Supreme Court of India
ASSOCIATION OF INDUSTRIAL ELECTRICITY USERSversusSTATE OF A.P. AND ORS.
- Citation
- 2002 INSC 122
- Decided
- 6 March 2002
- Disposal
- Dismissed
- Bench
- B N KIRPAL
Holding
Section 26(5) governs the routine annual fixation of tariffs, Section 26(9) applies only to amendments within a financial year, and the Act permits classification of consumers and differential tariffs provided they do not show undue preference and comply with the parameters of Section 26(7).
Summary
The Association of Industrial Electricity Users challenged the tariff fixed by the Andhra Pradesh Electricity Regulatory Commission for the financial year 2000-01, contending that the tariff should have been fixed under Section 26(9) and that the Act prohibits classification of consumers or any undue preference. The High Court dismissed the writ petitions, upholding the tariff, and the appellants appealed to the Supreme Court. The Supreme Court examined the interplay between Sections 26(5) and 26(9) of the Andhra Pradesh Electricity Reforms Act, holding that the annual tariff fixation is governed by Section 26(5), while Section 26(9) applies only to amendments or new tariffs within a financial year. The Court further held that the Act permits differentiation among consumer categories based on load factor, consumption, time of supply, and cross‑subsidisation, and that such classification is consistent with Section 26(7) and the functions of the Commission under Section 11. It clarified that judicial review of tariff fixation is limited to ensuring procedural compliance and is not an appellate review of policy unless the decision is arbitrary or illegal. Consequently, the appeals were dismissed with costs.
Issues considered
- The correct procedural provision for fixing tariffs under the Andhra Pradesh Electricity Reforms Act – whether Section 26(5) or Section 26(9) applies.
- Whether the Act prohibits classification of electricity consumers and the granting of any undue preference.
- Scope of judicial review under Article 226 in matters of tariff fixation by the Electricity Regulatory Commission.
Legislation cited
- Andhra Pradesh Electricity Reforms Act, 1998s. 11, s. 26(1), s. 26(2), s. 26(3), s. 26(4), s. 26(5), s. 26(6), s. 26(7), s. 26(8), s. 26(9)
- Electricity (Supply) Act, 1948s. 57, s. 57-A, s. 57-B, s. Sixth Schedule
Subjects
tariff fixationelectricity regulatory commissionclassification of consumersundue preferencejudicial reviewArticle 226cross‑subsidyAndhra Pradesh Electricity Reforms Act
Judgment
ASSOCIATION OF INDUSTRIAL ELECTRICITY USERS A
v.
STATE OF A.P. AND ORS.
MARCH 6, 2002
[B.N. KIRPAL, SlIIVARAJ V. PATIL AND B
BISHESHWAR PRASAD SINGH, JJ.]
Andhra Pradesh Electricity Reforms Act, 1998-Sections 11 and 26.
c
Regulatory Commission-Established under the Act-Fixation ofTariiff
for Licensees under the Act-Section 26(5}and Section 26(9)-Distinction
between-Explained.
Classification of Consumers-Industrial and domestic-Taking into
consideration the functions of the Commission and relevant provisions of the D
Act for fixation of tarif-Consumers could be ca1egorised as Industrial, Non-
industrial Agricultural or Domestice consumers.
Constitution of India:
Article 226-Review Jurisdiction of High Court-Invoking of-Fixing of E
tariff and providing for cross subsidy are policy matters-Hence should not
ht! ;nterfered with unless power exercised is shown to be arbitrary or ex-facie
bad in law.
·The Electricity Regulatory Commission set up under the Andhra F
Pradesh Electricity Reforms Act, 1998 had determined tariff for the period
1st April, 2000 to 31st March, 2001. This Order was challenged and the High
Court dismissed the Writ Petitions and upheld the tariff as fixed by the
Commission. Hence these appeals.
During the pendency of these appeals, the tariff was replaced and the G
-.....:. revised tariff not been challenged because no relief could be granted for the
expired period for which tariff was fixed. Thus the appeals have become
infructuous. But keeping in view the importance of some of the issues
pertaining to interpretation of Section 26 of the Act, this Court considered
the matter further.
