SERC has jurisdiction to regulate inter-state aspects of open access under the Electricity Act even when electricity originates from outside the State, as regulation depends on delivery and consumption within the state and not the origin of power.
[Ramayana Ispat Pvt Ltd. and Anr. v. State of Rajasthan and Ors – Civil Appeal No. 7964 of 2019 dated 01.04.2025]
The Supreme Court of India, vide its decision dated 01.04.2025 in Civil Appeal No. 7964 of 2019, has held that the Rajasthan Electricity Regulatory Commission (“RERC”) has jurisdiction under the Electricity Act, 2003 over the inter-State transactions even if the power originates from another State. The Appeals before the Bench stemmed from the writ petitions contesting the validity of the Rajasthan Electricity Regulatory Commission (Terms and Conditions for Open Access) Regulations, 2016 (hereinafter “Regulations of 2016”), framed by the RERC under Section 42 read with Section 181 of the Electricity Act, 2003. The primary grievance of the Appellants was the restrictions and conditions imposed by the Regulations of 2016 on the exercise of open access for captive power plants (CPPs) and other large electricity consumers.
The Appellants, including Hindustan Zinc Limited a major industrial consumer involved in mining and smelting operations relied on captive power plants (CPPs) and had agreements with state distribution companies to meet their substantial electricity needs. Under the Rajasthan Electricity Regulatory Commission (Terms and Conditions for Open Access) Regulations, 2004, they were permitted simultaneous drawal from CPPs, open access sources, and contracted demand without reduction.
However, the 2016 Regulations introduced significant changes, including capping simultaneous drawal and imposing penalties for deviations in scheduled power usage.
The Appellants challenged these changes before the Jodhpur and Jaipur Benches of the High Court, arguing that the regulations were arbitrary and, in the case of inter-state consumers, exceeded RERC’s jurisdiction. Both Benches upheld the validity of the 2016 Regulations, affirming RERC’s regulatory authority over open access. Dissatisfied, the Appellants appealed to the Supreme Court.
The Supreme Court of India dismissed the appeals and upheld the High Court orders, affirming the validity of the Regulations of 2016.
1. Whether the RERC had the jurisdiction to regulate inter-State open access under the Electricity Act 2003?
a. The Court held that RERC possesses jurisdiction to regulate intra-state aspects of open access, even for power sourced inter-state, under Sections 42 and 86(1)(c) of the Electricity Act 2003 by stating, “… when ‘Electricity’ which is a subject matter of Entry 38, List III is wheeled from outside the state and distributed within the state, the regulations governing such distribution within the state cannot, by any stretch, be termed to be suffering from any excess of jurisdiction.”
b. The key determinant is delivery, end-user, and consumption within Rajasthan’s intra-state grid, not the source of power. The regulation of inter state transmission falls under CERC per Section 79(1)(c), but intra-state delivery and consumption remain within RERC’s purview.
c. The Regulations of 2016 were found not to have extraterritorial effect, as they govern transactions impacting Rajasthan’s grid, and aligns with the Electricity Act 2003’s framework, ensuring intra state regulation remains with State Commissions under Sections 42 and 86(1)(c), distinct from CERC’s inter-state transmission authority under Section 79(1)(c).
2. Whether the imposition of penalties for variations in drawal from contracted demand amounts to an unreasonable restriction on the right to open access under Section 42 of the Electricity Act 2003?
a. The Court ruled that penalties for deviations from contracted demand are neither arbitrary nor unreasonable, serving the legitimate purpose of ensuring grid stability and preventing gaming practices, by observing, “…the regulations apply uniformly to all open access consumers, ensuring that there is no arbitrary targeting or discrimination. The principle of open access is not absolute and must be exercised in a manner that does not compromise the operational integrity of the power sector.”
b. Such penalties align with the objectives of Electricity Act 2003, maintaining grid stability and preventing disruptions, as any deviation from scheduled drawal or injection can lead to grid instability, potentially affecting all consumers.
3. Whether Regulation 26(7) is ultra vires for requiring an advance notice of 24 hours, thereby preventing urgent procurement and creating an artificial barrier to open access as protected by the Electricity Act 2003?
a. The requirement of 24-hour advance notice for short-term inter-state open access was upheld as a reasonable procedural safeguard, not ultra vires the Electricity Act 2003, by noting, “…the power system operates on a structured scheduling mechanism, and unregulated short term access without prior notice could lead to disruptions, frequency imbalances, and operational inefficiencies.”
b. Moreover, the Court said that the regulation does not create an insurmountable barrier to open access but rather seeks to bring order and predictability to its implementation and is not ultra vires, falling within RERC’s regulatory domain.
c. The Court found that it facilitates grid discipline and prevents disruptions, with alternatives like real-time and day-ahead markets available for urgent procurement.
4. Whether the Regulation 21 is arbitrary and discriminatory, thereby discouraging captive power generation by creating unreasonable distinction between captive generators and state distribution companies?
a. Regulation 21 was held neither arbitrary nor discriminatory, applying uniformly to all open access participants to ensure grid stability, by stating, “…there is no evidence to suggest that captive generators are being singled out or subjected to harsher conditions compared to other generators.”
b. The distinction between CPPs and DISCOMs arises from their structural roles, not arbitrariness.
c. The Court added, “…Regulation 21 does not impose undue restrictions on captive generators but ensures that their operations align with grid discipline” making it a proportionate measure balancing stakeholder interests.
5. Whether the Regulations of 2016 foreclose the Appellants’ right to open access?
The Court concluded that the Regulations of 2016 do not foreclose open access but regulate it within a structured framework to ensure fairness, grid reliability, and economic viability, consistent with Sections 42 and 181 of the Electricity Act 2003.
Regulation of Inter-State Open Access within the state, including electricity sourced from other states, as long as delivery and consumption occur within the state.
They have authority over scheduling protocols, deviations, and penalties to ensure grid stability, efficiency, and disciplined electricity usage.
Empowered to frame regulations governing open access terms, charges, and conditions for captive and non-captive consumers connected to the state’s distribution network.
The Supreme Court’s ruling reflects a pragmatic balance between the Appellants’ open access rights and the systemic imperatives of grid stability and equitable market operation. By affirming RERC’s jurisdiction over intra-state aspects of inter-state open access, the Court reinforces the Electricity Act 2003’s decentralized framework, distinguishing it from CERC’s inter state transmission role. The emphasis on delivery and consumption within Rajasthan, rather than the power’s origin, aligns with legislative intent under Sections 42 and 181, ensuring effective state-level oversight.
Supreme Court confirms that State Commissions like RERC can regulate intra-state open access even for power sourced from outside the state.
The judgment upholds the validity of RERC’s 2016 Regulations, reinforcing state-level oversight under the Electricity Act, 2003.
Open access users, including CPPs, must follow uniform scheduling, metering, and deviation norms to maintain grid stability.
The 24-hour notice rule limits ad hoc short-term power buys, urging businesses to plan electricity procurement in advance.
Deviation penalties will push industries toward tighter operational discipline and accurate demand forecasting.
Businesses face reduced flexibility in power sourcing, potentially impacting cost optimization strategies.
Firms may reconsider inter-state procurement and evaluate local generation or long-term contracts to stay compliant.
CPP investments may lose appeal unless integrated with grid discipline and structured power use.
The ruling promotes responsible energy use and strengthens market discipline in open access consumption.
SIDEBAR SPARKS | April 2025 | Vol 2