MERC order on cross-subsidy cess upheld
MUMBAI, Dec 26, 2012 (Menafn - Mint - McClatchy-Tribune Information Services via COMTEX) --The Appellate Tribunal for Electricity (ATE) on Monday upheld the Maharashtra Electricity Regulatory Commission's (MERC) order levying a cross-subsidy surcharge on consumers who migrated from Reliance Infrastructure Ltd (R-Infra) to Tata Power Co. Ltd in Mumbai's suburbs.
Following this, a little more than 300,000 consumers in Mumbai will have to pay an additional charge ranging from three paise to 26 paise per unit, depending on the category they fall in.
A Tata Power spokesperson said on Tuesday the company is studying the order.
A spokesperson from R-Infra said, "We are happy that Hon'ble appellate commission agreed with us that Tata Power is laying network selectively and cherry picking high end consumers. ATE order will protect the interest of 23 lakhs low end subsidized consumers and will save them from huge tariff shocks."
The electricity distribution business in India is being organized on the principle of cross-subsidy. High-end industrial, commercial and residential consumers who consume more than 300 units a month are charged at higher rates to subsidize economically weaker consumers and the agriculture sector.
In 2008, the Supreme Court upheld Tata Power's contention that it was a universal supplier in Mumbai and could distribute power to retail consumers across the city. This paved the way for it to supply power to R-Infra consumers between Bandra and Bhyander on Mumbai's west and between Kurla and Mulund and Kurla and Mankhurd on the east.
Following the Supreme Court's order, MERC laid down the modalities for Tata Power to supply power to residential or retail consumers in suburban Mumbai in 2009. Tata Power was allowed to use R-Infra's network to supply power after paying so-called wheel-in-charges for using the network. Wheel-in-charges are charges paid by one electricity supplier to use another supplier's network.
R-Infra was not satisfied with the wheel-in-charges and demanded that it be allowed to collect cross-subsidy surcharge from consumers who had switched to Tata Power as the migration would result in higher tariffs for its economically weaker consumers.
In July 2011, MERC issued an order allowing the levy of cross-subsidy surcharge on Tata Power consumers using R-Infra's network.
Tata Power challenged the MERC order and some of its consumers including Mumbai International Airport Ltd and Indian Hotels Association joined it in opposing the move.
In its 24 December order, ATE observed that "a distribution licensee is to lay down its own distribution network for meeting the universal service obligation to consumers. In the present case, admittedly, the TPC (Tata Power Co.) had not set up its distribution system for nearly over a century in the entire area of its distribution licence. If TPC claims to be a parallel licensee, they are obliged to set up their own distribution system. It cannot claim any right whatsoever over the distribution system of R-Infra to meet its universal service obligations."
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