REGULATE, REGULATE - ELECTRICITY
TRADERS EXPLOIT CONSUMERS BY GAJENDRA HALDEA
In the year 2000, California
experienced rolling power blackouts that quickly turned into a crisis. This
debacle occurred because retail prices of electricity were fixed by law, while
whole sale prices were determined in the market. This implied that distribution
companies had to buy at market price but could recover no more than the
regulated rate. When increased demand in the summer of 2000exceededavailable
supply, gaming by producers and traders pushed up wholesale prices, scripting
the crisis that ultimately led to a burden of several billion dollars on
unsuspecting taxpayers.
The safeguard against such
failures, India’s Electricity Act 2003 mandates that tariffs to be charged by
power producers shall be determined by the Central and state regulatory
commissions, as the case may be. These commissions have also been empowered to
regulate trading margins, if necessary. The idea is to protect consumers from
exploitation, because today the demand for power significantly exceeds supply.
Some champions of free markets
argue against regulating the price of traded power. They do not seem to
recognize that an abrupt transition from a nationalised industry characterized
by shortages, to an unregulated price regime is bound to cause volatility that
would ultimately lead to tariff shocks. There is no earthly reason why power
producers who are insulated against market risks and assured of guaranteed
returns should be enabled to secure windfall profits at the expense of hapless
consumers. Yet this has been happening in several cases, and right under the
nose of regulatory commissions. What’s worse, several states sell power that is
generated by state-owned entities and centrally –owned NTPC in this way.
The way this is done is
simple. Power Trading Corporation (PTC) buys power from generating stations and
state electricity boards (SEBs) at what it calls “prices discovered in the
market”. The price thus paid is obviously much higher than the regulated price
for the respective generating stations. This power is then sold to states that
are facing shortage. Neither the Central Electricity Regulatory Commission (CERC)
nor the commissions of respective states have woken up to this unlawful trade
that was to some extent sanctified by the myth that PTC was a government company
and has been declared as such by the CERC.
Another issue is that there
are no electricity markets where PTC claims to have “discovered” these prices.
That the law requires generating companies to sell at regulated prices is
another issue. In the midst of these large transactions aggregating several
thousand crore rupees, the responsibility of ensuring that SEBs buy lawfully and
based on open tenders, instead of settling negotiated deals with PTC and other
traders, should rest with organisations like the CAG. Since these power trades
are arbitrary and occur without any tendering, the Central Vigilance Commission
might also have something to say about them. Individually or collectively, these
watchdogs of public interest need to scrutinize these deals.
It is to be noted that each
generating station carries a different tariff depending upon its capital cost,
age, fuel and other relevant factors. As a result, the tariffs of generating
stations vary between a low 20 paise to as high as Rs. 4 per unit. If “price
discovery” in the market where to be permitted, the cheaper sources would
obviously try to secure higher price which in turn will push up retail tariffs
for the consumer. That is not, and cannot be, the objective be, the objective of
power reforms.
If a dealer sells diesel or
kerosene for an amount exceeding the regulated price, penal consequences follow.
If ration sugar is sold at a higher price, penal action could be severe. If a
trader charges more than the MRP printed on a product package, he lends himself
open to prosecution. Can power be any different? In fact power requires greater
regulation because the consumer has no choice but to buy from monopoly supplier.
Even in telecom Tariffs are regulated by TRAI. It is a different matter that
competition compels service providers to charge less than the regulated tariffs.
The law is clear and emphatic
about consumer protection against exploitative pricing. Section 62(6) of the
Electricity Act mandates that if any licensee or generating company recovers a
price exceeding the tariff determined by the regulatory commission, the excess
amount is recoverable with interest, besides other liabilities under the law.
The consumer would, therefore, expect the regulatory commissions to enforce such
recovery and pass on the relief to the consumer.
Given the complexity of the
power sector, consumers are often unaware of what goes on at the corporate or
utility level. Even in the discussions that take place at the policy level and
in conferences and seminars, macro issues concerning these corporate and
utilities tend to dominate while consumer concerns take a back seat. It should
be no surprise that of all the reforms in India, power reforms have been least
people-friendly. In fact, they are usually associated with recurrent tariff
increases and little improvement in the quality of supply.
Since significant volumes of
power have been traded, and continue to be traded beyond the regulated price,
one Cannot help observing that the regulatory commissions and other watchdogs
seem to be fiddling while millions of consumers are losing.
( Courtesy: TOI 23.7.04)
