2025 Supreme(Online)(APTEL) 75

APPELLATE TRIBUNAL FOR ELECTRICITY
Sandesh Kumar Sharma, Technical Member, Virender Bhat, Judicial Member
Tamil Nadu Generation and Distribution Corporation Ltd. (TANGEDCO) – Appellant
Versus
Tamil Nadu Electricity Regulatory Commission – Respondent
APPEAL No. 47 of 2019

Deemed distribution licensee status under the SEZ Act does not divest State Commissions of regulatory oversight; mere status does not exempt from scrutiny of infrastructure, performance, and consumer service obligations.

Headnote:(A) Electricity Act, 2003 - Sections 2(17), 2(70), 14, 15, 19, 24, 42(2), 43, 62(1)(d) and 131 - Special Economic Zones Act, 2005 - Section 2(g) and 49(1) - Tamil Nadu Electricity Regulatory Commission (Licensing) Regulations, 2005 - Tamil Nadu Electricity Regulatory Commission (Terms and Conditions for Determination of Tariff) Regulations, 2005 - Notification S.O.528(E) dated 03.03.2010 issued by Ministry of Commerce and Industry granting deemed distribution licensee status to Developer of Special Economic Zone.

(B) Deemed Distribution Licensee - Scope of Regulatory Scrutiny - The mere conferment of deemed distribution licensee status by way of a central notification does not divest the State Commission of its jurisdiction to ensure that such entity is technically and financially equipped to discharge the functions of a distribution licensee in accordance with the statutory framework. The State Commission retains the power to verify readiness, infrastructure, technical capacity, and consumer interface. The licensing regime continues to apply to the extent not inconsistent with the deemed licensee notification. (Paras 85-89)

(C) Deemed Distribution Licensee - Cross-Subsidy Surcharge (CSS) - CSS is a statutory mechanism under Section 42(2) of the Electricity Act, 2003 designed to protect the financial stability of incumbent licensees. However, CSS is not leviable on a parallel distribution licensee or a deemed licensee merely by virtue of parallel licensing. CSS arises only in the case of open access arrangements where a consumer opts to take supply from someone other than the distribution licensee in whose area it is situated. (Paras 110-115)

(D) Deemed Distribution Licensee - Performance Obligation - Deemed licensee status is not an end in itself; it carries a functional obligation to serve consumers. Continued retention of deemed licensee status in the absence of any physical distribution infrastructure, consumer applications, or actual supply of electricity is unjustified. The State Commission is empowered to evaluate performance and take action under Section 19 and Section 24 of the Act, read with applicable regulations, but action for revocation must follow due process. (Paras 94-105)

Facts of the case:
The Appellant, TANGEDCO, challenged the Impugned Order dated 21.08.2018 passed by the Tamil Nadu Electricity Regulatory Commission (TNERC) whereby Respondent No. 2, a co-developer of the AMRL Hitech City Special Economic Zone (SEZ), was recognized as a deemed distribution licensee under Section 14(b) of the Electricity Act, 2003 read with the Ministry of Commerce and Industry's Notification dated 03.03.2010 concerning SEZs. The SEZ was notified on 18.11.2008 covering an area of 1019.22.5 hectares in Tirunelveli District. Respondent No. 2 had acquired co-developer status through an MOU and subsequent approvals. A Capital Investment Plan filed by Respondent No. 2 was approved by TNERC, which noted with displeasure that no physical work had been carried out and no expenditure incurred for the control period FY 2019-20 to FY 2021-22. Respondent No. 2 admitted that even after nearly eight years since the effective date of deemed status (17.04.2017), no physical distribution infrastructure had been established, and no consumer applications had been received.

Findings of Court:
The Appellate Tribunal for Electricity held that TNERC correctly recognized Respondent No. 2 as a Deemed Distribution Licensee while ensuring compliance with necessary regulatory conditions. The conferment of deemed licensee status does not operate in a vacuum, and the State Commission retains jurisdiction to ensure the entity is equipped to discharge its functions. The Tribunal noted that if the Appellant was aggrieved by the Central Government's Notification dated 03.03.2010, it should have challenged it at the appropriate forum. Regarding the absence of infrastructure, the Tribunal held that continued retention of deemed licensee status without any tangible distribution function is unjustified, but action for revocation must follow due process. On the issue of cross-subsidy surcharge, the Tribunal held that CSS is not payable simply by virtue of parallel licensing absent open access, and such issue remains premature, to be adjudicated by the State Commission when supply commences.

