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Principles Of Tariff Fixation Act According To Electricity Act-2003

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Published on: November 9, 2010

In modern India which is moving fast to claim its rightful place amongst the nations of the world, the creation of the vast industrial base is indispensable and the power projects without which such a base cannot be created are bound to assume foremost importance.

Power is always a basic human need. It is the critical infrastructure on which modern economic activity is fully dependent. Only 55% households in India have access to electricity most of those who have access do not get uninterrupted reliable supply. The industry in India has among the highest tariffs in the world and is not assured of the quality of supply. In this era of globalization, it is essential that electricity of good qualities provided at reasonable rates for economic activity so that competitiveness increases. Being internationally competitive is now essential for achieving the vision of 8% Gross Domestic Product (GDP) growth per annum, employment generation and poverty alleviation.

It is in this context that the Electricity Act, 2003, seeks to bring about a qualitative transformation of the electricity sector through a new paradigm. The Act seeks to create a liberal framework of development for the power sector by distancing government from regulation. The pattern of electricity supply organizations in India has been gradually changing during the past 25-30 years, largely due to the growing interest of the state in the program of power development. In the United Kingdom also, the Electricity Laws have changed rapidly, particularly since 1946 to suit new demands and to ensure high efficiencies through centralized generation and reduction of production costs. Hence, it replaces the three existing legislations, namely, Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948 and the Electricity Regulatory Commission Act, 1998.

Under the Constitution of India, electricity is a ‘concurrent’ subject. Hence, the Central as well as the State governments have authority to enact legislation in regard to the power sector. The Central Government generally provides the policy framework and the State governments focus on specific issues.

Electricity (from the Greek word ????????, (elektron), meaning amber, and finally from New Latin ?lectricus, “amber-like”) is a general term that encompasses a variety of phenomena resulting from the presence and flow of electric charge. These include many easily recognizable phenomena such as lightning and static electricity, but in addition, less familiar concepts such as the electromagnetic field and electromagnetic induction. In general usage, the word ‘electricity’ is adequate to refer to a number of physical effects. However, in scientific usage, the term is vague.

Electricity is the flow of electrical power or charge. The physical phenomena arising from the behavior of electrons and protons that is caused by the attraction of particles with opposite charges and the repulsion of particles with the same charge. It is a secondary energy source which means that we get it from the conversion of other sources of energy, like coal, natural gas, oil, nuclear power and other natural sources, which are called primary sources. The energy sources we use to make electricity can be renewable or non-renewable, but electricity itself is neither renewable nor non-renewable.

Electricity is a basic part of nature and it is one of our most widely used forms of energy. Many cities and towns were built alongside waterfalls (a primary source of mechanical energy) that turned water wheels to perform work. Before electricity generation began over 100 years ago, houses were lit with kerosene lamps, food was cooled in iceboxes, and rooms were warmed by wood-burning or coal-burning stoves. Beginning with Benjamin Franklin’s experiment with a kite one stormy night in Philadelphia, the principles of electricity gradually became understood. Thomas Alva Edison (February 11, 1847 – October 18, 1931) was an American inventor and businessman who developed many devices that greatly influenced life around the world, including the phonograph and the long-lasting, practical electric light bulb. Prior to 1879, direct current (DC) electricity had been used in arc lights for outdoor lighting. In the late-1800s, Nikola Tesla pioneered the generation, transmission, and use of alternating current (AC) electricity, which can be transmitted over much greater distances than direct current. Tesla’s inventions used electricity to bring indoor lighting to our homes and to power industrial machines.

Despite its great importance in our daily lives, most of us rarely stop to think what life would be like without electricity. Yet like air and water, we tend to take electricity for granted. Everyday, we use electricity to do many jobs for us – from lighting and heating/cooling our homes, to powering our televisions and computers. Electricity is a controllable and convenient form of energy used in the applications of heat, light and power.

Although, the pace of electrical development in this country has been some what slow as compared to that in other advanced countries it has, nevertheless, become quite important. The need for a proper set-up for electricity administration in India was felt even in pre-independence period. The National Congress Party had in 1938 appointed the National Planning Committee for making recommendations in this behalf. Due to the outbreak of Second World War, however not much head way could be made in this direction. In 1945, this Committee met again and made certain broad recommendations. In order to give impetus to power development program, the committee recommended that the industry should be run on commercial lines and the responsibility for promoting coordinated power development in the states should be handed over to semi-autonomous bodies with adequate powers. It further suggested that the state governments should lay down principles for the regulation of electricity undertakings and broad policies for power development schemes, the execution of the schemes, however, remaining in the hands of the proposed organizations.

An electric power system is a group of generation, transmission, distribution, communication, and other facilities that are physically connected. The flow of electricity with the system is maintained and controlled by dispatch centers. It is the responsibility of the dispatch center to match the supply of electricity with the demand. In order to carry out its responsibilities, the dispatch center is authorized to buy and sell electricity based on system requirements. The interconnected utilities within each power grid coordinate operations and may buy and sell power among them. The bulk power system makes it possible for utilities to engage in wholesale (for resale) electric power trade. Wholesale trade has historically played an important role, allowing utilities to reduce power costs, increase power supply options, and improve reliability. Authority for those transactions has been pre-approved under interconnection agreements signed by all the electric utilities physically interconnected or with coordination agreements among utilities that are not connected.

The magnitude of power development program contemplated in the Fourth Five-year Plan serves to indicate the extent of achievements by our country in this field and the vast scope of development which still lies ahead of it. It is now being gradually realized that without a sound base of power development program no modern country can hope to make headway in its industrial program and without an industrial base a country would find it difficult to survive in international markets.

The first Indian Electricity Act, enacted in 1903, was a somewhat tentative measure. The Indian Electricity Act, 1910, which replaced it, has, with numerous amendments, stood the test of time.

The Indian Electricity Act, 1903 (3 of 1903), was repealed leaving two conditions behind:

1. Provided that every application for a license made and every license granted under the said Act shall be deemed to have been made and granted under this Act;

2. Nothing in this Act shall be deemed to affect the terms of any license which was granted, or of any agreement which was made, by or with the sanction of the Government for the supply or use of electricity before the commencement of this Act.

The Indian Electricity Act, 1910, is one of our legislation on electricity supply and served its purpose for well-nigh half a century when it was considerably amended by the Indian Electricity (Amendment) Act, 1959, to bring it in a line with the growing requirements of the country. Even with these amendments the Indian Electricity Act, 1910, mainly deals with the grant of licenses and licensees’ power for opening and breaking up streets, railways, etc.; laying overhead lines; charges of energy to consumers; the supply and the use of energy by non-licensees; protective clauses and usual provisions for criminal offences and the procedure to be adopted in the institution of prosecutions. Basically the Act regulates relations between the licensee or the supplier of energy and the consumer and in this respect it has stood well the test of time.

However, with the changing pattern of industrial revolution in this country and the tendency to hand over power development schemes to the public sector undertakings, the need for new legislations was felt and the Electricity (Supply) Act, 1948, came to be enacted for the purpose of rationalization of production and supply of electricity. A new factor which is gradually emerging in this field is nuclear generation of electrical energy and will further necessitate over-hauling of our laws relating to electrical energy in India.

The main objective of the Electricity Act, 2003, (referred to as ‘Act’ henceforth) is to consolidate the laws relating to generation, transmission, distribution, trading and use of electricity and generally for taking measures conductive to development of electricity industry, promoting competition therein, protecting interest of consumers and supply of electricity to all areas, rationalization of electricity tariff, ensuring transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, constitution of Central Electricity Authority, Regulatory Commissions and establishment of Appellate Tribunal and for matters connected therewith or incidental thereto.

Talking about the implication of the Electricity Act, 2003, the generation arena will be seeing newer and newer entrants right from governments to private entrepreneurs and Local Governments, NGOS etc. All non-hydro generation will be unlicensed. As open access in transmission is mandated crisscross delivery of power can be a reality and captive generation can be located at geographically far apart locations. With the trader taking care of marketing producers will mushroom with tie-ups with such traders and consumers.

All of us know that electricity market will be dynamic with hour to hour quoting and innovative prices. Electronics will play a major role. Attractive offers may be targeted at all big consumers. Consumers migrating to other locations or just tapping from a different supplier will be the order of the day.

There will be a fourth dimension in the industry namely the Traders. Even stocks and shares of the industry will be much sought after. Money for investment will flow freely as returns are commercially in tune with general mood of the investment environment.

Transmission utilities and the Licensee–transmission companies are mandated to provide open access to their transmission systems. Who will avail this open access facility? Any generating company or licensee and any consumer can avail open access of Transmission System.

Distribution is not going to be a monopoly in any area. Avoiding of the existing supplier, a consumer can avail supply from a totally different generating company or licensee using the existing suppler as just a “common career providing non-discriminatory open access. Thus there emerges a competition between different generating companies and different distribution licensees.

When it comes to rural areas, these are times when rural areas are destined to get urban facilities. The act allows setting up of generation as well as distribution in rural area without any license. Any local body, Panchayats, co-operatives, NGOs, Franchisees and User associations can take up distribution without license with applying conditions in any area.

1. The Electricity Bill, 2001 was introduced in Lok Sabha on 30th August, 2001 and was subsequently referred to the Standing Committee on Energy for examination and report. The Standing Committee submitted its report on 19th December, 2002.

2. Based on the recommendations of the Standing Committee on Energy, the Government of India moved certain amendments. The Electricity Bill, 2001 along with these amendments, was passed by Lok Sabha on 9th April, 2003.

3. The Bill as passed by Lok Sabha was considered and passed by Rajya Sabha on 5th May, 2003.

4. The Electricity Bill, 2003 as passed by both Houses of the Parliament received President’s assent on 26th May, 2003 and was notified in the Gazette of India on 2nd June, 2003.

