Electricity Tariff Dispute: Supreme Court Upholds CERC’s Tariff Determination for Damodar Valley Corporation

The case of Bhaskar Shrachi Alloys Ltd. & Ors. vs. Damodar Valley Corporation & Ors. revolves around a long-standing electricity tariff dispute involving the Damodar Valley Corporation (DVC) and the applicability of tariff regulations under the Electricity Act, 2003. The Supreme Court was called upon to determine whether the provisions of the Damodar Valley Corporation Act, 1948, would continue to apply in matters of tariff fixation or if they were superseded by the 2003 Act.

Background of the Case

The dispute originated from an order issued by the Central Electricity Regulatory Commission (CERC) on October 3, 2006, which determined the electricity tariff for the period 2004-2009. Various stakeholders, including industrial consumers and the State of Jharkhand, challenged this order before the Appellate Tribunal for Electricity (APTEL). APTEL, in its judgment dated November 23, 2007, upheld certain aspects of the CERC order but remanded others for reconsideration.

The appeals before the Supreme Court sought to challenge APTEL’s decision on multiple grounds, including the applicability of the 1948 Act, tariff computation methodologies, and the financial burden on electricity consumers.

Legal Issues Raised

1. Applicability of the Electricity Act, 2003 vs. the DVC Act, 1948

The key issue was whether the 2003 Act completely overruled the provisions of the DVC Act in tariff matters or if certain provisions of the older law continued to apply.

2. Role of the Central Electricity Regulatory Commission

The Supreme Court had to determine whether CERC had the authority to fix tariffs for DVC, considering that the 1948 Act granted DVC the power to determine its own electricity tariffs.

3. Tariff Components and Consumer Burden

The appeals challenged several tariff components, such as depreciation rates, pension and gratuity contributions, debt-equity ratios, and whether DVC’s social obligations should be factored into electricity pricing.

Arguments by the Parties

Arguments by the Appellants (Bhaskar Shrachi Alloys Ltd. & Other Consumers)

• The appellants argued that the Electricity Act, 2003, created a new regulatory framework and that CERC’s tariff regulations should completely override the provisions of the DVC Act, 1948.
• They contended that CERC’s order allowed DVC to pass on unnecessary expenses to consumers, such as pension liabilities and social welfare costs.
• They challenged the methodology used by CERC for determining depreciation rates and the debt-equity ratio.

Arguments by the Respondents (Damodar Valley Corporation & CERC)

• DVC argued that it had unique responsibilities, including flood control, afforestation, and irrigation, which should be reflected in tariff calculations.
• The respondents contended that the 1948 Act continued to apply in areas where it was not inconsistent with the 2003 Act, as per the fourth proviso to Section 14 of the Electricity Act.
• CERC defended its tariff determination methodology, stating that it was based on sound regulatory principles.

Supreme Court’s Observations

The Supreme Court provided a detailed analysis of the legal provisions and factual circumstances surrounding the case.

1. Co-existence of the 1948 Act and the 2003 Act

The Court ruled that while the 2003 Act was the primary legislation governing electricity tariffs, the DVC Act was not entirely overridden. It stated:

“The fourth proviso to Section 14 of the Electricity Act, 2003, allows certain provisions of the DVC Act, 1948, to continue applying, provided they are not inconsistent with the 2003 Act.”

2. Role of CERC in Tariff Determination

The Court held that CERC had the authority to determine tariffs for DVC. It ruled:

“The tariff determination function of DVC under the 1948 Act is inconsistent with the regulatory mechanism established by the 2003 Act. Therefore, tariff fixation falls within the purview of CERC.”

3. Specific Tariff Issues Addressed

Depreciation Rates and Sinking Fund

The Court upheld APTEL’s decision that depreciation rates should be determined under Section 40 of the DVC Act rather than CERC’s tariff regulations.

Pension and Gratuity Contributions

The Court ruled that pension and gratuity liabilities should be fully recovered through the tariff, rejecting CERC’s earlier approach of a 40:60 split between DVC and consumers.

Debt-Equity Ratio

The Court ruled that pre-1992 projects should have a 50:50 debt-equity ratio, while post-1992 projects should follow the standard 70:30 ratio.

Other Expenses and Cross-Subsidization

The Court upheld the inclusion of certain social welfare expenses in the tariff, stating:

“The social responsibilities assigned to DVC under the 1948 Act cannot be ignored. However, these expenses must be clearly identified and justified.”

Final Judgment

The Supreme Court upheld the Appellate Tribunal’s order and ruled:

• The Electricity Act, 2003, governs DVC’s tariff fixation, but provisions of the 1948 Act that are not inconsistent will continue to apply.
• CERC has the final authority to determine tariffs, but it must consider the unique responsibilities of DVC.
• The Court rejected challenges by consumers seeking to eliminate cross-subsidization of non-electricity expenses.
• It upheld pension and gratuity liabilities being fully passed on to consumers.
• The decision provided clarity on the framework for future tariff determinations involving DVC.

Implications of the Judgment

The ruling has significant implications for regulatory governance in the power sector:

• Clarifies the role of CERC: Confirms that CERC is the final authority for tariff determination, even for statutory corporations like DVC.
• Maintains financial stability for DVC: Allows DVC to recover pension liabilities and certain social welfare expenses through tariffs.
• Balances consumer interests: While upholding some cross-subsidization, the judgment ensures transparency in tariff calculations.
• Establishes legal precedent: Reinforces that older laws governing electricity companies must align with modern regulatory frameworks.

Conclusion

The Supreme Court’s decision in Bhaskar Shrachi Alloys Ltd. vs. Damodar Valley Corporation serves as an important precedent in balancing regulatory control and financial sustainability in the electricity sector. By affirming CERC’s authority while allowing certain aspects of the DVC Act, 1948, to remain in force, the ruling provides a structured approach for managing complex regulatory conflicts in India’s power industry.

Petitioner Name: Bhaskar Shrachi Alloys Ltd..
Respondent Name: Damodar Valley Corporation & Ors..
Judgment By: Justice Ranjan Gogoi, Justice R. Banumathi.
Place Of Incident: West Bengal and Jharkhand.
Judgment Date: 23-07-2018.

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