This has set off a process of identification of hidden inefficiencies in the operations of the SEBs in terms of high transmission and distribution (T&D) losses, employee cost, and power generation norms such as the station heat rate, auxiliary consumption, and plant load factor. But the transition period is not expected to be smooth for a number of reasons.

Knowing this, the various State Electricity Regulatory Commissions (SERCs) have followed the approach of gradual improvements on various parameters such as T&D loss, coal loss in transit, etc.

Instead of imposing the T&D loss norms, a plan for reducing such losses — primarily commercial in nature - - by more efficient and effective management — has been suggested by various SERCs.

However, despite such liberal treatment, little seems to have improved in the functioning of the SEBs. The shift to a regulatory regime and the passing of the Electricity Act, 2003 brought the affairs of the SEBs under closer scrutiny. It is also a definite improvement over the monopolist (uncontrolled) operations of the SEBs, which have for long attributed high input costs and inefficient operations to reasons beyond their control, and sought recovery from consumers.

However, certain recent developments such as the Draft Tariff Policy run counter to the principles and expectations of power sector reforms. The Centre announced the Draft Tariff Policy in accordance with the provision of Section 3 of the Electricity Act, 2003.

Though the policy envisages efficient performance norms for the SEBs, it contains some proposalsthat are not consistent with the guiding policy of the Act. For instance, as part of the process to bring in operational efficiencies, the SERCs have been approving the purchase of electricity based on approved T&D loss level.

The Commission has not been approving the additional purchase of electricity by the Board on account of higher T&D losses actually incurred than those approved by it.

This has acted as a strong disincentive for the SEBs to continue with high T&D losses in almost all States.

However, the Draft Tariff Policy allows for discontinuation of this process on the pretext that consumers have a right to 24-hour power supply.

The logic is that the reduction in electricity purchase due to excessive T&D losses actually incurred than those approved by the Commission would work against the objective of providing uninterrupted power supply to consumers.

But limiting the T&D loss to the normative level would result in more power consumption. Also, once the actual T&D losses are allowed and the SEBs are not penalised for lack of improvement, how can efficient functioning be brought about?

How would consumers be spared the unjustified tariff when the SEBs are not able/willing to control commercial losses? Similarly, the policy also states that if there is a difference in the desired and actual performance, the actual expense should be considered for revenue allowance.

This is important as the SEBs which have registered consistently poor performance should not be allowed to incur further costs till they show some improvement. For instance, many SERCs have observed in their tariff order that the SEBs should bring down their high employee cost. But almost all the SEBs have projected employee cost as uncontrollable.

How, then, can the SEBs become competitive and operationally efficient? In this case, the Draft Tariff Policy would be defying the main provisions of Section 61 of the Electricity Act, which safeguards the consumer's interest.

Further, the Draft Tariff Policy states that cross subsidy levels should be kept at 20 per cent of the average cost of supply, whereas Section 62 of the Electricity Act states that the Commission may differentiate according to consumer load factor, power factor and total consumption of electricity.

Thus linking the cross subsidy with the average cost of supply rather than category-wise cost of supply would result in a continuation of the hidden/implicit cross subsidy. This would happen because T&D losses and other expenses are very low when power is supplied at high, rather than low, voltage.

The power tariff for HT consumers should thus be lower than the average cost of supply. In such cases, if the cross subsidy is worked out on average cost of supply basis, the HT consumers would continue to pay a hidden subsidy besides the cross subsidy determined by the Commission.

With the rapid integration of the Indian economy with world economy, how long can we afford such cost uncompetitiveness is a question that cannot be ignored.

The National Tariff Policy is expected to come as an aid to the basic principles of tariff determination as laid down under the Electricity Act, 2003 and should not include provisions thatare contrary to the spirit of this legislation.

The recent power crisis of Maharashtra is an example of the fact that any attempt to derail or postpone electricity reforms would only increase the cost inconvenience to the consumer at large.

Therefore, the country cannot afford to put off electricity reforms at this juncture when the world is looking at India as the next manufacturing hub and the country is moving towards inclusive growth to meet the aspirations of its people.

(The author is an economist with the Vardhman group. The views expressed are personal.)

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