Karnataka High Court Upholds Regulations Allowing Cross-Subsidy Surcharge On Open Access Electricity Consumers

The Karnataka High Court has recently upheld the validity of a Karnataka Electricity Regulatory Commission regulation that requires consumers procuring electricity through Open Access to pay Cross-Subsidy Surcharge (CSS).

The court rejected a challenge to the surcharge mechanism, holding that it is consistent with the Electricity Act, the Electricity Rules and the National Tariff Policy.

Justice Sachin Shankar Magadum held that the Karnataka Electricity Regulatory Commission (Terms and Conditions for Open Access) Regulations, 2025 were framed under powers conferred by the Electricity Act, 2003 and substantially adopt the methodology contemplated under the National Tariff Policy.

"Regulation 12(c) and the consequential tariff order determining Cross-Subsidy Surcharge are held to be intra vires the Electricity Act, 2003, the Electricity Rules, 2005 and the National Tariff Policy, and do not violate Article 14 of the Constitution of India," the court ruled.

Open Access allows eligible consumers, typically large electricity users, to purchase power directly from generators instead of their local electricity distribution company (ESCOM).

Cross-Subsidy Surcharge is a charge such consumers pay to compensate the distribution company for the loss of revenue that would otherwise be used to subsidise electricity for other categories of consumers.

The petitions were filed by Soham Infrastructure Private Limited and its director. They challenged Regulation 12(c), under which eligible consumers procuring electricity through Open Access are required to pay Cross-Subsidy Surcharge.

The company contended that the regulatory framework effectively converted the 20% ceiling prescribed under the statutory scheme into a fixed surcharge. It argued that this made the procurement of renewable energy through Open Access commercially unviable.

It also contended that the surcharge exceeded the actual cross-subsidy component embedded in the tariff applicable to similarly situated ESCOM consumers. According to the petitioners, this defeated the objective of promoting competition and renewable energy.

Rejecting these contentions, the court observed that the Electricity Act expressly authorises the levy of Cross-Subsidy Surcharge. It also recognises the surcharge as a compensatory mechanism.

The court held that the surcharge is not confined to the exact subsidy component reflected in the applicable tariff. It may also account for the broader economic consequences arising when high-paying consumers migrate to Open Access.

"The surcharge determination mechanism embodied in Regulation 12(c) is compensatory in character, founded upon relevant economic and technical considerations recognized under the National Tariff Policy, and cannot be confined merely to the actual cross-subsidy component reflected in the tariff applicable to a particular consumer category," the court observed.

The court also rejected the challenge under Article 14. It held that Open Access consumers and consumers procuring electricity from distribution licensees do not constitute similarly situated classes.

It observed that consumers opting for Open Access voluntarily move outside the conventional supply framework. At the same time, they continue to use the transmission and distribution infrastructure maintained by distribution licensees. According to the court, such migration deprives distribution companies of cross-subsidy contributions and other revenue that supports their financial viability.

While examining the methodology adopted by the Karnataka Electricity Regulatory Commission, the court noted that Regulation 12(c) substantially adopts the formula recognised under the National Tariff Policy. It also found support for the methodology in an earlier decision of the Appellate Tribunal for Electricity.

"The National Tariff Policy provides a legally recognized methodology for surcharge determination and State Regulatory Commissions are statutorily required to be guided by the same," the court observed.

Holding that the petitioners had failed to establish manifest arbitrariness, discrimination, or any constitutional or statutory infirmity in the regulation, the court dismissed the writ petitions. It also upheld the consequential tariff order determining Cross-Subsidy Surcharge.

For Petitioner: Advocate Aditya Narayan

For Respondent: Advocate Prakash B.N. and Shahbaaz Hussain,