Shri P. Subrahmanyam, Chairman Shri Jayant Deo, Member Dr Pramod Deo, Member ORDER

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1 Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION 13 th floor, Centre No.1, World Trade Centre, Cuffe Parade, Mumbai Tel / , Fax No mercindia@mercindia.com Website: CASE No. 6 of 2003 In the matter of Permitting competition in Mumbai in electricity supply, applying concessional tariff by BSES & TPC and determination of rational and fair tariff. Shri P. Subrahmanyam, Chairman Shri Jayant Deo, Member Dr Pramod Deo, Member ORDER Dated: April 7, In his Petition dated with M/s. BSES Ltd. (BSES) (now Reliance Energy Ltd.), Tata Power Company Ltd. (TPC) and BEST Undertaking (BEST) as Respondents, Shri Shirish Vasudeo Deshpande s prayers to the Commission are as follows: a) To invoke powers under Section 22(d) of the ERC Act and end the existing monopoly of the BSES Ltd and the BEST and introduce healthy competition among the BEST, BSES Ltd and the Tata Power (or any other players for supply of power to consumers of Mumbai at competitive rates, within three months from the date of this Commission s Order, b) To invoke powers under Sec. 29(1) of the ERC Act and determine, suo motu, the tariff applicable for the electricity consumers of Mumbai (minimum and maximum rates) for the power to be supplied in the competitive scenario by the BEST, BSES and the Tata Power or any other player as the Commission may deem fit. c) Pending the final disposal of this petition, the Commission may be pleased to direct the BSES Ltd., to apply the 25% concessional tariff (which is applied to consumers from RNA Builder s housing projects) to ALL its residential consumers without any discrimination with immediate effect. The Petition was heard for admission on 5 th June 2003, when the parties also dealt with some substantive issues, and on after admission. F:\adn\COMMISSION ORDER\Order-Shirish Deshpande [6 of 2003].doc Page 1 of 13

2 2. In his Petition, Shri S.V. Deshpande has stated that he is an Advocate and is approaching the Commission as a consumer of BSES and also in the public interest as a consumer activist. The Petition states that he had seen newspaper advertisements by RNA Builders announcing a 25% discount/ rebate on the BSES electricity tariff for flats in their proposed housing project at Marol, Andheri (East) and some other places in the Mumbai Suburbs (annexed as Exhibits). Shri Deshpande wrote to BSES on asking whether the concessional tariff advertised by RNA Builders had been approved by the Commission, the eligibility norms for housing societies to avail of such tariff from BSES, whether other residential housing societies such as his own would be eligible for such tariff and, if not, the reasons. Inspite of reminder, BSES did not reply. 3. According to the Petition, Shri Deshpande also wrote to TPC Ltd. asking whether they had started to supply power directly to residential consumers, whether the tariff to them had been approved by the Commission, whether this was permitted by their licences, and whether they would supply power to the housing society in which he stays (currently provided by BSES). On , TPC stated that they had been supplying power to upcoming residential complexes for the last few years, and that they were licensed to supply electricity to all consumers for all purposes in their area. As regards Shri Deshpande's housing society, TPC stated that they would have to examine the availability of network, etc. However, they did not reveal their tariff to such consumers, but stated that it had been approved by the Govt. of Maharashtra (GoM) in 1998 (the month was not indicated). Shri Deshpande sought further details regarding TPC's tariff structure, and has enclosed the correspondence as Exhibits. 4. In this background, it is submitted in the Petition that the electricity consumers of Mumbai have been subject to a monopoly in supply by BEST, BSES and Maharashtra State Electricity Board (MSEB) in their respective license areas, and TPC have also been supplying power to BEST and BSES and some bulk consumers. Shri Deshpande has raised the following wider issues in this context: a) Whether the 25% concessional tariff of BSES announced by RNA Builders has been approved by the MERC as required under Section 29 of the Electricity Regulatory Commissions (ERC) Act, 1998; b) Whether BSES can deny this concessional tariff to their existing consumers; c) Does such concessional tariff to certain new housing complexes violate the constitutional right to equality of the Petitioner and other existing consumers of BSES; d) Whether Section 22(1)(d) of the ERC Act, 1998 mandates the Commission to end the monopoly of BSES and BEST in Mumbai, and the Commission is duty bound to promote healthy competition and ensure economy in the activities of the electricity industry in Mumbai; e) Whether the electricity consumers in Mumbai are entitled to healthy competition among BSES, BEST and TPC, all of whom are well-equipped to supply electricity at competitive rates; and f) Whether allowing the BEST and BSES monopoly for the existing consumers violates the mandate under Section 22(1)(d). 5. In his Petition, Shri Deshpande has also contended that the application by BSES of a concessional tariff (25% rebate to new housing complexes) is discriminatory vis-à-vis consumers like him and violates the rights of other consumers. It should, therefore, be applied to all their residential consumers. 6. The Petition also contends that the normal tariff of BSES is high and unreasonable compared to that of BEST. Thus, BSES consumers pay a far higher amount for the same electricity consumed in the same city. The TPC tariff is also lower than the normal tariff charged by BSES to residential consumers like him. It has become evident that, if the BSES monopoly over the Mumbai suburbs is F:\adn\COMMISSION ORDER\Order-Shirish Deshpande [6 of 2003].doc Page 2 of 13

