//
you're reading...
legal issues

Electricity Act -payment of CSS to WESCO- SEZ – PPA – payment of CSS to WESCO -only for running it’s unit but not for Muliti Unit SEZ – Benefits conferred under Notification whether applies – and whether CSS is to be payable to WESCO – The Notification dated 03.03.2010 providing for the “Developer” of SEZ being deemed as a “Distribution Licensee” was issued keeping in view the concept of Multi Unit SEZs and will apply only to such cases in which the Developer is supplying the power to multiple Units in the SEZ. The said Notification will not apply to a Developer like the Appellant who has established the SEZ only for itself. Apex court held that it is not possible for the Appellant to avoid payment of CSS to WESCO. = M/s. Sesa Sterlite Ltd. ….Appellant(s) Vs. Orissa Electricity Regulatory Comm. & Ors. …Respondent(s) = 2014 (April. Part)http://judis.nic.in/supremecourt/filename=41475

Electricity Act –payment of CSS to WESCO-  SEZ – PPA – payment of CSS to WESCO –only for running it’s unit but not for Muliti Unit SEZ – Benefits conferred under Notification whether applies – and whether CSS is to  be payable to WESCO – The Notification  dated  03.03.2010  providing  for  the “Developer” of SEZ being  deemed  as  a  “Distribution  Licensee”  was issued keeping in view the concept of Multi Unit SEZs and  will  apply  only to such cases in which the Developer is supplying  the  power  to multiple Units in the SEZ. The said Notification will not apply to  a Developer like the Appellant who has  established  the  SEZ  only  for itself. Apex court held that it is not  possible  for  the  Appellant  to avoid payment of CSS to WESCO.  =

 

To recapitulate  briefly,

      in the present case no doubt by virtue of the status of a developer in

      the SEZ area, the Appellant is also  treated  as  deemed  Distribution

      Licensee.  

However with this, it only gets exemption from specifically

      applying for licence under Section 14 of the Act.  

In order  to  avail

      further benefits under the Act, the Appellant is also required to show

      that it is in fact  having  distribution  system  and  has  number  of

      consumers to whom it is supplying the electricity.  

That  is  not  the case here.  

For its own plant only, it is getting the electricity from Sterlite Ltd. for which it has entered into PPA.  

We have to  keep  in

      mind the object and scheme of SEZ Act which  envisages  several  units

      being set up in a SEZ area.  This is evident from a collective reading

      of the various provisions of the SEZ Act viz. Section 2(g)(j)(za)(zc),

      Section 3, 4, 11, 12, 13 and 15.  

There can be a Sector  Specific  SEZ

      with Several Units i.e. for IT,  Mineral  Based  Industries  etc.  but

      instances of single unit SEZ like in the present case of the Appellant

      may be rare.  

The Notification  dated  03.03.2010  providing  for  the

      “Developer” of SEZ being  deemed  as  a  “Distribution  Licensee”  was

      issued keeping in view the concept of Multi Unit SEZs and  will  apply

      only to such cases in which the Developer is supplying  the  power  to

      multiple Units in the SEZ.  

The said Notification will not apply to  a

      Developer like the Appellant who has  established  the  SEZ  only  for

      itself.

 

      44.  Having regard to the aforesaid  factual  and  legal  aspects  and

      keeping in mind the purpose for which CSS is payable, as explained  in

      detail in the earlier part of this judgment, we are of the  view  that

      on the facts of this case it is not  possible  for  the  Appellant  to

      avoid payment of CSS to WESCO.  

We, therefore, do not find  any  merit

      in this Appeal which is accordingly dismissed.

2014 (April. Part)http://judis.nic.in/supremecourt/filename=41475   
SURINDER SINGH NIJJAR, A.K. SIKRI

 

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5479 of 2013

 
M/s. Sesa Sterlite Ltd. ….Appellant(s)

Vs.

Orissa Electricity Regulatory
Comm. & Ors. …Respondent(s)

 

J U D G M E N T

A.K. SIKRI, J.

 
1. Instant is a statutory Appeal which is filed by the Appellant under
Section 125 of the Electricity Act, 2003 (hereinafter referred to as
‘the Act’). This Appeal arises out of the judgment and order dated
3rd May, 2013 passed by Appellate Tribunal for Electricity.

2. By the aforesaid judgment, the Appellate Tribunal has affirmed the
orders of the Odisha Electricity Regulatory Commission (hereinafter
referred to as the ‘State Commission’). The essence of these orders
is that even when the Appellant is a “Deemed Distribution Licensee”
for the purpose of Electricity Act, it is still liable to pay Cross
Subsidy Surcharge (CSS) to the Respondent No.8 viz. WESCO which is a
Distribution Licensee for the area in question.

3. To put it in nutshell, the case of the Appellant is that it has its
unit in Special Economic Zone (SEZ) and it is a Developer in the said
SEZ area. It is not drawing or utilizing any electricity from the
Distribution Licensee viz. WESCO for its unit namely VALE-SEZ. In
fact, the Appellant had entered into a Power Purchase Agreement (PPA)
dated 18th August, 2011 with M/s. Sterlite Energy Ltd. The Appellant
had filed application for getting approval of the said PPA. However
the Odisha State Commission, instead of granting the approval,
rejected the said PPA and directed the Appellant to pay CSS to WESCO
holding the Appellant to be a ‘Consumer’.

4. As per the Appellant, as it is a deemed distribution licensee for the
purpose of Electricity Act by virtue of it being a ‘Developer’
because of the reason that its unit is in SEZ area and such a
recognition is given to the Appellant statutorily under the
provisions of Special Economic Zone Act, 2005 (hereinafter referred
to as SEZ Act). Therefore, the question of payment of CSS to the
Distribution Licensee does not arise. It is also the case of the
Appellant that, in any case, since no electricity is being drawn from
the open access network of WESCO, there is no question of making
payment of cross subsidy surcharge. This is the brief description of
the dispute raised by the Appellant and in order to understand the
gravamen of this dispute, we take a tour of the factual roadmap.

