THE REGULATORY PROCESS IN INDIA:

1. THE REGULATORY PROCESS IN INDIA: GMP for PGCIL 17 August 2001 K Balarama Reddi & Usha Ramachandra

2. REFORM INITIATIVE • New Regulatory Framework : Establishment of CERC & SERCs • Restructuring of the Power Industry especially the State Electricity Boards

3. GOI: LEGISLATIVE CHANGES • THE ELECTRICITY REGULATORY COMMISSION ACT INDIA 1998 • Setting up CERCs/SERCs • Rationale for Tariff Fixing • Budgetary Transfer of Subsides • ELECTRICITY BILL 2001 (Draft)

4. REGULATORY REFORMS • Independent regulatory commissions would be set up to: • Electricity Tariffs • Investment approvals • See to consumer complaints • The Governments role would be limited to that of a policy maker and a facilitator.

5. REGULATORY COMMISSIONS - ISSUES • Appointment, Terms of office. • Source of funding. • Regulatory procedures. • Enforcement and appeals. • Legal framework. • - Electricity Regulatory Commissions Act 1998.

6. WHAT COMPRISES THE ERCs? CERC: 5 members (1 engineering, 1 finance, 1 economics/ law/ management, Supreme court judge/ Chief Justice of High Court SERCs: 3 members (engineering, finance, law, economics, management

7. Role and Function of CERC (a) To regulate the tariff of generating companies owned or controlled by the Central Govt. (b) To regulate the tariffs of IPPs or other generating companies that supply electricity to more than one state (c) To regulate inter-state transmission of energy & transmission tariffs (d) To promote competition, efficiency and economy in the activities of the electricity industry

8. Role and Function of CERC (cont…d) • (e) To aid and advise the Central Govt. in the formulation of tariff policy which shall be:- • fair to the consumers • facilitate mobilisation of adequate resources for the power sector (f) To associate with the environmental regulatory agencies to develop appropriate policies & proceures for environmental regulation of the power sector (g) To frame guidelines in matters relating to electricity tariff

9. Role and Function of CERC (cont…d) • (h) to arbitrate or adjudicate upon disputes involving generating companies or transmission utilities in regard to matters connected with clauses (a) to (c) • (I) to aid and advise the central government on any other

10. STATUS OF SERCS • State Acts: Orissa, • Andhra Pradesh • Karnataka • Uttar Pradesh • Haryana • Rajasthan • ERC (1998): Madhya Pradesh, Maharashtra • Gujarat, Delhi • Tamil Nadu, Arunachal Pradesh West Bengal

11. REGULATORY STRUCTURE : BASE CASE Industry Structure Regulatory Structure State Government Central Government Generation S E B 1 C.E.A. Transmission 2 Distribution R.E.B R.L.D.C 3 1. Directions on matters of policy 2. Approval of projects 3. Regional grid controls

12. REGULATORY STRUCTURE: REFORMS Industry Structure Regulatory Structure G G State Government Central Government/ C.E.A. SEB Corporatised G S.E.R.C. C.E.R.C. T D R.E.B R.L.D.C D D

13. How the SERC is established Typically the Selection Committee constitutes: a person who has been a Judge of the High Court - Chairperson Chief Secretary of the concerned state -Member Chairman or member of CEA - Member One member of SERC - electrical engineer Two members - law, economics, commerce, finance accountancy, administration

14. Powers of the Commission: • The Commission shall for the purposes of any inquiry or proceedings under this Act shall have the powers as are vested in a Civil Court under the Code of Civil Procedure, 1908, (Central Act 5 of 1908) while trying a • suit in respect of the following matters, namely: • the summoning and enforcing of attendance of any witness and examining on oath; • the discovery and production of any document or other material object producible as evidence; • the reception of evidence on affidavits; • the requisition of any public record from any court or office; • the issue of Commission for examination of witnesses; • the appearance of parties and consequences of non-appearance; • the grant of adjournments at the hearing.

