Revitalising the regulators

Electricity Regulatory Commissions (ERCs) were founded in 1998 and received impetus through the Electricity Act of 2003. Given powers under Section 79 and 86, they work closely with the government and are responsible for promoting competition and efficiency in the electricity sector. ERCs have been overtaken by recent government initiatives in several matters, including the renewable thrust and the quest for universal access. Shortage of specialists with analytical skills and slow uptake of newer technologies also affect their performance in the critical area of demand estimation.

Demand estimation is a pivotal process in the functioning of a DISCOM. For assessing the power purchase required by DISCOMs from the GenCos, DISCOMs undergo this process every financial year. On this basis, DISCOMs decide the need to add any additional generation capacity by signing Power Purchase Agreements (PPAs) — both short and long term — to meet the power shortfall. It is the responsibility of the ERCs to provide a sanity check so that demand is not under- or over-estimated.

There is no standardised method of predicting this demand across the country. Most states predict this demand using CAGR (Compound Annual Growth Rate), which measures the growth of any metric over time. However, the CAGR-based approach has forecasted sales exponentially rather than on a linear line. For demand estimation, the regulators calculate and approve the CAGRs of different years. Wherever the CAGR is found abnormal, demand is projected using 'reasonable/normalised' CAGRs, and no explanation is given. The CAGR approach also does not consider the change in the nature of the load, as the increasing usage of more energy-efficient appliances has resulted in a decrease in normative consumption per household. This has led to consistent over-projection of electricity demand from DISCOMs on a year-by-year basis. Uttar Pradesh's over-projection has increased tenfold from an acceptable 4 per cent in the first year to 40 per cent in FY 2019-20. Similarly, in Jharkhand, the extent of over-projection reached 35 per cent in FY 2019-20. The overestimation has led the states to sign long-term Power Purchase Agreements (PPAs) with thermal power generators above their actual capacity requirements.

States like Andhra Pradesh and Delhi have applied reforms in demand estimation techniques to attain overall financial stability. In Delhi, this method relies on a tweaked CAGR approach where the year is divided into two parts based on the season, and separate CAGRs are considered for both. Since the load is 70 per cent domestic, it creates a massive differential in power consumption in the two halves. This has resulted in only a 1.57 per cent overestimation in FY 2019-20. In Andhra Pradesh, DISCOMs have leveraged machine learning techniques by using a time series forecasting model dependent on regression analysis which considers all historical values. This approach gave only a deviation of 2.28 per cent in FY 2021-22. The 'AP Model' has saved Rs 2,342 crores in power expenses in 2019-20 and 2020-21 by planning their power purchases well and promoting the use of spot and open markets to purchase any shortfall in power.

In recent years, ERCs have become the government's followers, not advisors, in terms of schemes and policies. The UDAY scheme, where the states were required to take over 75 per cent of DISCOM debt and push DISCOMs towards efficiency improvements, and the Saubhagya Scheme in 2018 for universal electricity access are examples. Incentives were promised to DISCOMs if there was a considerable improvement in distribution losses, and the ERCs set ambitious targets for the same. However, the rise of connections to remote areas has resulted in increased distribution losses leading to massive deviations from the targets. In Uttar Pradesh, the approved distribution loss deemed by the regulator for 2020 was 11.54 per cent, but the actual distribution loss had a significant discrepancy of 20.15 per cent in FY 2019-20. The harsh and unrealistic trajectories have led to overbooking sales in the lower income BPL categories and unmetered agriculture categories to cover the distribution losses. In UP, DISCOMs questioned the regulator's move to not give a realistic distribution loss target considering the effect of Saubhagya/Har Ghar Bijli Yojana, the COVID pandemic, and that the DISCOMs had made extensive efforts to comply with the targets but were still not able to achieve the target by a significant amount. Maintaining this impossible loss reduction trajectory further impacts the DISCOMs, resulting in severe under-recovery of the power purchase cost and is highly unsustainable in the long run. However, despite the DISCOM's concerns, the regulators did not substantially relax distribution loss trajectories. Furthermore, many schemes are launched yearly for the sector's welfare, which have roots in voter populism and giving away power at highly subsidised or free rates — leading to unsustainable deficit levels for the states. The hands of ERCs have been tied in this case, and they are put in a position where they merely have to comply with directives.

In many cases, ERCs have also not adequately followed the implementation of schemes. The ERCs have created specialised tariff designs to cater to the economically weaker sections of society. However, the inclusivity criteria for power allocated to these sections have no factual basis and have changed drastically across the years. In UP, in FY14, it was as high as 159 units but slipped down to 60 units by FY16, and on a similar note, it increased by more than 60 units in two years. Moreover, the impact of government schemes is also very unclear. Consider the Saubhagya Scheme; in 2018, the Ministry of Power claimed that there had been 100 per cent electrification in 25 states. However, there was an apparent discrepancy between the data in the reports released by the regulators and what was claimed by the government. For example, between October 2017 and March 2019, 7.98 million households were electrified in UP by the Saubhagya portal; however, the connections claimed on the DISCOMs side were only 5.6 million. Analysing the data, it is also found that the high percentage of electrification is linked with significantly lowering the targets over the projection of the scheme.

With India's ambitious goal to achieve 500GW of renewable energy by 2030, the new focus is on transitioning from thermal power to RE-based sources. Overall, there have been positive interventions in this sector but ERCs have failed to play their envisaged role on some accounts. Consider the PM KUSUM scheme, aimed at providing energy security to farmers in India by installing solarised pumps, thus reducing environmental pollution and decreasing DISCOM load in the most subsidised category of consumers. However, the uptake of this scheme has been very slow, with only 23 per cent pumps reportedly installed as of February 2022, and there is virtually no mention of the scheme in the state filing reports. In Gujarat, the regulators had considered only 30 per cent of the projections under this scheme due to its slow execution. In Andhra Pradesh, the scheme was still said to be under the purview of the regulators and the state government and had not come to its implementation stage. It seems like there is a gap between the schemes and their desired effect on the ground. The situation is further worsened due to the lack of workforce and lack of advisory given by the regulators, resulting in delayed compliances and improper implementation.

India has set ambitious targets for the power sector and has undertaken various reforms in the distribution sector to achieve the same. There exists a lot of procedural rationality among the regulators in terms of transparency and communication between stakeholders but there's an apparent lack of substantive rationality in terms of the actual decisions taken by the regulators. Seeing the impact of schemes, we can conclude that the regulators are being overtaken by the government and are not able to play their envisaged role due to not being adequately equipped. There is a need for regulators to reinvent themselves. A concerted approach is required among all stakeholders to help India achieve its lofty goals and come at the forefront of the world in energy policy.

The writer is an undergraduate student at IIT Delhi. Views expressed are personal