Trouble with electricity regulator

While the government is trying to provide electricity to all, the regulatory body is handicapped by staff crunch, and a backlog of pending cases

If there was one event that changed the fortunes of the power sector, it was the Electricity Act, 2003. The amendments gave an impetus to private investment in the power sector, and a statutory regulator - Central Electricity Regulatory Commission (CERC). Around 12 years down the line, what ails the sector is the same regulator, with 734 on-going cases as on January 2015.

CERC is supposed to pass orders in 90 days of hearing but there are cases awaiting decision for years now. CERC is currently dealing with petitions relating to FY13, and the rest are pending. The long list includes request for project approval by power generating and transmission companies both in public and private sectors. There are also countless petitions for tariff adjustment due to the change in law, time and cost overruns.

This leads to projects getting stalled, companies coming under financial stress and the subsequent increase in the cost of power, while the case is sub judice - which is ultimately borne by the consumers. While the government is promising to push down the cost of power, market experts fear that inordinate delays would push the investors out and in case of power prices.

"Delays in project approval create power shortage for states. This leads to the distribution companies buying expensive power from outside. Ultimately, the consumer pays for it," said a senior power sector executive.

In the 13th plan period, India's power project pipeline is empty with not a single green-field project coming up. Currently, power generation capacity totalling 136 gigawatts is stranded in the country. Despite having fuel linkage, around 28,000 megawatts of power plants are not operational as no utility is buying power from them. The reason in most cases - no power transmission infrastructure.

Out of the 734 pending cases, around 600 are related to transmission tariff determination or adjustment. Almost 90 per cent of the cases are filed by state-owned transmission giant Power Grid Corporation. With an order book of about Rs 1 lakh crore, the delays hit the infrastructure development planned by it.

The balance by the private sector is stunting the growth further. "Delayed tariff petitions of private transmission companies hit them hard as they are unable to arrange finance and move forward their projects. Also the cost for end-users rises due to regulatory delays. The bankability of the projects reduces making the private players suffer from all corners as their projects are under tight agreements," said a senior executive of a privately-owned power infrastructure firm.

The problem, however, is not just what is visible on the surface. Piling of cases at CERC hints at the rotting roots of this apex regulator. CERC has a strength of 55, against sanctioned strength of 80. In the name of legal expertise, there is none. Not a single retired judge or lawyers is on the board of CERC, for that matter not even a private legal consultant.

The former members of CERC rue the fact that the Commission is poorly paid and the limited staff is incapable of handling the flurry of cases on varied issues, especially involving legal input.

It was during 2010 and 2012 that legal experts were hired on contractual basis. "In most cases, hiring a private legal firm or person could lead to conflict of interest so the idea was dropped eventually. Then the Commission has also lost the freedom of having its own fund as Comptroller and Auditor General of India (CAG) kept CERC in public accounts. There is also ceiling on the salaries of permanent staff, and payment to contractual agencies," said one of the former chairpersons of CERC.

He said such limitations for a regulator hamper the growth of the commission and subsequently the sector as well. All regulatory bodies under finance ministry such as the Securities and Exchange Board of India (Sebi) are independent - whether it's hiring of professionals, salaries, crack down on companies and regulations etc.

"The power sector needs the same kind of approach. The sector is growing at a massive speed and we are witnessing the kind of cases, which the people drafting the Electricity Act couldn't fathom then. A dynamic regulator with flexibility to operate is the need of time," said a former member of the Commission.

Meanwhile, power sector majors keep fielding against the Commission.

"The appearance of renowned advocates before CERC makes matters more difficult. This also compels them to take advice from external legal consultants and firms, delaying final orders," said a legal expert dealing with the issues of the power sector.

No power sector company or executive was willing to come on record while discussing the issues plaguing CERC as most have at least one case that is sub-judice with the regulator. CERC chairman also did not respond to emailed queries, or reply to the request for a meeting to discuss the issues.

The way forward, say power sector experts, is to make it mandatory for the CERC and the state electricity commissions to appoint a judicial person as chairman of all electricity regulatory commissions. In the proposed new amendments in the Electricity

Act, the word 'may' in Section 84 (2) should be replaced with 'shall', said a legal expert. At least that will give the regulator the much needed legal teeth.