Indian Railways liable to pay cross subsidy surcharge to Discoms: APTEL

The Appellate Tribunal for Electricity (APTEL) has ruled that Indian Railways is not a deemed distribution licensee and is liable to pay cross subsidy surcharge to Discoms for the power it procures.

The order, pronounced on Monday, was to settle the dispute between Indian Railways and Discoms on whether the former is a deemed distribution licensee.

Also, whether Railways is required to pay additional/ cross-subsidy surcharge to different Discoms if it chooses to procure electricity from sources other than the concerned Discom in whose area of supply it is situated.

Railways claim

Discoms from eight states including Maharashtra, Punjab and Madhya Pradesh had challenged Railways claim of being a deemed distribution licensee.

The development will lead to additional costs for Railways in procuring electricity to run operations. It was not immediately clear how much additional cost the transport and logistics behemoth will have to incur in meeting the additional/ cross subsidy surcharges.

According to the FY25 expenditure budget, Railways has a budget estimate of ₹23,101.62 crore under electricity from traction and another ₹1,941.99 crore under electricity for non-traction. In FY24, the revised estimate under electricity from traction stood at ₹20,892.26 crore, while that under electricity for non-traction was ₹1,871.70 crore.

The order

The APTEL order said “It is held that Indian Railways is not a deemed distribution licensee falling within the ambit of the third proviso to Section 14 of the Electricity Act as it does not distribute/ supply electricity (i.e. sell electricity to consumers for a price) as required of a distribution licensee under the Electricity Act; and, even otherwise, as the entire electricity which it receives from the Grid is completely consumed by it and its constituents, it is required to pay additional/ cross-subsidy surcharge to different distribution licenses under Section 42 of the Electricity Act, if it chooses to procure electricity from sources other than the concerned distribution licensees within whose area of supply it is situated.”

In its analysis, the APTEL said the objective to be achieved by Section 42, in imposing cross subsidy surcharge where a consumer, within the area of supply of a Discom, seeks open access is to compensate the concerned Discom for the adverse financial impact caused to them as a consequence of a consumer opting to avail electricity through a source other than the said Discom.

“The exit of a consumer, from within its consumer base, would undoubtedly disable the distribution licensee from recovering a part of its fixed cost which it was hitherto recovering from the said consumer. It is evidently with a view to protect the interests of the consumer in exercising his choice to procure electricity from any source he chooses, while at the same time ensuring that the distribution licensee does not suffer financial loss in the process, that this requirement of payment of additional surcharge/cross subsidy surcharge has been stipulated under Sections 42(2) and (4) of the Electricity Act,” it added.

Bone of contention

Railways claimed the status of a deemed distribution licensee as that would result in their not having to incur with additional/ cross subsidy surcharge.

Their case was that if they are held entitled to procure electricity directly from Gencos as deemed distribution licensees, they would be able to reduce their financial burden, which would enable them to reduce the rates being charged on railway passengers and for transportation of goods by the Railways.

The Discoms challenged this claim on two counts. First, Indian Railways is merely a consumer of electricity and not a deemed distribution licensee.

Second, even if it is presumed to be so, it is nonetheless required to pay additional/ cross-subsidy surcharge to the concerned Discom on availing open access and procuring electricity directly from generators and others.

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