Case: Coimbatore Stock Exchange Ltd. &amp; Another Vs. Tamil Nadu Electricity Regulatory Commission &amp; Others

Tamil Nadu Electricity Board (for short, the Board) submitted a petition under Regulation 7 of the Tamil Nadu Electricity Regulatory Commission Tariff Regulations, 2002 (for short, the Regulations) for revision of tariff w.e.f.1.12.2002. The Commission issued public notice and invited objections/suggestions from various stakeholders. The appellants and other consumers filed objections against the proposed hike in tariff. After conducting public hearing, the Commission passed detailed order dated 15.3.2003, the relevant portions of which are extracted below:"7.4 Average Cost of SupplyThe Commission has designed ARR Formats such that data regarding thecost of supply is maintained by the TNEB, with the eventual aim of linking the tariffs to thecost of supply, if not thecost to serve. The consumers will appreciate that the cost of supply at higher voltages will be lower than that at lower voltages, on account of the downstream distribution costs and the higher level of TD losses at lower voltages. If the tariffs are determined in relation to the voltage level cost of supply, then the tariffs for the LT consumers will have to be increased substantially. Moreover, the level ofwith respect to the average cost of supply is itself high. The Commission would also like to have more data and a more detailed analysis of the voltage level costs before arriving at the voltage level cost of supply.The Commission is of the view that the tariffs should gradually approach the average cost of supply, and the Commission would attempt to eliminate thein a period of five years. The Commission is of the view that considering the data availability, the average cost of supply method is the most suitable methodology for the present. The average cost of supply in FY03 and FY04 has been computed as shown in the Table below:(Table omitted)7.5ReductionThe Commission is committed to gradually reduce thein the State over aperiod, by increasing the tariffs applicable to the subsidised categories, viz. agriculture, domestic, Lift Irrigation Societies, power looms and Cottage industries, and reducing the tariffs applicable to the subsidising categories, viz. HT and LT industrial consumers, Railway Traction, HT and LT Commercial category, etc. However, the magnitude of the tariff revision required and the level ofis such that the Commission has been compelled to increase the tariffs for the subsidising categories also, in order to avoid tariff shock for the subsidised categories. The Commission has endeavoured to minimise the tariff increase for the subsidising categories while undertaking higher tariff increases for the subsidised categories. Thesales and revenue from approved tariffs have been summarized in Annexure A. Theincrease in average realisation is shown in the Table below:Table: Increase in Average RealisationCONSUMER CATEGORYAVERAGE REALISATION IN Rs/kWh% INCREASE IN AVERAGE REALISATIONHT Industry4.194.594.476.69RailwayHT Commercial5.436.236.2116.37LiftAL HT CATEGORY4.314.734.617.14Domestic1.792.292.1822.13Huts (Unmetered)T Educational Institutions3.894.594.5316.61LT PublicT Industries4.074.704.4810.20IT Parks, IT industry3.804.364.2511.85Agriculture** Commercial4.835.835.8019.96Temporary supply10.00LT CATEGORY1.942.472.3119.30TOTAL HT: i) Average realisation includes fixed charges and energy chargesii) Average realisation numbers rounded of the nearest 2 decimalsiii)rate tariff in Rs./Month**Flat rate Tariff in Rs./HP/MonthThe above table shows that the Commission has attempted to increase the tariffs for the subsidised categories to a higher extent than that for subsidising categories.7.7 Tariff for erstwhile free supply categories7.7.1 GeneralThis aspect is very sensitive and has aroused a lot of opinions, both, for and against, during the public hearings and there have also been several objections in this context. In subsequent sections, the Commission has discussed the tariff for the agricultural category and the hut service connections, in detail.7.7.2 Agricultural TariffThe TNEB has proposed a flat rate tariff of Rs. 600 per HP per year for unmetered agricultural connections and 50 paise/kWh for metered agricultural connections. A comparison of the prevailing agricultural tariffs in selected states where SERCs have issued Tariff Orders, is given in the following table :(Table omitted)xxx xxx xxxThe Commission appreciates that the small farmer will be unable to pay substantial tariffs immediately, and the tariff increase has to be gradual. It should also be borne in mind that the supply availability to agriculture is restrictive as compared to other categories. Moreover the voltage profile for agricultural supply is also said to be poor to most of the services. Water table in many of the places in Tamil Nadu has gone down considerably and more energy is required to pump water. It is pertinent to note that, of the 29 districts in the State, all districts except Chennai are declared by the Government as drought hit. Under these extreme circumstances, the Commission is constrained not to concede the request of TNEB to charge the agricultural consumers at the rate of Rs.600/HP/ Annum. Considering all the above, the Commission has decided to introduce tariff for agriculture at the rate of Rs.250 per HP per annum, for unmetered services or 20 paise per unit for metered services. In order to incentivise the consumers to opt for metered services the monthly minimum charge for metered services has been fixed at Rs.25. The billing cycle for agricultural consumers shall be half yearly, and the first bill will be raised at the end of September 2003.7.7.3 Hut Service ConnectionsAs stated earlier, the ERC Act provisions effectively does not permit free supply of electricity to any consumer category, and if the State Government wishes to subsidise these consumers, then it has to compensate the TNEB for the corresponding revenue loss. Moreover, the TNEB has itself stated that there have been instances of misuse/excess use of electricity from such free hut service connections. The Commission has hence accepted the TNEBs proposed tariffs of Rs.10 per connection per month. If the consumption of the hut service connections is found to exceed the normative levels, then meters will be installed and domestic tariffs will be applicable as per the slab rates applicable for the domestic category."Paragraph 6.2.2 of the Tariff Order, which speaks of State Government subsidy is also extracted below:"6.2.2 State Government SubsidyThe Section 29(5) of the ERC Act, 1998 states, "If the State Government requires the grant of subsidy to any consumer or class of consumers in the tariff determined by the SERC under this section, the State Government shall compensate the utility in the manner directed by the SERC". In its Tariff Petition, the TNEB has stated that the Government of Tamil Nadu (GoTN) has committed a revenue subsidy of Rs. 250 crore for FY03, by creating a provision in the State Budget for FY03, and not indicated any subsidy commitment for FY04, due to its own financial situation. However, in the Petition, the TNEB has assumed GoTN subsidy of Rs. 250 crore for both years, i.e. FY03 and FY04. The TNEB has further clarified that the GoTN revenue subsidy is being given specifically to compensate the TMEB for the subsidized supply of electricity to agricultural consumers. Government of Tamil Nadu in their written submission which has been reproduced in earlier sections have stated that the present financial status does not permit them to provide any subsidy in FY04. The Commission has taken note of the submissions in this regard by TNEB and GoTN and determined the tariff accordingly."

