The Hon’ble Supreme Court has delivered a judgment on the interpretation of Rule 3 of the Distribution of Electricity License (Additional Requirements of capital Adequacy, Creditworthiness and Code of Conduct) Rules, 2005 (2005 Rules). [Jindal Steel and Power Limited v Chhattisgarh State Electricity Regulatory Commission & Ors, Civil Appeal No 3607-3610/2008 dated 29.09.022]
The Supreme Court has reversed the decision of the Appellate Tribunal for Electricity and upheld the decision of the Chhattisgarh State Electricity Regulatory Commission for grant of a parallel distribution license to Jindal Steel and Power Limited (JSPL) in the State of Chhattisgarh. While essentially it upheld the grant of distribution license to JSPL by the State Commission, the reasoning of the Hon’ble Supreme Court will have far reaching consequences.
The decision gives an interpretation to the phrase ‘area failing within’ in the Explanation to Rule 3 of the 2005 Rules to mean that any area falling within a Municipal Council or a Municipal Corporation or a Revenue District under Article 243Q of the Constitution of India and is not an area equivalent to the said area. It has held that the ‘authorised area of supply’ specified.by the Appropriate Commission ‘shall be the minimum area of supply’ for a distribution licensee to operate.
The interpretation of the Rule prior to this decision was that unless the area was a minimum of an area comprising of a Municipal Council, Municipal Corporation or a revenue district, the parallel license cannot be granted by the regulatory commission.
As a consequence of this judgment, a parallel distribution license can be sought for and granted for any area, without any minimum criteria on the size of the area or the composition of the consumers in the area.
While the Central Government has amended the Distribution of Electricity Licence (Additional Requirements of Capital Adequacy, Creditworthiness and Code of Conduct) Rules, 2005 by a notification on 08.09.2022 providing that the area falling within either a Municipal Corporation as defined in article 243Q of the Constitution or three adjoining revenue districts, or a smaller area as may be notified by the Appropriate Government shall be the minimum area of supply, this amendment was prior to this decision of the Supreme Court. The expression area failing within has not been amended in the Rule. Therefore, the reasoning given in the judgment would be applicable to interpret the new rules as well.
This decision could result in changing the entire scenario of parallel licensing in the country, wherein small areas can be carved out for parallel distribution licensing. With greater discretion available to Regulatory Commissions on specifying area for parallel distribution licenses, it may open up new areas of disputes as to the manner of exercise of such discretion, carving out high paying consumers and consumer mix for parallel licensing, cross-subsidy structure in the tariff for incumbent licensees etc. It will be interesting to see how various State Commissions and Joint Commissions will deal with applications for grant of a parallel distribution licensee in view of the two recent developments on the subject matter, one by the Hon’ble Supreme Court and the other by the Union Government.
The entire judgment can be read at here
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