Cross-Subsidy Surcharge Can Be Fixed Separately from Tariff: Supreme Court Restores State Commission’s Order, Overrules APTEL

“No Legal Bar on Separate Determination of CSS — Must Reflect Prevailing Tariff”, - Supreme Court ruled that Cross-Subsidy Surcharge (CSS) under the Electricity Act, 2003 can be lawfully determined by a State Commission independently of the tariff order, provided it is based on prevailing tariff data and complies with the prescribed regulatory formula.

“The determination of the tariff and the determination of the CSS need not necessarily coincide,” held a Bench comprising Justices Abhay S. Oka and Augustine George Masih, restoring the Rajasthan Electricity Regulatory Commission’s (RERC) order dated 1 December 2016 which had been set aside by the Appellate Tribunal for Electricity (APTEL).

“CSS Is a Statutory Charge to Compensate Loss of Subsidising Revenue — Not a Tariff Component”
Disagreeing with APTEL’s conclusion that the surcharge should have been determined along with the tariff order, the Supreme Court ruled: “CSS is in the nature of compensation qua the tariff, which the distribution licensees would have received from the open access consumers but for their availing power from other sources.”

The judgment explained the statutory logic: “Neither the 2003 Act nor the Rajasthan Tariff Regulations, 2014 mandates that CSS must be determined simultaneously with the tariff... It can be computed separately using the prevailing tariff as the base, as provided in Regulation 90.”
Background: Industrial Open Access Users Challenged Surcharge Order of 2016

The case arose from the RERC’s decision to fix the CSS payable by open access consumers for FY 2016-17 through an order dated 1 December 2016, based on the tariff determined earlier for FY 2015-16 by order dated 22 September 2016. The CSS rates fixed were ₹1.63 (132 KV), ₹1.39 (33 KV), and ₹0.83 (11 KV) per unit for large industrial consumers.

The Rajasthan Textile Mills Association and other industrial units challenged the order before APTEL, contending that the surcharge led to a “quantum jump” and violated the legislative mandate for progressive reduction in cross-subsidy. APTEL ruled in their favour, holding that the CSS ought to have been fixed only with a new tariff order and that the 2015-16 rates should continue till the next tariff order in November 2017.

“APTEL Committed Legal Error — CSS Can Be Fixed Separately Based on Formula”: SC
The Supreme Court categorically overturned APTEL’s reasoning: “The CSS can be determined along with the tariff. But it can also be determined separately in accordance with Regulation 90 based on the prevailing rate of tariff.”

Quoting Sesa Sterlite Ltd. v. Orissa Electricity Regulatory Commission, the Court reiterated that CSS is a compensatory mechanism to offset the loss of cross-subsidy caused by high-paying consumers switching to alternate suppliers.
The Court noted that there was no challenge to the validity of the 22 September 2016 tariff order and that the CSS was calculated strictly as per the formula laid down in Regulation 90.

“The Commission relied on the tariff fixed in terms of the order dated 22nd September 2016, which was the prevailing tariff as of 1st December 2016... The CSS must be based on the applicable retail tariff recoverable during the relevant period.”
“Statutory and Regulatory Scheme Permits Separate Timing — No Prejudice to Consumers”

The Court clarified that the Rajasthan Tariff Regulations define tariff broadly and do not conflate it with surcharge.
“Tariff means the schedule of charges... together with terms and conditions for application thereof. The CSS is not inherently part of this determination.”
Noting that the 1 December 2016 CSS order was explicitly tied to the prevailing tariff and was set to remain in force only until the next order on 2 November 2017, the Court held: “There are no adverse implications to consumers. The delay in CSS fixation did not retrospectively burden them; the order was made effective prospectively.”

APTEL Judgment Set Aside, CSS Order of RERC Restored
The Supreme Court concluded: “We find that the view taken by the APTEL is erroneous. Therefore, the impugned judgment of the APTEL cannot be sustained.”
Accordingly, the Court allowed the appeal, reinstating the RERC’s 1 December 2016 CSS determination.

Date of Decision: April 29, 2025