Maharashtra Electricity Regulatory Commission

From the Chairman

The Maharashtra Electricity Regulatory Commission(MERC) has presented of its work over the past three years, from the time it was set up in August 1999 to March 31, 2002. These three Annual Reports, combined into one, attempt to present a comprehensive account of the Commission’s efforts to build an independent, transparent, consumer-oriented, consultative institution in line with the Objects and Reasons set out in the Electricity Regulatory Commissions(ERC)Act,1998. Since the liberalization of the economy in the early 1990s, attempts have been made to evolve a consensus that state-owned power utilities must be restructured urgently on sound commercial principles to function efficiently and provide reliable power at an affordable price to different categories of consumers. Progress on this has, however, been slow. The Government of India has now proposed radicalre forms through the Electricity Bill 2001. Independent, transparent, and professionally competent State Electricity Regulatory Commissions will have an important role to play in the power sector scenario envisaged under the Bill. But the concept of a ‘Regulatory Commission’ is new. There is little awareness and understanding its role, procedures, and powers. For historical reasons, the idea of a regulatory authority independent of the Government is difficult to understand and will take time to gain acceptance. Credibility has to be established first before one can think of acceptance.

Building Credibility

P Subrahmanyam
Our first challenge has been to build MERC’s credibility. To do this, the Commission has greatly emphasized a completely visible, transparent process through professional public hearings. This was uncharted territory. Rather than asking people to come to MumbaiorPune, we took this new institution to where the people were, holding public hearings at all six revenue division headquarters. Our goal was to create awareness about this new consumer-oriented body seeking to bring transparency in the power sector and build credibility for the commission. Public participation in these hearings was overwhelming. Every group– farmers, sugar co-operatives,
power loom operators, big industry, chambers of commerce, and trade unions- invested considerable time and effort in making presentations before the Commission. Rural and urban consumers, industry associations,
municipal and local self-governing bodies, professional associations, and public sector institutions like Indian Railways submitted presentations on key areas like tariffs, subsidies, working of public utilities, public accountability and reduction of losses. The Commission, on its part, ensured an atmosphere of openness and total transparency. It meticulously followed due process of law, giving all stakeholders– including the State Government, MSEB, other licensees, and consumers- a chance to be heard before it made its decision. The hearings were audiotaped and selectively
videotaped. The orders issued give details of the objections raised along with the responses and the Commission’s decision. The orders spell out the rationale behind every decision of the Commission. We also directed MSEB to post its affidavits and the Commission’s orders on its website to make them accessible to all.

Power of Public Involvement

In the process, the Commission has discovered the power of public involvement and the positive and constructive response it generates. During the first phase of public hearings, agricultural consumers opposed metering on various grounds. In the second phase, they agreed to the need for metering but requested time to 1 get adjusted to it. When the Commission ordered metering in the tariff order, few voices were raised in opposition. In the review petitions, there was no opposition to the metering, but a request to delay billing as per the meter, till meters were installed for all consumers in the village. This is a significant experience because the general misperception is that agricultural consumers are obstructing reform. In fact, the MERC’s experience was that agricultural consumers were agreeable to load shedding during peak hours in order to get the benefit of lower tariffs. Chandrapur 2,340 MW Super Thermal Power Station Through this process of self-imposed answer ability and accountability, we improved the quality of data brought into the public domain and helped create a database and feedback system that policy makers, consumer bodies and potential investors can rely on. MSEB has also benefited- it is setting up a real-time Management Information System that will help it become more efficient and credible.

Ethos of Maharashtra

The Commission owes a large measure of its success to the Maharashtrian ethos, which has encouraged the growth of many NGOs and consumer organizations with pioneering work in protecting the public interest. These groups strengthened the Commission’s efforts by disseminating information about MERC to their constituents and bringing consumers’ problems to MERC’sattention. Accustomed to a democratic working system within their organizations, they ensured that the Commission’s proceedings were conducted with great decorum and in a time-bound manner. In all its work, the Commission has followed two principles- transparency and gradualism. By rationalizing tariffs or reducing subsidies and transmission and distribution losses, the Commission’s principle has been no”tariff shock” to any consumer category. Every tariff movement must be in the direction of the average supply cost. The Commission believes that consumers have a right to a detailed breakdown of what they are being charged for and that cross-subsidies must be removed over five years. Meanwhile, subsidies will be separated from other charges and made transparent, and MSEB will be reimbursed by the subsidizing authority at regular intervals rather than through lumpsum payments.

Commission’s Vision

The Commission has been guided in its work by the vision of restructuring a monolithic utility, encouraging
more players and bringing about change by giving people as take in the evolving system.TheCommission’srole is not just to fix tariffs but to facilitate the creation of capable, responsible, accountable, transparent agencies
that can provide reliable energy supply to all categories of users in an efficient and economical manner, using a mix of incentives and disincentives. The Commission has a developmental role to play, restructuring the power sector to serve the people better at a cost that they can afford.
This report, under Section 36 of the Electricity Regulatory Commission Act, seeks to place before State Legislators, consumers, and other stakeholders in the power sector, and the people of Maharashtra in general, the efforts of the Commission in working towards these goals. A great deal more is required to be done, but MERC feels that a good beginning has been made.

