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UTTAR PRADESH ELECTRICITY REGULATORY COMMISSION LUCKNOW

In the matter of: Review Petition dated 25.08.2000, filed on behalf of M/s Hans Castings and other connected petitions And In the matter of: M/s Hans Castings Pvt Ltd & connected petitions …. Petitioner

Versus U.P.Power Corporation Ltd. & Others. …. Respondents

ORDER

1. In this batch of Review petitions, the tariff determined by the Uttar Pradesh Electricity Regulatory Commission (“Commission”) in respect of Large and Heavy Power category under HV-2 Schedule vide Tariff order dated 27-07-2000 (“Tariff Order”) and notified and brought into force by the Uttar Pradesh Power Corporation Limited (“UPPCL”) on 09-08-2000 through a “Rate Schedule” is sought to be reviewed. The questions of fact and that of law arising for consideration in all these Review petitions and connected applications being substantially similar, the matters were clubbed and heard together and are being disposed of by this common order.

Facts

2. The factual matrix leading to the filing of the Review Petitions and applications and their hearing by this Commission is set out below:-

(a) M/S Hans Castings Private Limited and sixteen others filed a petition on 25.08.2000, seeking a review of the Tariff Order. The Petitioners represent the arc/induction furnaces and rolling mills consumer category. Petitions seeking review of the Tariff Order were also filed by other parties and the grounds being similar, the Commission decided to club the petition with such similar petitions.

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(b) The petitioners in the M/S Hans Castings Private Limited matter and those set out in para 4 herein have amongst other prayers, sought “revival of the HV-1 category for Arc and Induction Furnaces and Rolling and Re-rolling Mills. However the applicants in M/S Garima Ferro Alloys Limited and others (20 applicants) have opposed the prayer for revival of the HV-1 category. They have filed detailed objections and submissions by way of a Supplementary Affidavit dated 21.09.2000 wherein, the merger of the consumers in the HV-1 category with consumers in the HV-2 category has been welcomed and a prayer for its continuance has also been made.

(c) The Commission had issued notices to all concerned parties on the petitions/applicants filed by parties seeking review of the Tariff Order and had initiated the process for a hearing of the review petition. The petitioners however chose to withdraw their petitions, which was allowed, in terms of the Commission’s order dated 15.05.2001. The grounds raised by the Petitioners for seeking withdrawal of their petition was that UPPCL had assured them that a relief would be granted in their tariffs, through a rebate on the load factor and the said rebate was also assured by the State Government.

(d) As per the Petitioners i.e. M/S Hans Castings Private Limited, after the withdrawal of the Review Petition, UPPCL and the State Government were approached and a request was made for grant of the promised rebate. The Petitioners claim that, although the State Government had issued a letter dated July, 25th 2001 directing UPPCL to allow 17% rebate in the Rate Schedule, UPPCL retracted from its earlier stand. In terms of its letter dated 27.10.2001(addressed to the State Government), UPPCL conveyed that the loss which UPPCL suffers on account of allowing 17% relief, be either borne by the State Government or be allowed to be realized from the consumers in this category in installments. Later UPPCL decided to realize the entire amount of 17% from the Petitioners (including late payment surcharge) in terms of its letter dated 27.04.2002:

(e) That being aggrieved by the actions of UPPCL, the Petitioners (M/S Hans Castings Private Limited and M/S Sigma Castings Private Limited) filed a writ petition bearing No. 41211 and 41229 of 2002 before the Hon’ble Allahabad High Court challenging the tariff fixed in terms of the Rate Schedule notified on 9-8-2000 and letter dated 27-04-2002 issued by UPPCL. The Hon’ble High Court had disposed the petition vide its order dated 08.10.2002 making the following observations:-

“We, therefore, dispose this petition at this stage with the direction that if the petitioners move an application before the Regulatory Commission either to restore its earlier review application or they move fresh application, the Regulatory Commission shall examine their grievances and dispose their applications by a reasoned order considering all aspects of the matter as expeditiously as possible, preferably within a period of four months from the

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date of filling of such an application. The UPPCL shall furnish all the relevant materials in respect of the consumers, who were earlier covered by HV-1 tariff for the consideration of the Regulatory Commission. We further provide that until disposal of the matter by the Regulatory Commission the petitioners shall continue to deposit the arrears of 17% on the basis of the impugned tariff in installments as directed by the impugned letter dated 27.4.2002. However, the UPPCL shall not insist the petitioners to pay the delayed payment surcharge against the aforesaid 17% until final decision is taken by the Regulatory Commission.

With the aforesaid direction, the writ petition stands finally disposed of”.

(f) That in line with the orders passed by the Hon’ble Allahabad High Court, the Petitioners (M/S Hans Castings Private Limited and M/S Sigma Castings Private Limited) filed an application dated 01.11.2002 before this Commission, seeking recall of the Order dated 15.05.2001 and sought restoration of the Review Petition to its original number. Keeping in mind the observations and directions of the Hon’ble High Court, the application seeking revival of the review petition was allowed by the Commission without making any observations on its maintainability and the petitions were restored to its original number vide order dated 08.11.2002 and UPPCL was granted time to file a reply within three weeks. UPPCL only filed a short counter affidavit on the petition on 16.12.2002 and sought time to file detailed counter affidavit by 31-12-2002.

(g) During the hearing of the Review Petition of M/S Hans Castings Private Limited and others, a number of parties approached the Hon’ble High Court seeking similar relief. The Hon’ble High Court disposed of the petitions filed by the parties on the terms set out in its order dated 8.10.2002 and directed the parties to approach this Commission. In line with directions of the Hon’ble High Court, the parties have approached this Commission. The details of the parties and the orders allowing their petitions by the Hon’ble High Court include:

(i) M/S Chaudhrana Steels (UNIT-1 & UNIT-2), Jaunpur: Order dated 8.10.2002

(ii) M/S Kundan Castings Private Limited, Malwa Fatehpur and M/S Panem

Castings, Kanpur: Order dated 30.10.2002.

(iii) M/S Avadh Alloys Private Limited, Muzaffarnagar and Others: Order dated 18.11.2002. We have observed that this party was not a party to the petition filed by M/S Hans Castings Private Limited and had originally not sought any review of the Tariff Order and as such were not similarly placed as the Petitioners in the Civil Miscellaneous Writ PetitoinNo.41211 of 2002. We had in our Order dated 21st March 2003 expressed our views on the maintainability of this petition and observed that unless any further directions are issued or orders are passed by Hon’ble High Court in this regard, we will proceed to consider and decide the present Petition on its own merits. We had directed the Respondent UPPCL to

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bring forth the delay to the notice of the Hon’ble High Court or file its counter affidavit stipulated therein

(iv) M/S Amba Steels, Muzaffarnagar: Order dated 18.11.2002

(v) M/S Supreme Alloys Private Limited, Ghaziabad and Others: Order dated 27.11.2002.

(vi) M/s Swaroop Castings Pvt. Limited, Muzaffarnagar: Order dated 18.11.2002

(vii) M/s Prem Castings, Muzaffarnagar : Order dated 18.11.2002.

(h) During the course of the hearings of the petitions (after their restoration), the Counsel for Petitioner Shri Sudhir Aggarwal, Advocate filed vakalatnamas in respect of eight parties (who were parties to the original Review Petition). Further Counsel for parties opposing the prayers of the Petitioners i.e Shri Vishal Dixit, Advocate, sought by M/S Hans Castings Private Limited & Others prayed that since the review was being heard by the Commission, their submissions/objections be also heard by the Commission.

(i) As regards pleadings in this matter, the Commission would like to observe that the approach of the Respondent UPPCL during the proceedings held in this matter has been casual and it has filed its replies and counter affidavits only in some matters. The fact that the key issues involved in these petitions were similar, UPPCL has preferred not to file any reply/counter affidavits in all the petitions. The Commission would however like to observe that UPPCL had filed a counter affidavit/supplementary affidavit in the following petitions and also filed replies to applications filed by the Petitioner:

(a) M/S Hans Castings (P) Ltd. and Others : UPPCL filed CA on 31.3.2002.

(b) M/S Chaudharana Steels (P) Ltd.: UPPCL filed CA on 1.1.2003.

(c) M/S Chaudharana Steels (P) Ltd.: UPPCL filed CA against Misc. Applications on

1.4.2003.

(d) M/S Kundan Castings (P) Ltd.: UPPCL filed CA on 20.2.2003.

(e) M/S Avadh Alloys (P) Ltd. and Others : UPPCL filed CA on 05.05.2003.

(f) M/S Supreme Alloys (P) Ltd.: UPPCL filed CA on 24.02.2003.

(g) M/S Swaroop Castings (P) Ltd.: UPPCL filed CA on 08.05.2003.

UPPCL did not file any counter affidavit/reply in the following petitions / applications.

(a) M/S Kundan Castings (P) Ltd. : UPPCL has not filed CA against 2 Misc.

Applications.

(b) M/S Supreme Alloys (P) Ltd. : UPPCL has not filed CA against Misc.

Application dated 5.3.2003.

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(c) M/S Amba Steels : UPPCL has not filed CA.

(d) M/S Prem Castings : UPPCL has not filed CA.

