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| "The price cap won't affect capacity creation" | | Q&A: Dr Pramod Deo, CERC chairman |
| Vandana Gombar & Sudheer Pal Singh / New Delhi Sep 25, 2009, 00:23 IST |
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 Last fortnight, the Central Electricity Regulatory Commission (CERC) put a cap, albeit transient, of Rs 8 per unit on power traded. CERC chairman Dr Pramod Deo justified this to Vandana Gombar and Sudheer Pal Singh while conceding that the real problem lies in inadequate supplies and the lack of open access. Excerpts:
What was the immediate trigger?
We found an alarming rise in prices — not on a constant basis, but for short periods. During the Lok Sabha elections, it went up to Rs 14.50 per unit. Then, when the rains played truant, rates rose to Rs 18-19. Our cap will lapse after 45 days. We don’t want to become a rationing inspector, nor do we want to discourage any new investment coming in.
But aren’t these higher prices reflecting the higher demand?
Our market monitoring reports show that it is a seller-dominated market — however, it is not the seller who is deciding this price, it is the anxiety of the buyers.
But this is how a shortage market works?
That is why, when the situation becomes so alarming, it makes sense to have this cap for some time to tell buyers to cool off for a while.
Is it an admission of market failure?
No. It is an admission that our market is so small, and lacks depth and that is why you are having this problem. If you had enough electricity available, such a situation would not arise.
Should we even have a power market in such a shortage situation? There are some who describe this power market as a non-market as it exists…
Till last year, the Unscheduled Interchange (UI) was being used as a market mechanism, which it is not. The question is how do you regulate the power market where the quantum of electricity available is limited, and in such a way that is not panic-driven. You need to soothen the nerves of players there. We are just telling them to relax, that they don’t have to buy power at Rs 10 per unit. We have put a cap of Rs 8. We have received requests from some states asking us to fix the cap at Rs 5 per unit. That would worsen the situation because whatever is being generated above that cost will be stopped. That is why we have to find the cap at a level at which generation doesn’t get affected.
Since the buyers are largely state-owned utilities— with a brief to buy at any cost — has your cap tried to curb political indiscipline?
It is not political indiscipline. It is what you would call political expediency, which is basically driving up prices to absurd levels.
So the regulator is standing up against political expediency.
In a sense we are trying to curb panic reaction.
Haven’t price caps always made the problem worse?
That is the reason why we are not talking about these caps on a continuing basis. Under the law, we could have done it for one year. We have imposed them only for 45 days.
You claim ongoing generation will not be affected since the cap is reasonably high. Will it hit new capacity in the pipeline?
The chairman of the Central Electricity Authority is an ex officio member of the CERC — he has a target to add 78,000 Mw of capacity and wants new capacity to come up. He was part of this decision. We have also taken other steps to facilitate new capacity addition, most importantly, our new open access regulations which give flexibility in contracting transmission capacity. Also, a 100 Mw consumer can now connect with the national grid directly and need not be at the mercy of the State Load Despatch Centres (SLDCs).
How can the regulator be more proactive in pushing open access which is what consumers need?
We are coming out with new regulations to ensure the proposed SPV which will house the National Load Despatch Centre and the Regional Load Despatch Centres is financially independent of Powergrid. Once we do this, it becomes a model for state regulatory commissions to ensure financial autonomy for SLDCs which are functioning as handmaidens of the state utilities — which are synonymous with the state government.
Any out of the box idea to push open access?
When you are in a quasi-judicial role, you cannot come with out of the box ideas (laughs). We look at how to facilitate new capacity addition, and it depends a great deal on availability of transmission. So we are also working on new transmission pricing, which would rationalise transmission tariff.
Is open access a problem of transmission capacity or larger issues?
Transmission capacity is very important. You may set up your power plant at pitheads and power will be used elsewhere. There is no way Powergrid Corporation alone can handle this task. Private parties will also be required to set up transmission lines. We are promoting that.
What are the problems with retail open access?
One, can a small consumer get cheaper power than what he is paying? If a retail consumer is paying Rs 5 and is able to buy power at Rs 3 and all other charges (transmission, wheeling, cross subsidy surcharge) add up to one rupee, power at Rs 4 is a good option. The real constraint is that you don’t have that power at Rs 3. Besides, the open access consumer is an embedded consumer in the distribution system. Unless he is on a separate feeder, he will be subject to any load shedding that takes place in the area.
UK consumers have a dozen-odd options of power suppliers. When do we get there?
When we have more power, and power at a fairly reasonable price, with no planned outages. This has to happen in the next five years.
Power consumers are willing to pay more. Is there a case for a dual power market — assured power which is expensive or intermittent power which is subsidised?
The Pune model, where captive power is brought into the grid, is a dual market. When the shortagesrose, MERC came up with Pune-II where it said Pune should be given to a franchisee whose brief would be to put up new capacity (to the extent of the shortfall) in the shortest time at the most economical cost. Until the capacity comes up, the franchisee asks the discoms to buy that extra power for it. So it is like an imaginary captive power plant and consumers are willing to pay that extra cost for reliability. The Pune consumers get ring-fenced. This model can also be used in industrial areas. Reliance is setting up a captive power plant near Nagpur for Maharashtra Industrial Development Corporation (MIDC). If you were to follow this model, you will have industrial and urban pockets insulated from power shortages. The consumer has to be willing to pay, which has already been demonstrated.
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