Supreme Court Upholds Rajasthan Electricity Commission’s Power to Regulate Open Access Even Involving Inter-State Supply: Captive Power Producers Must Comply with Grid Discipline

State Commission’s jurisdiction does not evaporate merely because the source of power is inter-State when the consumption is intra-State - Supreme Court of India delivered a crucial ruling in Ramayana Ispat Pvt. Ltd. & Anr. vs. State of Rajasthan & Ors., Civil Appeal No.7964 of 2019 and connected appeals, deciding the legality of the Rajasthan Electricity Regulatory Commission (Terms and Conditions for Open Access) Regulations, 2016. The controversy revolved around whether the Rajasthan Electricity Regulatory Commission (RERC) had the authority to regulate open access when the power was sourced from outside Rajasthan but consumed within the State. Further, the captive power producers (CPPs) also challenged various provisions as discriminatory and violative of their statutory rights under the Electricity Act, 2003. The Supreme Court, dismissing all the appeals, upheld the validity of the Regulations and ruled that "grid discipline, financial prudence, and operational reliability are legitimate grounds for regulatory intervention."

The appellants, comprising major industrial consumers and captive power producers including Ramayana Ispat Pvt. Ltd. and Hindustan Zinc Ltd., approached the High Courts of Jodhpur and Jaipur to challenge the 2016 RERC Regulations. These entities were availing open access under the earlier RERC Regulations of 2004, which allowed them flexibility to source power from captive plants or external suppliers without curtailment of their contracted demand from the State’s distribution licensees.

However, the 2016 Regulations imposed conditions such as mandatory reduction of contracted demand equivalent to the scheduled open access drawal and introduced penalties for deviations. Additionally, Regulation 26(7) imposed a strict 24-hour prior scheduling requirement for inter-State open access transactions.

The appellants contended that these measures severely restricted their statutory right to open access under Section 42 of the Electricity Act, 2003, besides alleging that RERC lacked the jurisdiction to regulate inter-State open access transactions.

Despite these challenges, both the Jodhpur and Jaipur Benches of the Rajasthan High Court dismissed their petitions. The Jodhpur Bench categorically observed that "mere inconvenience or hardship cannot be the ground to invalidate a regulation if it serves larger public interest and grid security."

The Supreme Court framed the core questions succinctly. Firstly, whether RERC had jurisdiction to regulate open access when power is sourced inter-State but consumed within Rajasthan. Secondly, whether the penalties, advance scheduling requirements, and differential treatment of captive generators were arbitrary, unreasonable, or ultra vires the Electricity Act.

Answering the foremost jurisdictional issue, the Court held unequivocally, “The consumer is within the State, the distribution network is within the State, and the impact is on the intra-State grid; thus, RERC retains full regulatory power.” The Bench reasoned that Section 42 read with Sections 2(47) and 86 of the Act confer jurisdiction on State Commissions to regulate open access where the consumption occurs within the State, irrespective of whether the power is procured from within or outside the State.

The Court relied heavily on the principle laid down in Energy Watchdog v. CERC [(2017) 14 SCC 80], where it was held that “when generation and sale take place in more than one State, the CERC steps in. However, if distribution and consumption are intra-State, the State Commission has full regulatory authority.”

Dismissing the appellants' argument that only the CERC could regulate inter-State open access, the Court categorically held, “RERC’s Regulation 26(7) governs scheduling by consumers within Rajasthan, not the inter-State transmission system itself, which continues to be regulated by the CERC.”

On the issue of the advance scheduling requirement under Regulation 26(7), the Court found the rationale compelling. “No grid can sustain erratic, unplanned power drawals without risking stability,” observed the Bench. It further explained, “The requirement of 24-hour prior scheduling is essential, not optional. It ensures that both supply and demand can be balanced effectively. Without such mechanisms, the grid would be vulnerable to shocks and gaming.”

Turning to the allegations of discrimination against captive power producers under Regulation 21, the Court found no merit. It observed, “Section 9 of the Electricity Act gives CPPs the right to set up generating stations and seek open access, but this right is neither absolute nor immune from regulatory discipline.” The Court reasoned that CPPs, being voluntary participants in the market without universal service obligations, “cannot equate themselves with distribution licensees who must serve all consumers reliably and consistently.”

Referring to Regulation 21 which imposed penalties for under-injection and under-drawal, the Court noted that “Incentivizing discipline and penalizing indiscipline are classic regulatory tools, and when grid reliability is at stake, such differential treatment is not only justified but imperative.”

The Court also stressed that regulatory measures are presumed constitutional unless proved manifestly arbitrary or unreasonable. Citing Reliance Infrastructure v. State of Maharashtra [(2019) 3 SCC 352] and Hindustan Zinc v. RERC [(2015) 12 SCC 611], the Bench reiterated, “The Court must defer to expert regulatory bodies unless their actions shock the conscience or defy logic.”

“Regulation Cannot be Rendered Invalid Only Because It Makes Captive Power Less Attractive”
The Court made a noteworthy remark: “It is not the role of this Court to ensure that open access remains as commercially lucrative as it once was, but rather to ensure that the regulatory framework balances commercial freedom with grid safety and consumer interests.”

The Bench further explained that the appellants were, in essence, “attempting to secure unfettered open access rights, contrary to the scheme of the Electricity Act which never envisioned open access without accountability and operational discipline.”

Dismissing all appeals, the Supreme Court held that the 2016 RERC Regulations:
•    Are intra vires the Electricity Act, 2003.
•    Validly regulate inter-State open access to the extent it affects consumption within Rajasthan.
•    Do not discriminate against CPPs or violate their rights under Section 9.
•    Rightly impose advance scheduling and deviation penalties as legitimate regulatory measures.

Concluding, the Court emphasized, “Competition, efficiency, and open access are not to be pursued at the cost of grid integrity. The Act of 2003 aims at competitive efficiency under regulatory discipline, not unregulated freedom.”

This judgment significantly reinforces the powers of State Electricity Regulatory Commissions to regulate open access where the end-use is within the State, even if the source of power crosses State lines. It also underscores the Supreme Court's commitment to grid security over purely commercial interests of industrial consumers and captive generators.

The decision harmonizes open access rights with regulatory discipline, protecting the electricity market from unpredictability and instability while preserving competition.

Date of Decision:  01-April-2025