Supreme Court: Electricity Regulatory Commissions cannot act on “public interest” alone; no direct regulatory control over franchisees

Table of Contents

• What the Court decided
• Case background and posture
• Key legal clarifications
• Practical implications
• The takeaway

The Supreme Court has clarified that State Electricity Regulatory Commissions (ERCs) cannot entertain petitions solely on the ground of “public interest,” and that the Electricity Act, 2003 does not envisage direct regulatory oversight over distribution franchisees; any regulatory action must be channelled through the distribution licensee with whom the franchisee has an agency relationship.

What the Court decided

• No “public interest” jurisdiction in the abstract
  ERCs are statutory bodies and can act only within powers conferred by the Electricity Act; they are not competent to entertain a matter merely because it is framed as being in public interest.
• Section 128 investigations: threshold and who can be probed
  While an ERC may, in principle, consider a petition praying for an investigation under Section 128, it must be satisfied on substantive grounds; Section 128 is not triggered by bare public-interest assertions or speculative pleas. The statute permits investigation of a licensee’s affairs; a franchisee is not the direct subject of investigation under the Act.
• No direct regulatory oversight over franchisees
  The Act does not create a direct regulatory line from ERCs to franchisees; franchisees operate as agents of the distribution licensee, so any regulatory scrutiny runs through the licensee, not directly against the franchisee.

Case background and posture

The ruling arose from a challenge to proceedings initiated before the Uttar Pradesh Electricity Regulatory Commission (UPERC) against a Distribution Franchisee Agreement (DFA) for Agra’s urban area, where a private individual sought an investigation alleging appointment/approval defects and pricing model issues; UPERC treated the matter as maintainable on public interest grounds and ordered an expert inquiry, which APTEL substantially affirmed, prompting an appeal to the Supreme Court.

The Supreme Court set aside the regulatory and appellate orders to the extent they rested on public-interest footing without meeting Section 128’s satisfaction threshold, and clarified the limits of ERC jurisdiction over franchisee arrangements.

Key legal clarifications

• ERCs’ remit is statutory, not plenary
  The Court emphasized that ERCs derive jurisdiction strictly from the Electricity Act (e.g., Sections 79, 86), and while consumer/public interest informs several functions (like tariff determination), it does not create a free‑standing cause to assume jurisdiction over disputes or investigations absent statutory basis.
• Section 128 is commission‑driven and requires reasons
  Initiating an investigation into a licensee’s affairs requires the commission’s recorded satisfaction on adequate grounds; individual petitions cannot compel investigations on “public interest” slogans without material; consumer forums under Section 42 cannot direct Section 128 investigations either.
• Franchisees are regulated indirectly through licensees
  Because franchisees act as agents of licensees, ERCs may monitor the delegation framework and licensee performance, but cannot micro‑manage or directly regulate franchisee operations; investigation, if warranted, must be into the licensee’s affairs.

Practical implications

• For petitioners/consumers
  Petitions must show statutory footing and satisfactory grounds, particularly for Section 128; generic “public interest” pleas are insufficient, and consumer grievances lie through Section 42 processes, not by invoking an ERC’s public-interest powers.
• For ERCs
  Record clear reasons before invoking Section 128; avoid constituting expert inquiries into franchisee performance unless the legal threshold is met and the focus remains on the licensee’s affairs.
• For licensees and franchisees
  Expect commission oversight to be exercised through the licensee; franchisee performance can be examined only insofar as it bears upon the licensee’s statutory obligations, not via direct regulation of the franchisee.

The takeaway

The Court has drawn a bright line: ERCs cannot found jurisdiction on public interest alone, and they do not possess direct regulatory authority over franchisees; any investigation or corrective action must be rooted in statutory power (principally Section 128) and directed at the distribution licensee, with adequate reasons and material to justify intervention.