The Cross-Subsidy Surcharge(CSS) Saga in Telangana: A Deep Dive into Legal Battles, Open Access, and Regulatory Reforms

Summary

The Cross Subsidy Surcharge (CSS) issue in Telangana revolves around a prolonged legal battle between industrial consumers and the state’s electricity regulator, TSERC, over the calculation and implementation of the CSS. Industrial consumers have challenged the TSERC’s determination of CSS rates, arguing that they are discriminatory, excessively high, and hinder open access in the electricity market. Key issues in the dispute include the merging of consumer sub-categories, the lack of progressive reduction of CSS, and the need for transparency and accuracy in the calculation process. The Supreme Court of India intervened, directing the TSERC to redetermine the CSS and adhere to established policies.[1] This ongoing saga highlights the challenges in balancing the interests of DISCOMs, open access consumers, and other stakeholders in the evolving landscape of the electricity sector in Telangana.

Case Timeline

• 2015: The Telangana State Electricity Regulatory Commission (TSERC) determines the CSS rates for the financial year 2015-16, using a formula outlined in the National Tariff Policy of 2006.
• 2015-2023: Several industrial consumers challenge the TSERC’s determination in court, arguing that the CSS calculation methodology is flawed and that the rates are excessively high. The case progresses through various judicial levels, including the High Court of Telangana and the Supreme Court of India.
• 2023: The Supreme Court directs the TSERC to redetermine the CSS for FY 2015-16, following the procedure prescribed in the Tariff Policy of 2006 and ensuring transparency and public participation.
• 2024: The TSERC re-proposes the CSS, taking into account the Supreme Court’s directives. Stakeholders submit objections and suggestions, and public hearings are held.
• Ongoing: The TSERC is yet to issue a final order on the CSS for FY 2015-16. The case continues to be a subject of debate and discussion among various stakeholders in the state’s electricity sector.

Issues Raised

The primary issues raised by the appellants (industrial consumers) in their legal challenges include:

• Merging of Sub-categories: The TSERC’s decision to merge different sub-categories of consumers for CSS calculation was contested, as it led to varying CSS rates for consumers within the same category. This was seen as discriminatory and contrary to the principles of fairness and equity.
• Progressive Reduction of CSS: The appellants argued that the Electricity Act 2003 and the Tariff Policy 2006 mandate a progressive reduction of the CSS. However, the TSERC did not adhere to this requirement, leading to inflated CSS rates that burdened open-access consumers.
• Consideration of Actuals: The appellants emphasized the need for the TSERC to consider the audited financial data of DISCOMs while determining the CSS. This was crucial to ensure accuracy and transparency in the calculation process.
• Transparency and Public Participation: The appellants criticized the lack of transparency in the TSERC’s decision-making process and the limited opportunities for public participation. They argued that such practices undermine the principles of regulatory governance and accountability.

Appellant’s Arguments

The appellants, primarily industrial consumers, argued that the high CSS rates imposed by the TSERC were detrimental to the growth of open access in the state. They contended that the excessive CSS made open access economically unviable for many consumers, thereby stifling competition and hindering the development of the electricity market.

Respondent’s Arguments

The respondents, the TSERC and the DISCOMs, defended the CSS determination, asserting that it was based on the prevailing regulations and policies. They argued that the CSS was essential to maintain the financial viability of DISCOMs, which provide subsidized electricity to certain consumer categories, such as agriculture and domestic consumers.

Judgment

The Supreme Court of India, in its judgment regarding the CSS dispute in Telangana, ruled in favour of a redetermination of the CSS for the financial year 2015-16. The court acknowledged the concerns raised by industrial consumers regarding the TSERC’s methodology, particularly the merging of sub-categories, lack of progressive reduction of the surcharge, and lack of transparency in the calculation process. The rationale behind this judgment was to ensure fairness, equity, and adherence to established policies in determining the CSS. The court emphasized the importance of transparency and public participation in regulatory decision-making, while also balancing the interests of DISCOMs and open-access consumers to foster a competitive and sustainable electricity market in Telangana.

Analysis

The CSS saga in Telangana exposes critical flaws in the state’s electricity regulatory framework. The persistent legal battles and the Supreme Court’s intervention highlight a lack of adherence to established policies and guidelines, particularly regarding the progressive reduction of CSS. This raises questions about the TSERC’s commitment to promoting competition and consumer choice in the electricity market.

The merging of sub-categories for CSS calculation, despite their varying tariff structures, indicates a potential disregard for the principles of fairness and equity. This approach could disproportionately burden certain consumer groups while benefiting others. The TSERC’s failure to consider the audited financials of DISCOMs further undermines the transparency and accuracy of the CSS determination process.

The Supreme Court’s directive for a fresh determination of the CSS offers an opportunity for the TSERC to rectify these shortcomings and establish a more transparent, equitable, and accountable regulatory framework. It remains to be seen whether the TSERC will implement the court’s orders in letter and spirit, fostering a truly competitive electricity market in Telangana.

[1] https://tserc.gov.in/file_upload/uploads/Orders/Commission%20Orders/2024/CSS_Order%20for%20FY2015-16.pdf