Case No. 56 of In the matter of Compliance of directives issued to MSEDCL under Order dated May 17, 2007 passed in Case No. 82 of 2006.

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1 Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai Tel Fax Website: Case No. 56 of 2007 In the matter of Compliance of directives issued to MSEDCL under Order dated May 17, 2007 passed in Case No. 82 of Dr. Pramod Deo, Chairman Shri A. Velayutham, Member Shri S. B. Kulkarni, Member Maharashtra Rajya Veej Grahak Sanghatna 12 / 388, Mahatma Phule Road Ichalkaranji (Dist. Kolhapur) Versus Maharashtra State Electricity Distribution Company Limited Prakashgad, Bandra (East), Mumbai Petitioners Respondents For the Petitioners: For MSEDCL: Shri. Pratap Hogade, President. Shri. Ravi Prakash along with Shri. U.G. Zalte, Chief Engineer (Distribution), MSEDCL For Consumer : Dr. Ashok Pendse for Mumbai Grahak Panchayat Representatives ORDER Dated: February 16, 2008 Maharashtra Rajya Veej Grahak Sanghatna have filed a Petition on November 5, 2007 to represent the interests of consumers, wherein compliance of directions given to MSEDCL under Order dated May 17, 2007, have been sought. It has been pointed out that the directions that require immediate compliance are with respect to the following: Page 1 of 1

2 4.. MSEDCL must refund to all consumers all overcharged amounts that have been collected towards ORC or such other head-based charges, including cost of meter, at variance from the Order dated September 8, The Commission directed MSEDCL to refund to Devang Sanstha, and to all such consumers, all amounts collected towards ORC, CRA and cost of meter, together with interests. Due care should be taken while refunding such charges recovered in violation of the Order dated September 8, The refunding should be made by MSEDCL in a lumpsum and at one go, and not via adjustments in future energy bills. 9..While on the subject, the Commission directs that MSEDCL should not collect any monies under any charge-item which is not defined under the Supply Code and/or the Order dated September 8, The prayers made in the Petition are as under: (i) (ii) (iii) The refund of ORC and such other head based charges at variance from MERC s Order dated September 8, 2006 as ordered by MERC on May 17, 2007 in Case No. 82 of 2006 should be complied immediately. We request Hon ble Commission to take necessary action in this matter. The directives towards the Refund of Meter Cost in MSEDCL Circular dated September 3, 2007 should be corrected. We request Hon ble Commission to take necessary action in this matter. MSEDCL has tried to mislead the consumers, the Hon ble Commission and may be the Hon ble Supreme Court also. Hence we request that the Hon ble Commission should take necessary action on MSEDCL as it may deem fit and proper. 3. In the Petition, it has been stated that despite writing several letters to MSEDCL and despite the fact that the Order dated May 17, 2007 required MSEDCL to submit compliance reports to the Commission, nothing has been forthcoming. 4. This case was heard on November 21, 2007 and January 29, Shri. Hogade submitted that on personal representations made at the Head Office of the MSEDCL, he was informed by the Managing Director; the Chief Engineer (Commercial), and the Chief Engineer (Distribution), that the refund of Outright Contribution Charges ( ORC ) has been stayed by the Hon ble Supreme Court vide order dated August 31, 2007 in Appeal No of However, the Petitioners are of the view that the said order did not stay refund of ORC and therefore, the said stand of MSEDCL is misleading. It is the contention of the Petitioners that since the said appeal relates to Service Line Charges ( SLC ), the stay order could not have been with regard to ORC. Page 2 of 2

