IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 08.12.2009 CORAM THE HONOURABLE MR.JUSTICE K.CHANDRU W.P.NOS.12603 TO 12605, 12732, 14811, 14812 AND 12594 OF 2009 AND M.P.NOS.1 to 1 of 2009 M/s.Orchid Chemicals & Pharmaceuticals Ltd., Orchid Towers, 313, Valluvar Kottam High Road, Nungambakkam, Chennai-600 034. .. Petitioner in W.P.No.12603 of 2009 M/s.Jagannath Textile Co. ltd. Rep.by its Authorised Signatory, 23,23-1, East Periyasamy Road, R.S.Puram, Coimbatore -641 002. .. Petitioner in W.P.No.12604 of 2009 M/s.The Lakshmi Mills Co. Ltd. Rep. By General manager, 686, Avinashi Road, Pappanaickenpalayam, Coimbatore-641 037. .. Petitioner in W.P.No.12605 of 2009 Precot Meridian Limited, rep. by Authorised signatory SUPREM, P.B.No.7161, 737, Puliakulam Road, Coimbatore-641 045. .. Petitioner in W.P.No.12732 of 2009 M/s.Light Alloy Products Limited, rep. By Authorised Signatory, 67,Chamiers Road, RA Puram, Chennai-600 029 .. Petitioners in W.P.No.14811 of 2009 M/s.Harshni Textiles Limited, rep. By its Manager Finance No.504, Avanashi Road, Peelamedu, Coimbatore-641 004. .. Petitioner in W.P.No.14812 of 2009 M/s.Brakes India Limited, MTH Road, Padi, Chenai-600 050. .. Petitioner in W.P.No.12594 of 2009 https://hcservices.ecourts.gov.in/hcservices/ Vs. 1.State of Tamil Nadu, rep. By Secretary, Dept. of Energy, Fort St. George, Chennai-600 009. 2.The Chairman, Tamil Nadu Electricity Board (TNEB) NPKRR maligai, Anna Salai, Chennai-600 002. 3.Sai Regency Power Corporation Pvt. Ltd. No.3, II Floor, Crown Court, 128, Cathedral Road, Chennai-600 086. 4.Tamil Nadu Electricity Regulatory Commission (TNERC), rep. By the Secretary, having office at 19-A, Rukmini Lakshmipathi Salai, Egmore, Chennai-600 008. .. Respondents 1 to 4 in all the petitions 5.The Superintending Engineer, Vellore Electricity Distn. Circle, Gandhi Nagar, Vellore .. 5th respondent in W.P.No.14811 of 2009 5.The Superintending Engineer, Udumalpet Electricity Distn. Circle, Udumalpet. .. 5th respondent in W.P.No.14812 of 2009 W.P.No.12603 to 12605, 12732 and 12594 of 2009 are preferred under Article 226 of the Constitution of India praying for the issue of a writ of mandamus to direct the respondents not to levy or collect the grid support/outage charges from the petitioner who is an existing consumer of the second respondent and refund the amounts collected under the said head. W.P.No.14811 and 14812 of 2009 are preferred under Article 226 of the Constitution of India praying for the issue of a writ of mandamus to direct the respondents not to levy or collect the grid support/outage charges from the petitioner who is an existing consumer in service Nos.1159, 199 of the fifth respondent respectively and refund the amounts collected under the said head. For Petitioners : Mr.R.Muthukumarasamy, SC for Mr.A.Jenasenan https://hcservices.ecourts.gov.in/hcservices/ For Respondents : Mr.P.S.Raman, Advocate General assisted by Mr.A.Selvendran COMMON ORDER Heard both sides. In all these writ petitions, the petitioners are having H.T. supply agreements with the Tamil Nadu Electricity Board (for short TNEB). They have sought for directions to the respondent TNEB not to levy or collect the grid support/outage charges from the petitioners, who are existing customers to the Electricity Board and also for the refund of the amounts already collected under the head grid support/outage charges. 2.Pending the writ petitions, this Court granted an interim injunction restraining the TNEB from demanding and collecting grid support/outage charges from the petitioners. On notice from this court, the respondent TNEB has filed a counter affidavit, dated Nil (August, 2009) in W.P.No.12732 of 2009. Therefore, the contentions of the parties as dealt with in that writ petition are answered here. 3.The petitioner claimed that they are having HT service connection by the second respondent TNEB. The said connection entails them of making payments on two heads, i.e. Demand charges and energy consumption charges. The third respondent is a Group Captive Power Plant, which caters to the power requirement of industrial consumers. Some of the petitioners are having equity participation in the said company. The said Group Captive Power Plant has entered into an agreement with the TNEB for wheeling of power generated by it. By clause 2 of the agreement, the TNEB agreed to wheel the power generated by the third respondent on a monthly basis from the time of commissioning and synchronizing with the grid to the group captive consumers like the petitioners. As per the agreement, the third respondent is liable to pay wheeling charges and other charges determined by the Tamil Nadu Electricity Regulatory Commission (for short TNERC), the fourth respondent. The petitioners have also entered into a supply agreements with the third respondent. 