1. Introduction

The Balancing and Settlement Code (BSC) is the legal and regulatory framework through which an electricity system reconciles the difference between scheduled electricity and actual electricity injected into or withdrawn from the grid, while ensuring that the costs of maintaining system balance are allocated among responsible market participants.

In India, there is not one instrument formally titled the “Balancing and Settlement Code” in the manner found in some foreign electricity markets. Instead, the legal structure is distributed principally among:

1. the Electricity Act, 2003;
2. the Central Electricity Regulatory Commission (CERC) regulations;
3. the Indian Electricity Grid Code (IEGC), 2023;
4. the CERC Deviation Settlement Mechanism (DSM) Regulations, 2024, as amended;
5. regulations and procedures governing scheduling, dispatch, ancillary services and settlement; and
6. State Grid Codes and State Commission regulations for intra-State transactions.

As of 2026, the principal central framework is the CERC (Deviation Settlement Mechanism and Related Matters) Regulations, 2024, which have subsequently been amended, including a third amendment notified in September 2026. CERC

The fundamental legal idea is that physical balancing and financial settlement are related but distinct functions. CERC's regulatory materials expressly distinguish the physical deviation affecting grid security from the subsequent commercial settlement of that deviation. CERC

2. Meaning of Balancing and Settlement

Electricity cannot ordinarily be stored economically at the scale required to balance the entire power system. At every moment, generation and consumption must therefore remain sufficiently balanced.

A simplified relationship is:

Actual Injection − Scheduled Injection = Injection Deviation

and

Actual Drawal − Scheduled Drawal = Drawal Deviation

When deviations occur, the system operator must take balancing action. The financial consequences are subsequently calculated through the settlement mechanism.

Thus, the BSC performs two interconnected functions:

A. Physical balancing

The system operator maintains:

• frequency;
• voltage;
• system security;
• generation-demand balance;
• transmission security; and
• reliability.

B. Commercial settlement

The settlement framework determines:

• who deviated;
• the magnitude of the deviation;
• the applicable rate;
• the amount payable or receivable;
• treatment of deficits or surpluses in the settlement pool; and
• consequences for persistent or excessive deviations.

The 2024 DSM framework expressly recognizes that DSM is principally an ex-post commercial mechanism rather than the mechanism by which the system is physically balanced in real time. CERC

3. Statutory Foundation

3.1 Electricity Act, 2003

The principal statutory foundation is the Electricity Act, 2003.

Several provisions are important.

Section 28 – Regional Load Despatch Centre

The RLDC is responsible for:

• optimum scheduling and dispatch within its region;
• monitoring grid operations;
• keeping account of electricity transmitted through the regional grid;
• supervising the regional grid; and
• ensuring integrated operation of the power system.

This provides the institutional foundation for balancing and scheduling.

Section 29 – Compliance with directions of RLDC

The directions of the RLDC relating to operation of the regional grid are binding on generating companies, licensees and other persons connected with the system, subject to the statutory framework.

This is crucial because balancing is ultimately dependent upon compliance with system-operation directions.

Section 32 – State Load Despatch Centre

The SLDC performs equivalent functions at the State level.

Section 33 – Compliance with SLDC directions

Persons connected with the State system must comply with SLDC directions relating to operation of the State grid.

3.2 Section 79 – CERC's regulatory authority

Section 79 gives CERC important functions concerning:

• regulation of inter-State transmission;
• determination of tariffs in specified cases;
• regulation of inter-State electricity trading;
• specifying the Grid Code;
• specifying standards of operation of the grid; and
• adjudicating specified disputes.

The Supreme Court has recognized the breadth of CERC's authority concerning the grid, scheduling and dispatch.

4. The Indian Electricity Grid Code

The Indian Electricity Grid Code, 2023 provides the operational architecture within which balancing takes place.

It establishes the framework for:

• scheduling;
• dispatch;
• grid operation;
• system security;
• forecasting;
• ancillary services;
• renewable-energy integration;
• communication;
• metering;
• protection; and
• responsibilities of system operators and grid-connected entities.

