Many state governments including Maharashtra and West Bengal have joined hands to oppose a move to accord deemed licensee status to Indian Railways (IR), fearing revenue loss if the transporter is exempted from the cross-subsidy surcharge (CSS) as a result. The move comes after the railways sought the status from the Central Electricity Regulatory Commission (CERC), circumventing the state electricity regulators.
The deemed licensee title would stand IR in good stead in its planned shift to the competitive bidding route for power purchases, necessary for reducing its staggering energy bill of over R12,000 crore a year. The states have argued that the CERC has no jurisdiction in this regard; the CERC is only the first among equals in the comity of electricity regulators in the country and can’t issue any writ to state regulators although it has the additional responsibilities of managing the grid and facilitating open access in interstate transmission, among other things.
IR currently pays an average of R6.75 per unit for electricity, higher than most bulk consumers. The transporter has, for the first time in its history, invited competitive bids for procuring cheaper power this year and has achieved some early success, with supplies from 50 MW capacity being tied up from Adani Power at just above half of its average cost of power.
The latest move by IR comes on the heels of a provision in the draft amendments to the Electricity Act, 2003, which makes it explicit that the IR and all metro rail corporations are deemed distribution licensees, a title that would exempt them from CSS.
Although open access is allowed for consumers with a load of more than 1 MW
under the Electricity Act, many consumers complain that host states levy exorbitant CSS, rendering the process of buying power from outside the state unviable. The states, on the other hand, use CSS proceeds to subsidise the cheaper power provided primarily for agriculture.
At a crossroads
* IR petitions CERC to be declared as deemed distribution licensee
* This would be exempt from cross-subsidy surcharge levied on open access
* IR eyeing big energy cost cut by buying power via competitive bidding
* Some states cry foul, saying IR bypassing state regulators’ domain
* States concerned over losing surcharge revenue used to subsidise power
The railways has conventionally depended on bilateral negotiations with states to lower tariffs. Recently, it managed to negotiate a R1 per unit price reduction from Maharashtra and 30 paise per unit reduction from Madhya Pradesh.
In their plea before the CERC, the states have contended that if the railways is declared a deemed licensee, many states would lose a high-end customer and, with it, a major source of revenue used for subsidising electricity. “There is lack of thought on how the states would deal with such an eventuality and provide (the promised) cheaper electricity to its farmers,” a state official told FE on condition of anonymity.
The extant law is ambiguous on deemed licensee status to IR. In an executive order in 2004, the power ministry had clarified that railways should be considered as a deemed distribution licensee, but states have rarely followed it.
“The petition filed by railways before CERC raises serious questions of law and procedure. There is a specified procedure in law for availing open access. Similarly, the grant of deemed licensee status involves issues of procedure as well as qualifying requirements in law. CERC will have to decide if the railways has followed the process laid down in law in the present case, and whether the railway’s petition is at all maintainable before CERC,” Sakya Singh Chaudhuri, partner, HSA Advocates, told FE.
In 2008, the electricity tribunal had passed an order rejecting Delhi Metro Rail Corporation’s plea of being recognised as a deemed licensee.