Bagasse-based Cogeneration Plants in Karnataka Asked to Pay Cross-Subsidy Surcharge

Treating solar projects differently from other renewable sources to levy a cross-subsidy surcharge was a well-reasoned decision and not discriminatory


The Karnataka Electricity Regulatory Commission (KERC) recently rejected bagasse-based cogeneration project owners’ contention that the levying of the cross-subsidy surcharge was discriminatory in nature. It directed the generators to pay a cross-subsidy surcharge as determined in its tariff orders.

The Commission asked the generators to pay the cross-subsidy surcharge applicable to HT-2 (a) category and accordingly asked the distribution companies (DISCOMs) to revise the demand raised on the petitioners.

Athani Sugars, Godavari Biorefineries, Hiranyakeshi Sahakari Sakkare-Karkhane Niyamit, Nandi Sahakari Sakkare Karkhane Niyamit, and the Ugar Sugar Works had filed petitions seeking concessions in terms of exemptions from the payment of cross-subsidy surcharge and to reject the demands made by the DISCOMs.


The petitioners argued that in the tariff orders passed by the KERC, it was stated that the cross-subsidy surcharge should not apply to captive power projects and for those renewable energy projects exempted from cross-subsidy surcharge by the specific orders of the KERC. However, KERC exempted payment of the cross-subsidy surcharge for the consumers availing power from solar power projects from 2014. This was discriminatory because all renewable and cogeneration projects had to benefit from the same promotional measure.

The petitioners argued that the tariff orders or any other orders of the Commission made no mention of why only solar projects were exempted, and cogeneration projects were excluded.

The state DISCOMs, in their submissions, said that the objective of the cross-subsidy surcharge was to compensate for the supply of subsidized energy by the DISCOM. They said a cross-subsidy surcharge was levied on high-tension (HT) consumers. If such consumers opt for open access, the DISCOMs miss out on cross-subsidy that such consumers would have paid under the HT tariff. Therefore, a surcharge is levied on the consumers availing open access in the form of a cross-subsidy surcharge.

The DISCOMs contended that the fact that generators had chosen to avail open access and not procure power through the electricity supply companies (ESCOMs) was the basis for the levy of the cross-subsidy surcharge. Regardless of the transmission network of the ESCOMs being utilized, the petitioners were bound to pay the cross-subsidy surcharge to compensate the ESCOMs.

Commission’s analysis

The Commission observed that the decision to extend the concession to the solar projects considering the cost of solar generation was fully justified. Therefore, solar power projects could not be treated on par with other renewable projects. Treating solar projects differently from other renewable sources to levy a cross-subsidy surcharge was a well-reasoned decision and could not be termed discriminatory.

It said that though the Central Electricity Regulatory Commission (CERC) had not specified any surcharge for the use of the Central Transmission Utility’s (CTU) system, it did not absolve the consumer who had been permitted open access by the state commission of the liability to pay the cross-subsidy surcharge. Therefore, the petitioners’ contention that levying cross-subsidy surcharge did not apply to the petitioners as the power procured by them came under the purview of CERC did not hold.

The state regulator clarified that the petitioners were cogeneration power generators who generated power as a part of the sugar industry to optimize the energy requirements. They also procured power from the DISCOMs or through open access to meet additional power requirements.

The Commission said that the primary purpose of utilizing the electricity by the petitioners was for the sugar plants. Thus, they must be classified under the HT-2 (a) category. Therefore, the cross-subsidy surcharge applicable to the HT-2 (a) category had to be levied for the sugar plant owners for procuring power under open access.

In another case involving a cogeneration project, the Haryana Electricity Regulatory Commission had exempted a bagasse-based cogeneration project owner from paying cross-subsidy surcharge and additional surcharge and quashed the recovery notice issued by the Uttar Haryana Bijli Vitran Nigam Limited.

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