3 diluted even to a limited extent, they are compelled to meet the competition by reducing their unreasonably high tariff. In this context, Shri Deshpande has drawn attention to Section 22(1)(d) of the ERC Act, which mandates the Commission to introduce competition. Considering TPC's assertion in their reply to him regarding the wide mandate of their licences, Shri Deshpande has questioned how the monopoly can be sustained in the light of the law. 7. Following the above, the Petition urges that the monopoly of BSES and BEST be ended, and that all the players operate in a manner which would provide uninterrupted power to Mumbai consumers at competitive rates. It urges the Commission, therefore, to determine suo moto a just, fair and rational tariff for Mumbai consumers under Section 29 of the ERC Act and allow all the players to compete in a healthy manner instead of the present situation of unjust and costly monopoly of BSES. 8. In their interim reply dated , BEST have stated that they are an Undertaking of the Mumbai Municipal Corporation engaged in electricity supply in Mumbai between Colaba to Sion and Mahim. Further, BEST and TPC have an understanding whereby TPC have agreed not to supply existing consumers of BEST in their area of operation. BEST have denied that there is any absolute monopoly of electricity supply by them or BSES within their respective licence areas inasmuch as TPC also operate in the BSES and BEST areas. Moreover, BEST, being a public utility, cannot be treated on par with the other licensees who are registered under the Indian Companies Act and who operate with the profit motive. BEST, on the other hand, are governed by the Mumbai Municipal Corporation Act. On this basis, BEST have argued that it would be unfair to place them as if on a level playing field with the other licensees. 9. As far as Shri Deshpande's plea for suo-moto determination of tariff by the Commission without waiting for any revision proposal is concerned, BEST have submitted that the Commission has no powers to do so, and that the Petitioner s interpretation of Section 29 is legally not tenable. BEST s present tariff is a pre-existing one fixed before the coming into force of the ERC Act, and cannot be reopened and determined afresh by the Commission on its own. The Commission's jurisdiction with regard to tariff can be exercised when the licensee approaches it for a revision and does not extend to disturbing the pre-existing tariff on its own. This position is substantiated from a plain reading of the provisions of the Act and the Commission's Regulations as well as its earlier case decisions. BEST's reply refers in this connection to the provisions of Section 22, 29(1), and 29(2) with regard to tariff fixation, and Section 58 under which Regulations are framed. BEST have submitted that, under the Act, the determination of the tariff by the Commission is to be done in accordance with the Regulations framed by it. Chapter IV of the MERC (Conduct of Business) Regulations deals with tariffs, and Regulation 72 indicates at what point the Commission would exercise its jurisdiction to determine the tariff of a utility. BEST have argued that Regulation 72 and subsequent Regulations make it clear that the Commission would exercise its jurisdiction only when a utility seeks to revise its pre-existing tariffs. This is clear from the distinction made in Regulation 72(1), which deals with generating companies (which BEST are not), and Regulation 72(2) which deals with utilities such as BEST. Under Regulation 72(1), a generating company is prohibited from charging any tariff without the Commission's approval. Thus, even if there is a pre-existing tariff, after the Regulations came into effect such tariff cannot be charged without the Commission's approval. In view of the practical difficulties this would create, the proviso to Section 72 allows generating companies to continue to charge the pre-existing tariff for such time as may be specified. Turning to Regulation 72(2), it is submitted by BEST in their reply that it provides that the pre-existing tariff of a utility (such as BEST) would continue, and there is a prohibition only on the fixing of a new tariff without the Commission's approval. The reply draws attention to the term "shall fix" in Regulation 72(2) as distinct from " shall charge" in Regulation 72(1). Thus, whereas a generating company cannot charge a tariff without the approval of the Commission (subject to the saving in the proviso), a utility is only prohibited from fixing such a tariff. It is, therefore, not required to be qualified by the proviso since the pre-existing F:\adn\COMMISSION ORDER\Order-Shirish Deshpande [6 of 2003].doc Page 3 of 13

4 tariff is not to be disturbed. The position is made even more clear since Regulation 78 requires "utilities who are required to get their tariff approved" to submit a tariff proposal. Regulation 82, which is linked to it, also refers to "the utilities concerned", i.e. those which intend to fix a new tariff. Thus, in essence, the Commission can exercise jurisdiction in the determination of tariff in the circumstances of BEST only when BEST themselves seek a revision. Moreover, the pre-existing tariff was fixed with due approval prior to the establishment of the Commission, and the Commission cannot act with regard to it retrospectively. 10. In their reply-dated , TPC have stated that, contrary to Shri Deshpande's assertion, they had provided their tariff details to him. In fact, Shri Deshpande had written an article in the Times of India comparing the various tariffs for residential consumers. While annexing a copy of the tariff, TPC have stated that their tariff for residential consumers has been in force since , the notification of which is in the public domain. Further, it is not correct to say that TPC are supplying power only to BSES, BEST and some bulk consumers, but are doing so to all categories of consumers and for all purposes. TPC have stated that they welcome healthy competition, and have cited the stand taken by them in their written submission dated in Case No. 14 of As far as review of TPC's tariff is concerned, their reply draws attention to the refusal of the Commission in the Petition of Marol Industries Association (Case No. 1 of 2000) to interfere with the tariff of BSES which was fixed before the Commission came into existence. TPC's own tariff was also duly fixed before that time. 11. In their reply dated , primarily to oppose admission, BSES have stated that the Petition proceeds on the incorrect assumption that TPC are licensed to supply to all