Case No. 21 of 2004

In the matter of

Refund to Niramaya Medical Foundation & Research Centre of excess amounts of Security Deposit, Service Line Charges, Service Connection Charges and Energy Charges.

Dr Pramod Deo, Chairman

Shri A. Velayutham, Member

Dated: 22^nd March, 2005.

Citing Section 142 of the Electricity Act (EA), 2003 read with Sections 47, 62(6), and 57(2), M/s Niramaya Medical Foundation & Research Centre (NMF), Baramati, District Pune, through its Director Dr Ashok Deshpande, has filed a Petition dated 10^th May, 2004 with the following prayers:

i) The Maharashtra State Electricity Board (MSEB) be ordered to refund forthwith the excess amounts recovered from NMF, with interest at bank loan rate, in respect of the following:

a) Excess amount of Rs. 6,21,555/- towards security deposit out of the amount of Rs. 6,86,000/- paid.

b) Excess amount of fixed service connection charges (SCC) of Rs 30,000/- and Service Line Charges (SLC) charge of Rs. 98,000/-

c) Excess amount on account of 15% supervision charges, out of Rs. 50,000/- recovered from NMF.

ii) MSEB be ordered to refund the excess amount of energy charges, including Electricity Duty, recovered through monthly bills from the date of connection towards the difference between the amount charged under wrong category HTP-VI, and the amounts to be charged at the correct rate, i.e. under category HTP-II.

iii) Compensation may be given to NMF under Section 57(2) of EA, 2003.

2. According to the Petition, NMF was given a HT connection from 9^th October, 2002 by MSEB, with connected load and contract demand of 590 kW and 250 kVA respectively. NMF has alleged that, taking advantage of their monopoly position, MSEB dictated terms according to which NMF had to give an undertaking that the entire work required for making the supply available would be carried out by NMF at its own cost. The undertaking was given in view of the hospital's urgent need for electricity. Thus, the entire work of laying supply lines and service connection was carried out by NMF at its own cost. Inspite of this, again the following amounts, totalling Rs.8.64 lakhs, were required to be paid by NMF before the supply was released:

a) Fixed Service Connection charges Rs. 30,000.00

b) Security Deposit Rs. 6,86,000.00

c) Service Line charges Rs. 98,000.00

d) 15% supervision charges for work and CTPT Rs. 50,000.00

NMF contends that the above recovery was without any justification, and has pointed out that:

(a) The recovery of SLC and SCC was unwarranted and illegal since the entire cost of carrying out the work involved had already been incurred by NMF.

(b) The recovery of Rs. 6.86 lakhs towards Security Deposit was arbitrary inasmuch as, after the supply was obtained, monthly billing during the calendar year 2003 had never exceeded Rs. 65,000/-. Therefore, MSEB should have refunded the excess Security Deposit as per the principles laid down by the Commission in its Tariff Order. Thus, the amount of Rs. 6.21 lakhs collected in excess should be refunded in lumpsum with interest at the bank loan rate. However, MSEB have only shown a willingness to give refund only to the extent of 30% of the refundable amount as per their letter dated 8^th January, 2004, and that too in instalments through adjustment in energy bills.

(c) With regard to the amount of Rs. 50,000/- recovered against 15% supervision charges, no explanation has been given as to why CTPT has been included, since metering equipment, including CTPT was required to be provided by NMF. Therefore, supervision charges should be worked out on a justified basis and the excess amount refunded.

3. NMF has also pointed out anomalies in the tariff charged by MSEB. Although NMF’s connection has been given under tariff category HTP-II, in practice the energy charges were levied at Rs. 3.50 per unit applicable to HTP-VI, whereas the billing demand charges have been levied at Rs. 3 per kVA as applicable to NMF’s category, i.e. HTP-II. NMF has pointed out that both charges should have been applied as per HTP-II. By erroneously levying energy charges at HTP-VI rate, MSEB are in violation of Section 62(6) and have to refund the excess recovered with interest. Compensation should also be paid in view of the provisions of Section 57(2).

4. NMF’s Petition states further that, subsequently it applied for reduction of contract demand from 250 kVA to 100 kVA. This was sanctioned by MSEB on condition that NMF replace its existing 315 kVA transformer with a 100 kVA transformer at its cost. Apart from the cost of the transformer itself, NMF also had to incur expenditure on its installation and the procedures involved in approval by the Electrical Inspector. According to NMF, this replacement of transformer was unnecessary, and an additional expenditure of Rs. 50,000/- had to be incurred as a result.

