Regulatory process and TAP for public interest – case studies

Regulatory process and TAP for public interest – case studies Prayas - EGI Skill-share workshop for Tajikistan and Kyrgyzstan DelegatesNovember 16-18, 2010, Pune, IndiaPrayas Energy Groupwww.prayaspune.org/peg, energy@prayaspune.org

Agenda • Case Studies • Transmission and distribution losses • Making government accountable • Capital expenditure • Load shedding • Autonomy grievance redressal mechanism • Capacity Addition and Joint declaration process 2 Prayas - EGI Workshop, Pune Nov. 2010

Exposing hidden Transmission and Distribution Losses (T&D loss)…1 • Context • Agricultural consumption – un-metered supply • Utilities estimate T & D loss Generation – Metered Sales – Estimated agricultural consumption = T&D loss • Understatement of T&D loss No transparency about commercial losses, theft etc. Prayas - EGI Workshop, Pune Nov. 2010

Exposing hidden Transmission and Distribution Losses (T&D loss)…2 • 1999 – Utility filed application for tariff revision – claimed T&D loss ~ 18% • Prayas filed petition seeking data including • Region-wise sales, basis for estimation of agricultural consumption • During preliminary hearing • Established importance of these data – Uncertainty of costs - ~ Rs. 1900 Cr. v/s/ Tariff increase sought - ~ Rs. 1219 Cr. • Demonstrated that these data were available with utility  RC ordered utility to make public all data Prayas - EGI Workshop, Pune Nov. 2010

Exposing hidden Transmission and Distribution Losses (T&D loss)…3 • During public hearing • Established that utility claims of agricultural consumption were overstated • Claims not justified based on sample metering data compiled by utility • Claims not justified based on cropping pattern and production Prayas - EGI Workshop, Pune Nov. 2010

Exposing hidden Transmission and Distribution Losses (T&D loss)…4 • Simultaneous advocacy efforts • Media • Awareness amongst CSOs • Procedural aspects • Substantive issues in the proposal, tariff impact, flaws in the proposal etc. • Need to focus on ‘sectoral’ issues rather than fight for reducing consumer category wise tariff  Utility forced to accept high level of T&D loss Prayas - EGI Workshop, Pune Nov. 2010

Exposing hidden Transmission and Distribution Losses (T&D loss)…5 Maharashtra Utility: Estimated Theft of US $ 500 Mn p.a. Prayas - EGI Workshop, Pune Nov. 2010

Exposing hidden Transmission and Distribution Losses (T&D loss)… 6Impacts and Lessons • Forced regulator and utility to initiate remedial measures • RC established norms for ‘allowable’ T&D loss • Stringent metering and energy audit processes and administrative drives • Increased attention and disclosure of more information during subsequent tariff processes  T&D losses reduced from ~ 39 % to 25% Prayas - EGI Workshop, Pune Nov. 2010

Exposing hidden Transmission and Distribution Losses (T&D loss)… 7Impacts and Lessons • Lessons • Seek incremental gains – access to data • Innovative analysis • Understanding of utility operations, systems and ‘friends’ • Multi- level interventions – RC intervention and public advocacy Prayas - EGI Workshop, Pune Nov. 2010

Mumbai Grahak Panchayat - Govt. role in tariff Background: minister talked about likely tariff, directed MSEB to waive arrears of some consumers without announcing corresponding reimbursement Issue: Government / MSEB cannot announce concessions in tariff (without government giving subsidy from budget), • restrain minister, SEB & start contempt process Order: Government and SEB warned Result: Government became cautious - some financial discipline, RC’s authority accepted Prayas - EGI Workshop, Pune Nov. 2010

Government - Seeking permission for subsidy Background: Government announced subsidy - but was not disbursing it. Advisory Committee discussed the matter -> suggested RC to start action against Govt. Issue: Govt. approached RC seeking permission for subsidy disbursement (and made provision in budget) Order: Proposed disbursement schedule allowed Result: Govt. financial accountability increased, timely payment being monitored by RC, public Prayas - EGI Workshop, Pune Nov. 2010

Initial interventions are crucial • After public hearings RC announced ‘in camera’ technical validation sessions • Prayas along with others opposed this and forced RC to make these sessions open • Several benefits • Opportunity to directly question utility and expose inefficiencies • Increased interactions with RC • Opportunity for earlier intervention Important precedence: All proceedings, hearings open for public and no ‘in camera’ hearings. Prayas - EGI Workshop, Pune Nov. 2010

Accountability for capital expenditure …1 • Large impact of ‘prudent’ capital expenditure on consumers – Service and tariff • Was not addresses in earlier Regulatory processes • In response to 2003 Act, RC required to re-formulate tariff regulations • Forced RC to form multi-stakeholder committee to prepare draft regulations • Utility and consumer representatives • Opportunity to interact with utilities in ‘non-adversial’ setting Prayas - EGI Workshop, Pune Nov. 2010

Accountability for capital expenditure …2 • Tariff regulations • RC to give in-principle clearance for all capital expenditure schemes above Rs. 10 Cr. • Required RC to prepare ‘Guidelines for in-principle’ clearance for capital expenditure • Utilities have to submit detailed project reports, expected benefits, funding plan etc. • Cost allowed in tariff if • ‘in-principle’ clearance is granted • Achievement of expected benefits – ‘prudence’ check Prayas - EGI Workshop, Pune Nov. 2010