The Grid Code therefore supplies the physical and operational foundation, while DSM supplies an important part of the commercial settlement architecture.

CERC's regulatory materials also make clear that DSM is integrated with the Grid Code and that fundamental changes to the DSM framework have implications for the Grid Code. CERC

5. CERC Deviation Settlement Mechanism Regulations, 2024

The current central settlement framework is principally governed by the CERC (Deviation Settlement Mechanism and Related Matters) Regulations, 2024.

The principal regulations were notified in August 2024 and became effective in stages beginning September 2024. They have subsequently been amended in 2024, 2025 and 2026. CERC

The regulatory structure deals with matters such as:

• applicability;
• definitions;
• deviation;
• scheduling;
• computation of deviation;
• deviation charges;
• settlement;
• accounts;
• payment;
• treatment of renewable generators;
• wind and solar deviation;
• deficit and surplus in settlement accounts; and
• consequences of non-compliance.

6. The Core Legal Architecture

The BSC can be understood as a chain:

Electricity Act, 2003
↓
CERC / SERC regulatory authority
↓
Indian Electricity Grid Code
↓
Scheduling and dispatch
↓
Actual metered injection/drawal
↓
Identification of deviation
↓
Application of DSM methodology
↓
Financial settlement
↓
Payment / recovery / dispute resolution

This structure separates operational responsibility from financial consequences.

7. Scheduling as the Legal Starting Point

The BSC operates on the principle that market participants must first have a legally recognized schedule.

A generating station may have:

• contracted capacity;
• declared capacity;
• available capacity;
• scheduled generation; and
• actual generation.

Similarly, a distribution licensee or other drawee may have a scheduled drawal and actual drawal.

The schedule therefore becomes the benchmark against which actual physical performance is measured.

This is particularly important because the DSM mechanism does not generally convert every contractual disagreement into a deviation. The deviation mechanism concerns the difference between the relevant schedule and actual injection/drawal within the applicable regulatory framework.

8. Deviation

A deviation occurs when actual injection or drawal differs from the applicable schedule.

For example:

Suppose a generating station is scheduled to inject:

100 MW

but actually injects:

90 MW

The deviation is:

90 − 100 = −10 MW

Similarly, if a distribution entity is scheduled to draw 500 MW but actually draws 530 MW:

530 − 500 = +30 MW

The legal consequences depend upon:

• the category of entity;
• direction of deviation;
• system conditions;
• applicable DSM rate;
• permitted deviation limits;
• special provisions for renewable generators; and
• the applicable regulations for the relevant period.

9. Balancing Responsibility

The legal architecture distributes balancing responsibility among different institutions.

National/system level

The national and regional system operators coordinate the integrated grid.

RLDC

The RLDC has responsibility for regional system operation, scheduling and dispatch.

SLDC

The SLDC performs corresponding functions for the State system.

Generators

Generators must comply with applicable schedules and operational directions.

Distribution licensees / buyers

They must manage their demand and drawal in accordance with schedules and system requirements.

Power exchanges and market participants

They operate within the scheduling and settlement framework applicable to their transactions.

The result is a multi-layered balancing system rather than a single contractual code.

10. Settlement Pool

One of the most important legal characteristics of the DSM framework is the existence of a settlement mechanism/pool.

The objective is not simply to impose a conventional contractual penalty.

Instead, the mechanism financially accounts for deviations and their consequences for the grid.

CERC's Statement of Reasons specifically explains that DSM is intended to provide a commercial mechanism for deviation settlement while encouraging appropriate contracting and portfolio-management behaviour. CERC

Therefore:

Deviation → Measurement → Rate determination → Settlement → Payment/credit

forms the central commercial structure.

11. Is DSM a Penalty?

This distinction is legally significant.

The Supreme Court in Central Power Distribution Co. v. Central Electricity Regulatory Commission, (2007) 8 SCC 197 considered the legality of the Availability Based Tariff and Unscheduled Interchange mechanism.

