In a judgment with far-reaching consequences, the Supreme Court has upheld the supremacy of the electricity regulatory commissions, observing that the directions of the state and union governments are not binding on them.

Governments cannot impinge on the adjudicatory discretion vested in the regulators by issuing policy directives under Section 108 of the Electricity Act, 2003.

The Court said the state commissions can only be ‘guided’ by the state governments in policy matters and are not automatically bound by them. It noted that the law in no way seeks to control the exercise of quasi-judicial power by the state commissions based on directions issued by the state government.

A Supreme Court bench headed by Chief Justice D Y Chandrachud made these observations recently while disposing of an appeal by the Kerala government concerning the procurement of 865 MW of power by the Kerala State Electricity Board (KSEB).

The Kerala government had sought the Kerala State Electricity Regulatory Commission’s (KSERC) approval to adopt the tariff per the terms of seven power sale agreements (PSA). However, in 2016, KSERC held that the KSEB had grossly deviated from the standard bidding guidelines issued by the Ministry of Power and failed to obtain approval from the KSERC or the Union Government regarding the deviations in the four PSAs. It reiterated the position in May 2023 following an appeal by the government.

The KSERC also held that the deviations were against the public interest and created long-term financial implications for the consumers.

The Kerala government approached the Appellate Tribunal for Electricity (APTEL) against the KSERC order. Even while the appeal was pending before APTEL, the Kerala government invoked the provisions of Section 108 of the Act in October 2023 and issued policy directions highlighting the public interest that would be served by approving the four PSAs.

The state government stated that the PSAs’ non-approval would compel it to purchase power at higher rates, resulting in immense financial implications and a power crisis.

In a turnaround, KSERC allowed the review petition on December 29, 2023, and approved the PSAs, citing the public interest highlighted in the policy directions issued under Section 108 by the State government. It said the Commission was bound by the directions of the state government.

Two of the generators went in appeal to APTEL, contending that the second KSERC order was violative of the law as it was passed solely on the ground that a subsequent direction issued by the State Government under Section 108 is binding on the regulator.

Maintaining that the KSERC was not bound by the state government’s directions, APTEL set aside the KSERC’s second order in July 2024. It said a policy directive could not override the statutory functions already exercised by the KSERC.

The Supreme Court bench, while disposing of the appeal by the Kerala government, said, “We are in agreement with the judgment of APTEL insofar as it holds that the directive which was issued by the State Government under Section 108 could not have displaced the adjudicatory function which was entrusted to KSERC.”

The Apex Court said in 2021 that the state regulatory commissions must be guided by the public interest when approving tariffs for power purchases.

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