulatory Commissions. The Act is divided into XVIII parts. Part III deals with generation of electricity, part IV with licensing methods and part V deals with transmission of electricity. The fixation and administration of tariffs is contained in part VII. Part X, which contains Sections 76 to 109 provide for constitution, powers and functions of Central Commission and State Commission. An overview of the Act especially the parts referred to herein would show that the Act brought in structural changes in generation, distribution and transmission of electrical energy. There is a distinct trichotomy among these three aspects of electricity. The Act also broadly deals with generation separately and transmission separately. As we presently see except in the matter of levying surcharge for cross- subsidy, the Act does not make any distinction between a generating company and captive generating company. Indeed except a couple of provisions in part I (Definitions clause in Section 2 of the Act), part III dealing with generation of electricity and in part V dealing with transmission of electricity, the regulatory mechanism in respect of a generating company and captive generating company are the same. Both the categories are on par in the application of various statutory provisions. To appreciate this, it is necessary to notice a few provisions in the dictionary clause and other related provisions. The words/terms like ‘person’, ‘electrical plant’, ‘generate’, ‘generating company’, ‘generating station’, ‘captive generating plant’ and ‘utility’ are defined as under. 2(8) “captive generating plant” means a power plant set up by any person to generate electricity primarily for this own use and includes a power plant set up by any co-operative society or association of persons for generating electricity primarily for use of members of such co-operative society or association. 2(22) “electrical plant” means any plant, equipment, apparatus or appliance or any part thereof used for, or connected with, the generation, transmission, distribution or supply of electricity but does not include- a. an electric line; or b. a meter used for ascertaining the quantity of electricity supplied to any premises; or c. an electrical equipment, apparatus or appliance under the control of a consumer; 2(28) “generating company” means any company or body corporate or association or body of individuals, whether incorporated or not, or artificial judicial person, which owns or operates or maintains a generating station; 2(29) “generate” means to produce electricity from a generating station for the purpose of giving supply to any premises or enabling a supply to be so given; 2(30) “generating station” or “station” means any station for generating electricity, including any building and plant with step-up transformer, switch-gear, switch yard, cables or other appurtenant equipment, if any used for that purpose and the site thereof; a site intended to be used for a generating station, and any building used for housing the operating staff of a generating station, and where electricity is generated by water-power, includes penstocks, head and tail works, main and regulating reservoirs, dams and other hydraulic works, but does not in any case include any sub-station; 2(49) “person” shall include any company or body corporate or association or body of individuals, whether incorporated or not, or artificial juridical person; 2(75) “utility” means the electric lines or electrical plant, and includes all lands, buildings, works and materials attached thereto belonging to any person acting as a generating company or licensee under the provisions of this Act; The term “person” includes a juristic person and also association of body of individuals, whether incorporated or not. The term “power plant” is not defined, though as per 2(50) of the Act “power system” means and includes inter alia generating stations and works relating to generation. Generation means to produce electricity from generating station for the purpose of giving supply to any premises. Generating station is any station for generating electricity including any building and plant with necessary accessory equipment like transformers, switch-gears, sub- stations etc. Keeping this view, we may now consider the definition of captive generating plant. As seen above, Section 2(8) of the Act, which defines “captive generating plant”, contains two parts, namely, main part and inclusive part. Main part is explanatory in nature and defines “captive generating plant” to mean a power plant set up by any person (including juristic person) to generating electricity primarily for his/its own use. The inclusive part expressly includes a power plant set up by (a) any co-operative society; (b) association of persons for generating electricity for use of its members. It is to be noticed that Section 2(8) does not contain exclusionary part. The Parliament was very cautious not to add exclusionary part in the definition of ‘captive generating plant’. Presumably for the reason that Section 2(8) of the Act used the words and phrases, which are defined in the dictionary clause. The term ‘power plant’ or the term ‘for generating electricity’ have the same meaning as defined in Sections 2(22) and 2(29) respectively. Therefore, any electrical plant set up for generating electricity by a person, an incorporated company, a co-operative society or an association of persons is a generating plant. If such generating plant primarily utilizes the electricity produced in its generating plant for the use of its members or for its own use, the same becomes ‘captive generating plant’. The Government of India