Accountability for capital expenditure …3 • Recent Tariff Order - Consumer Submissions - • “TBIA submitted that a critical review of capital investment to the tune of Rs. 31,000 Crore provided to MSEB Utilities (MSPGCL, MSETCL and MSEDCL) and its impact on the consumers should be conducted.” • “If the projected benefits due to these capital expenditure schemes would have been realised then the tariff would also have been reduced in future years. … They requested the Commission to obtain data on benefits achieved due to each capital expenditure scheme vis-a-vis the benefits projected” Prayas - EGI Workshop, Pune Nov. 2010

Accountability for capital expenditure …4 • Commission decision – • “In the previous APR Order, directed MSEDCL to submit detailed report with established benefits vis-a-vis the benefits projected. Since, MSEDCL has not submitted the detailed report, the Commission has not considered any revision in capitalisation for FY 2007-08.” • “The Commission shall consider the disallowed capitalisation against such DPR schemes, once the benefits of such schemes are established by MSEDCL.” Prayas - EGI Workshop, Pune Nov. 2010

Accountability for capital expenditure …5 • Streamlined procedure for undertaking capital expenditure • Certainty for utility • Utility required to improve planning and implementation of capital expenditure schemes • Enhanced accountability for effective capital expenditure Prayas - EGI Workshop, Pune Nov. 2010

Brief introduction MERC has formulated load shedding protocol which defines number of load shedding hours for a region based on its distribution losses and collection efficiency Protocol is defined through public process Utility in 2008 changed the protocol without prior approval or notice and later filed petition claiming seeking revision of protocol Separate petition claiming it is not possible to estimate load relief and hence protocol is not implementable was also filed simultaneously Prayas - EGI Workshop, Pune Nov. 2010

Prayas intervention and commission’s ruling Detail presentation based on analysis challenging the notion of inability to estimate load relief Strongly attacked utility’s unwillingness towards being accountable in its load shedding practices Commission supported views expressed and did not entertain the claims of inability to estimate load relief Commission through public process issued modified protocol which covered wider option and gave higher flexibility to utility Prayas - EGI Workshop, Pune Nov. 2010

Appellate Tribunal and load shedding committee Utility challenged commission’s order before the Appellate tribunal for electricity (ATE) inter-alia questioning commission’s jurisdiction to define such a protocol Prayas requested to be a party to the proceedings before ATE and made similar analysis based representation supporting the commission’s order ATE upheld commission’s order as well as jurisdiction in defining such protocol and suggested more consultative process for arriving at the protocol by way of forming a load shedding committee that would comprise of representatives from utility, commission, load dispatch centre and consumer representatives Prayas is a member of the committee formed in accordance with ATE judgment Prayas - EGI Workshop, Pune Nov. 2010

Impacts and lessons • Ensured commission’s jurisdiction in matters such as load shedding protocol which are directly related to utility’s accountability • Lot of data was demanded for analysing utility claims. This made the process robust and rational and ensure that any further change in protocol will be based on such data and facts • Lessons: • Intervention at all forums (in this case commission and ATE) is necessary to ensure sanctity of a given judgment/verdict Prayas - EGI Workshop, Pune Nov. 2010

Introduction to the issue • As per act forum(s) should be established by each utility for addressing consumer grievances • CGRF comprises of 2 members and chairperson • PEG intervened in the process of defining rules for CGRF demanding autonomy and independence of forum from utility’s influence. • not more that one member to be utility representative and • chairperson should not be utility representative • PEG suggestion was accepted and implemented Prayas - EGI Workshop, Pune Nov. 2010

Impacts and lessons • Recently utility filed petition seeking amendment in regulations allowing ex-utility officers to be appointed as CGRF chairperson • PEG again intervened and opposed such amendment demanding autonomy of the forum • Commission did not make any amendments • Lessons: • Need for long term sustained effort • Constant vigilance for changes that may erode effectiveness of consumer interest related provisions Prayas - EGI Workshop, Pune Nov. 2010

Issue and context • Background: • Rising load shedding and pressure for cross-subsidy reduction • Discussion at State advisory committee meeting • PEG suggested discussion on capacity addition planning to understands hurdles that utility’s face and collectively find solutions • Utilities extremely reluctant of discussion • Tendency to avoid planning accountability • Issue of capacity addition planning again raised through tariff revision process based on regulatory requirements as per regulations Prayas - EGI Workshop, Pune Nov. 2010

Tariff revision process Utility was forced to respond as demand was based on regulations Preliminary capacity addition plan was shared Meanwhile contradictory statements about load shedding were made. Lack of clarity and or credible data Tariff was revised several times the same year on account of various reasons Consumers dissatisfied and agitated Prayas - EGI Workshop, Pune Nov. 2010

Intervention Several consumer organizations came together and formulated a joint statement of demands Conferences based on joint demand agenda held at all major cities where public hearings were scheduled Signature campaign undertaken through which around thirty thousand signed applications endorsing joint demands were sent to commission and government Prayas - EGI Workshop, Pune Nov. 2010

Impacts and lessons • RC directed utility to submit comprehensive details • Enhanced accountability while approving long term agreements • Focus on rational capacity addition need • Lessons • Sustained public campaign is important • Accountability and rational actions on capacity addition – a long term agenda, sustained efforts needed Prayas - EGI Workshop, Pune Nov. 2010

Comments and discussion Prayas EGI Workshop 33 Prayas - EGI Workshop, Pune Nov. 2010

Regulatory process and TAP for public interest – case studies