(j) With a view to ensure an effective hearing of all the issues raised by the Parties in the present petitions, the Commission had framed certain legal issues which were crucial to the disposal of these matters and gave the parties an opportunity to address arguments on the same, vide Order dated April 9th, 2003. The Commission had directed the Parties to address their arguments on the maintainability and the grounds justifying, in the facts of each case, the exercise of the Commission’s power to review the impugned Tariff Order and had requested the parties to submit their arguments in the context of the issues set out in the order dated April 9th, 2003.

(k) The petitions were listed for a hearing on April 19th, 2003. The Counsel for the Petitioners Shri Sudhir Aggarwal, Advocate put forth part of his submissions on April 19th, 2003 and also filed written submissions on issues set out in the Commission’s order dated April 9th, 2003. The matter was thereafter adjourned to April 26th, 2003. The petitions could not be taken up and heard on April 26th, 2003, due to non-availability of Shri Sudhir Aggarwal, Advocate and was adjourned to May 9th,2003 on a request from the Counsel of the Petitioners Shri Sudhir Aggarwal, Advocate.

(l) The petition was taken up on May 9th, 2003 for hearing arguments of the Parties in the present matter. Parties present before the Commission were heard through their counsels. Submissions were made by Counsels for the parties. Written submissions were also filed by Shri Sudhir Aggarwal, Advocate in the matter of M/S Hans Castings (P) Limited & Others, M/S Chaudhrana Steels (P) Limited & Others, M/S Kundan Steels (P) Limited & Others and M/S Supreme Alloys (P) Limited & Others. Written submissions were also filed by M/S Amba Steels through its Counsel Shri Bidhan Chandra Rai, Advocate and M/S Garima Ferro Alloys Limited through its Counsel Shri Vishal Dixit. As per the directions of the Commission written submissions in case of M/S Garima Ferro Alloys Ltd & Others, M/S Rathi Ispat Ghaziabad and M/S UP Steels Muzaffarnagar were submitted by Shri Vishal Dixit, Advocate on 14.05.2003.

3. At the outset the Commission would like to observe that these connected petitions could not be disposed within the time frame set out in the order dated 08.10.2002, passed by the Hon’ble Allahabad High Court, on account of acts/omissions on the part of parties to the petition. The Commission has in its hearings directed the parties to co-operate so as to enable a speedy disposal of the matter. The Commission has in its order dated February 26th, 2003 and March 7th, 2003, taken a serious note of the delay caused on account of UPPCL’s failure to co-operate and also imposed cost for non-compliance with this Commission’s orders. Part of the delay is also attributable to adjournments taken by Petitioner/Counsel in the matter

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4. The Commission has examined the pleadings and submissions filed by the parties in the present petitions. The prayers made by each of the parties in the review petitions and connected matter is as under:-

(a) M/S Hans Castings & Others

“(a) revive the tariff structure of HV1 for Arc and induction furnaces and rolling and re-rolling mills

(b) implement HV 1 tariff upon arc/induction furnaces with the revised rates as proposed by UPPCL by its 2nd ARR, w.e.f 9-08-2000

(c) allow computation of annual adjustment in the rate of charge i.e. demand and energy charge

(d) allow 10% rebate on the entire bill if industry achieves load factor above 50% and 20% rebate on achieving load factor of 60% and 25% rebate on achieving load factor of above 70% and in case of rolling mills the slab should be 40, 50 and 60% respectively

(e) direct to charge 15% additional charge only on the consumption made during peak hours

(f) determine the rate of charge of HV1 category of consumers on the basis of night supply rates which are cheaper vis a vis day supply to the extent of 60% and is being allowed by various states to these category of consumers

(g) waive the requirement of filing such information which the applicants are unable to furnish

(h) pass such orders as the Commission may deem fit and proper in the facts and circumstances of the case”

(b) M/S Garima Ferro Alloys & Others

(i) The Unit cost for steel manufacturing units in UP should be fixed between 3.20 to 3.40Rs/Unit and it should be applicable equally on Arc furnace/Induction furnace/Rolling/Re-rolling Mills and mini steel plants

(ii) Requirement of load should not be imposed by the suppliers /licensee. Arc furnace/Mini steel plants should be at liberty to decide their load requirements

(iii) Reasonable rebate on high plant load factor on whole energy consumption

(iv) To provide rebate on night energy consumption and to minimize rate of energy.

(v) To provide incentive on those feeders where there are no line losses

(vi) To continue induction furnace/Arc furnace/Rolling Mill in HV-2

(vii) State /UPPCL be called by the Commission to provide Bundelkhand rebate

(viii) Direct reduction in rate of Unit and demand for two industries of HV-2 clause is not possible and this is also not open for the Commission for special

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class of consumers, rate may be placed in a different way. So in order to minimise the burden of tariff on HV-1 consumers, some methods were suggested viz. Assessment of load @ 450 KVA/Ton instead of 600 KVA/Ton, rebate @ of 10% to 20% where HV-1 consumers are connected on independent feeders and are having line loss between 1% to 2%, rebate on high load factor, rebate on night consumption or straight away increase of 15% on Rs. 2.99/Unit ( average cost for 2000-01) i.e Rs. 3.44/Unit for HV-1 consumers and continuance of Bundelkhand rebate of 50%.

(c) M/S Rathi Ispat, Ghaziabad

(i) Unit cost of energy should be same for Arc furnace/Induction furnace/Rolling Mill and Re-rolling Mills and integrated Mini steel plants and range between 320 to 3.50Rs/Unit

(ii) Requirement of load should not be imposed by licensee on Mini steel plants and Arc furnaces

(iii) Reasonable rebate on high plant load factor.

(iv) Incentive for those industries in which line losses are quite nominal

(v) Provide rebate on high energy consumption.

(vi) Reduction in rate is not possible because the same will go to the entire block of HV-2 consumers. However, the consumers of HV-1 category may be given the benefit of rebate on account of high Load Factor, line losses and night energy consumption. Fifteen percent additional charge mentioned in the tariff may be reduced.

(d) U.P.Steels Muzaffarnagar

(i) The Commission in Order dated 27.7.2000 had rightly observed that it was desirable to move away from use based category to more rational voltage of supply based category.

(ii) In view of installation of tamper proof electronic meters the artificially increased high demand charges are affecting the genuine and honest users and it was, therefore, the need of the hour to bring down the demand charges. It was a step in the right direction.

(iii) Our industry has suffered heavily for years as a result of high minimum charges and demand charges which had been specially designed for mini steel plants using Arc/Induction Furnace.

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(iv) The applicant opposes any suggestions reintroduction of HV-1 category and fully supports the more rational voltage of supply based category.

(v) In case, Commission decides to re-introduce HV-1 category the Units like hours which incidentally have Arc Furnaces should not be clubbed with HV-1 category.

(vi) The Corporation should be directed that all industrial users having restricted supply even if it is fed from independent feeder should be treated under category B of minimum charges.

(vii) The tariff stipulates surcharge of 15% on users who want 500 hours assured supply and another 15% from users getting power supply in restricted hours. The contravenes the Order of the Commission which provides for a single 15% surcharge for operating during peak hours and for ensuring minimum 500 hours of supply. The Corporation may, therefore, be directed to remove the contradiction.

(viii) A minimum assured supply of 450 hours should be ensured to all industrial consumers without subjecting them to any surcharge. However, those insist on a minimum 600 hours supply be subjected to a surcharge of 15%. In the event of failure of Corporation to provide minimum assured supply, there should be a provision of rebate.

(ix) The applicant supports the contention that high tariffs result in closing down of the industrial units.

(x) the applicant supports the prayer to allow rebate on entire bill if the industry achieves the Load Factor above 50%. This will help industrialization and encourage industrial users to go in for optimum utilization of the contracted load.

(xi) HV-1 consumers may be given rebate on account of high Load factor, low line losses, night energy consumption, reduction of 15% of additional charge.

(xii) M/S U.P. Steels may continue to be placed in HV-2 category as Engineering process.

(e) NPCL

(i) The present system of charging MCG on Monthly basis with yearly adjustment is appropriate since it gives opportunity to the consumers to make up shortfall in consumption and licensee is given scope of recovering fixed charges for meeting demand contracted

(ii) Under HV-2 category, the erstwhile HV-1 consumers will have the advantage in that the demand charge will be calculated at 75% of contracted demand or recorded demand whichever is high instead of 100% demand under earlier HV-1 category.

(f) KESCO

(i) KESCO is of the view that as there is no restriction of Power Cuts or any other restriction to Arc/Induction Furnaces and Rolling/Re-rolling Mills except Peak hours restriction at present, such provisions of HV-2 tariff, as per the Tariff

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Order dated 27.7.2000 should also be imposed on Arc/Induction Furnace and Rolling/Re-rolling Mills.

(ii) The merger of HV-1 tariff to HV-2 is correct and there is no need of introduction of HV-1 tariff again.

5. We have examined the pleadings, the written submissions and the prayers made by the parties in the present petitions and also the grounds invoked for seeking the relief set out in the respective petitions. The petitioners in the case of M/S Hans Castings Private have primarily sought a review of the Tariff Order and sought a revival of the erstwhile HV-1 category and claimed a differential treatment as against consumers in the HV-2 category, based on grounds set out therein. On the contrary some of the petitioners i.e. the M/S Garima Ferro Alloys Ltd. and other consumers belonging to the Bundelkhand Industrial Belt comprising of District Jalaun and Hamirpur have opposed their prayers and in turn welcomed the merger of the HV-1 and HV-2 category, sought a load factor rebate on the total consumption and also sought directions against the State Government to provide the rebate, apart from their other prayers set out in their respective petitions. In response, UPPCL filed counter affidavits and replies to the applications filed by the Petitioners. Although it has in its earlier counter affidavit supported part of the prayers of the petitioners in M/S Hans Castings (P) Limited, it has opposed the prayers in the counter affidavits filed subsequently.