in exercise of their powers under Section 176 of the Act, promulgated Rules vide GSR No.379(E), which were published in the Gazette of India extraordinary dated 08.06.2005. These Rules are called Electricity Rules, 2005. As per Rule 3 thereof, no power plant shall qualify as a captive generative plant under Section 9 read with Section 2(8) of the Act, unless 26 per cent of the ownership is held by the captive users and not less than 51 per cent of the aggregate electricity generated is consumed for captive use. Therefore, to be a captive generating plant, the requirement is that it should be an electricity generating plant or station owned to the extent of 26 per cent by captive users and 51 per cent of the aggregate electricity produced in such generating plant is consumed by such users. Further, insofar as the applicability of the provisions of the Act, the functions and regulatory authorities and the duties and functions of transmission licensees and distribution licensees except to a minor extent are the same for all generating companies whether power plants set up by them are for captive use or not. The above position becomes further more clear by reference to Section 9 of the Act, which reads as under. 9.Captive Generation:- (1) Notwithstanding anything contained in this Act, a person may construct, maintain or operate a captive generating plant and dedicated transmission lines: Provided that the supply of electricity from the captive generating plant through the grid shall be regulated in the same manner as the generating station of a generating company. (2) Every person, who has constructed a captive generating plant and maintains and operates such plant, shall have the right to open access for the purposes of carrying electricity from his captive generating plant to the destination of his use: Provided that such open access shall be subject to availability of adequate transmission facility and such availability of transmission facility shall be determined by the Central Transmission Utility or the State Transmission Utility, as the case may be: Provided further that any dispute regarding the availability of transmission facility shall be adjudicated upon by the Appropriate Commission. Be it noted that as long as a generating company complies with the technical standards relating to connectivity with a grid, such company does not require licence to operate and maintain a generating station or power plant. Section 9 enables a person or a company to construct, maintain and operate a captive generating plant with dedicated transmission lines but as per the proviso to sub-Section (1) of Section 9 of the Act, the supply of electricity from a captive generating plant through the grid shall be regulated in the same manner as the generating station or a generating company. Section 9(2) confers a right on the person who has constructed captive generating plant, to have open access for the purpose of carrying electricity from his plant to the destination of his use, subject to availability of transmission facility as determined by the State Transmission Utility or Central Transmission Utility. As per second proviso to sub-Section (2) of the Act, any dispute regarding the availability of transmission facility shall have to be adjudicated by State Electricity Regulatory Commission. Thus, as we presently see insofar as establishing an electricity generating plant and the right to open access for the purpose of carrying electricity, or dispute resolution mechanism for the said purpose, there is no distinction between a generating company having generating station and captive generating company or plant set up by a person. Though a licence is not required for setting up a generating company or captive generating plant, the law requires a licence issued under Section 14 of the Act to transmit electricity or distribute electricity or undertake trading of electricity. The State Transmission Utility shall be deemed to be transmission licensee under the Act as provided under Section 14 of the Act. Even in the method of licensing to transmit, distribute or trading electricity, the law does not distinguish a generating company and captive generating company. Part IV contains Sections 12 to 24 deal with the procedures for grant of licences, amendment/ revocation of licences. In this part, except clarifying the right of a person who has set up a captive generating plant to have open access to transmission system, the procedure for licensing in case of a person with captive generating plant opting for such licence, is the same. Part V of the Act contains the procedure for Inter-State transmission of electricity, grid standards and also duties and functions of transmission utility. Part VI deals with distribution, duties of distribution licensee and provisions with respect to electricity trader. As noticed, for distribution and trading electricity, a licence is required under Section 14 of the Act. Be that as it is, Section 39 of the Act in Part V and Section 42 in Part VI are relevant to the consideration of question. Section 39(2) of the Act enumerates the functions of State Transmission Utility. As per clause (d) of sub-section (2) of Section 39, it shall be the function of State Transmission Utility to provide non-discriminatory open access to its transmission system for use by any licensee or generating company on payment of transmission charges. It is also competent for the State Utility to fix transmission charges and surcharge thereon as specified by State Electricity Regulatory Commission to be utilized for the purpose of meeting the requirement of cross-subsidy but as per fifth proviso to Section 