Case: Orissa State Electricity Board  Vs. M/S Ipisteel Ltd

it petitioner (M/s. IPI Steel Limited) has a mini steel plant in Orissa. On August 16, 1984, it had entered into an agreement with thewhereunder the Board undertook to supply "up to but not exceeding a maximum demand of 7778 KVA/7000 KW". The agreement contains the following stipulations among others :(1) "The consumer has perused a copy of the Orissa State Electricity Board (General Conditions of Supply) Regulations, 1981, understood its contents and undertakes to observe and abide by all the terms and conditions stipulated therein including all future modifications thereto to the extent they are applicable to him. The Orissa State Electricity Board General Conditions of Supply) Regulations, 1981 as modified from time to time shall be deemed to from part of this Agreement" (Vide Clause (2) (Emphasis added).(2) "The consumer shall pay to the Engineer for the power demand and electrical energy supplied under this Agreement in accordance with the tariff as mentioned below, subject to any revision that may be made by the Board from time to time.Large Industries(a) The monthly charges shall becharges at Rs. 35.00 per KVA of maximum demand plus energy charges at the following rate on units metered less units billed separately under (c) and (d) below :Paise 36.00 (sic) for each unit without prejudice to payment of monthly minimum charges indicated below :(b) The monthly minimum charges shall be calculated at the above rates, on a demand of 80 percent contract demand and on units calculated at an average power factor of 0.9 and an average load factor of 15 per cent on the said contract demand. (Vide Clause (7))". (The remaining portion of Clause (7) is omitted as unnecessary.)3. The respondent complains that notwithstanding the agreement, the Board was in no position to supply the full quantity of energy stipulated in the agreement. It is, however, not necessary to consider the said plea, since we are concerned herein with the period January 1989 to August, 1990 alone. During this period an order under Sectionof the Indian Electricity Act, 1910 read with Section 78(A) of the Electricity (Supply) Act, 1948 issued by the Government of Orissa on February 14, 1990 was in force. It would be appropriate to notice the relevant contents of the Order. The Order recited that since the total availability of power from the generating stations in Orissa will fall short of the total requirement of power in the State substantially, the State Government is of the opinion that for maintaining the supply and securing equitable distribution of energy, it is expedient to regulate the supply, distribution, consumption and use of energy from the Orissa grid. The Order directed "the Orissa State Electricity Board to reduce the supply of energy so as to allow the consumer to avail to the extent as specified in the Annexure anything in any contract agreement or requisition for supply or increase in the supply of energy notwithstanding." Contravention of the provisions of the Order rendered the consumer liable for disconnection of service line without notice and for payment of energy charges at double the highest rate of energy charges for any category in addition to the penalties. In the Annexure to the said order, the respondent, M/s IPI Steel occurs at SI No.13 under the Heading "Large Industries". It would be appropriate to extract the schedule insofar as it concern the respondent : Sl. No. Name of the Industry Allowable drawal Provisional allotment for the waterto 30/6/91) Period of water yr. 1989 (1/7/89 toQuantity in Million KWH. 1. 2. 3. 4. 5. Large Industries 13. IPISTEEL Gundichapada 1.7.89 to 30.6.90 16.8.63 16.8.634. It is agreed by the parties that the effect of the above order is to reduce the supply by fifty per cent. The Electricity Board has explained how the said fifty per cent reduction is being implemented and operated, by producing before us a statement relating to the water yearIt would be appropriate to extract the said statement :M/S. IPISTEEL LTD : DHENKANAL 1. Contract Demand (C.D.) 7778 KVA2. 80% of C.D. 0.8 x 7778 6222.4 KVA 3. 100% requirement of energy for the water year37.467 MU (Million Units) 4. % of level of allocation for the water year50% of the full requirement 5. Energy allocation for the year18.737 MUSl.No. Maximum demand in KVA Month Rate per KVA Charges Energy entitlement per month (in MU) Liability of consumer of payment of 80% of C.D. Relief Total Consumption 1. 7778 X 6 Rs. 35/Rs. 16,33,380 3.1222 48,737/6 Rs. 29,40,084 Rs. 13,00,704 Rs. 18,737 MU (no charge for six months) 2. 3889 X 12 Rs. 35 Rs. 16,33,380/1,561 Rs. 26,13,408 9,80,100 18,737 MU 3. 5185 X 9 Rs. 35 Rs. 16,33,275 (18,737/3 19,60,056 3,26,781 18,737 MU (no charge for three months)

Reasoning:
