M/s Lord Chloro Alkali Limited vs Rajasthan Electricity Regulatory Commission & Ors on 28 August 2025

J U D G M E N T

PER HON’BLE MR. VIRENDER BHAT, JUDICIAL MEMBER

1. The open access consumers in the State of Rajasthan have filed this batch of five appeals impugning therein the order dated 24.08.2016 passed by Rajasthan Electricity Regulatory Commission (hereinafter referred to as the Commission) in petition no.548/2015 filed by the three discoms operating in the State of Rajasthan namely Jaipur Vidyut Vitran Nigam Limited (in short “JVVNL”), Ajmer Vidyut Vitran Nigam Limited (in short “AVVNL”), and Jodhpur Vidyut Vitran Nigam Limited (in short “JoVVNL”), whereby the Commission has determined the additional surcharge under Section 42(4) of

the Electricity Act, 2003 to be applicable on open access consumers in the State as Rs.0.80/kWh effective from 01.05.2016.

Description of the parties: -

2. Appellants in appeal no.282/2016 (namely M/s Lord Chloro Alkali Limited) has a manufacturing facility in Alwar in the State of Rajasthan and is retail supply consumer of JVVNL with a contract demand of 30,000kVa. It has also been granted open access permission within the contract demand and has been procuring electricity through open access from Indian Energy Exchange (IEX) since March, 2015.

3. Appellant in appeal no.313/2016 M/s Rajasthan Textile Mills Association is an association of textile mills in the State of Rajasthan which was formed by the different industrial units for their welfare and better functioning. The association had, on behalf of its members, filed objections before the Commission objecting to the levy of additional surcharge by the distribution licensees and participated in the hearing of the petition.

4. Appellant in appeal no.314/2016 M/s Rajasthan Steel Chambers is an association of steel industries in the State of Rajasthan and was formed by the different industrial units for their welfare and better functioning. This

association also had participated in the hearing of the petition before the Commission on behalf of its members.

5. Appellant in appeal no.165/2017 M/s Ambuja Cement Limited has its factory in the Village Rabriyawas Tehsil Jaitaran, District Pali, Rajasthan.

6. Appellant in appeal no.166/2017 M/s J K Cement Works has its factory premises in Kailash Nagar, Nimbahera, District Chittorgarh, Rajasthan.

7. The three distribution companies namely JVVNL, AVVNL and JdVVNL operating in the State of Rajasthan have been impleaded as respondents in these appeals apart from the Commission.

Facts relevant for the disposal of these appeals: -

8. It appears that the three distribution licensees operating in the State of Rajasthan namely JVVNL, AVVNL and JdVVNL had collectively approached the Commission by way of petition no.548/2015 for determination of additional surcharge under Section 42(4) and 39(2)(d) of the Electricity Act, 2003 read with Regulation 4(2) and 16 of RERC (Terms and Conditions for Open Access) Regulations, 2004 (in short Open Access Regulations, 2004). In response to the public notices issued by the Commission about the petition inviting objections/comments/suggestions from the persons desirous of

submitting the same, 41 organizations/entities including the appellants submitted their comments/suggestions. They also participated in the proceedings of the petition.

9. Upon considering the material before it and on hearing the petitioner as well as the objectors including the appellants, the Commission passed the impugned order dated 24.08.2016 thereby allowing the claim of the distribution licenses for additional surcharge from the open access consumers which was determined as Rs.0.80/unit to be effective from 01.05.2016.

Submissions on behalf of the parties: -

10. We have heard learned counsels appearing for the appellants as well as the learned counsel for the distribution companies. Written submissions filed by the learned counsels have also been perused.

11. The primary argument raised on behalf of the appellants is that the Commission has proceeded on the assumption that additional surcharge under Section 42(4) of the Electricity Act, 2003 is payable as and when there is stranded capacity and there are consumers who are obtaining electricity supply from open access from sources outside the area of the distribution licensee catering to area, which runs contrary to the principle for levy of

additional surcharge laid down by this Tribunal as well as by the Hon'ble Supreme Court. It is submitted that in order to be entitled to levy additional surcharge from open access consumers, the distribution licensee is required to successfully demonstrate that the stranded capacity is only on account of the open access consumers. It is stated that mere existence of stranded capacity, which could be on account of various other reasons not attributable to the open access consumers, does not warrant levy of additional surcharge from open access consumers.