6. Taking into account the pleadings and submissions of the parties in the present matter, the following issues have arisen for consideration of this Commission, so as to determine whether the Petitioners are entitled to the relief prayed for in these connected review petitions:-

(a) Whether the Petitioners belonging to the erstwhile HV-1 category are entitled to a differential treatment, taking into account the criteria adopted for fixing the tariffs and the treatment meted out to them by the erstwhile Uttar Pradesh Electricity Board?

(b) Whether the impugned Tariff Order was obtained by UPPCL by withholding/non-production of relevant information and/or placing false and fabricated information and/or by misleading the Commission?

(c) Whether the criteria adopted by the Commission for merging the HV-1 and HV-2 categories of consumers under the Tariff Order valid under applicable law? And the Petitioner entitled to any relief in view of the alleged hike in Tariff?

(d) Whether the Tariff Order was passed in line with the mandatory procedure for determination of tariffs under the Reform Act, taking into account the fact that it was passed, based on incomplete data ?

(e) Whether the Commission is empowered to review the Tariff Order at this juncture, in terms of the provisions of the Reform Act and Regulations framed therein?

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(f) Whether the Petitioners are entitled to question the merger of the HV-1 and HV-2 categories or seek revival of the HV-1 category at this stage when as a result of the Tariff Orders dated 01.09.2001 and 22.10.2002 becoming final and binding, the petitioners are now bound by the merger?

(g) Whether the Commission is empowered to modify the tariff for any category of consumers in the circumstances of the case and/or grant any rebates/concessions for the period covered under the Tariff Order and whether there are grounds existing for exercise of the said power?

7. The Commission has examined the issues raised in these connected petitions and arrived at its conclusions and findings in this Order by examining and analyzing the :

(A) History of reforms in the electricity sector in the State of Uttar Pradesh with a view to set out the background in which the Commission was set up,

(B) Applicable legal and regulatory framework,

(C) Judicial precedents on “tariff making” and “review” and

(D) History of the HV-1 tariff structure in the State of Uttar Pradesh with a view to understand the reasons and circumstances, in which HV-1 was meted out a separate and differential treatment. The Commission also examined the treatment meted out to the HV-1 category in other States in India

(E) Analysis of Issues set out in Para 6 of the Order

(A) History of reforms in the electricity sector in the State of Uttar Pradesh

8. We felt it pertinent to examine the historical background of the electricity laws in the State of Uttar Pradesh before setting out our views on the issues in these connected matters. The supply and use of electricity was initially controlled and regulated under the Electricity Act, 1910. Later amendments in the Electricity (Supply) Act, 1948 led to the establishment of State Electricity Boards (“SEBs”)in the States and vested them with monopolistic powers to not only participate in the generation, transmission and distribution of electricity but also vested in them functions pertaining to “regulation”. Though intended to be independent entities, the SEBs remained under the control of the State Government, who in turn had substantial powers to issue policy directions which were binding on the SEBs.

9. The proximity between the State and SEBs led to an arbitrary and irrational approach in the fixation of electricity tariffs. During this phase, the SEBs were used as vehicles to serve social and political objectives of the State, without any regard to the impact on their financial health. This approach led to the electricity sector being heavily subsidized resulting in certain consumers taking on the burden of huge cross-subsidies to absorb the impact of subsidy granted to categories such as agricultural and domestic. This approach not only led to a cash crunch within the State but also led the SEBs to become inefficient and cash trapped. The inability of the State and SEBs to add generation capacities commensurate to the growing demand resulted in huge demand supply gaps

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being created. Recognizing the inability of the State and SEBs to meet the demand, the Government of India issued a policy to attract investment from private parties in generation in October 1991. The policy to attract private participation led to the signing of a number of power purchase agreements (PPAs) but most projects failed to achieve financial closure on account of the poor financial health of the SEBs. The crisis led to the debate of vesting “regulation” of the electricity sector and the SEBs in an independent body i.e. the Electricity Regulatory Commission. The meeting of the Chief Ministers of all States in October and December 1996 led to the formulation of the “Common Minimum Action Programme and the outcome of the meeting led to the enactment of the Electricity Regulatory Commission Act, 1998 (“ERC Act”).

10. The ERC Act provided for the establishment of a Central Electricity Regulatory Commission and also enabled the State Governments to establish, by notification, State Electricity Regulatory Commissions. The ERC Act in nut shell provided for the rationalization of electricity tariff, transparent policies regarding subsidies, promotion of efficient and environmentally benign policies relating to the generation, transmission, distribution and supply of electricity and matters connected therewith. The Uttar Pradesh Electricity Regulatory Commission (UPERC) was established under the provisions of the ERC Act and functioned under it until 14-1-2000, when the Uttar Pradesh Electricity Reforms Act,1999 (“Reform Act”) came into force. Section 3(1) (b) of this State Act stipulates that the Commission established under the ERC Act would be the Commission under the Reform Act.

(B) Applicable legal and regulatory framework

11. Tariff making under the new regulatory regime and under the Reform Act is strictly a domain of the Commission in the State of Uttar Pradesh. In this regard the following provisions of the Reform Act are relevant in the present case:

(a) Section 10(1)(a) empowers the Commission to determine the Tariff for electricity, wholesale, bulk, grid or retail, as the case may be.

(b) Section 10(1)(b) empowers the Commission to determine the Tariff payable for the use of transmission facilities

(c) Section 10(1)(c) casts a duty on the Commission to promote competition, efficiency and economy in the activities of the electricity industry to achieve the objectives of the Reform Act .

(d) In terms of the objectives of the Reform Act, the Commission is to regulate the electricity industry including interalia the applicable electricity “tariff”, keeping in view the interest of the consumers and utilities, creation of an environment which will attract participation of private sector entrepreneurs in the electricity industry in the State in an efficient, economical and competitive manner.

(c) Section 24 provides that the Commission may specify through Regulations, the terms and conditions for the determination of Revenues and Tariffs, and shall be guided by the following principles in doing so: -

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(i). Financial Principles laid out in Sections 46, 57, 57A, and the Sixth Schedule of the Electricity (Supply) Act, 1948. However, Section 54 of the UP Reforms Act 1999 states that to the extent specific provisions have been made under that Act, Sections 46, 57 and 57A (amongst others) of the Electricity (Supply) Act 1948 shall not apply.

(ii). Factors that would encourage efficiency, economical use of resources, good performance, optimum investments, observance of the conditions of the license, and other matters that the Commission may consider appropriate for the purposes of the Act.

(iii). Interest of the consumers.

(iv). Where the Commission departs from the guidelines provided above, it shall record the reasons for the same in writing.

(d) Section 24 further provides that no preference or favour is to be shown to any consumer of electricity, but differentiation may be made on grounds of the consumer’s load factor or purpose of use or power factor, consumer’s total consumption of energy during any specified period, or time during which the supply is required. This power is also recognized

(e) In terms of Regulation 138 of the Uttar Pradesh Electricity Regulatory Commission (Conduct of Business) Regulations 2000, the Commission may on its own or on the application of any of the persons or parties, within 90 days of the making of any decision, direction or order, review such decision, directions or orders.

12. Under Section 12 of the Reform Act, the State Government has been vested with powers to issue directions on matters of policy, including matters concerning subsidies for electricity supply to any class or classes of persons or in respect of any area, in addition to the subsidies adjusted by the Commission while regulating and approving the tariff structure. The State Government can exercise the power provided it contributes the amount to compensate licensee or person affected by the grant of subsidies, to the extent of the subsidies granted. The Commission is however empowered to calculate the amount of subsidy, the method, the manner and the time within which such amount is to be paid by the State Government.

13. With the Reform Act coming into force on 14-1-2000, the new Conduct of Business Regulations, incorporating the required changes to make them consistent with the Reform Act, were notified in the Gazette on 6-3-2000, in exercise of powers accorded under Section 52 of the Act. Regulations 121 to 133 depict the philosophy, methodologies and procedures for calculating the Expected Revenue from charges and determining Tariffs. As indicated earlier, these calculations are to be guided by certain factors indicated in Section 24 of the Act, including the 6th Schedule of the Electricity (Supply) Act 1948. Any departure from these provisions is required to be recorded in writing giving reasons thereof. Some other salient features of the Conduct of Business Regulations are that:

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a. The information required above shall be provided in the formats specified by the Commission.

b. The Tariff as determined by the Commission shall not be amended or modified more than once in a financial year, except in respect of any change expressly permissible under the terms of any fuel surcharge formula provided by the Commission.

c. The Commission may prescribe different Tariffs to different persons according to the consumer’s load factor or purpose of use or power factor, consumer’s total consumption of energy during any specified period, or time during which the supply is required.

d. If the state government proposes any subsidy to any category of consumers, the Commission shall determine the amount to be paid as subsidy, the method of such payment, including the time and manner of payment of subsidy amounts.