5. The provisions of the Act except section 121 were brought into force with effect from 10th June 2003.

Present Electricity Boards will become Government Companies being STUs, generating Licensees Transmission Licensees as the case may be (Section 131). This means that EBs if un-bundled will have to be companies under Companies Act 1956.

In future the electricity utilities and particularly Distribution Companies will have to:

Function as Companies with commercial outlook

Make their presence visible and attractive among bulk and small consumers as open access can draw them anywhere

Improve consumer satisfaction levels so that consumers will not even think of switching over to alluring competitors.

Be financially sound and decently credit worthy gauged by the ratings of CRISIL etc. This alone will enable flow of further investments.

Consumer interests are protected by this law by laying down penalties for deficiency in services and also creating forums like OMBUDSMAN.

Supply code and Distribution code will pave way for world-class quality and reliability.

Metering and gradual reduction in subsidy will enhance viability.

Theft and pilferage are likely to get reduced if implementation is serious.

The Regulatory Commission will be the gatekeeper and guardian of the power sector very much similar to the Election Commission. They will look after the interests of all parties. Financial squandering and unrealistic tariff fixations will be controlled. Financial turnaround and commercial viability are aimed at by this act.

According to Section 1(2), of the Act, It extends to the whole of India except the state of Jammu & Kashmir. And Section 1(3), says that, it shall come into force on such date as the central government may, by notification, appoint; provided that different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision.

In compliance with section 3 of the Electricity Act 2003 the Central Government notifies the Tariff policy in continuation of the National Electricity Policy notified on 12th February 2005.

The National Electricity Policy has set the goal of adding new generation capacity of more than 100000 MW during the 10th and 11th Plan periods to have per capita availability of over 1000 units of electricity per year and to not only eliminate energy and peaking shortages but to also have a spinning reserve of 5% in the system. Development of the power sector has also to meet the challenge of providing access for electricity to all households in next five years.

It is therefore essential to attract adequate investments in the power sector by providing appropriate return on investment as budgetary resources of the Central and State Governments are incapable of providing the requisite funds. It is equally necessary to ensure availability of electricity to different categories of consumers at reasonable rates for achieving the objectives of rapid economic development of the country and improvement in the living standards of the people.

Balancing the requirement of attracting adequate investments to the sector and that of ensuring reasonability of user charges for the consumers is the critical challenge for the regulatory process. Accelerated development of the power sector and its ability to attract necessary investments calls for, inter alia, consistent regulatory approach across the country. Consistency in approach becomes all the more necessary considering the large number of States and the diversities involved.

Section 3 talks about the National Electricity Policy and Plan. This clause provides that the Central Government from time to time prepare the National Electricity Policy including the tariff policy in consultation with the State Governments and the Authority for development of the power system based on optimal utilization of resources including conservation thereof and the use of renewable sources of electricity and publishes the same. Further, the central government in consultation with the State Governments may also review or revise the aforesaid National Electricity policy. This clause further provides that the Central Electricity Authority shall, in consultation with the Central Government, prepare a National Electricity Plan in accordance with the National Electricity Policy and notify the same once in five years. Further, the Authority while preparing the National Electricity plan, publish the draft of such plan inviting suggestions and objections from licensees, generating companies and the general public within a framework of time.

The Act also requires that the Central Electricity Regulatory Commission and State Electricity Regulatory Commissions shall be guided by the tariff policy in discharging their functions including framing the regulations under section 61 of the Act.

Section 61 of the Act provides that Regulatory Commissions shall be guided by the principles and methodologies specified by the Central Commission for determination of tariff applicable to generating companies and transmission licensees.

The Forum of Regulators has been constituted by the Central Government under the provisions of the Act which would, inter alia, facilitate consistency in approach specially in the area of distribution.

The objectives of this tariff policy are to:

Ensure availability of electricity to consumers at reasonable and competitive rates;

Ensure financial viability of the sector and attract investments;

Promote transparency, consistency and predictability in regulatory approaches across jurisdictions and minimize perceptions of regulatory risks;

Promote competition, efficiency in operations and improvement in quality of supply.

Introducing competition in different segments of the electricity industry is one of the key features of the Electricity Act, 2003. Competition will lead to significant benefits to consumers through reduction in capital costs and also efficiency of operations. It will also facilitate the price to be determined competitively. The Central Government has already issued detailed guidelines for tariff based bidding process for procurement of electricity by distribution licensees for medium or long-term period vide gazette notification dated 19th January, 2005.

All future requirement of power should be procured competitively by distribution licensees except in cases of expansion of existing projects or where there is a State controlled/owned company as an identified developer and where regulators will need to resort to tariff determination based on norms provided that expansion of generating capacity by private developers for this purpose would be restricted to one time addition of not more than 50% of the existing capacity.

Even for the Public Sector projects, tariff of all new generation and transmission projects should be decided on the basis of competitive bidding after a period of five years or when the Regulatory Commission is satisfied that the situation is ripe to introduce such competition.

The real benefits of competition would be available only with the emergence of appropriate market conditions. Shortages of power supply will need to be overcome. Multiple players will enhance the quality of service through competition. All efforts will need to be made to bring power industry to this situation as early as possible in the overall interests of consumers. Transmission and distribution, i.e. the wires business is internationally recognized as having the characteristics of a natural monopoly where there are inherent difficulties in going beyond regulated returns on the basis of scrutiny of costs.

Tariff policy lays down following framework for performance based cost of service regulation in respect of aspects common to generation, transmission as well as distribution:

Balance needs to be maintained between the interests of consumers and the need for investments while laying down rate of return. Return should attract investments at par with, if not in preference to, other sectors so that the electricity sector is able to create adequate capacity. The rate of return should be such that it allows generation of reasonable surplus for growth of the sector.

The Central Commission would notify, from time to time, the rate of return on equity for generation and transmission projects keeping in view the assessment of overall risk and the prevalent cost of capital which shall be followed by the State Electricity Regulatory Commissions also. The rate of return notified by Central Electricity Regulatory Commission for transmission may be adopted by the State Electricity Regulatory Commissions for distribution with appropriate modification taking into view the higher risks involved. For uniform approach in this matter, it would be desirable to arrive at a consensus through the Forum of Regulators.

While allowing the total capital cost of the project, the Appropriate Commission would ensure that these are reasonable and to achieve this objective, requisite benchmarks on capital costs should be evolved by the Regulatory Commissions.

Explanation: For the purposes of return on equity, any cash resources available to the company from its share premium account or from its internal resources that are used to fund the equity commitments of the project under consideration should be treated as equity subject to limitations contained in (b) below.

The Central Commission may adopt the alternative approach of regulating through return on capital.

The Central Commission may adopt either Return on Equity approach or Return on Capital approach whichever is considered better in the interest of the consumers.

The State Commission may consider ‘distribution margin’ as basis for allowing returns in distribution business at an appropriate time. The Forum of Regulators should evolve a comprehensive approach on “distribution margin” within one year. The considerations while preparing such an approach would, inter-alia, include issues such as reduction in Aggregate Technical and Commercial losses, improving the standards of performance and reduction in cost of supply.

For financing of future capital cost of projects, a Debt : Equity ratio of 70:30 should be adopted. Promoters would be free to have higher quantum of equity investments. The equity in excess of this norm should be treated as loans advanced at the weighted average rate of interest and for a weighted average tenor of the long term debt component of the project after ascertaining the reasonableness of the interest rates and taking into account the effect of debt restructuring done, if any. In case of equity below the normative level, the actual equity would be used for determination of Return on Equity in tariff computations.

The Central Commission may notify the rates of depreciation in respect of generation and transmission assets. The depreciation rates so notified would also be applicable for distribution with appropriate modification as may be evolved by the Forum of Regulators.

The rates of depreciation so notified would be applicable for the purpose of tariffs as well as accounting.

There should be no need for any advance against depreciation.

Benefit of reduced tariff after the assets have been fully depreciated should remain available to the consumers.

Structuring of debt, including its tenure, with a view to reducing the tariff should be encouraged. Savings in costs on account of subsequent restructuring of debt should be suitably incentivised by the Regulatory Commissions keeping in view the interests of the consumers.

Foreign exchange variation risk shall not be a pass through. Appropriate costs of hedging and swapping to take care of foreign exchange variations should be allowed for debt obtained in foreign currencies. This provision would be relevant only for the projects where tariff has not been determined on the basis of competitive bids.

Suitable performance norms of operations together with incentives and dis-incentives would need be evolved along with appropriate arrangement for sharing the gains of efficient operations with the consumers. Except for the cases referred to in para 5.3 (h)(2), the operating parameters in tariffs should be at “normative levels” only and not at “lower of normative and actuals”. This is essential to encourage better operating performance. The norms should be efficient, relatable to past performance, capable of achievement and progressively reflecting increased efficiencies and may also take into consideration the latest technological advancements, fuel, vintage of equipments, nature of operations, level of service to be provided to consumers etc. Continued and proven inefficiency must be controlled and penalized.

The Central Commission would, in consultation with the Central Electricity Authority, notify operating norms from time to time for generation and transmission. The State Electricity Regulatory Commissions would adopt these norms. In cases where operations have been much below the norms for many previous years, the State Electricity Regulatory Commissions may fix relaxed norms suitably and draw a transition path over the time for achieving the norms notified by the Central Commission.

Operating norms for distribution networks would be notified by the concerned State Electricity Regulatory Commissions. For uniformity of approach in determining such norms for distribution, the Forum of Regulators should evolve the approach including the guidelines for treatment of state specific distinctive features.

Renovation and modernization (it shall not include periodic overhauls) for higher efficiency levels needs to be encouraged. A multi-year tariff framework may be prescribed which should also cover capital investments necessary for renovation and modernization and an incentive framework to share the benefits of efficiency improvement between the utilities and the beneficiaries with reference to revised and specific performance norms to be fixed by the Appropriate Commission. Appropriate capital costs required for pre-determined efficiency gains and/or for sustenance of high level performance would need to be assessed by the Appropriate Commission.