consumers for all purposes in their area. The further contentions are contradictory inasmuch as if this were in fact the case, then competition already exists and the directions sought in the Petition are redundant. BSES are before the Commission in Case No. 14 of 2002 contending that TPC are not licensed to engage in retail supply of electricity, and decision in that case is awaited. In case the Commission decides in BSES' favour, TPC would be restrained from such supply and the relief sought in the Petition would accordingly not be capable of being entertained. BSES have also questioned the timing of the present Petition in the context of the pendency of Case No In their reply, BSES have also denied that any discount in the form of 25% concessional tariff has been offered by them to consumers such as the housing project of RNA Builders. The advertisements referred to are misleading and incorrect and have not been authorised by BSES. Moreover, apart from Case No. 14 of 2002, BSES had also filed Case No. 13 of 2002 seeking determination of TPC's tariff, and the present Petition should be adjourned pending disposal of both these cases. Because TPC have been luring away their retail consumers in violation of their licences, BSES had been constrained to offer certain consumers approached by TPC a tariff rate which would match theirs. TPC's tariff is deemed to have been approved by the Commission under Regulation 72 and, to the extent that BSES are offering it to such new consumers, their tariff rates may also be deemed to have been approved. This matching tariff is only marginally lower than the regular tariff offered by BSES. Even if it is assumed that this matching tariff is tantamount to a tariff reduction, it is permissible under Schedule VI to the Electricity (Supply) ( (E(S) ) Act. BSES have pointed out that, rather than any gain, this has resulted in a loss to them and is also a matter before the Commission in Case No. 1 of 2003 filed by TPC. Dealing parawise with the Petition, BSES have submitted that, as far as any monopoly exists in favour of BSES and BEST, BSES are restricted in terms of Schedule VI only to a reasonable return which, in the past few years, they have been unable to earn. As far as competition is concerned, BSES have submitted that the provisions of Section 22(1)(d) of the ERC Act have to be read with Section 22(2)(e) and Regulations 74(g) and (h) which guide tariff determination. F:\adn\COMMISSION ORDER\Order-Shirish Deshpande [6 of 2003].doc Page 4 of 13

5 13. BSES have denied that their tariff is high compared to that of BEST. On the contrary, their weighted average tariff rate is, in fact, lower. Finally, the prayer that MERC end "the existing monopoly of BSES and BEST" would require that the respective licenses would have to be amended by the Commission and fresh licenses issued, which would be outside its jurisdiction. 14. At the hearing held on , Shri Deshpande reiterated the sequence of events and correspondence set out in the Petition. He submitted that, u/s 22(1)(d) of the ERC Act, the Commission has a duty to promote competition in the electricity industry, whereas the reality is that there is a monopoly or near monopoly in Mumbai. In spite of the existence of several suppliers, in practice a consumer has no choice to switch over from his existing supplier to any other. With regard to the advertisement by RNA Builders, he submitted that it seems that it is only the new housing colonies to whom some leeway is given by BSES for negotiations regarding electricity rates. 15. Shri Deshpande submitted that it is in this background that he had raised the issues in this Petition. They include whether or not the concessional tariff BSES has offered to RNA Builders can be made applicable to all others, whether a change in the existing tariff of any supplier requires the prior approval of the Commission u/s 29 of the ERC Act, and whether BSES have obtained such approval. Shri Deshpande reiterated that, under the ERC Act, the Commission s approval is necessary, not only for any increase in tariff but for any revision up or down effected subsequent to its establishment. 16. Shri Deshpande pointed out that, in their reply opposing admission, BSES have on the one hand stated that the advertisement of RNA Builders was misleading and incorrect, while on the other hand they have admitted giving concessions against the tariff applicable to some consumers. Shri Deshpande submitted that he was not arguing against the grant of a concessional tariff, but only that this must be done only after following due process of law and spelling out the rationale, i.e., after due examination by the Commission and so that no injustice is done to existing consumers. No such approval has been given by the Commission as required under Section 29, and action must therefore be considered against BSES for extending such concessional tariff to RNA Builders and not to other consumers. The present practice constitutes discrimination which is not rational. Shri Deshpande submitted that BSES' argument that their tariff to such new consumers was deemed to be approved under Regulation 72 inasmuch as it matched TPC's pre-existing tariff was not tenable. The concessional tariff applied selectively to some housing colonies constitutes unfair discrimination against existing consumers. The matter has to be first brought before the Commission, and only then can a concessional tariff be applied. 17. Shri Deshpande stated that, in their reply, BSES have merely said that they have been compelled to resort to this practice because of predatory pricing and poaching by TPC of their retail consumers in violation of their licences, which matter is pending before the Commission. BSES have argued that, in case the Commission finds in their favour, then TPC would be restrained from effecting retail supply of electricity and, accordingly, the reliefs sought in the present Petition would not be capable of being entertained. Shri Deshpande contended that this stand was absurd. He submitted that he is taking recourse to Section 22(1)(d). It is not his case that TPC alone should be allowed to supply power. Thus, the interpretation of the terms of TPC s licenses does not affect his Petition. His Petition raises a broader issue, namely, that it is the Commission's statutory obligation to introduce competition, regardless of whether it is concerns TPC, BSES, BEST or even MSEB. Even if it finds that the TPC s licenses do not permit retail supply, Section 22(1)(d) does not prohibit the Commission from considering a Petition which pleads for introduction of competition. Even with the limited competition of the type cited by him, the suppliers have been forced to bring down their rates. Therefore, if fair and healthy competition is allowed, the consumers would definitely benefit, and the law mandated such competition. F:\adn\COMMISSION ORDER\Order-Shirish Deshpande [6 of 2003].doc Page 5 of 13

