A) ABSTRACT / HEADNOTE

Ramayana Ispat Pvt. Ltd. & Anr. v. State of Rajasthan & Ors., Civil Appeal Nos. 7964–7966 of 2019 (01 Apr. 2025), examines the validity of the Rajasthan Electricity Regulatory Commission (Terms & Conditions for Open Access) Regulations, 2016 in light of the Electricity Act, 2003.

The principal controversies were:

(i) whether a State Commission may regulate intra-state aspects of open access even when power originates outside the State;

(ii) whether scheduling constraints (notably Regulation 26(7) requiring 24-hour advance intimation) and penal norms for deviations amount to an unreasonable fetter on the statutory right of open access under s.42;

(iii) whether Regulation 21 discriminates against captive power plants (CPPs);

(iv) whether the Regulations effectively foreclose open access. The Supreme Court upheld RERC’s Regulations, stressing that the distribution-level delivery, end-use and intra-state grid management are decisive for State regulation; that scheduling rules and deviation penalties are proportionate tools to preserve grid stability and prevent gaming; and that differential treatment of CPPs is justified by differing roles and obligations.

The Court relied on the statutory scheme especially ss.42, 79, 86, 181 of the Electricity Act, 2003 and precedent (notably Energy Watchdog v. CERC) to read a partition of competence where CERC governs inter-state transmission while State Commissions retain regulatory control over intra-state aspects of open access even when supply originates externally.

Keywords: RERC; open access; Electricity Act, 2003; Regulation 26(7); Regulation 21; captive power plants; s.42; s.181; Energy Watchdog.

B) CASE DETAILS 

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The appeals challenge two High Court orders upholding RERC Regulations, 2016, which revised open-access governance in Rajasthan and introduced scheduling limits, reductions in contracted demand when open access is used, and deviation penalties. The petitions arose from industrial consumers and captive generators (including Hindustan Zinc Ltd.) who relied on earlier RERC Rules of 2004 that permitted flexible scheduling and simultaneous drawal from contracted demand and open access.

With energy markets maturing (day-ahead and real-time markets) and interstate commerce rising, RERC replaced the 2004 dispensation by Rules of 2016 to curb perceived gaming, to preserve grid stability and to protect DISCOMs’ fixed-cost recovery where consumers reduced contracted demand without commensurate cost responsibility.

The appellants argued that:

(i) RERC lacked jurisdiction to regulate inter-state open access (CERC’s domain under s.79(1)(c)),

(ii) Regulation 26(7) illegitimately barred urgent/real-time purchases by imposing 24-hour prior notice,

(iii) deviation penalties were punitive and rendered open access unworkable,

(iv) Regulation 21 discriminated against CPPs, contravening s.9(1) and national policy that promotes captive generation.

The State and RERC defended the Regulations as valid exercises of State regulatory power under ss.42, 86 and 181, necessary for scheduling, stability, and equitable burden sharing across the distribution system. The High Court benches (Jodhpur and Jaipur) upheld the Regulations; the matter reached this Court for final adjudication.

D) FACTS OF THE CASE

The core facts are straightforward. The appellants are large industrial consumers with captive generating capacity and contractual draws from distribution licensees. Under earlier RERC rules (2004), appellants scheduled power day-ahead in 15-minute blocks, supplementing shortfalls by drawing from contracted demand with the DISCOM.

RERC’s 2016 Regulations changed the regime: when a consumer avails open access, contracted demand would be reduced by scheduled open-access quantum; penalties would be levied for over-drawal and under-drawal vis-à-vis contracted demand; Regulation 26(7) required 24-hour prior intimation for short-term inter-state open access; and Regulation 21 prescribed settlement rules and penalties for under-injection by generators (including CPPs).

Appellants complained that the 2016 regime curtailed statutory open-access rights, discriminated against CPPs, and encroached on CERC’s inter-state regulatory domain where power originates outside Rajasthan. Respondent DISCOMs and RERC justified the measures as technical and fiscal safeguards: open access cannot be unfettered because grid stability, forecasting and fixed cost recovery for DISCOMs require scheduling discipline. The High Courts rejected the appellants’ challenges; the appellants appealed. The Supreme Court heard full argument on statutory interpretation, federal competence and proportionality.

E) LEGAL ISSUES RAISED

i. Whether RERC may validly regulate inter-state open access transactions as to intra-state delivery and scheduling?
ii. Whether penalties for deviations from contracted demand are an unreasonable restriction on open access under s.42?
iii. Whether Regulation 26(7) (24-hour prior notice for short-term inter-state open access) is ultra vires for preventing urgent procurement?
iv. Whether Regulation 21 discriminates against CPPs and thereby violates s.9 and national policy?
v. Whether the 2016 Regulations effectively foreclose the appellants’ right to open access?

F) PETITIONER / APPELLANT’S ARGUMENTS

The appellants contended that the 2016 Regulations exceed RERC’s territorial competence because s.79(1)(c) vests CERC with the exclusive power to regulate inter-state transmission and open access when electricity crosses state boundaries. They argued that s.2(36) and s.2(47) definitions show that any use of an interstate transmission system makes the transaction subject to CERC rules; thus Regulation 26(7) impermissibly regulates inter-state open access and curtails purchases on real-time and intraday markets. Appellants further argued that penalties for deviation and the reduction of contracted demand when using open access make open access commercially unviable, effectively nullifying s.9 rights for CPPs. They invoked Energy Watchdog v. CERC to stress central primacy where the scheme is inter-state.

