Regulations of the power sector

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AN OVERVIEW OF THE POWER SECTOR REGULATIONS:

There have been three distinguishable stages in the development of power sector and its ordinances in India. The first old ages were characterised by minimum ordinances. The power industry of India had its beginnings at the bend of 19th century.

PHASE 1- Primitive Regulation, Private Generation:

The really first statute law that governed the electricity sector was enacted more than a century ago. To modulate the coevals, supply and usage of electricity, the first statute law was the Electricity Act of 1887 which provided for the protection of individual and belongings, from hurt and hazards, attender to the supply and user of electricity for lighting and other intents. The first thermic station established by Calcutta Electricity Supply Co. started bring forthing in 1899. The size of the thermic power workss was about 30 MW at this clip.

This Act was a slightly probationary step towards modulating the sector.

THE ELECTRICITY ACT 1910 – To get the better of the defects of the old Act, the Electricity Act 1910 was enacted. This Act focused chiefly on the issue of grant of licences and the growing of the sector through the same. The Act specifies the conditions under which the licenses may be granted to the applier for Generation, Distribution and Supply of electricity. The Act besides deals with the powers and the duties of the licensees. The Act specifies the taking over of the licensees ‘ projects by the several SEBs or the local authorization as the instance may be. This was the Act that the sector was governed by signifier the following nine decennaries.

In the first stage of its development, the power sector was governed/regulated by the commissariats of Electricity Supply Act 1910.This Act was the first organized statute law aimed towards modulating the electricity sector. A company could provide electricity after obtaining a licence for the same under subdivision 3 of the act. The ordinance besides specified the conditions under which a licensee could take up building of substructure required for him to transport out his concern, for example- acquisition of land for the building of towers etc.

The licensees had to keep all histories in a prescribed format and these were to be available for review. The statute law besides mandated the formation of a Central Electricity Board for the full state. At this point of clip the coevals was largely concentrated in private custodies.

PHASE 2 – Burden of Generation on States and the License-Permit-Quota Raj:

At the clip of independency the sum installed capacity in India was a measly 1361 MW. Given the strategic importance of power in industrial development, the IPRs after independency ( 1948 & A ; 1956 ) and the policy statements of GOI demanded a higher province engagement for a faster development of the sector. The Industrial ( Development and ordinance ) act 1951 besides stressed the ownership and ordinance of the cardinal industries by the provinces. Because electricity was a cardinal and a capital intensive sector, its hereafter excessively was left into province custodies. The GOI came out with some cardinal statute laws and policies which guided the farther development of this sector.

THE ELECTRICITY ( SUPPLY ) Act 1948 – As per the Act itself, it was meant to “ supply for the rationalization of the production and supply of electricity, and by and large for taking steps contributing to electrical development and for all affairs incidental thereto ” . Thus the chief accent of the Act was the faster development of the electrical sector. The Act aimed to accomplish this by the formation of vertically incorporate State Electricity Boards in all provinces within five old ages of the passage of the said Act.

The Act mandated the formation of the Central Electricity Authority and the State Electricity Boards. This was the first clip that a unvarying construction for the industry all over the state in a decentralized mode in the signifier of the Regional Electricity Board, SLDC and RLDC was proposed. The chief subdivisions of the Act dealt with-

CEA- the Act proposed the formation and the fundamental law of CEA. This organic structure was entrusted with the formation of a unvarying national policy, to move as the go-between in instance of any differences originating between any two parties, aggregation, storage and airing of informations, and to transport out the execution of the assorted strategies. CEA besides functioned as the investigatory organic structure in the instance of any contingency related to the sector. The SEBs, or other generators and distributers of electricity were to supply all statistics, histories and returns. The authorization itself was to be directed by the cardinal authorities.

SEB- the SEBs were to be constituted and their members nominated by the province authorities itself. The board members were required to keep certain makings and credibleness to be appointed as such. The jurisprudence besides deals with all the related affairs of the boards such as suspension of members, capitalisation of the boards etc. Powers and responsibilities of SEBs and other generators have besides been outlined clearly in this Act. It may besides be noted that no differentiation was made between coevals from assorted beginnings like hydro or thermal so far as administration was concerned.

Tariff- the Act outlined the basic guidelines for duty finding by the bring forthing company, and was supposed to be determined harmonizing to the works burden factors and the operations per the norms specified by the CEA. Specifications associating to grid duty were incorporated in the jurisprudence excessively.

Electricity Act 1910- the present Act derives some mentions from the EA1910. For illustration some commissariats of the old act still use to the bring forthing companies. Therefore after the execution of the Act both of the Acts were referred to while doing a policy determination or in the instance of an arbitration.

