CSS Determination Need Not Be Simultaneous With Tariff Order; Can Be Based On Prevailing Tariff: Supreme Court - 2025-07-04

SC Upholds Separate Determination of Cross-Subsidy Surcharge, Overturns APTEL Ruling

New Delhi: In a significant ruling on electricity regulation, the Supreme Court has held that the determination of the Cross-Subsidy Surcharge (CSS) is not mandatorily required to be done simultaneously with a tariff order. A bench led by Justice Abhay S.Oka clarified that the surcharge can be determined separately, provided it is based on the prevailing tariff rates for the relevant period.

The Court set aside a judgment by the Appellate Tribunal for Electricity (APTEL), thereby restoring an order by the Rajasthan Electricity Regulatory Commission (State Commission) that had revised the CSS rates for industrial consumers using open access.

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Background of the Dispute

The case stems from a challenge by several industrial units in Rajasthan against an order by the State Commission dated December 1, 2016. These units, which procure electricity via "open access" from sources other than their local distribution licensees, were subjected to a revised, higher CSS.

The concept of CSS was introduced by the Electricity Act, 2003, to compensate distribution licensees. When large industrial consumers (who typically pay higher tariffs) opt for open access, the licensees lose the revenue used to cross-subsidise other consumer categories like agricultural and low-income domestic users. The CSS is a charge levied on open access consumers to make up for this shortfall.

The State Commission had passed a tariff order for the Financial Year (FY) 2015-2016 on September 22, 2016. Subsequently, on December 1, 2016, it passed a separate order determining the CSS based on the tariff fixed in the September order. The industrial units challenged this, leading to the appeal before APTEL.

Arguments Before the Court

Appellants (Distribution Licensees): Represented by senior counsel, the licensees argued that the December 1, 2016, order was valid as it was based on the prevailing tariff set by the September 2016 order. They contended that CSS is a consequential statutory obligation designed to compensate them, and its calculation must reflect the current tariff. They emphasized that there is no legal stipulation that CSS and tariff determination must coincide.

Respondents (Industrial Units): The industrial units supported the APTEL judgment, arguing that the CSS rates were part of the tariff regime and should not have been altered until a new tariff order was passed. They relied on APTEL precedents suggesting that CSS should be determined annually along with the tariff, based on current, audited data, not historical figures. They argued that the "quantum jump" in the CSS rate was unfair, especially since the licensees had delayed filing their tariff petitions for the subsequent year.

Court's Rationale and Legal Interpretation

The Supreme Court meticulously analyzed Section 42 of the Electricity Act, 2003, and the relevant Rajasthan Tariff Regulations, 2014. Justice Oka , writing for the bench, pointed out that the formula for calculating CSS in Regulation 90 is explicitly dependent on the "Tariff payable by the relevant category of consumers."

The judgment underscored that neither the Act nor the Regulations contain any provision making it mandatory for the determination of CSS to be simultaneous with the determination of tariff. The Court observed:

> "The CSS is in the nature of compensation qua the tariff, which the distribution licensees would have received from the open access consumers but for their availing power from other sources. Hence, the CSS must be based on the applicable retail tariff recoverable during the relevant period. That is precisely provided in Regulation 90."

The bench found APTEL's reasoning that the two determinations must coincide to be "erroneous." It noted that the State Commission had correctly used the prevailing tariff from the September 22, 2016 order to calculate the CSS effective from December 1, 2016. The Court also highlighted that the determination of CSS was not part of the tariff-setting exercise in the September 2016 order, justifying a separate order.

> "We find no basis for the opinion expressed by the APTEL that determination of the CSS should coincide with the tariff determination... The APTEL committed an error by holding that the determination of the tariff and the determination of the CSS should always coincide."

Final Decision and Implications

The Supreme Court allowed the appeals, setting aside the impugned APTEL judgment and restoring the State Commission's order of December 1, 2016. The Court clarified that the restored order would remain in force only until the next tariff order was passed, which occurred on November 2, 2017.

This decision provides crucial clarity on the procedural aspects of CSS determination, affirming the power of State Commissions to revise the surcharge based on the prevailing tariff, even if it is done separately from the main tariff order. It reinforces the principle that CSS is a dynamic charge meant to reflect the current tariff landscape to ensure fair compensation for distribution licensees.