12. It is also argued that the Commission has considered incorrect as well as uncertified data provided by the distribution companies and has, thus, arrived at an erroneous conclusion. It is argued that the rate at which the distribution companies have been permitted to levy additional surcharge from open access consumers is also unjustified and not based upon the data supplied by the appellants.

13. Learned counsels for respondent distribution licensees have emphatically refuted the submissions made on behalf of the appellants and have supported the impugned order on all four corners. It is argued that the levy of additional surcharge envisaged under Section 42(4) of Electricity Act is justified in the facts and circumstances of the instant case and hence, the impugned order does not suffer from any error or infirmity.

Our Analysis: -

14. Previously, the concept of open access was unknown. It has been introduced by way of Sub-section 2 of Section 42 of the Electricity Act, 2003 thereby enabling the consumers of electricity to procure the same from sources other than the distribution licensees of the area where the premises of such consumers are located. Prior to the enactment of the Electricity Act, 2003, all consumers of electricity were bound to obtain electricity only from the distribution licensee operating in the area where the premises of the consumer was situated. However, such freedom given to the consumer to procure electricity from any source other than the distribution licensee of his area, comes with a cost. First proviso attached to Sub-section 2 of Section 42 provides that open access shall be allowed on payment of surcharge in addition to the charges for wheeling as may be determined by the State Commission. Sub-section 4 of Section 42 envisages that such consumer availing open access shall be liable to pay an additional surcharge on the charges of wheeling as may be specified by the State Commission, to meet the fixed cost of such distribution licensee arising out of his obligation to supply electricity in its area.

15. We find it apposite to extract Section 42 of the Electricity Act, 2003 hereunder: - “Section 42. (Duties of distribution licensee and open access): --- (1) It shall be the duty of a distribution licensee to develop and maintain an efficient, co-ordinated and economical distribution system in his area of supply and to supply electricity in accordance with the provisions contained in this Act.

(2) The State Commission shall introduce open access in such phases and subject to such conditions, (including the cross subsidies, and other operational constraints) as may be specified within one year of the appointed date by it and in specifying the extent of open access in successive phases and in determining the charges for wheeling, it shall have due regard to all relevant factors including such cross subsidies, and other operational constraints:

Provided that such open access shall be allowed on payment of a surcharge in addition to the charges for wheeling as may be determined by the State Commission:

Provided further that such surcharge shall be utilised to meet the requirements of current level of cross subsidy within the area of supply of the distribution licensee :

Provided also that such surcharge and cross subsidies shall be progressively reduced in the manner as may be specified by the State Commission:

Provided also that such surcharge shall not be leviable in case open access is provided to a person who has established a captive generating plant for carrying the electricity to the destination of his own use:

Provided also that the State Commission shall, not later than five years from the date of commencement of the Electricity (Amendment) Act, 2003, by regulations, provide such open access to all consumers who require a supply of electricity where the maximum power to be made available at any time exceeds one megawatt.

(3) Where any person, whose premises are situated within the area of supply of a distribution licensee, (not being a

local authority engaged in the business of distribution of electricity before the appointed date) requires a supply of electricity from a generating company or any licensee other than such distribution licensee, such person may, by notice, require the distribution licensee for wheeling such electricity in accordance with regulations made by the State Commission and the duties of the distribution licensee with respect to such supply shall be of a common carrier providing non-discriminatory open access.

(4) Where the State Commission permits a consumer or class of consumers to receive supply of electricity from a person other than the distribution licensee of his area of supply, such consumer shall be liable to pay an additional surcharge on the charges of wheeling, as may be specified by the State Commission, to meet the fixed cost of such distribution licensee arising out of his obligation to supply.

(5) Every distribution licensee shall, within six months from the appointed date or date of grant of licence, whichever is earlier, establish a forum for redressal of

grievances of the consumers in accordance with the guidelines as may be specified by the State Commission.

(6) Any consumer, who is aggrieved by non-redressal of his grievances under sub-section (5), may make a representation for the redressal of his grievance to an authority to be known as Ombudsman to be appointed or designated by the State Commission.

(7) The Ombudsman shall settle the grievance of the consumer within such time and in such manner as may be specified by the State Commission.

(8) The provisions of sub-sections (5),(6) and (7) shall be without prejudice to right which the consumer may have apart from the rights conferred upon him by those sub- sections.”