5. In their Reply dated 17^th June, 2004, MSEB have stated that, as per their Conditions of Supply, SLC or the entire actual capital expenditure, whichever is higher, is required to be paid by the consumer. The consumer has the option of undertaking the work himself and paying 15% material plus labour cost. MSEB have pointed out that the Commission had considered a similar dispute with respect to SLC in Case No. 29 of 2003 (M/s Shree Om Estate Developers & Others), though no Order appears to have been passed yet. In that case, MSEB had made detailed submissions regarding their authority to recover SCC and SLC, and set out the principles for execution of capital works by consumers against payment of 15% supervision charges. These submissions would apply to the present case also, and have also been minuted in the Record of Proceedings.

6. MSEB have stated that Security Deposit was recovered from NMF at the outset, initially on an estimated basis. In such cases, being based on estimation, it is possible that the amount recovered may be found to be in excess when actual consumption details become available. Under MSEB’s Conditions of Supply, whenever the security deposit exceeds the average amount of six months' energy bills, then the excess is refunded through adjustments in energy bills, upto 30% of the amount of such bills. In the NMF case, the estimated security deposit recovered was admittedly found to be far in excess as compared to the monthly average bills. As such, after NMF approached MSEB, instructions were given to refund the excess to the extent and in the manner provided for in the Supply Conditions.

7. In their Reply, MSEB have admitted that, although NMF was in the HTP-II category, energy charges were being wrongly levied at the HTP-VI rate. However, when this anomaly was noticed, remedial action was taken, and NMF is now being levied both demand as well as energy charges as per HTP-II. The excess recovery is being refunded through adjustment in energy bills.

8. The Reply states that, at the time of release of supply, MSEB had advised NMF to install a 315 kVA capacity transformer to match its contract demand at that time. Subsequently, NMF reduced the contract demand to 100 kVA, but without any change in connected load (which remains at 590 kW). MSEB have contended that, looking to the connected load, there is a possibility of NMF exceeding its contract demand. In order to avoid such possibilities, MSEB generally insist in such cases for installation of a transformer with a capacity commensurate with the contract demand.

9. It its Rejoinder dated 15^th July, 2004, NMF has stated that the submissions made by MSEB in Case No. 29 of 2003 in their defence are not available to it. However, considering the provisions not only of EA, 2003 but also of the erstwhile Electricity (Supply) Act and Indian Electricity Act, NMF contends that the Supply Conditions with regard to SCC, SLC and 15% supervision charges are in conflict with the statutory provisions, and are unjustified, unreasonable and arbitrary. As far as the alleged provision in the Conditions of Supply with regard to the ceiling of 30% refund of excess security deposit through energy bills, NMF finds no such provision. In fact, the quantum of security deposit is prescribed in the Tariff Order and, accordingly, mention is made regarding this in the Tariff Schedule. Thus, MSEB’s dispensation is neither in accordance with their Conditions of Supply nor with the statutes. Outside of these, mere circulars issued by MSEB have no independent legal status. With regard to excess recovery of security deposit and energy charges, although these have been admitted, MSEB have not yet worked out the total amount of refund payable, and have also not explained the minor credit shown to have been partly adjusted in the energy bill for June, 2004.

10. With regard to transformer replacement, NMF's Rejoinder states that, instead of imposing an additional burden on the consumer by requiring replacement of transformer, NMF could have been required to maintain the proper CT ratio vis-à-vis transformer capacity and contract demand.

11. At the hearing held on 22^nd November, 2004 Dr Ashok Deshpande of NMF, assisted by Shri B.R. Khedkar of Akhil Bharatiya Grahak Panchayat, summarised the facts, contentions and sequence of the case as set out in the Petition. They added that, with regard to the change of transformer that was insisted upon, there is no such provision in the MSEB Supply Conditions. This insistence seems to be based on some apprehension on the part of MSEB's Vigilance Department which has not been communicated to them

12. NMF representatives stated that, after the Petition was filed, MSEB had worked out the excess energy charges recovered on account of wrongful tariff category application for adjustment against energy bills, but NMF are entitled to interest on this amount from the time when HTP-VI rates were wrongly applied.