Section 61 of the Act states that the Appropriate Commission, for determining the terms and conditions for the determination of tariff, shall be guided inter-alia, by multi-year tariff principles. The multi-year tariff framework is to be adopted for any tariffs to be determined from April 1, 2006. The framework should feature a five-year control period. The initial control period may however be of 3 year duration for transmission and distribution if deemed necessary by the Regulatory Commission on account of data uncertainties and other practical considerations. In cases of lack of reliable data, the Appropriate Commission may state assumptions in multi-year tariff for first control period and a fresh control period may be started as and when more reliable data becomes available.

In cases where operations have been much below the norms for many previous years the initial starting point in determining the revenue requirement and the improvement trajectories should be recognized at “relaxed” levels and not the “desired” levels. Suitable benchmarking studies may be conducted to establish the “desired” performance standards. Separate studies may be required for each utility to assess the capital expenditure necessary to meet the minimum service standards.

Once the revenue requirements are established at the beginning of the control period, the Regulatory Commission should focus on regulation of outputs and not the input cost elements. At the end of the control period, a comprehensive review of performance may be undertaken.

Uncontrollable costs should be recovered speedily to ensure that future consumers are not burdened with past costs. Uncontrollable costs would include (but not limited to) fuel costs, costs on account of inflation, taxes and cess, variations in power purchase unit costs including on account of hydro-thermal mix in case of adverse natural events.

Clear guidelines and regulations on information disclosure may be developed by the Regulatory Commissions. Section 62 (2) of the Act empowers the Appropriate Commission to require licensees to furnish separate details, as may be specified in respect of generation, transmission and distribution for determination of tariff.

Tariff fixation for all electricity projects (generation, transmission and distribution) that result in lower Green House Gas emissions than the relevant base line should take into account the benefits obtained from the Clean Development Mechanism into consideration, in a manner so as to provide adequate incentive to the project developers.

While it is recognized that the State Governments have the right to impose duties, taxes, cess on sale or consumption of electricity, these could potentially distort competition and optimal use of resources especially if such levies are used selectively and on a non- uniform basis.

In some cases, the duties etc. on consumption of electricity is linked to sources of generation (like captive generation) and the level of duties levied are much higher as compared to that being levied on the same category of consumers who draw power from grid. Such a distinction is invidious and inappropriate. The sole purpose of freely allowing captive generation is to enable industries to access reliable, quality and cost effective power. Particularly, the provisions relating to captive power plants which can be set up by group of consumers has been brought in recognition of the fact that efficient expansion of small and medium industries across the country will lead to faster economic growth and creation of larger employment opportunities.

For realizing the goal of making available electricity to consumers at reasonable and competitive prices, it is necessary that such duties are kept at reasonable level.

According to Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2009, following components of tariff must be taken into consideration in the computation of tariff.

The tariff for supply of electricity from a thermal generating station shall comprise two parts, namely, capacity charge (for recovery of annual fixed cost consisting of the components specified to in regulation 14) and energy charge (for recovery of primary fuel cost and limestone cost where applicable).

The tariff for supply of electricity from a hydro generating station shall comprise capacity charge and energy charge to be derived in the manner specified in regulation 22, for recovery of annual fixed cost (consisting of the components referred to in regulation 14) through the two charges.

The tariff for transmission of electricity on inter-State transmission system shall comprise transmission charge for recovery of annual fixed cost consisting of the components specified in regulation 14.

Accelerated growth of the generation capacity sector is essential to meet the estimated growth in demand. Adequacy of generation is also essential for efficient functioning of power markets. At the same time, it is to be ensured that new capacity addition should deliver electricity at most efficient rates to protect the interests of consumers. This policy stipulates the following for meeting these objectives.

A two-part tariff structure should be adopted for all long term contracts to facilitate Merit Order dispatch. According to National Electricity Policy, the Availability Based Tariff is to be introduced at State level by April 2006. This framework would be extended to generating stations (including grid connected captive plants of capacities as determined by the State Electricity Regulatory Commissions). The Appropriate Commission may also introduce differential rates of fixed charges for peak and off peak hours for better management of load.

Power Purchase Agreement should ensure adequate and bankable payment security arrangements to the Generating companies. In case of persisting default in spite of the available payment security mechanisms like letter of credit, escrow of cash flows etc. the generating companies may sell to other buyers.

In case of coal based generating stations, the cost of project will also include reasonable cost of setting up coal washeries, coal beneficiation system and dry ash handling & disposal system.

Captive generation is an important means to making competitive power available. Appropriate Commission should create an enabling environment that encourages captive power plants to be connected to the grid.

Such captive plants could inject surplus power into the grid subject to the same regulation as applicable to generating companies. Firm supplies may be bought from captive plants by distribution licensees using the guidelines issued by the Central Government under section 63 of the Act.

The prices should be differentiated for peak and off-peak supply and the tariff should include variable cost of generation at actual levels and reasonable compensation for capacity charges.

Alternatively, a frequency based real time mechanism can be used and the captive generators can be allowed to inject into the grid under the ABT mechanism.

Wheeling charges and other terms and conditions for implementation should be determined in advance by the respective State Commission, duly ensuring that the charges are reasonable and fair.

Pursuant to provisions of section 86(1)(e) of the Act, the Appropriate Commission shall fix a minimum percentage for purchase of energy from such sources taking into account availability of such resources in the region and its impact on retail tariffs. Such percentage for purchase of energy should be made applicable for the tariffs to be determined by the State Electricity Regulatory Commissions latest by April 1, 2006.

It will take some time before non-conventional technologies can compete with conventional sources in terms of cost of electricity. Therefore, procurement by distribution companies shall be done at preferential tariffs determined by the Appropriate Commission.

The transmission system in the country consists of the regional networks, the inter-regional connections that carry electricity across the five regions, and the State networks. The national transmission network in India is presently under development. Development of the State networks has not been uniform and capacity in such networks needs to be augmented. These networks will play an important role in intra-State power flows and also in the regional and national flows. The tariff policy, insofar as transmission is concerned, seeks to achieve the following objectives:

Ensuring optimal development of the transmission network to promote efficient utilization of generation and transmission assets in the country;

Attracting the required investments in the transmission sector and providing adequate returns.


A suitable transmission tariff framework for all inter-State transmission, including transmission of electricity across the territory of an intervening State as well as conveyance within the State which is incidental to such inter-state transmission, needs to be implemented with the objective of promoting effective utilization of all assets across the country and accelerated development of new transmission capacities that are required.

The National Electricity Policy mandates that the national tariff framework implemented should be sensitive to distance, direction and related to quantum of power flow. This would be developed by Central Electricity Regulatory Commission taking into consideration the advice of the CEA. Such tariff mechanism should be implemented by 1st April 2006.

Transmission charges, under this framework, can be determined on MW per circuit kilometer basis, zonal postage stamp basis, or some other pragmatic variant, the ultimate objective being to get the transmission system users to share the total transmission cost in proportion to their respective utilization of the transmission system. The overall tariff framework should be such as not to inhibit planned development/augmentation of the transmission system, but should discourage non-optimal transmission investment.

In view of the approach laid down by the NEP, prior agreement with the beneficiaries would not be a pre-condition for network expansion. CTU/STU should undertake network expansion after identifying the requirements in consonance with the National Electricity Plan and in consultation with stakeholders, and taking up the execution after due regulatory approvals.

The Central Commission would establish, within a period of one year, norms for capital and operating costs, operating standards and performance indicators for transmission lines at different voltage levels. Appropriate baseline studies may be commissioned to arrive at these norms.

Investment by transmission developer other than CTU/STU would be invited through competitive bids. The Central Government will issue guidelines in three months for bidding process for developing transmission capacities. The tariff of the projects to be developed by CTU/STU after the period of five years or when the Regulatory Commission is satisfied that the situation is right to introduce such competition would also be determined on the basis of competitive bidding.

After the implementation of the proposed framework for the inter-State transmission, a similar approach should be implemented by State Electricity Regulatory Commissions in next two years for the intra-State transmission, duly considering factors like voltage, distance, direction and quantum of flow.

Metering compatible with the requirements of the proposed transmission tariff framework should be established on priority basis. The metering should be compatible with ABT requirements, which would also facilitate implementation of Time of Day (ToD) tariffs.

Supply of reliable and quality power of specified standards in an efficient manner and at reasonable rates is one of the main objectives of the National Electricity Policy. The State Commission should determine and notify the standards of performance of licensees with respect to quality, continuity and reliability of service for all consumers. It is desirable that the Forum of Regulators determines the basic framework on service standards. A suitable transition framework could be provided for the licensees to reach the desired levels of service as quickly as possible. Penalties may be imposed on licensees in accordance with section 57 of the Act for failure to meet the standards.

Making the distribution segment of the industry efficient and solvent is the key to success of power sector reforms and provision of services of specified standards. Therefore, the Regulatory Commissions need to strike the right balance between the requirements of the commercial viability of distribution licensees and consumer interests. Loss making utilities need to be transformed into profitable ventures which can raise necessary resources from the capital markets to provide services of international standards to enable India to achieve its full growth potential. Efficiency in operations should be encouraged. Gains of efficient operations with reference to normative parameters should be appropriately shared between consumers and licensees.

1. This would minimize risks for utilities and consumers promote efficiency and appropriate reduction of system losses and attract investments and would also bring greater predictability to consumer tariffs on the whole by restricting tariff adjustments to known indicators on power purchase prices and inflation indices. The framework should be applied for both public and private utilities.

2. The State Commissions should introduce mechanisms for sharing of excess profits and losses with the consumers as part of the overall Multi-Year Tariff framework .In the first control period the incentives for the utilities may be asymmetric with the percentage of the excess profits being retained by the utility set at higher levels than the percentage of losses to be borne by the utility. This is necessary to accelerate performance improvement and reduction in losses and will be in the long term interest of consumers by way of lower tariffs.

3. As indicated in Para 5.3 (h), the Multi-Year Tariff framework implemented in the initial control period should have adequate flexibility to accommodate changes in the baselines consequent to metering being completed.

