APTEL Upholds TNERC Order on Rs 2,500 Crore Subsidy Surrender, T&D Losses, and Cross Subsidy Surcharge in TANGEDCO Tariff Dispute

The Appellate Tribunal for Electricity dismissed a spinning mills association's challenge to TNERC's 2017 tariff order, upholding TANGEDCO's subsidy relinquishment under the UDAY scheme and approving the cross subsidy surcharge methodology.

The Appellate Tribunal for Electricity, on 11 May 2026, dismissed Appeal No. 356 of 2017 filed by the Tamil Nadu Spinning Mills Association (TSMA), a registered association of spinning mill operators in Tamil Nadu. The appeal challenged the order dated 11 August 2017 passed by the Tamil Nadu Electricity Regulatory Commission (TNERC) in T.P. No. 1 of 2017, read with the review order dated 13 March 2018 in R.P. No. 4 of 2017. The impugned orders arose from a petition filed by TANGEDCO — the state distribution licensee — for truing up of accounts for FY 2011–12 to FY 2015–16, determination of multi-year aggregate revenue requirement for FY 2016–17 to FY 2018–19, and retail tariff for FY 2017–18. APTEL found no error warranting interference in the TNERC orders on any of the five issues raised.

The Dispute Before the Tribunal

TSMA filed the appeal on 15 May 2018, aggrieved by five aspects of the TNERC tariff order: the approval of TANGEDCO's proposal to relinquish Rs 2,500 crore in subsidy receivable from the Government of Tamil Nadu (GoTN); the increase in transmission and distribution (T&D) losses and the calculation of losses applicable to open access consumers at different voltage levels; excess scheduling and system operation charges; reduction of the maximum demand integration time from 30 minutes to 15 minutes; and the computation of cross subsidy surcharge (CSS).

TANGEDCO had filed its petition before TNERC on 27 January 2017, following the execution of a tripartite Memorandum of Understanding on 9 January 2017 between the Government of India, GoTN, and TANGEDCO under the UDAY (Ujwal DISCOM Assurance Yojana) scheme. The State Commission admitted the petition as T.P. No. 1 of 2017 and passed the tariff order on 11 August 2017. TANGEDCO then filed a review petition, R.P. No. 4 of 2017, and the State Commission partly allowed it on 13 March 2018.

The Rs 2,500 Crore Subsidy Relinquishment

The central controversy concerned TANGEDCO's decision to forgo Rs 2,500 crore in subsidy that GoTN would otherwise have been required to pay under Section 65 of the Electricity Act, 2003. TSMA argued that this relinquishment was contrary to the statutory mandate of Section 65, which requires the State Government to pay subsidy in advance as a condition for the licensee to implement subsidised tariffs. The association contended that TANGEDCO, already carrying a cumulative loss of Rs 1,02,400 crore as on 31 March 2016, could not afford to surrender such a sum, and that the burden would eventually be passed on to consumers through future tariff increases.

TSMA also pointed to what it described as contradictory statements in the TNERC order — one passage justifying the relinquishment on the ground that it would reduce the tariff burden on consumers, and another stating categorically that there would be no reduction in the effective tariff payable by domestic consumers.

TANGEDCO's response placed the subsidy surrender squarely within the UDAY framework. Under the MoU, GoTN took over 75 per cent of TANGEDCO's total debt as on 30 September 2015 — Rs 22,815 crore out of Rs 30,420 crore — converting it into 15-year State Government bonds with a five-year moratorium. The remaining 25 per cent (Rs 7,605 crore) was converted into bonds by TANGEDCO with a State Government guarantee. TANGEDCO submitted that this restructuring was projected to yield net cash-flow savings of approximately Rs 3,082 crore per annum and revenue expenditure savings of Rs 3,514 crore, translating into a cost reduction of about 42 paise per unit. The subsidy reduction of Rs 2,500 crore was necessary to create fiscal space for GoTN to absorb the debt takeover while maintaining a fiscal deficit of 3 per cent of GSDP, as reflected in G.O.(Ms) No. 4, Energy (C2) Department, dated 18 January 2017.

TANGEDCO also challenged TSMA's standing, submitting that the tariff applicable to HT consumers — the category to which TSMA's members belong — had not increased, and that the association's apprehension of future tariff escalation was speculative.