15. Role and Function of SERC (according to the ERC Act) (a) To determine the tariff for electricity, wholesale, bulk, grid or retail, as the case may be, in the manner provided in Section 29 (b) To determine the tariff payable for the use of the transmission facilities in the manner provided in Section 29

16. Role and Function of SERC (according to the ERC Act) (c) To regulate power purchase and procurement process of the transmission utilities and distribution utilities including the price at which power shall be procured from the generating companies, generating stations or from other sources for transmission, sale, distribution and supply in the state (d) to promote competition, efficiency and economy in the activities of the electricity industry to achieve the objects and purposes of this Act

17. Role and Function of SERC (as may be notified by the State Govt. from time to time (a) To regulate the investment approval for generation, transmission, distribution and supply of electricity to the entities operating within the State (b) To aid and advise the state Govt. in matters concerning electricity generation, transmission and distribution (c) to regulate the operation of the power system within the state (d) to issue licenses for transmission, bulk supply, distribution or supply of electricity and determine the conditions to be included in the licences

18. Role and Function of SERC (as may be notified by the State Govt. from time to time (cont…d) (e) to regulate the working of the licensees and other persons authorised or permitted to engage in the electricity industry in the state and to promote their working in an efficient, economical and equitable manner (f) To require licensees to formulat perspective plans and schemes in coordination with others for the promotion of generation, transmission , distribution, supply and utilisation of electricity, quality of service and to devise proper power purchase and procurment process (c) to regulate the operation of the power system within the state

19. Role and Function of SERC (as may be notified by the State Govt. from time to time (cont…d) (g) to set standards for the electricity industry in the state including standards relating to quality, continuity and reliability of service (h) To promote competitiveness and make avenues for participation of private sector in the electricity industry in the state and also to ensure a fair deal to the consumers (i) to lay down and enforce safety standards (j) to aid and advise the state govt. in the formulation of the state power policy

20. Role and Function of SERC (as may be notified by the State Govt. from time to time (cont…d) (k) to collect and record information concerning the generation, transmission, distribution and utilisation of electricity (l) to collect and publish data and forecasts on the demand for and use of electricity in the state and to require the licencees to collect and publish such data (m) to regulate the assets, properties and interest in properties concerning or related to the electricity industry in the state including the conditions governing entry into, and exit from, the electricity industry in the such manner as to safeguard the public interest

21. Role and Function of SERC (as may be notified by the State Govt. from time to time (cont…d) (n) to adjudicate upon the disputes and differences between the licensees and utilities and to refer the matter for arbitration (o) to coordinate with environmental regulatory agencies and to evolve policies and procedures fr appropriate environmental regulation of the electricity sector and utilities in the state (p) to aid and advise the state govt. on any matter referred to the state commission by such government

22. Commission’s Power to Pass Orders and Enforce Decisions Interim orders for securing compliance when licensee is contravening any relevant conditions of the licence Final orders after a consultative process Fines and charges (upto Rs.5 lakhs for an act of non-compliance and violation & Rs.20,000 per day for every day of non-compliance Gencos shall also comply with the ERC concerning operation & maintenance of the power system & electric supply lines in an efficient & economical manner

23. State Advisory Committee • Not more than 21 members to represent the interest of commerce, industry, transport, agriculture, labour, consumers, NGOs and academic and research bodies in the energy sector • Members of SERC are ex-officio members of the SAC

24. What does the SAC do? To advise the Committee on: (1) on major questions of policy (2) matters relating to quality, continuity and extent of service provided by the licensee (3) compliance by licensees with the conditions and requirements of their license (4) Protection of consumer interest (5) energy supply and overall standards of performance by utilities

25. WHAT REGULATES THE REGULATOR 1. Powers and functions of the Regulator are clearly defined in the Act 2. All decisions, directions & orders shall be in writing & shall be supported by reasons 3. Provision for appeal to the High Court of the State on the orders of the Regulator

26. Ensuring Independence Of The Regulator • Specific procedure in the Act for selection through a high level Selection Committee headed by a retired supreme court judge or a retired chief justice of a high court • Fixed term of appointment with no provision for re-appointment • Specific provision in the Act for removal of members, only after a detailed enquiry by a sitting judge of the high court • Perks & privileges of high court judges

27. POWERS OF THE STATE GOVERNMENT • Issue of Policy Directives on Electricity matters including overall planning and co-ordination but all policy directives shall be consistent with the objects of the Act. • State Government entitled to issue policy directives regarding subsidies to be allowed to any class of consumers or any area provided the State Government compensates for the amount of subsidy.

