Cross-Subsidy Surcharge Need Not Coincide With Tariff: SC

Cross-Subsidy Surcharge Need Not Be Fixed With Tariff: Supreme Court Restores Rajasthan Commission's 2016 Order

Published: 3 November 2026 · NyayVidhan · 3 min read

The Supreme Court held that the cross-subsidy surcharge payable by open access consumers need not be determined together with the tariff. Under Regulation 90 of the Rajasthan Tariff Regulations, 2014 it may be fixed separately, on the prevailing tariff. The Court set aside the Appellate Tribunal for Electricity's judgment and restored the Rajasthan Electricity Regulatory Commission's order of 1 December 2016, which remained in force only until 2 November 2017 (paras 19-21).

Key holdings

Determining the cross-subsidy surcharge is not necessarily part of the tariff determination process (para 19).

The surcharge may be fixed separately under Regulation 90, on the prevailing tariff of the relevant consumer category (paras 15, 19).

APTEL erred in holding that tariff and surcharge determinations must always coincide (paras 19-20).

The Commission's order of 1 December 2016 was restored, but only for the period until the tariff order of 2 November 2017 (para 21).

Case explainer by NyayVidhan: an account of this judgment and the law it laid down, not the court's text. The judgment itself is the authoritative version.

Brief Facts

Industrial units in Rajasthan supplied at 132, 33 and 11 KV had open access to draw electricity from other sources, including power exchanges (para 1). The State Commission's tariff order of 22 September 2016 for FY 2015-16 was to remain in force until the next tariff order (paras 5, 16). On the distribution licensees' petition of 20 July 2016, it fixed the surcharge on 1 December 2016 on that tariff at Rs. 1.63, Rs. 1.39 and Rs. 0.83 per unit for the three voltage levels (para 5). The Appellate Tribunal for Electricity (APTEL) set that order aside, citing the absence of a FY 2016-17 tariff petition and a quantum jump in rates (para 6).

Court's Findings

The first proviso to Section 42(2) of the Electricity Act allows open access on payment of a surcharge, and the second requires it to meet the current level of cross-subsidy (para 13). Through Sesa Sterlite, the Court set out the surcharge's rationale: compensating the licensee when subsidising consumers move to open access (paras 3, 14). Regulation 90's formula starts from the tariff payable by the relevant category, so the surcharge rests on prevailing tariff rates; neither the Act nor the Regulations make its determination simultaneously with the tariff mandatory (para 15). Under the Regulations' definition of tariff, determining the surcharge is not necessarily part of tariff determination: it may be fixed with the tariff or separately, and APTEL erred in holding that the two must always coincide (para 19). The Commission had used the unchallenged order of 22 September 2016, the tariff prevailing on 1 December 2016, which stayed in force until 2 November 2017, when the surcharge was fixed with the new tariff; consumers were not charged the surcharge under that order from 22 September to 1 December 2016 (paras 17, 19). As the surcharge followed the prevailing tariff, APTEL ought not to have faulted it (para 20).

Legal Principle

The cross-subsidy surcharge is compensation tied to the retail tariff the distribution licensee would otherwise have recovered from open access consumers. It must rest on the tariff prevailing for the relevant period, but it need not be fixed in the same proceeding as the tariff (paras 15, 19).

NyayVidhan's view · Practice note

Why It Matters

The ruling separates two questions for distribution licensees and open access consumers: when the surcharge is fixed, and on what it is based. A licensee need not wait for a fresh tariff order to seek a cross-subsidy surcharge; the Commission may compute it under the regulatory formula on the tariff then in force (paras 15, 19). A consumer challenging a surcharge should therefore test whether it rests on the tariff prevailing for the period, not merely whether it was fixed outside a tariff proceeding (paras 19-20). The restored order operated from 1 December 2016 until 2 November 2017 (paras 17, 21).

Editorial comment by the NyayVidhan Editorial Desk. It is not part of the Court's judgment and is not legal advice.

Precedents Relied Upon

Sesa Sterlite Ltd. v. Orissa Electricity Regulatory Commission & ors. (2014) 8 SCC 444
Relied Upon Discussed at ¶ 14, 17
Its paras 25-29 were extracted for the rationale and purpose of the cross-subsidy surcharge: open access in distribution is allowed on payment of a surcharge that takes care of the current level of cross-subsidy and the licensee’s obligation to supply; the State Commission had also relied on it for the licensees’ legal entitlement to the surcharge.
Tata Power Company Limited v Maharashtra Electricity Regulatory Commission & Ors. Appeal No. 107 of 2013
Referred To Discussed at ¶ 6, 10, 11
APTEL decision of 28.11.2014 relied on in the impugned judgment and by the consumers for the view that the surcharge must be determined every year along with the tariff; the licensees distinguished it. The Court held that no provision makes simultaneous determination mandatory, without discussing the decision itself.
Reliance Infrastructure Limited (R-infra) v Maharashtra Electricity Regulatory Commission & Ors 2013 SCC OnLine APTEL 150
Referred To Discussed at ¶ 6, 10, 11
APTEL decision of 02.12.2013 relied on in the impugned judgment; cited by the licensees for the view that the surcharge derives from the tariff effective for the period and by the consumers for computing it to meet the current level of cross-subsidy. Not discussed by the Court.

View all precedents (4)

D.P. Chirania v Rajasthan Electricity Regulatory Commission & Ors 2015 SCC OnLine APTEL 75
Referred To Discussed at ¶ 6, 11
APTEL decision of 18.05.2015 relied on in the impugned judgment to hold that the surcharge petition should not have been entertained without authenticated and audited data; the consumers said it was rightly applied. Not discussed by the Court.