Date:
30th July 2022
Speakers:
Mr Sutirtha Bhattacharya, Chairperson, West Bengal Electricity Regulatory Commission (WBERC)
Dr Ashwini Swain, Fellow, CPR
Ms Arkaja Singh, Fellow, State Capacity Initiative, CPR
Mr Praveen Kumar, Director General and CEO, IICA
Dr Abha Yadav, Associate Professor and Director, Forum of Indian Regulators Centre, IICA
The briefing note can be accessed here.
Conversation summary:
The Chairperson’s experience and engagement with the electricity regulatory commission
I have been the regulator for some time, (however), I have been on the other side of the table for a longer duration. Back then, regulators were known by what they were not doing. Power is a vital sector; it is a subject in the Concurrent List of the Constitution. It touches the lives of many, due to which it also incites different kinds of reactions and needs to be handled with sensitivity. Orissa, Andhra Pradesh and West Bengal were (amongst the first) states that undertook unbundling reforms in the power sector. This was followed by the Electricity Act, 2003 and the setting-up of regulatory commissions. Thereafter, the regulatory mechanism started expanding. There were (several) challenges in the beginning. These included finding ways to increase per capita consumption, reducing losses, transfer and distribution of assets, employing appropriate human resources and retaining them, signing power purchase agreements, recognizing the emergence of the private sector as a major power generator, reducing power costs, and finally, modulating power purchases.
At present, we have come to a point where we are in the throes of a disruption effect in the source of energy and in the way that people consume power. Future regulators will need to have human resources with very different kinds of skill sets. Traditionally, people working in the electricity sector were electrical and mechanical engineers. Now, the electricity sector is seeing the entry of communication information, Artificial Intelligence, smart grid knowledge etc. This requires a more integrated approach.
Composition of West Bengal Electricity Regulatory Commission
WBERC was constituted by the Government of West Bengal under the Electricity Regulatory Commissions Act, 1998. At present, the Commission functions under the provisions of the Electricity Act, 2003.
The Commission has three Members including a Judicial Member. Unlike the London Commission which is a larger body and undertakes functions like research and analysis, our commissions are leaner. There are three Advisors – one who has retired from DISCOM, another from GENCO, and one who is an ex-CEO; the technical expertise is quite balanced. The financial expertise is balanced as well, either because the Member has come on deputation or has retired from a senior position. The Commission did not have regular recruitment (until recently) but we have now started recruiting young technocrats who will (play a role) in strengthening the body. At present, three recruitments are done directly – two are engineering technocrats and one is from a finance specialisation. The problem is that given the size of the commission, it often does not demonstrate potential to young persons. Most commissions ultimately depend on either people on deputation – which is also hard since the utilities do not want to give away their best employees – or consultants. The issue with the latter is that good consultants are consultants to many, so they may not be dedicated to the Commission alone. This is why there is talk of creating a regulatory service cadre, so that employees in Commissions can pass through different state regulators and the central regulator.
The speciality of the state regulator is that it only deals with the interface of the utilities and the consumer. The distribution utility is an exclusive derivative of the state regulator and the direct interface of the consumers. A major issue in West Bengal is that there are a large number of utilities. Historically, the regulator has had to (regularly) determine annual tariff and annual cost. When the number of utilities are high – there are small plants and utilities owning small plants – this repetitive task of the Commission becomes cumbersome.
In West Bengal, the public sector includes the state DISCOM, though the electricity supply to Kolkata is done by CESC Ltd, which is a very old DISCOM. This state is an interesting region from a power sector point of view – it has hydel power in the north, it has coal and it has pump storage which most of the rest of India does not. In addition, the state also has the Damodar Valley Corporation, a joint entity between the central government, the West Bengal state government and Jharkhand state government. There is also the WB Power Development Corporation. Further, there are some dedicated transmission lines of the private generator who directly supply to private DISCOMs. There is another very small distribution utility called IPCL which is located in Durgapur. In WB, there is a common distribution utility area where three utilities operate on the same license – the WB utility; DVC, which is a distribution utility but does not really go down to the domestic consumer since its clientele is mostly industrial consumers (this how they enjoy tariff advantage compared to others because their loss is less); and IPCL. Ceiling related provisions and other interesting things are not so prevalent in other states but found in WB and Maharashtra.
