CASE NO'S. 22, 23, 24 & 25 of 1998

Present:
Shri S. C. Mahalik, Chairman
Shri A. R. Mohanty, Member
Shri D. K. Roy, Member

In the matter of applications u/s 15 of the OER Act, 1995 filed by Managing Director, Central Electricity Supply Company of Orissa Ltd. (CESCO), Southern Electricity Supply Company of Orissa Ltd. (SOUTHCO), North Eastern Electricity Supply Company of Orissa Ltd. (NESCO) & Western Electricity Supply Company of Orissa Ltd. (WESCO) for grant of Distribution & Retail Supply Licence.

For Petitioners:
1) Shri G.P. Sarkar, M.D., CESCO.
2) Shri P. Palo, M.D., SOUTHCO.
3) Shri N.C. Das, M.D., WESCO
4) Shri B.P. Rekhani, G.M. (RAU), Gridco.

For Objectors:
On behalf of OCA:
1) Shri K.N. Jena
2) Shri K. Acharya
3) Shri P.K. Panda
4) Shri B.K. Sinha
&
5) Shri Pradus Mohanty (on behalf of Shri N.K. Das)

Date of argument: 18.12.98

Date of Order : 31.03.99

M/s. Grid Corporation of Orissa Ltd. (M/s Gridco, for short), is the holder of "The Orissa Distribution & Retail Supply Licence, 1997 (No.1/97)" from 1.4.97 pursuant to which it carries on business of Distribution & Retail Supply of electricity in the State of Orissa. The said Licensee is also holder of another licence namely "The Orissa Transmission & Bulk Supply Licence, 1997 (2/97)" for carrying out business of Transmission & Bulk Supply of electricity for the State of Orissa. In the meanwhile, Gridco has restructured itself by incorporating four wholly owned subsidiary companies to take over the business of Distribution & Retail Supply in the State of Orissa, while retaining the Transmission as well as Bulk Supply business in consonance with the objectives of the OER Act, 1995. While making an application u/s 19 of the Act, 1995, for amendment of the Orissa Transmission & Bulk Supply Licence, 1997 (No.2/97) Gridco has prayed that the Orissa Distribution & Retail Supply Licence, 1997 (No.1/97) granted in its favour be revoked by way of cancellation and four separate licences are issued in favour of the above named four petitioners to carry out the business of Distribution & Retail Supply within their respective zones.

1.1 Simultaneous with the above application of M/s Gridco (which is registered as Case No.21/98), the Managing Directors of the above named wholly owned subsidiaries of M/s Gridco have filed separate applications on 27.3.98 which are respectively registered as Case No.22/98, 23/98, 24/98 & 25/98 for the purpose of grant of Distribution & Retail Supply Licence u/s 15 of the Act, 1995.

2. Upon receiving the applications dt.27.3.98 (registered as Case No.22/98 to 25/98), certain omissions and commissions found therein were pointed out to the respective Managing Directors for supplying the same within 3 weeks from the date of receipt of the aforesaid letters. Most of the omissions and commission were removed by their letter Nos. RAU-72, 73, 74 dt.16.6.98, No. RAU-81 dt.18.6.98 and No. RAU-86, 87, 88 & 89 dt.27.6.98.

2.1 The Commission thereafter permitted the Managing Directors of the above named petitioners vide its letter Nos. 2013, 2014, 2015 & 2017 dt.16.7.98 to proceed with the publication of a notice, the draft of which was approved and sent to them endorsing a copy thereof to the General Manager (RAU) Gridco, who was appointed as the Nodal Officer for and on behalf of the four petitioners. The petitioners were further directed to come up with the publication of the said approved notice within a fortnight in one English and three Oriya daily newspapers. The Commission further directed in the aforesaid letter that the petitioners were required to deposit copies of maps of their respective area of supply and a copy of the draft licence in the office of the Municipal Corporations, Municipalities and Notified Area Councils for public inspection. The Commission further directed that any person wishing to purchase copies of the draft licence may do so from the Company by applying to the Regd. office of their Companies.

2.2 The notice published in the English and Oriya dailies mentioned that the petitioner Companies, in terms of Sec. 15 of the OER Act, 1995 (2 of 96) have applied for licence to engage in the business of Distribution & Retail Supply of electricity in the area comprised in the Electrical circles within their domain.

2.3 It was further notified that any interested person was entitled to inspect the application as well as the draft licence at the Regd. office of the respective Companies and to be supplied with a copy of application and draft licence on payment of Rs.50/-, by post or in person. The public notice further notified that any local authority, utility or person having any objection to the draft licence could send his objection in writing to the Commission Secretary within three months of the date of publication of the notice indicating his name and address, particular licence/licences to which objection was being made, reasons for objection to the draft licence and whether he wanted to be heard in person by the Commission.

