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Legitimacy issues in electricity regulation

Sudha Mahalingam

The regulatory arena is an asymmetric forum wherein the utilities have all the advantages and the consumers none. And regulators themselves often remain aloof, making a virtue of equidistance from all stakeholders.

TEN YEARS ago, as part of India's on-going reform process in infrastructure, Orissa set up the first independent regulatory commission to oversee the functioning of its electricity sector. Since then, many States have followed suit. The Electricity Act 2003 has now made it mandatory for State Governments to entrust the regulation of their power sectors to autonomous regulatory bodies.

Like two sides of a coin, independent regulation is intended and designed to serve the interests of the service provider as well as the consumer. Prior to the establishment of independent regulation, tariff setting was subject to political whims and compulsions and tariffs seldom covered the costs of the utility. Now, setting appropriate tariffs that cover cost of supply is a key regulatory function that takes care of the interests of the service providers. Similarly, in the erstwhile dispensation, the utility was a distant entity inaccessible to consumers and largely unresponsive to their complaints and concerns. But now, the regulator has a salient role in protecting consumer interests by providing a credible and authoritative interface between the consumer and the service provider. In fact, the importance given to consumer interests in the regulatory paradigm is evident from its inclusion in the preamble to the new law.

However, the remit and authority of the regulator, insofar as it relates to consumer interests, has been drastically undermined by no less a body than the Appellate Tribunal for Electricity (ATE), which hears appeals against the orders of State Electricity Regulatory Commissions. An order issued by the ATE in March 2006 circumscribes the regulator's role and categorically declares that it is not the regulator's business to address consumer concerns. In its order dated March 29, 2006, given in response to an appeal filed by M/s Reliance Energy Limited and others against an order of the Maharashtra Electricity Regulatory Commission (MERC), ATE ruled that electricity regulators cannot address consumer complaints, even if they relate to non-compliance with regulatory orders. In holding such a view, ATE has not only virtually made the State Electricity Regulatory Commissions toothless and confined their role to mere tariff fixation, but has also set an unfortunate precedent.

The issue in question is not trivial. It relates to excess/wrong billing of millions of consumers in Maharashtra. Nearly a decade-and-a-half after reforms were launched in India's power sector, power utilities still resort to billing their customers on the basis of average consumption, rather than actual consumption recorded by meters on the consumers' premises. The Maharashtra State Electricity Board (MSEB) has been sending out virtually lakhs of electricity bills based on approximation. As many as 18 per cent of residential consumers, 15 per cent of commercial establishments, and 9 per cent of industrial consumers in Maharashtra have been receiving electricity bills based on `average' consumption. Prayas, a Pune-based civil society organisation active in electricity regulation estimates that MSEB earns at least Rs.25 crore of excess income every month on account of this practice. According to Prayas, not only does MSEB send out average bills unrelated to meter-readings, but even arbitrarily increases the bills of these consumers every three months. Thus residential consumers found their bills being increased by 10 per cent and industrial consumers by 20 per cent, although tariffs fixed by the regulator are meant to be stable for one whole year. Besides, `average billing' is not a new phenomenon. According to a tariff order of MERC dated 2000, more than half the consumers in Maharashtra were being billed on `average' basis, a practice for which the regulator had pulled up the utility six years ago.

If consumers are to be charged whimsically by the utility, what exactly have reforms in the power sector achieved so far? No doubt the key objective of reforms has been to restore the financial viability of utilities, which, owing to years of mismanagement, were in the throes of bankruptcy. The Electricity Act 2003 requires the regulator to fix tariffs in such a way that cross subsidies are gradually reduced and eventually eliminated so that tariffs reflect the cost of supply to each consumer category. And if any State Government requires any particular consumer category to be subsidised, it will have to fork out the subsidy upfront from its own budget. Thus, reforms are designed to put the unviable utilities back on rails. But what of the interests of the consumers themselves? How can they be asked to pay rationalised — which means higher — tariffs when their bills themselves are fictitious? What prevents the utilities from sending out accurate bills based on meter-readings?

In response to a public interest petition filed by Prayas before MERC against wrong/excessive billing based on `average' consumption, MSEB had claimed that it was impossible to bill all consumers according to meter-readings! It is not as if these consumers were not metered at all and therefore, MSEB had to resort to `average' billing. MSEB had merely claimed that the meters were either faulty or the premises locked when the meter reader visited it, or meters were simply `not available'! As we all know, agricultural connections are not metered in many States and it became very easy for the utility to hide thefts and leakages, claiming them to be agricultural consumption! Besides, all the utilities operating in Maharashtra have been in the habit of periodically sending supplementary bills to consumers on the plea that the earlier average billing was an underestimate. Collections from supplementary bills add up to a tidy sum every month.

MERC, which heard the Prayas petition, ruled that MSEB cannot resort to average billing for any consumer beyond three consecutive months. If it did, it was required to withdraw such bills. If the consumers had already paid up, MSEB was required to refund the amount. Besides, MSEB as well as the other private utilities operating in Maharashtra were directed not to send out supplementary bills any more and also to refund all the amounts collected through the latter.

ATE action

ATE has overturned this order of MERC claiming that the regulator had no jurisdiction over consumer complaints. ATE concludes, in its order, that aggrieved consumers must approach the Consumer Grievance Redressal Forum (CGRF) for rectification of the `average billing' problems. Surely, ATE cannot be unaware of the composition of the CGRF, which is comprised of utility officials. How does ATE expect consumers aggrieved by the utility to get justice from a body that comprises the same utility officials? Besides, does ATE expect over one million individual consumers to directly approach the CGRF to rectify their wrong bills? Is there then no scope for public interest `class action' petitions in the regulatory scheme of things?

But there are larger issues at stake here. The ATE order strikes at the very foundation of the regulatory commissions, depriving them of the right to determine tariffs and, thereby, the revenues collected by the utility. If the utility is free to charge what it pleases, irrespective of the actual quantum of consumption, what is the sanctity of the tariff order? The revenues of the utility are a product of quantity and price. If the utility can get away with tinkering with either, the tariff order itself becomes meaningless.

Besides, the authority to enforce regulatory orders is at the root of regulatory legitimacy. When a regulator is restrained from enforcing its own tariff order by an appellate body, the institution is rendered toothless and ineffective. The Electricity Act 2003 was passed after extensive debate and consultations in the Parliamentary Standing Committee as well as in the public arena. Yet none of its copious and comprehensive provisions envisages a situation like this.

Electricity regulation — particularly tariff fixing — is already heavily loaded against consumers. Utilities prepare extremely complex and voluminous tariff proposals, which are usually incomprehensible to the common man. Although regulators conduct public hearings to decide tariff, consumers with little knowledge of how the sector functions or the regulatory processes are pitted against the utility, which hires expert consultants, accountants and lawyers to plead its case for tariff revision.

Worse, the fee paid by the utility to these experts is also passed on to the hapless consumers through the tariff! The regulatory arena, therefore, is an asymmetric forum wherein the utilities have all the advantages and the consumers none. And regulators themselves often remain aloof, making a virtue of equidistance from all stakeholders. It is evident, therefore, that the design of the regulatory mechanism is not exactly conducive to addressing consumer concerns and interests.

In this scenario, the ruling by ATE can only further exacerbate the asymmetry between the utility and the consumer even as it weakens regulatory authority. These are early days yet in electricity regulation in India and it is important to set the right precedents. Unfortunately, the ATE order does not do that.

(The writer, a senior fellow at Nehru Memorial Museum & Library, New Delhi, coordinated an international study on electricity governance in India)

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