4. Licensees may have the flexibility of charging lower tariffs than approved by the State Commission if competitive conditions require so without having a claim on additional revenue requirement on this account in accordance with Section 62 of the Act.

5. At the beginning of the control period when the “actual” costs form the basis for future projections, there may be a large uncovered gap between required tariffs and the tariffs that are presently applicable. The gap should be fully met through tariff charges and through alternative means that could inter-alia include financial restructuring and transition financing.

6. Incumbent licensees should have the option of filing for separate revenue requirements and tariffs for an area where the State Commission has issued multiple distribution licenses, pursuant to the provisions of Section 14 of the Act.

7. Appropriate Commissions should initiate tariff determination and regulatory scrutiny on a suo moto basis in case the licensee does not initiate filings in time. It is desirable that requisite tariff changes come into effect from the date of commencement of each financial year and any gap on account of delay in filing should be on account of licensee.

The following aspects would need to be considered in determining tariffs:

All power purchase costs need to be considered legitimate unless it is established that the merit order principle has been violated or power has been purchased at unreasonable rates. The reduction of Aggregate Technical & Commercial losses needs to be brought about but not by denying revenues required for power purchase for 24 hours supply and necessary and reasonable O&M and investment for system upgradation. Consumers, particularly those who are ready to pay a tariff which reflects efficient costs have the right to get uninterrupted 24 hours supply of quality power. Actual level of retail sales should be grossed up by normative level of T&D losses as indicated in Multi-Year Tariff trajectory for allowing power purchase cost subject to justifiable power purchase mix variation (for example, more energy may be purchased from thermal generation in the event of poor rainfall) and fuel surcharge adjustment as per regulations of the State Electricity Regulatory Commissions.

Aggregate Technical & Commercial loss reduction should be incentivised by linking returns in a Multi-Year Tariff framework to an achievable trajectory. Greater transparency and nurturing of consumer groups would be efficacious. For government owned utilities improving governance to achieve Aggregate Technical & Commercial loss reduction is a more difficult and complex challenge for the State Electricity Regulatory Commissions. Prescription of a Multi-Year Tariff dispensation with different levels of consumer tariffs in succeeding years linked to different Aggregate Technical & Commercial loss levels aimed at covering full costs could generate the requisite political will for effective action to reduce theft as the alternative would be stiffer tariff increases. Third party verification of energy audit results for different areas/localities could be used to impose area/locality specific surcharge for greater Aggregate Technical & Commercial loss levels and this in turn could generate local consensus for effective action for better governance. The State Electricity Regulatory Commissions may also encourage suitable local area based incentive and disincentive scheme for the staff of the utilities linked to reduction in losses.

The State Electricity Regulatory Commissions shall undertake independent assessment of baseline data for various parameters for every distribution circle of the licensee and this exercise should be completed latest by March, 2007.

The State Electricity Regulatory Commissions shall also institute a system of independent scrutiny of financial and technical data submitted by the licensees.

As the metering is completed upto appropriate level in the distribution network, latest by March, 2007, it should be possible to segregate technical losses. Accordingly technical loss reduction under Multi-Year Tariff framework should then be treated as distinct from commercial loss reduction which requires a different approach.

Section 65 of the Act provides that no direction of the State Government regarding grant of subsidy to consumers in the tariff determined by the State Commission shall be operative if the payment on account of subsidy as decided by the State Commission is not made to the utilities and the tariff fixed by the State Commission shall be applicable from the date of issue of orders by the Commission in this regard. The State Commissions should ensure compliance of this provision of law to ensure financial viability of the utilities. To ensure implementation of the provision of the law, the State Commission should determine the tariff initially, without considering the subsidy commitment by the State Government and subsidised tariff shall be arrived at thereafter considering the subsidy by the State Government for the respective categories of consumers.

Working capital should be allowed duly recognising the transition issues faced by the utilities such as progressive improvement in recovery of bills. Bad debts should be recognised as per policies developed and subject to the approval of the State Commission.

Pass through of past losses or profits should be allowed to the extent caused by uncontrollable factors. During the transition period controllable factors should be to the account of utilities and consumers in proportions determined under the Multi-Year Tariff framework.

The contingency reserves should be drawn upon with prior approval of the State Commission only in the event of contingency conditions specified through regulations by the State Commission. The existing practice of providing for development reserves and tariff and dividend control reserves should be discontinued.

The facility of a regulatory asset has been adopted by some Regulatory Commissions in the past to limit tariff impact in a particular year. This should be done only as exception, and subject to the following guidelines:

The circumstances should be clearly defined through regulations, and should only include natural causes or force majored conditions. Under business as usual conditions, the opening balances of uncovered gap must be covered through transition financing arrangement or capital restructuring;

Carrying cost of Regulatory Asset should be allowed to the utilities;

Recovery of Regulatory Asset should be time-bound and within a period not exceeding three years at the most and preferably within control period;

The use of the facility of Regulatory Asset should not be repetitive.

In cases where regulatory asset is proposed to be adopted, it should be ensured that the return on equity should not become unreasonably low in any year so that the capability of the licensee to borrow is not adversely affected.

Marginal costs mean “the incremental costs resulting from the most appropriate adjustment of the power generation and distribution systems to meet the continuously increasing demand per unit.” The electricity tariff calculation that is based on the marginal costs will reflect the actual costs of power generation and distribution. Such marginal cost based tariffs will give a correct signal to power consumers and will enhance most effective management of resources.

Marginal costs in the power sector can be divided into four levels, i.e. generation, transmission, distribution and retailing.

Marginal costs that reflect the actual costs of power generation and distribution will vary in each period or every hour. However, to determine the tariffs in such a manner will entail a considerable expenditure on meter installation. Therefore, various designs of tariff determination have been initiated to best reflect the marginal costs, for example, the two-part tariff comprising the demand charge and energy charge. The demand charge reflects the power utilities’ investment in constructing power plants, transmission and distribution systems so as to maintain the availability capacity once demand arises; the energy charge reflects the cost of fuel used in power generation when actual consumption takes place. The demand charge and energy charge may vary according to the Time of Day or the Time of Use, which will be in line with the load curve of the system.

It has been widely recognized that rational and economic pricing of electricity can be one of the major tools for energy conservation and sustainable use of ground water resources.

In terms of the Section 61 (g) of the Act, the Appropriate Commission shall be guided by the objective that the tariff progressively reflects the efficient and prudent cost of supply of electricity.

The State Governments can give subsidy to the extent they consider appropriate as per the provisions of section 65 of the Act. Direct subsidy is a better way to support the poorer categories of consumers than the mechanism of cross-subsidizing the tariff across the board. Subsidies should be targeted effectively and in transparent manner. As a substitute of cross-subsidies, the State Government has the option of raising resources through mechanism of electricity duty and giving direct subsidies to only needy consumers. This is a better way of targeting subsidies effectively.

Accordingly, the following principles would be adopted:

1. In accordance with the National Electricity Policy, consumers below poverty line who consume below a specified level, say 30 units per month, may receive a special support through cross subsidy. Tariffs for such designated group of consumers will be at least 50% of the average cost of supply. This provision will be re-examined after five years.

2. For achieving the objective that the tariff progressively reflects the cost of supply of electricity, the State Electricity Regulatory Commissions would notify roadmap within six months with a target that latest by the end of year 2010-2011 tariffs are within ± 20 % of the average cost of supply. The road map would also have intermediate milestones, based on the approach of a gradual reduction in cross subsidy.

For example if the average cost of service is Rs.3 per unit, at the end of year 2010-2011 the tariff for the cross subsidized categories excluding those referred to in Para 1 above should not be lower than Rs2.40 per unit and that for any of the cross-subsidizing categories should not go beyond Rs.3.60 per unit.

3. While fixing tariff for agricultural use, the imperatives of the need of using ground water resources in a sustainable manner would also need to be kept in mind in addition to the average cost of supply. Tariff for agricultural use may be set at different levels for different parts of a state depending of the condition of the ground water table to prevent excessive depletion of ground water. Section 62 (3) of the Act provides that geographical position of any area could be one of the criteria for tariff differentiation. A higher level of subsidy could be considered to support poorer farmers of the region where adverse ground water table condition requires larger quantity of electricity for irrigation purposes subject to suitable restrictions to ensure maintenance of ground water levels and sustainable ground water usage.

4. Extent of subsidy for different categories of consumers can be decided by the State Government keeping in view various relevant aspects. But provision of free electricity is not desirable as it encourages wasteful consumption of electricity besides, in most cases, lowering of water table in turn creating avoidable problem of water shortage for irrigation and drinking water for later generations. It is also likely to lead to rapid rise in demand of electricity putting severe strain on the distribution network thus adversely affecting the quality of supply of power. Therefore, it is necessary that reasonable levels of user charges are levied. The subsidized rates of electricity should be permitted only up to a pre-identified level of consumption beyond which tariffs reflecting efficient cost of service should be charged from consumers. If the State Government wants to reimburse even part of this cost of electricity to poor category of consumers the amount can be paid in cash or any other suitable way. Use of prepaid meters can also facilitate this transfer of subsidy to such consumers.

5. Metering of supply to agricultural / rural consumers can be achieved in a consumer friendly way and in effective manner by management of local distribution in rural areas through commercial arrangement with franchisees with involvement of panchayat institutions, user associations, cooperative societies etc. Use of self closing load limitors may be encouraged as a cost effective option for metering in cases of “limited use consumers” who are eligible for subsidized electricity.

1. Two-part tariffs featuring separate fixed and variable charges and Time differentiated tariff shall be introduced on priority for large consumers (say, consumers with demand exceeding 1 MW) within one year. This would also help in flattening the peak and implementing various energy conservation measures.