6 18. Turning to BEST's reply, particularly with regard to their relationship with TPC, Shri Deshpande accepted that BEST had done good work, and he had no grievance on that account on behalf of consumers. However, no monopoly can be justified on that ground. He questioned as to how there could be an understanding between two suppliers (BEST and TPC) to carve out areas between themselves so as to establish a separate monopoly over each. This is neither in the terms and conditions of their licenses, nor is it mandated by law. He questioned whether such an "understanding" can be allowed to go unchallenged, particularly in view of the clear provisions of Section 22(1)(d). 19. In response to the Commission s query as to the manner in which it could be expected to promote competition, keeping in view issues such as the investment required on parallel infrastructure, etc., and the consequent impact on consumers, Shri Deshpande submitted that it would clearly be an elaborate exercise and required expert examination. If, at the end, it is found that a situation of near monopoly is beneficial to consumers in terms of efficiency, costs and quality of services, so be it. However, it would then be a considered, judicious decision. Generally, competition promotes efficiency, better quality, rates, accountability and transparency, but there may be other valid considerations because of which an alternative model may be more appropriate in the given scenario. However, such a conclusion can be drawn only after due consideration by the Commission. 20. Elaborating on his affidavit in reply, and while agreeing that admission is within the Commission's discretion, Counsel for BSES pointed out that the Petition concerns a discriminatory tariff, which is already the subject of consideration by the Commission in Petition No. 1 of 2003 filed by TPC. The Petitioner s second point is that he should have a choice of party from whom he can buy power. That is also indirectly the subject matter of another Petition before the Commission, i.e. Case No. 14 of 2002 filed by BSES. 21. Counsel for TPC submitted that they are in favour of competition. With regard to tariff revision, in the other matter TPC had made a point regarding the issue of jurisdiction. 22. Smt. Salvi of BEST submitted that, the Petition was ostensibly provoked by the advertisement of RNA Builders that they would charge 25% less than the BSES tariff. In the context of the reply filed by BSES denying this, RNA Builders are a necessary party so that they can say why they had made such a statement. She submitted that the Petition proceeds on the basis that there has been a reduction of 25%, and her point was that this is not an issue of tariff. 23. The Petition contends that BEST s monopoly should be ended, and that the Commission should invoke powers under Section 22(1)(d) and suo motu proceed for tariff determination in respect of BEST, BSES and TPC. Smt Salvi submitted that, BEST being a distribution licensee, the Commission does not have powers to suo motu decide the tariff in their respect, their tariff being preexisting and in accordance with law. Regulation 84 provides that there should be extraordinary reasons for the Commission to suo motu undertake revision of the tariff of the distributing licensee. The Commission observed that, in that case, BEST should file an affidavit detailing their Annual Revenue Requirement (ARR) for , and show that the tariffs are in accordance with the requirements of Section 29 of the ERC Act. The Commission would take a view in the matter and, at that time, if it is BEST s case that there are no exceptional circumstances to warrant the Commission looking into the matter further, they can argue for exemption. Smt Salvi responded that BEST are a distributing licensee and not a generating company, and that a distinction has been drawn in Regulation 72 between the two. Therefore, to that extent, BEST would oppose the admission of the Petition unless and until BEST wanted to approach the Commission under Regulation 72. F:\adn\COMMISSION ORDER\Order-Shirish Deshpande [6 of 2003].doc Page 6 of 13

7 24. Counsel for TPC submitted that, as far as reopening of their tariff suo motu is concerned, the jurisdictional objection has been set out in their reply. He submitted that he had referred to the earlier case of MIDC Marol Association in the context of jurisdiction to reopen the tariff suo motu. The Commission observed that TPC should also submit to the Commission their ARR for , and state how their tariff meets the requirements of Section Shri Deshpande responded that, according to Regulation 24, the Commission may initiate any proceedings suo motu or on a Petition filed by any affected person. The word proceedings includes proceedings of any nature that the Commission may hold in discharge of its functions under the Act. Thus, even the determination of the tariff is a process that falls within the definition of proceedings. Therefore, it covers suo motu proceedings also, for which the Commission is empowered. 