14. An examination of the reform process in the State of Uttar Pradesh reveals that the process of tariff making in the State of Uttar Pradesh is now exclusively vested in the Commission. In terms of Section 12 of the Reform Act, the State Government is empowered to issue directions on policy matters concerning subsidies for electricity supply to any class or classes of persons or in respect of any area, but at the same time it is under a duty to contribute the amount to compensate the concerned licensee or person affected by the grant of subsidies. As far as the Commission is concerned, it is empowered to calculate the amount of subsidy, the method, the manner and the time within which such amount is to be paid by the State Government.

15. It is thus clear that the Reform Act demarcates the boundaries within which the Commission and State Government are required to function when it comes to fixation of tariffs and grant of subsidies. It is pertinent to note that the Commission is not empowered to direct the State Government to issue any policy directions concerning subsidies for electricity supply to any class or classes of consumers. Further the Commission is under a duty to regulate the electricity sector in a manner which protects the interest of all stake holders in the sector.

(C) Judicial precedents on “tariff making” and “review”

16. The Commission has examined the relevant judicial precedents as regards the scope of the powers of the Commission to determine tariffs and review its decisions, directions and orders, in the backdrop of the facts and issues involved in this matter and our observations are as under :

(i) It has been held that fixation of tariff is a legislative function and can only be challenged on the ground of unreasonableness and arbitrariness (Ashok Soap Factory Vs Municipal Corporation of Delhi (1993) 2 SCC 37 )

(ii) It has been held that price fixation is more in the nature of a legislative measure, even if it is based upon objective criteria found in a report or other material. The

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criteria adopted must be reasonable. It is settled that the principles of natural justice are not attracted in case of price fixation. (VBC Ferro Alloys Ltd Vs AP State Electricity Board 2000(5) ALD 626 =2000(5) ALT 340 (FB) [(Akhil Bhartiya Grahal Panchayat Vs APSEB, AIR 1983 AP 283)]

(iii) The Hon’ble Supreme Court has in a land mark authority i.e. West Bengal Electricity Regulatory Commission Vs. CESC Ltd. 2002 (7) Scale 217 held that in states where Regulatory Commissions have been established, tariff determination involves a highly technical procedure and is thus vested in the Commission which has members, having varied qualifications :

“Re: An Effective Appellate Forum:

We notice that the Commission constituted under Section 17 of the 1998 Act is an expert body and the determination of tariff which has to be made by the Commission involves a very highly technical procedure, requiring working knowledge of law, engineering, finance, commerce, economics and management. A perusal of the report of the ASCI as well as that of the Commission abundantly proves this fact. Therefore, we think it would be more appropriate and effective if a statutory appeal is provided to a similar expert body, so that the various questions which are factual and technical that arise in such an appeal, get appropriate consideration in the first appellate stage also. From Section 4 of the 1998 Act, we notice that the Central Electricity Regulatory Commission which has a Judicial Member as also a number of other Members having varied qualifications, is better equipped to appreciate the technical and factual questions involved in the appeals arising from the orders of the Commission. Without meaning any disrespect to the Judges of the High Court, we think neither the High Court nor the Supreme Court would in reality be appropriate appellate forums in dealing with this type of factual and technical matters.

Therefore, we recommend that the appellate power against an order of the State Commission under the 1998 Act should be conferred either on the Central Electricity Regulatory Commission or on a similar body. We notice that under the Telecom Regulatory Authority of India Act, 1997 in Chapter IV, a similar provision is made for an appeal to a special Appellate Tribunal and thereafter a further appeal to the Supreme Court on questions of law only. We think a similar appellate provision may be considered to make the relief of appeal more effective.

The recommendations of the Hon’ble Supreme Court, find place in the Electricity Bill, 2003(approved by Rajya Sabha & Lok Sabha) which has provided for the establishment of an Appellate Tribunal on similar lines.

17. The Commission is of the view that it is empowered to review its orders in terms of Section 11(1) of the Reform Act read with Regulation 138 of the UPERC (Conduct of Business) Regulations, 2000. Further any person aggrieved by any “award” or “orders” passed by the Commission has a right to prefer an appeal to the Hon’ble High Court in terms of Section 36 of the Reform Act.

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One of the co-petitioners has filed a copy of the order dated 04.04.2003 passed by the a single Bench of the Hon’ble Lucknow High Court in the matter of M/S Jagdamba Marble Private Limited Versus UPERC & Others. In this matter the petitioners had preferred an appeal under Section 36 of the Reform Act. The Hon’ble High Court dismissed the appeal observing that an appeal against any order under Section 24 of the Reform Act is not maintainable on the following amongst other grounds:-

(i) Appeals under the Reform Act are provided against an order under Section 26 or an award under Section 34 of the Reform Act and not against orders passed under Section 24 of the Reform Act.

(ii) The Hon’ble High Court had relied upon the orders passed by the Hon’ble Supreme Court in the case of M/S Ashok Soap Factory & Anr Vs Municipal Corporation of Delhi & Others (1993) 2 SCC 37, wherein it has been held that fixation of tariff is a legislative function and it is not open to challenge on the ground of non-disclosure of reasons for enhancement in the order, in the absence of any unreasonableness or arbitrariness.

(iii) It has been held that determination of tariff by the Commission is a legislative process, against which no appeal has been provided for under the Reform Act.

18, The Commission would like to observe that these applications could have been summarily dismissed based on the Order of the Hon’ble High Court, `in the case of M/S Jagdamba Marble Private Limited but since no observations on the Commission’s power of review were made in the matter, we proceeded to hear and dispose of the present review petitions in line with order dated 8.10.2002 passed by the Division Bench of the Hon’ble Allahabad High Court. . The Division Bench had observed that the Regulatory Commission should examine the grievances and dispose them by a reasoned order.

D. History of HV-1 Tariff in the State of Uttar Pradesh

19.. To assess and examine the historical nature of the Tariff, we have examined the electricity tariff for the relevant category of consumers i.e. the HV-1 category since 1977. In the year 1977, there was acute shortage of power in the State of Uttar Pradesh and certain industries were required to observe power cuts for the first time. The Uttar Pradesh State Electricity Board (“UPSEB”) categorized consumers in the industrial category based on the nature of the process adopted by them and also their load requirement and concluded that power cuts could not be imposed on all the industries in a uniform manner. The State Government thus categorized the industries having load above 100 BHP as Arc Induction furnaces, Continuous process industries and Non-continuous process industries.

20. Prior to 1977 all the consumers having load above 75 KW were governed by two tariffs. One for consumers falling in the category viz 75 KW to 235 KVA (large power) and the other for consumers falling in the category 235 KVA and above (Heavy Power).

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We have also examined the structure and composition of electricity tariffs which were in force in the State of Uttar Pradesh w.e.f. 1972 till 1998.

21. A review of the historical context of tariff making in the State of Uttar Pradesh revealed that prior to the promulgation of power cuts on account of acute shortage of power in the State, there was no difference in the tariffs between consumers in the industrial category. In June 1985, Uttar Pradesh State Electricity Board (UPSEB) had appointed a Tariff Rationalization Committee (TRC) to make recommendations for rationalizing tariffs of UPSEB on long-term basis. In terms of the TRC Report, consumers having Arc furnace, Induction furnace, Rolling/Re-rolling mills and mini Steel plants above a certain capacity were to be covered under one category and the categorization was to be continued only for the period during which demand cuts were being enforced and in case demand cuts are discontinued, the consumers were to be covered in the large and heavy power consumer category. The basic philosophy behind separating Arc/Induction furnace, rolling and re-rolling mills in a separate group was the inability to withstand power cuts in their demand. The summary of the TRC Report reads as under:-

9.3 (j) Arc / Induction furnaces, Rolling and Re-rolling mills and Mini Steel plants above 75KW / 100 BHP.

"All consumers using these processes were originally covered under Rate Schedule of large power and heavy power depending on the quantum of load. However, because of their inability to withstand power cut in their demand during shortage of power, the rate for consumers having loads above 235 KVA were still being billed under the category of large power with certain conditions. The committee after careful consideration has suggested that all these consumers should be covered now in one separate category so long as demand cuts remain in force."

11.3(h) "As already mentioned in para 9.3(j) the consumers having above processes but load exceeding 100KVA are covered under one category. Unit rate has been suggested for this category of consumers. This category is, however, only for, the period during; which demand cut is enforced and hence these suggested unit rates are also for similar period. In the event demand cut is not applicable, these consumers will be covered in large and heavy power consumer category.

E. Analysis of Issues

22. The Commission has examined the pleadings of the parties including interalia, their petitions, counter affidavits and replies in the present matter and our findings on the issues set out in para 6 of this order are set out below:-

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(a) Whether the Petitioners belonging to the erstwhile HV-1 category are entitled to a differential treatment , taking into account the criteria adopted for fixing these tariffs and the treatment meted out to them by the erstwhile Uttar Pradesh State Electricity Board?

