Bses Rajdhani Power Ltd. vs Delhi Electricity Regulatory Commission

s. 64 – Procedure for tariff order – Amendment of tariff order made u/s. 64 during the ‘truing up’ exercise – Permissibility of – Held: A tariff order is quasi-judicial in nature which becomes final and binding on the parties unless it is amended or revoked u/s. 64(6) or set aside by the appellate authority – ‘Truing up’ stage is not an opportunity for the DERC to rethink de novo on the basic principles, premises and issues involved in the initial projections of the revenue requirement of the licensee – ‘Truing up’ exercise cannot be done to retrospectively change the methodology/principles of tariff determination and re- opening the original tariff determination order thereby setting the tariff determination process to a naught at ‘true-up’ stage – Revision or re-determination of the tariff already determined by DERC on the pretext of prudence check and truing up would amount to amendment of the tariff order, which can be done only as per the provisions of sub-Section (6) of s.64 within the period for which the Tariff Order was applicable – DERC cannot amend the tariff order for the period 01.04.2008 to 31.03.2010 in the guise of ‘true-up’ after the relevant financial year is over and the same is replaced by a subsequent tariff Order – This would amount to a retrospective revision of tariff when the relevant period for such tariff order is already over – Thus, not permissible to amend the tariff order made u/s. 64 during the ‘truing up’ exercise.

s.125 – Appeal to Supreme Court – Exercise of jurisdiction under – Held: Existence of a ‘substantial question of law’ arising from the judgment of the APTEL is sine qua non for exercise of jurisdiction by this Court u/s. 125 – Code of Civil Procedure – s.100. Words and Phrases:

‘Truing up’ – Meaning of – Held: ‘Truing up’ is the adjustment of actual amounts incurred by the licensee against the estimated/projected amounts determined under the Annual revenue requirement-ARR.

‘Substantial Question of Law’ – Meaning of – Discussed.

‘Appeal’ – Meaning – Discussed.

Allowing the appeals, the Court

HELD: 1.1 An appeal to this Court under Section 125 could be filed on the grounds specified in Section 100 of the CPC. Under Section 100 of the CPC, an appeal could be filed only when the case involves ‘a substantial question of law’, as may be framed by the appellate court. Thus, the existence of a ‘substantial question of law’ arising from the judgment of the APTEL is sine qua non for exercise of jurisdiction by this Court under Section

125 of the 2003 Act. [Para 27][807-H; 808-A-B]

1.2. A tariff order is quasi•judicial in nature which becomes final and binding on the parties unless it is amended or revoked under Section 64(6) or set aside by the Appellate Authority. Apart from this, at the stage of ‘truing up’, the DERC cannot change the rules/methodology used in the initial tariff determination by changing the basic principles, premises and issues involved in the initial projection of ARR. [Para 51][816-C-D]

1.3. ‘Truing up’ means the adjustment of actual amounts incurred by the Licensee against the estimated/projected amounts determined under the ARR. ‘Truing up’ stage is not an opportunity for the DERC to rethink de novo on the basic principles, premises and issues involved in the initial projections of the revenue requirement of the licensee. ‘Truing up’ exercise cannot be done to retrospectively change the methodology/principles of tariff determination and re•opening the original tariff determination order thereby setting the tariff determination process to a naught at ‘trueup’ stage. [Para 52, 53][816-D-E; 817-B-C]

1.4 Revision or re-determination of the tariff already determined by DERC on the pretext of prudence check and truing up would amount to amendment of the tariff order, which can be done only as per the provisions of sub•Section (6) of Section 64 of the 2003 Act within the period for which the Tariff Order was applicable. DERC cannot amend the tariff order for the period 01.04.2008 to 31.03.2010 in the guise of ‘true-up’ after the relevant financial year is over and the same is replaced by a subsequent tariff Order. This would amount to a retrospective revision of tariff when the relevant period for such tariff order is already over. Therefore, it is not permissible to amend the tariff order made under Section 64 of the 2003 Act during the ‘truing up’ exercise. [Para 55][817-E-G]