16. Ordinarily, a consumer has to obtain electricity supply from the distribution licensee operating in the area where his premises is situated. However, as per the provisions of Section 42(2) of the Electricity Act, 2003, any consumer or class of consumers may, with the permission of the State

Commission, procure electricity supply from any source other than the distribution licensee of his/their area of supply subject to payment of additional surcharge on the charges of wheeling as may be specified by the State Commission under Section 42(4) to meet the fixed cost of such distribution licensee arising out of his obligation to supply. The rationale behind levy of additional surcharge from open access consumers is that the distribution licensee operating in a particular area has already incurred expenditure, executed Power Purchase Agreement and has invested money for supply of electricity to consumers in its area of supply as envisaged under Clause 1 of Section 42 and Clause 1 of Section 43 of the Electricity Act, 2003. These two provisions make it obligatory upon a distribution licensee to make arrangement for purchase of power from available sources in order to have adequate arrangement to supply electricity to the consumers in its area on continuous basis. Thus, a distribution licensee is permitted to levy additional surcharge from open access consumers to meet its fixed cost arising out of its obligation to supply electricity to the consumers of its area. Further, it is generally seen that only the industrial or bulk consumers choose to avail open access, who also pay electricity charges at relatively higher rates. Therefore, their exit would necessarily affect adversely the finances of the distribution licensee of their area thereby making it difficult for the distribution licensee to recover the fixed cost incurred by it as part of its

obligation to supply electricity to its consumers on demand, which is known as stranded cost and also making the distribution licensee unable to cross subsidize the vulnerable section of society.

17. The concept of open access and additional surcharge has been succinctly explained by the Supreme Court in Sesa Sterlite Limited v. Orissa Electricity Regulatory Commission and Ors. (2014) 8 SCC 444 as under: - “25. While open access in transmission implies freedom to the licensee to procure power from any source of his choice, open access in distribution with which we are concerned here, means freedom to the consumer to get supply from any source of his choice. The provision of open access to consumers, ensures right of the consumer to get supply from a person other than the distribution licensee of his area of supply by using the distribution system of such distribution licensee. Unlike in transmission, open access in distribution has not been allowed from the outset primarily because of considerations of cross-subsidies. The law provides that open access in distribution would be allowed by the State Commissions in phases. For this purpose, the State

Commissions are required to specify the phases and conditions of introduction of open access.

26. However open access can be allowed on payment of a surcharge, to be determined by the State Commission, to take care of the requirements of current level of cross- subsidy and the fixed cost arising out of the licensee’s obligation to supply. Consequent to the enactment of the Electricity (amendment) Act, 2003, it has been mandated that the State Commission shall within five years necessarily allow open access to consumers having demand exceeding one megawatt.

(3) Cross-Subsidy Surcharge (CSS) - Its Rationale

27. The issue of open access surcharge is very crucial and implementation of the provision of open access depends on judicious determination of surcharge by the State Commissions. There are two aspects to the concept of surcharge – one, the cross-subsidy surcharge i.e. the surcharge meant to take care of the requirements of current levels of cross-subsidy, and the other, the

additional surcharge to meet the fixed cost of the distribution licensee arising out of his obligation to supply. The presumption, normally is that generally the bulk consumers would avail of open access, who also pay at relatively higher rates. As such, their exit would necessarily have adverse effect on the finances of the existing licensee, primarily on two counts – one, on its ability to cross-subsidise the vulnerable sections of society and the other, in terms of recovery of the fixed cost such licensee might have incurred as part of his obligation to supply electricity to that consumer on demand (stranded costs). The mechanism of surcharge is meant to compensate the licensee for both these aspects.

28. Through this provision of open access, the law thus balances the right of the consumers to procure power from a source of his choice and the legitimate claims/interests of the existing licensees. Apart from ensuring freedom to the consumers, the provision of open access is expected to encourage competition amongst the suppliers and also to put pressure on the existing utilities to improve their performance in terms of quality and price of supply so as

to ensure that the consumers do not go out of their fold to get supply from some other source.”

18. We may also note that the Commission had framed open access regulations in the year 2016 i.e. RERC (Terms and Conditions for Open Access) Regulations, 2016, Regulation 17 of which provides as under: - “17. Additional Surcharge

(1) A consumer availing open access and receiving supply of electricity from a person other than the Distribution Licensee of his area of supply shall pay to the Distribution Licensee an additional surcharge, in addition to wheeling charges and cross subsidy surcharge, to meet the fixed cost of such Distribution Licensee arising out of his obligation to supply as provided under subsection (4) of section 42 of the Act.

