Department of Industrial and Management Engineering

Indian Institute of Technology Kanpur

Forum of Regulators

4th Capacity Building Programme for

Officers of Electricity Regulatory Commissions
18 23 July, 2011

Recent developments in Case law in

Electricity Sector: A Review of ATE
and Court Decisions
Decisions
M. Sethuramalingam
CERC
1

in Electricity Sector

what
why and how of
regulators
3

Who is a regulator?
 A public authority or an organ of

the
State
responsible
for
exercising
autonomous
authority
over some area of human activity
in a supervisory capacity.
 Often a

regulatory agency may be

independent of other branches or
arms of the Government
4

Regulatory bodies under the

2003 Act
Appropriate Governments
Appropriate Commissions
Authority (CEA)
Appellate Tribunal
Load Despatch Centres
5

Why independent regulator?

 No one to be a judge in ones own
case Government is also stakeholder
 Expertise required for the task
 Time consuming
 To ensure transparency and level
playing field.
6

General functions
 Specify and enforce entry
conditions
and standards of performance
 Monitor performance
 Initiate action for non-compliance
 Impose sanctions
 Tariff determination
7

What is the source of authority?

 Article 19 (1)(g) provides a fundamental
right viz.

All Citizens shall have the right :to practice any profession or to carry on
any occupation , trade or business
 Fundamental Rights are subject to
limitations
8

Limitations
 Clause 6 of Article 19 empowers the
State to make law imposing,
in the interests of the general public

reasonable restrictions

Contd
 State is specifically empowered in
relation to
Prescribing professional or technical
qualifications
Carrying on any trade, business , industry or
service
10

11

 Constitution Entry 38 in List III of

Seventh Schedule and Article 246

 Union and State legislatures can
legislate on electricity
 In case of repugnancy, Union law to
prevail
 Unless the State law has been reserved
for the consideration of the President
and has received his assent.

12

Contd
 Electricity Act, 2003 and the
subordinate legislations made
thereunder
 State laws not inconsistent with the
Union Act.

13

Functions of the Central

Commission






Tariff determination
Licencing
Adjudication of disputes;
Specifying Grid Code
Specifying and enforcing standards
 Fixing the trading margin


Regulate inter-State transmission.

14

Commission discharges its

functions through
Orders which are Quasi judicial
in nature
Regulations which are
Legislative in character
Both are of binding nature
15

Scope of orders
Orders are specific to the facts and

circumstances of the case

Can be challenged on a number
grounds such as:
Non-application of mind
Violation of Natural Justice
Irrelevant consideration, etc.
16

Status of regulations
General Application
Not mandatory to have

regulations
Regulations, if framed, are
binding
Cannot be challenged in appeal
Subject to Judicial review
17

Law laid down by the SC

PTC India Ltd. Vs. Central Electricity
Regulatory Commission thr. Secretary
Decided On: 15.03.2010
AIR2010SC1338, JT2010(3)SC1,
(2010)4SCC603,
18

Status of Regulations and Orders

 Section 178, which deals with
making of regulations under the

authority of subordinate
legislation, is wider than Section
79(1), which enumerates the
regulatory functions, in specified
areas, to be discharged by Orders
(decisions).
19

Contd
 A regulation under Section 178, as a
part of regulatory framework,
intervenes and even overrides the
existing contracts between the
regulated entities.
 it would be open to the Central
Commission to make a regulation on
any residuary item under Section 178(1)
read with Section 178(2)(ze).

20

Scope of Regulation (GEL Case)

18. It is now a well settled principle

of law that the rule making power

"for carrying out the purpose of the
Act" is a general delegation. Such a
general delegation may not be held
to be laying down any guidelines.
21

Contd
Thus, by reason of such a provision

alone, the regulation making

power cannot be exercised so as to
bring into existence substantive
rights or obligations or disabilities
which are not contemplated in
terms of the provisions of the said
Act.

