Source: The New Indian Express  

Introduction 

The Supreme Court has delivered a landmark judgment clarifying the relationship between state governments and electricity regulatory commissions. The ruling establishes that state electricity regulatory commissions (SERCs) are not bound by directives issued under Section 108 of the Electricity Act, 2003. 

•  This decision reinforces the independence of regulatory bodies and limits governmental influence on their quasi-judicial functions. 

What is the Background and Court Observation of the Kerala State Electricity Board Ltd v. Jhabua Power Limited and Others case? 

• Background: 
  • The Kerala State Electricity Board Limited (KSEBL) floated two separate tenders for power procurement through competitive bidding under Section 63 of the Electricity Act, 2003. 
  • KSEBL accepted bids that deviated from the standard bidding guidelines, executing seven Power Supply Agreements (PSAs) for a total of 865 MW of power. 
  • The Kerala State Electricity Regulatory Commission (KSERC) initially approved PSAs with L1 bidders but deferred the decision on remaining PSAs, citing deviations from standard bidding guidelines. 
  • On 10th May 2023, KSERC declined to grant approval for the PSAs, concluding that the tariff determination process lacked transparency and deviated from standard bidding guidelines. 
  • KSEBL appealed KSERC's decision to the Appellate Tribunal for Electricity (APTEL). 
  • On 10th October, 2023, the Government of Kerala invoked Section 108 of the Electricity Act, issuing policy directions to KSERC to reconsider its order, citing public interest. 
  • KSEBL withdrew its APTEL appeal and filed a review petition with KSERC. 
  • On 29th December 2023, KSERC allowed the review petition and approved the PSAs, citing the state government's Section 108 directions. 
  • Two generators appealed KSERC's review order to APTEL, which set aside KSERC's order. 
  • KSEBL then appealed APTEL's decision to the Supreme Court. 
• Court Observation  
  • The Supreme Court affirmed APTEL's judgment that the state government's directive under Section 108 could not displace KSERC's adjudicatory function. 
  • The Court held that Section 108 of the Electricity Act,2003 does not bind state regulatory commissions to government directions, but rather requires them to be "guided by" such directions. 
  • The Court distinguished the language in Section 108 from other provisions of the Act, such as Section 11, which uses mandatory language for directing generating companies in extraordinary circumstances. 
  • The Court emphasized that Section 108 does not seek to control the exercise of quasi-judicial power by state commissions based on government directions. 
  • The Court agreed with APTEL's finding that KSERC exceeded its jurisdiction under Section 94 of the Act when reviewing its earlier order, as it failed to identify any apparent error warranting review. 
  • The Court noted that KSERC relied solely on subsequent state government directions to justify its review, which does not meet the threshold for exercising review power under Order XLVII Rule 1 of the Code of Civil Procedure. 
  • The Court observed that Section 86(1)(b) of the Act expressly confers the function of regulating electricity procurement prices to KSERC, and this power must be exercised solely in terms of Sections 62 and 63 of the Act. 
  • The Court held that a policy directive under Section 108 cannot override statutory functions already exercised by KSERC under Section 86(1)(b) read with Section 63. 
  • While upholding APTEL's decision to set aside KSERC's review order, the Court directed the restoration of KSEBL's original appeal (Appeal No. 518 of 2023) to APTEL's file. 
  • The Court clarified that issues covered by the impugned APTEL order should not be re-agitated in the restored appeal, which should be considered only on other grounds raised before the withdrawal of the original appeal. 

The Electricity Act, 2003: 

About: 

• The Electricity Act, 2003 is a comprehensive piece of legislation that governs the electricity sector in India. 
• It replaced three previous laws: the Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948, and the Electricity Regulatory Commissions Act, 1998. 
• The Act aims to consolidate the laws relating to generation, transmission, distribution, trading and use of electricity. 
• It provides for the establishment of regulatory commissions at both the central and state levels to oversee the electricity sector. 
• The Act promotes competition, protects consumer interests, and aims to provide electricity to all areas, including rural regions. 
• It introduced key reforms such as open access in transmission, phased open access in distribution, and mandatory metering. 
• The Act recognizes electricity trading as a distinct activity and provides for private sector participation in generation, transmission, and distribution. 
• It establishes a multi-year tariff framework and introduces stricter penalties for theft of electricity. 

Section 108 of the Act: 

• Section 108 deals with "Regulatory Commissions." 
• Subsection (1) states that the State Commission shall be guided by directions from the State Government in matters of policy involving public interest. 
• These directions must be given in writing by the State Government. 
• The provision uses the term "shall be guided by," which implies that the directions are not necessarily binding but should be considered by the Commission. 
• The directions are limited to "matters of policy involving public interest," which restricts the scope of governmental intervention. 
• Subsection (2) addresses potential disputes about whether a direction relates to policy matters involving public interest. 
• It stipulates that if such a question arises, the decision of the State Government on this matter shall be final. 

Appellate Tribunal for Electricity (APTEL): 

•  APTEL was constituted in 2005 under the Electricity Act, 2003. 
•  Its primary function is to hear appeals against orders of the adjudicating officer or the Central and State Electricity Regulatory Commissions under the Electricity Act, 2003. 
• APTEL was established following observations by Justice Santosh Hegde in a 2002 Supreme Court case regarding the need for a multi-disciplinary expert appellate body. 
• In 2007, APTEL was also designated as the Appellate Tribunal to hear appeals against orders of the Petroleum and Natural Gas Regulatory Board. 
• APTEL has a superintending role over regulators under Section 121 of the Electricity Act, 2003, allowing it to issue orders, instructions or directions to State or Central Electricity Regulatory Commissions. 
• The composition of APTEL includes: 
  • A Chairperson who has been a Judge of the Supreme Court or Chief Justice of a High Court 
  • One Judicial Member who has been or is qualified to be a judge of High Court 
  • Two Technical Members who are electricity sector experts 
  • One Technical Member who is an expert from the petroleum and natural gas sector 
• Each bench of APTEL has at least one Judicial and one Technical Member, creating an effective combination of legal and industry expertise. 
• APTEL has a timeframe of 180 days for the disposal of appeals. 
• The second appeal against APTEL's decisions lies before the Supreme Court, but only on substantial questions of law. 
• APTEL has issued significant orders and judgments on various matters, including: 
  • Directing State Commissions to determine retail supply tariffs annually 
  • Ruling on the non-binding nature of certain state government policy directions on State Commissions 
  • Decisions on open access and cross-subsidy surcharges 
  • Enforcement of Renewable Purchase Obligations (RPO) 
  • Clarifying the non-binding nature of the National Electricity Policy and Tariff Policy on Regulatory Commissions 

Conclusion 

This Supreme Court judgment significantly impacts the dynamics between state governments and regulatory commissions in the electricity sector. By clarifying that SERCs are not bound by government directives under Section 108, the court has safeguarded the independence of these quasi-judicial bodies. This ruling is likely to have far-reaching implications for energy policy implementation and regulatory decision-making across India.