Where's the power?

Over four years ago, when everyone thought Enron's Dabhol power plant was the epitome of consumer deception, the Central Electricity Regulatory Commission (CERC) found that state-owned NTPC was fleecing consumers to the extent of Rs 800""1,000 crore a year.

The CERC found that while old guidelines in the power sector gave companies a huge incentive payment if they operated their plants at above 68.5 per cent capacity, NTPC's plants had been operating at over 76 per cent for years.

So S L Rao, who headed the CERC in those days, argued that there was no reason for it to get these incentive payments, and raised the bar for NTPC's incentives to around 76 per cent""if it achieved a higher utilisation, NTPC would then get an incentive.

Naturally, with the easy money gone, there was tremendous opposition, from NTPC and even within the government. But Rao stood his ground since he thought that was his job as an independent regulator.

For those who thought this was just the beginning, that independent regulators would stand up for the rights of the consumers and fix the mess in the power sector, there's been quite a rude shock.

Several years later, as Rao's fascinating research into the brief history of so-called independent power regulators in the country shows, things have deteriorated significantly.

Indeed, at an "open house" on allowing more competition in the power sector that I attended a few weeks ago, Rao's successor A K Basu asked various state electricity regulators why they were delaying the introduction of competition through "open access"""allowing competing suppliers to carry their power to a customer's premises on the wires owned by another company.

The stock answer Basu got was that "the state governments are opposing it and the state electricity boards are not even giving us the data we need to come up with our orders"!

To be sure, as Rao notes, the Electricity Act 2003 does provide the CERC more powers in terms of being able to direct state electricity regulatory commissions (SERCs), but the overall situation remains one of the government refusing to let go.

As a result, since there is virtually no competition in the sector even today, this is the only area in the country where, despite the reforms, prices have gone up steadily.

Rao cites a study done by the Prayas Energy Group that shows that just nine of the 19 chairmen of various SERCs have completed their full five-year terms, 15 of 21 chairmen of various SERCs have been either ex-IAS officers (10) or officers from various government-run power utilities""if you include members and the secretary of the SERCs, just 10 of 66 staffers have come from the judiciary and the private sector!

Apart from this very obvious control that has, sadly, been perpetuated in the Electricity Act in an insidious manner, various state governments have been a lot more brazen about wielding their powers.

The Karnataka ERC's tariff order of 2002, Rao says, was simply suspended by the government, NTPC withheld information on operational parameters from the CERC in the case referred to earlier, and in Delhi the government simply privatised the electricity board and agreed to certain terms that the regulator is not even entitled to go into!

While the CERC is supposed to decide on inter-state tariffs, the Draft Tariff Policy lays down returns and other operational parameters that infringe on the CERC's jurisdiction. Indeed, the Electricity Act 2003 allows the government to give directions to the CERC or the SERCs on matters "in the public interest".

Since the "public interest" can and will be interpreted quite liberally, what hope is there for the power sector? It's pretty clear, for instance, that despite ERCs being in existence for over five years in several states, they have made little difference since transmission and distribution losses haven't come down.

Of course, while the states haven't really empowered the regulators (the book has a section that details just how much power has been delegated by various state governments to their SERCs), a large part of the fault is also theirs, since they're not being pro-active.

"If the state electricity boards don't give you data," Basu had to remind regulators in the open house, "just give them a cut-off date, and then pass your order without their inputs."

Whether they will, however, will depend on not just them but also on how private players go about their business. In the telecom sector (where regulatory experience in the country has been the longest), the government dismissed the regulator when he was confrontationist, got "an almost subservient one ... in the intermediate years" to quote Rao, and then got one who "appears to have the confidence of the minister".

But yet, Rao notes, the structure of the industry changed dramatically. Why? The reason, Rao doesn't state, is that the private players decided to really take on the government, through high-profile court cases and public confrontation, and that's how they got even a limited level playing field. Until this happens in the power sector, little is going to change.

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GOVERNING POWER

S L Rao
TERI Press
Price: Rs 580
Pages: 484