2. The National Electricity Policy states that existing PPAs with the generating companies would need to be suitably assigned to the successor distribution companies. The State Governments may make such assignments taking care of different load profiles of the distribution companies so that retail tariffs are uniform in the State for different categories of consumers. Thereafter the retail tariffs would reflect the relative efficiency of distribution companies in procuring power at competitive costs, controlling theft and reducing other distribution losses.

3. The State Commission may provide incentives to encourage metering and billing based on metered tariffs, particularly for consumer categories that are presently unmetered to a large extent. The metered tariffs and the incentives should be given wide publicity.

4. The State Electricity Regulatory Commissions may also suitably regulate connection charges to be recovered by the distribution licensee to ensure that second distribution licensee does not resort to cherry picking by demanding unreasonable connection charges. The connection charges of the second licensee should not be more than those payable to the incumbent licensee.

National Electricity Policy lays down that the amount of cross-subsidy surcharge and the additional surcharge to be levied from consumers who are permitted open access should not be so onerous that it eliminates competition which is intended to be fostered in generation and supply of power directly to the consumers through open access.

A consumer who is permitted open access will have to make payment to the generator, the transmission licensee whose transmission systems are used, distribution utility for the wheeling charges and, in addition, the cross subsidy surcharge. The computation of cross subsidy surcharge, therefore, needs to be done in a manner that while it compensates the distribution licensee, it does not constrain introduction of competition through open access. A consumer would avail of open access only if the payment of all the charges leads to a benefit to him. While the interest of distribution licensee needs to be protected it would be essential that this provision of the Act, which requires the open access to be introduced in a time-bound manner, is used to bring about competition in the larger interest of consumers.

Accordingly, when open access is allowed the surcharge for the purpose of sections 38, 39, 40 and sub-section 2 of section 42 would be computed as the difference between

(i) The tariff applicable to the relevant category of consumers and

(ii) The cost of the distribution licensee to supply electricity to the consumers of the applicable class.

In case of a consumer opting for open access, the distribution licensee could be in a position to discontinue purchase of power at the margin in the merit order. Accordingly, the cost of supply to the consumer for this purpose may be computed as the aggregate of

(a) the weighted average of power purchase costs (inclusive of fixed and variable charges) of top 5% power at the margin, excluding liquid fuel based generation, in the merit order approved by the State Electricity Regulatory Commissions adjusted for average loss compensation of the relevant voltage level and

(b) The distribution charges determined on the principles as laid down for intra-state transmission charges.

S = T – [C (1+ L/100) + D]


S is the surcharge

T is the Tariff payable by the relevant category of consumers;

C is the Weighted average cost of power purchase of top 5% at the margin excluding liquid fuel based generation and renewable power

D is the Wheeling charge

L is the system Losses for the applicable voltage level, expressed as a percentage

The cross-subsidy surcharge should be brought down progressively and, as far as possible, at a linear rate to a maximum of 20% of its opening level by the year 2010-11.

No surcharge would be required to be paid in terms of sub-section (2) of Section 42 of the Act on the electricity being sold by the generating companies with consent of the competent government under Section 43(A)(1)(c) of the Electricity Act, 1948 (now repealed) and on the electricity being supplied by the distribution licensee on the authorization by the State Government under Section 27 of the Indian Electricity Act, 1910 (now repealed), till the current validity of such consent or authorizations.

The additional surcharge for obligation to supply as per section 42(4) of the Act should become applicable only if it is conclusively demonstrated that the obligation of a licensee, in terms of existing power purchase commitments, has been and continues to be stranded, or there is an unavoidable obligation and incidence to bear fixed costs consequent to such a contract. The fixed costs related to network assets would be recovered through wheeling charges.

Wheeling charges should be determined on the basis of same principles as laid down for intra-state transmission charges and in addition would include average loss compensation of the relevant voltage level.

In case of outages of generator supplying to a consumer on open access, standby arrangements should be provided by the licensee on the payment of tariff for temporary connection to that consumer category as specified by the Appropriate Commission.

And further the responsibility of the State Government and the Central Government in rural electrification is mentioned in Section 6 of the Act; it says that the concerned State Government and the Central Government shall jointly endeavor to provide access to electricity to all areas including villages and hamlets through rural electricity infrastructure and electrification of households. This Section was substituted by the Electricity (Amendment) Act, 2007. Earlier it dealt only with the obligation to supply electricity to rural areas in which the Appropriate Government shall endeavor to supply electricity to all areas including villages and hamlets.

From the time of discovery of electricity, there are many reforms done for the development and advancement of electricity. And also there are many amendments made in the legislations in order to meet the current requirements, as explained above. Electricity gained importance in a very fast way, today none of us can imagine our life without electricity. And, gradually the demand of electricity started increasing day by day. So, to meet the growing demands of the commodity, there were many changes made in the rules and laws of the act. To meet the increasing demands of the consumers, the production had to be increased and new setups were necessary for the production of electricity. The cost of production is recovered from the consumers in form of electricity bills. The bills are generated under a particular tariff regulation. These tariffs have gone under check many a time to form in order as it is today.

1. To have a tariff that genuinely reflects the economic costs and to promote efficient use of electricity, in particular to encourage less consumption during the peak period of the power system, which will help reduce generation and distribution costs in the long run;

2. To secure the financial status of the three power utilities, this will enable future expansion of their operations;

3. To provide fairness for all power consumer categories by reducing cross subsidization from one category to another; and

4. To achieve a mechanism of the electricity tariff adjustment that is flexible and automatic, corresponding with changing fuel prices in the competitive market.

Electricity Tariff varies from country to country. There are many reasons that account for this difference in price. The cost of power generation depends largely on the type of fuel used, government subsidies and even the weather pattern. Until 2007, Denmark is considered to have the most expensive electricity tariff in the world, followed by Italy and Ireland.

Section 76 of the Electricity Act, 2003, provides for the constitution of central commission. According to this section, there shall be a commission to be known as the Central Electricity Regulatory Commission to exercise the powers conferred on, and discharge the functions assigned to it under this Act.

As per Section 76(2) of the Act; The Central Electricity Regulatory Commission, established under Section 3 of the Electricity Regulatory Commissions Act, 1998 (14 of 1998) and functioning as such immediately before the appointed date, shall be deemed to be the Central Commission for the purposes of this Act and the Chairperson, Members, Secretary, and other officers and employees thereof shall be deemed to have been appointed under this Act and they shall continue to hold office on the same terms and conditions on which they were appointed under the Electricity Regulatory Commission Act, 1998 (14 of 1998):

Provided that the Chairperson and other Members of the central Commission appointed, before the commencement of this Act, under the Electricity Regulatory Commission Act, 1998 (14 of 1998), may, on the recommendations of the selection committee constituted under sub-section (1) of Section 78, be allowed, to opt for the terms and conditions under this Act by the Central Government.

The Central Electricity Regulatory Commission also plays an important role in the tariff determination. Section 79 of the Act, lays down the function of the Central Electricity Regulatory Commission. The mandatory functions, inter alia shall be – to regulate the tariff of generating companies owned or controlled by the Central government specified above, if such generating companies have a composite scheme for generation and sale of electricity in more than one State; to regulate the inter-state transmission of electricity to determine tariffs for inter-state transmission of electricity, issue licenses to person to function as transmission licensee and electricity trader with respect to their inter-state operations, relating to adjudicate upon disputes involving Generating Companies or Transmission Licensees and to refer any dispute for arbitration to levy fees for the purposes of the Act. The Advisory functions, inter alia include giving advice on formulation of National Electricity Policy, promotion of competition, efficiency and investment of electricity industry. This clause also provides that the Central Commission shall ensure transparency while exercising its powers and discharging its functions and shall be guided by the National Electricity Policy.

In exercise of powers conferred under section 178 of the Electricity Act, 2003 (36 of 2003), and all other powers enabling it in this behalf, and after previous publication, the Central Electricity Regulatory Commission makes the following regulations. These regulations may be called the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2009.

These regulations came into force on 1.4.2009, and unless reviewed earlier or extended by the Commission, shall remain in force for a period of 5 years from the date of commencement:

Provided that where a project, or a part thereof, has been declared under commercial operation before the date of commencement of these regulations and whose tariff has not been finally determined by the Commission till that date, tariff in respect of such project or such part thereof for the period ending 31.3.2009 shall be determined in accordance with the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004.

These regulations shall apply in all cases where tariff for a generating station or a unit thereof (other than those based on non-conventional energy sources) and the transmission system is to be determined by the Commission under section 62 of the Act read with section 79 thereof.

Similarly, State Commission, established under clause 82 of the Act, also plays a vital role in tariff determination. Clause 86 lays down the functions of the state commission. The mandatory functions, inter alia, are to promote co-generation and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person; and also specify for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee to specify by regulations the terms and conditions for determination of tariff for supply, transmission and wheeling of electricity within the state to regulate electricity purchase and procurement process of distribution licensees including the price at which the electricity shall be procured; to facilitate intra-state transmission and wheeling of electricity; to issue licenses to persons seeking to act as distribution licensees, transmission licensees and electricity traders; to adjudicate upon disputes and the differences between the licensees and generating companies and refer any dispute for arbitration; to levy fees for the purposes of the proposed legislation. The advisory function, inter alia, include giving advice on promotion of competition efficiency, investment in electricity industry reorganization and restructuring of electricity industry.

Maharashtra Electricity Regulatory Commission (MERC) is a perfect example of a State Commission. The MERC was established on August 5, 1999 under the Electricity Regulatory Commission Act, 1998, a Central Act which was superceded by Electricity Act (EA), 2003. The Commission is continued as provided under Section 82 of the EA, 2003. The functions of the Commission are same as the functions mentioned under clause 86 of the Act.

Section 61 to 66 mentioned in Part VII of the Electricity Act, 2003, deals with the Tariff regulation and determination of tariff and that also by bidding process and procedure for tariff order and provision of subsidy by state government and development of market.

