Supreme Court Upholds APERC’s Power to Determine Wheeling and Grid Support Charges: Transmission Corporation of Andhra Pradesh Limited vs. M/S Rain Calcining Limited & Others (29 November 2019)

Introduction

Date of the Judgment: 29 November 2019

Citation: (2019) 11 SCC 34

Judges: Arun Mishra, J., M.R. Shah, J., and B.R. Gavai, J.

Can a regulatory body like the Andhra Pradesh Electricity Regulatory Commission (APERC) independently set charges for transmitting electricity (wheeling charges) and for maintaining grid stability (grid support charges), or are these matters solely within the purview of the government’s policy decisions? The Supreme Court of India recently addressed this crucial question, clarifying the powers of APERC in the context of the Andhra Pradesh Electricity Reforms Act, 1998. This judgment is important for understanding the balance between regulatory autonomy and governmental policy in the electricity sector.

The Supreme Court, in this case, examined the extent of APERC’s authority to determine tariffs, specifically wheeling charges and grid support charges, and whether the Commission’s decisions could override existing agreements between private power generators and the State Electricity Board. The bench consisted of Justices Arun Mishra, M.R. Shah, and B.R. Gavai, with Justice Arun Mishra authoring the opinion.

Case Background

Before the liberalization of the electricity sector, the Andhra Pradesh State Electricity Board (APSEB) handled all aspects of electricity generation, distribution, and transmission. In 1991, amendments to the Electricity (Supply) Act, 1948, allowed APSEB to enter into agreements with private generators. Subsequently, the Andhra Pradesh Electricity Reforms Act, 1998, led to the establishment of the Andhra Pradesh Electricity Regulatory Commission (APERC) on 31 March 1999, which began operations on 3 April 1999. This act also led to the separation of transmission and distribution functions, resulting in the creation of the Transmission Corporation of Andhra Pradesh Limited (APTRANSCO).

APTRANSCO was granted a license on 31 January 2000, to handle transmission and bulk supply of electricity, while APDISCOMS was licensed for distribution. These licenses required annual Aggregate Revenue Requirement (ARR) proposals, including tariff calculations. APTRANSCO proposed a wheeling charge of Rs. 1 per kWh, which APERC later reduced to Paise 50 per kWh. This decision was challenged, leading to the current appeals. The dispute also involved grid support charges levied on High Tension (HT) consumers with captive power plants (CPPs), who reduced their demand from APTRANSCO’s grid but still relied on it for backup.

The case also includes a third batch of appeals concerning the continuation of incentives for wheeling charges granted in 1997-1998, which the Commission reviewed, leading to further disputes.

Timeline:

Legal Framework

The Andhra Pradesh Electricity Reforms Act, 1998, aimed to restructure the electricity industry, facilitate private sector participation, and ensure efficient management of the sector. Key definitions include:

• Section 2(a): “Area of transmission” is defined as the area where a transmission licensee is authorized to transmit energy.
• Section 2(d): “Licence” means a license granted under Section 15 of the Reforms Act, 1998.
• Section 2(p): “Transmit” refers to the transportation of electricity through a system operated by a licensee, mainly using extra high voltage lines.

The Act establishes the APERC under Section 3, with members having experience in electricity generation, transmission, and distribution (Section 5). The functions of the Commission are detailed in Section 11, which includes:

• Advising on matters concerning electricity generation, transmission, distribution, and supply (Section 11(1)(a)).
• Regulating the working of licensees (Section 11(1)(b)).
• Issuing licenses and determining their conditions (Section 11(1)(c)).
• Promoting efficiency and safety in the use of electricity (Section 11(1)(d)).
• Regulating the purchase, distribution, supply, and utilization of electricity, including tariffs and charges (Section 11(1)(e)).

Section 12 empowers the State Government to issue policy directions, but these should not interfere with the Commission’s functions, including tariff determination. Section 15 allows the Commission to grant licenses for transmission and supply of electricity. Section 26 deals with licensee revenues and tariffs, requiring licensees to follow methodologies specified by the Commission.

Section 26(1) of the Reforms Act, 1998, states that each licensee must observe the methodologies and procedures specified by the Commission for calculating expected revenue and designing tariffs. Section 26(2) empowers the Commission to prescribe terms and conditions for determining licensee revenue and tariffs, adhering to the financial principles in the Sixth Schedule of the Electricity (Supply) Act, 1948, and considering factors that encourage efficiency and consumer interests.

