Market Power, Consumer Interests, Regulation and Competition in the Electricity Industry S.Sundar Professor, TERI School of Advanced Studies & Distinguished Fellow, TERI

2 The Electricity Industry-structural Issues Historically, organized as vertically integrated monopolies Current trend - competition in generation : better regulation of transmission and distribution Ultimate objective - to reduce costs and provide consumer with choice of generator and service provider

3 Restructuring Generation for Competition Restructuring does not guarantee competition Entry and contestability depend on a variety of factors Competition in generation depends on Open Access and integrity of Transcos

4 Transmission and Distribution Independent systems operator (ISO) raises governance issues. Competition in distribution and Unbundling retail prices not easy Competition to be engineered and supported by effective regulation

5 Electricity Industry- Consumer Issues Consumer satisfaction related to price, quality and retail arrangements ; Affordability and quality different for different categories of consumers Citizen’s rights and electoral issues Regulatory intervention necessary to protect consumer interest Consumers participation in regulatory proceedings - empowerment and education

6 News Headlines RWAs to fight power dictators (The Asian age, 18 th July 2005) Power aftershock: citizens on the boil (Times of India, 23 rd July 2005) RWAs demand complete rollback of power tariff hike (The Statesman, 31 st July 2005) No power tariff hike rollback: Sheila (The Hindu, 31 st July 2005) Faulty meters: stuck for 2 months (Hindustan times, 5 th august 2005)

7 Consumer Interests – Indian Law Consumer participation in proceedings Regulator to enforce standards Disco to establish Forum for redressal of grievances Ombudsman to settle complaints against Forum Relief under COPRA available in parallel

8 Electricity Act, 2003 Competition and Consumer Interest Act forward-looking- seeks to promote competition Recognizes regulator's role in promoting and maintaining competition Fails to address issues of complemntarity and consistency

9 Regulation and Competition Law in India Electricity act, 2003 empowers electricity regulator to deal with competition issues (section 60) Act does not define market dominance or prescribe thresholds for combinations Regulators not required to be guided by principles established by competition authority Neither act provides for mutual consultation Two sets of jurisprudence on competition in the electricity sector and fora shopping possible

10 Regulation and Competition Competition issues best addressed by sector regulator ? Lower thresholds for mergers? Sector regulator – narrow in vision and easy to capture?

11 Regulation and Competition Regulation not a substitute for competition ; they are complementary Regulation is a precondition for competition to unfold Advantage in having two agencies ; need for consistency

12 Ensuring Consistency Concurrency party in UK ; appeals lie to the competition commission Agreements between the two in Ireland and south Africa Competition authority in Canada to assist sector regulator Each country should adopt appropriate model

13 Conclusion Gains to consumers maximized through a combination of restructuring, regulation, competition and technological change ( parker ) Jury still out on political will to introduce competition and reform regulation

14 Thank You