G) RESPONDENT’S ARGUMENTS

Respondents maintained that the decisive focus is delivery and consumption within the State; s.42(2)–(3) and s.86(1)(c) empower State Commissions to regulate open access as it affects intra-state distribution, wheeling and consumer protection. Regulation 26(7) and deviation penalties are technical necessities to prevent grid instability and speculative exploitation of price volatility; alternative market routes (real-time/day-ahead markets under CERC) remain available for urgent needs. Regulation 21 treats entities rationally given difference in obligations between DISCOMs (universal service) and CPPs. The respondents pressed deference to expert regulatory judgment and public interest.

H) JUDGEMENT

The Court dismissed the appeals and upheld the Regulations. It framed the statutory architecture as a partition: CERC governs inter-state transmission proper but State Commissions regulate intra-state aspects of open access and distribution that determine delivery, scheduling and consumer obligations. The Court emphasized that open access is defined by use of transmission/distribution lines in accordance with regulations of the Appropriate Commission, and s.42(3) explicitly entrusts State Commissions to specify rules where the consumer’s premises lie within a distribution area.

Accordingly, RERC may lawfully regulate scheduling, reduction of contracted demand, and deviation penalties to the extent the measures govern intra-state delivery and protect the state grid and DISCOM interests. The Court accepted that Regulation 26(7)’s 24-hour notice is a reasonable procedural limitation: it affords SLDCs, licensees and system operators time to maintain frequency stability and reduce speculative gaming; availability of day-ahead and real-time market options under CERC mitigates any foreclosure claim. On Regulation 21, the Court found differentiation justified by functional roles CPPs’ operational flexibility justified stricter scheduling norms to prevent system imbalances and cost-shifting to DISCOMs.

The Court repeatedly underlined proportionality: the restrictions were not absolute bars but conditions balancing consumer freedom with system reliability and fair burden-sharing. The High Court rulings were affirmed.

a. RATIO DECIDENDI

The operative ratio rests on statutory construction and functional reasoning. First, the source/destination test: regulatory competence depends on delivery and consumption within the state rather than mere source location; s.42, s.86 and s.181 empower State Commissions to prescribe conditions for open access affecting intra-state distribution. Second, reasonable procedural limits (scheduling, penalties) enacted to preserve grid stability fall within State regulatory competence and are proportionate to the objective. Third, differential treatment of entities (e.g., CPPs vs. DISCOMs) is permissible where there is a rational basis tied to their divergent public obligations and operational impacts on the grid. The ratio harmonizes CERC’s inter-state remit with State responsibilities for distribution and system operation.

b. OBITER DICTA 

The Court observed (non-decisorily) that open access was not an unfettered entitlement and that national market instruments (real-time and day-ahead markets) and CERC regulations provide alternative procurement avenues. The Court also cautioned against judicial substitution of technical regulatory judgment absent manifest arbitrariness, reiterating deference to specialist commissions. It noted policy aims (National Electricity Policy) encouraging CPPs but stressed this encouragement is not unqualified and must yield to systemic stability requirements.

c. GUIDELINES 

1. State Commissions may regulate scheduling and intra-state delivery of electricity even where supply originates outside the state, provided measures are confined to intra-state operational concerns.

2. Advance scheduling requirements may be imposed to secure grid stability; alternate market routes should remain available for true emergencies.

3. Deviation penalties must be calibrated as deterrents, not confiscatory; commissions should ensure transparency and predictability in penalty formulas.

4. Differential regulatory treatment is permissible where based on rational distinctions (public service obligations, contractual long-term supply), and commissions must document reasons to avoid arbitrariness.

5. Parties invoking CERC jurisdiction must demonstrate that the challenged measure regulates interstate transmission proper, not merely intra-state delivery or scheduling.

I) CONCLUSION & COMMENTS

The judgment clarifies the practical division of regulatory labor under the Electricity Act, 2003: CERC retains primacy over inter-state transmission and wholesale interstate tariffs, while State Commissions have a meaningful regulatory role over intra-state open access, scheduling and distribution-level safeguards. The Court’s approach is pragmatic: it privileges grid stability and equitable cost allocation over doctrinaire territorialism. For industry and CPPs, the decision signals that statutory rights to open access are real but conditioned by system imperatives; regulatory engagement and compliance mechanisms matter as much as the nominal legal right. Administratively, the ruling reinforces the importance of carefully reasoned regulations, transparent consultation and proportionate penalty design to withstand judicial review. Finally, the judgment balances competition and consumer choice with public interest in reliable power supply a theme likely to guide future disputes at the intersection of market liberalization and system security.

J) REFERENCES

a. Important Cases Referred
i. Energy Watchdog v. Central Electricity Regulatory Commission, (2017) 14 SCC 80.
ii. Reliance Infrastructure v. State of Maharashtra, (2019) 3 SCC 352.
iii. Hindustan Zinc Ltd. v. RERC, (2015) 12 SCC 611.

b. Important Statutes Referred
i. Electricity Act, 2003 (ss.2(36), 2(47), 9, 32, 33, 42, 79, 86, 178, 181).

c. Regulations
i. Rajasthan Electricity Regulatory Commission (Terms & Conditions for Open Access) Regulations, 2016 (Regns. 21, 26(6)/(7), etc.).