9911796707
TMI Blog2014 (4) TMI 1306X X X X Extracts X X X X X X X X Extracts X X X X ..... till 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 fortiori, 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sa 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricity 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant'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 pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 (Sterlite-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly 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 le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kes 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther 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 scrutinise 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f '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 conte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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