Electricity Regulatory Commissions Can't Entertain Cases Solely On Public Interest; Don't Have Direct Regulatory Oversight Over Franchisees: Supreme Court

In an electricity distribution dispute, the Supreme Court recently held that Electricity Regulatory Commissions (ERCs) cannot entertain a matter solely on the ground of public interest.

An ERC must consider matters in public interest wherever mandated by the Electricity Act, i.e., in matters relating to tariff determination, procurement of power processes, and utility/licensee management, "which requires safeguarding of consumer interest alongside the commercial principles".

"A perusal of the Regulation compels us to conclude that the UPERC had jurisdiction to entertain a petition praying for investigation under Section 128...In the same breath, we also clarify that as a principle of law, the ERCs are not competent to entertain a matter on the singular ground of public interest", observed a bench of Justices JB Pardiwala and R Mahadevan.

The Court further observed that the Electricity Act does not provide for direct regulatory oversight over distribution franchisees. Any regulation thereof can only be through the distribution licensees.

Factual Background

Respondent No.4 filed a petition before the Uttar Pradesh ERC challenging a Distribution Franchisee Agreement (DFA) entered between the appellant (distribution franchisee) and respondent No.3 (distribution licensee). He prayed for an investigation into the conduct of respondent Nos. 2 and 3 in appointing the appellant as a franchisee for distribution of electricity in Agra's urban area without purportedly seeking prior approval of the UPERC for transfer of its utility to the appellant.

The appellant contested the petition on the grounds of maintainability and jurisdiction. However, UPERC concluded that respondent No.4's petition was maintainable on the grounds of public interest and ERCs were empowered to look into DFAs to assess the benefits of such franchisee for DISCOMs and general public. Besides, the Commission ordered investigation of the appellant's role as a Distribution Franchisee.

Aggrieved, it filed an appeal before APTEL, which opined that public interest litigations are not maintainable before ERCs, however, held that respondent No.4's petition before UPERC was maintainable as it was not in public interest. The APTEL further observed that ERCs are empowered to exercise regulatory oversight on distribution licensees.

Challenging the APTEL order, the appellant approached the Supreme Court.

Issues

i) Whether any individual can invoke jurisdiction of a State ERC on the plea of public interest?

ii) Whether ERCs have jurisdiction to review the functioning of a distribution licensee to supply electricity through a franchisee?

Court Observations

On the first issue, the Court said that ERCs, being creatures of a statute, derive their jurisdiction and powers from the provisions of the 2003 Act. "Therefore, it would not be permissible for them to exercise powers not expressly vested in them."

It referred to Sections 79 and 86 of the Act, which govern adjudicatory functions of ERCs, and noted that while jurisdiction of State ERCs (under Section 86) is broader than that of Central ERC (under Section 79), the same does not extend to cases involving consumer disputes/grievances, irrespective of whether they are raised in public interest.

"The State ERCs have a comparatively broader jurisdiction under Section 86, to adjudicate upon all disputes between the licensees and generating companies, without being limited to categories specified in (a) to (d) of Section 79. However, even this enlarged jurisdiction of the State ERCs, more particularly the UPERC, does not include within its fold the power to adjudicate disputes involving consumers and by extension their grievances, irrespective of whether such issue is raised in furtherance of public interest."

Distinguishing the case at hand however, the Court observed that respondent No.4's petition was not under Section 86. Rather, it sought investigation under Section 128 of the Act. In this backdrop, the Court agreed with the APTEL's decision on jurisdiction of UPERC.

The appellant relied on the Supreme Court's decision in Maharashtra Electricity Regulatory Commission v. Reliance Energy Ltd. to contend that a State ERC cannot usurp the jurisdiction of the consumer grievance redressal forum established under Section 42(5). The Court, however, opined that the judgment was not applicable to the case, as it pertained to the State of Uttar Pradesh, which enacted UP ERC (Consumer Grievance Redressal Forum & Electricity Ombudsman) Regulations in 2007, according to which the consumer grievance redressal forum cannot entertain a complaint regarding matters under Section 128.

The Court further stated that unless some satisfactory grounds are given for initiating an investigation, a petition under Section 128 cannot be held maintainable. In the facts of the case, it was observed that though respondent No.4 levelled serious allegations against respondent No.2 and the appellant, he did not provide any reasons or material to show how they were in violation of tariff orders.

"the investigation to be conducted by an authority under Section 128 is to be limited to only two eventualities: (i) if the licensee fails to abide by the terms of its license, and (ii) if the licensee acts in contravention to the provisions of the Act, 2003 and the regulations thereunder...the threshold of “satisfaction” required to order an investigation under Section 128 was not met by the respondent no. 4."

While dealing with the second issue, the Court said that an ERC may not directly regulate a franchisee, but it exercises regulatory oversight over the distribution licensee's functions and duties, including the process of a distribution licensee delegating some of its functions and activities to a franchisee.

"Sections 16, 18, 19 and 20 of the Act, 2003 respectively, prescribe that the ERC can stipulate/review the terms and conditions under which a distribution licensee may delegate its electricity distribution responsibilities to a franchisee. Such stipulation/review occurs as a part of ERC's regulatory functions."

The Court noted that the 2003 Act does not provide for direct regulatory oversight over distribution franchisees and the same can be regulated only though the distribution licensee. Therefore, under Section 128, it is the distribution licensee which can be investigated, not its franchisee.

"Therefore, even an investigation under Section 128 can only happen in respect of a distribution licensee and not its franchisee. This is in consonance with the principle of agency. Any action of the franchisee is equivalent to such action having been committed by a distribution licensee. Therefore, only the distribution licensee can be questioned for any action that its agent commits."

Lastly, it was also stated that UPERC and APTEL could not have micromanaged the distribution franchisee transaction obliquely or questioned the various aspects of the franchisee's (appellant's) functioning.

Conclusion

The Court allowed the appellant's appeal and set aside APTEL's order. The same, as a result, rendered insignificant the report of an Expert Committee constituted by the UPERC.

Case Title: TORRENT POWER LIMITED VERSUS U.P. ELECTRICITY REGULATORY COMMISSION & ORS., CIVIL APPEAL NO. 23514 OF 2017

Citation : 2025 LiveLaw (SC) 705

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