4.The fourth respondent TNERC by virtue of power conferred under Section 181 of the Electricity Act, 2003, had notified the Intra-State Open Access Regulations 2005. Clause 9 of the regulations provides for payment of charges for open access by the generating companies which includes transmission charges, wheeling charges, surcharge scheduling and system operational charges and grid availability charges. By virtue of Clause 9.7 of the 2005 Regulations, the distribution licensees (like the TNEB) are entitled to collect grid availability charges for providing stand- by arrangement such as back up supply from the grid to open access customers in case of outages of generator supplying to a consumer on open access. If the generator happens to be an open access customer, then permission to avail startup power from the grid and https://hcservices.ecourts.gov.in/hcservices/ when the schedule generations are not maintained and when the drawal by the consumer is in excess of the schedule. 5.According to the petitioners, the action of the TNEB in making demand for outage charges is without jurisdiction. The Central Government has notified a Tariff policy by a resolution, dated 6.1.2006. Para 8.5.6 of the said policy reads as follows: "8.5.6. In case of outages of generator supplying to a consumer on open access, standby arrangements should be provided by the licensee on the payment of tariff for temporary connection to that consumer category as specified by the Appropriate Commission." 6.It is stated that the TNERC had not specified any tariff for temporary supply to HT categories. But the tariff order which is in force from 16.3.2003, specified that the industries requiring HT supply during construction period will be charged under HT Tariff III. Accordingly, in case of outage of generator supplying to a consumer on open access, standby arrangement should be provided by the licensee (TNEB in the present case) to meet the demand of the open access beneficiary on payment of consumption charges and energy charges in terms of HT Tariff III. At present, they are charging 621.81 paise per unit. Similarly, in case of drawl by generator for start up power from the licensee, the generator shall be permitted to draw the start up power on payment of consumption charges including demand charges. 7.According to the petitioners, a reading of para 8.5.6 of the Tariff policy and para 8.5.22 of the order No.2, dated 12.05.2006 issued by the fourth respondent TNERC, the payment of outages of generator supplying to the consumer on open access and payment of consumption charges will arise only when standby arrangements are required to be provided by the licencee. It is contended that the payment of outages charges or grid availability charges will not arise in case open access customer is already a consumer of the TNEB. The petitioners are liable to pay demand charges, which will be levied on maximum KVA demand recorded in that month or 90% of the sanctioned demand whichever is higher. The petitioners are liable to pay only this amount irrespective of whether the power is used by them or not. However, the respondent TNEB has been sending bills including items under the head of Grid support charges/outage charges calculated at 621.61 paise per unit. 8.The petitioners have admitted that one captive power generator unit by name M/s.Cauvery Gas Pipes had filed an application before the TNERC, challenging the said levy as unauthorised. But the Commission by its order No.2, dated 15.5.2006 in TP No.1 of 2005 rejected the said petition. Therefore, the petitioners who are not empowered to raise such disputes before the TNERC, have come forward to file the present writ petitions. 9.In the counter affidavit filed by the TNEB, it was stated https://hcservices.ecourts.gov.in/hcservices/ that the petitioners are aware of Regulations being framed by the TNERC and the levy made by the TNEB is fully in consonance with those Regulations. In respect of the Captive Generating Plant (CGP) like the third respondent, wheeling approval was issued by the TNEB. The petitioners are captive users. There is no agreement between the TNEB and the petitioners. The agreement is only between the TNEB and the Captive Generating Plant like third respondent. Under the provisions of the Electricity Act, 2003, if there is any dispute, it can only be between third respondent and TNEB before the State Commission. One such case involving M/s.Kaveri Gas Power Ltd. raising on identical grounds was rejected by TNERC. The TNERC by virtue of the statutory power vested on it has framed guidelines after hearing the views of TNEB, private generating companies and other stake holders. After holding a State Advisory Committee meeting has come with the Regulations in Order No.4, dated 15.5.2006 and order No.2 dated 15.5.2006. These statutory orders are fully supporting the case of the Electricity Board. 