26. Subsequently, on , Shri Deshpande submitted a rejoinder to the replies of the Respondents since they not only addressed of admission but also several substantive points, and since the Petition had been admitted. With regard to BSES' contention regarding the nature of the tariff charged to consumers such as RNA Builders, Shri Deshpande pointed out that, nevertheless, BSES have admitted that they have indeed offered lower rates to some new consumers. Regardless of the reasons, BSES have, therefore, admittedly discriminated between new and old consumers. Moreover, they have not obtained the Commission's approval as required under the ERC Act and Regulations and are, therefore, liable for action under Section Shri Deshpande submitted that the other issues that arise from the Respondents' replies include whether, under Regulations 24 and 84, the Commission can suo-moto review BSES higher tariff for old consumers, particularly in the light of the tariff charged by TPC and inspite of making adequate profits; whether the Commission can apply the lower concessional tariff to all BSES' consumers in the same category; whether the Commission can decline to intervene when a licensee is charging a discriminatory tariff to various consumers in the same class or category; whether the Commission can fix a ceiling tariff and allow both TPC and BSES to compete within that ceiling; and whether it would not be in the consumers interest to allow TPC to continue to supply power to interested consumers, particularly in the background of the new Electricity Act (EA), In this context, Shri Deshpande has furnished a chart showing the tariffs of BEST, TPC and BSES for domestic consumers to show, inter alia, that TPC's tariff is lower than that of BSES. Shri Deshpande also sought an order directing BSES to charge the lower tariff rate for all consumers without discrimination, citing Article 14 of the Constitution, pending final disposal of the case. 28. In their further reply-dated , BEST have contended that, with the coming into force of the EA 2003, the Petition has become infructuous, having been filed under the ERC Act. Without prejudice to this contention, BEST have submitted that there is no ground or basis, considering the averments and examples given in the Petition, for any orders to be passed in respect of BEST, inasmuch as it concerns the tariff of BSES and TPC. In fact, the Petition proceeds on the basis that the BEST tariff is the most reasonable. Therefore, the Commission ought not to undertake determination of the BEST tariff at this stage. 29. BEST have also elaborated on the arguments made in their initial reply and also at the hearing held on , that their current tariff (fixed in 1997) pre-dated the ERC Act and the Commission's Regulations. As such, it is expressly saved by the Regulations, and the Commission's jurisdiction to determine tariff can only be exercised when BEST themselves seek to revise their tariff. This is clear from the distinction made in Regulation 72(1) dealing with generating companies and Regulation 72(2), which deals with utilities (such as BEST). The import of different provisions and the wording of Regulations 72(1) and 72(2), read with the proviso and Regulations 78 and 82 has been further elaborated in their reply along the lines set out in their original submission. F:\adn\COMMISSION ORDER\Order-Shirish Deshpande [6 of 2003].doc Page 7 of 13

8 30. Further, BEST have submitted that suo-moto review is governed by Regulation 84, which provides that the Commission "on being satisfied that there is a need to review the tariff and terms and conditions of any utility, shall, on its own, initiate the process of revision in accordance with the procedure as may be prescribed. BEST have contended that Regulation 84 is inconsistent with the provisions of EA, 2003, which provides that an application for fixation of tariff is to be submitted and, therefore, no longer survives. In any event, Regulation 84 confers an extraordinary power as a departure from the rule that tariff determination will follow only when a utility desires to revise its tariff. Therefore, in the absence of an application from the utility, a strong case would have to be made out for review. No such case has been advanced in the Petition. On the contrary, the BEST tariff has been stated to be reasonable. Further, the Commission has not framed any Regulations with regard to the terms and conditions for fixation of tariff as required under Section 29 of the ERC Act. BEST have submitted that it has also not been claimed that the pre-existing tariff was fixed contrary to law or the BEST licence. BEST's reply sets out the legal provisions which govern their tariff, being a local authority, with the approval of the Municipal Corporation and in accordance with Section 23 of the IE Act (Sections 57 and 57A and Schedule VI of E(S) Act not being applicable to them). BEST have pointed out that, in fact, the Commission in its Order dated in Case No. 2 of 2002 held the pre-existing BEST tariff to be legally valid and approved. In that case also, the Petitioner was attempting to have his own tariff reduced, and it was dismissed. In the present case also, the tariff has been in force for 5 years and has not been successfully challenged by anyone. Further, in its Order dated in Case No. 1 of 2000 (Marol Industries Association) also, the Commission held that it had no jurisdiction to re-open a pre-existing tariff. The same yardstick must be applied to the present case. 31. BEST have also contended that Shri Deshpande has no locus to seek revision of their tariff in the facts and circumstances of the case. He is neither a consumer of BEST, nor has he made out any grievance against them. Rather than being in the public interest, the Petitioner seeks to derive the benefit of a lower tariff for himself. Such interest is not sufficient to justify the Commission undertaking the complex exercise of tariff determination of BEST. 32. With regard to Shri Deshpande s reference to Section 22(1)(d) of the ERC Act, it enjoins the Commission "to promote competition" and not to impose it. Thus, it is not open for the Commission on the Petition of a third party to force one licensee to effect supply in the area of another licensee on this ground unless the licensee itself approaches it. Further, such competition must also be legally permissible, and EA, 2003 contains certain provisions for safeguarding the interests of local authorities such as BEST, who are also a licensee. Finally, there is nothing in Section 22(1)(d) which prohibits a monopoly situation considering the other provisions of law. Such an incorrect reading would require the Commission to ensure that in no area would there be only a single supplier of electricity, which would be absurd and result in a chaotic situation. 