1. Introduction

Electricity systems are increasingly complex, interconnected and dependent on digital, physical and institutional infrastructures. Traditional electricity regulation generally assumes that risks can be identified, measured and controlled in advance. However, modern power systems also face unknown risks—risks whose precise nature, probability, timing or consequences cannot be reliably predicted beforehand.

Examples include:

previously unidentified cyberattacks on grid-control systems;

cascading failures across interconnected networks;

unexpected interactions between renewable generation and grid stability;

extreme weather events outside historical experience;

failures caused by artificial intelligence or automated control systems;

simultaneous failure of electricity, telecommunications and fuel infrastructure;

novel technological defects;

unforeseen market or supply-chain disruptions.

The legal problem is therefore not simply “How should a known risk be regulated?”, but rather “How should law govern a system when the regulator cannot know all the risks in advance?”

In India, this question is particularly important under the Electricity Act, 2003, which gives regulatory authorities responsibilities concerning grid standards, reliability, continuity, system operation and electricity-sector governance. The Supreme Court has repeatedly recognised the importance of Grid Codes, regulatory expertise and flexible regulatory powers. (Sci API)

2. Meaning of Unknown Risks

An unknown risk is different from an ordinary foreseeable risk.

A foreseeable risk may have:

identifiable causes;

historical data;

calculable probability;

established mitigation measures; and

established legal responsibility.

An unknown risk may lack one or more of these characteristics.

For example, suppose a transmission network has been designed against historically observed weather conditions. An unprecedented combination of extreme heat, wildfire, equipment deterioration and renewable-generation fluctuations causes a cascading outage. The precise combination may not have been contemplated when the system was designed.

Thus, unknown-risk governance requires a shift from prediction-based regulation toward resilience-based regulation.

Core principle

Electricity law should not require regulators to predict every possible failure; it should require them to create institutions capable of detecting, absorbing, managing and learning from unforeseen failures.

3. Why Unknown Risks Are Particularly Important in Electricity Systems

Electricity has several characteristics that make unknown-risk governance especially significant.

A. Interdependence

Generation, transmission, distribution, telecommunications, fuel supply and control systems are interconnected. A failure in one part can propagate into another.

B. Real-time operation

Electricity supply and demand must be balanced continuously. There is therefore little time to respond after a major system disturbance.

C. Cascading consequences

A local equipment failure can sometimes become a regional or national disturbance.

D. Technological transformation

The grid is changing through:

renewable energy;

battery storage;

smart meters;

distributed generation;

electric vehicles;

artificial intelligence;

automated demand response; and

digital control systems.

These technologies create benefits but also introduce risks that may not have historical precedents.

E. Long-lived infrastructure

Transmission lines, substations and generating facilities may operate for decades. Decisions made today can therefore expose future electricity consumers to risks that are difficult to predict.

4. Legal Foundations for Governance of Unknown Risks in India

The Electricity Act, 2003 provides an institutional framework particularly relevant to unknown risks.

Section 73

The Central Electricity Authority has functions relating to technical standards and grid standards.

Section 79

CERC has important functions concerning inter-State electricity systems, including specifying the Grid Code and enforcing standards relating to quality, continuity and reliability of service. The Supreme Court has specifically recognised these responsibilities. (Sci API)

Section 28

Regional Load Despatch Centres have responsibilities concerning the integrated operation of the power system.

Sections 38–40

These provisions establish responsibilities of transmission utilities and licensees.

Together, these provisions create a distributed risk-governance structure rather than placing responsibility exclusively upon one institution.

5. Governance Through Grid Codes

The Grid Code is one of the most important legal mechanisms for dealing with uncertainty.

A Grid Code establishes technical and operational rules concerning matters such as:

scheduling;

dispatch;

frequency management;

system security;

transmission operation;

coordination between system operators;

emergency procedures; and

reliability.

The Supreme Court in PTC India Ltd. v. Central Electricity Regulatory Commission, (2010) 4 SCC 603 emphasised the statutory importance of CERC's regulatory functions and the legal character of regulations made under the Electricity Act. (LegalStreet)

More importantly for unknown risks, the Court has recognised that Grid Codes are essential to maintaining the electricity network. In another Supreme Court decision, the Court observed that the Grid Code governs maintenance of the network and that maintenance is vital because electricity grids can experience system disturbances and tripping. (Sci API)

Significance

The Grid Code provides adaptive governance. When technology and risks change, technical rules can be revised without rewriting the entire Electricity Act.

