A Decade of Regulations:Progress or Pitfalls ?

P.RayChairperson, WBERC

Statutory Background• The Indian Electricity Act, 1910

• The Electricity (Supply) Act, 1948

• The Electricity Regulatory Commissions Act, 1998

• The Electricity Act, 2003

2

Preamble to the Electricity Act

An Act to consolidate the laws relating to generation, transmission, distribution, trading and use of electricity and generally for taking measures conducive to development of electricity industry, promoting competition therein, protecting interest of consumers and supply of electricity to all areas, rationalization of electricity tariff, ensuring transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, constitution of CEA, ERCs, APTEL etc.

3

Some features of the Electricity Act

• Act prescribes formulation of National Electricity Policy and Tariff Policy- formulated after a couple of years (Is it equivalent to executive instructions taking the place of law ?)

• Act discriminates between CERC and SERCs- number and qualification of members

• GoI makes further distinctions in salary of members and tax liability of Commissions

• Act prescribes unbundling of State Utilities - no such prescription for private sector 4

Role of Central Government• Present practice of Central Power Allocation and

Re-allocation highly arbitrary- leads to regulatory uncertainties (case of Subansiri HEP)

• Over emphasis on Open Access through advice/legal opinion/ direct pressure

• Differential treatment of State Governments- unbundling and various other issues

• Inability to force State Governments to toe the line - instead, trying to force SERCs through APTEL- implications thereof ? 5

Role of Central Government Contd…

• ≥ 1 MW consumers on open access- conflicting legal advice

• Failure to bring in regulator for fuels- several commitments by finance minister - single biggest source of tariff shock and regulatory uncertainty- case of West Bengal as illustrated by tariff timeline study (next slide)

6

Average Retail Tariff in West Bengal in Paisa/ Kwhr

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 (Dec 12)

300.00

400.00

500.00

600.00

700.00

330.57

335.14

331.51

334.69

345.84361.02

472.24

581.72

591.37

Paisa/Kwh

7

Role of State Governments• Still not come to terms with the implications of

distancing decision making through ERCs• Unduly sensitive about tariff increases• Disinclination to fill up vacant posts of

regulators including Chairpersons• Disinclination to create posts in SERCs • Undue political pressure on regulatory decision

making • Inability to consult SERC on points having major

regulatory impact 8

Weakness of SERCs• Manpower limitations

• Lack of appropriate expertise

• Dependence on consultants

• Dangerous dependence on State Governments in terms of manning and financial autonomy

9

Weakness of SERCs contd……• Inability to ensure compliance by utilities

• Approval of PPAs

• Investment approvals - adequate monitoring by SERCs ?

• Regulatory assets and holding costs ?10

Weakness of SERCs contd……

• MYT ?

• High cross-subsidy surcharge leading to obstacles for open access

• Public consultation and transparency

• Consumer advocacy

11

Role of CERC• Framing of regulations regarding RPO and RECs

- clearly a function of SERCs under Section 86(1) (e) of the Electricity Act- legal complications

• POC tariff regime without adequate consultation - apparently unfair to Eastern and North-Eastern States

12

Role of CERC Contd…..

• Insistence on ring-fencing of SLDCs

• Appointment of NLDC (POSOCO) as implementing agency of POC tariff regime, though POSOCO is a subsidiary of PGCIL

• Involving Central Ministers and Secretaries in platform of formal meeting with SERCs- viewed by some as move towards regulatory capture

13

Role of FOR

• FOR viewed as a co-ordination forum in terms of Section 166 of the Electricity Act, 2003

• Clearly an advisory forum since formal powers are with CERC and SERCs

14

Role of Utilities• Disinclination to comply with directions of

SERCs• 100% metering and 100% village electrification

- illusory goals ?

• Tendency to pad up costs

• Slow to respond to incentives/disincentives

• Regulatory accounts as distinct from utility accounts

15

Role of Utilities Contd…..• Little management initiative• Major decisions on salaries and other service

benefits without regulatory consultation- automatic pass through ?

• Poor service quality

• Poor grievance redressal and legal recourse to oppose decisions of Ombudsmen and SERCs causing delay 16

Achievements• Regulations covering all important aspects

including renewables- regular consultations and necessary amendments

• MYT framework ( 3 years)

• Tariff regime ensuring adequate returns for utilities (except DPL, considered for restructuring)

• MFC/MVC adjustments (subject to yearly true up)

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Achievements contd……

• Grievance redressal machinery (including compensation for consumers)

• Tariff regime ensures gain sharing

• TOD tariff

• Additional rebate for high voltage industrial consumers (≥ 33 KV)

• Incentive for efficiency through power factor and load factor rebates and surcharge

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Achievements contd……

• Pre-paid Tariff scheme

• Special tariff for LED street light

• Directives for safety audit, environmental audit and audit on occupational health hazards of Generating companies and sub-stations

• Decline in Gross Station Heat Rate

• Consumer service improvements 19

Achievements contd……

• Energy audit and monitoring on a regular basis

• Rapid consumer growth (30% over 2009-10)

• DSM efforts (still under process)

• Improvement of Grid Power quality

• Making progress slowly20

The way ahead……• IPPs making impact but case-I bidding tariff a

failure ?

• Power exchanges playing a minor role

• Separation of carriage and content ?

• Multiple licensees ?

• Further amendments ?

• To regulate or not to regulate ?21