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Supreme Court to State Electricity Regulatory Commissions: Frame Guidelines for Determination of Tariffs Within 3 Months

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Supreme Court Law Insider

Savvy Thakur

Published on: 23 November 2022 at 22:28 IST

The Supreme Court issued a decision directing all State Electricity Regulatory Commissions to develop regulations on the terms and conditions for determining a tariff under Section 181 of the Electricity Act 2003 within three months.

The Court also said that the Commission must follow the principles outlined in Section 61 of the Electricity Act of 2003 when formulating these guidelines for determining a tariff. These principles include the National Electricity Policy and the National Tariff Policy.

In the event that the criteria for selecting the modalities that will be used to determine the tariff are not included in the regulations that the State Commissions have already drafted, those regulations will be amended to include them.

The bench comprised Justices AS Bopanna, JB Pardiwala, and Chief Justice of India DY Chandrachud issued a ruling directing the Commission to implement the Electricity Act’s goal of creating a long-term model for electricity regulation in the State.

When drafting these regulations, the Regulatory Commission must also take into account the particular requirements of the State.

“Furthermore, the regulations framed must be in accordance with the objectives of the Electricity Act 2003, which is to enhance the investment of private stakeholders in the electricity regulator sector so as to create a sustainable and effective system of tariff determination that is cost-efficient so that benefits percolate to the end consumer,” the Court noted.

In the case The Tata Power Transmission Company Ltd. v. Maharashtra Electricity Regulatory Commission, the bench was delivering its verdict.

The court noted that the Electricity Act of 2003 provides sufficient flexibility to regulate the intra-state transmission system and that State Commissions possess the power to determine and regulate tariff. Commission cannot negate tariff determined through bidding process.

The Electricity Act does not provide a single predominant method for establishing a tariff. The bidding process can be used to determine the tariff, as stipulated in Section 63. The Commission must adopt the tariff if it has already been determined through tariff. Using its Section 62 authority, the Commission cannot overturn a bidding-based tariff. Only if the bidding process was opaque or if the procedural guidelines were not followed can the Commission decide not to adopt the tariff that was determined during the process.

The procedures for determining tariffs are outlined in Sections 62 and 63. Section 63’s non-obstante clause cannot be interpreted as indicating that Section 62 will take precedence over Section 63 when selecting the tariff’s modalities.

State commissions ought to notify the criteria for the modalities of tariff determination either through Section 181 regulations or Section 61 guidelines.

Due to a lack of regulations, state utilities operate on an ad hoc basis. The Court noted that the MERC has not issued any guidelines or regulations defining the criteria for selecting the modalities for determining the tariff in this case.

The allocation of the High Voltage Direct Transmission (HVDC) project was the subject of this dispute. The court noted that the Maharashtra GOM decision of 04.02.2019, the Electricity Act, and the National Tariff Policy did not require the MERC to allocate the HVDC project solely through tariff-based competitive bidding.

As a result, the Court ruled that the MERC’s decision to allocate the HVDC project was an appropriate exercise of its authority and denied Tata Power Transmission Company’s appeal.

The Court also made the observation that the case has highlighted the “ad hoc nature of the functioning of the state transmission utility” to its attention.

“Maharashtra State Electricity Transmission Company Ltd. (MSETCL) has been shifting its position regarding HVDC technology without adhering to any appropriate procedures. While the demand for electricity has been exponentially rising, MSETCL’s reversals have resulted in waste, time loss, and investment losses.”

The Court added, “ad-hoc functioning of the transmission utilities is attributable to the lacunae in the regulations guiding the exercise of their functions”

The State Commissions were given instructions by the Court in this context.