Clause 61 deals with the tariff regulations. This clause as mentioned earlier, empowers the appropriate Commission to specify by regulating the terms and conditions for the determination of the tariff and in so doing the Commission shall be guided by, inter alia, the principles and methodologies specified by the Central Commission for determination of tariff for generating companies and transmission licensees, commercial principles for conducting the generation, transmission, distribution and supply of electricity, principles regarding efficiency or performance, multiyear tariff principles, progressive reduction and elimination of cross subsidies, the National Electricity Policy, etc. it also provides that the terms and conditions of tariff for sale of electricity determined under section 43-A of the Electricity (Supply) Act, 1948, the Electricity Regulatory Commission Act, 1998, and the enactments specified in the schedule to the bill shall continue to apply for a period of 1 year or till the regulations are framed under this Act, whichever is earlier.

Clause 62 deals with the Determination of tariff. This clause provides that the appropriate commission shall determine the tariff for supply of electricity by a generating company to a distribution licensee. However in case of an agreement between a generating company and a licensee or between licensees for a period not extending 1 year, the Appropriate Commission may fix only the minimum and maximum ceiling of tariff. The Appropriate Commission shall also determine the tariff for transmission, wheeling and retail sale of electricity. The Appropriate Commission shall not show undue preference to any consumer of electricity while determining the tariff. Further, the tariff or any part thereof shall not be amended ordinarily more frequently than once in any financial year. The Appropriate Commission may require a generating company or a licensee to comply with such procedure as may be specified for calculating the expected revenue from the tariff and charges. However, if the generating company or any licensee recovers an excess amount from the consumer, the same shall be recoverable by the person who has paid such excess amount, along with the interest equivalent to the bank rates.

Case Comment related to the above Section is:

Shri Vilas Bhikaji Shewale v. Maharashtra State Electricity Distribution Co. Ltd

Mr. Vilas Bhikaji Shewale, the Appellant in the present case, filed this Representation on 16th March, 2009 and the same is registered at Serial No. 27 of 2009. The Appellant is a consumer of electricity supplied by Maharashtra State Electricity Distribution Co. Ltd. (hereinafter referred to as the Respondent). The Representation arises out of the Consumer Grievance Redressal Forum (in short, the Forum) Nashik’s order communicated to him vide letter dated 17th March, 2006, by the Member Secretary of the Forum. It is seen that the Appellant was seeking redress in respect of the amount paid to the Respondent, sometimes in the year 2000, while getting electric supply to his premises. The Appellant sought directions to the Respondent for refund of the said amount. According to the Forum, the Appellant did not approach the Respondent for refund for five to six years and that there was a delay in filing the grievance before the Forum. The Forum did not admit the grievance on this ground.

The Appellant has cited a recent press report dated 24th February, 2008, judgement of Hon’ble Supreme Court, wherein it is held “The courts should not go strictly by the rule book to deny justice to the deserving litigant as it would lead to miscarriage of justice. No party should ordinarily be denied the opportunity of participating in the process of justice dispensation.”

On the above basis, he submitted fresh representation to the Forum to reconsider his case. The Forum, however, communicated that it cannot reconsider the matter once it was already disposed off and hence this Representation. The Appellant prays for refund of Rs.15000/- collected excess towards Service Line Charges along with interest.

The matter was heard on 6th April, 2009. Mr. Vilas Bhikaji Shewale, the Appellant was personally present. The Respondent was represented by Mr. C.C. Humane and Mr. M.V. Vaydande, both Executive Engineers. The Appellant reiterated the points raised in his Representation. He argued that the Respondent issued firm quotation for Rs.22,300/- on 3rd June, 2000, which he believed to be correct and accordingly paid. Subsequently, he came to know that the Respondent’s circular no. 631, under which the charges were levied, was kept in abeyance under the orders of the Commission with effect from 5th May, 2000. As a result, the Service Line Charges of Rs.5000/- were applicable from that date, instead of Rs.20,000/-. To a query, he conceded that he did not approach the Respondent for seeking refund of the excess charges recovered at that time. He, subsequently, came to know from some other consumer around the year 2001 that the charges collected by the Respondent were in excess, since the earlier circular was kept in abeyance under the Commission’s directions. However, he had no explanation to offer as to why he did not approach the Respondent even after he came to know from the fellow consumer some times in the year 2001, about the charges. He agreed that he approached the Forum on this issue in March, 2006 and the Forum had rejected the grievance, as being beyond stipulated time limit. Shri Shewale also agreed that he did not file any Representation for about three years against the Forum’s order issued in the year 2006, as he was not aware of the provision. He submitted that he had come across in the press about the Hon’ble Supreme Court’s order on 24th November, 2008, holding that the Court should not go strictly by the rule book to deny justice to the deserving litigant as it would lead to miscarriage of justice. It is on this information that he approached the Forum again in December, 2008, whereupon the Forum held that it cannot consider the matter again as it had already decided the case in the year 2006.

It is also seen that the cause of grievance actually arose in June, 2000, and the Appellant first approached the Forum in March, 2006, i.e. after a period of about six years. There is also no plausible explanation to this. In the second instance, the Appellant failed to submit any Representation for three years after the Forum communicated the decision. Now, the Appellant expects that his cause of grievance should be allowed to be agitated after eight years or so. This is not permissible within the spirit of the grievance redressal regulations. Facts on the record certainly do not justify the Appellant’s case. As such, the Representation is liable to be and is hereby rejected as being time barred in terms of the Regulation 17.2, read with the provision of Regulation 17.9.

Further Section 63 of the Act says about the Determination of tariff by bidding process. The clause provides that notwithstanding anything contained in clause 62, the Appropriate Commission may adopt the tariff determined through process of bidding.

Section 64 lays the procedure for tariff order. This clause provides for the procedure to be determined by the Appropriate Commission in respect of tariff order. It provides that every applicant who seeks determination of tariff under section 62 shall file an application alongwith requisite fee and publish the same into two leading newspapers circulating in India. The Appropriate Commission shall publish a draft tariff order inviting suggestions and objections. The Appropriate Commission shall within 120 days from the date of receipt of application either issue a tariff order or reject the same for reasons to be recorded in writing. A copy of the aforesaid order shall be sent to Appropriate Government the Authority and the concerned licensee by the Appropriate Commission within seven days of making the order. The clause also provides that the tariff order shall continue to be in force for the specified period unless amended or revoked.

Section 65 of the Act, tells about the provision of subsidy by State Government. This clause provide that where the State Government requires the grant of any subsidy to any consumer or class or consumer, it shall pay in advance and in manner as may be specified, the amount to compensate the person affected by the grant of subsidy in such manner as the State Commission may direct. However, the direction of the State Government shall not be operative if the payment is not made in the aforesaid manner and the tariff fixed by the State Commission shall be applicable from the date of issue of order by it.

And finally Section 66 speaks about the Development of market. The clause provides that the Appropriate Commission shall endeavor to promote the development of a market including trading in electricity in such manner as may be specified.

The Maharashtra Electricity Regulatory Commission (MERC) in exercise of the powers vested in it, under Section 61 and 62 of the Electricity Act, 2003 (E.A. 2003) and all other relevant powers enabling it in this behalf, has determined by its Detailed Order dated October 3, 2006, in the matter of Case No. 25 of 2005 and Case No. 53 of 2005 the tariff for supply of electricity by M/s Reliance Energy Limited (REL) to various categories of consumers.

Reliance Infrastructure Ltd is not only India’s largest private sector enterprise in power utility but also the largest private sector player in many other infrastructure sectors of India. In the power sector, Reliance Infrastructure Ltd are involved in generation, transmission, distribution and trading of electricity and constructing power plants as EPC partners. In the infrastructure space the company is focused on roads, Urban infrastructure which includes MRTS, Sealink and Airports, Specialty Real Estate which includes business districts, trade towers, convention centre and SEZ which includes IT & ITES SEZ and non IT SEZ as well as free trade zones.

In the field of power utility Reliance Infrastructure distributes more than 28 billion units of electricity to cover 25 million consumers across different parts of the country including Mumbai and Delhi in an area that spans over 1, 24,300 sq. kms. Reliance Infrastructure Ltd also generate 941 MW of electricity, from our power stations located in Maharastra, Andhra Pradesh, Kerala, Karnataka and Goa.

Reliance Infrastructure Ltd are also emerging as one of the leading players in India in the Engineering, Procurement and Construction (EPC) segment of the power sector with an order book of Rs.8,300 crore, having executed projects worth Rs.10000 Crores in the past 4 years.

Reliance Power Transmission Limited is an associate company of Reliance Infrastructure Limited. The objective of the incorporated company is to focus in the transmission business. The company will not only establish the requisite transmission links for the capacity addition program of Reliance Energy but also contribute towards the huge network expansion program envisaged in the National Plan.

With a view to generating greater efficiency in the power sector for transmission business, Reliance Power Transmission Limited aims to pursue opportunities arising through the opening up of this sector to minimize transmission congestion and optimize cost of delivered power thus creating enhanced value for customers.

The Ministry of Power has announced 14 ultra mega transmission projects for private participation. The estimated cost of these projects, to be implemented by end of the 11th Plan period, is about Rs.25,000 crore.

Reliance Power Transmission has been selected through competitive bidding, as the joint venture partner for setting up the transmission lines, over 300 kms long for Parbati and Koldam projects in Himachal Pradesh.

According to the tariff booklet of RELIANCE ENERGY LIMITED (with effect from October 1, 2006), the tariff for supply of electricity by M/s Reliance Energy Limited (REL) to various categories of consumers, are as follows:


These tariffs shall supersede all tariffs so far in force.

Tariffs are subject to revision and/or surcharge that may be levied by REL from time to time as per the directives of the Commission.

The tariffs are exclusive of electricity duty, excise duty, taxes and other charges as levied by Government or other competent authorities and the same, as applicable, will be payable by the consumers in addition to the charges levied as per the tariffs mentioned hereunder.

Fuel Adjustment Cost charge will be applicable to all consumers, and will be charged over and above the tariffs mentioned hereunder, on the basis of Fuel Adjustment Cost formula prescribed by the Commission and computed on a monthly basis.