10.It was also stated that the Intra State Open Access Regulations, 2005 need not deal with each and every aspect. According to the provisions of the Electricity Act, 2003, the TNERC by its order No.2, dated 15.5.2006 has framed sufficient guidelines. Therefore, in case of outages of generator supplying to a consumer on open access, standby arrangements should be provided by the licensee to meet the demand of open access beneficiary on payment of consumption charges, which includes equated demand charges applicable to HT Tariff III and the rate at present works out to Rs.6.2181 paise per unit. The captive users (HT services) of Captive Generating Plant are provided with various benefits such as waiver of cross subsidy surcharges and the petitioners are not charged under that head. The petitioners were also given a deemed demand relief as per the order of TNERC. 11.The TNERC also had directed the captive users like the petitioners need not pay full demand charges of 300 per KVA for the demand met out by the captive generating plant. It had prescribed the rate of Rs.111/- to Rs.128/- per KVA for the demand supplied by the CGP. By this process, if the sanctioned demand of 1000 KVA is available to the petitioners from the TNEB and out of this, 500 KVA demand is meted out by the CGP and the balance 500 KVA demand is meted out by TNEB, then the net demand charges payable by the petitioners will work out to a maximum of Rs.2,14,140/-. Whereas for HT consumer of the Board, who is not a captive user of CGP, will have to pay Rs.3 lakhs. The petitioners have not revealed in their affidavits the various benefits which were arrived at by the order of the TNERC including the deemed demand credit given by the Board. It is only because the CGP cannot supply energy all the time to the petitioners. Being Open Access customers, they are availing supply from the TNEB by having guaranteed uninterrupted supply. 12.It was further stated that the TNEB has worked out a planning schedule to meet out the total peak demand. The TNEB has to take care of the energy requirement of the captive users like the petitioners in case of outage of generator of CGP. In case of https://hcservices.ecourts.gov.in/hcservices/ sudden outage of generators of captive power plants, the TNEB is burdened with the additional responsibility of meeting the requirements of the captive users. This necessitates the Board to procure power from various sources even on exorbitant rates to meet the power requirement of the captive users like petitioners. Otherwise, TNEB will be forced to enforce load shedding in some other areas in case of sudden demand from the Captive Generating Plants like petitioners. 13.The petitioners have also not mentioned in their affidavits that though they are paying demand charges for the sanctioned demand, they are getting back from the TNEB the deemed demand relief to the tune of percentage equal to 58% to 63% of the demand charges for the demand meted out by the CGP, like third respondent. If was further reiterated that the Grid availability charges are levied as per the TNERC regulation Order No.2, dated 15.5.2006. The TNEB has not contravened any of the provisions. The calculations of grid availability charges during the outage of generations is done under the formula "Permitted Capacity in M.W. x 1000 units/hour x number of hours the m/c is under outage in the respective slot x 0.70". 14.It was also stated that the CGP like third respondent has to maintain grid discipline. The HT industries like petitioners cannot rely upon only the CGP as source of supply in power. It was also stated that the TNERC is the competent authority. The disputes between the Captive Generating Plant and the Distribution licencee was already adjudicated by the TNERC by virtue of its power conferred under Section 86(1)(f) of the Electricity Act, 2003. It was further submitted that the Tariff policy of the Central Government is only applicable to temporary connections and it is totally different from that of tariff applicable to the petitioners, where standby arrangements have been provided. Such arrangements are charged at the tariff applicable for that connection. 15.Mr.R.Muthukumarasamy, learned Senior Counsel appearing for petitioners submitted that Tariff policy more particularly para 8.5.6 will apply to the case of the petitioners and that the Board collecting the amount even though their consumption is within the demand load obtained by them, was illegal. He reiterated the same contentions raised in the affidavits filed by the petitioners. 16.Mr.P.S.Raman, learned Advocate General contended that the contentions raised are against the order passed by the TNERC. Against its order, an appeal lies to the appellate Tribunal under Part XI of the Electricity Act, 2003. Inasmuch as the order passed by the TNERC in the case of Kaveri Gas Pipes, no further contention can be raised. He also submitted that reliance placed upon the Tariff policy more particularly para 8.5.6 has no relevance and it deals with temporary arrangement. Whereas here, the consumers are permanent HT consumers of Electricity Board. He further submitted that the terms and conditions have already been reduced in the form of an agreement. The petitioners in the guise of seeking for a https://hcservices.ecourts.gov.in/hcservices/ direction cannot get over the terms of the agreement. The stand of the Board has been found acceptance by the TNERC in this regard. 