The Indian Express, April 08, 2015

By Pradeep S Mehta and Ashwini K Swain

Union Power Minister Piyush Goyal has promised 24×7 electricity supply to all Indians by March 2019. A decade ago, launching the Rajiv Gandhi Grameen Vidyutikaran Yojana, the UPA government had set a similar target to ensure universal access to electricity by 2012. Yet, a quarter of the Indian population still lacks access to electricity. The major problem is in the stressed distribution sector — mainly in the public sector, coupled with freebies given to vested interests. Unless that is addressed squarely, the 2019 target will be just another mirage.

From an optimistic vantage point, the power sector has come a long way in the last two decades, with significant achievements. These include a tripling of the generation capacity with noteworthy private-sector participation, renewable portfolio of 12 per cent in the energy mix, grid connectivity across the country, extension of access to more than 250 million users and some transformations in the market structure.

Yet, the overall potential of the sector remains unrealised and expectations are unmet. The lack of reliable power supply is a potential constraint on growth. While 300 million Indians still lack access to electricity and per capita consumption is significantly belowglobal standards, the peak power deficit hovers around 5 per cent. The sector’s finances are in the doldrums, in the absence of any significant correction in distribution losses.

Despite the physical improvements, the sector is back in a crisis situation similar to the 1990s. It is an opportune moment to revisit the policy and regulatory framework, and make appropriate corrections. In that context, the Electricity (Amendment) Bill 2014 is a welcome step. But does it address the eminent concerns? Does it provide a clear framework for sustainable and inclusive electrical development?

The key thrust, seeking to segregate carriage and content, appears to be unclear. While promoting competition at the retail level for better and more cost-effective servicedelivery to end consumers is justified, the approach suggested appears flawed and prone to rent-seeking. With the existing weak distribution network, the proposed segregation will be unviable.

Given the provisions, firms would cherry-pick the consumers and locations for obvious reasons. Consequently, being vested with universal supply obligation, the state-owned incumbent supply licensee will have to cater to the low-paying rural consumers and thus run the losses. The amendment, therefore, must vest the universal supplyobligation on all the supply licensees as in telephony and civil aviation, and simultaneously make an arrangement for the sharing of liabilities and cross-subsidies until it is phased out.

The bill also proposes significant changes with reference to the appointment of regulators, their terms of office and review of their functioning. In addition to representatives from public finance institutions, there should be representation from consumer groups, the judiciary, academia and public service commissions in the selection committees.

The proposed three-year tenure and possibility of reappointment represents another case of thoughtlessness. Given the complexities in the sector, a three-year period may not provide enough time to comprehend the intricacies and bring in any constructive change. The possibility of reappointment and related aspirations would compromise regulators’ autonomy. Instead, the existing terms of office, with a five-year term and no possibility of reappointment, are more appropriate. More importantly, retired civil servants and judges should be debarred from such positions.

The proposal for periodic review of performance of the regulatory commissions is a potential tool to ensure benchmarking and improve regulatory performance in the sector. The proposal to anchor such review by the forum of regulators could result in poor work, as the forum is constituted of the regulators. Ideally, a third party would be more suitable and free of bias for anchoring the review. Such reviews should be conducted at regular intervals and the findings should be put in the public domain for benchmarking across commissions and better accountability.

The bill’s emphasis on renewable energy (RE) is welcome. The proposed renewable energy policy is essential and expected to develop a clear operational strategy for meeting India’s RE ambitions (additional 100 GW solar and 60 GW wind by 2022). However, the proposed renewable generation obligation (RGO) appears ambiguous. The enforcement of the existing renewable purchase obligation (RPO) would inevitably create a market demand and thus promote RE generation. What India needs is a strategy to enforce RPOs, not another policy instrument like the RGO.

While RE is inevitable to meet India’s future energy needs, energy efficiency will play an instrumental role in taming the demand, which the bill seems to have missed. Although India has taken several initiatives to improve energy efficiency, there is a need to accelerate and consolidate such initiatives through the federal legislation.

Finally, a critical slip in the bill is around consumer participation.

The Electricity Act 2003 was pathbreaking in putting “protecting interests of consumers” in the preamble as one of the key intents and enabling the consumer’svoice in the regulatory process. A recent study by CUTS International finds that these provisions have been adopted by the states, but in a token manner. Experience shows it has not delivered the goods.

In that context, the proposed amendment could seek to consolidate the mechanisms for consumer participation. While the right institutional mechanisms are in place, minor tweaks are needed in regulatory practice and the dots need to be connected to improve consumer experience with service delivery and the democratic legitimacy of the regulatory institutions. A critical step towards promoting consumer participation in electricity governance is to identify dedicated consumer groups, build their capacity and support them with sustained funding. The funding can come through a consumer advocacy cess on the electricity bills, as in the US. This will not only strengthen consumers’ perspective on decision-making in the sector but will also help buildconsumers’ trust in the system and provide a check on any form of rent-seeking.

We believe these important concerns on the proposed amendment will be addressed before the final bill is tabled in Parliament.

Mehta is secretary general, CUTS International. Swain is a fellow at CUTS Institute for Regulation & Competition, New Delhi.

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