13. Shri Patki, Counsel for MSEB admitted that, taking into account the net dues, some amounts are to be refunded to NMF. As per Clause 22 of MSEB’s Conditions of Supply, the refund of security deposit is to be effected in a particular manner, and in instalments not exceeding 30% of the average monthly bill. To the Commission’s observation regarding MSEB’s general condition requiring three months' security deposit being over-ridden by the specific provisions of one billing cycle in the Tariff Order, Shri Sunnapwar, Technical Director, MSEB clarified that the 3 months' period was being applied earlier. Thereafter, the relevant Tariff Order provisions are being implemented. He pointed out, however, that the Tariff Order is silent on the mode of refund. To that extent, MSEB's Supply Conditions would apply. To another query of the Commission regarding refund of dues on account of energy charges in one lumpsum, MSEB Counsel submitted that, as mentioned in their Reply, the refund is being made, but that usually such adjustments are made through energy bills. If the adjustment required exceeds the amount of energy bills, it spills over into the next bill.

14. With regard to the requirement to replace the transformer upon reduction in contract demand, with connected load remaining the same, Counsel for MSEB reiterated the stand contained in their Reply. Shri Sunnapwar, TD clarified further that, following the reduction in contract demand, if that level is exceeded, a penalty can be levied. However, a higher transformer capacity results in increase in losses for the system as a whole. Therefore, MSEB insisted that the transformer should be commensurate with the reduced contract demand, although admittedly such a requirement may not be in their Supply Conditions. The Commission observed that it could be understood if there is were a significant increase in contract demand, and a commensurate transformer is insisted upon. There is also a penalty for exceeding contract demand. That being the case, the Commission queried as to why it was necessary to insist on transformer replacement in this case, and whether MSEB could show that it was essential in order to control losses. Shri Sunnapwar submitted that it adds to reactive power also, and that the technical details could be furnished. The Commission allowed one week to MSEB to enable them to do so, which might also be useful while finalizing the Supply Code Regulations. In this context, the Commission also observed that MSEB seem to be implying that the level of penalty fixed for exceeding contract demand does not give a sufficient price signal. Shri Khedkar, on behalf of NMF, submitted that measures to control exceeding contract demand could be raised by MSEB during tariff proceedings and resolved, if this were the concern. He pointed out that NMF has been maintaining a power factor of one. Contract demand has also not been exceeded. If it is exceeded, it is so recorded. In case MSEB wanted to introduce such a condition with regard to replacement of transformers, they should have been done so through due amendment to their Supply Conditions. As far as losses are concerned, they are in any event to NMF's account as a HT consumer.

15. Shri Khedkar queried the basis of the initial amount of Rs. 6.86 lakhs demanded on an estimated basis as security deposit in order to emphasize its arbitrariness, particularly since the subsequent billing amounted to an average of only Rs. 40,000/- to Rs 50,000/- per month. According to him, the tariff Order provision came into force in May 2000, allowing security deposit only to the extent of average for one billing cycle. Moreover, from November, 2002, the average bill of NMF had reduced even further, thus making the 30% ceiling imposed by MSEB on such refund even more disadvantageous to NMF.

16. As regards the excess recovery on account of application of wrong energy tariff, Shri Khedkar submitted that it was also adjusted over several months and not in lumpsum. Therefore, interest as claimed should be given. In this context, he suggested that MSEB’s billing software needs to be checked, and that MSEB should be asked to file an affidavit to the effect that such instances are not taking place elsewhere and affecting a large number of HT consumers. He mentioned that, had he himself, belonging to a consumer protection organization, not looked at the figures, NMF on its own may not have been detected the anomaly and taken up the matter with MSEB. There may be many other such consumers.