3. In response to the notice, identical objections were received from Shri K.N. Jena, General Secretary, Orissa Consumers' Association, Biswanath Lane, Cuttack on 15.10.98 against each of the four applications.

3.1 Two more individuals namely Shri Kishore Das and Shri Naba Kishore Das of Modipada, Sambalpur filed separate objections on 03.10.98 against petitioner No.4 though those two objections were also identical in nature.

3.2 Amongst other things, the objection raises the following common issues:-

a) The formation of four wholly owned subsidiary companies are sham transactions and carried out at the cost of consumers. Such a re-organisation or restructuring of Gridco will hardly produce any result enshrined in the OER Act, 1995 and therefore no further experiment be made by way of granting licences to the subsidiary companies.

b) Incorporation of four wholly owned subsidiary companies for four different zones for the purpose of Distribution & Retail Supply of energy will not improve the efficiency and standard of service because those who were at the helm of affairs of Gridco have failed miserably and cannot deliver goods in the Distribution Companies.

c) The administrative and organisational expenses are likely to multiply five times. Consequently, such a structural and organisational devolution of Gridco is bound to bring in its wake tariff increase.

d) The aims and objectives of the Reform Act cannot be fulfilled by way of creating four subsidiary companies. Such a re-organisation or restructuring is subversive of public interest, particularly, the interest of the poor consumers.

e) The applications for licence should be rejected on the ground that it does not ensure benefit to the consumers at large and also not conducive to the development and management of the electricity industry or power sector in Orissa.

f) The petitioner companies are fake ones and have been registered without any paid up capital, financial credibility and infrastructure to carry on the business of Distribution & Retail Supply and therefore grant of licences, as applied for, should be refused.

4. The objections filed by Shri Kishore Das and Shri Naba Kishore Das of Modipada, Sambalpur being identical in nature raise the following issues, of course, with reference to the application filed by the petitioner No.4 (WESCO).

a) No one from the Western Orissa, having expertise in electrical industry or any eminent citizen of the area, has been taken on the Board of Directors of the petitioner company. As a result of that, the interest of the Western Orissa will go unattended. As there is a good number of Retired Electrical Engineers with high degree of qualification, rich experience and professional acumen, some of them could be conveniently taken as the members of the Board of Directors of the WESCO.

b) Some of the members of the Board of Directors are not men of unblemished character and clean image. Their service tenure was tainted with vigilance enquiries and therefore such persons should not be allowed to run and manage the company.

c) The perennial malady afflicting Deogarh and Rairakhol of the undivided Sambalpur district can hardly be solved by creation of a new company, particularly, when there is no one in the Board of Directors to represent the said areas.

5. The above objections filed by the General Secretary, Orissa Consumers' Association, Cuttack as well as the above named two individuals were admitted in this case and they were granted personal hearing. A public notice was issued fixing the hearing to 7.12.98.

6. The Commission, by order dt.5.12.98, appointed Shri S.K. Jena, Director (Tariff) & Shri B.K. Sahu, Director (Engg.) of the Commission to render expert advice and opinion to the Commission in course of hearing of the Licence application in terms of Reg. 51 & 129 of the OERC (Conduct of Business) Regulations, 1996.

7. The General Secretary of the Orissa Consumers' Association, Cuttack filed an identical petition in all the four cases on 2.12.98 praying to the Commission to direct the petitioner companies to furnish certain documents listed therein and information.

8. In the hearing on 07.12.98, Shri Jena raised a preliminary objection that no hearing should take place without the Commission giving a ruling on his petition dt.2.12.98 requiring certain documents and information from the petitioner companies. The Commission heard Shri Jena's preliminary objection and reserved its orders.

The said preliminary objection was overruled by the Commission vide Para 7.1 of the order dt.18.12.98 in Case No.21 of 98. The order was also made applicable to all the above noted cases.

9. On 18.12.98, the Commission heard the Directors of the four Distribution Companies as well as Shri B.P. Rekhani, the Nodal Officer in these cases. Shri K.N. Jena and Shri B.K. Sinha, for and on behalf of the Orissa Consumers' Association, while Shri Pradus Mohanty represented Shri Naba Kishore Das, Objector No.3. Shri Kishore Das, Objector No.2 went unrepresented at the hearing.

10. The Director (Tariff) & Director (Engg), who had been appointed by the Commission as inhouse experts in these cases made full appraisal of the Licence applications raising queries from technical as well as commercial angles. Copies of queries raised by the two inhouse experts were submitted to the Commission, to the petitioners as well as to the objectors and they have been taken on record for the purpose of consideration.

10.1 Responding to the queries raised by the two experts, Shri B.P. Rekhani, General Manager (RAU), Gridco and the Nodal Officer of these cases submitted that the petitioners be permitted to file necessary corrections/amendments to the proposed draft Licences. Pursuant to the said submission, the petitioners filed corrections/amendments (vide Annex-I) to the draft Licence applications.