It is obvious that if a factory uses energy at a particular level/load and for a particular period, it consumes a particular quantity of energy. The trivector meter records the highest level/load at which the energy is drawn over any thirty minute period in a month while the other meter records the total consumption of energy in units in the month. Let us take the case of the respondent to illustrate the point. The maximum demand in his case is upto but not exceeding 7778 KVA. That is his requirement. In the normal times, he is entitled to draw energy at that level/load. That is his maximum demand under the agreement. But he may not always do so. Say, in the given month, he draws energy at 6000 KVA level only, even then he has to pay the minimum charges as stipulated in the agreement. But if he draws and consumes energy exceeding eight per cent of the energy, he pays demand and energy charges for what he utilises. Now, let us notice how the trivector meter, i.e., the meter which records the maximum demand works; the meter is so designed that it only records the maximum load/level at which energy is drawn over anyperiod in a month. It only goes forward but never goes back until it is put back manually. To be more precise, suppose the respondent has drawn energy at 7770 KVA for aperiod on the first day of the month, the meter will record that figure and will stay there even if the respondent consumes at 7000 or lesser KVA level during the rest of the month. 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 constantin the case of thermal station, problems of supply of coal and oil, quality of coal supplied and other problems result in the Board producing electricity at a level far lower than what it normally does. During periods of such reduced generation/supply, problems of distribution arise. There are several categories of consumers; industrial (including bulk consumers), commercial, agricultural and domestic besides some other categories. Naturally, everybody cannot be supplied the full quantity of energy required; it has to be rationedand may be, supply staggered.It is obvious that an order made under Section 22.B is binding upon the Electricity Board and overrides the contracts and agreements which the Board may have entered into with the consumers. When an order under Section 22.B is issued, the Board is freed from the obligation to supply energy at the level stipulated in the agreements with the consumers and its obligation is to supply in accordance with the order under SectionOn this score, there is no controversy. The controversy is with respect to the power of the Board to collect maximum demand charges at the rate prescribed in the agreement during such periods of restricted supply. In short, the question is with respect to the power of the Board to frame Regulation 46 and more particularly, the reasonableness of the proviso to the said Regulation.Regulation 46, it is evident,is designed to meet the situation obtaining during the period an order under Sectionof the Electricity Act, 1910 is in force. It says so specifically. The Regulation says that when such an order is in operation, the Board shall be under no obligation to supply the contracted demand/maximum demand and that it will supply energy only in accordance with the restrictions placed by such order. To this extent it states the obvious. The provisowhich is the one in questionthen says that during the period of such restricted supply if the restriction on supply exceeds 150 hours in a month, (a) the consumer shall not be liable to pay minimum charges in accordance with the agreement but (b) he shall pay in case oftariff, on the basis of actual energy consumption and the maximum demand as provided in the agreement and (c) in all other cases, (i.e., in case of consumers to whomtariff does not apply) on the basis of actual consumption of energy.Apart from criticizing the above reasoning, Sri Hegde, learned counsel for the Board complains that the decision of the High Court is coloured by the extreme example taken by it relating to the month of January, 1989 (Bill No. 705 dated February 3, 1989). The learned counsel explains that during the month of January, i.e. on January 5, 1989, there was "system disturbance following failure of a 220/132 KVat TTPS, Talcher for which loads had to be restricted to all thereceiving power 132 KV., from TTPS due to which M/s IPISTEEL were not allowed to draw their furnace load during the several periods in the month of January, February and March,1989 which extended to more than 3 days at a stretch each time" and on which account a special remission has been granted to the respondent under Board Memorandum No.Com.I.70/83, a copy of which has been placed before us.Now coming back to the facts of the case before us, it must be stated at the outset that the validity or justifiability of the order made by the Government of Orissa under Sectionis not questioned nor is it in issue. We must,therefore, proceed on the assumption that the cut was imposed because it was necessary to ensure equitable supply of energy to various consumers in the