Supreme Court Directs State Electricity Regulatory Commissions To Frame Regulations For Determination Of Tariff Within 3 Months

In a judgment pronounced on Wednesday, the Supreme Court directed all State Electricity Regulatory Commissions to frame regulations under 181 of the Electricity Act 2003 on the terms and conditions for determination of tariff within three months.

The Court further directed that while framing these guidelines on the determination of tariff, the Commission shall follow the principles prescribed under Section 61 of the Electricity Act 2003, which also include the National Electricity policy and the National Tariff Policy. Where the State Commissions have already framed such regulations, they shall be amended to include provisions for criteria for choosing the modalities to determine the tariff, in case they are not included.

A bench comprising Chief Justice of India DY Chandrachud, Justice AS Bopanna and Justice JB Pardiwala directed that the Commission should follow the objective of the Electricity Act to effectuate a sustainable model for electricity regulation in the State. The Regulatory Commission shall also take note of the specific needs of the State while framing these regulations.

"Further, the regulations framed must be in consonance with the objectives of the Electricity Act 2003 which is to enhance the investment of private stakeholders in the electricity regulator sector so as to create a sustainable and effective system of tariff determination that is cost-efficient so that benefits percolate to the end consumer", the Court observed.

The bench was pronouncing its judgment in the case The Tata Power Transmission Company Ltd vs Maharashtra Electricity Regulatory Commission.

Commission cannot negate tariff determined through bidding process - Other directions

The Court noted that the Electricity Act 2003 gives sufficient flexibility to regulate the intra-state transmission system and the State Commissions possess the power to determine and regulate tariff.  The Electricity Act does not provide one dominant method to determine tariff.  

Section 63 provides for determination of tariff through bidding process. If the tariff has already been determined through tariff, then the Commission has to adopt such tariff. The Commission cannot negate such tariff determined through bidding using its powers under Section 62. The Commission can choose not to adopt the tariff determined through the bidding process only if the bidding process was not transparent or if the procedural guidelines were not followed.

Section 62 and 63 prescribe the modalities of tariff determination. The non-obstante clause under Section 63 cannot be interpreted to mean that Section 63 will take precedence over Section 62 at the stage of choosing the modalities of determining the tariff.

The criteria for the modalities of tariff determination ought to be notified by the state commissions either through regulations under Section 181 or guidelines under Section 61.

Ad-hoc functioning of state utilities due to lacunae in regulations

The Court noted that in this case, the MERC has neither framed regulations nor notified guidelines prescribing the criteria for choosing the modalities for determination of tariff. 

The issue in this case related to the allotment of the High Voltage Direct Transmission (HVDC) project. The Court noted that the Electricity Act, the National Tariff Policy and the Maharashtra GOM decision dated 04.02.2019 did not make it binding on the MERC to allot the HVDC project only through the tariff based competitive bidding route. Therefore, the Court held that the MERC decision to allot the HVDC project was within a reasonable exercise of its power and dismissed the appeal by Tata Power Transmission Company.

At the same time, the Court observed that the case has brought to its notice the "ad-hoc nature of the functioning of the state transmission utility".

"Maharashtra State Electricity Transmission Company Ltd (MSETCL) has been changing its stand on HVDC technology without following any due procedure. The flips-flops by MSETCL have led to a waste, loss of time and investment, while the demand in the electricity sector has been increasing exponentially".

The Court opined that the "ad-hoc functioning of the transmission utilities is attributable to the lacunae in the regulations guiding the exercise of their functions". In this backdrop, the Court issued the directions to the State Commissions.

Case details

TATA Power Company Limited Transmission vs Maharashtra Electricity Regulatory Commission | 2022 LiveLaw (SC) 987 | CA | 23 Nov 2022 | CJI DY Chandrachud, Justices AS Bopanna and JB Pardiwala

Headnotes

Electricity Act, 2003 - The Appropriate State Commissions possess the power to determine and regulate tariff. The Electricity Act 2003 seeks to distance the State Governments from the determination and regulation of tariff, placing such power completely within the ambit of the Appropriate Commissions - States have sufficient flexibility to regulate the intra-state transmission systems. (Para 128)

Electricity Act, 2003 ; Section 181 - State Regulatory Commissions to frame Regulations under Section 181 of the Act on the terms and conditions for determination of tariff within three months from the date of this judgment. While framing these guidelines on determination of tariff, the Appropriate Commission shall be guided by the principles prescribed in Section 61, which also includes the NEP and NTP. Where the Appropriate Commission(s) has already framed regulations, they shall be amended to include provisions on the criteria for choosing the modalities to determine the tariff, in case they have not been already included. The Commissions while being guided by the principles contained in Section 61 shall effectuate a balance that would create a sustainable model of electricity regulation in the States. The Regulatory Commission shall curate to the specific needs of the State while framing these regulations. (Para 131)

Electricity Act, 2003  ; Sections 61-63 - Electricity Act do not prescribe one dominant method to determine tariff. Section 63 operates after the bidding process has been conducted. Where the tariff has already been determined through bidding, the Appropriate Commission has to adopt such tariff that has been determined. The Appropriate Commission cannot negate such tariff determined through bidding by using its powers under Section 62. The tariff determined through the bidding process may not be adopted by the Appropriate Commission only if the bidding process was not transparent (undertaking a substantive review) or the procedure prescribed by the Central Government guidelines under Section 63 was not followed (undertaking a procedural review)- Sections 62 and 63 stipulate the modalities of tariff determination. The non-obstante clause in Section 63 cannot be interpreted to mean that Section 63 would take precedence over Section 62 at the stage of choosing the modality to determine tariff. The criteria or guidelines for the determination of the modality of tariff determination ought to be notified by the Appropriate State Commission either through regulations under Section 181 of the Act or guidelines under Section 61 of the Act. (Para 128)

Electricity Act, 2003 ; Section 125 - Findings of fact by the Regulatory Commission and the Tribunal cannot be reopened  on appeal under Section 125 - Appeal shall lie only if the court is satisfied that the case involves a substantial question of law. (Para 106.2)

Electricity Act, 2003 ; Section 86(1)(a) - MERC while exercising its general regulatory powers under Section 86(1)(a) shall be guided by the NTP 2016, which shall be a material consideration. Accordingly, while NTP 2016 requires intra-state transmission projects above the threshold limit to be allotted through TBCB route, this constitutes a material consideration to be taken into account. (Para 128)

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