The Facts:

5. These facts are in narrow compass and have been narrated succinctly
by the Appellate Tribunal in its order. As there is no dispute about
the correctness of these facts, we intend to traverse the same
therefrom. The Appellant is engaged in the business of production and
export of aluminium. The Appellant has set up a 1.25 MTPA capacity
aluminium smelter project in a sector specific Special Economic Zone.
After getting all necessary approvals for the development of SEZ for
manufacture of export of aluminium the appellant set up the aforesaid
plant. These approvals include the approval with captive power plant
as well. It is also a matter of record that on 27th February, 2009
the Ministry of Commerce and Industry, Government of India issued a
notification declaring the unit of the Appellant to be SEZ. It was
followed by Notification dated 3rd March, 2010 under Section 49(1) of
the SEZ Act. By the said notification, the Central Government of
promoting the objects of Special Economic Zone and in terms of powers
delegated under the Special Economic Zone Act, introduced a proviso
to the provisions of Section 14(b) of the Electricity Act, 2003. By
the said introduction, a developer of a Special Economic Zone was
declared as a deemed licensee authorized to distribute electricity
within the Special Economic zone area. The effect of the aforesaid
Notification under section 14(b) of the Electricity Act is that the
Appellant became a deemed Distribution Licensee.

6. It would be pertinent to mention at this stage that the units of the
Appellant are divided into two broad areas. One is Domestic Tariff
Area (DTA) where it has established one of its unit. Other unit is
VAL-SEZ which is in SEZ (hereinafter referred to as VAL-SEZ Unit).
In so far as its unit in DTA is concerned, it draws power from open
access and duly phased pays cross subsidy surcharge for this area.
There is no dispute to this extent. In the present Appeal, we are
concerned with VAL-SEZ which is in SEZ Area where the Appellant is
stated as deemed Distribution Licensee for the purpose of Electricity
Act by virtue of Notification under Section 14(b) of the Electricity
Act.

7. For supply of energy to this unit in SEZ Area (VAL-2), the Appellant
entered into a PPA on 18th August, 2011 with Sterlite Energy Ltd.
which was arrayed as Respondent No.4 in the Appeal. However during
the pendency of the Appeal under the scheme of merger approved by the
High Court, Sterlite stood merged with the Appellant itself and
because of this reason the Respondent No.4 (hereinafter referred to
as ‘Sterlite’) has been deleted from the array of parties at the
instance of the Appellant.

8. Since the supply of power by a Generating Company to Distribution
Company is regulated under the provisions of Electricity Act, 2003,
the Appellant on 30th August, 2011 filed a petition before the State
Commission for approval of the said PPA. Subsequently, the State
Commission at the preliminary hearing sought some clarifications with
regard to the factual aspects. The Appellant, thereafter filed two
amendment petitions. One was on 8th November, 2011 and another was
on 27th March, 2012 seeking for the additional prayer requesting the
State Commission to grant deemed distribution licence in favour of
the Appellant on the strength of the Government of India notification
issued dated 3rd March, 2010 with effect from the date of the said
notification.

9. As already pointed out above, the State Commission rejected this
application for grant of deemed Distribution Licensee and
subsequently rejected the prayer of the Appellant for approval of PPA
also. The State Commission, while doing so held as under:

“a. Since the Application for grant of Distribution License was
rejected, State Commission did not consider it necessary to go
into the issues relating to the PPA.

b. Consequent upon the rejection of the Application for grant
of Distribution License, State Commission held that VAL is to be
treated as a consumer of WESCO.

c. As a result, VAL has to pay cross subsidy surcharge to WESCO
for open access drawal of power from SEL.”

 
10. This Order of the State Commission has been upheld by the Appellate
Tribunal in Appeal filed by the Appellant.

Question of Law:

11. In the present Appeal, the Appellant has raised following question of
law which the Appellant recall this Court to determine an answer:

“Whether a developer of a notified Special Economic Zone,
who has been deemed by law to be a licensee for distribution of
electricity, is required to, once again, apply to Electricity
Regulatory Commission under the Electricity Act for grant of a
licence or the deeming fiction carved out in Section 14 of the
Electricity Act automatically dispenses with this requirement
and ipso facto makes such SEZ developer a distribution
licensee.”

 
The Arguments: Appellant

 

12. Mr. Shyam Diwan, Learned Senior Counsel appearing for the Appellant,
with full of passion and vehemence argued that all the three findings
of the State Commission, which are upheld by the Appellate Tribunal,
are ex facie untenable in law. Questioning the first aspect of the
order of the authorities below refusing to register the said PPA, his
plea was that since the PPA is a contract between the two parties,
the State Commission could not have refused to consider the same.
Such outright refusal amounts to failure to discharge the function
enjoined by the Parliament on the State Commission under Section
86(b) of the Act. Under this provision, the State Commission has to
regulate electricity purchase and procurement process of distribution
licensee including the price at which electricity shall be procured
from the generating company. Thus it was duty bound to approve a PPA
subject to the terms and conditions which it deems fit in law and
only when the parties fail to comply with those terms of the license
that such license can be revoked. The failure to not look into a PPA
altogether amounts to non exercise of jurisdiction.

13. In so far as the opinion of the Appellate Authority that the
Appellant is to be treated as a consumer of WESCO is concerned, Mr.
Diwan placed heavy reliance on the proviso to Section 14(b) of the
Act as per which developer of the notified SEZ itself becomes deemed
Licensee from the date of such notification. He thus argued that
when there was a specific notification under that proviso declaring
the Appellant as a developer, the Appellant was a deemed Licensee and
therefore there could not have any requirement for the Appellant to
obtain the license under the Electricity Act. As a fortiorari, such
a developer cannot be treated as a ‘consumer’. Therefore, the
authorities below could not, in law, hold the Appellant to be a
consumer of WESCO.

In the alternative, it was argued that in any case, the
Appellant was purchasing the electricity from Sterlite under the PPA
and, therefore, by no stretch of imagination, it could be treated as
consumer of WESCO. To buttress this submission, Mr. Diwan referred
to the provisions of Section 2(15) of the Electricity Act which
defines the term “consumer” and submitted that in order to treat the
Appellant as a consumer, it was necessary to establish that it is
supplied with the electricity by such “Licensee” or the “government”
or “any other person engaged in the business of supplying electricity
to the public”.

