Millennium Post

Fixing tariff is not your job, Mr CM

Fixing tariff is not your job, Mr CM
The utility of the electricity regulatory commissions, set up to reform the gargantuan power sector, has come under question, as the AAP government of Delhi led by inimitable Arvind Kejriwal has gone ahead and reduced charges. The populist move, following the promise the party has made in its  election manifesto, provides relief to the common man but does it throw a spanner in power sector reforms by rendering regulatory panels useless?

That is why as soon as Kejriwal made the announcement, Delhi electricity regulation commission (DERC) chairman PD Sudhakar, a former additional secretary with the power ministry, reminded the state government that tariff fixation is a ‘regulatory issue’ and the government had no business interfering in it. He clarified that the government could only provide subsidy if it wishes to reduce the burden on consumers, but a tariff change was the regulator’s domain.

While experts from the power sector maintain that the AAP government has not circumvented DERC, given that it is ‘perfectly all right’ for it to give out subsidies, they do suggest that the regulator needs to assert its position better. They believe that while the government can go ahead and give as much subsidy as it can afford, it is the regulator’s job to ensure that the benefit to consumers would not come at the cost of hurting the financial position of distribution companies (or discoms, as the private sector firms brought in to reduce transmission and distribution losses are called) that claim they are already struggling to keep the ship from sinking.

The state regulator, experts say, should be able to effectively communicate to stakeholders the terms of the subsidy agreement, specifying clearly the mode and duration of payment and time period of the subsidised electricity supply, among other things.

Electricity regulatory commissions were established at both the central and state levels under the Electricity Regulatory Commissions Act, 1998. Their task was to independently fix tariffs in a fair and transparent manner, regulating the discoms and ensuring fair competitive practices. While the central electricity regulatory commission (CERC) looks at regulating tariffs of power generation companies owned or controlled by the government and setting tariffs for inter-state transmission of electricity, the state panels look at regulating and tariff fixing of power distributed within the state.

However, given the importance of the amenity to the public, a lot of politics continues to be played when it comes to its supply and pricing, admits a former head of a state electricity regulatory commission who did not wish to be named. State regulatory authorities face more problems in discharging their duties in a more transparent and easy manner, compared to the CERC, because their decisions have direct impact on people and hence they have to face political pressure, says former telecom regulatory authority of India (TRAI) chairman Nripendra Misra. ‘While this situation (in Delhi) is not one where the regulatory commission has been circumvented or forced to act in a certain manner as desired by the state government, the overall impact of this politically popular move will definitely be economically disastrous in the long run,’ Misra says.

‘Political parties will politicise issues (of service delivery) like water, electricity and roads, and it is fine as long as they are not interfering in anybody else’s business,’ the former state panel chairman says. ‘In this case also, it is wrong to assume that the state electricity regulator has been circumvented or overlooked because the government has not effectively slashed the power tariff but announced that it will subsidise it and that is legally within their right.

‘As long as they are not encroaching upon the functions of the regulator, there is no problem. But it is for the state government to seriously consider the overall impact and sustainability of such a move.’

He, however, points that DERC must now ensure that the discoms do not have to run from pillar to post to receive the subsidy amount. Every regulator should be able to strike a balance between the benefits to consumers and discoms and ensure that with the recent move, the ‘finances of discoms are not distorted’, he adds.

On the other hand, while terming Kejriwal’s move as legally right, S L Rao, former chairman of CERC, maintains that state governments have a tendency to interfere in tariff setting which by law is the state regulatory commission’s job. ‘Through the announcement made by the AAP government to subsidise power, the state regulatory commission has not been rendered a useless body yet but it will be important for the regulator to show some spine. Unlike many state regulatory commissions which are subservient to the local government, the DERC should take a strong stance and advise the government that with costs of raw materials like coal used in the generation of electricity going through the roof, adequate supply of power can be ensured only at higher prices,’ he says.

He adds, ‘The appellate tribunal for electricity (ATE) has already ordered tariff increases in states like Tamil Nadu, which had not raised tariffs under government pressure, and thereby added substantially to the losses. Any state government needs to understand that like every other expenditure, subsidies have an opportunity cost and, hence, the additional power subsidies will reduce government expenditure in other development sectors.’

By arrangement with Governance Now
Shrishti Pandey

Shrishti Pandey

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