22

Impugned provisions 6A (b) & (f)

 (b) The applicant, or any of his
partners, or promoters, or Directors or
Associates is involved in any legal
proceedings, and in the opinion of the
Commission grant of licence in the
circumstances, may adversely affect
the interest of the electricity sector or
of the consumers; or
23

Contd
 (f) The applicant is not considered a fit
and proper person for the grant of
licence for any other reason to be
recorded in writing;

24

Illustrative list
 Explanation: For the purpose of

determining as to whether the applicant is a

`fit and proper person', the Commission
may take account of any consideration, as it
deems fit, including but not limited to the
following,
 namely:
 (i) financial integrity of the applicant.
 (ii) His competence;
 (iii) His reputation and character; and
 (iv) His efficiency and honesty

25

Decision of Supreme Court

 Global Energy Ltd. and Anr. Vs. Central

Electricity Regulatory Commission

 Decided On: 11.05.2009
 AIR2009SC3194, 2009ELR(SC)227,

JT2009(11)SC164, (2009)15SCC570,
26

Supreme Court Observations

The Act is silent as regards
conditions for grant of licence.
It does not lay down any prequalification therefor. .

27

Contd
 26. A legislative policy providing for

qualification or disqualification of a person

for obtaining a trading licence should not
be vague or uncertain. Parameters must be
laid down therefor for determining the
financial integrity, reputation, character,
efficiency and honesty of the applicant. An
explanation appended to Clause (f) of
Regulation 6A points out various aspects
that may be considered while determining
the said criteria.

28

Contd
However, what should be the criteria
in regard to financial integrity,
character, reputation, etc. have not
been defined. How and in what
manner the said criteria are required
to be ascertained have not been laid
down, the criteria are subjective ones.
29

Contd
 We are not unmindful of the fact that Clause

(f) to Regulation 6A of the Regulations

mandates recording of reasons in writing. In
the event, thus, if wrong reasons are recorded
a judicial review would be maintainable. But
availability of judicial review itself, although
is a relevant factor, by itself cannot be a
ground to declare a subordinate legislation
valid which otherwise it is not.
30

Contd
 {See State of Kerala and Ors. v. Unni and Anr.

MANU/SC/8737/2006 : AIR2007SC819 } Judicial

review from an administrative decision lies on a
very narrow compass. The superior courts in
exercise of their jurisdiction under Article 226 or
32 of the Constitution of India ordinarily would
not enter into the merit of the matter. Their
primary concern are with the decision making
process.
31

Grounds of challenge
It is also well recognized that a subordinate
legislation can be challenged under any of
the following grounds:
(a) Lack of legislative competence to make
the subordinate legislation.
(b) Violation of fundamental rights
guaranteed under the Constitution of
India.
(c) Violation of any provision of the
Constitution of India.

32

Contd..
(d) Failure to conform to the statute under
which it is made or exceeding the limits of
authority conferred by the enabling Act.
(e) Repugnancy to the laws of the land, that is,
any enactment.
(f) Manifest arbitrariness/unreasonableness (to
an extent where the court might well say that
the legislature never intended to give
authority to make such rules
(State of T.N. and Anr. v. P. Krishnamurthy and
Ors. AIR2006SC1622)

33

Contd
 An explanation appended to Clause (f) of

Regulation 6A points out various aspects that

may be considered while determining the said
criteria. However, what should be the criteria
in regard to financial integrity, character,
reputation, etc. have not been defined. How
and in what manner the said criteria are
required to be ascertained have not been laid
down, the criteria are subjective ones.
 27. A disqualifying statute, in our opinion,
must be definite.

34

Contd
All law making, be it in the context of
delegated legislation or primary legislation,
have to conform to the fundamental tenets
of transparency and openness on one hand
and responsiveness and accountability on
the other. These are fundamental tenets
flowing from Due Process requirement
under Article 21, Equal Protection clause
embodied in Article 14 and Fundamental
Freedoms clause ingrained under Article 19.
35

Contd
 Law has to provide a basic level of "legal

security" by assuring that law is knowable,

dependable and shielded from excessive
manipulation. In the context of rule
making, delegated legislation should
establish the structural conditions within
which those processes can function
effectively. The question which needs to be
asked is whether delegated legislation
promotes rational and accountable policy
implementation.

36

Point for consideration

Whether provisions of Section 23

of the Act empowers the

Commission to direct a generator
to equitably supply power to three
Discoms in an area in derogation
of valid PPAs?
37

Scope of Section 23
23. If the Appropriate Commission is of
the opinion that it is necessary or
expedient so to do for maintaining the
efficient supply, securing the equitable
distribution of electricity and
promoting competition, it may, by
order, provide for regulating supply,
distribution, consumption or use
thereof.
38

Definition of Supply
(70) "supply", in relation to electricity,
means the sale of electricity to a
licensee or consumer;

39

Answered in the negative:

Tata Power Company Ltd. Vs.
Maharashtra Electricity Regulatory
Commission and Ors.
Decided On: 06.05.2009
[2009(111)BomLR2966,
2009ELR(SC)246,

