The Karnataka High Court has struck down the Electricity (Promoting Renewable Energy Through Green Energy Open Access) Rules, 2022, along with the Karnataka Electricity Regulatory Commission (KERC) (Terms and Conditions for Green Energy Open Access) Regulations, 2022.

The court held that the Union government cannot exceed the authority granted under the Electricity Act while enacting such regulations. The High Court directed the KERC to consider the interests of all stakeholders and, if necessary, frame appropriate regulations for granting open access to green energy generators and consumers. While doing so, the KERC is to be guided by the National Electricity Policy and the Tariff Policy formulated by the Union government but retain autonomy in its decision-making.

The court emphasized that the central government’s role under the Electricity Act is establishing policy frameworks and issuing directions. These directions are advisory for the regulator, serving as guidance rather than binding mandates.

In October 2024, the Supreme Court had upheld the supremacy of the electricity regulatory commissions, observing that the directions of the state and union governments are not binding on them. It said governments cannot impinge on the adjudicatory discretion vested in the regulators by issuing policy directives under Section 108 of the Electricity Act, 2003.

Background

The petitioners, hydropower generation companies, entered into long-term agreements with the Karnataka government for the wheeling and banking of electricity. Many of these agreements were established before the enactment of the Karnataka Electricity Reforms Act, 1999, and the Electricity Act, 2003.

These contracts, typically valid for 30 years, provided for concessional wheeling charges and annual banking facilities, ensure predictable terms for transmission and banking charges.

Following enacting the Electricity Act, 2003, the Karnataka Electricity Regulatory Commission (KERC) introduced regulations in 2004, which were periodically amended. These regulations supported renewable energy projects by reducing wheeling charges and ensuring banking provisions.

However, the introduction of the Electricity (Promoting Renewable Energy Through Green Energy Open Access) Rules, 2022 (GEOA Rules), and the subsequent KERC regulations, disrupted the established framework, creating uncertainty for existing agreements.

Chronology of Key Events

• 1995: Agreements for mini-hydel projects provided for a 30-year validity, concessional wheeling charges, and annual banking facilities.
• 2005-2014: KERC orders maintained concessional wheeling charges (5%) and banking provisions (2% charge), ensuring that unutilized energy would be compensated at 85% of the generic tariff.
• 2018-2019: Banking facilities were reduced from one year to six months. The Appellate Tribunal for Electricity overturned this, but the matter is pending before the Supreme Court.
• 2022: The GEOA Rules introduced stringent changes, limiting banking to one month and mandating charges for green energy open access.

Petitioners’ Arguments

The petitioners contended that the GEOA Rules and the corresponding KERC regulations were unconstitutional and undermined their contractual rights. They argued that the Union government lacked the authority to frame rules for open access, as this was the exclusive domain of regulatory commissions under the Electricity Act. Furthermore, the rules violated the Act’s principle of separating government functions from electricity sector regulation.

The petitioners also criticized the retroactive application of these rules, which disrupted longstanding agreements, especially concerning wheeling and banking provisions. They argued that the reduced banking period and additional charges imposed under the new regulations were economically burdensome and adversely affected the viability of renewable energy operations.

Respondents’ Arguments

The Union government asserted that the GEOA Rules  were framed under Entry 14 of the Union List and Entry 38 of the Concurrent List, allowing it to legislate on electricity matters. Additionally, the rules aligned with India’s international commitments to promote green energy. Framed under Section 176(1) of the Electricity Act, 2003, the rules aimed to fulfill the Act’s objective of encouraging renewable energy generation.

The respondents argued that the GEOA Rules established a consistent framework for granting open access to green energy producers and consumers, fostering investment and certainty in the renewable energy sector.

Karnataka Power Transmission Corporation Limited (KPTCL) highlighted that electricity banking was not a statutory right under the Electricity Act and that the standard contracts for wheeling and banking agreements had been modified multiple times. It contended that the GEOA Rules applied universally to green energy generators, while the KERC regulations addressed entities renewing agreements.

The respondents also emphasized that rules framed under Section 176(1) of the Electricity Act hold precedence over state regulations, ensuring uniformity in implementation.

KERC supported these arguments, emphasizing that the GEOA Rules and KERC regulations were essential for aligning India’s energy policy with its sustainability goals.

Court’s Analysis

The High Court invalidated the GEOA Rules and the corresponding KERC regulations, citing procedural issues and a lack of legislative competence. It directed KERC to independently frame fresh regulations, guided by the National Electricity Policy and Tariff Policy, while considering the interests of all stakeholders. It clarified that KERC could continue with the 2004 regulations if necessary and was not compelled to create new ones immediately.

Taking cognizance of the fact that this order would leave a vacuum till the regulations are framed by the KERC independently, the court said an interim arrangement would, therefore, have to be made to ensure that the petitioners’ wheeling and banking facilities are facilitated.

To ensure operational continuity, the court reinstated earlier arrangements in the interim. The petitioners were directed to pay 50% of the transmission charges as determined in interim orders, continue with a 5% wheeling charge, and pay 4% for banking, reduced from the 8% imposed under the invalidated regulations. Until new regulations are framed, a monthly banking facility was allowed to replace the previously permitted annual banking.

The court recommended that KERC consider reintroducing an annual banking facility while preventing misuse. It suggested that energy charges should align with rates at the time of injection, rather than withdrawal, to prevent speculative gains by generators. However, it clarified that these recommendations were non-binding, and KERC retained full discretion in framing the new regulations.

The court addressed several applications filed after the judgment was reserved. Regarding payments for energy injected into the grid post-contract expiration, the court ruled that respondents must compensate the petitioners at the prevailing generic tariff. It also directed respondents to ensure unhindered open access, pending implementation of the court’s directions.

Regarding demands for arrears, the court stated that arrears demanded in contravention of interim orders (directing 50% payment) could not be enforced retroactively.

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