28. Arbitration and Appeals • Dispute between licensees to be referred to the • Commission or when arbitrator appointed by • Commission in which case Commission takes • final decision • Appeals from decisions of Electrical Inspector • to be made to the Commission or an arbitrator • appointed by it • Appeals against the orders of the Commission • referred to the high court of the state within • 60 days

29. Offences and Penalties Penalty for contravention of Section 14 (conditions of licenses) shall be punishable by imprisonment and/or penalty by fine For other contravention ---- specified in the Act.

30. Regulating Tariffs • Licensee’s revenues and tariffs: • Provided that in doing so the Commission shall be bound by the • following parameters: • the financial principles and their applications provided in the Sixth Schedule to the Electricity (Supply) Act, 1948 read with sections 57 and 57-A of the said Act; • the factors which would encourage efficiency, economic use of the resources, good performance, optimum investments performance of license conditions and other matters which the Commission considers appropriate keeping in view the salient objects and purposes of the provisions of this Act; and • the interest of the consumers.

31. RATE MAKING PROCESS Filing of Proposals for Tariff revision Notification in the News Papers Receipt of objections Public hearings by the Commission Petition for review Commission Decision Petition for Judicial review Notification of Tariffs

32. Cesco Wesco Southco Nesco ORISSA: PRESENT STRUCTURE OHPC IPP NTPC OPGC CPP Generation GRIDCO (Transmission and Bulk Supply) Bulk Supply & Transmission Retail Supply & Distribution C C C C C C C C C C C C C C

33. ORISSA : REGULATORY STRUCTURE CENTRAL ELECTRICITY REGULATORY COMMISSION GOVERNMENT OF INDIA CENTRAL ELECTRICITY AUTHORITY ORISSA ELECTRICITY REGULATORY COMMISSION GOVERNMENT OF ORISSA TRANSMISSION AND BULK SUPPLY LICENSEE DISTRIBUTION & RETAIL SUPPLY LICENSEE I DISTRIBUTION & RETAIL SUPPLY LICENSEE II DISTRIBUTION & RETAIL SUPPLY LICENSEE III DISTRIBUTION & RETAIL SUPPLY LICENSEE IV

34. ACHIEVEMENTS OF OERC 1. Issued Regulations for conduct of its proceedings and discharge of its functions. 2. Issued Licenses for - Transmission & Bulk Supply - Distribution & Retail Supply 3. Constituted a broad-based Commission advisory Committee 4. Issued orders on retail Electricity Tariffs for all types of consumers for the year 1997-98 and Bulk and Retail tariffs for the year 1998-99. 5. Issued orders on Transmission charges for 1997-98 & 1998-99.

35. ACHIEVEMENTS OF OERC [Con..t] 6. Approved Grid Code 7. Approved Distribution Code 8. Issued Commission’s Observations on Load forecast for the year upto 2005 9. Approved overall performance standards for Distribution Licensees. 10. Oversaw the privatisation of distribution

36. Licensing of Transmission and Supply APERC is empowered to issue licenses for: • Transmitting electricity in a specified area of transmission • Supplying electricity in a specified area inc. bulk supply to licensees or any other person APERC’s decision on the matter of the above licenses is final APERC has the power to revoke licenses Licensees submit annual accounts once a year

37. ERCs: How to Gain Public Acceptance • Public Education • Administration of an Open and Transparent Process • Validation of Consumer Participation in the Process • Demonstrated Rationale for decisions of the Commission

38. REGULATORY PRACTICES: PITFALLS TO AVOID • Political Regulatory Capture • Commercial regulatory capture • Insufficient Accountability • “Drowning” in consumer complaint resolution • Fragmentation of regulatory functions