Balancing social responsibility/ affordability/ reliability with sustainability of businesses
The biggest challenge – which have also written about to FOIR – is the challenge of reducing the cost of energy. There is a perception among consumers that they are being overcharged for power, despite our efforts to explain how costs have to be increased. Similarly, there is a need to bring synergy and synthesis among the demands of various competing sectors. For instance, the industry demands for cost to serve. Some high electricity consumption sectors complain that across the world they would have received bulk discount whereas in this state they get penalised for higher consumption. This is valid, since bulk consumption at industrial level gives stable load, brings down losses and makes collection much easier but the broad tariff structure is quite agnostic to this. Further there are concerns that remote areas, which are not so “influential”, do not get the same quality of power. There are also concerns about the types of energy; young people demand greener sources whereas older people are concerned about existing assets. These dichotomies are expected and the regulator, or even the government, for that matter, exist because there is no possible non-dichotomous view (on such issues).
Views on shift from cross-subsidization to government providing subsidies
In (states like) Andhra Pradesh and, now, Telangana, there is massive agricultural subsidy but agriculture is not metered, so one does not know whether the consumption is subsidized or the losses. In my view, and as per the Electricity Act, the state government has the discretion to give subsidy to any consumer-class, in public interest. The cross-subsidy in many states is far beyond 20%, whereas in WB it is (slightly more than that) margin. The concern is that when industrial load does not grow – not that the growing of commercial load is not important, but industry is a much bigger concentrator of load than commercial – it puts stress on the capacity and extent of cross-subsidization possible. As such, the cross subsidies are within the limit but the migration to less-cost subsidies becomes a challenge.
Experience with Consumer Grievance Redressal Forum and ombudsman mechanism and how these factor into decision-making
One good thing is that we have been able to maintain the appointment of ombudsman on time and ensure that the district level forums, with their centralised tetra cell forum, have worked well. We found in many cases, between the provisional order of the ombudsman and the final order, that the utilities comply with the regulation. This does not mean that utilities have not contested ombudsman orders – (in fact) we have had a very well-contested case go right up to the apex court, where the right of the ombudsman to give compensation to the aggrieved customer was challenged. Apart from the institutional and judicial support for ombudsman, we have also utilised Section 142 to hold that the ombudsman’s order is as good as the Commission’s order, hence, a violation of the former will be considered as a violation of the latter.
Federal dynamics of regulation
The main resources shared between the Union and the state governments are:
- Coal (by direct or indirect supply),
- Transmission line with transmission costs coming from the power network, and
- Central generating stations, whose tariffs are determined by the CERC but whose power is purchased by state DISCOMs.
Now, during the coal crisis, the state of WB was not so badly affected because the WBPDCL had its own captive mines. It, therefore, had control over both the quality and quantity of coal. As such, it was able to make cheaper coal available. Sometimes, expensive power had to be purchased but the captive coal owned by the WBPDCL ensured that WB was not affected too badly.
There is one issue with transmission, where the central tariff, prima facie, looks much higher than the share of the states, perhaps because of the sectoral investment done. The state(s) do not know why they still need such power. Speaking of resources, the railways is another issue – coal has to be moved fast and the railways have been working with the states for a long time (in this regard). However ,there can always be crisis and deficit, which necessitates import of coal. This of course has tariff implication on the retail time.
We have to see what kind of orders CERC comes up with for the state commissions, since the input cost for the central utility procurement comes from CERC. The state commissions calculate the internal transmission and distribution loss and cost, and come to a conclusion. We are bound by the central tariff. The position in law is further that the central commission determines the tariff if there is supply to more than one state but the state commission determines whether somebody should procure power at that cost – hence, the prudence of purchase is the jurisdiction of the state.
Through frequent FOIR meetings and the constitution of Working Groups by CERC, there is coordination among regulators across states on many issues.
Views on policy push for nationally integrated electricity market and implication for SERCs
This is one issue where we have to really sit out, although prima facie it might look attractive. Ultimately we have to look at the common man outside the regulator’s door, since the regulator’s first commitment is to its state constituency. This outcome analysis is important. In a scenario where there has been no national grid, when we were in utilities, there was great difficulty in getting power from the north and east to the south, however, today, power flows seamlessly. Hence a national market is possible when there is national access to the facility. If national access has developed we will have to think of moving towards a national market while duly protecting the interest of our respective states. The regulators are quite seized of the issue.