39(2) of the Act, when State Transmission Utility provides open access to a captive generating plant, surcharge for the purpose of cross-subsidy cannot be levied. Except to the extent of prohibition for collection of surcharge for the purpose of cross- subsidy, Section 39 of the Act treats generating company and captive generating plant equally. So to say, the “generating company” appearing in Section 39(2)(d) also includes a captive generating plant. If such an interpretation is not opted, it would result in absurdity. For instance, in a given case, State Transmission Utility may deny open access to its transmission system to a captive generating plant on the ground that no such obligation is cast on it. In such an event, Section 9 of the Act, which confers a right on a person with captive generating plant to have open access to transmission system would be rendered redundant and meaningless. There is no provision which enumerates two different types of functions of State Transmission Utility, one in respect of generating company and other in respect of captive generating plant. Section 40 of the Act describes duties of transmission licensees. Here again Section 40(c) of the Act casts a duty on a transmission licensee to provide non- discriminatory open access to its transmission system to a generating company or licensee on payment of transmission charges including surcharge for cross-subsidy. But as per fifth proviso to Section 40 of the Act, a transmission licensee is not empowered to levy surcharge on a person who established a captive generating plant for carrying electricity to the destination of such person’s own use. Even under Section 42 of the Act, which enables a distribution licensee to provide distribution facilities to generating companies by duly collecting charges for wheeling including surcharge, law requires that a captive generating plant cannot be subjected to any surcharge for cross-subsidy. A reading of Sections 9, 39, 40 and 42 of the Act would lead to the ensuing conclusion. A person or a company is entitled to set up a power plant for his/its exclusive use. The power generated by such captive generating plant set up by a person has to be distributed and transmitted – in a given case; by a distribution licensee or transmission licensee. These licensees are entitled to collect transmission charges or wheeling charges as the case may be including surcharge from generating companies including from persons who set up captive generating plants but surcharge for cross-subsidy is not leviable on captive generating plant. That is the reason why the Parliament thought it fit to define ‘generating plant’ set up by any person for his own use as captive generating plant separately. Except to the extent of non-levy of surcharge for cross-subsidy, there is no functional dichotomy between generating plant and captive generating plant. This is further made clear by Electricity Rules, 2005. If 26 per cent of the ownership in a plant is held by captive users and 51 per cent of electricity produced is used by them, a generating plant can be treated as a captive generating plant. It only means that the electricity generated over and above 51 per cent has to be necessarily go to the grid, in which event a transmission licensee and distribution licensee come into picture. Even in the case of distribution and transmission of 51 per cent aggregate electricity generated in a captive generating plant, is to be wheeled to the destination of captive use, the same procedures have to be followed. Merely because a captive generating plant at least to the extent of 51 per cent consumes its electricity for captive use, the State Transmission Utility or a transmission licensee or distribution licensee, cannot discriminate while discharging their duties and functions. In APGPCL v APSERC (supra), the Supreme Court considered the question whether it is necessary for APGPCL to have a licence for sale or supply of electricity to participating industries and its sister concerns. Before the Supreme Court, MoU-I among A.P.TRANSCO, APGPCL and six participating industries came to be considered. The Supreme Court considered MoU-I and various provisions of A.P.Electricity Reforms Act, 1998; Electricity Act, 1910; Electricity (Supply) Act, 1948 and Electricity Act, 2003, and laid down APGPCL which set up plant for captive generation of power as a collective venture is not required to have any licence for self-utilisation of the power generated by it, that participating industries are not required to have any licence and that when electricity generated by APGPCL goes to any one or a sister concern of participating industries, it would require licence under Electricity Act, 1910. Here it is apt to extract paragraphs 32 and 47. It is pointed out by the learned counsel for the respondents that this definition of captive generating plant which came later on in the provisions of the Electricity Act, 2003, cannot be taken aid of to assign any meaning to the expression "captive consumption" or "group captive consumption generating plant". We, however, find that there is nothing to exclude the natural and obvious meaning which flows from the expression itself. Therefore, even before the term "captive generating plant" was defined it would carry the same meaning. That is to say, generation of power for the use of the holder of the plant, may be one single person or a joint venture collectively by many as one unit. We, therefore, hold that the electricity generated by APGPCL and consumed by the participating members setting up the plant under the Memorandum of Association incorporating the company, does not require to