33. BEST have also submitted in their reply that the matters of competition and determination of tariff are separate and distinct from each other, and linking them is mis-placed. Even if there is no competition, the tariff may be determined by the Commission at the appropriate time and as permitted by law, even in the absence of competition. As regards the Commission's directive at the last hearing that BEST should submit their ARR to show that there are no exceptional circumstances requiring fresh determination of their tariff, BEST have reiterated their arguments that the Petitioner himself has found their tariff to be reasonable, and that there is nothing in the Petition to show any need to act on their tariff. Moreover, the term `ARR is nowhere used by BEST while preparing their accounts. However, on a general understanding of the term, the ARR has been furnished as Exhibit-C to their additional affidavit in reply, which makes it clear that there are no circumstances for determination of BEST tariff at this stage. As regards BEST complying with Section 29 of the ERC Act, the Regulations setting out the terms and conditions for fixation of tariff under that Section have yet to be F:\adn\COMMISSION ORDER\Order-Shirish Deshpande [6 of 2003].doc Page 8 of 13

9 framed by the Commission, and Section 29 only sets out the general principles and guidelines for fixation. 34. In their additional affidavit in reply dated , BSES have, while reiterating their earlier contentions, pointed out that, after the Petition was filed, the new EA, 2003 has come into force from , and the provisions of Section 22 to 29 of the ERC Act stand repealed in terms of Section 185. Thus, the Petition no longer survives and should be rejected. 35. BSES have submitted that, in any event, pursuant to the directions given in the present as well as certain other proceedings, BSES have filed their Application for approval of ARR on , and the Commission has also directed TPC to do so by Therefore, the tariff of the various utilities will stand determined. As a result, no further reliefs need be granted to the Petitioner. Moreover, the Commission has already set in motion the process for encouraging competition in terms of Section 42 of EA, 2003 through the appointment of consultants for the framing of relevant Regulations. Finally, with regard to permitting TPC to compete in retail supply of energy with BSES, the Commission has now passed Orders in Case No. 14 of 2002 on , regarding which appeals have been filed by both BSES and TPC in the High Court. 36. At the hearing held on , Shri Deshpande referred to the argument that the Petition has become infructuous with the coming into force of the EA, 2003 since it was based on Sections 22 and 29 of the erstwhile ERC Act, and that the purpose of the Petition, viz. to introduce competition, is being served since the Commission has separately initiated a process. However, his grievance that BSES has introduced a tariff which discriminates against certain old consumers in violation of the statutory provisions and without approval has not been resolved. Moreover, even though the new Act has come into force, the Commission continues. The new Act also provides that, for one year, the provisions of the old Act will continue as far as tariff is concerned. 37. Shri Deshpande cited the 1st proviso to Section14 and the proviso to Section 61 of EA, 2003 to support his contentions. As far as BEST is concerned, he had no grievance against them, but when there is a need for introduction of competition, all the players should be before the Commission. He had raised the matter of the understanding between TPC and BEST since it had been mentioned in their affidavit, and it was not his main grievance as such. Shri Deshpande also reiterated the prayers and arguments contained in his Petition and elaborated upon at the last hearing. 38. Shri Deshpande pointed out that, under the proviso to Section 62(1)(d) of EA, 2003, the Commission could fix a ceiling tariff within which the players could compete rather than going through the ARR and tariff proposals of each. This would introduce competition and consumers would benefit. Since, technically, the Petition was under the ERC Act, he might be required to amend it suitably, if necessary. 39. Shri Deshpande submitted that, although BSES had recently filed their ARR/ tariff proposal and the other licensees have also been asked to do so, he had also drawn attention to the violation of approved tariff by BSES, which is actionable under Sections 44 and 45 of EA, 2003 and the earlier laws. This violation may have benefited some consumers, but it amounts to wrongful discrimination affecting certain other consumers. 40. Referring to the Commission's Order dated in Case No. 14 of 2002, which restrains TPC from retail supply to certain categories of consumers in the BSES area while holding that their licenses permit them to do so, Shri Deshpande submitted that the Commission should reconsider the restraint imposed considering the provisions of EA, 2003 so as to allow TPC and BSES to compete in the Mumbai suburbs till the open access system is introduced. F:\adn\COMMISSION ORDER\Order-Shirish Deshpande [6 of 2003].doc Page 9 of 13

10 41. As far as the violation of the approved tariff is concerned, Shri Deshpande submitted that either BSES could be stopped from charging the concessional tariff, which would jeopardize the interests of the concerned consumers, or direct that the concessional tariff should be extended to all consumers pending tariff determination, and place the financial burden on BSES. 42. To the Commission's observation that the level of cross subsidy varied as between the licensees, in the context of competition, and that the tariff determined for MSEB by the Commission is substantially higher than the tariff of other licensees in Mumbai, which has its own implications for the future, Shri Deshpande submitted that, although the process of tariff determination is linked with the level of cross subsidy, such determination has to take into account both commercial and social aspects as well as efficiency and economy of operation. Thus, the law provides that cross subsidy need not be eliminated overnight but gradually so as not to give a tariff shock to consumers. Such a