The Court recognized UI charges as a commercial mechanism connected with maintaining grid discipline rather than treating them simply as an ordinary statutory penalty. Indian Kanoon

The case is foundational because the present DSM framework developed from the earlier Availability Based Tariff (ABT) and Unscheduled Interchange (UI) regime.

The conceptual evolution can therefore be represented as:

ABT → UI mechanism → DSM → modern balancing/settlement architecture

The terminology has changed, but the basic legal objective of linking deviations with commercial consequences remains important.

12. Central Power Distribution Co. v. CERC

Facts

The dispute concerned the application of ABT and UI charges to NTPC's Simhadri generating station.

The appellants questioned whether CERC possessed legal authority to impose UI-related charges when such charges were not expressly identified as a conventional tariff component.

Supreme Court's approach

The Court examined:

• the Electricity Act;
• CERC's regulatory authority;
• Grid Code functions;
• scheduling;
• dispatch; and
• UI charges.

It upheld the regulatory basis for the ABT/UI framework and recognized the role of UI charges in maintaining grid discipline. Indian Kanoon

Legal significance

The case establishes an important principle:

Grid-balancing charges can form part of the regulatory architecture necessary for orderly grid operation and need not be treated merely as an ordinary contractual penalty.

This principle remains highly relevant to understanding DSM.

13. Gridco Ltd. v. NTPC Ltd.

In GRIDCO Ltd. v. NTPC Ltd., Appeal No. 113 of 2019, the Appellate Tribunal for Electricity examined whether the DSM mechanism applied to particular electricity supplied as infirm power.

The Tribunal emphasized that the DSM Regulations concern deviations from a schedule and that not every form of electricity injection automatically becomes a DSM transaction. Casemine

The Tribunal also referred to the objective of the DSM Regulations:

maintaining grid discipline and grid security through commercial settlement of deviations.

Importance

The case demonstrates that:

DSM is not a universal billing mechanism for every electricity transaction.

The relevant regulatory conditions must first be satisfied.

14. Talwandi Sabo Power Ltd. v. Punjab State Electricity Regulatory Commission

A later APTEL decision concerning deviation settlement distinguished declared capacity from deviation in scheduled energy.

The Tribunal explained that DSM concerns deviations in scheduled energy, whereas declared-capacity obligations can arise under a separate regulatory/PPA framework. Casemine

This distinction is extremely important:

Thus, a generator cannot necessarily avoid a separate contractual or regulatory obligation merely by paying DSM charges.

15. Renewable Energy and the BSC

The development of renewable electricity has significantly changed balancing law.

Solar and wind generation are inherently variable. Consequently, the BSC must accommodate:

• forecasting uncertainty;
• scheduling;
• pooling;
• aggregation;
• renewable-energy deviation;
• forecasting errors;
• balancing resources; and
• ancillary services.

The 2024 DSM framework contains specific provisions concerning renewable generators, and CERC has subsequently addressed the methodology for determining the value of “X” for wind and solar sellers from 1 April 2026. CERC

This illustrates the movement from a conventional thermal-generation model toward a more sophisticated balancing framework.

16. Role of Ancillary Services

Modern electricity balancing cannot rely exclusively on deviation charges.

Ancillary services provide actual physical balancing resources.

They can include:

• frequency support;
• secondary reserves;
• tertiary reserves;
• balancing energy; and
• other system-support services.

Thus, the modern legal structure should be understood as:

Scheduling + Dispatch + Ancillary Services + DSM + Settlement

rather than DSM alone.

DSM primarily provides the commercial consequences of deviations, whereas ancillary services provide tools for actual system balancing.

17. Metering and Data as Legal Foundations

Settlement is impossible without reliable measurement.

Consequently, the BSC depends upon:

• interface meters;
• energy accounting;
• time-block measurements;
• telemetry;
• scheduling data;
• actual injection/drawal data;
• meter validation; and
• settlement statements.