Arguments

Arguments by APTRANSCO and APERC:

• APTRANSCO argued that wheeling charges are necessary to cover the costs of maintaining and upgrading the transmission and distribution network. They also stated that technical losses during transmission must be accounted for, and these losses should be borne by the users of the system.
• They contended that the Commission, as a regulator, has the power to determine tariffs, including wheeling charges, under the Reforms Act, 1998. They cited Section 11 and Section 26 of the Reforms Act, 1998, to support this claim, asserting that these provisions grant the Commission broad powers to regulate transmission and distribution.
• APTRANSCO also argued that grid support charges are essential to compensate for the services provided to HT consumers with CPPs, who rely on the grid for backup power. They maintained that the grid support charges are not governed by any prior government orders and are based on the grid code approved by APERC.
• They further submitted that the tariff fixation is a legislative function, and the Commission has the power to fix the tariff, and that the Commission is a regulator with extensive powers.

Arguments by the Respondents (Licensees):

• The licensees argued that APERC did not have jurisdiction to fix wheeling charges for contracts entered into before 1998. They also contended that even for contracts after 1998, the Reforms Act, 1998, does not explicitly grant the Commission the power to fix wheeling charges, particularly in the absence of specific regulations.
• They argued that the State Commission, as notified under the Electricity Regulatory Commission Act, 1998 (Central Act), has the authority to determine tariffs for transmission facilities, not APERC. They emphasized that APERC’s order was not equivalent to a regulation as required under the Central Act.
• They claimed that the generators should not bear distribution costs, as they supply electricity directly to scheduled consumers, not through the distribution network. They argued that wheeling charges should only be based on transmission charges, with a limited percentage for transmission losses.
• They relied on the principle that existing contractual relationships should not be overridden by an order of the Commission, and that the agreements entered into by the State Electricity Board are statutory and binding.
• They submitted that the wheeling charges do not fall under Section 26 of the Reforms Act, 1998, and that it is a matter of policy, not for the Commission to fix.

The licensees further argued that the concluded agreements cannot be covered by the expression “enter into” used in Section 24(4) of the Reforms Act, 1998. They also contended that the joint application filed by APTRANSCO and DISCOMs was not maintainable.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the Andhra Pradesh Electricity Regulatory Commission (APERC) has the competence to levy wheeling charges under the Andhra Pradesh Electricity Reforms Act, 1998.
2. Whether APERC has the competence to levy grid support charges under the Andhra Pradesh Electricity Reforms Act, 1998.
3. Whether the incentives granted as per Government Orders issued during the year 1997-1998, had to be continued, and whether the Commission had the power to review them.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

The Court also considered the following legal provisions:

• Section 2(a) of the Andhra Pradesh Electricity Reforms Act, 1998, defining “area of transmission.”
• Section 2(d) of the Andhra Pradesh Electricity Reforms Act, 1998, defining “licence.”
• Section 2(p) of the Andhra Pradesh Electricity Reforms Act, 1998, defining “transmit.”
• Section 3 of the Andhra Pradesh Electricity Reforms Act, 1998, establishing the APERC.
• Section 5 of the Andhra Pradesh Electricity Reforms Act, 1998, dealing with the conditions of appointment as a member of the Commission.
• Section 11 of the Andhra Pradesh Electricity Reforms Act, 1998, outlining the functions of the Commission.
• Section 12 of the Andhra Pradesh Electricity Reforms Act, 1998, dealing with the general powers of the State Government.
• Section 13 of the Andhra Pradesh Electricity Reforms Act, 1998, dealing with the constitution and functions of APTRANSCO.
• Section 14 of the Andhra Pradesh Electricity Reforms Act, 1998, dealing with the requirement of a license for transmission and supply.
• Section 15 of the Andhra Pradesh Electricity Reforms Act, 1998, dealing with the grant of licenses by the Commission.
• Section 26 of the Andhra Pradesh Electricity Reforms Act, 1998, dealing with licensee’s revenues and tariffs.
• Section 62 of the Electricity Act, 2003, dealing with tariff determination.
• Section 65 of the Electricity Act, 2003, dealing with subsidies.
• Section 82 of the Electricity Act, 2003, dealing with the constitution of State Commissions.
• Section 111 of the Electricity Act, 2003, dealing with appeals to the APTEL.
• Section 178 of the Electricity Act, 2003, dealing with the making of regulations by the Central Commission.

Judgment

The Supreme Court, in its judgment, held that the Andhra Pradesh Electricity Regulatory Commission (APERC) is competent to determine wheeling charges and grid support charges under the Andhra Pradesh Electricity Reforms Act, 1998. The Court emphasized that the Commission’s power to fix tariffs is a legislative function, and its decisions are binding on all stakeholders. The Court also clarified that the Commission’s powers are not dependent on the framing of specific regulations.

The Court further held that the incentives granted by the Government Orders of 1997 and 1998 were not meant to be perpetual and that the Commission had the power to review them. The principle of promissory estoppel was found not applicable in this case.

The Court, therefore, upheld the orders of APERC and dismissed the appeals filed by the licensees. The Court also clarified that the Commission has pervasive powers to deal with transmission and distribution matters and that its powers are not limited by existing agreements.

Flowchart of the Legal Process