17. The Commission has considered the written and oral submissions made in this case. With regard to the refund of excess security deposit originally recovered on an estimated basis while releasing the connection, the Commission notes that, in its second Tariff Order dated 10^th January, 2002, the Commission had reduced the amount of security deposit to the equivalent of the average of three months of billing or a billing cycle period, whichever is less. Thus, the security deposit for HTP-II consumers would generally be equivalent to one month’s average billing. Admittedly, MSEB have recovered an amount far in excess of this initially on an estimated basis. The only issue in dispute is whether or not NMF is entitled to refund in one lumpsum with interest. Prior to the Supply Code Regulations coming into force, the Commission had not given any directions on this matter. On the other hand, MSEB’s Conditions of Supply provide for any excess security deposit to be adjusted in installments, the amount of which would not exceed 30% of the average monthly bill. Although MSEB’s earlier dispensation with regard to the quantum of security deposit has been superceded by the specific provisions in the second Tariff Order, the Commission has not interfered with the pre-existing dispensation of MSEB with regard to how the excess recovered is to be refunded. The Commission also notes that the Tariff Schedule booklets of MSEB have from time to time also contained this provision, lastly in the Tariff Booklet issued after the Commission’s last Tariff Order, and with the Commission’s approval. Thus, if MSEB are strictly following those provisions with regard to the manner of refund, there is no ground for the Commission to interfere with it for the period uptil 20^th January, 2005. On that date, however, the Commission notified its Electricity Supply Code and other Conditions of Supply Regulations, 2005. These Regulations over-ride MSEB’s existing dispensation inasmuch as, under Regulation 11.5, the excess security deposit amount is to be refunded in a single payment, either by way of adjustment in the next bill or by way of separate cheque payment, at the option of the Applicant, within 30 days. Therefore, by 20^th February, 2005, MSEB should have refunded the balance, if any, of any excess still remaining to NMF in full. If they have not done so, such repayment should be made forthwith, alongwith due interest for the period after the notification of the Supply Code.

18. As pointed out by MSEB, certain issues were raised by M/s Shree Om Estate Developers & others regarding the SLC, SCC and ORC dispensations of MSEB in Case No. 29 of 2003. In its Order dated 10.8.2004 in that Case, the Commission has concluded that:

“As acknowledged by their Counsel, MSEB's challenge to the Commission's jurisdiction over the dispensation and charges in respect of matters, such as these (arising from an earlier Order) failed in the High Court. MSEB were given time by the High Court to appeal to the Supreme Court, but they did not do so. Consequently, after a communication from the Commission, MSEB submitted a proposal on 26th September, 2003 for approval of their Conditions and Miscellaneous Charges of supply and various Circulars issued after the constitution of the Commission. By that time, the EA, 2003 had come into force. Under the new Act, the Commission is required to specify the Supply Code and related matters by Regulations, and this exercise was initiated. In fact, the draft Supply Code and related Regulations, which seek to comprehensively address the matters raised by the Petitioner and the anomalies and open endedness of the present practices followed by MSEB, have recently been put to the public for comments by the Commission. There would, therefore, be a clear and transparent dispensation after these Regulations are notified, i.e. prospectively. Therefore, while appreciating the issues raised by the Petitioner, and also keeping in view MSEB's arguments that some of these charges are pre-existing and continue to operate until they are duly revised by the Commission, the Commission is not inclined to interfere in the matter of ORC and SLC retrospectively”.

However, the issues raised in that Case were somewhat different from the present matter, inasmuch as NMF has challenged the validity, even within the terms of MSEB's own dispensation, of recovering SCC and SLC when the entire necessary infrastructure has been provided by NMF itself at its own cost. At the hearing and in their written submissions, MSEB have not squarely addressed this contention. In fact, in their Reply dated 17^th June, 2004, MSEB have stated that:

“As per the provisions of the Board’s Conditions of Supply, any consumer approaching the Board for power supply on High Tension is required to pay the Service Line Charges or the entire actual capital expenditure whichever is more. It is also submitted that, in all such cases, the consumer is given an option to carry out the work himself and pay 15% of the material plus labour cost, however the consumer is never forced to carry out the work by himself only."

In the circumstances of the present case, it has not been explained why SCC and SLC have been charged in view of the clear dispensation brought out above. On the other hand, supervision charges have also been levied on the work done by NMF. Therefore, the Commission finds no justification in the levy of SCC and SLC when NMF itself has undertaken the infrastructure at its cost. To that extent, the SCC and SLC should be refunded to NMF with interest as would be applicable to delayed payments by HTP-II consumers, from the date of such recovery till the refund to NMF.

19. With regard to supervision charges, MSEB’s Conditions of Supply provide for recovery of 15% of the cost of material and labour. This has now been superceded by the proviso to Regulation 3.3.8 of the Supply Code, under which supervision charges are to be approved by the Commission, but cannot exceed 15% of the labour cost. However, the supervision charges levied by MSEB in this case predate the Regulations, and were mandated by their Supply Conditions. Moreover, since CTPT is very much a part of the material cost involved, the Commission is unable to fault MSEB on this account.

