Who regulates the Regulators?

The Power Sector in India works on a 3 tier system consisting of Generation, Transmission and Distribution. Generation takes place at Power Plants, Transmission through transmitting towers and stations and Distribution is handled by Distribution Companies (DISCOMS).

While all the three were Government dominated sectors initially, the amendments introduced by the Electricity Act, 2003 brought about a large share of Private parties in all three tiers. In order to supervise the efficient working of this system and to ensure transparency in the functioning and fair rates and tariffs to consumers, ‘Regulators’ were introduced as Government appointed, but not Government controlled bodies.

Today, the country mostly has Government owned distribution companies everywhere except a few cities like Mumbai, Delhi, Ahmedabad and Kolkata. Taking power from local state generating plants, these companies propose fixation of tariff based on the paying capacity of the consumers, with an assured return. This seems to be fair and quite a sensible method to handle the revenue generation, doesn’t it? However, in reality, the financial status of these companies is quite messed up, with an accumulative declared loss of Rs. 4.80 lakh crores. This distressing revelation has caused the Government to recently announce a rescue package called UDAY.

There are 29 regulators for all the 29 states and 7 union territories in the country. One important duty of these regulators is that they must work independently and impartially, while regulating affairs of DISCOMs. We often forget their more important second objective of ensuring that consumers get power at affordable prices. Both of these duties of the regulators are rarely ever completed. The lack of disbursement of such important duties ends up compromising the financial health of the country, and not a single person bothers to question this.

The second duty of the regulators requires them to perform tariff determination in lines with National Tariff policies so that consumers get power at declared rate and financial performance of distribution companies is put back in line. However, in spite of manifold hike in tariff, the losses stand at a whopping Rs. 4.80 lakh crores. This is an unacceptable and ridiculous figure, which suggests that losses are, in essentiality, increasing with increase in tariff. One of the reason which all DISCOMs attribute to losses is subsidized power to agricultural sector. However the agricultural sector is a really tiny component of the consumers, and it is unfair to blame them for the manifold increase in losses with respect to the actual tariff value. This increases the necessity of scrutiny on the regulators.

There have been some attempts to reign in the regulators in recent times. November and December months are very crucial for the 85 distribution companies supplying retail power to around 18 crore consumers, and the Appellant Tribunal, which oversees the regulatory decisions has asked all regulators to ensure that distribution companies submit their accounts for the coming financial year, including revenue receipts and expenditure by the end of November, so they can be subjected to scrutiny, public opinion and finalized by 31st March.

Also, very recently, a Delhi High court judge conceded on the issue of CAG audit and said that Government is right on its part to control and demand the special audit of any of the private parties, but questioned the veracity of CAG audit the when the same job of vetting of accounts is done by the regulators. Gujarat High Court also, while disposing of the appointment of Chairman, took the stand that it would only be appropriate for a person with judicious knowledge to be given the position of Chairman. Our experiences otherwise say that the post is largely held by beaureucrats, and after demitting office, they become experts on the subject. CERC has never appointed any judicious person but on the contrary, is repeatedly appointing bearaucrats at a very high package, forcing even seventh pay commission to fix up salaries of Rs 4.50 lakh per month, which is much higher than the salary of the President of India. The inefficiency and exuberance in appointing of the regulators is heavy on the pockets of all the consumers in the country.

Now with Roof top solar policy and with railways likely to walk out from existing distribution network, it looks like regulators will have testing time to fix up the tariff of Government owned, private and PPP DISCOMs in such a manner that some financial losses are trued up and consumer gets electricity at an affordable rates. The tariff of residential consumers in urban areas like Mumbai is skyrocketing and the multiyear tariff model that says there will be reduction in prices has not yielded any results, as of now. The removal of a large portion of the consumer base will necessitate transparency and diagnosis of where exactly the losses are, will become easier.

One of the surveys on Regulator’s performance says that there 80% decisions are altered by appellants and the entire decisions are taken by the consultants appointed by them without going into ground realities and practicalities. This scenario needs to be altered. The best way to alter this is that Tariff be computed with equal yardsticks of all components affecting it and regulators be made accountable for their decisions, as the cost is borne by consumers. Bench-marking of employee cost, project cost, fuel cost etc. needs to be done by credible agencies so that consumers can avoid paying ridiculously inflated costs, which are even more unwarranted seeing the dip in fuel costs.

 ( The author runs an NGO for Energy Economics and Education )

(To receive our E-paper on whatsapp daily, please click here. We permit sharing of the paper's PDF on WhatsApp and other social media platforms.)

Free Press Journal