Towards a common carrier

Power reforms must offer more options to consumers

The regulatory flip-flop over an increase in electricity tariffs in Delhi last week is a reflection of what ails the country's power sector. What the Delhi Electricity Regulatory Commission had recommended was a modest increase in power tariff by up to seven per cent in different areas of the national capital. Compared to the much higher increases the commission had enforced in the past - which had invited criticism that it might have favoured the distribution companies at the cost of their customers - it appeared that this suggested increase would meet no hurdle in its implementation. Such hopes were, however, belied, as the regulator withdrew the tariff increase order just a day after proposing it. The official reason cited for the unprecedented reversal of a tariff increase decision was that it needed complete information from various power generators on fuel pricing.

Specious as it does appear, the reason also exposes the flawed and illogical decision-making process the regulator followed while announcing revised tariffs. Why would it not get the actual fuel pricing details from power generators before making up its mind on the justifiability of a tariff increase? Worse, the regulator has also raised serious doubts about its own independence. It may have come under political pressure from the Bharatiya Janata Party, whose government at the Centre now controls the administration in the capital - and which, naturally, will be keen to not upset power consumers in Delhi just months before elections for a new Assembly. If under the previous Congress regime in the capital, the regulator was seen to have favoured the power companies through generous doses of tariff increases, it now appears to be succumbing to pressure from political parties to help them secure electoral mileage through deferment of tough but necessary decisions like an increase in power tariffs.

Regulatory capture of the kind seen in the power sector in Delhi is in evidence in the entire country. There are numerous instances of how state administrations have successfully nudged the local regulator against increasing tariffs, to help them continue with populism at the cost of the exchequer and the financial health of the power companies. The Electricity Act, legislated in 2003, had raised high hopes that the new law would usher in competition and achieve higher efficiency through reforms in all the segments of the power sector - generation, transmission and distribution. In the last decade, some reforms have indeed taken place in all three segments, but the problem of regulatory capture has stalled further reforms and has indeed scuttled even those reformist initiatives that are incorporated in the current legislation.

Open access is one such initiative that was expected to allow consumers to choose their distributors from among those who are supplying electricity in a state or a city. However, the roll-out of this initiative has remained tardy and the rules have been such that distribution companies have succeeded in thwarting prospects of any large-scale shift of consumers to new suppliers. Until electricity consumers are fully empowered and given the real option to shift to a new supplier, the power sector would not enjoy the benefits of competition. It is time the new government embraced the principle of creating a common carrier to provide electricity to the consumer, irrespective of who the generator or distributor is in a state. Only such structural reforms can lead to the kind of transformation that is needed in India's power sector.