14. In so far as the third finding holding the Appellant liable to pay
CSS to WESCO for open access drawal of power from SEZ is concerned,
the submission of Mr. Diwan was that there was no occasion for the
State Commission (or for that matter Appellate Tribunal) to go into
the aspect of CSS in an application filed by the Appellant initially
for approval of PPA only which was later amended on the directions of
the State Commission to include a prayer to the extent that the
Appellant should be recognized as a Distribution Licensee under
Section 14(b) of the Electricity Act. It was submitted that even in
the amended application there was no issue of CSS and the authorities
below exceeded their jurisdiction in going into this issue and giving
such a direction.

Without prejudice to the aforesaid preliminary submission, Mr.
Diwan argued that even on merits that such a decision was palpably
contrary to law. In this behalf his submission was that since under
Section 42 of the Electricity Act, 2003, cross subsidy surcharge is
payable to the Distribution Licensee of the area of supply only when
the “distribution system” of such Distribution Licensee is “used” for
supply of electricity. Therefore, without a clear finding of fact on
appreciation of evidence, that the supply-line of SEL-VAL is
connected to WESCO and that WESCO’s “distribution system” is “used”
for supply of electricity, State Commission could not have held that
VAL has to pay cross subsidy surcharge to WESCO for open access
drawal of power from SEL.

In this context, the attention of the Court was drawn to the
National Tariff Policy dated 6th January, 2014, Clause 8.5, Orissa
Electricity Regulatory Commission (Terms and Conditions for Open
access Charges) Regulations, 2005 (Clause 13(1)(ii)] and to Orissa
Electricity Regulatory Commission (Determination of Open access
Charges) Regulations, 2006 [Clause 2(j). It was submitted that from a
bare perusal of the relevant Clauses of these Regulations, it is clear
that CSS can be levied on “open access customers” i.e. “a consumer who
has availed of or intends to avail of open access”.

In addition to the aforesaid submission, questioning the
correctness of the each of the findings of the State Commission and
the Appellate Tribunal, Mr. Diwan emphasized that it is to be kept in
mind in deciding the issue that VAL SEZ is a Deemed Distribution
Licensee by operation of law and it need not be a Distribution
Licensee within the meaning of Section 2(17) of the Electricity Act,
2003. He admitted that a contention of the Respondents that VAL SEZ
does not qualify as a Distribution Licensee within the meaning of
Section 2(17) of the Electricity Act, 2003 is misplaced since
accepting such contention would defeat the very purpose of the deeming
fiction created by the statute. The deeming fiction would have no
relevance if the reality which the statute creates by way of fiction
already existed. He argued that none of the five provisos to Section
14 of the Electricity Act, 2003 require the deemed distribution
licensees mentioned therein to obtain a license under the Electricity
Act. The Developer of a notified SEZ is a special entity under a
special legislation and the definition of “consumer” or “distribution
licensee” etc. as defined under the Electricity Act, 2003 cannot be
made applicable.

It is crucial point that the SEZ Act conceptually envisages
“Developer” of an SEZ distinct from the “Zone” itself as also distinct
from “Unit”. Developer is defined under Section 2(g) of the SEZ Act
whereas Special Economic Zone is defined under Section (za) of the SEZ
Act and Unit is defined under Section 2(zc) of the SEZ Act. Thus the
Appellant in its capacity as the Developer of the SEZ has the duty to
develop, operate and maintain the Zone. Failing the reconciliation
between the provisions of the Electricity Act, 2003 and the SEZ Act,
the provisions, objects and purpose of the SEZ Act will prevail
(Section 51 of the SEZ Act). The object and purpose of the SEZ Act,
inter alia, is to provide an internationally for export production,
expeditious and single window approval mechanism and a package of
incentives to attract foreign and domestic investments for promoting
export-led growth.

The Arguments: Respondents

15. Mr. R.K. Mehta, Learned Counsel appearing on behalf of GRIDCO Ltd.
refuted the aforesaid submissions of Mr. Diwan. His main argument
was that even though the Appellant was possessed of notification
issued under Proviso to Section 14(b) of the Electricity Act, which
treats the Appellant as of Deemed Distribution Licensee, the concept
of Distribution Licensee under the Electricity Act pre-supposes
supply/distribution of power. An entity which utilizes the entire
quantum of electricity for its own consumption and does not have any
other consumers cannot be deemed to be a Distribution Licensee, even
by a legal fiction. In support of this submission, the Learned
Counsel referred to the definitions of “consumer” in Section 2(15),
“Distribution Licensee” as contained in Section 2(17) and “supply” in
relation to electricity to the consumers in Section 2(70). He also
referred to Section 42 of the Act which spells out the duties of
Distribution Licensee and open access. His submission, thus, was
that by virtue of the legal fiction created by the Notification dated
3rd March, 2010, a person who distributes Electricity can be deemed
to be a distribution licensee even though he does not have a
distribution license – But the legal fiction cannot go further and
make a person who does not distribute electricity as a distribution
licensee.

16. He also argued that if a ‘Distribution Licensee’ is equated with
‘Consumer’ the provisions of Section 2(15), 2(17), 42 and 43 of the
Electricity Act, 2003 would be rendered otiose and nugatory. The
mandate of Section 42 and 43 of the Electricity Act, 2003 cannot be
negated by exercise of power under Section 49(1)(b) of the SEZ Act.
It was further submitted that only a proviso has been added to
Section 14(b) by Notification dated 3rd March, 2010 qua the
Appellant. There is no stipulation in the Notification that other
provisions of the Electricity Act will not apply to the Developer of
a SEZ.

17. Mr. Mehta called for harmonious construction of the provisions of SEZ
and the Electricity Act to support his submission that the legal
fiction of deemed Distribution Licensee cannot be taken to the level
of absurdity and made applicable even when it does not involve
distribution/supply of power at all. He further pointed out the
object and scheme of SEZ Act envisages several units being set up in
a SEZ. This is evident from a collective reading of the various
provisions of the SEZ Act viz. Section 2(g)(j)(za)(zc), Section 3, 4,
11, 12, 13 and 15. There can be a Sector Specific SEZ with Several
Units i.e. for IT, Mineral Based Industries etc. but instances of
single unit SEZ like in the present case of the appellant may be
rare. The Notification dated 3rd March, 2010 providing for the
“Developer” of an SEZ being deemed as a “Distribution Licensee” was
issued keeping in view the concept of Multi Unit SEZs and will apply
only to such cases in which the Developer is supplying the power to
multiple Units in the SEZ. The said Notification will not apply to a
Developer like the Appellant who has established the SEZ only for
itself.