The Distribution Licensee whose consumers intend to avail open access shall file a petition to the Commission, along with petition for determination of retail tariff, for determination of the additional surcharge to be levied from open access consumers. The petition shall contain details of quantum of stranded costs and the period over which these remained stranded and would be stranded.

The Commission shall scrutinize the statement of calculation of such stranded fixed cost submitted by Distribution Licensee and determine the amount of additional surcharge.

The consumers located in the area of supply of a Distribution Licensee but availing open access exclusively on inter-State transmission system shall also pay the additional surcharge as determined under these Regulations.”

19. Following provision in the National Electricity Policy 2005 notified by the Central Government in exercise of powers under Section 3 of the Electricity Act, 2003 is also material in this regard: -

“5.8.3 …….. An additional surcharge may also be levied under sub-section (4) of Section 42 for meeting the fixed cost of the distribution licensee arising out of his obligation to supply in cases where consumers are allowed open access. The amount of surcharge and additional surcharge levied from consumers who are permitted open access should not become so onerous that it eliminates competition that is intended to be fostered in generation and supply of power directly to consumers through the provision of Open Access under Section 42(2) of the Act. Further it is essential that the Surcharge be reduced progressively in step with the reduction of cross-subsidies as foreseen in Section 42(2) of the Electricity Act 2003."

20. National Tariff Policy 2006 notified by the Central Government contains following provision in this regard: - "8.5 Cross-subsidy surcharge and additional surcharge for open access

………………………….

8.5.4 The additional surcharge for obligation to supply as per section 42 (4) of the Act should become applicable only if it is conclusively demonstrated that he obligation of a licensee, in terms of existing power purchase commitments, has been and continues to be stranded, or there is an unavoidable obligation and incidence to bear fixed costs consequent to such a contract. The fixed cost related to network assets would be recovered through wheeling charges.”

21. Subsequent National Tariff Policy notified by the Central Government in the year 2016 specifies in this regard as under: - “8.5 Cross-subsidy surcharge and additional surcharge for open access …………….. 8.5.4 The additional surcharge for obligation to supply as per section 42(4) of the Act should become applicable only if it is conclusively demonstrated that the obligation of a licensee, in terms of existing power purchase

commitments, has been and continues to be stranded, or there is an unavoidable obligation and incidence to bear fixed costs consequent to such a contract. The fixed costs related to network assets would be recovered through wheeling charges"

22. In view of these statutory provisions, it is evident that the primary intention behind the concept of open access is to permit competition by providing freedom of choice to the consumers as regards the source from where they can procure electricity. At the same time, a balance has been created by permitting distribution licensees, with the permission of the State Commission, to levy additional surcharge on such consumers procuring electricity from sources other than the distribution licensee operating in their respective areas in order to meet their fixed costs. Therefore, it is limpid that the additional surcharge shall become applicable when it is conclusively demonstrated that the power purchase by the distribution licensee through long term determination has been and continues to be stranded solely on account of such open access consumers and not for any other reason.

23. In our considered opinion, in order to be entitled to levy additional surcharge from the open access consumers under Section 42(4) of the

Electricity Act, 2003, it would be obligatory upon the distribution licensee to demonstrate that they are unable to schedule power under the Power Purchase Agreements for the reason that the open access consumers have been procuring power from other sources due to which the power procured by the distribution licensee gets stranded. In saying so, we are fortified by the following observations of this Tribunal in judgment dated 15.09.2022 in Appeal Nos.260/2018 & 43/2021 titled Renew Power Limited & Ors. v Bangalore Electricity Supply Company Limited & Ors.: - “6. We agree that the basic rationale for imposition of additional surcharge is that the distribution licensees having entered into Power Purchase Agreements (PPAs) based on the demand in the State, under which there is an obligation to pay fixed charges, are entitled to the compensatory relief in the nature of additional surcharge. But, for this it is necessary for the distribution licensee demonstrates that they are unable to schedule power under the PPAs on account of open access customer taking power from other sources, the power procured by the licensees consequently getting stranded, this resulting in obligation on their part to pay fixed charges, the relief in the nature of additional surcharge being compensatory

[SESA Sterlite v. OERC reported in (2014) 8 SCC 444 and Maharashtra State Electricity Distribution Company Limited v JSW Steel Limited & Ors. (2022) 2 SCC 742]”

24. Perusal of the impugned order of the Commission would reveal that the Commission has altogether ignored this basic requirement for permitting the distribution licensees to levy additional surcharge on the open access consumers. We may note that on the basis of contentions and submissions of the parties, the Commission had framed following issues in Para 32 of the impugned order for its consideration and decision: - “(i) Whether petition filed by Discoms for determination of Additional Surcharge is maintainable?

