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VOICE OF ELECTRICITY WORKERS
TASK FORCE - ADMINISTERED SHOCK - S.L. RAO
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The Task Force
was expected to announce a national electricity policy
and a tariff policy. But the report is short on policy.
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It does not
attempt a model taxation structure for power, taking account of
taxes on all inputs
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It is enamoured
of competition in electricity without accepting its nature
The Electricity Act: 2003 requires the central government to issue a national
electricity policy and tariff policy on which the independent regulatory
commission (IRC) shall advise the central government. Despite this provision
The CERC says, it was not given a copy. States were to be consulted, but their
views do not find mention. It is the first time the national electricity policy
is being issued along with a tariff policy. Considering that a member of the
Planning Commission chaired the committee that formulated the policy, it could
have been an opportunity for the Commission to develop comprehensive national
electricity and tariff policies. But the electricity policy task force reports
fails to do so.
The Task Force perpetuates the confusion over what constitutes policy. Policy is
often used to cover large and small issues in legislation and pronouncements by
elected representatives and bureaucrats. The result is that not even regulatory
commissions that are another branch of government are expected to make policy.
Yet when regulatory powers vested in a ministry are transferred to an IRC, the
corresponding interpretative and policy-making powers should obviously also be
transferred. This report, however, seems to want to give back to government the
powers that were delegated to the regulatory commissions.
Regulatory commissions, unlike governments, make their decisions transparently,
in open consultation and their decisions are subject to judicial review. It is
undesirable to revert to the opaque systems of early days. The report neglects
important policy issues that are for the government to decide. Its focus is not
national, but relates mainly to areas that come directly under the power
ministry. Thus it does not attempt a model taxation structure for electricity,
taking account of taxes on all inputs upto the time it goes to the consumer and
at levels of central and state governments.
It is enamoured of competition in electricity without accepting its nature.
Electricity cannot be stored and yet has high base load demand and variable
peaks. Base load demand must be fully met without shortfalls. This cannot be
left to the varying prices resulting from short-term market forces. It needs
long-term contracts. But the Task force wants a significant portion of new
capacity to be used for what it calls "developing competition". Nor does it
relate demand for electricity to its tariffs at a time when the tariff structure
is changing because of reduction in thefts and elimination of cross subsidies.
An electricity tariff policy must consider pricing power from renewable or
non-polluting sources and who is to keep the incomes from trading in emissions.
Hydroelectric power must be encouraged because it is environmentally friendly.
Its tariffs are high in the early years of a new project. They reduce only after
some years of depreciation. Averaging out the tariffs over the project life as
with housing loans is one option. The report makes no recommendations regarding
the objective selection of regulators so that commissions have wide
multidisciplinary expertise with people from different backgrounds and not
merely from government. Nor does it deal with broadening staff recruitment and
reducing the overwhelming number on deputation from governments. It does not
suggest ways to ensure that governments follow the law and make selections in
time.
The report requires the ex-officio fifth member of the CERC, the Chairman,
Central Electricity Agency, a busy high official with onerous responsibilities,
to be more effectively utilised in CERC. This denies the CERC a fifth full-time
member.
The report fixes the return on equity at 14 and 16% but does not explain why it
wants to guarantee returns on equity and not on total capital. Utility managers
must be allowed to decide how much equity and debt they will use. Government
must not instruct them by fixing the return on equity and at levels so much
higher than debt costs.
The report discusses competitive bidding but not other alternative like regional
average tariffs for each supplier, retail and wholesale caps without determining
costs, or a version of the Delhi model of auctioning base transmission and
collection losses, and bringing them down with profits from better performance
being shared.
On subsidies it does not try to confine them to the targetted customer groups
alone and with upper limits on the subsidy per user. Nor does it examine
alternative subsidy delivery(like electricity stamps). The Task Force was
expected to announce a national electricity policy and a tariff policy. In the
even the report is short on policy content.
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