1.5 In the original MYT determination (Tariff Order dated 28.05.2009), the DERC took into account the full late payment surcharge (‘LPSC’) revenue as also the DVB arrears while computing the targets of Collection Efficiency. However, while truing up for the year in question, the DERC has retrospectively sought to take away part of the LPSC revenue by deducting the Financing Cost on LPSC in comparing the actual Collection Efficiency with the projected Collection Efficiency. Hence,allowing the Financing Costs on LPSC revenue and then deducting it from the LPSC revenue would tantamount to giving by one hand and taking it away by the other. This order of the DERC is contrary to the original MYT determination. [Para 57, 58][818-A-B; 819E-F]

1.6 In the Original Determination Order dated 28.05.2009 (F.Y. 2008-09), DERC has allowed depreciation on the assets funded by consumer contributions. However, DERC changed the methodology of computation of ARR at the stage of true up. According to the learned counsel for the respondent, DERC had inadvertently made an error and adopted an approach contrary to the mandate of 2007 MYT Regulations while computing the depreciation when originally issuing the tariff order, which was rectified in the true up exercise. However, learned counsel for the appellants submit that no error has been committed by the DERC in the tariff order dated 28.05.2009 and it is only after considering the relevant MYT Regulations that depreciation to the appellants on the assets that were funded by consumer contributions was allowed. Perusal of the Tariff Order dated 28.05.2009 would clearly indicate that after considering the contentions of the parties the aforesaid depreciation has been allowed. The Court has already held that it is not permissible to amend the tariff order during true up exercise. On the pretext of prudence check and truing up, DERC could not have amended the tariff order. [Paras 59, 60][819-F-H; 820-A-B]

1.7. During projection of expenses for the entire control period, the Tariff Order dated 23.02.2008 had projected employee expenses considering inter alia the impact of the anticipated Sixth Central Pay Commission Report. However, contrary to its own undertaking, the DERC in Tariff Order dated 26.08.2011 has erroneously changed its own methodology at the stage of truing up, by not allowing employee expenses of FR/SR employees as per actuals. The DERC, at the stage of truing up, has changed the methodology and disallowed the actual salary of FR&SR employees, which is impermissible. The DERC in the Tariff Order dated 26.08.2011 has acted contrary to its own undertaking of truing up the impact of employee expenses on account of the Sixth Central Pay Commission Report. [Paras 61,63][820-B-C; 822-F-H]

1.8 As regards the issue is in relation to disallowance of fringe benefit tax, the DERC has allowed fringe benefit tax in the MYT Order dated 23.02.2008. The DERC, at the stage of truing up for the F.Y. 2008•09, has changed the methodology and disallowed the fringe benefit tax incurred by the appellants. DERC cannot re•open the basis of determination of tariff at the stage of ‘truing up’. Revision or redetermination of the tariff already determined by the DERC on the pretext of prudence check and truing up would amount to amendment of tariff order, which is not permissible in law. Truing up stage is not an opportunity for DERC to re•think de novo the basic principles, premises and issues involved in the initial projection of the revenue requirements of the licensee. Therefore, the findings of the DERC, as confirmed by the APTEL in the impugned order, on issue nos. 1, 2, 3 and 5 are contrary to the order of the original MYT determination (Tariff Order(s) dated 23.02.2008 and 28.05.2009) which are accordingly set aside. [Paras 64-67][823A-B, D-G]

1.9. As regards disallowance of interest incurred on Consumers Security Deposit retained by Delhi Power Company Limited (‘DPCL’), the DERC in the tariff order dated 26.08.2011 has disallowed the interest on Consumers Security Deposit paid for pre•privatization period received by DVB, which is yet to be transferred to the appellants. The APTEL has confirmed this order of the DERC. At the time of unbundling of the erstwhile DVB (w.e.f. 01.07.2022), the quantum of Consumers Security Deposit reflected in the opening balance sheet notified in terms of statutory transfer scheme, was not transferred by the DPCL (the Holding Company wholly owned by the Government of NCT of Delhi) to the appellants and other successor private Discoms. The appellants being distribution licensees under the 2003 Act are required to and are continuing to pay interest on the said Consumers Security Deposit in terms of Section 47(4) of the 2003 Act even though the principal sum was never transferred to them in its entirety by DPCL. The DERC by its order dated 23.04.2007 has held that it does not have power to issue any directions to DPCL. [Para 68, 69][823-G-H; 824-A-C]