18. Mr. Parag P. Tripathi, Learned Senior Counsel appeared with Mr. Shiv
Kumar Suri, Advocate on behalf of WESCO. His submission was that in
the facts of present case WESCO was entitled to CSS on the
electricity purchase by the Appellant from Sterlite which was
consumed wholly and completely by the Appellant itself. It was
pointed out that surcharge was meant to compensate a Distribution
Licensing from the loss of cross subsidy surcharge that such
distribution licensee would suffer by reason of the consumer taking
supply from someone other than such Distribution Licensee, the moment
it is found that the Appellant is covered by the Definition of a
consumer within the meaning of Section 2(15) of the Act. He argued
that in such a situation the mere fact that the Appellants claims to
be a deemed Distribution Licensee is of no consequence at all since
the entire power purchase by the Appellant is for its own use or
consumer and not for the purpose of Distribution. The Appellant,
therefore, could be categorized as a consumer as regards its own
consumption even if it is a deemed Licensee. On merits, it was
submitted that Transmission line between the Generating Company
(Sterlite) and the Appellant is not a Dedicated Transmission Line,
with an attempt to justify it giving various reasons which we shall
advert to all a later stage.

19. It was also argued that as per Regulation 27 of the OERC (Conditions
of supply Code) Regulations 2004, the “service line” shall be the
property of the licensee unless otherwise specified in writing.
Hence the line between the grid sub-station and the Appellant’s SEZ
qualify as the property of WESCO and therefore any use of such line
could only be by Open Access under the EA and in any event CSS would
be payable. Reference was also made to the Rule 4 of the Electricity
Rules, 2005, as per which aforesaid line would be deemed as part of
the Distribution System of WESCO. On that basis submission of Mr.
Tripathi was that from any angle the matter is to be looked into the
orders of the Appellate Tribunal was perfectly justified.

Our Analysis:

20. From the aforesaid narration of events as well as arguments of the
counsel for the parties, it has become manifest the primary dispute
relates to the CSS which the Appellant is called upon to pay to
WESCO. As per the Appellant no such CSS is payable and the PPA which
was submitted by the Appellant to the State Commission for approval,
should have been accorded due approval by the State Commission.

(1) Special Feature of the 2003 Act

21. Before adverting to this central issue, it would be apt to understand
conceptually the rationale of payment of such CSS to the Distribution
Company, under the scheme of the Electricity Act. The first
enactment to govern electricity supply in India was passed in the
year 1910 viz. the Electricity Act, 1910. This Act envisaged growth
of electricity industry through private licences. It created the
legal framework for laying down of wires and other works relating to
the supply of electricity. Thereafter, the Electricity (Supply) Act,
1948 mandated the creation of a State Electricity Board. The Board
assigned the responsibility of arranging the supply of electricity in
the State. It was experienced that over a period of time the
performance of State Electricity Boards had deteriorated on account
of various factors. Main failure on the part of these Electricity
Boards was to take decision on tariffs in independent manner and
cross subsidies had reached untenable levels. To address this issue
and also to distance governance from determination of tariffs, the
Electricity Regulation Commission Act was enacted in the year 1998.
This Act created regulatory mechanism. Within few years, it was felt
that the three Acts of 1910, 1948 and 1998 which were operating in
the field needed to be brought in a new self contained comprehensive
legislation with the policy of encouraging private sector
participation in generation, transmission and distribution and also
the objectives of distancing the regulatory responsibilities from the
Government and giving it to the Regulatory Commissions. With these
objectives in mind the Electricity Act, 2003 has been enacted.
Significant addition is the provisions for newer concepts like power
trading and open access. Various features of the 2003 Act which are
outlined in the statement of objects and reasons to this Act.
Notably, generation is being delicensed and captive generation is
being freely permitted. The Act makes provision for private
transmission licensees. It now provides open access in transmission
from the outset.

(2) Open Access and CSS

22. Open access implies freedom to procure power from any source. Open
access in transmission means freedom to the licensees to procure
power from any source. The expression “open access” has been defined
in the Act to mean “the non-discriminatory provision for the use of
transmission lines or distribution system or associated facilities
with such lines or system by any licensee or consumer or a person
engaged in generation in accordance with the regulations specified by
the Appropriate Commission”. The Act mandates that it shall be duty
of the transmission utility/licensee to provide non-discriminatory
open access to its transmission system to every licensee and
generating company. Open access in transmission thus enables the
licensees (distribution licensees and traders) and generating
companies the right to use the transmission systems without any
discrimination. This would facilitate sale of electricity directly
to the distribution companies. This would generate competition
amongst the sellers and help reduce, gradually, the cost of
generation/procurement.

23. While open access in transmission implies freedom to the licensee to
procure power from any source of his choice, open access in
distribution with which we are concerned here, means freedom to the
consumer to get supply from any source of his choice. The provision
of open access to consumers, ensures right of the consumer to get
supply from a person other than the distribution licensee of his area
of supply by using the distribution system of such distribution
licensee. Unlike in transmission, open access in distribution has not
been allowed from the outset primarily because of considerations of
cross-subsidies. The law provides that open access in distribution
would be allowed by the State Commissions in phases. For this
purpose, the State Commissions are required to specify the phases and
conditions of introduction of open access.

24. However open access can be allowed on payment of a surcharge, to be
determined by the State Commission, to take care of the requirements
of current level of cross-subsidy and the fixed cost arising out of
the licensee’s obligation to supply. Consequent to the enactment of
the Electricity (Amendment) Act, 2003, it has been mandated that the
State Commission shall within five years necessarily allow open access
to consumers having demand exceeding one megawatt.

(3) CSS: Its Rationale

25. The issue of open access surcharge is very crucial and implementation
of the provision of open access depends on judicious determination of
surcharge by the State Commissions. There are two aspects to the
concept of surcharge – one, the cross-subsidy surcharge i.e. the
surcharge meant to take care of the requirements of current levels of
cross-subsidy, and the other, the additional surcharge to meet the
fixed cost of the distribution licensee arising out of his obligation
to supply. The presumption, normally is that generally the bulk
consumers would avail of open access, who also pay at relatively
higher rates. As such, their exit would necessarily have adverse
effect on the finances of the existing licensee, primarily on two
counts – one, on its ability to cross-subsidise the vulnerable
sections of society and the other, in terms of recovery of the fixed
cost such licensee might have incurred as part of his obligation to
supply electricity to that consumer on demand (stranded costs). The
mechanism of surcharge is meant to compensate the licensee for both
these aspects.