APTEL accepted TANGEDCO's position. The Tribunal held that subsidy under Section 65 is not a statutory right of the consumer but a policy concession granted by the State Government. It observed that the debt takeover of Rs 22,815 crore under UDAY had been adjusted against TANGEDCO's cumulative revenue gap, reducing the quantum of regulatory assets and thereby lowering carrying costs — a benefit that would accrue to consumers when regulatory assets are liquidated through future tariff recovery. The Tribunal found that TSMA's contention of tariff escalation rested on apprehension and conjecture without any demonstrable causal nexus, and upheld the TNERC findings on this issue.

T&D Losses and Open Access Voltage-Level Calculations

TSMA challenged the State Commission's approval of T&D loss levels, arguing that the Commission had arbitrarily increased losses by 3 per cent without a scientific study, contrary to its own earlier orders and the directions issued by APTEL in its judgment dated 28 August 2011 in Appeal Nos. 192 and 206 of 2010. The association pointed out that approximately 32 lakh consumers remained unmetered in Tamil Nadu, distribution transformers had not been metered, and nearly 90 per cent of distribution losses in the HT and LT segments had been assumed rather than measured. It submitted that the approved loss levels of 18.14 per cent, 17.74 per cent, and 17.34 per cent for FY 2016–17, FY 2017–18, and FY 2018–19 respectively were significantly higher than the trajectory directed by the Tribunal, which would have yielded 15.20 per cent, 14.80 per cent, and 14.40 per cent for the corresponding years.

On the open access loss calculations, TSMA contended that even after the review order of 13 March 2018, the State Commission had incorrectly assumed a transformation arrangement between 33 kV and 22 kV that does not exist in Tamil Nadu's network, resulting in an overstated loss figure of 4.24 per cent for 22 kV consumers against a correct figure of 3.52 per cent. It made a similar argument for 11 kV consumers, where the Commission had assumed 33/11 kV transformation as the predominant arrangement, whereas 110/11 kV transformation constitutes the majority of such arrangements in Tamil Nadu.

TANGEDCO responded that the Energy Balance approved for the MYT control period FY 2016–17 to FY 2018–19 showed a consistently declining trajectory in both distribution losses (14.13 per cent to 13.53 per cent) and transmission losses (4.01 per cent to 3.81 per cent). It submitted that the State Commission had relied on a study based on the REC methodology for the forward-looking control period, while declining to revise loss levels for the true-up period FY 2011–12 to FY 2015–16 because no study had been furnished at that stage. TANGEDCO also pointed out that TSMA had itself relied on the study report in its appeal grounds and written submissions, making the belated objection to the report's non-disclosure an afterthought raised for the first time nearly nine years after filing.

APTEL, after examining the submissions, directed the State Commission to provide the T&D loss study report to TSMA and other stakeholders for their comments, and to consider those comments before finalising the loss trajectory for future tariff periods. This direction is contained in paragraph 47 of the judgment, which the State Commission is required to comply with.

Cross Subsidy Surcharge Computation

On the CSS issue, TSMA argued that the surcharge, when computed per unit inclusive of demand charges, ought not to exceed Rs 1.38 per unit. The State Commission had determined CSS at Rs 1.67 per kWh for the HT Industry category, based on an Average Billing Rate (ABR) of Rs 8.37 per kWh. TSMA contended that the impugned order did not disclose the detailed methodology or data used to arrive at the ABR figure.

APTEL upheld the principle of using ABR as the parameter “T” in the Tariff Policy formula for CSS computation, reaffirming its earlier judgment in Byrnihat Industries Association v. Meghalaya State Electricity Regulatory Commission (Appeal No. 181 of 2015, dated 26 May 2016), which had held that ABR, as a combination of fixed/demand and energy charges, is the correct parameter for CSS calculation.

While affirming the methodology, the Tribunal held that transparency in regulatory determination is indispensable. It directed that upon an application by TSMA, the State Commission shall furnish the detailed workings and data considered in arriving at the ABR for the consumer category represented by the Appellant. This direction is contained in paragraph 76 of the judgment.

Outcome

APTEL found no error in the impugned orders passed by TNERC warranting interference. The Tribunal upheld the tariff order dated 11 August 2017 and the review order dated 13 March 2018. Appeal No. 356 of 2017 and all pending interlocutory applications were disposed of. The State Commission was directed to comply with the directions in paragraphs 47 and 76 of the judgment — relating to disclosure of the T&D loss study report to stakeholders and furnishing of ABR workings to TSMA respectively.