1.10. Disallowing interest paid by the appellants towards Consumers Security Deposit held by DPCL in the ARR of the appellants is wholly misconstrued. Interest on consumers’ deposit which is being paid by the appellants is a legitimate expense. It is not in dispute that the security deposit was not transferred by the DPCL to the appellants. However, the appellants were required to bear the costs of the same. In case, the principal sum on Consumers Security Deposit held by DPCL is transferred to the appellants with interest, the appellants would, subject to their legitimate expenditures, retain such interest and benefit of any balance of excess interest received by the appellants would be passed on to the consumers in tariff. Therefore, there is no merit in the contention of the learned counsel for the respondent that if the interest burden is passed on to the consumers presently, the appellants would, in effect, receive a double benefit in case they succeed in the writ petition pending before the High Court. Therefore, the appellants are entitled to recover interest on Consumers Security Deposit as held by the DPCL. The DERC is directed to allow the interest on Consumers Security Deposit held by the DPCL and impact thereof to the appellants. The findings of the DERC and the APTEL in this regard are set aside. [Paras 71,72][824-E-H; 825-A-B]

1.11. As regards, the issue of enforcement sales i.e. sales which are deemed to have been occurred in cases of electricity theft, the question arose whether the impugned findings in the order of the APTEL are against the legal principle that when the statute creates a legal fiction i.e. energy assessed is ‘deemed’ to be consumed, the same has to be given effect to with all its consequences i.e. same quantum of energy is to be accounted for as supplied. [Para 73][825-B-C]

1.12 Electricity transmitted may be stolen or used unauthorizedly. While theft/unauthorized use was approximately 60% before privatization, it has now been brought down to 7 to 8%. Unauthorized use and theft are dealt with in Section 126 of the 2003 Act. The Vigilance/Enforcement Department detects theft/unauthorized use of electricity. After giving due opportunity, the bills are generated for electricity stolen/unauthorized use.These are called enforcement sales/assessed sales. The statutory charge for such theft/unauthorized use is twice the normal rate. While settling enforcement cases of small consumers, Lok Adalats often provide discounts to errant consumers on the assessed equivalent of the rupee amount and not on the assessed units of energy. The assessment of units of energy as deemed to be sales to the consumers is in accordance with Section 126 of the 2003 Act read with provisions for such assessment specified by the DERC itself. [Para 74-76][825-C-D; 826-A-C]

1.13. The methodology adopted by the DERC is contrary to the settled principle of law that when the law deems a certain imaginary state of affairs as real, DERC would not let its imagination boggle at treating the 100 units as sales. Such imaginary state of affairs must be taken to its logical end and commend the treatment of 100 units as ‘sales’. The assessed energy has to be considered as supply by the appellants in enforcement cases. Therefore, the DERC to consider assessed energy for calculation of enforcement sales and allow the impact of the same along with carrying costs. [Para 79, 80][827-C-E]

1.15 The substantial questions of law are answered accordingly. The order(s) of the DERC and the judgment of the APTEL impugned, to the extent mentioned above are hereby set aside. [Para 81][827-F]

Gujarat Urja Vikas Nigam Limited v. Tarini

Infrastructure Limited & Others (2016) 8 SCC 743 : [2016] (5) SCR 990 – held inapplicable. Sir Chunilal V. Mehta & Sons Ltd. v. The Century Spg. & Mfg. Co. Ltd. 1962 Supp (3) SCR 549 : AIR 1962 SC 1314; PTC India Limited v. Central Electricity Regulatory Commission, Through Secretary (2010) 4 SCC 603 : [2010] (3) SCR 609; SLDC v. GERC 2015 SCC Online APTEL 50; NDPL v. DERC 2007 ELR (APTEL) 193

– referred to.