(i) The Petitioners have pleaded that the erstwhile UPSEB had prescribed a separate tariff taking into account the “nature and process” of the industry in which the HV-1 category of consumers were involved but the Tariff Order has levied HV-2 tariff in an arbitrary manner. They have claimed differential treatment viz HV-2 category relying upon the grounds set out in the petition, which have been examined by us. The petitioners had alleged that HV-2 Tariff was levied on consumers in the HV-1 category without examining the nature and process of the industry and as such was arbitrary. The petitioners had also prayed that all Arc/Induction furnace users being power intensive users where loss levels are comparatively less, are entitled to a lower tariff. They have also claimed that since they are supplied at night they should be supplied at lower rates

(ii) That although UPPCL had in its first counter affidavit admitted that the petitioners were historically treated differently from HV-2 and had supported the prayer of the Petitioners, it has in its subsequent affidavits filed in another connected petition submitted that the differential treatment should not be continued. UPPCL had in its initial counter affidavit admitted that that the cost of supply during night hours was less compared to the cost of supply during the day. UPPCL had admitted that the Petitioners were historically treated differently from the HV-2 category of consumers and supported the prayer of the Petitioners for revival of the HV-1 category of tariff. UPPCL had pleaded that the Commission should take into account the fact that the percentage increase in tariff for the HV-1 category was higher compared to the other categories of the consumers. UPPCL stated that the rate of Rs.4.18 paise per unit, mentioned in the ARR of 2000-01 was on account of MCG billing of disconnected/closed consumers and on account of old tariff up to 18th June,1998

(iii) Despite having filed an earlier counter affidavit admitting the case of the Petitioners, in the counter affidavit filed in the case of M/s. Chaudhrana Steel Pvt. Limited., UPPCL has contradicted their own stand by opposing the prayers of the Petitioners . UPPCL stated that the HV-1 category have been rightly abolished. As regards the percentage increase of tariff, UPPCL claimed that the increase in the tariff of the petitioners was similar to other categories of consumers. UPPCL claimed that it was obliged to accept an implement the tariff determined by the commission. UPPCL submitted that apart from the petitioners there were several categories of consumers who were supplied electricity during the night, the objective being to have uniforme demand through out the 24 hours (keeping in mind the interest of the Grid).UPPCL submitted that that it was not possible to lower tariff during night supply. UPPCL submitted that the manufacturing process applied by any consumers could not be the criteria for determination of the tariff. UPPCL submitted that the Commission has taken into account the reform process in the sector into account while determining the tariff. UPPCL submitted that the Commission’s reasons for merger of HV-1 and HV-2 categories was set out in the Tariff Order. UPPCL denied that there was increase of 47-83% in the rates of consumers following into the petitioners category. UPPCL claimed that the State Government has not provided any subvention to subsidize the tariff of Arc/Induction

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furnaces. UPPCL submitted that the Commission had rightly determined the tariff in line with the reform implemented in the State and UPPCL would implement and enforce the tariff Order issued by the Commission. UPPCL filed a calculation sheet setting out the manner in which the through rate of Rs.4.18/KWh was arrived at. UPPCL claimed that the increase in tariff for HV-1 category was only to the extent of 5%.UPPCL expressed its concern that in case the tariff for the year 2000 is reviewed at this stage and Commission grants any relief to the petitioners with retrospective effect, UPPCL would not be able to recover the amount from other consumers.

(iv) At the outset, the Commission would like to emphasize that in a matter pertaining to fixation of tariffs or seeking a review of any decision, direction or order, unlike a matter before court (where relief is primarily granted based on the pleadings and evidence furnished by the Parties),the relief cannot be based on just the stands taken by the parties in their pleadings. The Reform Act casts a major duty on the Commission to promote efficiency & economy in the activities of the electricity industry to achieve the objectives of the Reform Act. Thus the Commission is duty bound to not just keep the interest of the parties to the matter in mind while passing order but also keeping mind the interests of the entire electricity sector in focus. The Commission is under a duty to take steps which are conducive to the development and management of the electricity industry in the State in an efficient, economical and competitive manner. In this light of the matter, the Commission cannot grant relief to Petitioners on the sole ground that some of the prayers and grounds were admitted by the Respondent. The Commission can only grant those relief’s, which firstly fall within the existing legal framework as set out in the Reform Act and secondly assist in achieving the objectives of the reforms introduced in the Electricity Sector in the State of Uttar Pradesh.

(v) The Commission was and is of the view that heavy power consumers in the erstwhile HV-1 category had different type of processes, an exhaustive list of which cannot be prepared, taking into account continuous technological developments. Further some consumers also take recourse to multiple processes in their manufacturing activities. In these circumstances, differentiating between the consumers taking into account the “process” applied was not considered advisable by the Commission. In our view, implementing a tariff based on the “process” (as was done by the UPSEB in the past) requires an in-depth and detailed study all such processes and in the absence of such a study, the differentiation criteria would become arbitrary and irrational. The Commission had thus felt it prudent and practical to not differentiate between HV-1 and HV-2 category applying the process criteria. The Commission thus moved away from the “process” criteria to the more rational “voltage of supply” criteria, while determining the tariff for the year 2000 -2001.

Further the Commission had taken note of the fact that there were and are a large number of consumers in other industries viz. Soda Ash and Aluminium which are power intensive industries who are part of the HV-2 category. We feel that there is no justified reason for grant of differential treatment to the Petitioners herein.

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(vi) The Commission is of the view that Technical similarity between two processes run by electricity should be judged on a more rational and legally sustainable basis viz. the load factor, power factor, time of use and consumption per KVA. In our view, in a system, which feeds heavy power to consumers having various and distinct processes, comparison and categorizations of consumers on the basis of the most frequent load factor, power factor, time of use as consumption per KVA is a preferred criterion rather than the “process” followed by the consumers..

(vii) The manner and process of determining the electricity tariffs is set out under the Section 24 of the Reform Act which sets out the procedure for calculating the expected revenue from charges which a licensee is permitted to recover in determining tariffs and empowers the Commission to specify by regulations, the terms and conditions for determination of revenue and tariffs. Further in terms of Section 24(7) of the Reform Act and Regulation 132 of the Regulations, the Commission is empowered to differentiate between consumers on grounds including interalia, their load factor, purpose of use, power factor, total consumption of energy during any specified period or the time during which supply is required. Further the tariff so determined has to be just and reasonable and also promote economy and efficiency in the supply and consumption of electricity, in terms of Section 24(7)(b) of the Reform Act. The Commission was of the view that the earlier differentiation between HV-1 and HV-2 categories of consumers was not in line with the spirit of the reforms and also the provisions of the Reform Act and as such it did not apply the criteria for differential treatment applied by the erstwhile Uttar Pradesh State Electricity Board for determining the tariff for consumers in the erstwhile HV-1 category.

(viii) The commission has in line with the directions issued by the Hon’ble High Court, has examined the issues arising in these connected Petitions in detail. Our examination and observation on the status of Tariff for the HV-1 category from 1977 onwards are set out in Para 21 of this Order. . We have observed that prior to the promulgation of power cuts due to acute shortage of power there were no differentiation between consumers applying the process criteria. However, when power cuts were enforced, the HV-1 category comprising the Arc/Induction Furnaces, Rolling/Re-rolling mills was treated differently by UPSEB because of their inability to withstand power cuts. In this regard the TRC Report has observed that the category i.e. HV-1 should be retained until demand cuts were enforced and as and when demand cuts are discontinued, the category would be merged with other large and heavy power consumers.

(ix) The Commission would like to observe that at the point of time when the Tariff order was passed, there were no demand cuts in force and thus there was no reason to provide any differential treatment to consumers in the HV-1 category. The Commission would like to highlight that in terms of Section 22-B of the Indian Electricity Act 1910, the State Government was empowered to issue orders regulating the supply of electricity and there were no demand cuts for the HV-1 category under any such Orders. In terms of the provision i.e. Section 22-B of the IE Act [which has been saved by the Reform Act], the State Government is empowered to regulate supply distribution, consumption and use of electricity. In terms of Orders passed under Section 22-B of the IE Act, the orders

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passed by the State Government have specified the holidays to be observed by certain industries, the hours of business to be observed, hours during which certain industries shall receive supply and have designated officers the exercise the power of entry, search and inspection of premises for enforcing the orders issued by the State Government. The Petitioners have also claimed differential treatment alleging that UPPCL had issued orders denying usage during peak hours. In case UPPCL has without authority issued any orders denying the petitioners usage during peak hours, the petitioners remedy lies in approaching the Commission with its grievances but the alleged violation by UPPCL, cannot be the basis of fixing/determining any differential tariff for the erstwhile HV-1 category of consumers. The remedy lies in seeking regulation of the supply hours and not differential tariff.

(x) For reasons set out herein, the Commission answers this issue in the negative for reasons set out herein.

(b) Whether the impugned Tariff Order was obtained by UPPCL by withholding/non-production of relevant information and/or placing false and fabricated information and/or by misleading the Commission?

(i) The petitioners have in the Review Petition alleged that the Commission had merged the HV-1 and HV-2 category of consumers on account of UPPCL submitting a wrong figure of Rs. 4.18/ Unit in the ARR. The Petitioners have alleged that the Tariff Order was obtained by UPPCL by with-holding/non-production of relevant information, placing false and fabricated information before the Hon’ble Commission. The Petitioners have alleged that the reasons for the merger were not set out in the Tariff Order. The Petitioners have alleged that the Act / omission on the part of UPPCL resulted in an unprecedented hike in the rates of supply of electricity to consumers in the HV-1 category. The Petitioners have also alleged that UPPCL has accepted their mistake that a figure of Rs.4.18/Unit was given based on data available in 1997 and was not based on tariff applicable with effect from 18/6/1998 to 26/01/1999.