The legal importance of metering is therefore substantial.

A dispute concerning the accuracy of the underlying meter data can directly affect the amount payable under DSM.

18. Payment and Settlement

Once deviation has been calculated, the applicable settlement methodology determines whether the participant:

• pays a deviation charge;
• receives a credit;
• contributes to a settlement pool; or
• becomes subject to additional financial consequences.

The settlement system therefore creates an economic incentive for participants to improve:

• forecasting;
• scheduling;
• demand management;
• generation planning; and
• portfolio optimization.

The purpose is not simply revenue collection.

It is behavioural regulation through market-compatible financial incentives.

19. Deficit in the Settlement Pool

A sophisticated BSC must also address situations in which the settlement pool does not contain sufficient funds to meet all obligations.

The CERC's 2024 framework contains mechanisms concerning recovery of charges where there is a deficit in the Deviation and Ancillary Service Pool Account. CERC issued a detailed procedure on this subject in October 2024. CERC

This reflects an important legal principle:

Settlement finality requires a legally defined mechanism for both surplus and deficit conditions.

Without such provisions, participants receiving legitimate credits could face uncertainty when the pool is insufficient.

20. Dispute Resolution

Disputes can arise concerning:

• calculation of deviation;
• scheduling;
• metering;
• application of DSM rates;
• classification of an entity;
• treatment of renewable deviations;
• settlement statements;
• recovery of charges;
• alleged gaming; or
• interpretation of Grid Code provisions.

Depending upon the nature of the dispute, jurisdiction may lie with:

• CERC;
• State Electricity Regulatory Commission;
• Appellate Tribunal for Electricity; or
• the Supreme Court.

The Electricity Act establishes a specialized regulatory and appellate structure rather than leaving electricity-market disputes entirely to ordinary civil litigation.

21. State-Level Balancing and Settlement

The central BSC framework primarily governs matters within CERC's jurisdiction.

At the State level, State Commissions may establish or adopt their own mechanisms for intra-State deviation settlement, subject to the statutory framework.

This produces a federal regulatory structure:

Inter-State

Electricity Act → CERC → IEGC → RLDC → DSM

Intra-State

Electricity Act → SERC → State Grid Code/Regulations → SLDC → State DSM

Coordination between these layers becomes particularly important when a transaction crosses State boundaries.

22. Legal Principles Emerging from Case Law

Several principles can be identified.

1. Grid discipline is a legitimate regulatory objective

The Supreme Court's decision in Central Power Distribution Co. v. CERC supports the regulatory use of commercial mechanisms to maintain grid discipline. Indian Kanoon

2. DSM is not equivalent to a conventional contractual penalty

The mechanism has a regulatory and system-management purpose.

3. Deviation and capacity obligations are distinct

The Talwandi Sabo litigation demonstrates that DSM cannot automatically replace obligations concerning declared capacity. Casemine

4. Not every electricity injection constitutes DSM deviation

GRIDCO v. NTPC illustrates the importance of examining the precise regulatory conditions before applying DSM. Casemine

5. Regulatory jurisdiction follows the statutory division of electricity functions

The Supreme Court's reasoning in Central Power Distribution confirms CERC's authority concerning the inter-State grid, scheduling and dispatch. Indian Kanoon

23. Legal Character of the BSC

The BSC can therefore be characterized as having five legal dimensions.

A. Public regulatory law

It derives authority from the Electricity Act and regulations made under statutory powers.

B. Administrative law

System operators exercise regulatory/operational powers and market participants must comply with their lawful directions.

C. Commercial law

Deviation produces monetary consequences and settlement obligations.

D. Technical regulation

The rules depend upon frequency, scheduling, metering, transmission constraints and system security.

E. Energy-market governance

The BSC shapes the behaviour of generators, consumers, distribution companies, traders and other market participants.

24. Challenges in the Modern BSC

The traditional balancing framework faces several emerging challenges.