3 5. Per contra, Shri. Ravi Prakash admitted that there is no doubt that issues connected with ORC are not subject matter before the Hon ble Supreme Court and no stay has been granted on the refund of ORC charges. However, the concept of the Outright Contribution Scheme and the recovery of ORC charges, so far as they overlap with SLC, is under examination before the Hon ble Supreme Court. Shri. Ravi Prakash submitted that MSEDCL have recovered charges under the ORC Scheme for provision of Dedicated Distribution Facilities (as defined under Regulation 2(g) of the Maharashtra Electricity Regulatory Commission (Electricity Supply Code and Other Conditions of Supply) Regulations, 2005 ( Supply Code Regulations ). It is submitted on behalf of MSEDCL that there is a probability that the Outright Contribution Scheme has been introduced to recover SLC in such cases where supply is being provided as Dedicated Distribution Facility. It is the contention of MSEDCL that the recovery of Service Line Charges for Dedicated Distribution Facility does not violate the Commission s Order dated September 8, 2006 in Case No. 70 of 2005 or the Order dated May 17, 2007 in Case No. 82 of It was submitted that the main difficulty in the introduction of the Outright Contribution Scheme has arisen from the usage of an inappropriate nomenclature, which is ORC. Had the term DDF-SLC or such other explanatory term been used in this regard, the present disputes may not have resulted. It was submitted that since neither the EA 2003 (and the Supply Code) nor the General Clauses Act, defines the word premises which has been used in the definition of Dedicated Distribution Facilities in the Supply Code, the failure to ascertain the legal definition of the term premises has led to an uncertainty in the applicability of ORC. It was submitted that in respect of an agricultural consumer, Dedicated Distribution Facilities cannot be provided as there cannot be agricultural premises for which Dedicated Distribution Facilities may be required. It was submitted that therefore, since there cannot be Dedicated Distribution Facilities for an agricultural consumer, MSEDCL have not levied ORC on any agricultural consumer as ORC is charged only in the case of Dedicated Distribution Facilities. The Commission had observed that the word premises has been defined under Section 2(51) of the EA 2003 so as to include any land, building or structure, and accordingly the term Dedicated Distribution Facilities as defined under the Supply Code Regulations should be interpreted. Shri. Ravi Prakash submitted that nevertheless, either rightly or wrongly, ORC has never been levied on agricultural consumers. 6. Per contra, it is submitted by Petitioners that ORC charges and ORC-P charges are not related with Service Line Charges. It was submitted that the contention of MSEDCL that ORC is actually the recovery of Service Line Charges for dedicated Distribution Facilities may be true for 2% to 3% out of the total cases in which ORC charges have been levied. Almost 95% of the total cases of levy of ORC charges show that ORC has been levied for ordinary supply, and not for the provision of Dedicated Distribution Facility. However, it is conceded by the Petitioners that refund of Service Line Charges which have been used for Dedicated Distribution Facilities is not pressed for under the present proceedings. 7. The Commission observed that MSEDCL should accurately understand the philosophy of Dedicated Distribution Facility, and accordingly consider the levy of ORC. On an enquiry made by the Commission as to whether MSEDCL, while levying ORC on Dedicated Distribution Facility, has levied rates approved under the approved Schedule of Changes, MSEDCL could not respond to the same. Counsel for MSEDCL submitted Page 3 of 3

4 that Dedicated Distribution Facility is a facility of supply wherein all parts of the related infrastructure (apart from service lines) is utilized solely for transmitting energy to the premises of the Dedicated Distribution Facility consumer. Illustratively, Counsel submitted that a consumer located 1 km from the nearest distribution set-up requisitioning supply shall be provided with Dedicated Distribution Facility. The entire infrastructure required for distribution of energy from the nearest distribution set-up to the premises of the applicant-consumer (save laying service-lines) shall be covered as charges under Dedicated Distribution Facility. The Commission had observed that the philosophy behind provision of Dedicated Distribution Facility and levy of ORC is that MSEDCL should not be allowed to charge for costs once borne in the laying of one Dedicated Distribution Facility infrastructure, and further, the infrastructure laid for providing a single Dedicated Distribution Facility consumer cannot be utilized to supply another consumer. It was observed that Dedicated Distribution Facility should be dedicated to the particular consumer requiring Dedicated Distribution Facility and cannot be shared with another consumer. 8. Counsel for MSEDCL submitted that the understanding of Dedicated Distribution Facility as observed by the Commission is not deducible from the definition under Regulation 2(g) of the Supply Code. It was submitted that the infrastructure laid from the nearest distribution set-up to the premises of the consumer requiring Dedicated Distribution Facility shall be extended to supply the neighbouring applicant-consumers. The Commission observed that in such a case, the provision of supply made available to the principal consumer ceases to be Dedicated Distribution Facility. MSEDCL could not explain as to why should the principal consumer solely bear the entire charges for extension of distribution facility (ORC), and neighbouring consumers, on subsequent requisition, and then be free to escape from the levy of ORC. 9. The Commission observed that consumers should not be burdened with infrastructure costs which are the liability of MSEDCL. It was further observed that if paucity of funds is the actual reason behind burdening consumers for distribution infrastructure, MSEDCL may seek the recovery of the same as an annual revenue requirement. The Commission further observed that the levy of ORC, ORC-P together with SLC from consumers may have been necessitated by MSEDCL before the coming into force of the EA However, in the EA 2003 regime where the Schedule of Charges for MSEDCL have been given regulatory approval, costs towards infrastructure (save and apart from what is required for provision of Dedicated Distribution Facilities) cannot be recovered from consumers directly, but through tariff approved as an annual revenue requirement. In the circumstances, the concept of Dedicated Distribution Facilities (in which a sole consumer is required to bear infrastructure costs) should be understood by MSEDCL with clarity and precision. It was observed that Dedicated Distribution Facilities should be provided on specific request by the consumer and not as per the direction of MSEDCL. Further, till a consumer requiring Dedicated Distribution Facilities surrenders his Dedicated Distribution Facilities, the same infrastructure cannot be shared by any other consumer. It was further observed that under the EA 2003 regime, the mode of recovery of infrastructure costs has been altered. As against the earlier practice of charging individual consumer for infrastructure costs (as prevalent under the ORC scheme), the recovery of infrastructure costs need to be made through general tariff (as part of the annual revenue requirement) in the EA 2003 regime. The Commission Page 4 of 4

