Railways staring at higher electricity costs after Supreme Court rules it qualifies as ‘consumer’

NEW DELHI: Indian Railways is staring at higher electricity costs after the Supreme Court last week ruled that the national transporter qualifies as a “consumer” under the Electricity Act. As a result, it will remain liable to pay cross-subsidy surcharge (CSS) and additional surcharge while buying electricity through open access for its own consumption, impacting railways’ operating ratio.

This is likely to increase railways’ power procurement expenses. It had argued that railways should not be treated as a conventional consumer because it distributes electricity across its vast operational network. However, SC rejected this contention and clarified that railways purchases electricity through open access “exclusively for self-consumption”, and therefore, falls within the definition of a consumer under Electricity Act, 2003.

The order passed by a two-judge bench comprising Justices Dipankar Datta and Satish Chandra Sharma said, “It is clear, for the reasons elaborated hereinabove, that the appellant (Indian Railways) does not pass muster as a deemed distribution licencee under the Act, and it can in no circumstances escape the liability from payment of cross-subsidy surcharge and additional surcharge as a consumer of electricity through open access.”

The court directed the state electricity distribution companies to calculate and issue a detailed statement of outstanding CSS and additional surcharge payable by the appellant. It added the calculation must clearly specify the amount based on the area of supply and the period during which open access was used. “The appellant shall be afforded a reasonable opportunity to respond to the said calculations, and be granted time,” it said

The dispute originated when railways sought to procure 100 MW of power via inter-state open access for its traction substations in Maharashtra. Maharashtra State Electricity Transmission Co refused connectivity, prompting railways to seek a declaration from the Central Electricity Regulatory Commission (CERC) that it is a Deemed Distribution Licensee (DDL) exempt from surcharges.

CERC ruled in favour of railways in 2015, but it was challenged by several State Electricity Regulatory Commissions (SERCs) and discoms. The Appellate Tribunal for Electricity (APTEL), in its final judgment of Feb 12 2024, set aside the CERC order, holding that railways is a consumer and not a DDL.

Railways challenged these orders in the SC.