State Commissions possess statutory competence to levy cost-reflective Parallel Operation Charges on Captive Power Plants.

The petitioner, a company operating Captive Power Plants (CPPs), challenged the constitutional validity and statutory vires of Regulation 32 (Late Payment Surcharge/LPS) and Regulation 92 (Parallel Operation Charges/POC) of the RERC (Terms and Conditions for Determination of Tariff) Regulations, 2025.

The respondent-Commission published draft regulations on 23.11.2024, invited objections, and conducted a public hearing on 27.12.2024.

The petitioner contended that the POC was unauthorized by the Electricity Act, 2003, and that the LPS of 0.1% per day was arbitrary and punitive.

The final regulations were notified on 06.03.2025.

1. Whether Regulation 92 (POC) is ultra vires Sections 9 and 42 of the Electricity Act, 2003, by imposing a fiscal burden on Captive Power Plants not contemplated by the parent statute.

2. Whether the Commission failed to comply with the mandatory procedure of "considering" objections under Section 181(3) of the Electricity Act and Rule 3 of the Electricity Rules, 2005.

3. Whether Regulation 32 (LPS) is manifest arbitrary, disproportionate, and violative of Article 14 of the Constitution.

Sections 61, 86, and 181 of the Electricity Act, 2003, which grant the State Commission broad powers to determine tariff and frame regulations consistent with the Act.

The principle from Transmission Corporation of Andhra Pradesh Ltd. v. Rain Calcining Ltd. (2021), which establishes that Grid Support Charges are leviable as the grid acts as a "cushion" and determining such technical charges is within the expert body's domain.

Hindustan Zinc Ltd. v. RERC (2016) regarding the limited scope of judicial review over policy choices of a statutory regulator.

Rule 3 of the Electricity (Procedure for Previous Publication) Rules, 2005, holding that "consideration" of objections does not require a reasoned adjudicatory order for every individual stakeholder objection.

The Court reasoned that Regulation 92 (POC) is not a tax or penalty but a compensatory, cost-reflective charge for grid-support services utilized by CPPs synchronized with the grid.

It found that Sections 9 and 42 of the Act do not expressly prohibit the Commission from determining such ancillary charges under its broader regulatory mandate.

Regarding the procedure, the Court held that the Commission’s consultation process—publishing drafts, inviting objections, and issuing a Statement of Objections and Reasons (SOR)—constituted sufficient statutory compliance; the regulator is not a quasi-judicial body required to provide individual findings for every objection.

On Regulation 32, the Court found the 0.1% daily LPS was a policy tool to maintain financial discipline and prevent distribution licensees from being used as interest-free credit sources, thus falling within the "commercial principles" of Section 61.

The Court declined to interfere with technical assessments based on the ERDA study, noting that the petitioner failed to prove manifest arbitrariness.

It held that both Regulation 32 and Regulation 92 were within the legislative competence of the Commission and did not violate Articles 14 or 19(1)(g) of the Constitution.

The Court affirmed that it would not substitute its opinion for that of a specialized regulatory authority in matters of tariff fixation and technical cost determination; all pending applications were disposed of accordingly.