Freedom and power: Autonomy for state electricity regulatory commissions can be the harbinger of big change – The Times of India Blog

Not even two decades since they were set off, the light has gone out of power distribution reforms. Accumulated financial losses of distribution companies, or discoms, ballooned to about Rs 4.7 lakh crore in fiscal 2019, while average cost of supply-average revenue realised (ACS-ARR) gap and aggregate technical and commercial (AT&C) losses are both higher than Ujjwal Discom Assurance Yojana targets.

The lack of autonomy of state electricity regulatory commissions (SERCs) has been a major stumbling block to progress. The move to create a single central selection committee for appointment of chairman and members of all SERCs in the proposed Electricity (Amendment) Bill, 2020, is thus the right step. It may finally eliminate state interference and pave the way for much-stalled reforms.

So how have the SERCs been an impediment?

They have wide-ranging powers and the responsibility to ensure efficiency by introducing competition and upholding consumer interest. Instead, they begot irregular tariff revisions, continuous cross-subsidisation, large regulatory assets, and delays in adjudication on tariff and non-tariff disputes.

SERCs are also empowered to grant licences, fix tariffs and targets, and punish errant licensees. However, with political appointees as members, the current mess is not surprising.

Discoms in some states (such as Tamil Nadu, Madhya Pradesh, Punjab and Rajasthan) have failed to file tariff petitions and issue orders on time, submit annual accounts, and get true-ups done regularly. Thats again telling on SERCs, which are ultimately responsible to ensure petitions are filed promptly and can do so suo motu even if discoms fail to. Such non-action has not helped timely reconciliation of tariff requirements to meet costs.

Discoms are also carrying huge regulatory assets with no concrete plan to get rid of them. For instance, in tariff petition of fiscal 2018, TN discom filed for regulatory assets of Rs 68,873 crore and the SERC approved only Rs 10,432 crore. In UP, discoms regulatory assets were around Rs 40,541 crore at fiscal 2019 end, again, no clear timeline for liquidation.

All this is why, even after years of reform, tariff structure in many states is still skewed, with disproportionate burden on the industrial and commercial segment. Some SERCs have also dragged their feet in certain cases on conducive regulatory actions to promote open access, which could have helped propel competitive industrialisation as well as the option for independent power producers to sell power directly to consumers.

But now that SERC members will be selected by a central body (once the amendments go through), certain long-pending reforms could find renewed vigour:

Indeed, private sector participation and separation of retail supply, or for that matter any reform, will depend on how non-politically and independently the sector is regulated. Only when tariffs start reflecting the true cost of supply and AT&C losses, will the rest follow.

DISCLAIMER : Views expressed above are the author's own.

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Freedom and power: Autonomy for state electricity regulatory commissions can be the harbinger of big change - The Times of India Blog