26. Through this provision of open access, the law thus balances the right
of the consumers to procure power from a source of his choice and the
legitimate claims/interests of the existing licensees. Apart from
ensuring freedom to the consumers, the provision of open access is
expected to encourage competition amongst the suppliers and also to
put pressure on the existing utilities to improve their performance in
terms of quality and price of supply so as to ensure that the
consumers do not go out of their fold to get supply from some other
source.

27. With this open access policy, the consumer is given a choice to take
electricity from any Distribution Licensee. However, at the same
time the Act makes provision of surcharge for taking care of current
level of cross subsidy. Thus, the State Electricity Regulatory
Commissions are authorized to frame open access in distribution in
phases with surcharge for:

(a) Current level of cross subsidy to be gradually phased out
along with cross subsidies; and

(b) obligation to supply.

28. Therefore, in the aforesaid circumstances though CSS is payable by
the Consumer to the Distribution Licensee of the area in question
when it decides not to take supply from that company but to avail it
from another distribution licensee. In nutshell, CSS is a
compensation to the distribution licensee irrespective of the fact
whether its line is used or not, in view of the fact that, but for
the open access the consumer would pay tariff applicable for supply
which would include an element of cross subsidy surcharge on certain
other categories of consumers. What is important is that a consumer
situated in an area is bound to contribute to subsidizing a low and
consumer if he falls in the category of subsidizing consumer. Once a
cross subsidy surcharge is fixed for an area it is liable to be paid
and such payment will be used for meeting the current levels of cross
subsidy within the area. A fortiorari, even a licensee which
purchases electricity for its own consumption either through a
“dedicated transmission line” or through “open access” would be
liable to pay Cross Subsidy Surcharge under the Act. Thus, Cross
Subsidy Surcharge, broadly speaking, is the charge payable by a
consumer who opt to avail power supply through open access from
someone other than such Distribution licensee in whose area it is
situated. Such surcharge is meant to compensate such Distribution
licensee from the loss of cross subsidy that such Distribution
licensee would suffer by reason of the consumer taking supply from
someone other than such Distribution licensee.

(4) Application of the CSS Principle

29. In the present case, admittedly, the Appellant (which happens to be
the operator of an SEZ) is situate within the area of supply of
WESCO. It is seeking to procure its entire requirement of
electricity from Sterlite (an Independent Power Producer (“IPP”)
(which at the relevant time was a sister concern under the same
management) and thereby is seeking to denude WESCO of the Cross
Subsidy that WESCO would otherwise have got from it if WESCO were to
supply electricity to the Appellant. In order to be liable to pay
cross subsidy surcharge to a distribution licensee, it is necessary
that such distribution licensee must be a distribution licensee in
respect of the area where the consumer is situated and it is not
necessary that such consumer should be connected only to such
distribution licensee but it would suffice if it is a “consumer”
within the aforesaid definition.

30. Having regard to the aforesaid scheme, in normal course when the
Appellant has entered to PPA with Sterlite, another Electricity
Generating Company and is purchasing electricity from the said
Company it is liable to pay CSS to the WESCO. Admittedly under the
PPA, the Appellant is purchasing his electricity from the said
generating station and it is consumed by the single integrated unit
of the Appellant. The Appellant therefore, qualifies to be a
“consumer” under Section 2(15) of the Electricity Act. It is also
not in dispute that the unit of the Appellant is in the area which is
covered by the licenses granted to WESCO as distribution licenses.

31. Notwithstanding the above, because of the reason that the area where
the unit of Val-SEZ unit of the Appellant is situate is a SEZ area
and the Appellant is declared as developer for that area under the
SEZ Act, it is the contention of the Appellant that in such a
scenario it is not liable to pay any CSS to the WESCO. This
submission flows from the fact that there is a notification issued in
this behalf under proviso to Section 49 of the SEZ Act and the
Appellant itself is treated as a deemed Distribution Licensee as per
the provisions of Section 14 of the Electricity Act. On that basis,
detailed submissions are made by the Appellant with an attempt to
show that it cannot be treated as a “consumer” under the Electricity
Act when the Appellant itself is deemed to be a licensee. It is
further argued that since the supply line of VAL-SEZ is not connected
to WESCO and it is getting the electricity directly from Sterlite
under the PPA, there is no question of payment of CSS to WESCO at
all. Argument of the WESCO that the lines owned by the VAL-SEZ are
only “Transmission Lines” under Section 2 of the Electricity Act and
not “dedicated Transmission Lines” because of the reason that the
duty of the Generator to establish and maintain dedicated
transmission lines, is sought to be refuted by arguing that even as
per Section 2(72) of the Act Transmission Lines are part of the
Distribution System of Licensing”. It is argued that it is not even
the case of WESCO that the supply line of SEL-VAL is a part of WESCO
Distribution System.

(5) Factual Aspect of the Electricity Supply to the Appellant:

 
32. In order to appreciate these arguments, it would appropriate to first
advert to the factual aspect of the supply of electricity by Sterlite
to the Appellant under the PPA. No doubt the Appellant is getting
direct supply of electricity from Sterlite. However, question is as
to whether, in the process, it is using dedicated transmission lines
of WESCO. We may point out at the outset that such an argument was
not even raised before the two authorities below. Primarily it was
argued that having acquired the status of deemed distribution
licensee under the Electricity Act, it cannot be treated as a
“consumer” of other distribution licensee, viz. the WESCO. Even the
question of law which is proposed and framed in the grounds of appeal
and is already reproduced, does not raise this issue, which is even
otherwise factual. Notwithstanding, the Learned Counsel for the
WESCO has argued that the transmission line between the Sterlite and
the Appellant is not a dedicated transmission line for the following
reasons:

(a) Under Section 2(16) of the Electricity Act, 2003, a “Dedicated
Transmission Line” is an electric supply line for “point to point”
transmission, which are required for the purpose of connecting
electric line or electric plan of a generating station to “any
transmission line”, or “sub-station” or “generating station” or the
“load centre”, “as the case may be”.