273 H
274 SUPREME COURT REPORTS [2002] 2 S.C.R.
A It was contended for the appellants that tariff was required to be fixed
in terms of Section 26(7) and 26(9) of the Act and accordingly there cannot y-
be any classification of consumers of electricity and also no undue preference
can be given to any consumer of electricity while fixing the tariff.
Dismissing the appeals, the Court
B
HELD: 1.1. There seems to be some overlapping between sub-section
(S) and sub-section (9) of Section 26 of the Andhra Pradesh Electricity
Reforms Act. But on a careful reading of sub-section (9), it is found that sub-
section (9) comes into play only when during the financial year an amendment
c to the tariff or a new tariff is proposed. Reading sub-section (S) and sub-section ~
(9) together, it appears that annual exercise with regard to the fixation of tariff
has to be undertaken under sub-section (S), but if for any reason there is a
new tariff which is to be proposed or an amendment is to take place during
the financial year, then the procedure set out in sub-section (9) of Section 26
has to be followed. It is for this reason that while under Section 26(5) it is
D stated that the particulars are to be supplied by the licensee at least three
months before the ensuingfinancial year, on the other hand under Section 26(9)
the particulars are to be supplied at least three months before the proposed
date ofimplementation. By use of the words 'proposed date ofimplementation'
in contradistinction to the use of the words 'ensuing financial year' occurring
in sub-section (5), the indication clearly is that sub-section (9) will apply only
E
in case of amendment during a financial year. For normal fixation of tariff
with. or without modification, the exercise which has to be undertaken is under
sub-section (5) of Section 26. [280-F-G-H; 281-A]
1.2. Sub-section (9) of Section 26 does state that the tariff which is ~ixed
F shall not show undue preference to any consumer of electricity but then the
said sub-section itself permits differentiation according to the consumer's load
factor or power factor, consumer's total consumption of energy during the
specified period, time at which the supply is required or paying capacity' of
category of consumers and the need for cross-subsidisation or such tariff as
is just and reasonable and be such as to promote economic efficiency in the
G supply and consumption of electricity .and the tariff may also be such as to :>
satisfy all other relevant provisions of the Act and the conditions of the
relevant licence. This Section has to be read along with Section 11 which sets
out the functions of the Commission and, inter alia, provides that amongst
the functions is power to regulate the tariff and charges payable keeping in
H view both the interest of the consumer as well as the consideration that the
ASSOCIATION OF INDUSTRIAL ELECTRICITY USERS v. STATE [KIRPAL, J.] 275
supply and distribution ca.mot be maintained unless the charges for electricity A
supplied are adequately levied and duly collected. Depending upon the various
factors stipulated in Section 26(7), categorisation between industrial and non-
industrial, agricultural or domesti~ consumers can certainly take place.
[281-C-D-E)
2. Judicial Review in a matter with regard to fixation of tariff has not B
to be as that of an appellate authority in exercise of its jurisdiction under
Article 226 of the ConstitutioP. All that the High Court has to be satisfied is
that the Corn mission has followed the proper procedure and normally the
Court will not interfere. Fixing a tariff and providing for cross-subsidy is
essentially a matter of policy and normally a Court would refrain from C
interfering with a policy decision unless the power exercised is arbitrary or
ex facie bad in law. [281-G-H; 282-A)
CIVJL APPELLATE JURISDICTION : Civil Appeal No. 2689 of
2001.
D
From the Judgment and Order dated 16. I 0.2000 of the Andhra Pradesh
High Court in W.P. No. 10245 of 2000.
WITH
C.A. Nos. 2714/2001 and C.A. No. 296/2002. E
Ms. K. Amareswari, Ashok Grover, Shanti Bhushan, V.R. Reddy,
K. Gopal Choudhary, Ms. Mamta Choudhary, P. Niroop, Pavan Kumar,
D. Ramakrishna Reddy, D. Bharathi Reedy, T.V. Ratnam, Ms. R. Madhavi
Latha, K. Subba Rao, Ms. Anupama Grover, Rakesh Kumar Sharma, F
M.G. Ramachandran, K.V. Balakrishnan, K.V. Mohan and R. Chandrashkhar
Reddy for t~e appearing parties.