gradual process is left to the Commission to decide after hearing all stakeholders. The process of tariff determination, involving consideration of all these issues, would also indicate whether or not competition of different types would benefit the consumer and various competing considerations would have to be reconciled. To the Commission s observation that competition between all the players has to be on an equal footing considering the extent of distribution network, the statutory provisions regarding open access, etc., Shri Deshpande agreed that it would be a complex process, and an important function of the Commission would be to create a level playing field and see to it that all players operate in a healthy manner, unlike at present. He submitted that, although the law expected the tariff and other matters to be regulated by the Commission, the licensees have bypassed it and that is why he had approached the Commission. It is in this context also that he urged the Commission to reconsider the restraint put on TPC. 43. Counsel for BSES reiterated his contention that the Petition does not survive and has become infructuous since the substantive prayers have already been granted. With regard to the other prayer that 25% concession should be granted to all BSES consumers, Counsel stated that he had already dealt with it earlier. However, Shri Deshpande is now asking that action be taken against BSES under Sections 44 and 45 of the erstwhile ERC Act, which is not within the scope of the Petition. The Commission observed that Shri Deshpande had made it clear that penal action is not his primary intention. With regard to the restraint imposed on TPC through Case No.14 of 2002, Counsel for BSES submitted that it would not be in the interest of any party for that Order to be reviewed, and even if it is to be reopened that has to be done through separate proceedings where all parties would be heard. Moreover, the Commission s Order is subject to appeals pending in the High Court. 44. Counsel for TPC mentioned that in the course of the proceedings the Commission had directed them to file their ARR in the context of tariff determination, and confirmed that TPC would be doing so by He suggested that Shri Deshpande s Petition could be taken up along with the proceedings in respect of the ARRs of TPC and BSES. Otherwise, he had already submitted TPC s objections and response to the Petition and had nothing to add. 45 Counsel for BEST reiterated his earlier oral arguments and written submissions, clarifying again that BEST s pre-existing tariff had been fixed under statutory provisions different from those applicable to TPC and BSES. He was reminded that the Commission had asked BEST to submit details of their ARR, justifying their tariff with regard to various factors such as cost of supply, level of cross subsidy, etc and show how it satisfies the legal provisions. 46 In his Application dated , Shri Kewal Semlani, a consumer of BSES and BEST at different locations, had sought to be joined as intervenor in the Petition, giving details of his background and interest. The Commission had permitted him to do so. At the hearing, Shri Semlani submitted that some consumers are already benefiting from the lower tariff offered by BSES. He F:\adn\COMMISSION ORDER\Order-Shirish Deshpande [6 of 2003].doc Page 10 of 13

11 agreed with Shri Deshpande that it should be extended to all consumers, but that should not stop existing concessions from being permitted to continue till then so that at least some sections of consumers benefit. 47. Shri Deshpande s prayers and arguments and the responses of the Respondent utilities / licensees have been set out extensively in the foregoing paragraphs. By citing, inter alia, instances of concessions in tariff given to certain consumers by BSES and also the considerable disparities in tariff charged by different licensees operating in Mumbai, Shri Deshpande has essentially sought to raise the important matter of moving towards a competitive environment, and an examination of the issues involved to see whether such movement towards competition in the light of overlapping license areas and parallel distribution would sub-serve consumer interest as well as efficiency. As a part of this process, he has urged that the Commission exercise its mandate through a transparent process involving all stake holders to review and determine afresh the tariff of the utilities / licensees concerned. The Commission notes that, apart from BSES, TPC and BEST, who have been impleaded by Shri Deshpande as Respondents, MSEB also supply electricity to certain parts of Mumbai. Scrutiny of the ARR and the tariff determination process in respect of MSEB has been conducted by the Commission on three occasions so far, the last such determination having been finalised through its operative Order dated (followed by the issue of a detailed tariff order on ). In the course of the present and other proceedings, TPC and BSES had also been asked to file their ARR, FCA and tariff proposals. BSES responded to these directions by their ARR and tariff filing in September, 2003 and TPC in the following month. Indeed, in both cases, the process of public hearing has been completed in March, Thus, the tariff determination process of three out of the four suppliers of electricity in Mumbai has either been completed, or has been set in motion and is at an advanced stage of consideration. Obviously, as Shri Deshpande recognizes, this ongoing process of tariff determination in respect of TPC and BSES would also involve consideration of a range of issues in the light of the provisions of EA, To that extent, therefore, the intention of Shri Deshpande in filing the Petition has been met. 48. Shri Deshpande has also referred to the restraint imposed on TPC in providing electricity to certain categories of consumers who are also in the BSES area of supply through its Order dated in Case No. 14 of 2002, even though the Commission has held that such supply was not in violation of the TPC licenses. In that Order, the Commission has spelt out in detail its rationale which includes, inter alia, issues of which Shri Deshpande has shown his awareness, such as the need for a level playing field in terms of rights and obligations and other aspects. Both BSES and TPC had also been directed to take certain steps to facilitate a movement towards genuine competition in the peculiar circumstances of Mumbai, with overlapping license areas and parallel distribution. Any challenge to the Commission s Order would have to be either by way of a separate Review Petition meeting the test of Regulation 87, or by way of an appeal (which both TPC and BSES have filed. As such, the question of any modification in that Order through the present proceedings does not arise. 