Issues: The main issues were: (i) whether TNERC was justified in recognizing Respondent No. 2 as a deemed distribution licensee without requiring compliance with Licensing Regulations and other statutory preconditions; (ii) whether Respondent No. 2 could continue to retain deemed licensee status in the absence of any physical distribution infrastructure, consumer applications, or actual supply of electricity even after a prolonged period; and (iii) whether TANGEDCO was entitled to levy cross-subsidy surcharge on account of potential migration of subsidizing consumers to the SEZ area, and whether the Commission erred in not addressing this issue.

Ratio Decidendi: The court ruled that deemed licensee status, while statutorily conferred, is not immune to scrutiny and must correspond to actual performance and readiness to serve. The State Commission retains the power to verify readiness, infrastructure, and technical capacity even after conferring deemed status. CSS is not leviable on a parallel licensee but only arises in open access arrangements. The issue of CSS is premature and to be adjudicated by the State Commission when supply commences. Result : Appeal No. 47 of 2019 dismissed. Impugned Order dated 21.08.2018 in L.P. No. 1 of 2017 of TNERC upheld in all respects.

JUDGEMENT

PER HON’BLE MR. SANDESH KUMAR SHARMA, TECHNICAL MEMBER

1. The captioned appeal has been filed by M/s. Tamil Nadu Generation and Distribution Corporation Ltd. (in short “TANGEDCO”) inter alia challenging the Impugned Order dated 21.08.2018 passed by the Tamil Nadu Electricity Regulatory Commission (in short “TNERC” or “Commission”) in L.P. No. 1 of 2017.

Description of the Parties

2. The Appellant, Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) is the distribution licensee for the State of Tamil Nadu and is wholly owned by the State Government and is the successor of the erstwhile Tamil Nadu Electricity Board, formed pursuant to its unbundling under a transfer scheme, in terms of Section 131 of the Electricity Act, 2003.

3. The Respondent No. 1, the Tamil Nadu Electricity Regulatory Commission (TNERC), established under Section 82 of the Electricity Act, 2003, inter alia, is the appropriate Commission to adjudicate the issue.

4. The Respondent No. 2 is the Tuticorin Electricity Supply Private Limited (in short “TESPL” or “R-2”), which is a private company engaged in the production, collection, and distribution of electricity.

Factual Matrix of the Case

5. This appeal has been filed by the Appellant (TANGEDCO) against the order dated 21.08.2018 passed by the Tamil Nadu Electricity Regulatory Commission in L. P. No. 1 of 2017. The Appellant contended that the TNERC failed to appreciate that there is no amendment carried out under the Electricity Act, amending section 14 of the Act, 2003.

6. Further contended that the Notification under Sub-Section (1) of Section 49 of the SEZ Act cannot insert a proviso to a section under the Electricity Act, which is a special Act enacted by the Parliament. There needs to be an amendment to the Act of 2003, duly validated by Parliament. There is no amendment to Section 14 of the Electricity Act, 2003, and the Act remains the same.

7. Also argued that the Regulations and tariff orders make payment of cross- subsidy charges mandatory by all consumers of the distribution licensee, including the open access consumers. The SEZ developer is an open-access consumer of the Appellant. The SEZ developer is connected to the distribution network of the distribution licensee. The notification does not exempt anyone connected to the distribution network of the distribution licensee from payment of the cross-subsidy surcharge.

8. It is in the above circumstances that the findings of TNERC aggrieve the Appellant in the impugned order and has preferred the present Appeal.

Written Submissions of the Appellant, TANGEDCO

9. The Appellant, TANGEDCO, has challenged the Order dated 21.08.2018 passed by the TNERC in Petition L.P. No. 1 of 2017. The said Petition was filed by Tuticorin Electricity Supply Private Limited (formerly India Power Corporation (Tuticorin) Private Limited), seeking formal recognition as a deemed distribution licensee under Section 14 of the Electricity Act, 2003, read with the Ministry of Commerce and Industry’s Notification dated 03.03.2010 concerning Special Economic Zones (SEZs).

10. By the impugned Order, TNERC held that Respondent No. 2 is a deemed distribution licensee with effect from 17.04.2017 in respect of the SEZ notified by Notification No. S.O. 2690(E) dated 18.11.2008, covering an area of 1019.22.5 hectares in various villages of Tirunelveli District, Tamil Nadu.

Brief Factual Background:

11. On 24.06.2005, TNERC enacted the TNERC (Licensing) Regulations, 2005 to establish a structured and transparent process for granting transmission and distribution licences in Tamil Nadu, aimed at promoting efficiency, competition, and consumer protection.

12. Subsequently, on 23.05.2007, the Ministry of Commerce and Industry issued a Letter of Assurance to Tamil Nadu Industrial Development Corporation Limited (TNIDCL) for setting up a multi-product SEZ in Tirunelveli district. Upon TNIDCL’s request, on 28.08.2008, the Central Government approved the transfer of SEZ rights to AM

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