(ii) In response UPPCL has in its earlier counter affidavit, supported the case of the Petitioner and admitted that the rate of Rs 4.18 per unit was on account of MCG billing of disconnected /closed consumers and on account of old tariff up to 18th June 1998. UPPCL has submitted that it had informed the Commission that data was not available at the time of submission of ARR. In the subsequent affidavit, UPPCL had filed a calculation sheet setting out the manner in which the figure of Rs 4.18/Unit was arrived at and also pleaded that the Commission had rightly determined the tariff.

(iii) At the outset, the Commission would like to observe that there is no merit in the clause that UPPCL had any intention of obtaining the Merger of HV-1 and HV-2 category or a hike for the HV-1 category in as much as UPPCL had never prayed for a merger of the HV-1 and HV-2 categories, and had in fact supported the plea of the petitioners at the tariff hearing. However, they saw merit in the logic behind the merger

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of the two categories. The issue of rationalizing the tariff structures of the HV- 1 and HV-2 category was discussed in the meeting of the Commission on 25th July 2000 with Principal Secretary, Energy Department, Government of Uttar Pradesh and UPPCL. The meeting was also attended by UPPCL representatives including its CMD. It was suggested that the Commission should initiate an approach towards tariff determination which is delinked from the nature of the user and moves towards voltage of supply based categories, which could potentially be more reflective of underlying cost of supply. The Commission was informed that in the current HV-1 schedule the demand charges were kept high while the energy charges were kept unduly low due to problems related to tempering of meters. In view of installation of tamper proof electronic meters, it was discussed that there was a need for appropriately amending/ merging this category with other categories which are fundamentally similar in nature. Further the Commission was not mislead by UPPCL’s figures or submissions while merging HV-1 with HV-2 category and there is no observation supporting this contention. This argument of the Petitioners is an after thought, raised in the review Petition and is not sustainable being incorrect. The Commission would like to clarify that it was not misled by UPPCL or by any submission filed by the UPPCL at the Tariff Hearing or the figure of Rs. 4.18/Unit furnished by UPPCL. The Commission was driven by the following factors, for merging the HV-1 with the HV-2 category:-.

(iv) The Commission felt that the criteria for differentiating the consumers applying the process method was not appropriate and reasons for the same have been set out in the preceding Para 22(a)(v). The Commission had taken into account the fact that there were no demand cut in force and in line with the recommendation of the tariff rationalization committee, discontinued with the HV-1 category. The views of the Commission on this issue are set out in Para 22(a)(viii) and 22(a) (ix) of the order.

(v) Further the Commission had in its Tariff Order dated 27/7/2000 expressed its views and the reasons which led to the abolition of HV-1 category. The Commissions observations and reasons for merger are set out in the Tariff Order. A perusal of these orders reveals that the Commission was not in any way led by the figure of Rs 4.18/ Unit furnished by the Respondent or by any incorrect information furnished by the UPPCL; as is being claimed by the Petitioners herein. The previous Tariff Orders already set out the Commission’s reasons for the merger of HV-1 and HV-2 category and for the HV-1 category to be abolished. The Tariff Order states that Commission had decided to abolish the HV-1 category and place it with current users in HV-2, to ensure that consumers pay the legitimate price of power. The Commission was of the view that the erstwhile HV-1 category was to be treated at par with HV-2 category and thus merged the two categories.

The Commission is aware that the consumers in HV-2 category are paying more than the average cost of supply and the erstwhile HV-1 category would also end up paying the hiked tariff, but at the same time the process of rebalancing tariff can be achieved only once a period of time and in the interim, the Commission has no option but

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to rationalize the tariff, keeping in mind the interest of the sector at large. We set out below, some of the relevant observations in our previous orders:-

Tariff Order dated 27.07.2000

Rate Schedule HV – 1

This schedule is deleted and merged with HV-2.

Note: As has been indicated elsewhere, the Commission aims to move away from use based categories to the more rational voltage of supply based categories. This would enable tariffs to potentially be more reflective of the underlying cost of supply. The Commission was informed that in the current tariff, demand charges were kept high for high voltage industrial users in the HV1 category while energy charges were kept low, due to problems related to tampering of meters etc. This structure had no rational basis. Now that tamperproof electronic meters have been installed, Tariff Structure for this category should be appropriately amended or merged with other categories, which are fundamentally similar in nature. The Commission has decided to abolish the HV1 category and place current users in this category in the HV2 category, in the interest of ensuring that consumers pay the legitimate price for power.

(vi) The Commission’s reasoning behind merging the two categories is also set out in the Tariff Order dated 01/9/2001 and 22/10/2002 :

Tariff Order dated 01.09.2001

“Induction / Arc Furnaces and Re-rolling Mills

4.45 It is proposed to reintroduce the HV-1 category as it was merged with HV-2 (Large & Heavy Power) in the last tariff order. This category would generate revenue amounting to Rs.364.29 Crore whereas at current tariffs this generates Rs. 368.38 Crore. This implies a revenue loss of Rs.4.09 Crore per annum i.e. a 1% decrease in revenue. ….

5.19 Some consumers have objected to the reintroduction of the category HV-1. HV-1 tariff has been proposed for Induction Furnaces and Rolling Mills. These consumers have demanded that there should be separate treatment of those who

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are producing steel for sale in the form of billets, ingots etc. and those who are producing steel as per specification for particular marketing requirement. They have thus suggested that the Induction Furnace/Arc Furnace installed in their Foundry units should continue to be included in the HV-2 category as it is not being used for bulk manufacturing of steel and also that it would become uneconomical for them to run the unit if they are included in HV-1 category.

7.124 The licensee has proposed the reintroduction of a separate category for Arc/Induction Furnace, Rolling/Re-Rolling Mills and Mini-Steel Plants. The rationale provided for reintroduction is that a tariff structure that makes them uncompetitive means a loss of revenue for the utility and that the tariff needs to be structured in a manner that encourage payment and is a disincentive to deceit. It is noted that the State Government has not supported the licensee’s proposal and had directed the licensee to propose a load factor rebate and not a separate tariff for Arc/Induction Furnace Rolling Mills and Mini Steel Plants.

7.126 As a part of the tariff rationalization exercise, this category was merged last year with the HV-2 category. There appears to be no strong reason for the reintroduction of a separate category for steel industry and hence the proposal is rejected.

Tariff Order 22.10.2002

“Rate Schedule HV– 2: Large And Heavy Power

This rate schedule shall apply to all consumers who have a contracted load of more than 75 kW (100 BHP) for industrial and/or processing purposes as well as to Arc / Induction Furnaces, Rolling / Re-rolling mills, Mini steel plants and Floriculture & Mushroom farming units and to any other HT consumer not covered under any other Rate Schedule. This rate schedule shall also apply to commercial light, fan & power consumers (LMV-2) and small & medium power consumers of Rate Schedule LMV-6 subject to the condition that they opt for this Rate Schedule.

The average tariff hike proposed by UPPCL for this category is 11%. The Commission recognizes that consumers of HV 2 are paying more than the average cost of supply. But rebalancing of tariffs can be achieved only over a period of time.

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In 2001-02 there was no increase in rates of this consumer category. Given the revenue requirement of the Licensee it is proposed to increase the average tariff of this category by 4.28 percent. This is lower than the increase in the per unit cost of electricity to UPPCL.”

(vii) To conclude, the merger of the categories was done by the Commission as part of a rationalization exercise initiated by the Commission after taking over the role of tariff determination and regulation from the erstwhile UPSEB and was not on account of UPPCL withholding and/or not producing the relevant information and/or placing false and fabricated information and/or by misleading the Commission. The Commission was not led by the percentage increase in tariff, while deciding the merger of HV-1 with HV-2 category. The merger was done taking into account the criteria for differentiation set out in the Reform Act.

(viii) That since some Petitioners had also alleged ‘fraud’ against the Respondent Corporation, the Commission had examined the precedents filed by them in support of their plea. The Commission would like to observe that, “fraud” has been held to an act of deliberate deception with the design of securing something by taking unfair advantage of another. It is an act in order to gain by another’s loss. We are aware that in case any party to any proceeding withholds any vital document with a view to gain advantage, the party can be tried for playing a fraud upon the court as well as the other party. The Commission has set out the reasons which led to the merger of the HV-1 and HV-2 category and concludes that no fraud was played upon it by the Corporation, warranting any interference with the Tariff Order in these proceedings

(c) Whether the criteria adopted by the Commission for merging the HV-1 and HV-2 categories of consumers under the Tariff Order valid under applicable law? Are the petitioners entitled to any relief in view of the alleged hike in tariff?

(i) The criteria and reasons adopted by the Commission for merging the HV-1 and HV-2 categories have been set out in the Tariff Order and also in para 22 a(viii) and 22 a(ix) of this Order. The same is in line with the provisions of the Reform Act.

(ii) Some Petitioners have alleged that in other states, Arc and Induction Furnaces and other Steel Units are being treated differently, compared to other large and heavy power consumers for calculation of tariff. In this context, the Commission would like to emphasize that in States such as Maharashtra, Andhra Pradesh, Tamil Nadu, Punjab, Haryana, Delhi, Rajasthan, Orissa, Gujrat, Karnataka and Madhya Pradesh, large and Heavy Power categories include Arc Furnace and other heavy power consumers. In Himachal Pradesh, the arc furnace tariffs are higher (2.70 Rs/u) than other Heavy Power consumers (2.50 Rs/U).