11. We have considered all objections as well as rejoinder on the objections. With regard to allegation of sham nature of companies, we are unable to find any force. It is not disputed that these subsidiary companies have actually been incorporated under the Companies Act, 1956 by the Registrar of Companies. It could not be expected that every new company would comprise of substantial assets right from the day one. It has been placed before us that after incorporation of these companies, the Govt. of Orissa has, by legislation, allocated substantial assets. The fledgling corporate entities are inheriting the manpower, other assets and expertise in distribution business from the parent body. It is logical to hope that soon they will fully stand on their own legs in their venture to undertake distribution activities.

11.1 The other issues raised are matters of perception. Those issues do not reveal any legal or technical objection of importance to deny the petitioners of their prayer. The issues merely highlight the purported administrative incompetence and mismanagement of Gridco resulting in high administrative expenses and consequently passing on the cost of inefficiency to the consumers through rate and charges.

11.2 The applicants' proposal has to be examined against the objects of the Reform Act, relevant portion of which reads as under :

"An Act to provide for the restructuring of the electricity industry, for the rationalisation of the generation, transmission, distribution and supply of electricity for avenues for participation of private sector entrepreneurs in the electricity industry and generally for taking measures conducive to the development and management of the electricity industry in the state in an efficient, economic and competitive manner"

Against this backdrop, the Commission finds it appropriate that steps are taken to reorganise and restructure the industry. The proposed restructuring and issue of licences to four separate companies for distribution has legitimate objectives such as Gridco confining itself to its core competence of bulk supply and transmission and divesting its distribution functions. Four distribution companies with manageable area of supply may be in a position to bring in more effective supervision, better supply and an element of competition.

11.3 At present, there are about 13 lakh consumers under Gridco. Expansion of electricity network is expected to bring in substantially large number of new consumers which necessitates reorganisation of the industry. Further, as one monolith company catering to the consumers of the entire State has failed to render satisfactory service, it appears logical to reorganise the present monolithic structure into four companies. The restructuring seems to be a bolder and better alternative so as to provide for manageable entities with effective supervision over limited area of supply. There is a patent paradox in the objection that while the petitioners are not satisfied with the existing set-up, existing management and level of service, they are against any change or transformation. We find no logic in opposing grant of licence to four new distribution companies on the apprehension that they will be as bad as the parent company.

11.4 We, therefore, feel that the re-organisation & restructuring of Gridco is intended to cater to the benefit of the public because these subsidiary companies are designed to offer scope for private companies to buy the shares. The present restructuring into four subsidiary companies is a transitional phase designed to offer scope for private sector participation, increased investment better commercial practices vis-a-vis the consumers, greater accountability and better service. Therefore, while we appreciate the concern of Shri Jena for the consumers of the electricity industry, it appears to us inescapable that the main objective of the Reform Act i.e. "taking measures conducive to the development and management of the electricity industry in an efficient, economic and competitive manner" cannot be fulfilled without embarking upon the restructuring of Gridco and creating an environment conducive to private sector participation and introducing an element of competition.

11.5 We have already dealt with the main plank of the issue raised by Shri Kishore Das & Shri Naba Kishore Das with regard to the application of petitioner No.4. If we go by the calender drawn up by Gridco we clearly see that such incorporation of Companies will lead to meaningful private sector participation. We believe that beginning of the process of privatisation is an effective answer to the issues raised against the application.

12. In the premises, we are of the opinion that there is no valid and cogent reason or ground to refuse the licences applied for. What is material in the interest of the State of Orissa and the consumers is to build safeguards and carefully craft the terms and conditions of the licence accordingly. The Commission has carefully considered the terms and conditions through elaborate dialogue between the technical staff of the Commission and the applicants for licence. The proposals and suggestions of the applicants for license have been carefully examined by us.

13. It is appropriate to deal with some of the essential elements of the draft licences.

13.1 Some of the definitions need to be altered by way of reframing, deleting or adding words and accordingly these definitions have been recast.

13.2 The portions of EHT system providing supply to EHT Consumers which was earlier included in the definition of Distribution System are excluded.

13.3 The definition of "Consumer" is amended to mean end or final user of electricity supplied by the licensee or any other authorised person. The definition suggested by the applicants was amended so as to make it clear that those taking supply at EHT are also consumers even though they are not connected to Distribution System.

13.4 The applicants have suggested a somewhat elaborate definition of Distribution Code. Such elaborate definition is not considered necessary as the Commission has already notified the Distribution Code in two documents as below :

i) Distribution (Planning and Operation) Code, which deals with technical matters.

ii) OERC Distribution (Conditions of Supply) Code, 1998 which is a regulation mainly dealing with commercial aspect and consumer interface.