(b) The Transmission Line in question commences from the Generator
(Sterlite) and connects to the 400 KV Sub-Station at Sterlite end at
Jharsuguda. It does not connect directly to the “Load Centre” which
is the Appellant.

(c) The 400 KV Busbar at the Generator (Sterlite) end is connected
to a 200 KV Busbnar at VAL-CGP caters to the VAL – Smelter 1 in the
Domestic Tariff Area.

(d) The said 400/200 KV sub-station is also connected to the OPTCL
Grid (State Transmission Utility) at Budhipadar through 220 KV Bus at
VAL – CGP end for the purpose of evacuation of Sterlite power to
GRIDCO as well as drawal of power by VAL – Smelter – 1.

(e) The said 400/220 kv sub-station is also connected to Power Grid
Corporation of India (PGCIL) line from which 2 nos of 400 KV Lines
emanate for Interstate sale of its Sterlite power through PGCIL Grid.

(f) The said 400/220 kv sub-station which is connected through 5 Km
of 220 KV line to the 220 KV Bus of switching station at VAL – CGP
end. There are 4 no’s of 200 KV transmission lines branching out
from the said 220 KV switching station to carry power to VAL Smelter-
1 Unit of the Appellant which is within the area of the Distribution
Licensee (WESCO).

(g) The said 400/220 kv sub-station also has 2 nos of 33 KV Tertiary
transmission lines from 100/220/33 KV Transformer supplying
electricity to Vedanta Township.

(h) Three such 400 KV Transmission lines emanating from the 400 KV
Busbar at the Sterlite-IPP (Generator end) also happens to Supply
power from the sub-station to the Appellant’s load centre (VAL-
Smelter-2) in the SEZ area.

(i) Hence, the only part of the “dedicated” transmission line, if at
all, is from the Generating Station 9Sterlite – IPP) to such 400 KV
Busbar of the 400/220 KV Grid Sub-station.

(j) The transmission line that connects the sub-station to the load
centre of the Appellant is only a “transmission line” under Section
2(72) of the EP 2003.

 

 

 

 

 

 

 

 

 

33. Following diagram is placed by WESCO to demonstrate this:

[pic]

34. Though the Appellant endeavoured to counter this position and has
given its own diagram that does not lodge the aforesaid factual
aspect. Therefore, prima facie we accept the position as explained
by the WESCO. Thus we feel that notwithstanding that supply line of
SEL-VAL is transmission line, but not “dedicated transmission line”.
The Appellant cannot run away from the fact that under Section 2(10)
of the Electricity Act, it is the duty of the Generating Company
(i.e. WESCO) in this case to establish, operate and maintain
dedicated transmission lines. Since it is duty bound to establish,
operate and maintain these dedicated lines by making huge investment,
in order to get into the consumption in the area in question the very
necessity of payment of CSS arises by the consumer of Electricity
covered by the definition of “consumer” under Section 2(15) of the
Act but is not getting supply of that Generator and someone else. We
have also to keep in mind the provision of Regulation 27 of OERC
(Conditions of Supply Code) Regulation 2004. As per this Regulation
the “service line” shall be the property of the licensee unless
otherwise specified in writing. This clause reads as under:

“27. The entire service line, notwithstanding that whole or
portion thereof has been paid for by the consumer, shall be the
property of the licensee and shall be maintained by the licensee
who shall always have the right to use it for the supply of
energy to any other person unless the line has been provided for
the exclusive use of the consumer through any arrangement agreed
to in writing.”

 
35. Further as per Rule 4 of the Electricity Rule, 2005 the aforesaid
line would be deemed to be part of Distribution System of WESCO:

“4. Distribution System – The distribution system of a
distribution licensee in terms of sub-section (19) of section 2
of the Act shall also include electric line, sub-station and
electrical plant that are primarily maintained for the purpose
of distributing electricity in the area of supply of such
distribution licensee notwithstanding that such line, sub-
station or electrical plant are high pressure cables or overhead
lines or associated with such high pressure cables or overhead
lines; or used incidentally for the purposes of transmitting
electricity for others.”

“Distribution system” is defined in Section 2(19) of the Act to
mean:-

“(19) “distribution system” means the system of wires and
associated facilities between the delivery points on the
transmission lines or the generating station connection and the
point of connection to the installation of the consumers:”

“Transmission Line” is defined in Section 2(72) to mean:-

(72) “transmission lines” means all high pressure cables and
overhead lines (not being an essential part of the distribution
system of a licensee) transmitting electricity from a generating
station to another generating station or a sub-station, together
with any step-up and step-down transformers, switch-gear and
other works….”

 

(6) Appellant deemed distribution Licensee: Its effect

 

36. It is now to be seen as to whether the fact that the Appellant
is a Developer in SEZ, armed with Notification dated 3rd March, 2010
issued under Proviso to Section 49 of the SEZ Act and it deemed
distribution licensee as per Section 14 of the Electricity Act, this
would take away the Appellant from the clutches of CSS liability?

37. In order to appreciate this argument let us first refer to the
certain statutory provisions:

Section 49 of the Special Economic Zone Act provides as
under:

“Power to modify provisions of this Act or other enactments
in relation to Special Economic Zones.

(1) the Central Government may, by notification, direct
that any of the provision of this Act (other than Section 54 and
56) or any other Central Act or any rules or regulations made
thereunder or any notification or Order issued or direction
given thereunder (other than the provisions relating to making
of the rules or regulations) specified in the notification-

(a) shall not apply to a Special Economic Zone or a class
of Special Economic Zones or all Special Economic Zones: or

(b) shall apply to a Special Economic Zone or a class of
Special Economic Zones or all Specials Economic Zones only with
such exceptions, modifications and adaptation, as may be
specified in the notifications.”

