THE UNION Government’s proposal to revamp power regulation by replacing existing regulators in United Progressive Alliance-ruled States is a disturbing development. Press reports speak of a ‘grand plan’to institute a new regulatory regime to ‘purge’the ‘existing inefficient regime’ and select a new set of regulators by instituting appropriate eligibility criteria and appointing them through a transparent process. The reason for the move is said to be the poor regulatory environment in the country which is claimed to be of major concern to private investors in the power sector.

THE UNION Government’s proposal to revamp power regulation by replacing existing regulators in United Progressive Alliance-ruled States is a disturbing development. Press reports speak of a ‘grand plan’to institute a new regulatory regime to ‘purge’the ‘existing inefficient regime’ and select a new set of regulators by instituting appropriate eligibility criteria and appointing them through a transparent process. The reason for the move is said to be the poor regulatory environment in the country which is claimed to be of major concern to private investors in the power sector.
The proposal is justified on the plea that the mid-term appraisal of the Tenth Five Year Plan emphasised the need to have an “independent regulatory authority credible with consumers and producers for ensuring level playing field between the incumbent public sector service providers and the new private sector entrants.”
It is nobody’s case that the incumbent power regulatory regime is perfect or even satisfactory. Far from it. Electricity regulators have often turned out to be indifferent to consumers’ concerns and have done little to discipline utilities - be they government-owned or private - to bring down thefts or improve the quality of service. Most regulators rely too heavily on cosultants - who themselves are accountable to no one - to help them make up thier mind on key regulatory issues impacting the sector.
And crucially, regulators have done little to provide a level playing grond for consumers in regulatory hearings where utilities have all the advantage.
Yet, it is somewhat ironical that the Government should have come to the conclusion that the existing regulatory regime is “inefficient”for exactly the opposite reasons - that regulators have not ensured a level ‘playing field’ between existing public sector providers and new private sector entrants.
What exactly is the ‘level playing field’ that has been made an issue here? The recent agenda notes for the Energy Co-ordination Committee focus on ‘level playing field’ in the context of ‘open access’ to transmission and distribution networks mandated by the Electricity Act, 2003. Of the 15 items on the Committee’s agenda, only one - open access - relates to regulatory comissions.
Open access to transmission and distribution networks is aimed at introducing limited markets in electricity supply. Limited because it is available only to large consumers such as industries and commercial establishments that consume more than one megawatt of electricity. These consumers need no longer buy thier power only from thier local utility. They can directly negotiate with any supplier -  be it an Independent Power producer, a power trader or even a utility in another State and fix the rates and quantity. The local utility now has the obligation to throw open its wire net works for transfer of power between these supplies and consumers. The much touted competition in electric supply - and its promised benefits - is not available to small consumers such as domestic and rural consumers who will continue to depend upon thier monopoly service provider, the local utility.
It is inevitable that introduction of ‘open access’ would lead to loss of big consumers for the inumbent utility. This is because it is this category  that pays higher tariffs for cross-subsidising domestic and agricultural consumers. It would perhaps be beneficial for them to buy directly from other suppliers at negotiated rates and by-pass the local utility entirely. However, there is a catch here. The Electricity Act 2003 provides that  the incumbent utility could charge, apart from a wheeling fee for the use of its wires, a cross-subsidy surcharge to compensate the utility for the loss of revenues from large consumers who opt for open access. And it is the regulator who fixes this cross-subsidy surcharge.
Many regulators, concerned over their utility’s precarious financial health, have fixed cross-subsidies at a level large consumers consider unattractive. Therefore, the agenda note clearly states, “certain SERCs have fixed the cross-subsidy surcharge in a  manner that open access in distribution will become a non-starter. ... It is therefore, essential to ensure that SERCs act according to the Electricity Policy and Tariff Policy.” Further, the agenda note wants the Energy Co-ordination Committee to evolve a methodology for computing the open access surcharge “in a manner that open access  becomes a reality for consumers above 1 MWe”.

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