49. Shri Deshpande has stated that, although his Petition raises wider issues, it was provoked by concessions in tariff granted by BSES to certain consumers without the approval of the Commission and which discriminate between consumers. He has suggested that, pending consideration of the tariff of the concerned licensees, such discrimination be stopped by extending the same concessions to all BSES consumers. The matter of such rebates or discounts granted by BSES has already been considered by the Commission in Case No.1 of 2003 on a Petition filed by TPC. Under its Order dated in that case, the Commission has concluded that: F:\adn\COMMISSION ORDER\Order-Shirish Deshpande [6 of 2003].doc Page 11 of 13

12 The impugned rebates or discounts constitute a departure from the pre-existing tariff without the Commission s approval. In their prayers, TPC have sought that BSES be directed to recover the amounts from the consumers to the extent of such rebates. At the same time, both the ERC Act and the EA, 2003 explicitly mandate the safeguarding of the interests of consumers. The Schedule VI adjustment mechanism allowed a downward reduction of charges, albeit in a certain manner in stipulated circumstances. Keeping these factors in view, the burden of past rebates and those, if any, extending uptil fresh determination of the tariff by the Commission will have to be borne entirely by BSES, leaving the matter of how to compensate themselves for any loss for BSES to determine. As mentioned earlier, the ARR and tariff proposal of BSES is also under the Commission s consideration. Thus, the Commission has dealt with this aspect of Shri Deshpande s submission separately. 50. BEST had also been asked in the course of these proceedings to submit their ARR and show how their tariffs satisfy the statutory provisions. On the one hand, BEST have argued at length regarding how their pre-existing tariff, which was duly fixed before the establishment of the Commission and even prior to the coming into force of the ERC Act, was protected by the provisions of the Act read with the Commission s Conduct of Business Regulations. BEST have argued further that, in view of the provisions of the Regulations cited by them, the scope of the Commission to review their tariff suo motu is constrained unless it can be shown that there are strong grounds to do so. According to BEST, no such grounds have been set out in the Petition which, on the contrary, states that the BEST tariff is reasonable in comparison to those of the other Mumbai licensees. On the other hand, BEST also claim that they have already submitted their ARR as Exhibit `C to their affidavit in reply dated Thus, quite apart from taking a contradictory stand, BEST have sought to put the provisions of Regulation 72 and other related Regulations in a different light. Clearly, the import of these Regulations is to allow pre-existing tariffs to continue until they are revised either upon an application by the utilities / licensees or, importantly, at the initiative of the Commission itself whose jurisdiction over tariff under both the ERC Act and the EA 2003 is exclusive and wide ranging, and is also explicitly supported by the powers of suo motu review. The single page statement of total revenue expenditure, capital expenditure, repayment of loans, and revenue income (actual and projected) at Exhibit-C is merely a bland statement setting out of aggregates without the details, supporting material, explanation or justification to enable any kind of analysis. It does not also show how the tariff structure is related to it, or meets the statutory provisions. Section 64 of EA, 2003 only sets out the procedure for a licensee applying for determination of tariff. When read with Sections 43, 61, 62 and 86, which deal with tariffs and charges and the functions of the Commission, Section 64 can by no means be construed as implying that the tariff can be reviewed by the Commission only upon a licensee s application as contended by BEST. BEST s reference to the Commission s Order dated in the Marol Industries Association case is misplaced, inasmuch as the view taken by the Commission then (and even now) was that it could not alter a pre-existing tariff with retrospective effect. Moreover, in Case No.13 of 2002 (cited by BSES), the Commission had decided to examine the Fuel Adjustment Charges of TPC and BSES (which are very much a part of tariff). The Commission s Order dated in Case No. 2 of 2002 mentioned by BEST dealt essentially with the matter of a change in applicable tariff category. With regard to the protection given to local authorities such as BEST under EA, 2003, this is primarily in terms of restrictions on open access to their facilities, and modalities with regard to other businesses under Section 51. F:\adn\COMMISSION ORDER\Order-Shirish Deshpande [6 of 2003].doc Page 12 of 13

13 51. BEST are, therefore, directed to submit their ARR for the year within a period of two months on affidavit, along with supporting material and justification relating it to their tariff (and/or proposed tariff in case they seek a change) and the provisions of law. BEST may take guidance from the ARR / tariff documents which were required to be thrown open to the public for comments in the course of the last MSEB tariff determination exercise and the ongoing BSES and TPC filings (to the extent that they are relevant, since BEST have no generating capacity of their own). The Commission disposes of Shri Deshpande s Petition with the above directions and observations. Sd/- Sd/- Sd/- (Jayant Deo) (Dr Pramod Deo) (P. Subrahmanyam) Member Member Chairman, MERC Sd/- (A.M. Khan) Secretary, MERC F:\adn\COMMISSION ORDER\Order-Shirish Deshpande [6 of 2003].doc Page 13 of 13