40

Reasoning
 Generation has been de-licenced
 Section 11 provides for issue of
directions only under extra-ordinary
circumstances
 Definition of supply need not be
applied in reading Section 23 because
of the phrase unless the context
otherwise requires in section 2

41

Contd
 Marginal note of Section 23 reads
Directions to licensees
 Assigning Contextual meaning
 Adopting purposive interpretation

42

Applicability of Limitation Act

Section 125 of the Electricity Act will prevail
Chhattisgarh State Electricity Board Vs.
Respondent: Central Electricity Regulatory
Commission and Ors
Decided On: 15.04.2010
2010ELR(SC)313,
43

Reasoning/Observations
 the Electricity Act is a self-contained
comprehensive legislation, which not
only regulates generation, transmission
and distribution of electricity by public
bodies and but also ensures creation
of special adjudicatory mechanism to
deal with the grievance of any person
aggrieved by an order made by the
appropriate commission.
44

Contd
 The object underlying establishment of a

special adjudicatory forum i.e., the Tribunal to

deal with the grievance of any person who may
be aggrieved by an order of an appropriate
commission with a provision for further appeal
to this Court and prescription of special
limitation for filing appeals under Sections 111
and 125 is to ensure that disputes are
expeditiously decided by an expert body and
no court, except this Court, may entertain
challenge to the decision or order of the
Tribunal.
45

Contd
 It is thus evident that the Electricity Act is a

special legislation within the meaning of

Section 29(2) of the Limitation Act, which lays
down that where any special or local law
prescribes a period of limitation different
from the one prescribed by the Schedule, the
provisions of Section 3 shall apply as if such
period were the period prescribed by the
Schedule and provisions contained in Sections
4 to 24 (inclusive) shall apply for the purpose
of determining any period of limitation
prescribed for any suit, appeal or application
unless they are not expressly excluded by the
special or local law.

46

Ratio
 Any interpretation of Section 125 of the

Electricity Act which may attract

applicability of Section 5 of the Limitation
Act read with Section 29(2) thereof will
defeat the object of the legislation, namely,
to provide special limitation for filing an
appeal against the decision or order of the
Tribunal and proviso to Section 125 will
become nugatory.
47

Point for consideration

Can a State Commission

entertain an application
relating to grievance of a
consumer?
48

Law Laid down by the SC

Maharashtra Electricity Regulatory
Commission Vs. Reliance Energy Ltd. and
Ors.
Decided On: 14.08.2007
AIR2008SC976, JT2007(10), (2007)8SCC381

49

Ruling
12. It may be noted from a perusal of Section
86(1)(f) of the Act that the State
Government has only power to adjudicate
upon disputes between licensees and
generating companies. It follows that the
Commission cannot adjudicate disputes
relating to grievances of individual
consumers. The adjudicatory function of
the Commission is thus limited to the
matter prescribed in Section 86(1)(f).
50

Contd
 13. Section 14 of the Act provides for grant

of licence; Section 16 provides for

conditions of licence; Section 61 lays down
the tariff regulations and Section 62
provides for determination of tariff. The
Commission under Section 94 has civil
powers also and under Section 96 it has
power of entry and seizure. Under Section
126 the Commission has the power to
investigate and make assessment. Section
127 provides for an appeal to the appellate
authority.

51

Contd
 Under Section 128 the Commission can

make investigation of certain matters where

it is satisfied that the licensee has failed to
comply with any of the conditions of
licence or failed to comply with any of the
provisions of the Act or the rules and
regulations made thereunder. Sub-Section
(6) of Section 128 empowers the
Commission to take any action against the
licensee/generating company.
52

Ratio
18. Thus while we hold that the Commission has
power to issue a general direction to licencees
that they should abide by conditions of the
licence issued by them and charge only as per
the tariff fixed under the Act so that the public
at large should not be harassed, we are of the
opinion that so far as the blanket direction
given by the Commission for refunding the
entire amount without making a proper
investigation whether the issue of
supplementary/amended bills was really
warranted in every case or not is unsustainable.
[contd]

53

Contd
 Under these 2003 Regulations a proper forum

for redressal of the grievances of individual

consumers Ms been created by the
Commission. Therefore, now by virtue of Subsection (5) of Section 42 of the Act, all the
individual grievances of consumers have to be
raised before this forum only. we fail to
understand how could the Commission
acquire jurisdiction to decide the matter
when an individual consumer has a grievance
he can approach the forum created under Subsection (5) of Section 42 of the Act.

