BEFORE THE

MAHARASHTRA ELECTRICITY REGULATORY COMMISSION

World Trade Centre, Centre No.1, 13^th Floor, Cuffe Parade, Mumbai-400 005

Case No.14 of 2002

IN THE MATTER

OF

INTERPRETATION OF LICENCES ISSUED TO THE TATA POWER COMPANY

Mr. P. Subrahmanyam, Chairman

Mr. Jayant Deo, Member

Dr. Pramod Deo, Member

Date of Order: July 03, 2003

O R D E R

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M/s BSES Limited (BSES) have filed a Petition on 23/7/2002, citing S. 22(2)(e) and (n) of the Electricity Regulatory Commissions (ERC) Act, 1998, with the Tata Power Company Limited (TPC) as the 1^st Respondent and the Government of Maharashtra (GoM) as 2^nd Respondent, with the following prayers:

(a) that TPC be restrained from in any manner selling, supplying and distributing electricity to consumers situated within the area of supply of BSES in contravention of the terms and conditions of their licenses and the policy of the GoM;

(b) that TPC be ordered to pay to BSES or to GoM all profits and gains made from January, 1998 until TPC discontinue sale of energy to such consumers, i.e. situated in BSES’ licensed area of supply and having energy requirement below 1000 KVA (maximum demand) and/or with lighting consumption exceeding 20% of the total;

(c) that, pending the disposal of the Petition, TPC be restrained in terms of the prayer at (a) above, and from offering new connections to any entities for sale, supply or distribution of electricity in BSES’ licensed area of supply, with energy requirement below 1000 KVA (maximum demand) and/or with lighting consumption exceeding 20% of the total.

2. Vide an Order dated 10^th October, 2002, the Commission admitted the Petition for further hearing under S. 22(2)(e) of the ERC Act, after hearing the parties and perusing documents, and in the light of the submissions made by the Principal Secretary (Energy), on behalf of GoM, the ultimate license issuing authority. It was heard thereafter on several dates. After completion of the hearings, at the Commission’s instance, BSES and TPC furnished their final written submissions. A communication was also received from GoM, from whom the Commission had sought elaboration of the policy mentioned in their letter dated 23.3.1998 referred to in BSES’ Petition.

3. The Bombay Small Scale Industries Association (through its President, Shri Raksh Pal Abrol), were permitted to intervene in the proceedings. In their submission-dated 7.8.2002 the Association has prayed as follows:

a) Uphold the rights of Tata Power to supply electricity to all the consumers for all purposes in their licensed area of supply.

b) That the Hon’ble Commission should not place any restriction on Tata Power regarding supply of electricity to any consumers in their area of supply and rather recommend to the Government of Maharashtra to remove the restriction of consumption for lighting purposes in excess 20% of total consumption or in other words Tata Power be enabled to supply power to consumers having lighting load in excess of 20% of the total load.

c) Recommend to the Government to withdraw the letter dated 23^rd March 1998 wherein Deputy Secretary has stated the so called standing policy of the Government.

d) Hon’ble Commission should assert their right to introduce competition in the electricity sector.

The Association has stated that its members are consumers of BSES, whose tariffs are the highest in the country, as admitted by BSES in their Petition. Owing to such high tariff, many industries have wound up or shifted. The surviving units have reduced their electricity consumption by cutting production, with consequent retrenchment, industrial unrest and loss of revenue to the State and Central Governments. The Association had taken up the matter with GoM, who had advised it to approach the Commission. Briefly, the Association has pointed out that, under Section 3(2)(e) of the I.E. Act, more than one license can be granted within the same area for a like purpose. Accordingly, Clause 5 (6 in one case) of their licenses allows TPC to make supply for all purposes, which is to be seen in the light of the fact that three of the four licenses were issued prior to BSES acquiring a license. This was consciously done to bring in competition to benefit consumers. Moreover, such competition is now mandated under Section 22(2)(h) of the ERC Act. The Association has submitted that, with regard to BSES’ argument regarding infructuous duplication of infrastructure, the fact that BSES have duplicated generating capacity and other infrastructure makes their argument inconsistent. The Association has also sought to show that, far from being put to loss because of the cross-subsidy necessitated by their obligation to supply to certain consumers, BSES are making a profit considering TPC are charging 25% of the energy purchased by BSES at a concessional rate of Rs.1.29 per unit to enable the latter to pass on the benefit to domestic consumers. The Association has also sought to address other contentions of BSES while setting out further the background of BSES’ actions, which prompted the Association members to seek to shift to TPC. Since the substantive arguments urged by the Association have been addressed one way or the other by the principal parties, they are not separately discussed. Both the principal parties were given an opportunity to respond to the intervener, who was also heard during the proceedings.

