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According to the petitioners, the imposition of surcharge by the Regulatory Commission in case of short fall in meeting out the RE obligation as specified under the Regulations of 2007 buying energy from the renewable source is also without authority of law and contrary to Article 265 of the Constitution of India. Section 86(1)(g) of the Act of 2003 empowers the Regulatory Commission to levy fee for the purposes of the Act of 2003; the surcharge for not meeting-out the compulsory RE obligation cannot in any manner be regarded as a fee; fee can only be imposed for service rendered and there should be an element of 'quid pro quo' therein; the surcharge is in the form of penalty or cess; this would be clear from the fact that the surcharge so collected is required to be credited to the State Transmission Utility (for short the STU) in a fund to be utilized for creation of transmission system, infrastructure of renewable energy power plants; if the surcharge is considered as a penalty or tax or cess imposed for augmenting the revenue of the STU, no such tax or surcharge is envisaged under the Act of 2003; penalty in the form of surcharge cannot be imposed unless there is a direct provision enabling the Regulatory Commission to do so and since there is no such provision in the Act of 2003, penalty cannot be said to be within the authority of the Regulatory Commission and thus, imposition of surcharge is bad in law. Apart from this, there is no provision for fixing a rate at which energy shall be purchased by any person including a captive generating plant from a renewable energy source; section 62 empowers the Regulatory Commission to determine the tariff only in respect of matters mentioned in sub section (a) to (d); the Regulatory Commission has framed Regulations of 2004 whereby it has provided the rate at which the distribution licensee shall purchase energy from renewable energy sources, however, no such rate has been or could have been fixed in relation to captive power plants and thus, by imposing a compulsory obligation, the Regulatory Commission has put the captive power plants at a predicament.

It was also submitted that one of the objectives of the Act of 2003 was to encourage growth of captive power plants and when captive power plants have been de-licensed under the Act of 2003, no order or regulation could authorize imposition of obligation on them to purchase energy from renewable source; there is shortage of power in the State and huge amount has been invested by the petitioners in the installation of captive power plants for generating energy. Thus, imposition of obligation upon captive power plants to purchase energy from renewable source runs contrary to the objectives of the Act of 2003.

Regulation 5 of the Regulations of 2007 provides for payment of renewable energy surcharge for short fall in obligation. Regulation 5 is quoted below:-

5. Payment of Renewable Energy surcharge for short fall in Obligation:-
(1) Any short fall to meet the RE obligations shall be subject to payment of RE surcharge by the distribution licensee, open access consumer and Captive Power Plant. The payment of renewable energy surcharge shall be made to State Transmission Utility (STU).
(2) The surcharge collected by STU will be credited to a fund to be utilized for creation of transmission system infrastructure of Renewable Energy power plants.

It has also been submitted on behalf of the petitioners that 97% of the energy is being handled by the Discoms, they are purchasing energy, as such, it was not necessary to impose RE obligation upon industries having captive power plants to purchase energy from renewable sources; captive power plants generate 3% power in the State; under the impugned Regulations, the captive power plants are required to purchase energy from renewable source ranging from 6% to 8.20%; while 6000 MW power is being handled in the State, effectively it would mean purchase of about 10 MW of renewable energy in the entire State and for such a small quantum of power, the Regulatory Commission has created plethora of problems including exorbitant penalties on captive power plants for non-fulfilment of their purchase targets. The submission raised by itself counters the substance of it; it is only for promotional purpose and to make renewable energy production effective, RE obligation has been imposed, as per the provisions of the Act of 2003, National Electricity Policy and Tariff Policy and keeping in view the mandate of Articles 21 and 51A(g) of the Constitution.