Introduction:

In a significant ruling, the Supreme Court of India addressed the complexities surrounding the determination of Cross-Subsidy Surcharge (CSS) under the Electricity Act, 2003. The case, Jaipur Vidyut Vitran Nigam Limited and Others v. Rajasthan Textile Mills Association and Another, citation 2025 LiveLaw (SC) 529, revolved around the timing and methodology of CSS determination by the Rajasthan Electricity Regulatory Commission (RERC). The apex court’s decision has profound implications for the power sector, particularly concerning the financial dynamics between distribution companies (discoms) and industrial consumers.

Background:

The dispute originated when the RERC issued an order on December 1, 2016, determining the CSS applicable from that date. This determination was based on the prevailing tariff rates established in the tariff order dated September 22, 2016, which remained in force until November 2, 2017. The Rajasthan Textile Mills Association, representing industrial consumers who procured electricity through open access, challenged this CSS determination before the Appellate Tribunal for Electricity (APTEL). They contended that the CSS should have been determined concurrently with the tariff order, arguing that the separate determination led to an unjustified increase in CSS rates.

APTEL, siding with the industrial consumers, set aside the RERC’s order, stating that the CSS determination should coincide with the tariff order to reflect the current level of cross-subsidy accurately. APTEL emphasised that decoupling the two processes could result in CSS rates based on outdated data, contravening the principle of progressive reduction of cross-subsidies as envisaged in Section 42 of the Electricity Act, 2003.

Arguments:

Appellants (Jaipur Vidyut Vitran Nigam Limited and Others):

The appellants argued that the RERC’s determination of CSS was valid and by Regulation 90 of the Rajasthan Electricity Regulatory Commission (Terms and Conditions for Determination of Tariff) Regulations, 2014. They asserted that the regulation allows for CSS to be determined separately from the tariff order, provided it is based on the prevailing tariff rates. The appellants contended that the September 22, 2016, tariff order was still in effect when the CSS was determined on December 1, 2016, thereby satisfying the requirement of alignment with current tariff rates.

Respondents (Rajasthan Textile Mills Association and Others):

The respondents maintained that the CSS determination should be intrinsically linked with the tariff order to ensure it reflects the current level of cross-subsidy. They argued that the separate determination led to a substantial increase in CSS rates, which was contrary to the legislative intent of progressively reducing cross-subsidies. The respondents emphasised that the decoupling of CSS determination from the tariff order lacked a legal basis and resulted in unfair financial burdens on open access consumers.

Supreme Court’s Judgment:

The Supreme Court, comprising Justices Abhay S. Oka and A.G. Masih, set aside APTEL’s decision, thereby upholding the RERC’s CSS determination. The Court clarified that while CSS should be consistent with the applicable tariff rates for the relevant financial year, it is not essential for CSS to be determined simultaneously with the tariff order. The Court emphasised that Regulation 90 does not mandate concurrent determination, provided the CSS is based on prevailing tariff rates.

The Court observed that the RERC’s tariff order dated September 22, 2016, was valid until November 2, 2017. Therefore, the CSS determination on December 1, 2016, based on the prevailing tariff rates, was legally acceptable. The Court highlighted that the law does not require CSS and tariff to be set together, and the formula in Regulation 90 explicitly ties CSS to the current applicable tariff, regardless of when it was decided.

The Court further noted that APTEL erred in interfering with the RERC’s decision, as CSS depends on the prevailing tariff at the time of calculation. The Court underscored that the determination of CSS is not necessarily a part of the tariff determination process and can be determined separately by Regulation 90 based on the prevailing rate of tariff.

Conclusion:

This ruling by the Supreme Court provides clarity on the procedural aspects of CSS determination under the Electricity Act, 2003. It affirms the regulatory commissions’ discretion to determine CSS separately from tariff orders, provided it aligns with prevailing tariff rates. This decision is pivotal for the power sector, as it balances the financial interests of distribution companies and industrial consumers, ensuring that CSS determinations are both legally sound and reflective of current economic realities.