4. With regard to BSES’ prayer for interim injunction, it was agreed by both TPC and BSES, at the hearing held on 31.10.2002, that they would maintain the status quo till the disposal of the Petition, and would not encourage any existing consumers to switch over from one to the other. The Record of Proceedings was circulated to both. Regrettably, even thereafter, BSES submitted from time to time a series of lists of consumers who were allegedly being offered or granted connections by TPC, allegedly in violation of this gentleman’s agreement. While not disavowing such agreement, in some of these cases TPC claimed that they were bound by prior commitments.

5. Briefly, in their Petition, BSES allege that TPC are contravening the terms and conditions of the licenses granted to them by GoM, and GoM’s stated policy, by poaching consumers within BSES’ licensed jurisdiction. TPC hold 4 licences from GoM, which have been amended from time to time. They are: the Bombay (Hydro-Electric) licence of 1907, assigned in 1910 to the Tata Hydro Electric Power Supply Co.; the Andhra Valley (Hydro-Electric)’s licence of 1919 issued to the Tata Hydro Electric Supply Co.; the Nila Mula Valley (Hydro-Electric) Licence of 1921 issued in favour of Tata Power; and the Trombay Thermal Power Electric Licence of 1953 in favour of the Tata Hydro Electric Power Supply Co., The Andhra Valley Power Supply Co. and Tata Power. Consequent upon certain amalgamations, GoM, by a Resolution dated 12^th July, 2001, transferred the 1907, 1919 and 1953 licenses to TPC.

6. In their written submissions, and in oral arguments through Counsel during the hearings, BSES have summarized their contentions as follows:

A) the supply of electricity by TPC directly to retail consumers breaches the provisions of the Indian Electricity (IE) Act, 1910, the Electricity (Supply) (E(S)) Act, 1948 and, in particular, the clear policy as contained in the Schedule to the E(S) Act;

B) in the alternative, and without prejudice to the above contention, TPC cannot effect any retail supply of energy to consumers with a maximum demand below 1,000 KVA in terms of their license;

C) apart from the license conditions, such supply by TPC to direct retail consumers is also contrary to Government policy;

D) by their conduct, TPC have acquiesced to the legal position stated above, and are even otherwise estopped from seeking to effect direct supply to retail consumers with maximum demand below 1000 KVA;

E) in any event, the Commission should, in exercise of its discretion under the ERC Act, restrain TPC from effecting such supply to retail consumers within BSES’ territory.

7. Elaborating on these contentions, Counsel for BSES submitted that electricity supply by TPC to direct retail consumers breaches the provisions of the IE and E(S) Acts. In any case, TPC cannot effect any retail supply to consumers with maximum demand below 1000 KVA. He drew attention to the provisions of the IE Act. S. 28, which deals with sanction being required by non-licensees in certain cases, and provides that:

“No person, other than a licensee, shall engage in the business of supplying energy to the public except with the previous sanction of the State Government and in accordance with such conditions as the State Government may fix in this behalf, and any agreement to the contrary shall be void.”

S. 3 empowers the State Government to grant licenses to supply energy, and also to lay down electric supply lines for conveyance and transmission of energy in any specified area. The term “licensee” has been defined in S. 2(h) as meaning any person licensed, under Part II of the Act, to supply energy. Turning to the provisions of the E(S) Act, BSES Counsel drew attention to S. 2(6), under which a “licensee” is

“a person licensed under Part II of the IE Act, 1910 to supply energy or a person who has obtained sanction under S. 28 of the said Act to engage in the business of supply of energy.

Under S. 2(3), a “Bulk Licensee”

“means a licensee who is authorized by his license to supply electricity to other licensees for distribution by them.”

8. On behalf of BSES, it is submitted that S. 28 of the IE Act prohibits any person other than a licensee from engaging in the business of supplying energy. TPC are carrying on the business of supplying electrical energy and can, therefore, do so only in accordance with the licenses issued to them. TPC have four licenses, which are presently operative, and only these can be relevant for consideration at this stage. Cl. 5 (numbered 6 in one licence) is virtually identical in all the licenses and reads, inter alia, as follows:

“5(1) Subject to the provisions of this license, of the Act, of the Electricity (Supply) Act, 1948, and of the Rules thereunder, energy shall be supplied under this license for all purposes including supply to other licensees for their own purposes and in bulk:

Provided that the licensees shall not be under obligation to supply energy in bulk to other licensees “other than the Maharashtra State Electricity Board (M.S.E.B.)” for the purpose of enabling such other licensees to supply any consumer whose maximum demand exceeds 250 KVA, except and in the case of the undermentioned other licensees the maximum demand limit shall be: 1,000 KVA for a consumer in the area of supply of the Bombay Suburban Electric Supply Company Limited.”

