CAPTIVE CONSUMERS ARE NOT LIABLE TO PAY ADDITIONAL SURCHARGE UNDER SECTION 42(4) OF ELECTRICITY ACT, 2003

[Mr. M. GOVINDARAJAN]

Electricity Act, 2003

The Electricity Act, 2003 (‘Act’ for short) is a single legislation which addresses all the key areas of electricity in the country and provides a road map for overall and uniform development of electricity sector in the country.

Generation of electricity is free from licensing.  Captive generation is free from controls.  There is open access to captive generating plants subject to availability of transmission facility.

Captive Generating plant

Section 2(8) of the Act defines the expression ‘Captive Generating Plant’ as a power plant set up by any person to generate electricity primarily for his own use and includes a power plant set up by any co-operative society or association of persons for generating electricity primarily for use of members of such co-operative society or association.

A person may construct, maintain or operate a captive generating plant and dedicated transmission lines.  Every person, who has constructed a captive generating plant and maintains and operates such plant, shall have the right to open access for the purposes of carrying electricity from his captive generating plant to the destination of his use:

Additional Surcharge

Section 42(4) of the Act provides that where the State Commission permits a consumer or class of consumers to receive supply of electricity from a person other than the distribution licensee of his area of supply, such consumer shall be liable to pay an additional surcharge on the charges of wheeling, as may be specified by the State Commission, to meet the fixed cost of such distribution licensee arising out of his obligation to supply.

In MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. LTD. VERSUS M/S. JSW STEEL LIMITED & ORS. [2021 (12) TMI 843 - SUPREME COURT], the appellant is having distribution licence.  The appellant filed a petition before the State Commission for Multi Year Tariff (‘MYT’ for short) approval for financial year 2014 – 15, provisional truing up of ARR for financial year 2015 – 16 and MYT for 3^rd Control Period from 2016 – 17 to 2019 – 20.  The State Commission held that the additional surcharge leviable under section 42(4) of Electricity Act, 2003 is not applicable to captive users to the extent of self consumption on such plants.  The State Commission also held that the additional surcharge shall be applicable to all consumers who have availed open access to receive supply from sources other than the distribution licensee to which they are connected.

The appellant filed review petition before the State Commission with prayers which also include for approval of the additional surcharge for all open access consumers including those sourcing power from Captive Power Producers Association as proposed for 2018 – 19 to 2019 – 20. The State Commission held that that additional surcharge is leviable under Section 42(4) of the Act, 2003 on the captive consumers/captive users.  Against this order the Captive consumers, the respondents, approached the Appellate Tribunal.  The Appellate Tribunal allowed the appeal and set aside the orders passed by the State Commission.  The Appellate Tribunal held that the Captive Consumers are not liable to pay additional surcharge to the distribution licensee.

Against the order of the Appellate Tribunal the appellant filed the present appeal before the Supreme Court.  The Supreme Court framed the question that has to be decided in the present appeal is – whether the captive consumers/captive users are liable to pay the additional surcharge leviable under section 42(4) of the Electricity Act, 2003?

The Supreme Court analyzed the provisions of Section 9 and section 42 of the Act.  The Supreme Court observed that Section 9 of the Act permits captive generation.  Every person, who has constructed a captive generating plant and maintains and operates such plant, shall have the right to open access for the purposes of carrying electricity from his captive generating plant to the destination of his use.  But this is subject to availability of adequate transmission facility determined by the Central Transmission Utility or the State Transmission Utility.

The appellant contended that captive users are liable to pay the additional surcharge leviable under sub-section (4) of section 42. 

The Supreme Court further observed that Section 42(4)  shall be applicable only in a case where the State Commission permits a consumer or class of consumers to receive supply of electricity from a person other than the distribution licensee of his area of supply and only such consumer shall be liable to pay additional surcharge on the charges of wheeling, as may be specified by the State Commission. Captive user requires no such permission, as he has statutory right.

There are two types of consumers-

• the ordinary consumer or class of consumers who is supplied with electricity for his own use by a distribution licensee / licensee; and
• captive consumers, who are permitted to generate for their own use as per Section 9 of the Act, 2003.

The general consumers have to receive electricity from the distribution licencee of their area.  They may receive electricity other than the distribution licencee subject to the permission of the State Commission, subject to the payment of additional surcharge.  The additional surcharge is levied under the Act   on the charges of wheeling as may be specified by the State Commission to meet the fixed cost of such distribution licensee arising out of his obligation to supply.  The distribution licencee has to incur heavy cost for the distribution of electricity.  The levy of additional surcharge is to compensate the distribution licencee.  According to section 42(4) of the Act, which provides the additional surcharge, is applicable only in a case where the State Commission permits a consumer or class of consumers to receive supply of electricity from a person other than the person – distribution licensee of his area of supply.  No such permission of State Commission is required for distribution licensee. 

The Supreme Court, therefore, held that so far as the captive consumers / captive users are concerned, they are not liable to pay the additional surcharge under Section 42(4) of the Act, 2003.   The Appellate Tribunal has rightly held that so far as the captive consumers/captive users are concerned, the additional surcharge under sub-section (4) of Section 42 of the Act, 2003 shall not be leviable.    Even the captive consumers, who are a separate class by themselves are subjected to levy of additional surcharge under Section 42(4), in that case, it will be discriminatory and it can be said that unequals are treated equally.

The Supreme Court dismissed the appeal filed by the appellant.  The Supreme Court further directed the Distribution licencee to refund the additional charge collected from the capital consumers.  Since the refund involves a heavy amount the Supreme Court directed to adjust the refund in future payment of wheeling charges bills.