When electricity regulators were first set up in the early years of the last decade, they were seen as reform agents. When they went about their job, the sparks began flying—public protests against tariff increases, and state governments grudgingly raising subsidies that otherwise would be borne by the distribution utilities.
Over time, they were consumed by the bane of the system—political interference, one of the key reasons why they had been set up in the first place. As a result, there have been negligible tariff increases in the past four-five years. But faced with complete collapse of the distribution utilities, the political system is now loosening its grip and allowing tariff increases to take effect.
The raising of tariffs, and that too in stiff doses over the next few years, will be essential to wheel the sector out of intensive care. But beyond the immediacy of tariff hikes lies the challenge of dealing with the years of corrosion in the regulator’s functioning.
For a start, it might just throw up the fact that the actual level of tariff increase is higher than what is currently acknowledged. Here’s why: In the past, regulators have rejected genuine power purchase costs (example: Madhya Pradesh) and to that extent depressed the actual cost of supply, the reference point for determining the tariff shortfall. It’s not just the power cost; there are other cost elements as well that have been unfairly disallowed—the Haryana regulator didn’t allow any return on equity for the distribution companies. On the other hand, in states such as Uttar Pradesh, the regulator has over-estimated the revenues against lower sales realization. In Orissa, the regulator recognizes power distribution losses lower than actuals. This is because the distribution loss trajectory is based on data that is not properly verified.
The problem of credible data on losses has plagued the sector since the reform initiatives began, and it continues even now. This speaks poorly of the Union government’s reform initiatives over the last decade. It is only in the past two years that the government has recognized this lacuna and directed funds to set in place equipment to get this information.
But now, it has one more job to do: to build back the state-level regulatory institutions that have been ravaged by political interference.
Can India’s electricity regulators successfully play the role that was envisaged for them? Tell us at email@example.com