Supreme Court To Examine TN Power DisCom's Challenge Against Electricity Rule Mandating That Tariff Should Reflect Cost

The Supreme Court today issued notice on a writ petition filed by Tamil Nadu Power Distribution Corporation Limited challenging Rule 23 of the Electricity (Amendment) Rules, 2024.A bench of Chief Justice of India Surya Kant, Justice Joymalya Bagchi and Justice Vipul Pancholi questioned State of Tamil Nadu's policy of absorbing electricity distribution losses.The Court asked counsel for the parties to assist it in understanding the fiscal policy of other states regarding losses incurred in power distribution. “We are issuing notice. We would like you to help us in understanding that what is the fiscal policy of other states about this power distribution”, the Court said.The petition challenges Rule 23, which provides that tariff shall be cost-reflective and that the gap between the approved Annual Revenue Requirement of the distribution licensee and the estimated annual revenue from approved tariff shall not exceed 3% of that ARR. It further mandates that such gap, along with the carrying costs at the base rate of Late Payment Surcharge, be liquidated within a fixed time frame – three years for new gaps and seven years for existing gaps.The petition contends that application of Rule 23 would result in a steep tariff increase and burden the public exchequer. The petition contends that applying the base rate of Late Payment Surcharge would substantially increase this liability and force tariff hikes. The plea argues that the Rule imposes a uniform cap and liquidation framework without accounting for the distinction between privately owned distribution licensees and State-owned utilities operating under welfare obligations.Senior Advocate Gopal Subramanium, appearing for the petitioner, submitted that in Tamil Nadu, the State government has undertaken to absorb the financial losses of the distribution utility.The bench questioned the fiscal implications of States absorbing the losses while continuing to implement large-scale welfare schemes.Justice Bagchi pointed out that unless the concession falls within subsidy under Section 65 of the Electricity Act, 2003, which has to be granted in advance, there is no scope to depart from the scheme laid down in the earlier BSES Rajdhani judgment. He observed that if a State intends to grant subsidy, it must provide it in advance so that the Electricity Regulatory Commission can factor it into the approved revenue requirement.“So if you wish as a state to give some subsidy, you have to give in advance and that can be considered in the subsequent tariff regime, so the people who suffer because of the tuning up of the tariff will get the rebate in the subsequent tariff fixed by the Commission” he highlighted.He criticized the state policy, observing, “If you had a planned outlay, financial planned outlay, you should have given the subsidy in advance that these are my public utility, I am giving X subsidy. Then the Commissioner would be fully aware this is a subsidy. So the generating company cannot claim a shortfall, because their approval revenue requirement has gone down to that extent. But you don't do it. But in the midst of the tariff, you suddenly give them a largesse.”He said that if subsidy is not provided in advance but granted later, it may create arbitrariness in fiscal administration and interfere with the statutory scheme of tariff determination.“What we are really concerned, and this Article 32 petition really throws up this issue, is planned expenditure versus non planned expenditure… Suddenly, what you decide, I will give free electricity to a particular section of community. And that wholesome desire is definitely not unwelcome. But the manner in which that desire is being enforced creates a sense of arbitrariness in the fiscal administration and laws which are within your domain you can control, but agencies which are regulated by statute, like the Electricity Commission and the price of electricity, how can we interfere there? Just because the state suddenly has decided to open its purse a bit more”, he said.The CJI said that the consumers should pay for the costs incurred in generating and supplying energy. “Whatever you are incurring the expenditure in generating and supplying that electricity, please ask them to pay that much only, so that people also have a sense of some savings and discipline in their life.”Questioning the fiscal mechanism, the Chief Justice asked, “This money, which you say today the state will spend from where the state will get? Is it not the other taxpayers' money?... Let the government file an affidavit before us that from where they are going to divert these funds.”The Chief Justice clarified that the Court does not intend to interfere in welfare policy but is concerned that states are running in deficit. He said, “See, we also don't want to intermingle…what should be the format of the welfare scheme, how it should be implemented, this is all political wisdom for elected government to decide. But our worry is that the states...

Supreme Court To Examine TN Power DisCom's Challenge Against Electricity Rule Mandating That Tariff Should Reflect Cost

Amisha Shrivastava

The plea is challenging Rule 23 of the Electricity (Amendment) Rules, 2024.

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