The court upheld that cross-subsidy surcharges are constitutional and integral to the Electricity Act's framework, ensuring fair distribution of electricity costs.

JUDGMENT :

VIBHU BAKHRU, C.J.

1. The appellant is a company incorporated under the Companies Act, 1956. It claims that it is a Special Purpose Vehicle [SPV], which owns, operates and maintains wind power generating stations in the State of Karnataka.

2. The appellant has filed the present appeal impugning an order dated 20.12.2024 passed by the learned Single Judge of this Court in WP.No.4344/2024 (GM-KEB), whereby the said petition was dismissed.

3. The appellant had filed the said petition, inter alia, praying that the proviso to Section 42 (2) of the Electricity Act , 2003 [ Electricity Act ] to the extent that it makes open access conditional upon payment of cross-subsidy surcharge be struck down. In the alternative, the appellant had prayed that an order be issued to read down the said proviso for ensuring continuity of open access in a fair and a competitive environment. A plain reading of the writ petition indicates that the appellant had challenged the said proviso as violative of Article 14 of the Constitution of India. The appellant contended that the cross-subsidy surcharge had become archaic/arbitrary with the passage of time and had no nexus with the object of the Electricity Act .

4. The learned Single Judge had found no merit in the challenge. The learned Single Judge rejected the contention that the proviso to Section 42 (2) of the Electricity Act was manifestly arbitrary or infringed upon any fundamental right. Further, there was no challenge to the legislative competence of the Parliament to enact the Electricity Act . Thus, the petition preferred by the appellant was rejected.

5. The learned Senior Counsel appearing for the appellant contended that the Electricity Act was enacted for introducing reforms in the electricity sector. He also referred to the decision in the case of Tata Power Co. Ltd. v. Reliance Energy Ltd : (2009) 16 SCC 659 and on the strength of the said decision contended that the Electricity Act aimed at removing licensing constraints on generation and encouraging free competition. He submitted that the cross-subsidy surcharge was only a stop gap arrangement and therefore the proviso to Section 42 (2) of the Electricity Act , which in effect recognizes continuation of cross subsidies, is contrary to the principal object of the Electricity Act . He submitted that since the proviso has no nexus with the object of the Electricity Act , the same is liable to be struck down, or at any rate read down as violative of Article 14 of the Constitution of India.

6. Before proceeding further, it would be relevant to set out Section 42 of the Act, which reads as under:

"42. Duties of distribution licensees 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 ³[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