Captive Power Consumers Not Liable to Pay Additional Surcharge: Supreme Court

The Supreme Court of India, in a recent order, ruled that captive power consumers were not liable to pay an additional surcharge under Section 42 (4) of the Electricity Act, 2003.

The court said that since it would be a significant liability for the distribution company (DISCOM) to refund the additional surcharge collected,  the amount must be adjusted in future bills for wheeling charges.

It said that captive users formed a separate class other than the consumers defined in the Electricity Act, 2003, and should not be liable to pay an additional surcharge.

The Maharashtra State Electricity Distribution Company Limited (MSEDCL) had challenged the Appellate Tribunal for Electricity’s (APTEL) order which set aside the Maharashtra Electricity Regulatory Commission’s (MERC) order ruling that captive users were liable to pay an additional surcharge.


Background

MSEDCL had filed a petition with the State Commission for multi-year tariff approval for the financial year (FY) 2015-16, provisional truing up of the Aggregate Revenue Requirement (ARR) for the FY 2015-16, and multi-year tariff for the third control period from FY 2016-17 to FY 2019-20.

The State Commission had held that the additional surcharge under Section 42(4) of the Electricity Act, 2003 did not apply to captive users to the extent of their self-consumption from such projects. The State Commission had also held that the additional surcharge would apply to all consumers who availed open access to receive supply from sources other than the distribution licensee to which they were connected.

Aggrieved by the State Commission’s order,  JSW Steel approached APTEL. APTEL, in its order, set aside the State Commission’s order allowing the additional surcharge to be levied.

Supreme Court’s analysis

The apex court observed that anyone who has a captive generating project has the right to open access to carry electricity from the captive power project to the destination of use, subject to the availability of the transmission facility.

The court said that DISCOM’s contention that captive generation was governed by the Electricity Act 2003 and open access to carry electricity from captive power projects to the destination of use attracted additional surcharge had no substance.

It said the right to open access to transmit electricity to the captive user was granted by the Act and did not require the State Commission’s permission.

The court added that sub-section (4) of Section 42 would be applicable only in a case where the State Commission permits a consumer or class of consumers to receive the supply of electricity from a person other than the distribution licensee of the area of supply. Only such consumers would be liable to pay an additional surcharge on wheeling charges. Captive users required no such permissions.

The Supreme Court noted that the captive consumers were different and distinct and formed a separate class. As far as captive consumers were concerned, they incurred a considerable expenditure for constructing, maintaining, and operating a captive generating plant and dedicated transmission lines.

However, the consumers defined under Section 2(15) did not incur any such expenditure. Therefore, the DISCOM’s argument that captive users should be subjected to the levy of an additional surcharge under Section 42(4) would be discriminatory.

In June this year, MERC asked Exide Industries not to pay any additional surcharge for captive power consumption and directed MSEDCL not to levy any additional surcharge in the future. It also asked the state DISCOM to refund Exide’s additional surcharge already paid.

Last April, MERC had announced various charges payable by open access consumers for the financial year 2020-21 to 2024-25.

Subscribe to Mercom’s real-time Regulatory Updates to ensure you don’t miss any critical updates from the renewable industry.