6. Case Law: PTC India Ltd. v. CERC

Facts and principle

In PTC India Ltd. v. Central Electricity Regulatory Commission, the Supreme Court considered the relationship between CERC's statutory regulatory authority and subordinate legislation.

The Court recognised the importance of regulations made under the Electricity Act and clarified the distinction between regulatory rules and individual adjudicatory orders. (LegalStreet)

Relevance to unknown risks

Unknown risks often cannot be managed entirely through individual dispute resolution. They require general technical rules applicable across the electricity system.

Thus, the case supports an institutional model in which:

Parliament establishes broad statutory objectives, while specialised electricity regulators develop detailed regulatory rules capable of responding to changing circumstances.

This is particularly important for emerging risks such as cyber-security, energy storage and automated grid management.

7. Case Law: Power Grid Corporation of India Ltd. v. Madhya Pradesh Power Transmission Co. Ltd. (2025)

A particularly significant recent Supreme Court decision is Power Grid Corporation of India Ltd. v. Madhya Pradesh Power Transmission Company Ltd., 2025 INSC 697.

The dispute concerned transmission assets and delays associated with the implementation of transmission-system strengthening schemes. The Supreme Court examined the scope of CERC's regulatory and adjudicatory powers under Section 79 of the Electricity Act. (Indian Kanoon)

The Court held that CERC's regulatory powers under Section 79 are not confined to situations in which a detailed regulation under Section 178 already exists. The Court recognised the ability of CERC to exercise regulatory authority in circumstances requiring an appropriate regulatory response. (Legal Desk AI)

Importance for unknown-risk governance

This principle has broader significance.

Unknown risks frequently create regulatory gaps. It may be impossible for legislation or pre-existing regulations to anticipate every future event.

The decision therefore supports a model in which an expert electricity regulator can respond to circumstances falling within its statutory mandate, subject to statutory limits and judicial review.

This is particularly relevant to:

unforeseen transmission problems;

new technologies;

system-wide disruptions;

infrastructure dependencies; and

novel operational arrangements.

8. Case Law: Energy Watchdog v. CERC

In Energy Watchdog v. Central Electricity Regulatory Commission, (2017) 14 SCC 80, the Supreme Court considered force-majeure and change-in-law issues arising from power purchase agreements after changes affecting imported coal prices. (Indian Kanoon)

The Court stressed that contractual risk allocation matters. A change that makes contractual performance more expensive does not automatically constitute force majeure or frustration. (Indian Kanoon)

Relevance

The case demonstrates an important distinction between:

Unknown risk
and
legally allocated risk.

A future event may be difficult to predict, but that does not automatically mean that the resulting economic consequences can be transferred to consumers or another contracting party.

Consequently, electricity governance must combine:

technical risk management;

regulatory powers; and

contractual risk allocation.

9. Precautionary Principle and Electricity Governance

Unknown risks also raise the question of the precautionary principle.

The precautionary approach suggests that absence of complete scientific certainty should not necessarily prevent preventive action where serious environmental or public risks may arise.

Indian environmental jurisprudence has recognised the precautionary principle, particularly through cases such as:

Vellore Citizens' Welfare Forum v. Union of India, (1996) 5 SCC 647

The Supreme Court recognised the precautionary principle as part of Indian environmental law.

Although Vellore was not an electricity-grid case, its reasoning is relevant to energy infrastructure where technological decisions may create uncertain environmental consequences.

For electricity regulation, precaution may justify:

additional safety requirements;

testing of new technologies;

contingency planning;

environmental safeguards;

monitoring requirements; and

temporary restrictions where credible severe risks are identified.

However, precaution should not mean that every hypothetical risk results in prohibition. Regulation must remain proportionate and evidence-based.

10. Resilience as the Central Governance Model

Traditional regulation often asks:

“What is the probability that this particular event will occur?”

For unknown risks, that question may be impossible to answer reliably.

A resilience-oriented legal framework instead asks:

Can the system detect abnormal conditions?

Can it isolate failures?

Can it continue operating during disturbances?

Can essential electricity services be prioritised?

Can the system recover rapidly?

Can regulators learn from the event?

Can rules be modified after new information emerges?

This produces a resilience cycle:

Monitoring → Detection → Response → Recovery → Investigation → Learning → Regulatory Revision

11. Institutional Governance of Unknown Risks

Unknown-risk governance should involve several institutions.

This institutional distribution reduces the possibility that one unidentified failure will overwhelm the entire governance system.