Court's reasoning:
In the present case, the State Commission has, keeping in view the factors like geographical location of the consumers, the quantum of energy consumed by them, the time at which the energy is supplied to them, the nature of supply etc. fixed different tariffs for different classes of consumers. Therefore, it is not possible to find any fault with the view taken by the High Court that the Commission was entitled to fix different tariff for different consumers and that fixation of lower tariff for certain classes of consumers did not amount to violation of Article 14 of the Constitution.It is also apposite to note that in the past, the Board had been supplying electricity to HT consumers (industrial and commercial), who have been described by this Court in Hindustan Zinc Ltd. v. Andhra Pradesh State Electricity Board (supra) as power guzzlers and tariff was increased for them keeping in view the object of achieving the target of average cost of supply and reducingin the State. In this context, reference can usefully be made to Paragraph 7.5 of the Tariff Order.We also agree with the High Court that the judgment in West Bengal Electricity Regulatory Commission vs. C.E.S.C. Limited (supra) is distinguishable on facts. The facts of that case show that the Calcutta High Court had interfered with the exercise undertaken by the appellant for determination of tariff for2. While setting aside the order of the High Court, this Court considered various issues including the issue relating toand observed:"A perusal of Sections 29(2)(d), 29(3) and 29(5) of the 1998 Act showsthat the consumers should be charged only for the electricity consumedby them on the basis of average cost of supply of energy, and thetariff should be determined by the State Commission without showingany undue preference to any consumer. The statute also obligates theState Government to bear the subsidy which if it requires to be givento any consumer or any class of consumers, should be only on suchconditions that the Commission may fix and such burden should be borneby the Government. However, the High Court in its judgment hasdirected the Company to maintain its tariff structure in regard todifferent types of supplies as it was prevailing before the Commission fixed the new tariff. It also directed the increase in the average rate of tariff which it had permitted to be distributed pro rata by the Company amongst different consumers, so that the percentage of increase of each rate is the same. In effect, therefore, the High Court has directed the continuance ofOne of the reasons given by the High Court in this regard is that Calcutta Tramways which is otherwise running a cheap transportation system might have to increase its fare and the same cannot be permitted since Calcutta Tramways were not heard in the matter of fixation of tariff and there is, therefore, a likelihood of wide discontentment if the fares are to be increased. We have noticed that the object of the 1998 Act is to prevent discrimination in fixation of tariff by imposingbut at the same time under Section 29(5) of the 1998 Act, if the State Government so chooses to subsidise the supply of energy to any particular class of consumers, the same can be done provided of course the burden of loss suffered by the Company is borne by the State Government and not imposed on any other class of consumers. In this view of the matter, we are of the opinion that while the Commission was justified in its view as to they, the High Court was in error in issuing a direction to the Commission, contrary to the object and provisions of the 1998 Act to maintain a tariff structure which was prevailing prior to the Commissions report. It is still open to the State Government if it so chooses to direct the Commission to fix the tariff of supply of electricity to any class of consumers at a reduced rate provided the State Government itself subsidises the same."The present one is not a case of giving cross subsidy by the State under Section 29(5) after determination of the tariff. What the State Government had done was to make a commitment before the State Commission that it would provide revenue subsidy of Rs.250 crore for financial year 2003 by making a provision in the State Budget and the Board had clarified that the subsidy was being given for the subsidized supply of electricity to agricultural consumers. The State Government had filed written statement making it clear that no subsidy is being provided for the financial year 2004. The Commission took note of the same and then determined the tariff.Thus, it is not a case in which burden of subsidy has been transferred to other consumers. That apart, the appellants cannot be heard to make a grievance against the so called favourable treatment accorded to certain consumers because they had also availed the benefit of subsidized tariff in the past.The tariff determined for the Railways is in conformity with the demand made by it and we do not find any error in the impugned judgment whereby the High Court rejected their grievance in the matter of fixation of tariff.