The Judgment of the Court was delivered by
KIRPAL, J. With a view to provide for the constitution of an Electricity
Regulatory Commission, restructuring of the electricity industry, rationalisation G
of the generation, transmission, distribution and supply of electricity avenues
for participation of private sector in the electricity industry and generally for
taking measures conductive to the development and management of the
electricity industry in an efficient, economic and competitive manner and for
matters connected therewith or incidental thereto, the Andhra Pradesh H
276 SUPREME COURT REPORTS (2002] 2 S.C.R.
A· Ele.ctricity Reforms Act, 1998 (hereinafter referred to as "the Act") was
promulgated by the State. After it received the assent of the President, by
. Notification dated 27th January, 1999, it came into force with effect from 1st
February, 1999.
The present dispute arises in connection with fixation of the tariff by
the Regulatory Commission which has been constituted under the said Act.
The tariff which was impugned by the appellants herein was in respect of the
year 1st April, 2000 to 31st March, 200 I. This tariff was fixed by a decision
of the Regulatory Commission dated 27th May, 2000. In the said order
determining the tariff, various contentions which had been raised by the
C licensees and the other interested parties, including the appellants, were
considered.
The said order dated 27th May, 2000, was challenged by a number of
writ petitions filed in the High Court of Andhra Pradesh at Hyderabad. By
an elaborate judgment of the Division Bench of the High Court dated 16th
D October, 2000, the writ petitions were dismissed and the tariff which was
fixed by the order da.ted 27th M::iy, 2000 followed by a notification under
Section 26 (6) of the Act was upheld.
During the pendt:nc.y of these appeals, with the passage of time, the
E tariff for the year which was impugned no longer survives and it has been
replaced by tariff for the year I st April, 2001 to 31st March, 2002. It is a
common ground that there has been no challenge to the tariff for the current
year. In a sense, therefore, these appeals have become infructuous because no
effective relief can be granted as the period for which the tariff was fixed has
already expired. Be that as it may, a~· ;;ome issues are likely to arise in the
F future pertaining to the interpretation1of Section 26 of the Act which deals
with the fixation of tariffs, we have heard the learned counsel for the parties
at great length.
It has been contended on behalf of the appellants that on a correct
G interpretation of Section 26 of the Act, the tariff was required to be fixed by
complying w'ith the provisions of sub-section (9) and further the tariff must
necessarily comply with the parameters prescribed in sub-section (7) of Section
26. It is further the case of the appellants that according to the said Section
no undue preference can be shown to any consumer of electricity and there
can be no classification of consumers according to the purpose for which the
H electricity is used. It has also been contended, in this regard, that the tariff
ASSOCIATION OF INDUSTRIAL ELECTRICITY USERS v. STATE [KIRPAL, J.] 277
which was fixed indicates that the cost of supply of electricity to the industry A
---(, was much lower than the cost of supply to some of the other consumers like
domestic cdnsumers, but by charging' more per ui\it from the industry vis-a-
vis the domestic consumers undue preference has been shown and that is not
permissible.
Section 26 reads as follows: B
"26(1) The holder of each licence granted under this Act shall
observe the methodologies and procedures specified by the
Commission from time to time in calculating the expected revenue
from charges which it is permitted to recover pursuant to the terms C
of its licence and in designing tariffs to collect those revenues.
(2) The Commission shall subject to the provisions of sub-section
(3) be entitled to prescribe the terms and conditions for the
determination of the licensee's revenue and tariffs by regulations
duly published in the Official Gazette and in such other manner as D
the Commission considers appropriate:
Provided that in doing so the Commission shall be bound by the
following parameters:
(a) the financial principles and their applications provided in the E
Sixth Schedule to the Electricity (Supply) Act, 1948 read with Sections
57 •nd 57-A of the said Act;
(b) the factors which would encourage efficiency, economic use
of the resources, good performance, optimum investments performance
of licence conditions and other matters which the Commission F
considers appropriate keeping in view the salient objects and purpose
of the provisions of this Act; and
(c) the interest of the consumers,
G
(3) Where the Commissio.1, departs from factors specified in the
Sixth Schedule of the Electricity (Supply) Act, 1948 while determining
the licensees' revenues and tariffs, it shall record the reasons thereafter
in writing:
(4) Any methodology or procedure specified by the Commission H
278 SUPREME COURT REPORTS [2002) 2 S.C.R.
A under sub-sections (I), (2) and (3) above shall be to ensure that the
objectives and purposes of the Act are duly achieved.
