Torrent Power Limited vs U.P. Electricity Regulatory Commission & Ors.

Held: The respondent no.4, though, has levelled serious allegations against the respondent no.2 and the appellant, yet has not provided any reasons or documentation in respect of how the appellant and respondent no.2 are in violation of tariff orders – Further, even the Expert Committee Report dated 09.01.2017 does not shed any light on how tariff orders are being contravened by the appellant – What is discernible is that unless some satisfactory grounds are given for initiating an investigation, a petition or an application u/s.128 cannot be held to be maintainable – The ERCs are required to consider matters in public interest wherever mandated by the Act, 2003, i.e., in matters relating to tariff determination, procurement of power processes, and utility/licensee management which requires safeguarding of consumer interest alongside the commercial principles – This Court is, therefore, of the considered view that in the present case, the petition of the respondent no.4 filed u/s.128 does not fulfill the parameters of satisfaction required under the said Section. [Paras 67, 68]

Electricity Act, 2003 – ss.16, 18, 19, 20, 128 – Whether the ERCs have the jurisdiction to review the functioning of a distribution licensee to supply electricity through a franchisee: Held: An ERC may not directly regulate a franchisee, it exercises regulatory oversight over the distribution licensee’s functions and duties, including the process of a distribution licensee delegating some of its functions and activities to a franchisee – Further, Sections 16, 18, 19 and 20 of the Act, 2003 respectively, prescribe that the ERC can stipulate/review the terms and conditions under which a distribution licensee may delegate its electricity distribution responsibilities to a franchisee – Such stipulation/review occurs as a part of ERC’s regulatory functions – It is apposite to observe that the Act, 2003 does not provide for a direct regulatory oversight by the ERCs in respect of the distribution franchisees – Part IV of the Act, 2003, from Sections 12 to 24 deals with licensing which inter-alia includes the procedure for grant of licence, conditions of licence, actions that a licensee may not undertake, amendment of licence, revocation of licence, sale of utilities of licensees, directions to licensees, and suspension of distribution licence and sale of utility – All these stipulations are to regulate the distribution licensee – There is no such stipulation provided to control or regulate the relationship between a licensee and franchisee – It is well settled that the relationship between the distribution licensee and franchisee is one of agency – As a natural corollary, the franchisee is accountable only to the distribution licensee, who in turn is accountable to the consumers – The Act, 2003 does not envisage direct regulatory oversight as regards distribution franchisees and by virtue of their relationship of agency, such franchisees can only be indirectly regulated through the distribution licensee – Therefore, even an investigation u/s.128 can only happen in respect of a distribution licensee and not its franchisee. [Paras 71, 72, 73, 75]

Electricity Act, 2003 – s.128 – Uttar Pradesh Electricity Regulatory Commission (Consumer Grievance Redressal Forum & Electricity Ombudsman) Regulations, 2007 – Reg.5 – Uttar Pradesh Electricity Regulatory Commission (Conduct of Business) Rules, 2004 – Reg.14 – A Distribution Franchisee Agreement dated 18.05.2009 and Supplementary Agreement dated 17.03.2010 respectively (together referred to as the “DFA”) entered and executed between the appellant (distribution franchisee) and the respondent no.3 (distribution licensee) appointing the appellant herein as a franchisee for distribution of electricity – Respondent No.4 (an individual) preferred Petition No.816 of 2012 u/s.128 of 2003 Act before the UPERC, questioning the legality, validity and propriety of DFA – The UPERC held the petition was maintainable on the grounds of public interest and further, ordered formation of an Expert Committee to give findings – The APTEL held that petition before the UPERC was maintainable and observed that ERCs are empowered to exercise regulatory oversight on distribution licensees – Correctness:

Held: 1. The UPERC fell in serious error in entertaining the petition filed by the respondent no.4 and passing the order constituting an expert committee – The APTEL also failed to look into the error committed by the UPERC and dismissed the appeal filed by the appellant-herein – The impugned order passed by the APTEL is hereby set aside – As a consequence, the report of the Expert Committee also pales into insignificance. [Paras 78, 79]

