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Business News/ Opinion / Consumer in electricity regulation

Consumer in electricity regulation

Civil society organizations should be seen as allies in regulatory decision-making

Photo: Indranil Bhoumik/MintPremium
Photo: Indranil Bhoumik/Mint

Recently, the government launched the Ujjwal Discom Assurance Yojana (UDAY) to facilitate the financial turnaround of discoms, the third such scheme launched in the past 14 years. The earlier two schemes did not work and discom losses have continued to mount. A key factor for the success of schemes such as UDAY is the setting of electricity tariffs that provide sufficient revenue to ensure full recovery of electricity supply costs. Unfortunately, this has been difficult, with consumers instead being wooed with promises of lower rates by election candidates and state governments.

Consumers’ susceptibility to such populist measures is, at least partially, due to their lack of trust in the system of regulatory decision-making. In order to build consumers’ trust in regulatory decision-making, it is important to promote consumer participation in the process. Civil society organizations (CSOs) that represent consumers should be seen not as a nuisance but rather as allies that draw attention to issues and expand the information base available for regulatory decision-making.

The Electricity Act of 2003 requires that regulatory commissions invite comments on tariff-setting and other important issues and consider all inputs from the public before taking a decision. Almost all the states have tried to comply with these provisions, in letter if not in spirit, mainly through public hearings. However, public hearings are a form of one-way communication and seem like a “durbar" where consumers request the state electricity regulatory commission (SERC) to reduce their suffering. Furthermore, in a recent study on consumer representation in electricity regulations by us in five states, consumers or consumer representatives (CRs) often complained that SERCs did not really listen to what they said, or that they listened but did not act. Consumer participation was seen as an “eyewash" with regulators doing whatever the government wanted. The problem is exacerbated by the lack of sufficient explanation for decisions by regulators in their orders. Most orders list comments received from stakeholders but do not say how the final decision was taken and why some views were accepted while others were rejected.

Given this lack of trust, we need to move towards consumer participation that includes active involvement in decision-making through deliberation. Deliberations are based on dialogue where participants respect and engage with the viewpoints of others and use them as starting points to arrive at a decision. During deliberations, participants move a little closer to transcending their private interests and focus instead on the larger public interest. Consumer participation then moves from being merely a transmission of information and consultation to an opportunity to influence decision-making. However, the ultimate authority for decisions must remain with the regulators because they are responsible for maintaining the overall health of the sector. Developed countries with a longer history of regulation of the electricity sector provide space for deliberations such that there is a give-and-take of views, and CRs have an opportunity to influence regulatory decisions.

Technical validation sessions (TVSs), which are held in Maharashtra, are one example of deliberations. For all tariff-related and other major proceedings, the Maharashtra Electricity Regulatory Commission (MERC) has been inviting CRs to sessions where the utility, the SERC staff and consultants are present, to identify any gaps in filings of the utility. However, TVSs focus only on the completeness of the utility’s filing and not on all issues in the filing by the utility. This model of deliberations should be extended to consideration of all major issues that are to be decided in the proceedings.

Deliberations can be carried out effectively in small groups only. Because of the large number of small consumers in a utility, there needs to be a representative of these consumers to give voice to their perspective in deliberations. International experience shows there is a need for a consistently present, technically capable advocate with adequate human and financial resources to represent small consumers.

With most discoms being state-owned, it would not be appropriate to have the consumer advocate be appointed by the state government. An alternative is to designate a few CSOs in the state which will be treated as parties to all cases before the SERC and will thus be invited to all proceedings in cases before the SERC. This has been done in Maharashtra and has been successful. The selection of the designated CRs should be independent of the respective state government and SERC. The Forum of Regulators (FoR), a body constituted under the Electricity Act, 2003, is the agency best suited for carrying out the selection. The agency could develop a process for selection of CRs and then select reputed academic or research institutions in each of the major regions of the country to carry out the actual selection of CRs according to the process prescribed by it.

It would be best to continue having public hearings in addition to the deliberative consultation sessions. Public hearings provide a corrective mechanism and prevent the process from becoming too expertocratic. Effective consumer participation will enhance scrutiny of claims by discoms in their petitions, while building greater ground-up support for reasonable rate hikes by regulatory commissions, substantially increasing the chances of success for UDAY.

Daljit Singh, Ashwini K. Swain, Ashish Khanna and Mudit Narain are, respectively, an independent researcher and consultant on energy policy in New Delhi; director, CUTS Institute for Regulation and Competition, New Delhi; lead energy specialist, Middle-East and North Africa Region, World Bank, Cairo; and a cleantech researcher and impact investor, currently affiliated to IIMA’s start-up incubator, CIIE.

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Published: 24 Nov 2015, 10:48 PM IST
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