(5) Every licensee shall provide to the Commission in a fonnat
as specified by the Commission at least 3 months before the ensuing
financial year full details of its calculation for that financial year of
B the expected aggregate revenue from charges which .it believes it is
permitted to recover pursuant to the tenns of its licence and thereafter
I
it shall furnish such further infonnation as the Commission may
reasonably require to assess the licensee's calculation. Within 90 days
of the date on which the licensee has furnished all the information
c that the Commission requires, the Commission shall notify the licensee
either.--
(a) that it accepts the licensee's tariff proposals and revenue
calculations, or .
D (b) that it does not consider the licensee's tariff proposals and
revenue calculations to be in accordance with the methodology or
procedure in its licence, and such notice to the licensee shall,--
-
(i) specify fully the reasons why the Commission considers that
the licensee's calculations does not comply with the methodology or ...
E procedures specified in its licence or is in any way incorrect, and
(ii) propose a modification or an alternative calculation of the
expected revenue from charge, which the licensee shall accept.
(6) Each holder of a supply licence shall publish in the daily
F newspaper having circulation in the area of supply and make avail<!ble
to the public on request the tariff.or tariffs for the supply of electricity
within its licensed area and such tariff or tariffs shall take effect only
after seven days from the date of such publication.
(7) Any tariff implemented under this section,--
G
(a) shall not show undue preference to any consumer of electricity,
but may differentiate according to the consumer's load fuctor or power
factor, the consumer's total consumption of energy during any
specified period, or the time at which supply is required; or paying
H capacity of .::ategory of consumers and need for cross-subsidisation;
ASSOCIATION OF INDUSTRIAL ELECTRICITY USERS v. ST ATE [KI RP AL, J.] 279
(b) shall be just and reasonable and be such as to promote A
economic efficiency in the supply and consumption of electricity;
and
(c) shall satisfy all other relevant provisions of this Act and the
conditions of the relevant licence.
B
(8) The Commission also shall endeavour to fix tariff in such a
manner that, as far as possible, similarly placed consumers in different
areas pay similar tariff.
(9) No tariff or part of any tariff required by sub-section (6) may
be amended more frequently than once in any financial year ordinarily C
except in respect of any changes expressly permitted under the terms
of any fuel surcharge formula prescribed by regulations. At least
three months before the proposed date for implementation of any
tariff or an amendment to a tariff the licensee shall provide details of
the proposed tariff or amendment to a tariff to the Commission,
together with such further information as the Commission may require D
to determine whether the tariff or amended tariff would satisfy the
-
t'
•
~.
provisions of sub-section (7). If the Commission considers that the
proposed tariff or amended tariff of a licensee does not satisfy any of
the provisions of sub-section (7), it shall, within 60 days of receipt of
all the information which it required, and after consultation with the E
Commission Advisory Committee and the licensee, notify the licensee
that the proposed tariff or amended tariff is unacceptable to the
Commission and it shall provide to the licensee an alternative tariff
or amended tariff which shall be implemented by the licensee. The
licensee shall not amend any tariff unless the amendment has been
approved by the Commission. F
(IO) Notwithstanding anything con~ained in sections 57-A and
57-B of the Electricity (Supply) Act, 1948, no Rating Committee
shall be constituted after the date of this enactment and the Commission
shall secure that licensees comply with the provisions of their licenses
regarding their charges for the sale of electricity (both wholesale and G
retail) and for the connection to and use of their assets or systems in
accordance with .he provisions of this Act.
Explanation :-
In this section, - H
280 SUPREME COURT REPORTS (2002] 2 S.C.R.
A (a) "the expected revenue from charges" means the total revenue
which a licensee is expected to recover from charges for the level of
forecast supply used in the determination under sub-section (5) above
in any financial year in respect of goods or services supplied to
customers pursuant to a licensed activity ; and
B (b) "tariff' means a schedule of standard prices or charges for
specified services which are applicable to all such specified services
provided to the type or types of customers specified in the tariff
notification."
A reading of sub-section (2) indicates that in the determination of the
C tariff, the financial principles provided in the Sixth Schedule to the Electricity
(Supply) Act, 1948 are applicable unless for reasons recorded in writing, as
contemplated by Section 26(3), the Commission departs from the factors
specified in the said Sixth Schedule. Sub-section (5) of Section 26 requires
every licensee to provide to the Commission at least three months before the
D ensuing financial year details of its calculation with regard to the expected
aggregate revenue from the charges which it believt:s it is entitled to realise.