12. Information Sharing and Regulatory Learning

Unknown risks are often discovered only after an incident.

Therefore, electricity law should require:

incident reporting;

near-miss reporting;

technical investigations;

sharing of reliability information;

cybersecurity incident reporting;

independent system audits;

periodic review of Grid Codes; and

lessons-learned mechanisms.

A regulatory system that punishes every unexpected failure may discourage reporting. Conversely, a system with no accountability may encourage negligence.

The objective should therefore be learning without eliminating accountability.

13. Judicial Review as a Safeguard

Adaptive regulation creates another problem: regulators may exercise broad discretion.

Judicial review therefore remains important.

In PTC India, the Supreme Court explained the legal status of CERC regulations and the appropriate framework for reviewing subordinate legislation. (LegalStreet)

Similarly, the 2025 Power Grid Corporation decision illustrates the importance of distinguishing regulatory authority from unrestricted administrative power. CERC's statutory powers exist within the framework established by the Electricity Act. (Indian Kanoon)

Thus:

Regulatory flexibility must be combined with legality, transparency, reasoned decision-making and judicial oversight.

14. Unknown Risks and Climate Change

Climate change illustrates why historical risk models can become inadequate.

Electricity systems may face:

extreme heat;

floods;

cyclones;

wildfires;

drought affecting hydroelectric generation;

simultaneous regional weather events; and

changing patterns of electricity demand.

A system designed exclusively around historical averages may therefore become increasingly vulnerable.

Energy regulation should consequently incorporate forward-looking resilience assessments, rather than relying only on historical reliability data.

15. Unknown Risks and Artificial Intelligence

AI introduces a newer category of electricity-system uncertainty.

AI may be used for:

demand forecasting;

generation forecasting;

predictive maintenance;

automated dispatch;

fault detection;

market optimisation; and

grid balancing.

However, AI can also create new risks:

erroneous automated decisions;

model failures;

adversarial manipulation;

data-quality problems;

opaque decision-making; and

correlated errors across multiple automated systems.

The appropriate governance response includes:

human oversight;

auditability;

testing;

fallback systems;

explainability where appropriate;

cybersecurity;

incident reporting; and

clearly allocated legal responsibility.

16. Principle of Regulatory Adaptability

The most important legal principle emerging from electricity governance is adaptability.

A regulatory framework should be:

Flexible

Able to respond to new circumstances.

Precautionary

Capable of acting before catastrophic consequences occur where credible serious risks exist.

Evidence-based

Grounded in engineering, scientific and operational information.

Transparent

Stakeholders should understand why regulatory intervention occurs.

Accountable

Regulators and utilities must remain subject to legal oversight.

Proportionate

Risk controls should correspond to the seriousness and likelihood of the threat where those can reasonably be assessed.

Learning-oriented

Every major failure should improve future regulation.

17. Relationship Between Unknown Risks and the Public Interest

Electricity is an essential service. Consequently, the governance of unknown risks cannot focus exclusively on protecting utilities or investors.

The regulatory framework must balance:

reliability;

affordability;

consumer protection;

energy security;

investment;

environmental sustainability;

technological innovation; and

system resilience.

The Electricity Act itself requires regulators to consider consumer interests while maintaining commercially viable electricity-sector operation. The Supreme Court's recent jurisprudence concerning CERC's regulatory functions reinforces the importance of these statutory objectives. (Sci API)

18. Major Case Laws at a Glance

19. Conclusion

Governance of unknown risks in electricity systems represents a fundamental shift from conventional risk regulation. The law cannot realistically predict every future grid failure, cyberattack, technological interaction, climate event or infrastructure dependency.

The appropriate legal response is therefore not to demand perfect prediction but to construct a resilient and adaptive regulatory system.

Indian electricity law already contains important foundations for this approach. The Grid Code, technical standards, system-operation institutions, CERC's regulatory powers and judicial review collectively create mechanisms through which the electricity sector can respond to changing circumstances. The Supreme Court's decisions in PTC India, Energy Watchdog, and particularly Power Grid Corporation v. Madhya Pradesh Power Transmission Company (2025) demonstrate the importance of regulatory expertise, statutory authority, risk allocation and adaptive regulation. (LegalStreet)

Ultimately, the governance of unknown electricity risks should be based on the principle that uncertainty is not a reason for regulatory inaction; it is a reason for stronger monitoring, resilience, contingency planning, institutional coordination and continuous legal adaptation.