State. It is equally beyond dispute that an order made under Section 22.B is binding upon the Electricity Board as well as the consumers and supersedes and overrides the agreements that may have been entered into between the Board and the consumers. According to the said order, the cut was fifty per cent and the cut was operative for one full year, called water year. The respondent was, therefore, bound to utilise only fifty per cent of what is permitted under the Agreement. In other words, it must consume only half the energy which it was entitled to consume under the agreement in a month or in a year, as the case may be. Evidently, if the respondent drew energy at the maximum demand level, i.e., at the maximum contracted level, and did so for the whole of the year, it would be utilising the full quota of energy permissible to him under the agreement, which he cannot do in view of the fifty per cent cut imposed by the order under SectionThe order under Sectionread with the option given by the Board, means, according to the Board, that either the consumer draws energy at half the maximum demand level and operates for full year or draws energy at full maximum demand level and operates only for half the relevant year of restriction, as explained hereinbefore. The choice is left to the consumer to arrange his affairs in such manner as he thinks fit provided he does not go beyond the quota (restricted quota) prescribed for him. Now, Regulation 46 says that during the period an order under Sectionis in operation and the hours of restriction exceed 150 hours in a month, the consumer is relieved of the obligation to pay the minimum charges, i. e., the obligation to pay eighty per cent of the charges even if he avails of and consumers less power. The consumer governed by thetariff is, however, obliged under the said regulation to pay "on the basis of actual energy consumption and the "maximum demand" as provided in the agreement". Now, what does this mean in practice ? If the consume avails of energy at half the maximum demand/contract demand, he will pay demand charges only for that. In other words, if the respondent had drawn energy at 3889 KVA, he would pay demand charges only for 3889 KVA plus the charges for the actual number of units consumed by him. Similarly, had the respondent availed of the energy at, say 3000 KVA he would have been liable to pay demand charges only on that basis plus the energy charges, and if he had availed of energy at maximum demand then he would have been liable to pay demand charges for the maximum demand availed by him plus the energy chargesthe over all restriction being that he should have remained within the fifty per cent quota prescribed. Thus, in no event, a consumer is made to pay maximum demand charges for more than what he actually availed. As stated above, thelimitation is that he must have remained within the fifty per cent quota allotted to him during the year of restriction. We are unable to see any arbitrariness or unreasonableness in the said proviso. It means and says that during such periods of restricted supply, the consumer pays the energy charges for the actual consumption plus maximum demand charges for the maximum demand availed of by him at the rate prescribed in the agreement.31. The High Court faulted the proviso to Regulation 46 on the ground of arbitrariness and unreasonableness. The reasoning of the High Court is this : if in a given case, an industry avails of energy at 7000 KVA on the first day of the month but does not take any energy for the remaining twenty nine days of the month, it would still be liable to pay the demand charges for the month at the rate prescribed in the agreement, viz, 7000 KVA xwhich is not only arbitrary and unreasonable but also confiscatory in nature. With great respect, we are unable to subscribe to this view. This would precisely be the result even in the normal times. Even when there is no power cut in force, if an industry draws energy at 7000 KVA on the first day of the month and does not draw the energy at all on the subsequent twenty nine days, it would still be required to pay the demand charges at 7000 KVA x Rs.This is because the demand charges are meant to cover investment, installation and the standing charges to some extent, as held by this Court in Northern India Iron and Steel, (AIR 1976 SC 1100 ) which is precisely what we have explained hereinbefore. To say that demand charges should not be collected if the consumer does not avail of the electricity on the remaining, twenty nine days in a month in the above illustration would be to deny and disallow the very concept of and rationale behind the maximum demand charges. Of course, situation would be different, if in the above illustration, the Board does not or is unable to provide even the restricted supply in the manner explained herein before. In such a situation, the consumer would certainly be entitled to the relief in an equitable