(iii) In our view the criteria adopted by the Commission for merging HV-1 with HV-2 category is in line with provisions of Section 24 of the Reform Act Section 24 provides that no preference or favour is to be shown to any consumer of electricity, but differentiation may be made on grounds of the consumer’s load factor or purpose of use or power factor, consumer’s total consumption of energy during any specified period, or time during which the supply is required. The fact that criteria adopted by the

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Commission in its Tariff Order are in line with the Reform Act, there is no reason to modify the same.

(iv) Further as has been set out earlier in this order, no demand cuts were in force when the Tariff Order was passed and as such, keeping in mind the TRC Report, the Commission had rightfully merged the HV-1 category with the HV-2 category.

(v) Prior to 1977, all consumers having load above 100 BHP were governed by two part tariff but known as ‘Large Power’(HV-2A) and 'Heavy Power’ and there was no difference in rates according to process which covered all bulk power Industrial Consumers. Subsequently due to acute power shortage in U.P. in 1977, the State Government had vide notification No 5009P-377/XXIII-216-77 dated 19.9.1977 separated the Arc Furnace, Rolling Mills etc from Large & Heavy Power Consumer’s Category and allowed them to run their process from 8.30 P.M. to 830 A.M. during off peak hours since they can not afford to sustain demand cut. The report of Tariff Rationalization Committee in 1985 clarified the issue and indicated in very clear terms that HV Category meant for Arc Furnace /Induction .Furnace. & Rolling Mills and Re-rolling Mills. will remain separated from HV2 category so long as demand cut persists.

(vi) As per the Tariff Order dated 27.7.2000, HV-1 category has been abolished and merged with HV-2 category because at time of issuing the Tariff Order there was no demand cut on any consumer except peak hour restriction of use for Arc. Furnace ./Induction .Furnace. etc. The Tariff order dated 27.7.2000 gives the reason that since HV1 andHV-2 consumers are fundamentally of the same nature, they have been merged together.

(vii) The issue of rationalizing the structure and categories of the tariff schedule was discussed in the meeting of the Commission on 25th July 2000 with Principal Secretary, Energy Department, Government of Uttar Pradesh and UPPCL. The meeting was also attended by UPPCL representatives including its CMD. It was suggested that the Commission should initiate an approach towards tariff determination which is delinked from the nature of the user and moves towards voltage of supply based categories, which could potentially be more reflective of underlying cost of supply. The Commission was informed that in the current HV-1 schedule the demand charges were kept high while the energy charges were kept unduly low due to problems related to tempering of meters. In view of installation of temper proof electronic meters, it was discussed that there was a need for appropriately amending/ merging this category with other categories which are fundamentally similar in nature. The HV-1 was thus merged with the HV-2 category.

(viii) Apart from the aforesaid reasons, the Commission is of the view that HV-1 and HV-2 consumers are fundamentally of a similar nature if the following logic is taken into account:

(a) The consumption per KVA pattern of HV-1 and HV-2 category of consumers is similar as will be clear from the following:-.

(i) Seven Petitioners viz M/s Hans Castings (Induction Furnace-3300 KVA), M/s Hans Metals (Re-rolling Mills.-2800 BHP), M/s Sigma Castings (Induction

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Furnace-2700 KVA), M/s Doaba Rolling Mills (Induction Furnace – 1788 KVA), M/s Barnala Steels Ltd. (Re-rolling Mills 2300 KVA), M/s Amba Steels (Induction Furnace 2000KVA) and M/s Amba Steels (Rolling Mills 2000KVA) have furnished technical details on the basis of which the following average performance data was worked out:-

Process Period: 1.9.2000 to31.8.2001

1. Arc Furnace/Induction Furnace 409 KWH/KVA/Month

2. Rolling Mills/Re-rolling Mills 226.29KWH/KVA/month

(ii) A study was carried out by the Commission on random sample basis in the month of April, 2003 in respect of Arc Furnace and Induction Furnace, Rolling Mills consumers of EDD, Orai and EDD II for consumption during the period from 1.9.2000 to 1.7.2001 and following results were arrived at

Process EDD Orai EDD II, Jhansi

(KWH/KVA/Month) (KWH./KVA/Month)

Arc Furnace/Induction Furnace 381.48 445

Rolling Mills etc - 140

(iii) A set of 80 consumers having contracted Load of more than 500 KVA (viz Fertilizer, Distillary, Water Plant, Paper Mills, Cement, Polyster Fibre, Agro Food, tannery, Vanaspati Ghee, Spinning Mills, Transformer manufacturer, Ceramic Tiles, Yarn, PVC Flooring, Tyre and Tube, Nylon Yarn, Tool Manufacturing, Rubber works, Zip manufacturing, Meat process, Picture Tube, medicines, Paper process, Electronics, Wire Drawing, Dairy, Automobile, Plywood, paper Mill, Adhesive, Plastic Flexible packing, Computer, TV Sets, Starter of Relays, Tractor parts, Sugar Mills, Clothing and Sewing, Electrical equipments, gas Chemicals, Milk Chilling, Plastic Bags, Defence, Jute Mill, Radio Wave Transmitters, Floor Mills, Spinning Mills, Coal Mines etc.) under HV-2 category other than Arc Furnace/Induction Furnace/Rolling Mills/Re-rolling Mills was considered in respect of their consumption/KVA/Month. It has been observed that in 58.75% cases, the consumption/KVA/Month ranged up to 400.

It may be observed that figures of consumption/KVA/Month in respect of the petitioners and the sample cases of Arc Furnace and Induction Furnace, Rolling Mills and Re-rolling Mills fall in close proximity with the corresponding figures of HV-2 consumers (other than Arc Furnace/Induction Furnace/Rolling Mills/Re-rolling Mills). This is an additional reason to consider these consumers fundamentally similar with HV-2 consumers.

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(ix) The Petitioners have pleaded that in view of UPPCL having itself admitted that the tariff hike of the HV-1 category was high and that injustice had been caused to the Petitioners, the Order deserves to be suitably modified. The Commission has re-examined the merging of HV-1 issue and is of the view that this ground of the petitioner is not sustainable. The Commission has re-examined the impact of the tariff hike on the erstwhile HV-1 category and its observations are set out below :

S.No Subject TARIFF W.E.F. 3.1.1997

1 Rate

2 Fuel surcharge from 4/98 to 6/98

3 Establishment surcharge from 4/98 to 3/99

Total

Rs. 3.080/Unit

Rs. 1.146/Unit

Rs. 0.442/Unit

Rs. 4.668/Unit

INDUCTION FURNACES

Power Factor =0.95, Hours of Supply = 500, Rate in Rs./Unit

Load Factor

Rate as per Tariff w.e.f. 18.6.1998

Rate as per tariff w.e.f. 3.1.1997

Rise in rate compared to tariff of 3.1.1997

Rate w.e.f.09.8.2000

Rise of rate w.e.f.9.8.2000 compared to Tariff w.e.f. 3.1.1997

70 3.1 4.67(-) 33.62 % 4.29 (-) 8.14 %

80 2.84 4.67(-) 39.19 % 4.24 (-) 9.21 %

90 2.63 4.67(-) 43.68 % 4.2 (-) 10.06 %

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ARC FURNACE

PF = .95, Hours = 500, Rate in Rs./Unit

Load Factor

Rate as per Tariff w.e.f. 18.6.1998

Rate as per tariff w.e.f. 3.1.1997

Rise in rate with respect to the tariff of 3.1.1997

Rate w.e.f.09.8.2000

Rise of rate w.e.f.9.8.2000 compared to Tariff w.e.f. 3.1.1997

40 4.23 4.67 (-) 9.42 % 4.58 (-) 1.92 %

50 3.58 4.67 (-) 23.34 % 4.45 (-) 4.71 %

60 3.15 4.67 (-) 32.55% 4.35 (-) 6.65 %

ROLLING MILLS

PF = .85, Hours = 500, Rate in Rs./Unit

Load Factor

Rate as per Tariff w.e.f. 18.6.1998

Rate as per tariff w.e.f. 3.1.1997

Rise in rate with respect to the tariff of 3.1.1997

Rate w.e.f.09.8.2000

Rise of rate w.e.f.9.8.2000 compared to Tariff w.e.f. 3.1.1997

40 3.59 4.67 (-) 23.13 % 4.66 (-) 0.21 %

50 3.07 4.67 (-) 34.26 % 4.5 (-) 3.64 %

60 2.72 4.67 (-) 41.76% 4.41 (-) 5.57 %

NOTE: The HV-1 Tariff for Arc Furnace, Induction Furnace and Rolling Mill consumers w.e.f.3.1.1997 updated up to 6/98 was Rs. 4.67/ Unit which was paid by the consumers of this category without any demur. It may be observed that the subsequent tariff w.e.f. 18.6.1998 was lower than the effective tariff of 3.1.1997 by 34 to 44% in case of Induction Furnace, 9 to 33 % in case of Arc Furnace and 23 to 42 % in case of Rolling Mill consumers. It may further be seen that the Tariff w.e.f. 9.8.2000 (Notified as per the Tariff Order dated 27.7.2000) was marginally below the effective Tariff of 3.1.1997.

