SUPREME COURT: ELECTRICITY REGULATORY COMMISSIONS CANNOT HEAR CASES BASED SOLELY ON PUBLIC INTEREST, LACK DIRECT CONTROL OVER FRANCHISEES:

In a significant ruling concerning electricity distribution, the Supreme Court recently held that Electricity Regulatory Commissions (ERCs) cannot entertain petitions solely on the ground of public interest. The Court clarified that while ERCs must consider public interest in specific matters mandated under the Electricity Act, such as tariff determination, power procurement, and utility or licensee management, this does not extend to adjudicating general disputes merely raised in the name of public welfare.

A bench of Justices J.B. Pardiwala and R. Mahadevan observed that although the Uttar Pradesh Electricity Regulatory Commission (UPERC) had jurisdiction under Section 128 of the Electricity Act to entertain a petition seeking investigation, this does not mean ERCs can independently take up issues only because they appear to be in the public interest. The bench emphasized that ERCs derive their powers strictly from the statute and cannot act beyond the functions explicitly conferred upon them by the 2003 Act.

The case stemmed from a petition filed by Respondent No. 4 before the UPERC, challenging a Distribution Franchisee Agreement (DFA) executed between the appellant (a distribution franchisee) and Respondent No. 3 (a distribution licensee) for electricity distribution in Agra’s urban area. The petitioner alleged that this agreement had been entered into without prior approval from the UPERC and requested an investigation into the conduct of Respondents No. 2 and 3.

The appellant objected to the petition on grounds of maintainability and jurisdiction. However, the UPERC admitted the petition, stating it was maintainable in public interest and warranted an investigation into the franchise arrangement. The Commission justified its stance by asserting its authority to assess whether such franchisee arrangements benefited distribution companies (DISCOMs) and the general public.

Dissatisfied with the order, the appellant approached the Appellate Tribunal for Electricity (APTEL), which held that while public interest litigation is not maintainable before ERCs, the petition itself was not based on public interest and hence was maintainable. APTEL also ruled that ERCs can exercise regulatory oversight on distribution licensees. The appellant then challenged this ruling before the Supreme Court.

On examining the issues, the Supreme Court first addressed whether an individual could invoke ERC jurisdiction purely based on public interest. It noted that State ERCs have broader jurisdiction under Section 86 compared to the Central ERC, but this still does not extend to consumer disputes or grievances, even if presented as public interest matters. Importantly, the Court distinguished that the current case did not involve Section 86, but rather Section 128, which allows for investigations only when a licensee breaches license terms or the Act itself.

The Court held that Respondent No. 4 failed to provide substantial reasons or material to justify such an investigation. The threshold for ordering an inquiry under Section 128 was not met.

On the second issue, the Court clarified that ERCs do not have direct regulatory oversight over franchisees. Instead, their oversight is exercised through regulation of distribution licensees, including any delegation of functions to franchisees. Franchisees act as agents, and any violation by them is attributable to the licensee, who remains the responsible party under law. Hence, investigations under Section 128 can only be directed at distribution licensees.

The Court further noted that UPERC and APTEL had overstepped their bounds by effectively micromanaging the franchisee arrangement. It concluded by allowing the appellant’s appeal and setting aside APTEL’s order, thereby nullifying any proceedings or findings of the Expert Committee constituted by UPERC.