In respect of the consumers of the MSEB, the MSEB shall draw power at 22 KV from the receiving stations of the licensees to the extent of the transformation capacities of the said receiving stations.

These demand limits shall, in the case of a factory, be the total requirements of the consumer, estimated on the basis of plant and machinery to be installed in his factory premises for meeting his full production schedule as envisaged in his industrial license at the time he begins operation and not on the basis of the load at which he begins to operate, nor on the basis of future expansion which may result in amendments to his industrial license.

These limits are open to amendment by the Government, when circumstances so warrant, generally or individually in respect of the abovementioned other licensees in consultation with the Licensees, and the amendments so made shall be notified by Government in the Government Gazette. The Licensees may, however, with the written consent of the Government supply energy in bulk to the other licensees mentioned above for enabling them to supply any person whose demand exceeds the limit specified above or as amended and so notified in the Gazette.

(II) The energy supplied under this license to any consumer for power may be used by such consumer for lighting his premises provided that the energy used by such consumer for such lighting purposes shall not in any year exceed twenty per centum of the total amount of energy supplied to such consumer.

(III) In the event of any difference or dispute arising between the Licensees and other licensees by reason of any objection by the other licensees raised in any case of supply made by the Licensees under sub-Clause (1) of this Clause, or in regard to the interpretation of the terms of any part of sub-Clause (1) of this Clause, such dispute shall be referred to an arbitrator appointed by the government on the application of either party and the decision of such arbitrator shall be final.”

9. It is submitted for BSES that this Clause in the TPC licenses makes it expressly clear that the energy to be supplied by TPC shall be supplied in bulk. Instead, in construing this Clause, TPC are either ignoring the word “bulk” or taking no cognizance of its plain letter and spirit. In any case, the Clause nowhere deals with any permission, license or sanction to make “retail supply”. In view of the plain language and the internal evidence within the Clause itself that “purpose” is different entirely from the person to whom the energy is to be supplied, it cannot be argued that supply “for all purposes” means supply to all parties, or to any party or person. “Purpose” means the objective to be achieved, or the object to be reached or accomplished, or the end or aim to which the view is directed in any planned manner, or execution or the design or the intention with which a thing is to be done. Citing Aiyar’s Law Lexicon, Counsel submitted that the word “purpose” implies the thing intended or the object to be achieved, but not even the motive behind that action. Indeed, the Clause itself makes it clear that “purpose” does not mean persons or parties because of the wording “energy shall be supplied under this license for all purposes including supply to other licensees for their own purposes”.

10. Moreover, the relevant statutes also make a clear distinction between “purpose” and the person to whom the energy is to be supplied. Counsel pointed out that, under S. 3(2)(e) of the IE Act,

“the grant of a license under this Part for any purpose shall not in any way hinder or restrict the grant of license to another person within the same area of supply.”

The E(S) Act reads as follows:

“19(1) (b) [the Board shall not] supply electricity for any purpose to any person, not being a licensee for use in any part of the area of supply of a licensee without the consent of the licensee unless:-

(i) the actual effective capacity of the licensee’s generating station computed in accordance with para IX of the First Schedule at the time when such supply was requires was less than twice the maximum demand asked for by any such person; or

(ii) the maximum demand of the Licensee being a distributing licensee and taking a supply of energy in bulk is, at the time of the request less than twice the maximum demand asked for by any such person; or

(iii) the licensee is unable or unwilling to supply electricity for such purpose in the said part of such area on reasonable terms and conditions and within a reasonable time.

It is submitted that the argument that it would have been unnecessary to add the words “including supply to other licensees for their purposes” unless TPC were to be entitled by virtue of the words “for all purposes” is fallacious in view of the definition of “ bulk licensee” given in Section 2(3) of the E(S) Act. He pointed out that this Section. is a part and parcel of TPC’s licenses, which are subject to the provisions of that Act. This definition makes it clear that the only purpose for which TPC could supply energy to other licensees would be for distribution by them and not for their own purposes, and this Clause was necessary in order to clarify that the distributing licensee could also use the energy supplied by TPC for its own purposes. The words used are “and in bulk”, not merely “and bulk”. Reading “and” as “or” is nowhere warranted.

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