Penalties- the Act besides incorporated the usage of punishments which were to be levied by the boards against any individual or company that has committed an discourtesy as per the specifications of the Act.

It is of import to observe in this context that electricity being a coincident list topic, assorted amendments to the jurisprudence has been enacted by different provinces from clip to clip.

INDIAN ELECTRICITY RULES 1956- in continuance with the regularization of the electricity sector, the authorities published the Indian Electricity Rules under subdivision 37 of the Electricity Act 1910, which gives the authorities the power to do regulations refering to assorted facets of the concern. With respects to the same the authorities published these Rules which regulate the both the Human Resource and the equipment in the sector. The regulations are clearly defined for inspectors, licence, general safety demands, general conditions associating to provide and utilize of energy, bar of wastage, and proving of consumer ‘s installing, bar of wastage, and proving of consumer ‘s installing.

Through these regulations, a comprehensive licensing government for all facets of power was introduced, perfectly smothering any private enterprise in the sector. Though on a positive note, these regulations defined the workings of the sector more clearly than of all time before, particularly the proficient properness required.

THE INDUSTRIAL POLICY RESOLUTION OF 1956: The IPR of 1956 reserved the coevals distribution and supply of electricity about entirely for the provinces, leting bing private licensees, to go on with their concern. This led to the domination of the electricity sector by province owned public-service corporations.

REGULATIONS- AN INDUSTRIAL PERSPECTIVE: The Electricity Supply Act-1948, The Indian Electricity Rules 1956, the assorted IPRs all aimed towards a rapid add-on to the bring forthing capacity while at the same clip puting down an thorough codification for safe and unafraid patterns in the sector. A perusing of the public presentation information shows that ab initio the steps were so a expansive success and marks were achieved for addition in installing. But the public sector, plagued by its built-in failings, could non fit up to the rapid rise in both the demand and efficiency required in the sector. To turn to this concern, amendment of the IPR in 1976 enabled coevals companies to be set up by the cardinal authoritiess as good. This resulted in the generation of National Thermal Power Corporation Ltd. ( NTPC Ltd. ) , National Hydro Power Corporation Ltd. ( NHPC ) , North Eastern Electric Power Corporation Ltd. ( NEEPCO ) , and Mysore ( now Karnataka ) Power Corporation. The IPRs advocated a policy smothering licencing government doing the private sector to endorse out of any engagement from the sector. Therefore about 95 % of the coevals was in the custodies of province companies around this clip.

It is so a sad remark to observe that the power sector has been on the heads of the policy shapers right from the clip of independency but accomplishments on land have been reasonably restricted. The policymakers themselves do non look convinced of their effectivity and this is reflected in the contrasting waies that every subsequent IPR takes from the clip of independency right up to the eightiess. It is besides ironical to observe that the purpose of the policies was to curtail private monopolies in a sector which is of course monopolistic in nature due to economic systems of graduated table and range, while leting province monopolies, believing that this would take to a unvarying development of the sector across the state. But as in most other instances, it did non go on. State owned power companies became a personal fiefdom of the politicians. Not merely the consumer but the full sector suffered as a consequence of a deficiency of competition and transparence. It besides started a barbarous rhythm. Because the SEBs were hard currency strapped, they could non even undertake public presentation heightening steps which required financess, nor was any external bureau prepared to fund them because of systemic inefficiencies.

At least until the 1970s about no important advancement was made in adding the bring forthing capacities. A perusing of the past marks reveals that they were preponderantly little and yet were non met most of the clip.

All of this happened chiefly because our policy shapers tried to blindly follow other concern theoretical accounts in the universe. Up till the 1980s, electricity sectors in most developing states of the universe, and even in many developed states of Europe, were serviced by state-owned monopolies. India besides followed the same policy, until 1991. The construction of the sector in the provinces was – one big, vertically incorporate entity that generated, transmitted and distributed power, under the several State Ministries of Power. The principle for state-owned incorporate electric public-service corporations reflected the internationally recognized belief that electricity sector was a natural monopoly.

“ Until the reforms the administration of the electricity sector was based on the undermentioned beliefs:

The populace sector was ideologically and physically the best equipt towards presenting substructure services, and the private sector ‘s presence in it was to be restricted, if non prohibited to forestall monopolies and uneven development of the state.