54

Nature of Depreciation
 Our answer is: In the light of above discussions it
is clear that as per definition depreciation is
replacement cost of an asset but in practice it is
utilized for repayment of loan taken for creation
of that asset.
Appellate Tribunal for Electricity
Appeal No. 134 of 2009
Dated : 7th April, 2011
PGCIL Vs CERC
55

Agreement tariff
 ISSUE: Can the central commission accept tariff
as submitted in joint application by the
Appellant and Respondent-2/distribution
licensee?
 We find that the Central Commission has rightly
determined the tariff as per its Regulations as it
can determine the tariff only as per its
Regulations and in no other way
Appellate Tribunal for Electricity
Appeal No. 130 of 2009
Dated: 25th March, 2011.

56

Power to remove difficulty

10.3. In our opinion, power to

remove difficulties is to be
exercised when there is difficulty
in effecting the Regulations and
not when difficulty is caused due
to application of the Regulations.
57

Need for uniform approach

APPELLATE TRIBUNAL FOR ELECTRICITY,
Appeal Nos. 100 of 2009, 146 and 151 of 2010
Decided On: 24.05.2011
U.P. Power Corporation Limited Vs.
Central Electricity Regulatory Commission

 Entertaining of interlocutory applications after

disposal of a matter from which appeal is

preferred is definitely a procedure quite
unusual and this leads us to hear a somewhat
embarrassing submission of Mr. Pradeep Misra
that the
58

 Commission is not following a uniform

procedure, for in one matter they say that

they are powerless to do anything being
functus officio, while in others they
entertain application attempting to make a
distinction between the two situations.
What we want to emphasize is that the
procedure must be uniform and uniformly
applied leading no scope for anybody to
assail that one is discriminated against the
other.

59

Scope of Section 11
 GMR Energy Limited Vs. Govt. of Karnataka
 Writ Petition Nos. 590, 591, 4693 and 9721 to 9722 of
2009
 Decided On: 26.03.2010

 Whether Severe power shortage and

glaring demand supply gap constitute

extra-ordinary situation?
 Held :YES
60

Operate and maintain

 The direction to operate means to

generate electricity for supply to the State

grid only and not for commercial supply.
Direction to maintain means to keep the
generating company in good condition by
checking or repairing it regularly so that
the production and supply of electricity in
to the State grid is unimpaired, to enable
the Government to meet the extra
ordinary circumstance arising out of
scarcity of electricity to meet, the public
demand.

61

Section 11 Vs. Article 301

 Therefore, the provisions of Section 11 of

the Act, is regulatory in nature. It is not

a restriction as contended by the
counsel for the petitioners and,
therefore, we do not see any substance
in the said contention also.

62

Present position
Appeals are pending before the
Honble Supreme Court

63

Multi Commodity Exchange of India Limited

Vs.
Central Electricity Regulatory Commission and
Ors.
Writ Petition No. 1197 of 2010 and
Notice of Motion No. 100 of 2010
Decided On: 07.02.2011

2011(113)BomLR531, 2011ELR(BOM)1
64

ELECTRICITY DISTINGUISHED
 (a) The Electricity Act deals with in every respect
including trading in electricity. The electricity is
a non-storable goods, except produced by hydro
projects. The trading of electricity falls within the
concept of commodity trading. Therefore, it may
or may not physically available all the time,
unless generated on the day and/or the date of
delivery. This distinguishes electricity as a goods
from other commodities as contemplated under
the FCR Act, which at present deals exclusively
with all aspect of futures/ forward contracts.
65

Limited role of FMC and MCX

 (b) In view of the reasoning's earlier recorded, it
will not be possible either for FMC or MCX to
control and regulate the mandatory
requirements of electricity, at various stages,
which are well within the exclusive domain and
control of the CERC and/or
authorities/commissions. It will create more
complications than solving it, unless an expert's
body constituted and specialized rules and
regulations are framed. Both
authorities/commissions cannot deal in
futures/forward contract in electricity excluding
other and/or independently.
66

Exclusive jurisdiction - difficult

 (c) It is not only question of resolving the conflict
between two entries and/or mandates of the
respective specialized Act, but actual and
physical workable solution to permit and/or to
allow either authorities/ commissions/
exchanges to deal with the electricity in the
futures/ forward market. Both authorities/
commissions under the respective Acts may not
be in a position to control and regulate the
futures contract in electricity exclusively, unless
those Acts and regulations are amended /revised
and reframed. Both cannot have exclusive
jurisdiction as claimed in the present scenario in
67
India.