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(x) A perusal of the tables reveals that HV-1 Tariff for Arc Furnace, Induction Furnace and Rolling Mill consumers w.e.f. 3.1.1997, updated up to June 98 was Rs. 4.67/ Unit which was paid by the consumers of this category without any demur. It is important to note that the subsequent tariff w.e.f. 18.6.1998 was lower than the effective tariff of 3.1.1997 by 34 to 44% in case of Induction Furnace, 9 to 33 % in case of Arc Furnace and 23 to 42 % in case of Rolling Mill consumers. It is further observed that that the Tariff w.e.f. 9.8.2000 (Notified as per the Tariff Order dated 27.7.2000) was in fact marginally below the effective Tariff of 3.1.1997. The Commission has in its first Tariff Order conducted a rationalization exercise and in that process merged the categories and revised the tariffs. It is of the view, the entire claim and allegations of the Petitioners are based on the quantum of tariff hike, taking 1998 as a base year. The fact that there are no grounds/reasons which justify the reduction in tariff in the year i.e.1998 for the erstwhile HV-1 category, the Commission is of the view that the figures in 1998 cannot be used as a base year to allege that the tariff hike was high. Further the Commission is of the view that since there was no rational basis for differentiating HV-1 category from HV-2 category, who were consumers similarly placed the erstwhile HV-1 Petitioners cannot, taking 1998 as a base year, allege a tariff hike and seek a review of the Tariff Order or reduction on tariff.

(xi) The Commission had examined the conditions which had led to the tariff undergoing a modification in 1998. The Board Note for the approval of tariff which was later promulgated w.e.f. 18.6.1998 in respect of Arc Furnace, Induction Furnace, Rolling Mill and Re-rolling Mills indicated the following points:-

(a) The effective rate for the said category of consumers prior to 18.6.1998 was Rs. 4.28/Unit which comprised of energy charges @ Rs. 3.08/Unit, Fuel surcharge of Rs. 0.75937/Unit and establishment surcharge of Rs. 0.44166/Unit. This rate was designed for power supply of 300 hours/month.

(b) The average recorded consumption of 3Ton Furnace was 154206 Units ( at the above rates) which was quite low due to pilferage of electricity.

(c) It was suggested that a two-part tariff may be imposed with high fixed charge and nominal electricity charges to curb the tendency to pilfer electricity by fraudulently showing low consumption, as follows;-

Fixed charges

1. Induction Furnace = Rs. 700/KVA/Month

2. Arc Furnace = Rs. 615/KVA/Month

3. Rolling Mill and

Re-rolling Mill = Rs. 440/KVA/Month, and

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Energy Charges @ Rs. 1/Unit

This rate was designed for power supply of 500 hours/month.

(d) It was further suggested that the standard load for Furnaces will be @ 600 KVA/Ton.. The following Table for a 3 Ton Furnace having load of 1800 KVA working at 0.85 P.F. and different load factors shows effective rate of electricity as compared to the earlier rate of Rs. 4.28/Unit.

Capacity of Induction Furnace= 3.0 Ton, Load = 1800 KVA, P.F. = 0.85, Total Hours of Supply in a month= 500, Tariff of Induction Furnace from 18..6.1998= Fixed charge @ Rs. 700/KVA + Energy charges @ Rs. 1/Unit (Fuel and Establishment

surcharge merged in the rates)

Load Factor

Consumption

in KWH

Amount

of Bill at

proposed

Tariff

(Rs.)

Effective

rate (Rs./Unit)

Earlier

rate Rs./Unit

Increase

in effective

rate with

respect to earlier rate of

Rs.4.28/Unit

Increase in effective rate with respect to the revised previous rate i.e Rs. 4.67/Unit.

80% 612000 1872000 3.06 4.28 (-) 28.50% (-) 34.48%

70% 535500 1795500 3.35 4.28 (-) 21.73% (-) 28.27%

65% 497250 1757250 3.53 4.28 (-) 17.52% (-) 24.41%

60% 459000 1719000 3.74 4.28 (-) 12.62% (-) 19.90%

50% 382500 1642500 4.28 4.28 0 (-) 08.14%

(xii) It may be observed from the above Table that the effective rate was lower than the earlier rate of Rs. 4.28/Unit for all load factors above 50% in the range of 12.62% to 28.50%. In view of the above analysis the logic of formulation of the tariff which came in to force from 18.6.1998 suffers from following serious in-congruencies :-

(a) The earlier rate of Rs. 4.28/Unit is not acceptable. The said rate up to 17.6.1998 should have been Rs. 4.67/Unit comprising of energy charges @ Rs. 3.08/Unit, Fuel Surcharge @ Rs. 1.146/Unit as per B.O. No. 2059/F&C/451/1998(74) dated 17.9.1998

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and Establishment Surcharge @ Rs. 0.442/Unit as per B.O. No. 2000/F&C/451 /1998 (72) dated 25.4.1998.

(b) It may be seen that above 50% Load Factor the effective rate will further drop in the range of 19.9% to 34.48% if earlier rate is taken as Rs. 4.67/Unit instead of Rs. 4.28/Unit.

(xiii). The Commission before the issue of the tariff Order dated 27.7.2000 was given to understand that dependable and sophisticated electronic meters had been installed at the premises of all consumers under this category. Therefore, carrying forward the earlier logic of imposing high fixed charges and nominal energy charges to curb pilferage of energy was not warranted being irrational in the changed scenario.

(xiv) The Commission did not find any distinct reasons in the Board Note for providing substantially low tariff with respect to the earlier tariff, to the consumers having load factors above 50%. Further the approach of the Board cannot be termed as rational, on account of the following facts:

(a) Historically the large and Heavy Power Consumers constituted a category which subsidises hence low tariff offered to this category means loss to the Utility.

(b) The cost of inputs to the power sector have all along shown a rising trend. On the face of this fact offering a tariff lower than the earlier tariff to this category of consumers is devoid of logic.

(xv) Board pleaded that in order to taper down the loss of revenue due to pilferage of electricity and the fixed charges were increased while the rate of energy charges was kept nominal. However, on the contrary from the above table it is observed that the Board had designed such a tariff that consumers having load factor above 50% have been given tacit advantage of low effective tariff with respect to the previous tariff. The matter was intimated to the Secretary Energy, Government of U.P. by UPSEB vide letter No. 257 HC/Tariff dated 17.6.1998 where the Board admits that consumers of this category having high load factor will have low effective tariff as compared to the previous tariff but nothing concrete has been expressed about the mechanism which will compensate consequent loss of revenue.

(xvi) Commission is satisfied that the tariff w.e.f. 18.6.1998 cannot be taken as bench-mark tariff to measure the rise in tariff in the year 2000-2001 since the basic philosophy of formulation of tariff by UPSEB w.e.f. 18.6.1998 has failed in the test of rationalization. Commission, therefore, is of the opinion that the rate of rise in tariff

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claimed by the petitioners based on the tariff w.e.f. 18.6.1998 is misconceived and therefore amounts to misrepresentation of the facts by the petitioners.

(d) Whether the Tariff Order was passed in line with the mandatory procedure for determination of tariffs under the Reform Act, taking into account the fact that it was passed, based on incomplete data?

(i) The Petitioners have alleged that the Commission had failed to pass the Tariff Order in line with the mandatory and obligatory procedure under the Reform Act. The Petitioners have alleged that the Commission has passed the Tariff Order despite the fact that UPPCL had not complied with the requirement of Section 24 of the Reform Act and Regulation 124 of the UPERC (Conduct of Business) Regulations, 2000. The Petitioners have referred to the observations of the Commission in the Tariff Order on the Licensee’s inability to furnish the information required in terms of the afore mentioned provisions of the Reform Act. The Petitioners have felt aggrieved by the fact that the Commission passed the Order despite the fact relevant information was not furnished by UPPCL. UPPCL has in turn in its previous affidavit submitted that data was not available at the time of submission of the Annual Revenue Requirements (ARR), but in a counter affidavit filed in a connected Petition submitted that the tariff was determined in line with the Reform Act and thus UPPCL had implemented the same.

(ii) In this respect the Commission would like to emphasize that the obligation of fixing and determining the tariff in accordance with the provisions of the Reform Act was cast upon the Commission under the Reform Act but it was like other Regulatory Commissions hampered in the process due to poor and inadequate quality of data. Although directions were given for filing of required data, UPPCL was unable to comply with the same.

(iii) The Commission had in its Tariff Order emphasized the need for UPPCL to have institutional arrangements which promote efficiency and improvement in terms of cost reduction and increase in its collections. The need for improvement in data was also stressed upon in the Commission’s Tariff Order dated 01/09/1999. The Commission had observed that effective regulation required accurate and complete information and in the absence of the same, regulatory actions like rationalization of tariff would be difficult and fraught with uncertainties for the stake holders. A reference was also made to the process followed in the first Tariff Order and it was observed that the waiver with regard to complete information “was granted in exceptional circumstances” taking into account the fact that it was the first time that the utility was being subjected to scrutiny in terms of the Reform Act. The Commission had observed and directed UPPCL to improve the data base and quality of filing in the Tariff Order. Some of the observations of this Commission are let out in this Tariff Order. The Commission had set out the background and the circumstances in which the Tariff Order was passed, it is a fact that because of lack of adequate data the Commission’s role was hampered. The Commission had given directions to UPPCL for bringing in improvement in data quality and had in fact observed that information on the wor