20. MSEB have admittedly erred in levying energy charges at a rate ( HTP-VI) different from the tariff category accorded to NMF (HTP-II). On this point also, the dispute only relates to the manner and time within which refund is to be made. Considering the circumstances of the case and in the absence of any provision to the contrary in MSEB's Supply Conditions (unlike the refund of excess security deposit), MSEB should have refunded the excess recovered expeditiously, and with interest. The Commission appreciates that there may sometimes be cases in which complexities in the nature of operations and interpretation result in a wrong tariff category being applied. In this case, however, there was no such ambiguity. MSEB applied the HTP-II category to NMF, and also billed demand charges on that basis. In these circumstances, there can be no mitigating explanation for the levy of energy charges at the HTP-VI rate. Therefore, MSEB should refund the balance remaining, if any, forthwith. Moreover, in addition to the principal amount, interest at the rate applicable to delayed payments by MSEB's HTP consumers should also be paid to NMF from the date of such wrongful recovery uptil the date of refund, including in respect of the amounts already adjusted so far.

21. MSEB have not explained how it is possible for NMF to have been billed at different tariff rates for demand charges and energy charges. In the interest of both MSEB and their consumers, MSEB should review their billing software or other procedures responsible for such an anomaly, so that corrective measures are taken and such instances do not arise.

22. NMF was allowed a reduction in contract demand. The connected load remaining the same, MSEB insisted on the installation of a transformer commensurate with the reduced contract demand. Thus, having initially installed a transformer, NMF had to incur expenditure again to replace it. While admitting that such a requirement was not duly codified, MSEB have argued that requiring the consumer to do so in such circumstances was justified on technical and commercial grounds. In response to the directions given at the hearing, under their submission dated 4^th December, 2004, MSEB have stated that:

"The transformer being a total inductive load, under no load condition, the transformer feeds total inductive power in the system. As a consequence the no load P.F. even drops to 10% to 20%. If we permit three times higher capacity transformer then no load losses will be more than the proper capacity transformer losses.

For example, if we take total contract demand of HT consumer of Maharashtra, i.e. 5540 M.W.

Three time capacity will be 16620 MW

1% Reactive component will be added in MSEB system i.e. 166 MVAR. It amounts to less generation by 166 MW.

If we allow this to any one consumer, there will be no discipline.

In view of the above, it may not therefore, be advisable to allow all or any consumer to have his transformer capacity substantially more than his Contract Demand."

Considering the context in which MSEB had been asked for further submissions regarding their requirement of transformer replacement, it was expected that a detailed worksheet indicating the iron and copper loss (at full load) of 100 kVA and 315 kVA transformers, along with the calculation of total losses at 100 kVA load in respect of the two transformers in this case, would be furnished by MSEB to illustrate their contentions. However, instead of giving a comparison of losses accordingly, MSEB have given a hypothetical example to justify their stand, which the Commission finds to be technically flawed. The transformer is a static device used for transformation of power from a higher voltage level (adopted for lowering the transmission / sub-transmission loss) to a user level of voltage, or vice-versa. Normally, a typical distribution transformer, as in this case, would have full load efficiency in the range of 98%, and low-load efficiency of around 96%. Being static equipment, transformers have a long life, and are chosen keeping future load growth in mind. The power factor of such transformers is fairly uniform (around 0.8 to 0.85) across the transformer loading range of 30% to 100%. The no load loss (Iron Loss or magnetizing loss) of a transformer is constant for any loading. However, the load loss (Copper Loss) is directly proportional to the square of current (factor of loading of the transformer) being carried in the transformer windings. Theoretically, the efficiency of a transformer is optimum at the point of loading where the no load loss is equal to the load loss, and transformers are designed keeping this factor in mind. The present-day distribution transformers are mainly designed to be optimally efficient at a loading of around 50%. Therefore, a 315 kVA distribution transformer would operate most efficiently when loaded to the extent of 150 kVA. Thus, compelling the consumer to load his transformer at rated full load capacity means effectively that he is being asked to run his equipment in an inefficient manner and thus incur recurring losses. As regards the argument that low power factor, particularly at no load, will affect the system, the Commission finds no real substance in it, since normally power factor

Sd/-	Sd/-
(A. Velayutham)	(Pramod Deo)
Member	Chairman, MERC
		Sd/-
		(A.M. Khan)
		Secretary, MERC