In Key Judgement, SC Backs Independence for SERCs

In a ruling that is likely to have far reaching implications, the Supreme Court of India has strengthened the independence of India’s State Electricity Regulatory Commissions (SERCs), placing them beyond the writ of the respective state governments in issuing orders. The ruling was made by a bench comprising the Chief Justic of India Dr DY Chandrachud, Justice JB Pardiwala, and Justice Manoj Misra.

Background

The Background to the ruling that was issued on Sept 30, and uploaded recently to the SC website, was this.

• The Kerala State Electricity Board (KSEB) floated tenders for power procurement, but the bids did not cover the entire required quantum. KSEB accepted partial bids and sought approval from the Kerala State Electricity Regulatory Commission (KSERC).
• KSERC’s Initial Decision: KSERC initially approved only some of the Power Supply Agreements (PSAs) and deferred others due to deviations from standard bidding guidelines.
• Government Intervention: The Government of Kerala issued policy directions under Section 108 of the Electricity Act, urging KSERC to reconsider its decision in the public interest. Following this, two generators challenged the decision, forcing KSERC to move to APTEL, who ruled in favour of KSERC’s independence, KSEB then moved the supreme court.
• APTEL and Supreme Court Rulings: The Appellate Tribunal for Electricity (APTEL) and the Supreme Court ruled that KSERC was not bound by the state government’s directives and must exercise its quasi-judicial powers independently. The original appeal against KSERC’s decision was restored for further consideration.

In its ruling, the SC order highlights that-

1️⃣ Limited State Government Influence: The Court clarified that while State governments can offer policy advice under Section 108 of the Electricity Act, 2003, they cannot force independent regulatory bodies, like KSERC, to reverse their decisions. SERCs must make choices based on what’s best for consumers.

2️⃣ Limitations while Reviewing Decisions: The Court agreed that KSERC should not have changed its earlier decision just because the State Government requested it. Under the Civil Procedure Code, a review is only possible if there was a clear mistake in the original decision, which was not the case here.

3️⃣ Regulatory Function in Power Procurement: The Court emphasized that SERCs must independently regulate electricity tariffs under Section 86(1)(b) and Section 63 of the Electricity Act, without interference from State policies. This protects consumers from price hikes and ensures fair pricing, especially in long-term contracts.

This decision upholds the role of SERCs as independent regulatory bodies dedicated to consumer protection and transparency in the energy sector, free from political influence.

Implications:

1. Legal Precedent: The ruling sets a legal precedent that can be cited in future cases where there is a conflict between state government directives and the statutory duties of regulatory commissions. This can help ensure that regulatory bodies adhere strictly to legal and procedural guidelines.
2. Policy vs. Regulation: The decision clarifies the distinction between policy-making and regulatory functions. While state governments can set policies, regulatory bodies are not obligated to follow these policies if they conflict with their regulatory mandates. This separation can lead to more transparent and accountable governance.
3. Enhanced Scrutiny: Regulatory bodies may adopt more rigorous scrutiny of power procurement processes and other regulatory matters, ensuring that decisions are made based on merit and compliance with established guidelines rather than political considerations.

View the full SC order here.