manner, just as he would have been entitled to relief in normal times. In other words, what would happen if during normal times such a thing happens ? Same would be the situation during the period of cut. There is in effect no distinction between both situations except that during periods of restricted supply, the availability of energy is reducedthe contracted supply. Now it is not the case of the respondent that in any month electricity energy was available for the first day of the month or on any particular day or days and not for the whole month. So far as the period January to March 1989 is concerned, the situation in that month was a special one. It is explained by the Board that on January 5, 1989 there was a system disturbance on account of failure of a 220/132 KVat TTPS Talcher on account of which the industries like the respondent were not allowed to draw energy even in accordance with the cut and restriction impose by the Government of Orissa and the Orissa Electricity Board. It is explained that on account of this unusual situation and on the basis of the representation of the respondent, it has been given a special rebate in Board Memorandum No.Com.Under this memorandum, it has been decided that some relief be provided to the consumer by exempting the demand charge for the period when power was restricted to this industry for a continuous period of seventy two or more as special case (for the months of January 89 to March 89 only). If this is approved, the monthly maximum demand charges of this unit for the three months from January, 89 to March, 89 shall be prorated for the period of supply excluding the period when power supply was not given to the consumer continuously for seventy two hours or more. This concession, if allowed, shall be a special case not to be cited as a precedent for future." It is stated by Sri Hegde, learned counsel for the Board that a special concession has been approved and given to the respondent for the said months.32. The other reason given by the High Court in support of its decision is contained in the second of the two extracts from its judgment set out by us hereinbefore. It takes the January, 1989 situation as a representative situation and seeks to demonstrate on that basis the arbitrariness and irrationality of the proviso to Regulation 46. But as stated hereinbefore that was an unusual situation for which appropriate relief has been given to the respondent. The validity of regulations, which have the force of law, should not be judged by taking either a stray case or an unusual case but on the generality of the situation. All that happens during the period of restriction is that electricity is generated at a lower level than usual; if the fall in production is expected to be fifty per cent, a corresponding restriction is imposed on consumption. So far as breakdowns and trippings etc. re concerned, they are not confined to periods of restrictions alone; they may occur during normal times as well. If there is no supply at all for considerable periods, the situation would be different, whether it happens during the period of normal supply or during the period of restricted supply, but we are not concerned with or called upon to pronounce upon such a situation. For the unusual situation obtaining during1989 aforesaid, appropriate relief has already been given to the respondent.33. We must, therefore, say that no arbitrariness or unreasonableness is involved in Regulation 46 or its proviso. It only provides for collecting demand charges for the actual maximum demand availed by such consumers during the period of restricted supply. The consumer cannot legitimately complain of this course nor can it characterise it as confiscatory. We must also say that none of the decisions relied upon by the learned counsel for the respondent lays down any principle which can be said to suggest that such a rule is arbitrary and unreasonable. Once we understand the system oflevy and the rationale behind it, as also the compulsions arising from an order under Sectionof the Electricity Act,1910, there would be no room or ground for impugning the validity of Regulation 46 of its proviso. Difficulties are no doubt theredifficulties of the consumer and difficulties of the Board. They are essentially the problems of shortages, perhaps epidemic to a developing economy. As rightly emphasised by Sri Hedge, the respondent would have faced the same problems if he had installed his own plant for generating electricity to meet his needs. While the respondent says that it has suffered on account of these cuts, the Board says that by reducing the demand charges during such periods, it is also suffering. The consumer accuses Board of several failings and the Board has its own explanations. It is not possible to go into them. It is enough to say that in the circumstances, Regulation 46 or its proviso cannot be termed as arbitrary or unreasonable, much less confiscatory.