Hence it is considered appropriate to define Distribution Code so as to refer to and include the two aforesaid documents.

13.5 The applicants have suggested to treat Distribution and Retail Supply Business as two separate businesses under the defined term "Authorised Business" which is not accepted because at this moment these two businesses are not two separate businesses.

13.6 The licence proposes to put some restrictions and interaction with local authority (if any) in the area of supply in the matter of laying supply line, breaking up streets and provision of public lamps, etc. The licensee has suggested a definition of "Local Authority" so that the restriction/interaction would be only with regard to those which come within the scope of definition of "Local Authority". The suggestion was given by the applicant on the ground that the number of local authorities is too large and hence efficiency will be hampered unless the scope is restricted. The Commission has noted that no such restrictive definition was envisaged either under Telegraph Act or for Electricity Act, 1910 and that advisability of a restrictive definition of local authority is not free from doubt. Hence the Commission is unable to accept the suggestion and has decided not to define local authority. Consequently Schedule 2 furnished by the applicants suggesting lists of local authorities is not to be included in the licence also.

13.7 The Commission considers it appropriate to change the title of the Condition No. 5 of the licence to "Restrictions" in place of "Prohibited Activities" (Part II : General Condition).

13.8 Under the condition "Provision of information to Commission" a new Paragraphs is added making it obligatory to report major incidents affecting Distribution System. This has become necessary because as a result of functional unbundling, the Transmission Licensee is no more obliged to report on such incidents.

13.9 Applicant's suggestion for amendment with reference to "encumbrance" relating to restrictions on activities has been accepted. Secondly, it is decided that shares and stocks shall also be covered under the term "assets" for all purposes under restrictive condition of "Disposal of assets" in Condition 11. Further, it is hereby ordered that the cost of assets disposed when aggregated with the cost of all other assets (if any) forming part of the same overall transaction equals or exceeds Rs.30.00 lakhs should also require approval of the Commission. The cumulative sale of shares and stock to a single party shall be considered to form part of the same overall transaction.

13.10 Annual licence fee is fixed at Rs.50,00,000.00 (fifty lakhs) for the present.

13.11 Paragraphs 15.5 and 15.6 are included so as to incorporate relevant provisions of Clauses X and XIII of the Schedule to the Indian Electricity Act, 1910, related to the method of charging and establishment of testing stations and keeping required instruments for testing.

13.12 The Commission has already approved the "Code of Practice on payment of Bills", "Complaint Handling Procedure", "Consumer Rights Statement" for the existing licence Gridco. In paragraph 18.4, the Licensee has been directed to comply with these operative documents until such time the documents to be submitted by the licensees are approved by the Commission.

13.13 The Commission has carefully examined the existing licence conditions and the proposals of the applicants related to Basis of Charges. In the light of experience gained during the two tariff proceedings, the Commission found it appropriate to incorporate certain changes in the licence which will be more in conformity with the Act.

14. On the basis of facts emerging in the hearing and the inquiry through dialogue between the Commission staff and the representatives of applicant, the Commission finalised a draft licence with modifications, changes and additions, important aspects of which have been outlined earlier. Consequently a final approved draft licence was prepared and forwarded to the concerned petitioners in terms of Regulation 90 & 91 of the Orissa Electricity Regulatory Commission (Conduct of Business) Regulations, 1996 vide Commission's letter Nos. 407, 408, 409 & 410 dt.27.2.99 so as to obtain the consent regarding acceptance thereof on or before 7.3.99.

14.1 The General Manager (RAU), Gridco, the Nodal Officer of the above noted cases in his letter Nos.102, 103, 104 & 105 dt.6.3.99 communicated acceptance of the draft Licence annexed to the Commission's letter referred to in para 13 above.

15. In the facts and circumstances of the case, the Commission hereby considers it appropriate to allow the applications and issues licences to Central Electric Supply Company Ltd., Southern Electric Supply Co. Ltd., North Eastern Electric Supply Company Ltd., and Western Electric Supply Company Ltd., for Distribution and Retail Supply of Electricity in respective areas of supply mentioned in the licence No.1/99, 2/99, 3/99 and 4/99 respectively. The licences shall be effective from Ist April, 1999 and shall be subject to terms and conditions mentioned in the licences.

16. It is further ordered that the above named petitioners shall publish a notice in one English and two Oriya dailies having largest circulation in the State of Orissa and one Oriya daily which has largest circulation at the headquarters of the four Distribution Zones for two days consecutively informing the general public that a copy of the Distribution & Retail Supply Licence is available at the headquarter office of Gridco at Bhubaneswar and at the headquarter office of the concerned Distribution Companies for free inspection for a period of two weeks.

Back to "Orders"