In the last two months, electricity regulators in two large states, Punjab and Bihar, have proposed large tariff hikes—and the governments have acquiesced; price of electricity sold by their distribution companies has been revised upwards.
This is a welcome development considering that a narrative of the post-1980 Indian power sector, for most part, plays out like a broken gramophone record. The common man’s desire to enjoy quality power at an affordable price has been virtually snuffed out. Electricity tariffs did not reflect the cost to serve consumers. Worse, this cost has ballooned owing to power thefts and technical losses.
What has, however, changed over the years is the agent administering or abetting this behaviour. Until the turn of the century, the government power department under the direct supervision of the ruling political party did the damage. The losses spiralled and the political class did finally “convulse”, partially let go the reins—independent regulators were put in place to set tariffs that would reflect the cost of supply. Subsidies were meant to be provided for explicitly from the state coffers and the regulator would set transmission and distribution loss reduction targets.
This whiff of fresh air did not last for long. And, what better testimony than to survey the tariff revisions undertaken by regulators over the last few years. They have been non-existent or, at best, negligible. “Regulatory capture” has manifested in other forms as well—regulators have hardly allowed distribution utilities any significant hike in their annual revenue requirements, even though costs have gone up on all fronts.
The phenomenon of regulatory capture is better understood if we realize that the regulators are appointed by politicians. Indeed, there is no escape from this arrangement in a democracy. However, like politicians, the regulators also change tack when faced with an impending crisis that is staring them in the face.
With power costs rising on the back of soaring fuel prices, the economic rationale to raise tariffs is too strong to be ignored. So far, only two states have woken up from slumber. But given the situation, more are likely to follow. Delhi and Rajasthan are scheduled to realize their tariff orders shortly. One hopes the changes are meaningful and not just pro forma.
And, who better to signal change than Bihar. That distribution losses in Bihar are still at a staggering 36% did not deter the regulator from raising tariff by 19%. It’s better for the regulator to be a calculating machine than drive the utilities to cut losses in the hope that the tariff blow can be softened.
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