Three Years of MERC- AReport (1999-00,2000-01,2001-02)

The Maharashtra Electricity Regulatory Commission (MERC) was established on August 5, 1999, under the
Electricity Regulatory Commissions (ERC) Act, 1998, a Central Act. This Act established the Central Electricity Regulatory Commission (CERC) and expected State Governments to set up similar commissions in their respective states. Parliament passed the Act as part of the reforms in the power sector followingtheliberalisationoftheIndianeconomyintheearly1990s.The CERC was
mandated to promote competition, efficiency, and economy in the power sector, and to regulate tariffs of the Central Government’s power plants, inter-state sale of power, and inter-state transmission. It was also authorized to issue licenses to private investors in inter-state transmission. The State Electricity Regulatory Commissions (SERCs) were mandated to do the same within their respective States in power generation, transmission and distribution and to protect the interests of consumers and other stake holders. Parliament, bypassing the ERC Act, intended that rationalization of the tariff structure through independent Electricity Regulatory Commissions and restructuring of SEBs by unbundling, or separating generation from transmission
and distribution, would bring about efficiency in each area. The main functions of the SERCs as stipulated in the Act under Section22(1) are to:
Flamingos in front of Tata Power’s Trombay Power Plant
(a) determine the tariff for electricity, wholesale, bulk, grid, or retail
(b) determinethetariffpayableforuseoftransmissionfacilities
(c) regulate power purchase and procurement process of transmission and distribution utilities, including the price at which the power will be purchased
(d) promote competition, efficiency, and economy in the activities of the electricity industry to achieve the objects and purposes of the Act Other regulatory functions under Section22(2) would be assigned to the SERCs as and when notified by the State Government (details of powers conferred and yet to be conferred in Annexures XVI & XVII on Pages 30,31).
As of March 31, 2002, SERCs had been established in 16 states, notifications for setting up SERCs had been issued in four more States, and proposals were under consideration in the rest.

MERC comes into existence

Although the MERC is the creation of an Act of Parliament of July 1998, and the State Government issued a notification in August 1998 setting up a Selection Committee for appointing the Members of the Commission, the Commission came into existence only in August 1999 as a result of a February 1999 order of the Bombay High Court.
MrVenkat Chary
Mr Jayant Deo
Member
Dr Pramod Deo
Member
Former Member
3
This followed are vision of electricity tariffs by the State Government from October 1, 1998, resulting in higher tariffs for the industrial sector while keeping tariffs in the agriculture sector unchanged. The Thane-Belapur Industries Association and the Mahad Industries Association felt aggrieved and moved the High Court, challenging the State government’s right to fix tariffs when legislation had been passed for the setting up of an Electricity Regulatory Commission. The two Associations also challenged the tendency to routinely increase industrial tariffs while
reducing agriculture tariffs.
Flue Gas Desulphurisation(FGD)
Plant at Trombay (Tata Power)
The High Court, by its order of February 26, 1999, gave the State Government six months to set up the MERC.ItorderedthatanyfurtherrevisionoftariffscouldbedoneonlybytheMERC.Itkeptthepetition
filed by the two Associations pending, and directed the Commission to be set up to examine the
October1998tariffincreaseandreportbacktoit.ThuscameintobeingtheMERConAugust5,1999.
MrPSubrahmanyam,formerChiefSecretaryofMaharashtra,wassworninasthefirstChairmanon
September21,1999.
The two Members of the Commission during the years under review were Mr Venkat Chary, former
Additional Chief Secretary (Home), Government of Maharashtra, and Mr Jayant Deo, an
independent practicing industrial engineer. Mr Chary demitted office on expiry of his term on
April 13, 2002, and Dr Pramod Deo, former Principal Secretary, Government of Maharashtra, who
has had long years of experience in the energy sector,wasappointedinhisplaceasofApril29,2002.
The Commission’s Secretaries during the years under review were:
Mr Sunil Porwal, IAS (August 1999 to November 1999)
Mr Amitabh Rajan, IAS (December 1999 to July 2001)
Mr Sanjay Kumar, IAS (July 2001 onwards)
Mr Manas Kumar Kundu is the Technical Director (May 2000 onwards)
In exerciseofthepowersvestedinitunderSection24oftheERCAct,theMERChasconstitutedinOctober2000
for three years, a State Advisory Committee to advise on policy matters concerning electricity. The
The committee includes the Chairman of MERC, the two Members, the Secretary, and representatives from the
agriculture sector, electric utilities, consumers, chambers of commerce and industry, industry associations and
professional bodies.

Lean and Efficient Infrastructure

The Commission Members were clear from the beginning that they wanted to set up a functional office that would be different from traditional setups. To be lean and efficient, the Commission also decided to outsource as much of its work as possible. Since much of the Commission’s work would require access to data and much of that data would, in turn, have to be publicly accessible,the emphasis from the start was on a good library and a computerized Local Area Network for easy access and timely information management/dissemination.
The Commission began its work first from rented premises in Atlanta at Nariman Point in south Mumbai, before it moved to its present rented premises at the World Trade Centre No.1 , CuffeParade. Efforts to find suitable space were guided by the need for an in-house conference room with appropriate facilities for public hearings and to be within easy reach of most of the electric utilities and legal firms.

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