5 further observed that considering the lack of sufficient funds, MSEDCL may require to raise working capital in cases where extension of infrastructure is required to provide supply. 10. The Commission further observed that while interpreting the concept of Dedicated Distribution Facilities, MSEDCL are required to meet the universal service obligations under the EA Examining the concerns of buildings, residential premises, hutment dwellers, who cannot afford dedicated supply, it was observed that MSEDCL are obliged to provide supply to them in terms of the universal service obligations. 11. Counsel for MSEDCL submitted that so far as the concept of Dedicated Distribution Facility is concerned, MSEDCL were under the impression that such a consumer requiring Dedicated Distribution Facility may not have dedicated supply forever, and that the neighbouring applicant-consumers may be provided supply through the same infrastructure. Counsel submitted that as per the observations of the Commission, it is clear that (i) Dedicated Distribution Facility is to be provided on specific request (on demand) and not otherwise; and (ii) Dedicated Distribution Facility shall remain as dedicated connection forever. 12. Having heard the parties and after considering the material placed on record, the Commission is of the view as under: (1) Since, MSEDCL do not have a clear conception of Dedicated Distribution Facility and the levy of ORC in the EA 2003 regime, it is necessary to provide guidance on the same and issue necessary directions as under: (i) At many places prospective consumers with an intention to get better quality of supply seek Dedicated Distribution Facility, though distribution network is available in nearby vicinity and it is possible to give supply by extending the existing network. Such consumers seeking Dedicated Distribution Facility will have to pay the cost incurred in providing the Dedicated Distribution Facility. As per Regulation 2(g) of the Supply Code: (g) Dedicated distribution facilities means such facilities, not including a serviceline, forming part of the distribution system of the Distribution Licensee which are clearly and solely dedicated to the supply of electricity to a single consumer or a group of consumers on the same premises or contiguous premises; It is clear from this defined term that mere extension or tapping of the existing line (LT or HT) cannot be treated as Dedicated Distribution Facility. Such extension or tapping being part of the common network will be affected due to any fault or outages on the common network and cannot be considered as a facility solely or clearly dedicated for giving supply. Thus, in the distribution system, Dedicated Distribution Facility means a separate distribution feeder or line emanating from a transformer or a substation or a switching station laid exclusively for giving supply to a consumer or a group of consumers. The transformer or the substation can also form a part of Dedicated Distribution Facility if it is provided exclusively for giving supply to these consumers Page 5 of 5