Proposed solution
 (d) It is clarified that the Union of India and/or
the concerned commission and/or the regulatory
authorities are free to revise and/or to reframe
the rules and the regulations and/or to amend
the concerned statutes to permit the futures/
forward and derivatives contract in electricity, if
so advised.

68

 (e) The regulations of CERC as notified on 20

January, 2010, which deals with the aspects of
futures contracts or forward contracts, therefore,
are inoperative to that extent only. The
impugned order dated 28th April, 2009 and order
dated 11th January, 2010 upholding the
regulations are also unsustainable to the extent
of reasoning and direction relates to forward
contracts in electricity.

69

Scope of Section 121

 Held, Tribunal can exercise revisional power

under Section 121 of Act of 2003 only when

aggrieved party had either initiated proceeding
before concerned Electricity Regulatory
Commission or made any grievance relating to
excessive exercise of jurisdiction by such
Regulatory Commission
Central Electricity Regulatory Commission Vs.
Gajendra Haldea and Ors.
Decided On: 15.04.2010
2009ELR(SC)508, JT2009(14) SC317, (2009)11SCC556
70

Point for consideration

 Does the Commission have power to
fix tariff of generating Company when
power is sold to an agency other than
distribution company?

71

Judgment of the Tribunal

 under sub-section (1) of Section 62 of the

Act, there is no power with the State or the

Central Commission to determine or fix
tariff, price or rate to be charged for supply
of electricity by: (i) a generator to a trader
or an intermediatory; (ii) a distributor to a
trader; and (iii) by a trader to a distributor
or any other person.
72

Contd
 34. It appears to us that the general
words in Sections 79 (1) (a) & (b) and
86(1) (a) must take colour from the
words used in Section 62 (1),
particularly Section 62 (1) (a).
Otherwise, it is not possible to
reconcile the provisions of Section
62(1) on the one hand and Section 79
(1) (a) & (b) and Section 86(1) (a) on
the other.

73

Contd
 Section 64 of the Act of 2003
postulates filing of an application
under Section 62 thereof by a
generating company or a licensee.

74

Contd
 Therefore, the words to regulate the tariff

of generating companies occurring in

Section 79(1)(a) & (b) are to be read with
Section 62(1)(a). When so read they imply:
to regulate the tariff of generating
companies for supply to a distribution
licensee. Similarly the meaning of the
words generation & supply occurring in
Section 86(1)(a) are controlled by Section
62(1)(a) to mean supply of electricity by a
generating company to a distribution

75

Ratio
 we hold that the Appropriate Commission

under Section 62(1) (a) read with Sections

79 (1) (a) & (b) and Section 86 (1) (a) of the
Act has been empowered to determine tariff
for sale of electricity by a generating
company to a distributor and it does not
impose any restriction of tariff on the
generating company or the distribution
licensee to sell electricity to a trader or an
intermediatory or on the trader to sell
electricity to any person.
76

Contd
 This leaves the generator free to have a

direct commercial relationship with a

trader or an intermediatory, a vital factor
for encouraging competition, which is
extremely important for securing power for
the consumers at reasonable rates. This is
also clarified in the National Electricity
Policy, which has captured the spirit of the
Act.
77

Additional issue
 56. Since the generator is free to sell
power to the traders and
intermediatories directly, which can
have an impact on the consumers, the
Appropriate Commission must take
recourse to Sections 60 and 66 of the
Act.
78

Proposed solution
 In other words, if the base price for X units

is Rs. 100/- as fixed by the Appropriate

Commission, the maximum price at which
the generator is to be allowed to sell
electricity to a trader or an intermediatory
shall not be more than Rs. 104/- for the
same units of electricity. In this way the
generator in a competitive market would be
able to sell electricity even below the base
price fixed by the Appropriate Commission.
79

Contd
 We would also like to clarify that the
generator will not supply electricity to
entities, utilities or persons other than
the distributor, unless it fulfils its
obligation to supply electricity to the
distributor for the consumption of the
consumers.
80

Appeal to SC
 Decided on the basis of Locus standi of
the petitioner
 Legal merit of the ruling of the
Tribunal not commented upon
Central Electricity Regulatory
Commission Vs. Gajendra Haldea and
Ors.
Decided On: 09.04.2009
2009ELR(SC)508, JT2009(14)SC317
81

82