Renewingindia: Hobbled Regulators

Hobbled Regulators

The awards of state electricity regulatory commissions are beginning to get challenged in various high courts.

The awards of state electricity regulatory commissions are beginning to get challenged in various high courts. First it was West Bengal; now it is Maharashtra. The issue in Maharashtra is primarily a matter of how early a distributor has to submit an application for a power tariff hike for a particular year. But the issues in West Bengal, and the implications of the Calcutta High Court order, are altogether more serious. The court has set side the tariff order of the West Bengal Power Regulatory Commission, in response to a plea by the R P Goenka-controlled Calcutta Electricity Supply Corporation, and allowed the distribution franchisee for the Kolkata region to raise rates pretty much as it likes so long as it stays within the rules framed under the Central Electricity Act of 1910. This is being seen as effectively nullifying the state power regulator.

Also serious is the court’s decision to strike down the regulator’s calculation of the cost of CESC’s Budge Budge project, on the ground that a regulator does not have the powers to go into project costs. A regulator’s job is to fix tariffs, which consist of a fixed cost determined mainly by the level of investment, and a variable cost determined by the cost of fuel. If a regulator cannot apply its mind to whether the project cost claimed by a company is realistic and has to take it as given, there will be an incentive for developers to inflate project costs and build a permanent cushion into the rates. Inflation of project costs is a common practice in India, and even the Dabhol power project promoted by the US company Enron has not been free from this stigma.

There must be clarity on the role of state power regulators. They are a key element in power sector reforms, and on their smooth functioning depends the future of the power sector in India.

A power distributor in an area enjoys a monopoly, and hence the price it charges has to be determined in a transparent manner. This is the job of the regulator. And while awarding tariff hikes, regulators are forcing distributors to gradually bring down transmission and distribution losses (mostly a euphemism for power theft). This is the best way to depoliticise the task of making the consumer of power pay for what he consumes.

The statute under which state power regulators have been set up and the rules framed need to be immediately re-examined, to remove any doubt about who fixes power tariffs, and on what basis.

The regulator must have the right and a duty to go into all aspects of cost. As the regulator is a quasi-judicial body, the right to seek judicial review of its orders should be limited. There certainly should be a check on regulators, but in setting aside a tariff order that is perceived to be incorrect, the baby should not be thrown out with the bath water.

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