 
38. Likewise Section 14 of the Electricity Act reads as under:

“14. Grant of License

The Appropriate Commission may, on application made to it under
section 15, grant any person licence to any person –

(a) To transmit electricity as a transmission licensee: or

(b) To distribute electricity as a distribution licensee: or

(c) To undertake trading in electricity as an electricity
trader, in any area which may be specified in the licence:

Provided that any person engaged in the business of transmission
or supply or electricity under the provisions of the repealed
laws or any Act specified in the Schedule on or before the
appointed date shall be deemed to be a licensee under this Act
for such period as may be stipulated in the licence, clearance
or approval granted to him under the repealed laws or such Act
specified in the Schedule, and the provisions of the repealed
laws or such Act specified in the Schedule in respect of such
licence shall apply for a period of one year from the date of
commencement of this Act or such earlier period as may be
specified, at the request of the licensee, by the Appropriate
Commission and thereafter the provisions of this Act shall apply
to such business:

Provided further that the Central transmission Utility or the
State Transmission Utility shall be deemed to be a transmission
licensee under this Act:

Provided also that in case an Appropriate Government transmits
electricity or distributes electricity or undertakes trading in
electricity, whether before or after the commencement of this
Act, such Government shall be deemed to be a licensee under this
Act, but shall not be required to obtain a licence under this
Act:

Provided also that the Damodar Valley Corporation, established
under sub-section(1) of section 3 of the Damodar Valley
Corporation Act, 1948, shall be deemed to be a licensee under
this Act but shall not be required to obtain a licence under
this Act and the provisions of the Damodar Valley Corporation
Act, 1948, in so far as they are not inconsistent with the
provisions of this Act, shall continue to apply to that
Corporation:

Provided also that the Government Company or the Company
referred to in sub-section (2) of section 131 of this Act and
the company or companies created in pursuance of the Acts
specified in the Schedule, shall be deemed to be a licensee
under this Act.

Provided also that the Appropriate Commission may grant a
licence to two or more persons for distribution of electricity
through their own distribution system within the same area,
subject to the conditions that the applicant for grant of
licence within the same area, subject to the conditions that the
applicant for grant of licence within the same area shall,
without prejudice to the other conditions or requirements under
this Act, comply with the additional requirements (including the
capital adequacy, credit worthiness, or code of conduct) as may
be prescribed by the Central Government, and no such applicant
who complies with all the requirements for grant of licence,
shall be refused grant of licence on the ground that there
already exists a licensee in the same are for the same purpose:

Provided also that in a case where a distribution licensee
proposes to undertake distribution of electricity for a
specified area within his area of supply through another person,
that person shall not be required to obtain any separate licence
from the concerned State Commission and such distribution
licensee shall be responsible for distribution of electricity in
his area of supply:

Provided also that where a person intends to generate and
distribute electricity in a rural area to be notified by the
State Government, such person shall not require any licence for
such generation and distribution of electricity, but he shall
comply with the measures which may be specified by the Authority
under section 53:

Provided also that a distribution licensee shall not require a
licence to undertake trading in electricity.”

39. We would also like to take note of Notification dated 3rd March,
2010 issued in the case of Appellant. It makes the following
reading:

“NOTIFICATION

S.O. No.528(E). In exercise of the powers conferred by clause(b) of
sub-section (1) of section 49 of the Special Economic zones Act, 2005
(28 of 2005), the Central Government hereby notifies that the
provisions of clause (b) of section 14 of the Electricity Act, 2003
(36 of 2003), shall apply to all Special Economic Zones notified
under sub-section (1) of section 4 of the Special Economic Zones Act,
2005, subject to the following modification, namely:-

In clause (b) of section 14 of the Electricity Act, 2003 (36 of
2003), the following proviso shall be inserted, namely:-

“Provided that the Developer of a Special Economic Zone
notified under sub section (1) of section 4 of the Special
Economic Zones Act, 2005 shall be deemed to be a licensee for
the purpose of this clause, with effect from the date of
notification of such Special Economic Zone.”

 
40. The reading of Section 49 of SEZ Act would reveal that the
Central Government has got the authority to direct that any of the
provisions of a Central Act and rules and regulations made thereunder
would not apply or to declare that some of the provisions of the
Central Acts shall apply with exceptions, modifications and adaptation
to the Special Economic Zone. So, under the scheme of Special
Economic Zone Act, Central Government has to first notify as to what
extent the provision of the other Acts are to be made applicable or
applicable with modification or not applicable for the Special
Economic Zone area. It is in furtherance thereto, the Government of
India, Ministry of Commerce and Industry through its notification
dated 21st March, 2012, with regard to power generation in Special
Economic Zone, has declared that all the provisions of the Electricity
Act, 2003 and Electricity Rule, 2005 shall be applicable to the
generation, transmission and distribution of power, whether stand
alone or captive power. This notification would clarify that there is
no inconsistency between Special Economic Zone Act, 2005 and
Electricity Act, 2003.

41. No doubt vide Notification dated 3rd March, 2010 Central
Government has added an additional proviso to Clause (b) of Section 14
of the Electricity Act viz. the Appellant shall be deemed to be
licensee for the purpose of the said clause w.e.f. the date of
notification of such SEZ. It is on this basis, the argument of the
Appellant is that as it is already a deemed Distribution Licensee it
need not apply for this license to the said Commission before entering
into the PPA and the State Government is bound to grant the License.
This contention is negated by the Appellate Tribunal on two grounds
which are as follows:

(i) There has to be a harmonious construction of SEZ Act and
Electricity Act to give effect to the provisions of both the acts so
long as they are not consistent with each other in the opinion of the
Tribunal. The provisions of Section 51 of SEZ Act, 2005 are to be
considered along with the provisions of Section 49 of the said Act.
Accordingly, in view of the provision of the SEZ Act, 2005 and
consequent notification by the Ministry of Commerce and Industry, the
deemed distribution licensee status as claimed by the Appellant
should also be tested through other provisions of the Electricity
Act, 2003 and Electricity Rules, 2005, for certifying its validity
and converting it into a formal distribution licensee. In fact, the
Appellant has submitted to the jurisdiction of the State Commission,
by filing a petition before the State Commission seeking for approval
of the PPA and also for grant of distribution licence. The Appellate
Tribunal, thus queried as to how could the Appellant now question the
jurisdiction?

(ii) The Appellate Tribunal pointed out that there are none provisos
to Section 14(b) of the Electricity Act and another is added in
respect of the Appellant vide Notification dated 3rd March, 2010. A
reading of these provisos would indicate that some of them confer
status of deemed distribution licensee on certain specified entities
who are not required to take separate licence from the State
Commission under this Act whereas some other provisos merely declare
the party as deemed licensee and nothing specified as to whether they
are required to obtain the licence or not. However when it is
specially provided in proviso 4 and proviso 8 and 2 that the Damodar
Valley Corporation and State Government are not required to obtain
licence, and other provisos do not confer such privilege, they would
be required to obtain licence.