17.In the light of the rival contentions, it has to be seen whether the case of the petitioners can find acceptance by this court? 18.It is an admitted case that the petitioners have HT supply agreement with TNEB. Para 6 of the agreement reads as follows: "6.OBLIGATION OF CONSUMER TO PAY ALL CHARGES LEVIEE BY LICENSEE: From the date this agreement comes into force the consumer shall be bound by and shall pay the Licensee, maximum demand charges, energy charges, surcharges, meter rents and other charges, if any, in accordance with the tariffs applicable and the terms and conditions of supply notified from time to time for the appropriate class of consumers to which it belongs." 19.The TNERC has also framed Intra State Open Access Regulations 2005 by virtue of power vested on it under Section 181 of the Electricity Act, 2003. Its regulations have been notified in the Tamil Nadu Government Gazette on 3.8.2005. Para 9.7 of the Regulations reads as follows: 9(7)Grid availability Charges (a)In cases of outages of generator supplying to a consumer on open access or when the scheduled generation is not maintained or when the drawal by the said consumer is in excess of the schedule, standby arrangements should be provided by the distribution Lincensee. Towards this end, the Licensee is entitled to collect grid availability charges for back up supply from the grid. For the present, the applicable tariff of that consumer category shall be allowed as the grid support charges. As and when the ABT regime is implemented in the State and the UI charges are fixed by the Commission, the grid support charge eligible to the Licensee shall be (a)the tariff applicable to the particular consumer category or (b)the applicable UI charges whichever is higher. (b)If a generator happens to be an open access customer, partly or fully in third party sale of power and he desires to avail start up power from the Grid, the generator shall be permitted https://hcservices.ecourts.gov.in/hcservices/ to do so at a charge to be determined by the Commission for the start up power. However if the generator who has availed open access, happens to be a Captive Power Producer / NCES Generator / Independent Power Producer (IPP) and desires to avail start up power from the Grid, the transaction shall be governed by the respective CPP / NCES policy of the Commission or as per the power purchase agreement in the case of IPP approved by the Commission." 20.By order No.2, dated 15.5.2006, the TNERC dealt with the scope of charges, which are under challenge in the writ petitions. The TNERC in its order in M.P.No.3 of 2008 had dealt with a similar question. In paragraph 10 of order, it has been observed as follows: "10.Findings of the Commission with reference to the sixth point in issue: With reference to the sixth point in issue, the contention of the petitioner in ground (c) at page 5 of the petition is as follows: "the National Tariff Policy and the provision made by this Hon'ble Commission requiring the licensee to meet the demand of the open access beneficiary in case of outage on payment of consumption charges applicable to HT Tariff-III would apply only to a case where the captive consumer is not an existing consumer of TNEB and has got to be supplied energy on a temporary basis in case of outages. Since the captive consumers are already consumers of TNEB under HT Tariff-1A, the question of applying the above provision would not apply and hence the impugned orders deserve to be set aside." The contention of Respondent Board in regard to the above issue at para 15(c) at page 10 of the counter is as follows: "the Hon'ble TNERC clearly differentiates between the periods of applying tariff under Tariff III and the period for applying the appropriate tariff of the captive consumer (here Tariff 1A). During the outage conditions of generator of the CGP holder, the licensee is supplying the power to the captive users during that time, then the open access customers (captive consumers) are to be billed under HT Tariff III only as per the provisions of clause 5.22.3 read with column 7 of schedule https://hcservices.ecourts.gov.in/hcservices/ of charges in order no.2 dated 15.5.2006. When the scheduled generation is not maintained by the generator and / or when the drawal by the consumer is in excess of scheduled generation, then during that time the captive users of the CGP holder are to be billed at the appropriate tariff (here tariff 1A) for energy supplied by the licensee over and above the energy supplied by the captive generator as per the provisions of order no.2 dated 15.5.2006." The above views of the Respondent Board are endorsed by the Commission." (Emphasis added) 21.This order of the