When the Supreme Court (SC) recently (on 8 May) upheld the Appellate Tribunal for Elec tricity’s ruling against Indian Railways, in its judgement on Indian Railways versus West Bengal State Electricity Distri bution Company Limited and ORS by clarifying that Indian Railways cannot be treated as a deemed distribution licens ee under the Electricity Act, 2003, and must continue to pay Cross Subsidy Surcharge (CSS) and Additional Sur charge (AS) while procuring electricity through open ac cess, the court has delivered a message that resonates well beyond the rail network. It ensures that operating an internal electricity network, or being a Central government entity, does not automatically entitle one to surcharge-free access to the power market. This legal clarity matters because it shuts the door on a growing tendency among large consumers to seek regulatory shortcuts rather than systemic reform, while ignoring the market distortion problems. Moreover, those shortcuts have consequences, not just for utility finances, but for climate outcomes.
The Electricity Act, 2003 promoted open access to introduce efficiency and consumer choice, while cross-subsidies ensured affordable power for agriculture and low-income households. Over time, however, selective exemptions and uneven tariff structures have eroded this balance. The result is a power sector where financial stress and environmental backsliding reinforce each other.
According to the Central Electricity Authority, captive power plants accounted for around 11.58% of total electricity generation in India, with nearly 85% of captive generation in 2022-23 being coal-based. Open access consumers are required to pay CSS, AS, and electricity duty, but captive power users are exempt from CSS. This asymmetry has encouraged high-paying industrial and commercial consumers to opt out of the DISCOM network, not for efficiency or sustainability, but to avoid surcharge liabilities.
The distortion is reinforced by tariff design. Under the National Tariff Policy, 2016, the Cross Subsidy Surcharge rises when DISCOMs procure cheaper power. This discourages open access and nudges consumers back to captive generation. DISCOMs are left with subsidised consumers, weakening their ability to invest in grid modernisation and renewable integration. The SC’s warning that allowing surcharge bypass would impair DISCOMs’ ability to cross-subsidise vulnerable consumers directly acknowledges this risk, which would further compound the problem. Agriculture consumed around 18% of electricity supplied in 2021 but contributed less than 4% of revenue, paying Rs 1.03 per kWh, compared to Rs 9.29 and Rs 7.79 per kWh for commercial and industrial users.
Delayed subsidy payments force DISCOMs to borrow, worsening liquidity stress and increasing rural blackouts. The numbers reflect this fragility. In 2023-24, the average cost of supply was Rs 8.50 per kWh, while revenue realised was Rs 8.32 per kWh. Accumulated DISCOM losses rose from Rs 1.07 lakh crore in 2010 to nearly Rs 6.9 lakh crore by 2022.
The judgment demands financially sustainable competition. Transparently recovering fixed costs would lower surcharges, allowing open access to function properly. Alongside this, vital fiscal reforms like timely subsidies and a shift to Direct Benefi t Trans fers (DBT) will reduce DISCOM stress. Freed from chronic losses, these utilities can invest in renewable energy integration and help build much stronger, more resilient power grids.
This verdict serves as a regulatory mandate, not merely a legal footnote, compelling the Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions (SERCs) to advance long-delayed tariff rationalisation. Regulators must enforce transparent recovery of fixed and network costs through demand charges, avoiding inflated energy tariffs and cross-subsidy surcharges. State governments should fulfil subsidy commitments on time, ideally via DBT, to support social objectives without disrupting DISCOM finances. Equally, regulators should align open access and captive generation rules with environmental benchmarks, ensuring that market flexibility does not perpetuate coal-based self-generation under the guise of competition.
The writer is a Doctoral Research Scholar in Economics at NISER Bhubaneswar.