Indian Railways Liable To Pay Cross Subsidy Charges Under Open Access, Declares APTEL

In a 387 page judgement on the liability of the Indian Railways to pay cross subsidy charges, involving multiple (8) appeals from discoms across the country, the Appellate Tribunal For Electricity (APTEL) has ruled in favour of the discoms.

The crux of the dispute, in the batch of appeals, was whether Indian Railways is a deemed distribution licensee under the third proviso to Section 14 of the Electricity Act and, if so, whether it is still required to pay additional/cross-subsidy surcharge to different distribution licensees 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. Railways claim the status of a deemed distribution licensee as that would result in their not being liable for additional/cross subsidy surcharge under Section 42 of the Electricity Act. Their case, in
short, is that, if they are held entitled to procure electricity directly from generators as deemed distribution licensees, they would be able to reduce their financial burden to the extent they are otherwise required to pay additional/cross-subsidy surcharge to different distribution licensees in different States in the country; and this would, in turn, enable them to reduce the rates being charged on railway passengers and for transportation of goods by the Railways.

The discoms on the other hand, based their appeal on two issues. Firstly, that Indian Railways is merely a consumer of electricity, and not a deemed distribution licensee; and secondly, even if it is presumed to be so, it is nonetheless required to pay additional/cross-subsidy surcharge, under Section 42 of the Electricity Act, to the concerned distribution licensees on availing open access and procuring electricity directly from generators and others.

The APTEL bench found the railways failing the test of meeting requirements to be a deemed distribution licensee. “As Railways does not supply electricity to consumers, (ie it does not sell electricity to unrelated third parties for a price), it needs no re-iteration that the test of being a “distribution licensee” under Section 2(17) of the Electricity Act, as also the requirement of distributing electricity, is not fulfilled by the Railways”. declared the bench.

That made the issue of getting into the jurisdiction of CERC to decide on Railway’s licensee status irrelevant in view of the bench, closing the issue in favour of the discoms. For the railways, the additional charges will certainly hurt a little, as it continues to electrify operations increasingly, leading to a higher energy demand for its operations.  In the 2022-23 budget document, a sum of Rs 6496 crores has been cited as motive power costs in fact. Any additional charges on that number will obviously be significant on a standalone basis, although with the long term plans it has in place for captive power supplies, we expect the final impact to be much lower over the next few years.