42. Further discussion on this aspect by the Appellate Tribunal is
as under:

“42. Keeping this in mind, the statute makers by the
notification dated 3.03.2010 have inserted the additional
proviso to Section 14(b) of the Electricity Act. Admittedly,
the development and operation of the SEZ are two distinct
activities. Thus, the jurisdiction of the State Commission to
scruitinise the deemed distribution status of the Appellant is
well established in view of the Section 49(1) of SEZ, Act, 2005
and the notification of the Central Government dated 21.03.2012.
Therefore, the contention of the Appellant that the State
Commission dealt with the matter relating to the grant of
distribution licence by going beyond its jurisdiction is
misplaced.

43. It is noticed that the Ministry of Commerce and Industry
(Department of SEZ Section) has accorded SEZ status to the
Appellant for development and operation and maintenance of
sector specific Special Economic Zone for manufacture and export
of aluminium on the condition that the Appellant should
establish captive generating plant as stipulated in the approval
letter of Ministry of Commerce and Industry but it is pointed
out the still the plant has not been established for various
reasons. If Captive generating plant of 1215 MW had been
established as per the condition inside the SEZ area, the
question of power purchase from Sterlite Energy Limited under
the pretext of distribution licensee status would not have
arisen. That apart, the State Commission has framed Orissa
Electricity Regulatory Commission (conduct of business)
Regulation, 2004 under the powers conferred under Section 181 of
the Electricity Act, 2003. The distribution of electricity
Licence (Additional requirement of Capital Adequacy, Credit
Worthiness and Code of Conduct) Rules, 2005 framed by the
Central Government also would apply to the Appellant for
distribution licence in addition to the requirements of State
Commission’s Regulations.

45. Section 174 of the Electricity Act provides that the
provisions of the Electricity Act shall have to overriding
effect notwithstanding anything inconsistent with any other law
for the time being in force or in any instrument having effect
by virtue of any law other than Electricity Act. That apart,
Section 175 also provides that the provisions of the Electricity
Act are in addition to and not in derogation of any other law
for the time being in force.

47. The perusal of the notification dated 03.03.2010 would make
it evident that the legislation’s intention for declaring the
developer in SEZ area as deemed distribution licence, is
confined only to clause-b of Section 14 of Electricity Act,
which deals with the grant of license by the appropriate State
Commission to any person for distribution of electricity. The
said notification has not curtailed the power of State
Commission so far as the applicability of other provisions is
concerned. The interpretation of various relevant terms was
necessary prior to grant of deemed distribution licence by the
State Commission. Therefore, the State Commission rightly acted
upon those provisions. As a matter of fact, by the said
amendment by inserting another proviso to Section 14(b), the
context has not been changed as claimed by the Appellant.

49. As correctly indicated by the State Commission, the
definition of term “distribution licensee” as enumerated under
Section 2(17) of Electricity Act, 2003, emphasizes upon the
distribution licensee to operate and maintain a distribution
system and supply of power to the consumers. Considering the
definition of ‘supply’ in Section 2(70), the supply here means
sale of electricity to consumers. By merely being authorized to
operate and maintain a distribution system as a deemed licensee,
would not confer the status of distribution licensee to any
person. The purpose of such establishment is for supply of
power to consumers. Mere fact that the Appellant claims to be a
deemed distribution licensee is of no consequence at all since
admittedly, the entire power purchased by the Appellant is for
its own use and consumption and not for the purpose of
distribution and supply/sale to consumers.

50. An entity which utilizes the entire quantum of electricity
for its own consumption and does not have any other consumers,
cannot, by such a notification, be deemed to be distribution
licensee, even by a legal fiction. By virtue of the legal
fiction created by the notification dated 3.03.2010, the
Developer of SEZ notified under the SEZ Act, who distributes
electricity can be deemed to be a distribution licensee. Thus,
this legal fiction cannot go further and make a person who does
not distribute electricity to the consumers as to distribution
licensee. Therefore there is no merit in the contention of the
Appellant.

43. We are in agreement with the aforesaid rationale in the impugned
order of the Appellate Tribunal as that is the only manner in which
the two Acts can be harmoniously construed. To recapitulate briefly,
in the present case no doubt by virtue of the status of a developer in
the SEZ area, the Appellant is also treated as deemed Distribution
Licensee. However with this, it only gets exemption from specifically
applying for licence under Section 14 of the Act. In order to avail
further benefits under the Act, the Appellant is also required to show
that it is in fact having distribution system and has number of
consumers to whom it is supplying the electricity. That is not the
case here. For its own plant only, it is getting the electricity from
Sterlite Ltd. for which it has entered into PPA. We have to keep in
mind the object and scheme of SEZ Act which envisages several units
being set up in a SEZ area. This is evident from a collective reading
of the various provisions of the SEZ Act viz. Section 2(g)(j)(za)(zc),
Section 3, 4, 11, 12, 13 and 15. There can be a Sector Specific SEZ
with Several Units i.e. for IT, Mineral Based Industries etc. but
instances of single unit SEZ like in the present case of the Appellant
may be rare. The Notification dated 03.03.2010 providing for the
“Developer” of SEZ being deemed as a “Distribution Licensee” was
issued keeping in view the concept of Multi Unit SEZs and will apply
only to such cases in which the Developer is supplying the power to
multiple Units in the SEZ. The said Notification will not apply to a
Developer like the Appellant who has established the SEZ only for
itself.

44. Having regard to the aforesaid factual and legal aspects and
keeping in mind the purpose for which CSS is payable, as explained in
detail in the earlier part of this judgment, we are of the view that
on the facts of this case it is not possible for the Appellant to
avoid payment of CSS to WESCO. We, therefore, do not find any merit
in this Appeal which is accordingly dismissed.
…………………………….………J.
[Surinder Singh Nijjar]

 

 

 

…………………………………….J.
[A.K. Sikri]

 

 

New Delhi
April 25, 2014

Advertisements

About advocatemmmohan

ADVOCATE

Discussion

Comments are closed.

Blog Stats

  • 1,853,148 hits

ADVOCATE MMMOHAN

archieves

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 1,868 other followers

Follow advocatemmmohan on WordPress.com