Additional Energy Charge (AEC) of Rs.0.97 per kWh will be payable by all consumer categories (except Below the Poverty Line (BPL) category) in compliance to the Order of the Hon. Appellate Tribunal for Electricity (ATE) dated July 03, 2006, for the period October 2006 to March 2007.

Depending on the billing cycle applicable to different consumer categories, the revised tariff will be made applicable on a pro-rata basis for the consumption starting from October 1, 2006.

The Electricity Supply Code, notified by the Commission on 20.1.2005, shall be applicable and shall supersede the existing provisions to the extent relevant.


In the residential category, a new sub-category has been introduced called Below the Poverty Line (BPL) category, for the consumers consuming electricity less than 30 units per month. In case the consumption of any BPL category consumer exceeds 30 units in any billing month, then such consumer will thereafter be automatically considered under ‘Other Residential’ category LF-1 and will be charged accordingly.

Rate Schedule

Consumption During a Month

Fixed Charge (Rs/Month/Connection)

Energy Charge (Paise/kWh)

Single Phase

Three Phase

Below Poverty Line (BPL) *

(0-30 Units)

Other Residential




0-100 units




101 – 300 units




>3000 units(only Balance Unit)


Fixed charge of Rs.100 per month will be levied on residential consumers availing 3 phase supply.

Additional Fixed Charge of Rs.100 per 10 kW load or part thereof above 10 kW load shall be payable.


Consumption During a Month

Fixed Charge (Rs/Month/Connection)

Energy Charge (Paise/kWh)

0-300 units



301 – 1000 units


>1000 units(only Balance Unit)


Additional Fixed Charge of Rs. 150 per 10 kW load or part thereof above 10 kW load shall be payable.

- Tariff equivalent to LT Industrial tariff (LTP-2) will apply to LF-2 consumers having sanctioned load equal to or above 20 kW (26.5 HP).

- For those LF-2 consumers who are charged at the rates of the LTP-2 tariff, the definition of Monthly Billing Demand and the applicability conditions thereof, as defined under LTP-2, shall apply.



Consumption During a Month

Fixed Charge (Rs/Month/Connection)

Energy Charge (Paise/kWh)

For All UNits




Consumption During a Month

Fixed Charge (Rs/Month/Connection)

Energy Charge (Paise/kWh)

For All Units



1800 hrs to 2200 hrs

Remaining Hours of the Day



Applicable to LT agricultural consumers for motive power loads exclusively used for agricultural purposes, supplied at medium/low voltages.


Consumption During a Month

Fixed Charge (Rs/Month/Connection)

Energy Charge (Paise/kWh)

For All Units



Applicable for purposes of street lighting by local Authorities or Municipalities or Corporations, etc.


Consumption During a Month

Fixed Charge (Rs/Month/Connection)

Energy Charge (Paise/kWh)

For All Units




Applicable to consumers requiring temporary connections.

TSR: Temporary Supply of electricity at Low Voltage for Traditional Public Religious

Functions like Ganesh Ustav, Navaratri, Id, Mohurram, Ram Lila, Christmas, Guru Nanak Jayanti, Diwali, etc.

TSO: Temporary supply of electricity at low/medium voltage for any construction work, decorative lighting for exhibitions, circus, film shooting, marriages, etc., and any activity not covered under TSR.


Consumption During a Month

Fixed Charge (Rs/Month/Connection)

Energy Charge (Paise/kWh)







Additional Fixed Charge of Rs.200 per 10 kW load or part thereof above 10 kW load shall be payable.

Applicable for electricity supply at LT used for advertisements and hoardings.


Consumption During a Month

Fixed Charge (Rs/Month/Connection)

Energy Charge (Paise/kWh)

For all units



The HT Housing Colony category has been renamed as “HT-Group Housing Society” and is applicable for HT bulk supply for all purposes to housing colonies/societies. 3-phase HT supply under this tariff will be delivered at 11 kV or 22 kV.


Consumption during a month

Demand Charge


Energy Charge


For all units



Applicable to HT supply for bulk usage (except Group Housing Societies – HTG), hotels, flight kitchens/storage, Cinemas, Theatres, Film Companies, commercial establishments, non-commercial educational institutions and HT industry. 3-phase supply under this tariff will be delivered at 11 kV or 22 kV.


Consumption during a


Demand Charge


Energy Charge


For all units



1800 hours to 2200 hours


Remaining hours of the day


The additional Time of Day (ToD) Tariff rate will be applicable to the HT Industrial consumers for the consumption during evening system peak hours viz., 1800 hrs to 2200 hrs.

Standby charges applicable to Captive Power Plants shall be same as at of HT Industrial Tariff (i.e. base demand charges and energy charges). Additional demand charge of Rs 20/kVA/month shall be payable for standby component only in excess of contract demand.

The Fuel Adjustment Cost charge will be determined based on the approved Formula and relevant directions, as may be given by the Commission from time to time and will be applicable to all consumer categories for their entire consumption. The Fuel Adjustment Cost Formula takes into account any change in the cost of own generation and power purchase due to variations in the fuel cost. The Fuel Adjustment Cost charge shall be computed and levied/refunded, as the case may be, on a monthly basis. The following Formula shall be used for computing Fuel Adjustment Cost:

FAC = C + I + B where,

FAC = Total Fuel Cost and Power Purchase Cost Adjustment,

C = Change in cost of own generation and power purchase due to variation in the fuel cost,

I = Interest on Working Capital,

B = Adjustment Factor for over-recovery/under-recovery.

Case No. 65 of 2008 before the Maharashtra Electricity Regulatory Commission:

In the matter of Petition filed by M/s. Reliance Infrastructure Limited for Recovery of Variation in Power Purchase Cost approved by the Commission in REL-D Tariff Order dated June 4, 2008.

M/s Reliance Infrastructure Ltd. – Distribution Business (RInfra-D) (formerly known as Reliance Energy Limited) filed a Petition under affidavit before the Commission on August 14, 2008, for recovery of variation in power purchase cost approved by the Commission in Reliance Energy Limited – Distribution Business (RELD) Tariff Order dated June 4, 2008 in Case No. 66 of 2007.

The main prayers of the Petitioner were as under:

The Commission may kindly devise an alternate mechanism to permit the Petitioner to recover the additional cost of power purchase, post incurrence of the same, along with additional interest on working capital.

Any other relief that the Commission may deem fit

R Infra-D submitted the completed details of Fuel Adjustment Cost computations for the period from April to June 2008 for vetting by the Commission. The Commission has examined the details of actual source-wise power purchase for the period from April to June, 2008 and undertaken the detailed vetting of Fuel Adjustment Cost for this period. Based on the detailed vetting, the actual Fuel Adjustment Cost under-recovery for the period from April to June 2008 is Rs.197.47 Crore. Further as per the details submitted by R Infra-D for the period from April to September, 2008, it is observed that the actual un-recovered Fuel Adjustment Cost amount is Rs.494.06 Crore, and if this amount would be allowed to be recovered in the remaining months then it may lead to a huge tariff shock to the consumers. If the under-recovered Fuel Adjustment Cost amount for the period from April to June 2008 is to be recovered on the sales of remaining period of FY 2008-09, i.e., in five months from November 2008 to March 2009, the per unit rate works out to around 59 paise/kWh. Therefore, the Commission has considered allowing the under-recovered amount for the period from April to June, 2008 to be recovered as an additional charge in five months from November 2008 to March 2009.

As regards RInfra-D’s proposal to charge the differential FAC to consumers in the form of additional charge as % of the respective variable charge of the slab/subcategory to which the consumer belongs, similar request was made by TPC-D in its Petition in Case No. 23 of 2005 and the Commission in its Order dated November 9, 2005 in Case No. 23 of 2005 observed as follows:

“Allowing differential FAC cap would amount to change in tariff structure and hence it can only be done during the ARR and Tariff process”

Therefore, the Commission does not agree with the RInfra’s proposal of differential FAC at this stage as this would amount to change in tariff structure.

The Commission permits RInfra-D to recover the actual under-recovered FAC of Rs 197.47 Crore for the period from April to June 2008 in the remaining months of the year, i.e., November 2008 to March 2009 @ 59 paise/kWh.

The Commission directs RInfra-D to submit the details of FAC Computations for the period July to September 2008 in the formats prescribed by the Commission for vetting. For subsequent months also, i.e., from October to March 2009, RInfra-D should submit the details of FAC computations and FAC levied for vetting on regular basis.

With the above, RInfra-D’s Petition in Case No. 65 of 2008 stands disposed of.

Whenever the average power factor of the consumer (Billed at LTP-2 or HT tariff rates) during the month is more that 0.95, an incentive shall be given at the rate of 1% (one percent) of the amount of the monthly energy bill (excluding Fuel Adjustment Cost charge, fixed/demand charges, Additional Energy Charge, electricity duty, TOSE, Load Management Charge and other taxes) for every 1% (one percent) improvement in the power factor above 0.95. For PF of 0.99, the effective incentive will amount to 5% (five percent) reduction in the energy bill and for unity PF; the effective incentive will amount to 7% (seven percent) reduction in the energy bill.

The Consumer shall maintain at each of the points of supply an average power factor of not less than 0.92 during the billing month. If the average power factor of the Consumer at any of the points of supply during the month remains below 0.92, penal charges shall be levied at the rate of 2% (two percent) of the amount of the Demand Charges for the first 1% (one percentage point) fall in the power factor below 0.92, beyond which the penal charges shall be levied at the rate of 1% (one percent) for each percentage point fall in power factor below 0.91.

If the payment of the energy bill is not made within the time limit, as prescribed in Section 11.3 above, a one-time Delayed Payment Charge of 2% of the amount of monthly Electricity bill (excluding statutory levies, Power Factor Penalty) will be payable by the consumer.

