Introduction:

In a significant judgment, the Karnataka High Court, in the case of Brindavan Hydropower Private Limited vs. Union of India & Others (WRIT PETITION NO. 11235 OF 2024), struck down the Electricity (Promoting Renewable Energy Through Green Energy Open Access) Rules, 2022, framed by the Central Government. The Court held that the Central Government did not possess the power to frame these rules under the Electricity Act, 2003, as the responsibility for framing such regulations was specifically conferred upon the Karnataka Electricity Regulatory Commission (KERC) under Sections 42(2) and 181 of the Electricity Act. This ruling is particularly crucial as it addresses the interplay between central and state authorities in the regulation of renewable energy policies and the provision of open access to green energy.

The case arose from a series of petitions filed by companies engaged in hydropower generation, which had entered into agreements for Wheeling and Banking with transmission and distribution licensees. The petitioners contended that the Central Government, by framing the Green Energy Open Access (GEOA) Rules, had essentially taken over powers that were reserved exclusively for the KERC. The companies argued that this move was violative of the statutory framework under the Electricity Act, of 2003, which intended to limit the Government’s role in the electricity sector, particularly about the open access framework for renewable energy.

The Centre, on the other hand, argued that it had the authority to enact the GEOA Rules by Entry No. 14 of the Union List and Entry 38 of the Concurrent List, relying on international obligations and the power vested in it under Section 176(1) of the Electricity Act. The Central Government claimed that it had framed the rules in line with its responsibilities under the Electricity Policy, 2005, and aimed to promote renewable energy.

Arguments of Both Sides:

The petitioners challenged the legality of the GEOA Rules because the Central Government did not have the statutory power to enact such regulations. They contended that the Electricity Act, of 2003 specifically conferred power on State Electricity Regulatory Commissions (SERCs) such as KERC to regulate matters related to open access, including for renewable energy sources. The petitioners emphasized that the impugned rules bypassed KERC’s role, rendering it secondary and subservient to the Centre in matters that the Electricity Act intended to be under state control.

The petitioners also argued that the GEOA Rules violated the basic framework of the Electricity Act, which sought to minimize the government’s involvement in the electricity sector and ensure that regulatory decisions were made by independent commissions. They further pointed out that the responsibility for open access, as per the Electricity Policy and the Electricity Act, lies squarely with the regulatory commissions, not with the Central Government.

On the other hand, the Centre argued that the GEOA Rules were enacted in the exercise of its powers under Entry No. 14 of the Union List (which pertains to energy regulation) and Entry 38 of the Concurrent List (which allows the Centre to regulate matters related to electricity). The Centre also claimed that it had framed the GEOA Rules in furtherance of its international commitments and to promote renewable energy in the country, which was in line with its obligations under the Electricity Policy, 2005. It further asserted that the powers to frame rules under Section 176(1) of the Electricity Act enabled it to regulate the transmission and distribution of electricity, including the promotion of renewable energy through open access.

Court’s Judgment:

Justice N.S. Sanjay Gowda, delivering the judgment of the Court, noted that the rule-making powers of the Central Government under the Electricity Act were limited and did not extend to framing the GEOA Rules. The Court emphasized that the Electricity Act, of 2003, specifically conferred the responsibility for regulating open access and related matters on the State Electricity Regulatory Commissions (SERCs), such as the Karnataka Electricity Regulatory Commission (KERC). The Court observed that the purpose of the Electricity Act was to ensure that the government, whether at the Centre or the State level, did not interfere unduly with the functioning of the electricity sector. Instead, the Act sought to empower independent regulatory bodies to make decisions based on technical, financial, and regulatory expertise.

The Court held that the Centre’s action in framing the GEOA Rules was inconsistent with the provisions of the Electricity Act, which had delegated the power to regulate open access to the State Commissions. The Court also pointed out that even under the Electricity Policy, 2005, the facilitation of non-discriminatory open access was the responsibility of the regulatory commissions and not the Central Government.

Further, the Court clarified that under the Karnataka Electricity Reforms Act, 1999, the State Government could issue Policy Directives to KERC, but these directives were subject to the condition that they did not adversely affect the functioning and powers of the KERC. This highlighted the limited scope of government intervention in the regulatory process, which was designed to ensure independence and impartiality in the regulation of the electricity sector.

The Court also rejected the Centre’s argument that its powers under Section 176(1) of the Electricity Act allowed it to frame rules to carry out the provisions of the Act. The Court held that the Centre could not rely on its residual powers to bypass the clear delegation of authority to the regulatory commissions, particularly in matters related to open access and renewable energy.

In light of these findings, the Court struck down the GEOA Rules and the Karnataka Regulatory Commission (Terms and Conditions for Green Energy Open Access) Regulations, 2022, which were framed by KERC based on the now invalidated Central Rules. The Court directed KERC to frame appropriate regulations afresh, as per the provisions of the Electricity Act, for granting open access to green energy generators and consumers.

The Court also ordered that to avoid a legal vacuum until new regulations were framed, the existing arrangements for wheeling and banking of energy should continue. It suggested that KERC could consider the possibility of offering an annual banking facility to green energy generators, subject to conditions to prevent them from exploiting the system for financial gain.