(ii) Whether the Discoms’ claim for Additional Surcharge is legally valid as per the provisions of Electricity Act, 2003?

(iii) Whether Additional Surcharge has to be determined on a generic basis or it has to be on case to case basis?

(iv) Whether Additional Surcharge is payable by captive power generators/consumers?

(v) Whether Open Access consumers sourcing their power from RE generators are liable to pay Additional Surcharge?

(vi) What is the Additional Surcharge payable? And from what date?”

25. Evidently, the Commission did not frame any issue to determine whether or not was the stranded capacity of the distribution licensees solely on account of the fact that open access consumers have been procuring electricity supply from other sources. Since no issue was framed on this aspect by the Commission, there is no discussion at all in the entire impugned order in this regard. This is despite the fact that the objectors including the appellants had specifically stated in their reply/objections that backing down of power by the distribution licensees was not solely on account of open access consumers. These contentions/objections of the open access consumers haven been noted by the Commission in Paragraph no.10 of the judgment and are extracted hereinbelow: - “ …

(ii) Rajasthan is a power deficit State and the claim that generation capacity is being backed down/stranded due

to Open Access is flawed. Further, Petitioners have consistently been procuring power in short term market through tendering process which inter-alia depicts that the Petitioners are aware of power shortage well in advance. In these circumstances, the question of there being stranded cost and the need to determine Additional Surcharge does not arise.

(iii) Petitioners claimed that power is being backed down because the consumers are taking power through open access whereas the real reason for backing down is that the Petitioners are able to procure cheaper power from short term sources to such an extent that even the variable cost of the generators being backed down is more than the total cost of the short term purchase.

(iv) Surrender of power from generating station due to drawal by Open Access Consumers ought to be verified by SLDC for each time block.

(v) When the Discoms are not in a position to supply power to all the consumers, then there is no question of stranded cost. In fact, by covering the power deficit, the Open Access Consumers are helping the Discoms therefore, no Additional Surcharge be levied. Stranded cost should be with respect to power purchase already tied up and which is unable to be utilized in view of consumers opting for open access. ………………………. ………………………

(xii) The calculation of Discoms is based on the assumption that whatever power has been surrendered by Discoms is only on account of drawal of open access power which is misleading.”

26. Despite these objections of the open access consumers, the Commission committed a grave error in not requiring the distribution licensees to demonstrate that their inability to schedule power in the Power Purchase Agreement was solely on account of open access consumers who have chosen to procure electricity from other sources.

27. It has been pointed out by learned counsels for the appellants that the respondent distribution licensees have been procuring power on short-term basis as well as on Round the Clock (RTC) basis which belies their contention that they were having surplus capacity available which remained stranded. It is also submitted that these distribution licensees have been procuring substantial quantum of power on day ahead basis from Indian Energy Exchange for which there cannot be any justification if their claim that there was surplus quantum of power available with them to be backed down, is taken to be correct. It is also pointed out that the distribution licensees have admitted in additional affidavit dated 16.01.2025 that the backing down is on account of available cost optimization in which case, capacity would be stranded even without open access consumers.

28. All these contentions are material and need to be considered by the Commission while deciding whether the distribution licensees should be permitted to levy additional surcharge under Section 42(4) from the open access consumers.

29. In the light of the above discussion, we are unable to sustain the impugned order of the Commission as the same is found to be perverse. Same is hereby set aside. The case is remanded back to the Commission with the direction to conduct a fresh hearing in order to ascertain as to

whether the stranded capacity of the distribution licensees arising out of their inability to schedule the power under the Power Purchase Agreement was solely on account of the open access consumers who have been procuring power from other sources.

30. The appeals stand allowed and disposed off accordingly.

Pronounced in the open court on this the 28th day of August, 2025.

(Virender Bhat) Judicial Member (Sandesh Kumar Sharma) Technical Member (Electricity)

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REPORTABLE / NON-REPORTABLE

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