Challenges and opportunities for WB in energy transition
Some transition will inevitably happen, but the question is how this will come (about) and what kind of geodesic will be traversed. This is an important question because there will be some disruptive changes. It is contemplated by the Union government (as part of the tariff policy) that by the year 2030, 43% of energy will be consumed from the renewable sector. The concern for the eastern and north-eastern states is that lack renewable resources– even if there is renewable resource, there is a capacity limitation factor, be it wind or solar. There are different kinds of lands, different kinds of cloud potential and the azimuthal rotation will not really help. The concern, thus, is about local generation from renewable resources, the potential of which is extremely restricted in a state like WB. We do not have wind; whether offshore wind will be viable will have to be seen from sea weather forecast.
Renewable energy first grew in Tamil Nadu, then Karnataka, some parts of Maharashtra, and then in Rajasthan, Gujarat, Madhya Pradesh, Andhra Pradesh, Telangana. Today when we are counting the delivery cost, we are not taking into account the transmission loss and transmission charges because there is an exemption from that cost, which is being born by, say, thermal power. Hence, there has been no opposition to renewable energy. There has been concern about the pace at which this path is being traversed and what impact this will have. This is not an issue for WB alone – there is a forum of east and north-east regulators that has been deliberating on this issue. As I said, renewable energy will come not only from an ecological point of view but also from an economic perspective. The tariff in 2010 was Rs. 17.90, whereas solar tariff right now is Rs. 2.40. Now, WB has a benefit of 900MW pump storage – there is an ideal location in the district of Purulia for another pump storage. So, WB will have a series of pump storages which can become the arbitrage for renewable power. In 2002, what was viewed as a load relief solution is today seen as one of the ideal renewable energy promotion routes and hubs. So in time, the state, with its infrastructure, will be able to store and become the hub for area distribution.
Developmental role of electricity regulator – areas which have potential for light touch regulation
(The act) of regulation entails that the regulatory institution does not turn into an auditor. It is a relationship of faith between the regulator and the regulated entity, not an authoritarian model. Regulation should be considered to be a kind of public interest protection for both you and for whom you serve. For instance, take Section 63 – it took away the power of competitive bidding. There is a Karnataka High Court judgment that says that as per the doctrine of indoor management, the regulator should be miles away. So, present day regulators are quite conscious of these issues and we only build up parameters and then go by the declarations made by entities. Primarily, the utilities should be encouraged to self-regulate. These so-called light touch regulations presume responsibility and responsiveness, and I think that maturity has arrived. I feel that the doctrine of indoor management should be left aside. The attitude of auditor-ship should be left aside, but at the same time, utilities have to be responsible. The regulated entity’s role becomes significantly important in ensuring that parameters, such as appropriate tariff for instance, are satisfied. That is why light touch regulation demands that the heavy-hand be taken away.
Divergences between the agendas of public sector enterprises/state government and that of the regulator
Section 107 and Section 108 clearly provide that policy directions can be given by the government. A such, both the regulator and the state government are bound by statutory limits. I do not think there is any divergence – there might be different perceptions when you look at things from different sides, but everyone plays their respective roles and we must also synergically play ours.
Experience with compliance of GENCOs with environmental norms
The generators are quite responsive because normally their regulator in this aspect is the State Pollution Control Board or the relevant (environment) Ministry. The regulator goes all out to see that capital expenditure for compliance with standards is sanctioned. The CERC or CEA provides a kind of benchmarking of values and we follow their approach. But one of the basic jobs of the regulator is to promote eco-compatibility and safety. You have to sanction the capital cost factor – this is essential capex, not discretionary capex. It needs to be in compliance with the norms of eco-regulators – the regulator has no discretion here, it just needs to ensure compliance keeping in mind the benchmarking norm or price or other standard given by CERC or CEA.
Accident reduction regulations at state-level
Electricity safety is under the statutory control of the Central Electricity Authority and the Chief Electrical Inspector. We direct the licensees to scrupulously follow the standards and norms set by them, on account of both safety and eco-compliance.
Share of transmission in the total cost of electricity to the consumer and changes in the future
In West Bengal it is around three percent but it depends upon the kind of load centres. Even for the WB SEDCL, the T&D loss has come down from almost 29% a few years back to 18.5% now.
Coordination between CERC and SERC
Model regulations are framed by FOIR – a Working Group is formed, which then comes out with (regulatory) recommendations. These are circulated amongst the Commissions. After some tweaking (to make the model regulations more relevant) for the concerned region, the SERC adopts the regulations.