Commission has not been challenged before any appellate Tribunal. It is pursuant to the order passed by the TNERC, the Board has issued appropriate proceedings, dated 11.3.2009 incorporating the additional conditions. Pursuant to those conditions and after audit objections were raised by the internal audit, notices have been issued to various consumers like petitioners. Since amounts were not collected in terms of legal requirements, they were asked to pay the said amount including back up power during outages of generations at the rate of 621.81 paise per unit. 22.In fact the Supreme Court with reference to introduction of Wheeling charges in Tata Power Co. Ltd. v. Reliance Energy Ltd. reported in (2008) 10 SCC 321 in paragraph 100 of its judgment observed as follows: "100. The concept of wheeling has been introduced in the 2003 Act to enable distribution licensees who are yet to install their distribution line to supply electricity directly to retail consumers, subject to payment of surcharge in addition to the charges for wheeling as the State Commission may determine. 23.The petitioners are only consumers and they can never approach the TNERC as their dispute will not come under Section 86 (1)(f). But their captive power plant i.e. third respondent could have raised a dispute before the Commission. The Commission in respect of another CGP had also adjudicated a similar claim, which was not appealed against. 24.In this context, it is necessary to refer to the judgment of the Supreme Court in Maharashtra Electricity Regulatory Commission v. Reliance Energy Ltd. reported in (2007) 8 SCC 381. Paragraph 34 from the said judgment may be usefully extracted below: "34. In this connection, we may also refer to Section 86 of the Act which lays down https://hcservices.ecourts.gov.in/hcservices/ the functions of the State Commission. Sub- section (1)(f) of the said section lays down the adjudicatory function of the State Commission which does not encompass within its domain complaints of individual consumers. It only provides that the Commission can adjudicate upon the disputes between the licensees and generating companies and to refer any such dispute for arbitration. This does not include in it an individual consumer." 25.Even in respect of imposing tariff by licensee company including demand charges under the provisions of 1948 Act came to be upheld by the Supreme Court in Southern Petrochemical Industries Co. Ltd. v. Electricity Inspector & ETIO reported in (2007) 5 SCC 447. In the said judgment, an earlier judgment of the Supreme Court in ORISSA STATE ELECTRICITY BOARD AND ANOTHER Vs. IPI STEEL LTD. reported in 1995 (4) SCC 320 was quoted with approval in paragraph 139, which reads as follows: "139....It has been noticed by this Court in IPI Steel Ltd.111 in the following terms: (SCC pp. 327-28, paras 10-11) “10. … From this circumstance, however, one cannot jump to the conclusion that it is an arbitrary way of levying consumption charges. Normally speaking, a factory utilises energy at a broadly constant level. May be, on certain occasions, whether on account of breakdowns, strikes or shutdowns or for other reasons, the factory may not utilise energy at the requisite level over certain periods, but these are exceptions. Every factory expects to work normally. So does the Electricity Board expect— and accordingly produces energy required by the factory and keeps it in readiness for that factory—keeping it ready on tap, so to speak. As already emphasised, electricity once generated cannot be stored for future use. This is the reason and the justification for the demand charges and the manner of charging for it. There is yet another justification for this type of levy and it is this: demand charges and consumption charges are intended to defray different items. Broadly speaking, while demand charges are meant to defray the capital costs, consumption charges are supposed to meet the running charges. Every Electricity Board requires machinery, plant, equipment, sub- stations, transmission lines and so on, all of which require a huge capital outlay. The Board like any other corporation has to raise funds for the purpose which means it has to obtain loans. The loans have to be repaid, and with https://hcservices.ecourts.gov.in/hcservices/ interest. Provision has to be made for depreciation of machinery, equipment and buildings. Plants, machines, stations and transmission lines have to be maintained, all of which require a huge staff. It is to meet the capital outlay that demand charges are levied and collected whereas the consumption charges are levied and collected to meet the running charges. 11. Pausing here for a moment, we may explain the importance and significance of maximum demand. The maximum demand of a given plant/factory determines the type of lines to be laid and the power of transformers and other equipment to be installed for the purpose. A factory having a maximum demand of say 1000 kVA and