S. No.

Delay in Month (Span of months)

Interest Rate per annum (%)


Payment after due date up to 3 months (0 – 3)



Payment made after 3 months and before 6 months (3 – 6)



Payment made after 6 months


The interest will be payable from the second month after the due date of payment, on the amount of bill plus the one-time delayed payment charges.

The Security Deposit payable by consumers shall be equal to the average of 3 months’ billing or of the billing cycle period, whichever is less. This dispensation is subject to the provisions of the Supply Code, which would apply.

Additional Demand Charges for Consumers having Captive Generation Facility:

1. High Tension industries and other general High Tension consumers having captive generation facility synchronized with the grid will pay additional Demand Charges of Rs.20/kVA/month only on the extent of standby demand component and not on the entire Contract Demand.

2. Standby Charges will be levied on such consumers on the standby component, only if the consumers’ demand exceeds the Contract Demand.

3. The additional Demand Charges will not be applicable if there is no standby demand and the captive unit is synchronized with the Grid only for the export of power.

Sale of Electricity:

The electricity duty and tax on sale of electricity will be charged as per the Government guidelines from time to time. However, the rate and the reference number of the Government Resolution/Order/Notification vide which it is made effective, shall be stated in the bill.

Additional Energy Charge:

The Additional Energy Charge of Rs.0.97 per kWh will be payable by all the consumer categories (except Below Poverty Line category) for a period of six months only i.e. for the period October 1, 2006 to March 31, 2007.

Load Management Charge:

All the residential and commercial consumers consuming more than 300 units per month henceforth, and all industrial consumers (irrespective of their level of consumption) will have to reduce their monthly consumption to a level of 80% of their consumption in the corresponding month in the past year (i.e. January 2005 to December 2005). A Load Management charge shall be applicable for the consumption exceeding the 80% limit at the rate of additional 100% of the highest tariff chargeable to the respective category, and will be charged in the energy bill of the consumer in that month.

The above mentioned consumers who have already reduced their consumption in the corresponding months in the last year due to the load regulation measures introduced by the Commission in its Order in Case No. 4 of 2005, the load management target will be at the same level as that of the corresponding month last year, and further reduction to 80% of the consumption in the previous year is not mandatory in such cases.

This monthly consumption reduction target will not be applicable for new consumers and in case of change in occupancy during the last one year for the existing consumers.

Identified essential services which are exempted from payment of Load Management Charge are:


Water Supply and Sewerage systems operated by Government/local authorities

Telephone exchanges

Defense Establishments

Ports and Harbours

Meteorological observatories.


News Agencies

TV and Radio Stations

Posts and Telegraphs


Atomic Energy establishments

The Load Management Charge shall be applicable for the attached residential colonies of the above essential services as per the criterion mentioned above.

Load Management Rebate:

Any reduction in the monthly consumption below the 80% limit prescribed on a consumption in the corresponding month in the past year (January 2005 to December 2005) will be incentivised with a “Load Management Rebate” at the rate of 50% of the normal chargeable rate to the kWh units in the tariff slab applicable to the reduction in the number of units, vis-à-vis the benchmark consumption of 80% of the consumption in the corresponding month of the previous year and will be adjusted in the bill accordingly.

The rebate will be computed at 50% of rate of appropriate tariff slab rates for the number of units in each slab.

The Load Management Rebate shall not be applicable for the above mentioned essential services but shall be applicable for the attached residential colonies of these essential services as per the criterion mentioned above.

Offences and Penalties:

Today energy theft is a worldwide problem that contributes heavily to revenue losses. Consumers have been found manipulating their electric meters, causing them to stop, under-register or even bypassing the meter, effectively using power without paying for it. Though the tariff policy have been formed taking in view, benefits of both the consumer and the producer, where the benefits of the consumer is given more concern, power theft is still a major concern for government agencies across the globe, and especially in populous countries like India and China.

One of the most common ways of theft of electricity involves the tampering of energy meters. An energy meter is a device that measures the amount of electrical energy supplied to a residential or commercial building. The most common unit of measurement made by a meter is the kilowatt hour, which is equal to the amount of energy used by a load of one kilowatt in one hour.

To control revenue losses, utility companies worldwide need to detect meter tampering and ensure accurate billing even when tampering has occurred. Tampering may range from simple techniques like manipulating live or neutral wires to more sophisticated ones like hacking firmware and changing energy consumption records. External tampering may include breaking the meter case, chemical injection or even burning the meter. All these result in changing the electrical characteristics of the components thereby recording less or no energy usage.

Section 126-130 mentioned in Part XII of the Act, talks about the Investigation and Enforcement. It deals with the Assessment and appeal to appellate authority and investigation of certain matters and orders for securing compliance and procedure for issuing directions by appropriate Commission.

Section 126 deals with the Assessment. It provides that if an assessing office on an inspection comes to the conclusion that a person is indulging in unauthorized use of electricity, he shall provisionally assess the electricity charges payable by such person. The order of provisional assessment shall be served upon the person concerned, who shall be entitled to file any objection before the assessing officer who may, after affording a reasonable opportunity of hearing to such person, pass a final order of assessment of the electricity charges payable by such person. It further provides, inter alia, that any person served with the order of provisional assessment may accept such assessment and deposit the assessed amount with the licensee within seven days of service of such order.

Section 127 deals with the Appeal to appellate authority. It provides for an appeal by any person aggrieved by a final order of the assessing officer to the adjudicating officer within a period of thirty days of the order. It also provides that no appeal shall be entertained unless an amount equal to one-third of the assessed amount is deposited with the licensee. The order of the adjudicating officer shall be final.

Section 128 deals with the Investigation of certain matters. It provides that the Appropriate Commission on being satisfied that a licensee has failed to comply with any of the conditions of license or a generating company or a licensee has failed to comply with any of the provisions of the proposed legislation or rules or regulations made thereunder may direct any person referred as Investigating Authority to investigate the affairs of any licensee and report to that Commission. The Investigating Authority may cause an inspection of books of account; examine on oath any Manager, managing director or other officer of the licensee. It further provides inter alia that on receipt of report the Appropriate Commission may after giving such opportunity to the licensee to make a representation as it considers reasonable, require the licensee to take such action as it thinks fit. It also provides that licensee shall defray all expenses and incidental to investigation.

In India, as in many other countries, there is a nexus between power company employees and those (often commercial establishments) who would steal electricity (either through tapping of overhead transmission lines, meter tampering or under-billing). In the past, most of these culprits, with or without political and financial clout, used to get away with it. Not so anymore. Stealing power has now become a punishable offense in India, and power utilities are now pulling out all the stops to prosecute the culprits.

Section 135-152, mentioned in Part XIV of the Act, deals with the Offences and Penalties. It deals with the theft of electricity, electricity lines and materials and punishment for receiving stolen property and interference with meter or works of licensee and negligently wasting electricity or injuring work and penalty for maliciously doing so and extinguishing public lamps and punishment for non-compliance with directions by appropriate Commission and power to adjudicate and factors to be taken into account by adjudicating officer and Civil Court not to have jurisdiction and punishment for non compliance of orders and directions and penalties not to affect other liabilities and penalty where works belong to government and offences by companies and abetment and cognizance of offences and compounding of offences.

The recently introduced Electricity Act 2003 of India has consolidated a number of legislation on electricity operating in India. The new act has attempted to move away from the single buyer model being followed so far and has allowed relatively free entry to generation and captive power generation by including association of consumers would help promote proliferation of captive power, which in turn would reduce the creamy consumers providing cross-subsidy to the distribution companies. Loss of creamy consumers would allow introduction of open-access to certain class of consumers and perhaps entry of IPPs in generation. The above phenomenon is expected to allow removal of cross subsidies and promotion of cost-reflective tariff is expected to suffer and thereby affecting the entire supply chain. However, the acceptability of such tariff to consumer would remain an issue.

The Act has introduced a few new entities and has clarified the roles of different players. It has introduced a better arrangement for funding of commissions and strict provisions for subsidy provision by governments. The tariff determination has been made flexible and commissions are now empowered to move to a multi-year tariff regime and decide the tariff principles. The provisions related to power theft, collusion of employees are also strong and should help check the menace.

The Act has made strict provisions to deal with electricity theft by consumers and reduce employee-consumer nexus in this regard. The Act empowers the licensee to impose punitive tariffs on consumers upon detection of theft of power and the offence could attract imprisonment and/or penalty. No civil court would have power to give injunction to such cases. The Act similarly provides for stringent penal measures for offending employees of the utility.

The penal provisions are much stricter than the earlier laws on electricity. This should act as a deterrent for theft by common consumers. However, the Act does not provide any protection against misuse of these powers by licensees or utilities. The onus now lies on the consumers to prove that they are not stealing power. This presumption can prove to be dangerous and potentially a source of much consumer dissatisfaction.

This Act has introduced a distinction between unauthorized use and dishonest use of electricity. An unauthorized use is liable to a penalty as assessed by the assessing officer and the consumer can appeal against such assessment to an appellate authority constituted by the central government. This provision appears somewhat bizarre as most of the cases would be taking place at the local level and the aggrieved consumer would find it difficult to seek justice if the appellate authority is centrally located in Delhi or in state even in capitals. The transaction cost would be too high for the consumer to seek justice. The state government or the state commission should have been given the power to establish such local appellate authorities.

The dishonest use of electricity is a criminal offence under the act. As the penalty for such an offence is much stricter than the previous case, the utility would prefer to book any case as dishonest use of electricity. The thin line of distinction is not quite clear and would create a lot of discomfort to the consumers.



{Maharashtra Electricity Regulatory Commission (official website)}


{Reliance Infrastructure (official website)}


{Central Electricity Regulatory Commission (official website)}


{Wikipedia – The Free Encyclopedia}


{Google Search Engine}


{Indian Law Legal Database}


{Maharashtra State Electricity Board (official website)}

8. The Electricity Act, 2003 (36 of 2003) [Bare Act]

9. Guide to The Electricity Laws

{Naushir Bharucha (Wadhwa Nagpur)}

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