Montek favours efficiency-based ranking for ERCs

Financial Express, March 30, 2009

In a bid to improve the functioning of electricity regulatory commissions (ERC), the Planning Commission has mooted an exclusive first-of-its-kind state-wise ranking system of these regulatory bodies based on their efficiency.

Speaking at a function organised by the NGO ‘CUTS International’ on Saturday, Planning Commission deputy chairperson Montek Singh Ahluwalia said “It is important to have a comparative assessment of ERCs. The CII (Confederation of Indian Industry) or any independent body should rank ERCs on basis of their efficiency and quality of their decisions.”

So far, only state electricity boards and electricity distribution companies have been ranked, and that too by some private magazines. However, there is no ranking system in the country for ERCs.

Industry officials said such a ranking will also indicate the progress made by the state in the power sector. It will also help in attracting more investments to those states where ERCs function in an independent and autonomous manner, and not as a mere extension of the state governments, they said.

Supporting the Planning Commission proposal, Central Electricity Regulatory Commission chairperson Pramod Deo told FE “It is important that the ranking be done by an independent body that commands respect. May be it can be done by an Indian Institute of Management (IIM) or an NCAER (National Council for Applied Economic Research)-type body or even the Planning Commission. But the methodology has to be transparent and they can consult the ERCs themselves to finalise the parameters.”

Deo said the parameters of ranking can include the various charges paid by the consumer to get open access (the lesser per unit of electricity, the better), the cross-subsidy surcharges, the rates of green power and multi-year tariff.

V Raghuraman, principal advisor and chief coordinator (energy, environment & natural resources), CII told FE that the planning commission’s study should include sub-categories like the ability to reduce transmission and distribution losses as well as the enabling conditions that they have created for the states to achieve the power generation capacity as envisaged in their plans.

He said the populist measures of state governments, including providing free power, besides increasing transmission and distribution losses and lack of transparency in functioning have turned the State Electricity Boards from being bankable to bankrupt. “More investments will flow into those states where regulation is on right lines and is predictable. Many states are not following central guidelines,” he added.

A senior official in an electricity regulatory body told FE on condition of anonymity that most of the reforms in the power sector, like allowing open access in inter-state transmission and discontinuation of exclusive power purchase agreements and encouraging private sector participation, have to be done at the state level.

“At the moment, SERCs have no independence. Their annual report goes to the state assembly. The states have the power to give them policy directions. Also, in several states there are no funds for SERCs to empower them to function in an autonomous manner. Therefore, the states should be blamed for the present condition,” the official said.

A study by CUTS International says the independent functioning of ERCs is hampered by the lack of financial autonomy as many of these bodies have not exercised the right given to them by the Electricity Act 2003 to generate revenues by levying license fees and regulation fees. Besides, they are unable to attract the best experts in the field due to the government-imposed caps on the salaries of the ERC officials, the study found.

Though the Act provides for selection of regulators within a stipulated period of time by an independent committee and gives immunity to all the members of ERCs from removal (except when found guilty in acts of misconduct), several states have disregarded the norms. In many instances, either there are vacancies for a long period of time or appointments to the ERCs are politically motivated and not on the basis of merit, the study found.

As a result, ERCs are forced to remain as “mute bystanders” while several state governments force distribution companies (discoms) to provide free power. On many occasions, states have violated the norms of the Electricity Act that asks states to shell out subsidy amounts in advance to discoms, the study says.

Pradeep S Mehta, secretary general, CUTS International, said “ERCs should make use of provisions of financial autonomy to leverage functional autonomy.”

He added that appointment of regulators should be neutral and based on merit.

“Also, ERCs can be faulted for not making adequate efforts for capacity building and disseminating the required regulatory information,” according to the study

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