Summary
Rajasthan distribution licensees appealed under Section 125 of the Electricity Act, 2003 against an APTEL judgment setting aside the State Commission's order of 1 December 2016 determining the cross-subsidy surcharge (CSS) for open access consumers on the basis of the tariff fixed for FY 2015-16 by the order of 22 September 2016. The Supreme Court held that neither the Act nor the Rajasthan Tariff Regulations, 2014 require the CSS to be determined simultaneously with the tariff; under Regulation 90 the CSS is computed from the prevailing tariff, so the Commission's separate determination was valid. The APTEL judgment was set aside and the Commission's order restored for the period until the next tariff order of 2 November 2017.
Issues
- Whether the cross-subsidy surcharge under Section 42(2) of the Electricity Act, 2003 must be determined by the State Commission simultaneously with the determination of tariff, or may be determined separately on the basis of the prevailing tariff.
- Whether the APTEL was right in setting aside the State Commission's order dated 1 December 2016 determining the CSS on the basis of the tariff order dated 22 September 2016 for FY 2015-16.
Provisions considered
- Section 42(2) with its provisos, Electricity Act, 2003Sub-section (2) requires the State Commission to introduce open access; the first proviso allows open access on payment of a surcharge in addition to wheeling charges as determined by the Commission (this surcharge is the CSS), and the second proviso requires the surcharge to be used to meet the current level of cross-subsidy in the licensee's area. The Court read the provision, with Sesa Sterlite, as establishing the licensees' entitlement to the CSS as compensation for loss of cross-subsidisation, and found nothing in it requiring the CSS to be fixed at the same time as the tariff. (¶¶ 12, 13, 14, 15)
- Sections 61 and 181, Electricity Act, 2003Source of the State Commission's power to specify the terms and conditions for tariff determination and to make regulations, under which the Rajasthan Electricity Regulatory Commission (Terms and Conditions for Determination of Tariff) Regulations, 2014 were framed. (¶¶ 4, 15)
- Section 125, Electricity Act, 2003The appeals to the Supreme Court against the APTEL's common judgment were statutory appeals under this section. (¶ 1)
- Regulations 89 and 90, Rajasthan Electricity Regulatory Commission (Terms and Conditions for Determination of Tariff) Regulations, 2014Regulation 89 sets the basis for estimating cross-subsidy and requires it to be kept within +/- 20% of the average cost of supply; Regulation 90 prescribes the formula S = T - [C/(1 - (L/100)) + D] in which T is the tariff payable by the relevant consumer category. Because the formula is driven by the prevailing tariff, the CSS has to be determined on the prevailing tariff rates, and nothing in the Regulations makes simultaneous determination with the tariff mandatory. (¶¶ 4, 15, 19)
- Regulation 2(a)(60) and 2(a)(4), Rajasthan Electricity Regulatory Commission (Terms and Conditions for Determination of Tariff) Regulations, 2014'Tariff' is defined as the schedule of charges for generation, transmission, wheeling and supply with the terms and conditions of their application, and 'Aggregate Revenue Requirement' as the licensee's requirement for recovery of allowable expenses through tariffs. From the definition of tariff the Court concluded that determination of the CSS is not necessarily part of the tariff determination process. (¶¶ 15, 19)
Held
- The CSS is a statutory charge payable by consumers who source electricity through open access from sources other than the area distribution licensee; it compensates the licensee for being deprived of the cross-subsidisation built into the retail supply tariff. Following Sesa Sterlite Ltd. v. Orissa Electricity Regulatory Commission, the licensees' legal entitlement to the CSS could not be disputed. (¶¶ 3, 13, 14, 17)
- Neither the Electricity Act, 2003 nor the Rajasthan Tariff Regulations, 2014 contains any provision making determination of the CSS simultaneously with the determination of tariff mandatory. The definition of 'tariff' shows that CSS determination is not necessarily part of the tariff determination process: the CSS may be determined along with the tariff, or separately under Regulation 90 on the basis of the prevailing tariff. The APTEL erred in holding that the two determinations must always coincide. (¶¶ 15, 19)
- The CSS is in the nature of compensation qua the tariff the licensee would have received from the open access consumers but for their sourcing power elsewhere, and must therefore be based on the applicable retail tariff recoverable during the relevant period, which is precisely what Regulation 90 provides. The Commission's order of 1 December 2016 relied on the tariff fixed by the unchallenged order of 22 September 2016, which was the prevailing tariff and remained in force until the next tariff order of 2 November 2017; that order itself had not undertaken any CSS determination. The consumers were in fact not charged the CSS from 22 September 2016 until 1 December 2016. (¶¶ 16, 17, 19)
- Since the CSS was determined on the prevailing tariff rates, the APTEL ought not to have found fault with the Commission's determination; its view was erroneous and its judgment could not be sustained. (¶¶ 20, 21)
Result
Appeals allowed. The APTEL's judgment dated 15 September 2022 set aside and the State Commission's order dated 1 December 2016 determining the CSS restored, that order remaining in force only until the next tariff order dated 2 November 2017.