Public sector entities would function the public involvement the best ; parliamentary democracy provided sufficient answerability to protect consumers ‘ involvement and to guarantee efficiency. “ 1

Reforms IN THE SECTOR- However, as in many other cases, the absence of competition led to hapless quality of services, sub optimum use of resources, and carelessness for consumer involvements. We might name the crisis of 1991, a lucky shot for the sector. It happened at a clip when the substructure and particularly power sector was coping with terrible inefficiencies and losingss and already negotiations of reforms were in the air. A measure towards unbundling of the sector had already been taken in the formations of PGCIL, therefore dividing the coevals concern from the transmittal concern. Similarly the IPRs of the 1980s talked more of development than keeping it. There were important inducements given to both public and private sectors and for the first clip the demand to conserve energy and cut down losingss was officially accepted as development aim. Chiefly, it was the inability of state-owned endeavors to present services in an efficient and cost-efficient mode led to reappraisal of the policies so as to set an increased accent on services, and at that place was a turning belief that division of the sector by dividing coevals, transmittal and distribution could better efficiencies, quality of service and better the bottom-line.

The authorities came out with the Independent Power Producers Paradigm in 1991, to advance competition in the coevals concern, to add capacity and to cut down of all time mounting losingss of the SEBs. The base of the authorities was subsequently vindicated by many surveies carried out by research workers.

Internationally “ as states began to open up their electricity sector to private sector engagement, they realized the demand for new mechanism to equilibrate the involvements of the assorted stakeholders, to guarantee the viability of the industry and cut down dealing costs associated with denationalization. However, recent planetary experience has shown that coevals is non a natural monopoly. As such, coevals can be separated from distribution and competition can be introduced in coevals. Juskow ( 1998 ) proposes denationalization of the coevals sector taking towards competition in majority supply through transmittal entree, while to consumers. Hawdon ( 1996 ) utilizing informations envelopment analysis of productive efficiency of power sector in 82 states has found that privatising groups of eight states exhibit significantly higher efficiency than non-privatising groups ” . 2

The reforms of 1991 are a landmark in the history of the industries and economic system of India. In one large swing, the license-permit raj was wiped out from a big subdivision of the industry. The engagement with World Bank besides ensured acceptance of progressive policies for reconstituting the power sector, taking lessons from UK and the USA and developing states like Argentina, Chile and Brazil. The Indian authorities commenced the restructuring of the Indian power sector with enterprises towards the unbundling, and corporatisation and denationalization of Orissa power public-service corporation in 1995 was the first measure taken in this way.

Phase 3: Extremist Regulations and Drive Towards Efficiencies:

The reforms were initiated in 1991 but were really implemented in 1995 with the unbundling of the Orissa SEB. The focal point of the reforms was corporatisation of the bing participants in the power sector. The general belief was that this would heighten fight in the markets and would besides let for the entry of private participants. Thus the market would swerve towards increased operational efficiencies and decreased cost of power. Similarly, the entry of private companies in the sector would liberate the sector of authorities tampering that so crippled the bing province public-service corporations until the reforms. These stairss were taken chiefly upon pressing by the World Bank which had earlier funded such attempts in other states to good consequences. The corporatization of the power sector was the necessary status for any farther aid from the World Bank.

ELECTRICITY REGULATORY COMMISSION ACT-1998: this act propounded the formation of the Central Electricity Regulatory Commission as an attempt of the authorities to travel from regulating the sector to keeping a incorporate, cardinal independent regulative inadvertence on the sector in general and on cardinal public-service corporations in peculiar. Similarly in the provinces, SERCs were to be set up which were to keep an inadvertence on the province owned public-service corporations. The act besides provides for unbundling of the province owned public-service corporations into three different entities, viz. Generators, senders and distributors. But there were many dualities in the execution of this act. The external force per unit areas under which the formation of CERC was undertaken are apparent by the fact that members were appointed without any commissariats for staff. A figure of provinces enacted/amended their ain power Torahs to enable the formation of SERCs. On the other manus a figure of provinces did it under the cardinal jurisprudence. The 1s formed under province Torahs had a broad scope of regulative powers, while those formed under cardinal Torahs could merely modulate the duties. This created a batch of confusion sing the hierarchies of the CERC and SERC. It is to be noted that in this context that the cardinal statute law prevails in instance of a struggle sing a concurrent topic.

The effectivity of the CERC has been more in general than the SERCs. This is chiefly because the cardinal authorities is more loath to interfere in its operation than the province authoritiess because they are functionally closer to the electorate. Besides many province authoritiess were non committed to reforms in the sector.

