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Power Play Unlocked: Supreme Court Frees CSS from Tariff Orders | May | Vol II

[Jaipur Vidyut Vitran Nigam Limited v. Rajasthan Textile Mills Association – Civil Appeal No. 8861-8868 of 2022 dated 29.04.2025]

The Supreme Court of India, vide its decision dated 29.04.2025, in Civil Appeal Nos. 8862-8868 of 2022, has held that the determination of Cross Subsidy Surcharge (“CSS”) by a State Electricity Regulatory Commission is not required to be tied to the issuance of tariff orders under the Electricity Act, 2003 (hereinafter “EA 2003”). The Supreme Court of India set aside the Appellate Tribunal for Electricity’s (“APTEL”) decision which had held that CSS could only be determined as part of a tariff order. The Court affirmed that Regulation 90 of the Rajasthan Electricity Regulatory Commission (Terms and Conditions for Determination of Tariff) Regulations, 2014 permits independent CSS determination based on prevailing tariff rates, ensuring compensatory recovery for distribution licensees.

BACKGROUND:

Jaipur Vidyut Vitaran Nigam Limited and other distribution licensees (hereinafter “the Appellants”) filed Civil Appeal Nos. 8862-8868 of 2022 under Section 125 of the Electricity Act, 2003, challenging the judgment issued by the Appellate Tribunal for Electricity (“APTEL”). The appeals arose from APTEL’s decision to set aside the Rajasthan Electricity Regulatory Commission’s (“RERC”) order dated 01.12.2016, which determined CSS for open access consumers under Section 42(2) of the EA 2003.

The Respondents, including Rajasthan Textile Mills Association and other industrial units, are large-scale consumers operating in Rajasthan, drawing electricity through the state grid at EHT levels (132/33/11 KV) via open access, including from power exchanges. The genesis of the dispute lies in the RERC’s tariff determination process for Financial Year (FY) 2015-2016. On 22.09.2016, the RERC issued a tariff order fixing retail supply tariffs for various consumer categories, effective from 01.09.2016, and declared to remain in force until a subsequent tariff order was issued. Notably, the distribution licensees did not file a tariff petition for FY 2016-2017, meaning the FY 2015-2016 tariff order continued to govern. On 20.07.2016, while the FY 2015-2016 tariff petition was pending, the Appellants filed a separate petition before the RERC, seeking determination of CSS for open access consumers under Section 42(2), read with Sections 39 and 40 of the EA 2003, the National Tariff Policy, 2016, and the Rajasthan Electricity Regulatory Commission (Terms and Conditions for Determination of Tariff) Regulations, 2014 (hereinafter “Regulations of 2014”).

On 01.12.2016, the RERC determined the CSS rates based on the FY 2015-2016 tariff order’s data and financials. The RERC clarified that these rates, computed using the formula under Regulation 90 of the Regulations of 2014, would apply from 01.12.2016, until revised by a subsequent CSS or tariff order. The Respondents, aggrieved by the CSS determination, filed statutory appeals before APTEL, challenging the RERC’s order on multiple grounds:

  • The Respondents argued that CSS determination must occur concurrently with tariff fixation, relying on APTEL’s precedents in Tata Power Company Limited v. Maharashtra Electricity Regulatory Commission (Appeal No. 107 of 2013, decided on 28.11.2014) and Reliance Infrastructure Limited v. Maharashtra Electricity Regulatory Commission (Appeal No. 178 of 2011, decided on 02.12.2013). They contended that the separate CSS order violated this principle.
  • Citing APTEL’s decision in D.P. Chirania v. Rajasthan Electricity Regulatory Commission (Appeal No. 16 of 2014, decided on 18.05.2015), the Respondents asserted that the RERC’s reliance on FY 2015-2016 tariff data, without audited data for FY 2016-2017, rendered the CSS determination procedurally flawed.
  • The Respondents claimed that the CSS rates, which marked a significant increase contravened Section 42(2) of the EA 2003, which mandates progressive reduction of cross-subsidies to minimize consumer burden.
  • The Respondents highlighted that the tariff order of 22.09.2016, explicitly stated it would remain in force until the next tariff order, i.e. till 02.11.2017. They argued that revising CSS before this date was impermissible, as CSS rates were integral to the tariff regime.

APTEL, in its impugned judgment, allowed the Respondents’ appeals, quashing the RERC’s order of 01.12.2016. APTEL held that CSS determination must be contemporaneous with tariff fixation, emphasizing the absence of a FY 2016-2017 tariff petition and the need for current data. It further noted that the significant increase in CSS rates was inconsistent with the Act’s policy of progressive reduction. However, APTEL permitted the RERC to revisit CSS determination during future tariff exercises in accordance with law. Dissatisfied with APTEL’s decision, the Appellants escalated the matter to the Supreme Court, seeking restoration of the RERC’s order.

ISSUES:

The Supreme Court framed the following issues for adjudication:

  • 1. Whether the RERC’s determination of CSS vide its judgment dated 01.12.2016, based on the FY 2015-2016 tariff order, was lawful despite the absence of a tariff petition for FY 2016-2017?
  • 2. Whether APTEL correctly held that CSS determination must always coincide with tariff determination?
  • 3. Whether the RERC’s CSS order, based on the FY 2015-2016 tariff, was validly aligned with prevailing tariff rates?

DECISION:

The Supreme Court in its judgment, rejected APTEL’s reasoning and held that neither the EA 2003 nor the Regulation of 2014 preclude the independent determination CSS separate from tariff fixation. The Court elucidated that Regulation 90 of Regulation of 2014 explicitly prescribes a standalone methodology for calculating CSS, anchored to the prevailing retail tariff, thereby permitting its determination independently of tariff orders.

It affirmed that while CSS may be fixed concurrently with tariffs, however, the RERC vide its order dated 01.12.2016 set a benchmark of validly establishing CSS through a separate process.

The Court underscored the compensatory essence of CSS, representing the tariff that distribution licensees would have recovered from open access consumers had they not sourced power externally. Consequently, CSS must correspond to the retail tariff applicable during the relevant period, irrespective of whether it is determined within a tariff order or via a distinct proceeding. The Court found APTEL’s insistence on simultaneous CSS and tariff determination to be erroneous, as no statutory or regulatory provision mandates such concurrence.

Further, the Court noted that the RERC’s order of 01.12.2016, relied on the financials and data from the tariff order dated September 22, 2016, and remained effective until superseded by the subsequent tariff order of 02.11.2017. Given that the CSS rates were computed based on the prevailing tariff, the Court held that APTEL’s criticism of the RERC’s determination was unfounded.

Accordingly, the Supreme Court set aside APTEL’s judgment, restoring the RERC’s order

ANALYSIS:

The Supreme Court’s judgment clarifies that CSS determination need not be contemporaneous with tariff fixation, affirming State Commissions’ flexibility under the EA 2003. By upholding the methodology provided under Regulation 90, the Court ensures CSS aligns with prevailing tariffs, preserving its compensatory role. The decision mitigates financial strain on distribution licensees by ensuring CSS recovery, particularly when open access consumers opt for alternative sources, preserving the cross-subsidy mechanism for subsidized consumers like agricultural and low-end domestic users. For industrial consumers, the judgment implies stricter compliance with CSS obligations, potentially increasing costs but ensuring market equity. The Court’s rejection of APTEL’s procedural rigidity strengthens regulatory certainty, discouraging challenges based on formalistic grounds absent substantive illegality.

Overall, the judgment balances the EA 2003’s dual goals of promoting open access and safeguarding licensee viability, providing a precedent for State Commissions to exercise pragmatic regulatory discretion within statutory bounds.

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