Nithyakalyani Narayanan. V
According to the Appellate Tribunal for Electricity (APTEL), Indian Railways must pay Discoms a cross-subsidy fee for the power it purchases because it is not considered a distribution licensee.
On February 12th, an order was issued to resolve a disagreement between Indian Railways and Discoms about the former’s status as a presumed distribution licensee. Furthermore, to resolve if Railways choose to purchase power from sources other than the relevant Discom whose supply region it is located in, will it be obliged to pay extra or a cross-subsidy premium to various Discoms.
Arguments by the railways
Eight states’ worth of distribution companies, including Madhya Pradesh, Punjab, and Maharashtra, had contested Railways’ claim to be a presumed distribution licensee. The development will result in higher electricity procurement expenses for Railways to maintain operations. The amount of additional costs the logistics and transport behemoth will have to pay to cover the additional/cross-subsidy fees was not immediately apparent.
Railways has budgeted ₹23,101.62 crore for power from traction and another ₹1,941.99 crore for electricity for non-traction, as per the FY25 expenditure budget. ₹20,892.26 crore was the updated estimate for electricity from traction in FY24, while ₹1,871.70 crore was the estimate for electricity for non-traction.
According to the APTEL order, Indian Railways is not deemed to be a distribution licensee under the terms of the third proviso to Section 14 of the Electricity Act because it does not distribute or supply electricity (i.e., sell electricity to consumers for a price) as required of a distribution licensee under the Electricity Act. Moreover, even if it does choose to purchase electricity from sources other than the concerned distribution licensees whose area of supply it is situated within because all of the electricity it receives from the Grid is consumed entirely by it and its constituents.
The Tribunal held that the purpose of Section 42’s cross-subsidy surcharge is to make up for the financial harm that a consumer chooses to obtain electricity from a source other than the Discom. This compensation is to occur when a consumer requests open access within Discom’s service area.
“The exit of a consumer, from within its consumer base, would undoubtedly disable the distribution licensee from recovering a part of its fixed cost which it was hitherto recovering from the said consumer. It is evidently with a view to protect the interests of the consumer in exercising his choice to procure electricity from any source he chooses, while at the same time ensuring that the distribution licensee does not suffer financial loss in the process, that this requirement of payment of additional surcharge/cross subsidy surcharge has been stipulated under Sections 42(2) and (4) of the Electricity Act,” it added.
Point of contention
Railways requested to be considered a presumed distribution licensee in order to avoid paying an extra or cross-subsidy surcharge. Their argument was that they would be able to lessen their financial burden and lower the rates that the railways charged for the transportation of goods and passengers if they were granted the right to purchase electricity directly from Gencos as deemed distribution licensees. This assertion was contested by The Discoms on two grounds. Indian Railways is not a considered distribution licensee; rather, it is just a consumer of power.