India Together: Citizens input on power tariffs - 24 November 2006 11/27/2006 11:12 AM

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KARNATAKA : ELECTRICITY REGULATION

ECONOMY • Write the authors
Citizens input on power tariffs • Energy
In a few weeks, Karnataka will once again seek public input • Consumer rights
in setting electricity tariffs. While the era of state electricity • Karnataka
boards has ended, public participation is important to counter • Send to a friend
pressures from the government, utility companies, and the • Printer friendly version
commercial private sector on regulators, write Lina Krishnan,
Gautam Menon and M V Ramana.

24 November 2006 - By the end of this month, the electricity transmission and distribution companies are
· Agriculture expected to file their proposed tariff documents with the Karnataka Electricity Regulatory Commission (KERC).
· Consumers The KERC will then invite comments from the public to the filed documents - in effect, asking for the public's
· Energy views on the proposed tariff for the next year. After the views of the public are submitted to the Commission, the
utilities will have three weeks to review them. This will be followed by a public hearing where individuals,
· Fisheries
consumer groups, farmer groups or industry associations who have filed objections can state their case in
· Housing person before the KERC. Partly on the basis of the petitions, the Commission will then decide the tariffs for
· Labour various users for the following year.
· Livelihood
The inclusion of some input from the public into the tariff setting process is one of the many changes that have
· Microfinance been underway since the 1990s in the state's, and indeed the nation's electricity sector. For quite some time
· Public Funds now, the sector has been riddled with several operational and financial problems including large peak shortages,
· Trade poor quality of supply, low generating plant efficiencies, high transmission and distribution losses, and low
revenue realisation. In the 1990s, countries around the world, including India, started restructuring the old setup
· Transport
to try and introduce economic competition in electricity generation and distribution. The process culminated in
India in the 2003 Electricity Act.

In this new environment, the functions performed by the former Electricity Board - generation, transmission and
RSS Feeds distribution - are now divided among different organisations. Unlike many other states, Karnataka separated
generation from transmission and distribution (T&D) in the early 1970s itself, but the entire sector remained a
government monopoly. Generation has now been opened to the private sector, though the bulk of the electricity
enter e-mail ID
is still generated by the public sector. In recent years, the transmission and distribution that was formerly
handled by one organisation have been forked out into separate distribution and transmission companies. Five
distribution companies, known as ESCOMs, have been set up in Bangalore, Hubli, Gulbarga, Mangalore and
Chamundeshwari. These companies purchase electricity from different sources and supply it to consumers in
their operating area. Transmission of the generated electricity to the distribution companies is handled by the
Karnataka Power Transmission Corporation Limited (KPTCL), which levies a transmission charge for each unit
of electricity that it delivers to the distribution companies.

Other than breaking up the formerly integrated setup, the

restructuring process also called for the creation of a regulatory In 2000, the number of objections
authority. Under the 1999 Karnataka Electricity Act, the KERC filed by individuals and consumer
groups was only 110. But in just two
was set up to regulate all aspects of the power sector and
years, it had risen to 9312 in 2002
balance the interests of the power sector utilities and the
and this year the number of
consumers. The regulatory arena offers consumers and civil interventions rose to an overwhelming
society groups a way to intervene in a sector that they had little 11,748!
voice in earlier. This is particularly useful in making sure that
consumer interests are heard while determining tariffs - the price
charged for each unit of electricity supplied. Every year KPTCL
SERVICES and the five ESCOMs have to each submit a document, called • Private, but still stolen
the Expected Revenue from Charges (ERC), to the KERC. Based • A surge for consumer rights
· Advertise on the projected amount of electricity to be sold (or transmitted,
· Contact Us in the case of the transmission company), these companies calculate what tariff they need to charge in order to
· Newsletter meet their projected expenses. The ESCOMs charge different tariffs depending on the consumer category, from
rural households to large industry.
· Submit
To return to the intervention process, public comments and hearings concerning the ERCs provide one of the
few available means for civil society organisations and consumer groups to resist unnecessary tariff increases,
which would result in larger electric bills. While companies do need to recover costs, it's untenable to simply bill
consumers to recover injudicious expenses or other losses. This can be ensured only if these filings are carefully
examined and petitions filed.