2. The ERCs are required to consider matters in public interest wherever mandated by the Act, 2003, i.e., in matters relating to tariff determination, procurement of power processes, and utility/licensee management which requires safeguarding of consumer interest alongside the commercial principles – This Court, therefore, of the considered view that in the present case, the petition of the respondent no.4 filed u/s.128 does not fulfill the parameters of satisfaction required under the said Section – The issue whether an investigation u/s.128 could be ordered against DVVNL or respondent no.2, the answer in the negative – It goes without saying that the investigation to be conducted by an authority u/s.128 is to be limited to only two eventualities: (i) if the licensee fails to abide by the terms of its license, and (ii) if the licensee acts in contravention to the provisions of the Act, 2003 and the regulations thereunder – The exposition in the aforesaid clarifies that the threshold of “satisfaction” required to order an investigation u/s.128 was not met by the respondent no.4 and even the Expert Committee did not present any findings as regards these two considerations – Insofar, regulatory oversight as regards distribution franchisees is concerned, there is no doubt that the Act, 2003 does not envisage direct regulatory oversight as regards distribution franchisees and by virtue of their relationship of agency, such franchisees can only be indirectly regulated through the distribution licensee – Therefore, even an investigation u/s.128 can only happen in respect of a distribution licensee and not its franchisee – This is in consonance with the principle of agency – Any action of the franchisee is equivalent to such action having been committed by a distribution licensee – Therefore, only the distribution licensee can be questioned for any action that its agent commits. [Paras 68, 77, 75]

Electricity Act, 2003 – Input-rate model of distribution franchisee – Explained:

Held: In this model, a franchisee buys electricity from a distribution licensee at defined input point(s) at a pre-determined rate which is annualized for consistency on a yearly basis – This pre-determined rate that has to be paid by the franchisee to the distribution licensee for purchase of electricity, is usually fixed by way of bids received from private players interested in assuming the role of a franchisee – The private party that quotes the highest rate is awarded the bid subject to other terms and conditions of the bidding process – It is for this reason that quoting of such annualized rates is required even by the Ministry of Power’s “Standard Bidding Document for Appointment of Input based Distribution Franchisee, June 2012”. [Para 61]

Electricity Act, 2003 – Functions of Central and State Electricity Regulations Commissions – Nature and Scope of – Discussed: Held: Under the scheme of the Act, 2003, the Central and State ERCs are vested with regulatory functions, tariff determination functions, and adjudicatory functions, in particular under Sections 79 and 86 respectively – Whilst in the exercise of regulatory functions, the ERCs are also required to comply with the various Regulations made by the respective Central and State Commissions under Sections 178 and 181 respectively of the Act, 2003 – A close reading of most of the Regulations framed by the ERCs i.e., Regulations pertaining to Open Access, Connectivity Regulations, Regulations on Renewable Power Purchase Obligations etc., indicate that regulatory powers and functions of the ERCs must be exercised in public or consumer interest alongside commercial principles – The function of tariff adoption or determination is also mandated to be carried by ERCs in accordance with public interest and to safeguard consumer needs – It is noteworthy that Section 61 of the Act, 2003 also requires ERCs to consider commercial principles in matters of tariff and therefore ERCs are expected to undertake a balancing act between commercial prudence and consumer interest. [Para 48] Electricity Act, 2003 – ss.79, 86 – Adjudicatory jurisdiction– Central ERC and State ERCs – Difference – Whether consumer disputes falls within the adjudicatory jurisdiction of UPERC: Held: Adjudicatory jurisdiction of the Central Commission is specified under Section 79(1)(f) and is limited to adjudication of disputes involving generating companies or transmission licensee, in regard to matters connected with clauses (a) to

(d) – The State ERCs have a comparatively broader jurisdiction under Section 86, to adjudicate upon all disputes between the licensees and generating companies, without being limited to categories specified in (a) to (d) of Section 79 – However, even this enlarged jurisdiction of the State ERCs, more particularly the UPERC, does not include within its fold the power to adjudicate disputes involving consumers and by extension their grievances, irrespective of whether such issue is raised in furtherance of public interest. [Paras 49, 50]