THE ELECTRICITY ACT 2003: The Electricity Act was envisioned as a incorporate cardinal act which would replace the three old bing acts- The Electricity Act 1910, The Electricity Supply Act 1948, and the ERC Act 1998. It was enacted after treatments crossing over more than three old ages. The measure in its original signifier was rather ambitious but after eight subsequent bill of exchanges, it stands well diluted. Merely a few of the thorough recommendations of the standing commission have been incorporated in the concluding bill of exchange. Even after its debut many amendments have been incorporated and as it stands today, there are uncertainties over what the measure may be able to accomplish eventually.

The basic purpose behind this act is that India ‘s electricity sector should be unfastened to competition. Competition was executable merely in coevals but non in transmittal and distribution because these are natural monopolies and are non economical when the substructure is duplicated. But the act in itself allows parallel lines for T & A ; D besides. This has been done as a menace against denial of entree as had been the tendency in some provinces. The act is sharp in its purposes, leting private competition in the coevals concern and liberating the generators from concerns sing emptying and pricing by presenting duty based command for project execution. No licence is required now to put up a generating works given environmental clearance. Besides confined coevals is now allowed for a individual or a group of consumers.

By propounding the thought of unfastened entree, the act aims to advance competitory coevals, transmittal and distribution of electricity. Another major purpose of the act is stop the cross subsidy government prevalent. This would non merely cut down the cost of power to ordinary consumers but besides cut down the losingss that the SEBs incur due to larceny of power. The act besides has rigorous penalties for larceny. The act requires the authorities to come up with the regulations for unfastened entree within one twelvemonth. Besides by propounding unfastened entree in the distribution sphere, the act aims to incentivise the streamlining of the SEBs because unless they do so, they might lose their bing clients who account for the highest net incomes for the SEBs to other competitory suppliers. The act basically separates the distribution concern from the ‘wires ‘ concern. Thus a larger figure of administering parties may move in a circle than in the metropoliss of Delhi and Mumbai, and even little sub-stations may be privatised now.

Another great inducement offered by the act towards rural electrification is that all aspects- from coevals to provide in rural sectors have been freed from licensing demands. Besides important inducements have been offered under the APDRP plan launched under the auspices of the act to the SEBs for decrease of AT & A ; C losingss which have crippled them for so many decennaries.

The act was a great hope for the blue province of the electricity sector of the state at the clip of its debut, but repeated amendments have well diluted the act. The initial purpose of wholly extinguishing the cross subsidies has been done off with and today some sum of the same is considered acceptable. The act besides does n’t advert the clip frame within which all the maps of the province authoritiess are to be transferred to the regulators. No amendments have been incorporated to turn to the same and this allows the province authoritiess to take advantage of the confusion and bring on heavy political weight in determinations which need to been maintaining economic sense in the head. The regulative advices and policies are on a regular basis flouted by the province authoritiess and the act does n’t authorise the regulators to make much about it.

The APDRP has n’t been able to accomplish much ; the overhauling of substructure envisioned under it has n’t truly taken topographic point and today the losingss of the SEBs base at the same or in some instances at a higher degree than when the plan was launched. Apart from in the coevals facet as of now, non much alteration has taken topographic point apart from in major cities like Delhi and Mumbai and Ahmadabad. Rural electrification had become a cant for a piece but seems to hold taken a back-seat now. Even after seven old ages of the debut of the statute law, the regulative construction is non wholly independent and frequent governmental intercessions undermine its authorization.

So as a decision we might state that although the act was envisioned with really positive purposes, it has failed to run into most of its aims. Power deficits are worse than of all time before, monetary values of electricity are systematically increasing, and the losingss of SEBs have risen to over 60,000 crores. “ The public-service corporations today have to purchase power sometimes at more than three times the cost of production and accounting for all the losingss, the cost of power comes to about Rs. 8 per unit. All of this is done in the name of trading, even though they supply the majority consumers at Rs. 4 a unit ” 3. No admiration the losingss have shot through the roof. Due to excessive political tampering and the deficiency of strong belief of the both the authorities and the regulators to transport the reforms procedure frontward, the electricity sector still lags far behind most other sectors which have quickly developed after the reforms procedures were undertaken. The pitiably weak regulative procedure has led to fruitless execution of the statute law. The regulative organic structures suffer from this blight because of favoritism in the assignments and deficiency of answerability to either the authorities or the several legislators. Even after seven old ages of its debut, most retail consumers in the state are confined 1s, without any options to take from in footings of distributers, while in the states from which the bill of exchange of the Electricity Act 2003 was inspired, i.e. U.K. , a consumer has every bit many as 12 providers to take from.

Therefore, the demand for the hr is to implement the jurisprudence in its original intense spirit if any important advancement is to be made towards accomplishing the primary aim of the act-provision of electricity for all at acceptable duties.