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India Together: Citizens input on power tariffs - 24 November 2006 11/27/2006 11:12 AM

Consumers have been increasingly involved in ensuring that tariffs are kept to reasonable limits. In 2000, the
number of objections filed by individuals and consumer groups was only 110. But in just two years, it had risen
to 9312 in 2002 and this year (2006-07), the number of interventions rose to an overwhelming 11,748! While it's
true that the tariff has been revised time and again, in each of these years the tariff hike has typically been
smaller than the transmission or distribution companies asked for. For instance, in 2005, KPTCL had sought a
raise of 55 paise for a particular consumer category (HT1), but following opposition from consumers, KERC
ultimately allowed only a 5 paise hike. Similarly, this year, KPTCL had projected an investment of Rs.2700
crores on the transmission network and proposed to increase the transmission tariff that would be charged to
the ESCOMs, from 19.42 paise per unit to 26.06 paise per unit. KPTCL cited reasons such as an inability to
cover costs, reduced capacity to finance losses, and the need to ensure an assured revenue stream to improve
and maintain the transmission network.

In response, the Consumer Care Society (CCS), a leading consumer group based in Bangalore, filed a petition
challenging the proposed increase in tariff. Questioning the rationale for the proposed transmission charges and
capital expenditure, CCS argued that that an increase in transmission tariff by 34 percent would adversely affect
most consumers. They also argued that in view of KPTCL's past expenditure pattern for capital works, an outlay
of Rs. 2700 crores would not be utilised in the time period envisioned for the work to be completed. Other civil
society groups also objected to the tariff increase and the investment programme. Meanwhile, KERC constituted
an expert committee to look into the investment programme. Based on the public's comments and the expert
committee's feedback, KERC asked KPTCL to revise the investment outlay from Rs.2700 crores to Rs.1755
crores and also concluded that the transmission tariff could be retained at 19.42 paise per unit. So interventions
do help.

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The ethos of consumer rights finds an echo in the Karnataka Electricity Act 2003. Section 61(d) of the Act
emphasises the importance of "safeguarding of consumer's interest and at the same time, recovery of the cost
of electricity in a reasonable manner". As a way of advancing consumer interests, KERC has also established
an Office of Consumer Advocacy, which in turn has promoted a network of consumer groups interested in the
electricity sector. While the Regulatory Commission is already trying to protect consumer interests, its role can
be strengthened with greater public participation.

At a recent workshop in Bangalore on The Electricity Sector in Karnataka: Emergent Issues and Stakeholder
Perspectives, held by the Centre for Interdisciplinary Studies in Environment and Development, a member of the
Regulatory Commission called for greater public participation not just in the process of tariff setting, but in
various other regulatory aspects as well. These include setting rules and rates, evaluation of power purchase
agreements, reporting consumer grievances, and checking how KERC's rules are being implemented. Other
possibilities for participation include ensuring compliance with the directives of the commission - a set of pointers
issued by the commission to reduce losses and improve quality of service to the consumer - and helping the
power sector be more environmentally sustainable, through, for example, ensuring greater demand-side
management. In a larger sense, participation from civil society is important to counter pressures from the
government, the utility companies, and the commercial private sector on the KERC itself.

There is also a broader context to the restructuring of the electricity sector. In this new context, markets and
private capital are being entrusted with various functions that were formerly under the purview of governments,
and the notion that people were entitled to cheap and reliable electricity supply (like clean water) has been
under attack. Hence, in the current restructuring schemes, the availability of electricity to poor or otherwise
disadvantaged customers has not been given high priority. Similarly environmental considerations also take a
second place to profit. For these considerations to play a role, the public must intervene and shape the
restructuring process. People around the world have paid a heavy price by letting government bureaucracies

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India Together: Citizens input on power tariffs - 24 November 2006 11/27/2006 11:12 AM

and politicians operate the electricity sector as they saw fit. Robust engagement of the regulatory arena by
citizens can ensure that such a state of affairs does not recur. The upcoming public comment period provides an
opportunity to remind ourselves of this.

Lina Krishnan, Gautam Menon and M V Ramana

24 Nov 2006

The authors are with the Centre for Interdisciplinary Studies in Environment and Development, Bangalore.
CISED conducts research and dialogue on issues at the interface of environment and development
(cised@isec.ac.in).

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