Comments on the Draft Electricity Bill 2001

These comments on the Draft Bill 2001, had been widely circulated in September 2001. Discussions on the Bill have again revived in the media and elsewhere, as the reform of the power sector has made little headway, and there is much concern that something needs to be done. Little progress or changes have been made in the Bill, so that most of the comments made then remain valid. Essentially the Bill is maimed because it is not clear enough, does not lay a path for reform and for the evolution of the sector, and in no way reduces the policy and regulatory uncertainties. While it attempts to bring about open access, that objective would not be realised since cross subsidies are to be loaded on to the transmission charge thereby killing whatever little prospect there is the Bill for a market in power. There is no specification at all of the mode of transmission pricing and the crucial role of transmission pricing is not recognised in the Bill. The Bill does not recognise that cross-subsidies via differential prices would continue to keep open the "price-arbitrage" opportunity (the root of corruption and the source of all ills in the system), so that no real change would be possible. The Bill gives legal status to far too many "authorities" and bodies, some of them quite unnecessary and vestiges of the past. The coordination problems between these are likely to take the system (if ever what is envisaged materialises) far from the optimal. The special opportunity in inter-regional trade in power cannot be realised unless the law limits the barriers to interregional trade. Most importantly the Bill virtually rules out incentive regulation of the modern varieties such as price cap regulation. Through the sub-clauses it brings in cost plus regulation. Cost plus regulation has been particularly problematic in India, and can be expected to bring inefficiencies and cost padding if not regulatory capture.