6 and no other consumer is fed from the said transformer/substation. Also, Dedicated Distribution Facility cannot be shared in future by other consumers. Such facilities cannot be imposed on a consumer. If the consumer does not seek Dedicated Distribution Facility, the licensee has to develop its own infrastructure to give electric supply within the period stipulated in Section 43 of the EA 2003 read with the Maharashtra Electricity Regulatory Commission (Standards of Performance of Distribution Licensees, Period for Giving Supply and Determination of Compensation) Regulations, In fact, the licensee should take advance action to develop the distribution network, based on the survey of growth pockets and demand projections so as to fulfill Universal Service Obligation as per the spirit envisaged in the EA 2003 and the Regulations made there under. It is also necessary to point out certain specific portions of the Supply Code Regulations dealing with Dedicated Distribution Facilities, as under: Where the Distribution Licensee has recovered the expenses referred to in Regulation above at any time after the notification of these Regulations, the consumer shall be entitled to the depreciated value of such dedicated distribution facilities, upon termination of the agreement or permanent discontinuance of supply in accordance with these Regulations: Provided that where such facilities have been provided by the consumer, then such facilities may be retained by the consumer upon termination of the agreement or permanent discontinuance of supply in accordance with these Regulations: Provided however that where the discontinuance of supply is on account of the consumer s failure to pay any sum under Section 56 of the Act, the Distribution Licensee, in addition to the rights available under that Section, shall be entitled to adjust such sums due from the depreciated value of facilities to which the consumer is entitled under this Regulation or to retain facilities of such depreciated value as to cover such sums due from such consumer to the Distribution Licensee. (2) In view of the above, the Commission hereby directs that: (i) MSEDCL should submit Schedule of Charges proposing rates on normative basis, for providing Dedicated Distribution Facilities within two weeks from the date of this order, in accordance with the requirement of Regulation of the Supply Code Regulations, which specifies as under: Where the provision of supply to an applicant entails works of installation of Dedicated Distribution Facilities, the Distribution Licensee shall be authorized to recover all expenses reasonably incurred on such works from the applicant, based on the schedule of charges approved by the Commission under Regulation 18. Page 6 of 6

7 Therefore, the MSEDCL are directed to levy charges for Dedicated Distribution Facilities based on the schedule of charges approved by the Commission under Regulation 18. The MSEDCL shall take immediate action in this regard. There shall be direction to the MSEDCL in terms hereof. (ii) (iii) Issue instructions to the field offices clarifying the meaning of the term Dedicated Distribution Facility and making it clear that the charges towards the same, as approved by the Commission, should be recovered only if the consumer precisely seeks such facilities. Should immediately prepare and submit CAPEX schemes for network expansion required for catering prospective consumers based on load survey and demand projection. The scheme should basically cover the equipment/material required to release anticipated new connections. (3) With reference to the prayers of the Petitioners to direct refund of ORC and such other head based charges, the Commission is of the view that taking into account the submissions of the MSEDCL that there have been many instances where there has been an overlap between ORC and SLC (for Dedicated Distribution Facilities) though different nomenclatures may have been used, hair splitting will not be possible in the present petition in this regard. It will not be appropriate to direct refund under this Order as the Order dated August 31, 2007 passed by the Hon ble Supreme Court in Appeal No of 2007 is still in force as the term SLC which is subject matter of appeal has purportedly been charged by MSEDCL herein using the nomenclature of ORC in many cases although they both are and pertain to SLC. In view of the admittedly overlapping nature of these charges with Service Line Charges which is sub-judice before the Hon ble Supreme Court, the Commission declines to order refund as stipulated under its Order dated May 17, It is for the Petitioners to make suitable prayers and agitate in the said proceedings in Appeal No of 2007 as the stay Order dated August 31, 2007 continues. This applies also in case of the third prayer in the present petition. (4) The issue raised by the Petitioners relating to refund of meter cost, has been raised by MSEDCL under its petition filed on December 19, 2007 seeking a review of the direction contained in the Order dated May 17, 2007 to refund the cost of meter, which stipulates as under: 5. The refunding should be made by MSEDCL in a lumpsum and at one go, and not via adjustments in future energy bills. Since, the aforesaid Petition filed by MSEDCL is pending disposal, the prayer made by the Petitioners herein cannot be disposed of at present as the issue at hand is a subject matter of the petition filed by MSEDCL. Page 7 of 7

8 With the above observations and necessary directions, the Petition in Case No. 56 of 2007 stands disposed of. Sd/- Sd/- Sd/- (S.B. Kulkarni) (A. Velayutham) (Dr. Pramod Deo) Member Member Chairman (P.B. Patil) Secretary, MERC Page 8 of 8