Orissa Electricity Regulatory Commission’s Subsequent Order Cancelling Licenses Of Distribution Companies Will Have No Bearing On Tariff Fixation Of Earlier Years: SC

The Supreme Court held that the subsequent orders of the Orissa Electricity Regulatory Commission (Commission) canceling licenses of distribution companies (DISCOM) will have no bearing on the tariff fixation of earlier years.

The Bench comprising Justice Sanjay Kishan Kaul and Justice Abhay S. Oka observed, “There is a subsequent order of the Commission by which the licenses of DISCOMS were cancelled. The same will have no bearing on the tariff fixation of earlier years”.

Senior Advocate Shekhar Naphade appeared for the Appellants, and Advocate Raj Kumar Mehta appeared for the Respondent.

A number of Civil Appeals were filed by the Government of Orissa Undertaking (GRIDCO), Western Electricity Supply Company of Orissa Ltd. (WESCO), North-Eastern Electricity Supply Company of Orissa Ltd. (NESCO), Southern Electricity Supply Company of Orissa Ltd. (SESCO), and the Orissa Power Transmission Corporation Ltd. (OPTCL) against the orders of the Appellate Tribunal of electricity. The Appeals concerned the annual revenue requirement (ARR) and bulk supply tariff (BST) for the years 2006-07 to 2012-13.

The Court noted that the Appeals were preferred under Section 25 of the Electricity Act (EA), which provides that an appeal to the Court will lie on the grounds set out under Section 100 of the Code of Civil Procedure, 1908 (CPC). Thus, the Court held that the scope of the appeals is limited to substantial questions of law.

The Court observed that the Commission exercises quasi-judicial powers in fixing tariffs and that the Appellate Tribunal can review the Commission’s decisions. The Court expressed doubt about the propriety of the Commission appealing against the Appellate Tribunal’s orders, as those orders bind the Commission. The Court held that the Commission could only be an aggrieved party if it exercised legislative functions.The Bench observed that DISCOMS always have locus standi to challenge the order of the Commission if such decision affects them.

“A. Whether OERC acted illegally and with a mis-direction in allowing Rs.480 crores, being the principal loan amount to pass through in the BST tariff of the GRIDCO?"

The Bench noted that the Appellate Tribunal ruled that interest on loans, being a cost, can be passed through in subsequent orders for subsequent years. The Court confirmed this view while dealing with the other impugned orders. The interest cannot be equated to the principal loan amount, as the interest will be the cost incurred by GRIDCO, the Court held. However, the interest burden can be passed on to DISCOMS in proportion to their outstanding. Therefore, the Bench held that while passing a fresh order in terms of the final order, the Commission will have to allow the interest on the loan to pass through, as observed above, but the principal loan amount cannot be allowed to pass through.

"B. Whether the export earnings of power by GRIDCO has been rightly assessed? Whether the exclusion of export earnings from the Revenue of GRIDCO is illegal and consequently the annual revenue requirement and tariff determination are liable to be modified?"

The Court observed that the Appellate Tribunal ruled that GRIDCO’s earnings from trading surplus power outside the state cannot be excluded from its earnings. The Tribunal reasoned that if GRIDCO’s entire power purchases were considered and allowed as expenses, there was no reason to exclude the power that had been exported, on which GRIDCO had earned a significant amount. The income received by GRIDCO from power exports is revenue and must be treated as receivable during the relevant year. This was the approach adopted by the Commission in previous years. The Appellate Tribunal found that GRIDCO had earned Rs.943 crores from power exports, which was an undisputed fact. The Court affirmed the Tribunal’s views.

"C. Whether the failure to undertake truing up exercise by Regulatory Commission for the previous years suffers with illegality and liable to be interfered and consequential direction requires to be issued?"

Th Court affirmed the decision of the Appellate Tribunal directing the Commission to undertake the truing-up exercise for the earlier two financial years.

"D. Whether quantum of power procurement estimated by the GRIDCO and approved by the Regulator without reference to the actuals is liable to be interfered and modified?"

The Bench observed that the Appellate Tribunal did not rule the issue and rather directed the Commission to take it up during the truing-up exercise and assess the miscellaneous income of the three DISCOMS. The Court noted that the Commission later undertook this truing-up exercise.

"E. Whether the cost of procurement as approved by the Regulatory Commission liable to be considered excessive, arbitrary, and suffers from errors?"

 The Court observed that the Appellate Tribunal had noted that the quantum of purchase of the power by GRIDCO for DISCOMS as approved by the Commission for 2006-2007 was 11% more than what was approved for the earlier year. However, the Bench noted that the Tribunal instead of taking a final decision, directed the Commission to work out this action in the truing-up exercise.

F. Whether passing of higher interest burden to the Discoms is sustainable or liable to be interfered?"

The Appellate Tribunal directed the Commission to look into the aspect by taking a practical view of the ground realities while doing truing-up exercise instead of proceeding on assumptions and surmises, the Court noted. 

Therefore, the Court dismissed Civil Appeal No. 414. Concerning Civil Appeals no 463 and 572, the Court affirmed the Appellate Tribunal’s decision. Similarly, the Court affirmed the Appellate Tribunal’s decision in Civil Appeal no 2942-43.

The Court further dismissed Civil Appeal No. 2674 while noting that the finding of the Commission on the issue of allowing excess payment by GRIDCO towards FPA for NTPC bonds was answered by the Appellate Tribunal, thereby confirming the view of the Commission. Therefore, the Appeal filed by the Commission is without merits. Concerning the Appeal filed by OPTCL, the Court noted that under clause (i) of Section 61 of the EA, the Commission has to be guided by the National Tariff Policy. Therefore, the Court affirmed the decision of the Tribunal. Hence, the Court restored the Commission’s order.

The Court observed that the Appellate Tribunal held that there is no absolute prohibition on allowing an advance against depreciation under the policy. The policy states that the CERC will notify the depreciation rates, so there is no need for any advance against depreciation. However, it was found that the CERC has not notified the said rates. The Appellate Tribunal noted that the State Commission is empowered to allow an advance against depreciation to ensure the financial viability of OPTCL. The Court further emphasized that except for issue A, no other substantial issue of law arose in this case.

Cause Title: GRIDCO Ltd. v Western Electricity Supply Company of Orissa Ltd. & Ors. (2023 INSC 872 )

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