The Commission is entitled to ask for further particulars and when the data
have been supplied the Commission is required within 90 days either to
accept the licensee's tariff proposals and revenue calculations or it may proceed
under Section 26(5)(b) and, inter alia, propose a modification or an alternative
E calculation of the expected revenue from the charges which the licensee shall
accept.
The determination of the Commission either under Section 26(5)(a) or
26(5)(b) is then to be notified under Section 26(6) and seven days after the
F said publication the tariff so notified is to take effect.
There is no doubt that sub-section (9) of Section 26 is unhappily worded.
There does appear, at first blush, some overlapping between sub-section (5)
and sub-section (9), but on a ~eful reading bf sub-section (9), we agree
with the contention of Shri Sh~hti Bhushan that si,tb-section (9) comes into
:a play only when during the financial year an amendmen,t to the tariff or a new
tariff is proposed. Reading sub-section (5) and sub-section (9) together, it r-
appears to us that the annual exercise with regard to the fixation of tariff has
to be undertaken under sub-section (5), but if for any reasons there is a new
tariff which is to be proposed or an amendment is to take place during the
financial year, then the procedure set out in sub-section (9) of Section 26 has
H to be followed. It is for this reason that while under Section 26(5) it is stated
ASSOCIATION OF INDUSTRIAL ELECTRICITY USERS•. ST ATE [KIRPAL. J ) 281
that the particulars are to be supplied by the licensee at least three months A
-, before the ensuing financial year, on the other hand under Section 26(9) the
particulars are to be supplied at least three months before the proposed date
of implementation. By use of the words proposed date of implementation' in
contra-distinction to the use of the words 'ensuing financial year' occurring
in sub-section (5), the indication clearly is that sub-section (9) will apply B
only in a case of amendment during a financial year. For normal fixation of
tariff with or without modification, the exercise which has to be undertaken
is under sub-section (5) of Section 26.
We are also unable to agree with the learned counsel for the appellants
that the Act does not envisage classification of consumers according to the C
purpose for which the electricity is used. Sub-section (9) of Section 26 does
state that the tariff which is fixed shall not show undue preference to any
consumer of electricity but then the said sub-section itself permits
differentiation according to the consumer's load factor or power factor,
consumer's total consumption of energy during the specified period, time at
which the supply i_s required or paying capacity of category of consumers and D
the need for cross-subsidisation of such tariff as is just and reasonable and
be such as to promote economic efficiency in the supply and consumption of
r
electricity and the tariff may also be such as to satisfy all other relevant
provisions of the Act and the conditions of the relevant licence. This Section
has to be read along with Section 11 which sets out the functions of the E
Commission and, inter alia, provides that amongst the functions is power to
regulate the tariff and charges payable keeping in view both the interest of
the consumer as well as the consideration that the supply and distribution
cannot be maintained unless the charges for electricity supplied are adequately
Jeyied and duly collected. Depending upon the various factors stipulated in
Section 26(7), categorisation between industrial and non-industrial, agricultural F
or domestic consumers can certainly take place. This is precisely what has
been done in the present cases. The High Court has at lenght considered all
aspects of the cases and has examined in detail the exercise which was
undertaken by the Commission in fixing the tariff and, in our opinion, the
view expressed by the High Court calls for no interference. G
We also agree with the High Court that the judicial review in a matter
with regard to fixation of tariff has not to be as that of an appellate authority.
in exercise of its jurisdiction under Article 226 of the Constitution. All that
the High Court has to be satisfied is that the Commission has followed the
proper procedure and unless it can be demonstrated that its decisi9n is on the H
,
,
282 SUPREME COURT REPORTS [2002) 2 S.C.R.
A face of it arbitrary or illegal or contrary to the Act, the Court will not interfere.
Fixing a tariff and providing for cross-subsidy is essentially a matter of
policy and normally a court would refrain from interfering with a policy
decision unless the power exercised is arbitrary or ex facie bad in law.
B For the aforesaid reasons, we do not find any reason to differ from the
view taken by the High Court. We, accordingly, dismiss these appeals with
costs.
S.K.S. Appeals dismissed.
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