Artificial intelligence

AI-based forecasting and automated bidding create questions concerning:

• responsibility for algorithmic deviations;
• automated scheduling;
• market manipulation;
• accountability; and
• auditability.

Distributed energy resources

Rooftop solar, batteries and flexible loads increasingly blur the distinction between generator and consumer.

Prosumers

A prosumer may simultaneously:

• consume electricity;
• generate electricity;
• store electricity; and
• export electricity.

The BSC must therefore accommodate two-way participation.

Battery storage

Storage can rapidly move between:

charging → neutral → discharging

which creates new settlement questions.

Virtual power plants

Aggregated distributed resources can behave as a single market participant, creating questions concerning:

• scheduling responsibility;
• aggregation;
• deviation allocation; and
• liability.

Renewable intermittency

Greater renewable penetration increases the importance of accurate forecasting and flexible balancing resources.

25. Relationship Between BSC and Energy Justice

The balancing mechanism is not purely technical.

Its financial consequences can ultimately affect:

• generators;
• distribution companies;
• commercial consumers;
• industrial consumers; and
• electricity tariffs.

Consequently, the legal design of deviation charges raises questions concerning:

• proportionality;
• transparency;
• non-discrimination;
• procedural fairness;
• predictability; and
• consumer protection.

A legally sound BSC must therefore balance grid security against fair allocation of balancing costs.

26. Conceptual Model

The complete legal structure may be represented as follows:

Electricity Act, 2003
↓
CERC / SERC statutory authority
↓
Indian Electricity Grid Code / State Grid Code
↓
Scheduling & Dispatch
↓
Real-time grid operation
↓
Actual injection / drawal
↓
Metering and energy accounting
↓
Deviation determination
↓
DSM methodology
↓
Deviation & Ancillary Service Pool
↓
Settlement statement
↓
Payment / recovery
↓
Dispute resolution / appellate review

This demonstrates that the BSC is not a single document but an interlocking legal architecture.

27. Conclusion

The Legal Structure of the Balancing and Settlement Code in India is based on the integration of statutory electricity regulation, Grid Code requirements, scheduling and dispatch rules, ancillary services and the Deviation Settlement Mechanism.

The Electricity Act, 2003 supplies the statutory foundation; the IEGC establishes the operational framework; RLDCs and SLDCs administer scheduling and grid operation; and the DSM Regulations provide the principal commercial mechanism for reconciling deviations.

The Supreme Court's decision in Central Power Distribution Co. v. CERC is particularly significant because it established the legal legitimacy of the ABT/UI architecture and recognized the role of commercial mechanisms in maintaining grid discipline. Indian Kanoon Later decisions, including GRIDCO v. NTPC and Talwandi Sabo Power, clarify that DSM applies according to its regulatory conditions and does not automatically displace separate capacity, contractual or regulatory obligations. Casemine

The contemporary BSC is consequently evolving from a relatively simple schedule-versus-actual settlement mechanism into a broader legal architecture for managing renewable variability, storage, distributed resources, ancillary services, automated market participation and increasingly complex electricity systems. As of 2026, this evolution is reflected in continuing amendments to the 2024 DSM Regulations. CERC

Key cases

1. Central Power Distribution Co. v. Central Electricity Regulatory Commission, (2007) 8 SCC 197 — foundational Supreme Court authority on ABT/UI, CERC jurisdiction and grid discipline. Indian Kanoon
2. GRIDCO Ltd. v. NTPC Ltd., APTEL, Appeal No. 113 of 2019 — scope and application of DSM to deviations/infirm power. Casemine
3. Talwandi Sabo Power Ltd. v. Punjab State Electricity Regulatory Commission, APTEL — distinction between DSM deviation and declared-capacity obligations. Casemine
4. Arasmeta Captive Power Co. Pvt. Ltd. v. Chhattisgarh State Load Despatch Centre, APTEL — application of DSM and treatment of deviation charges. Casemine

Current legal reference: CERC's official regulations page records the 2024 DSM Regulations and their subsequent amendments, including the Third Amendment Regulations, 2026. CERC