IPPAI-July 2009-X Regulatory Retreat, Goa
Regulatory Reform-An Appraisal
APPROACH PAPER OF PLANNING COMMISSION AND DRAFT BIL
BY S L Rao
TRAI was the first independent regulatory commission, soon followed by the Orissa
ERC. The ERC Act in 1998 was the comprehensive legislation that led to the creation of
the central and state commissions. Some states had their own legislation for electricity
regulatory commissions-Orissa, Haryana, Andhra, etc.
Prayas conducted the first survey of electricity regulatory commissions in 2000,
reviewed by a group consisting of EAS Sarma, Madhav Godbole and myself. It was
followed by my book “Governing Power” which was the first comprehensive review f
independent regulation in India. Navroze Dubash later studied the effectiveness of such
commissions in electricity. There were many conferences and publications including
those by Power Line, IPPAI, TERI, CUTS, CICR, and others. The Planning Commission
has now brought out its own approach paper authored by Gajendra Haldea who produced
the first eight drafts of what became the Electricity Act 2003. As is the expected from
him, it is a very thorough piece of work. The Draft Regulatory Commissions Bill
however, does not entirely adhere to the recommendations in neither the approach paper
nor the various suggestions made by the earlier works. In some respects it goes beyond
the Approach Paper.
The Prayas Report and Review
The group that reviewed the Prayas Report made comments that were repeated in most
subsequent studies of independent regulation. The following were the issues that were
raised:
1. Independence & autonomy of the ERCs
2. Empowerment of the ERCs
3. Accountability of the ERCs
4. Transparency & public participation in ERC proceedings
5. Need to enhance the quality of professional inputs for the ERCs
The review group suggested that:
 The selection committee for Members must be a standing committee so that any
delay in constituting it need not delay the selection process. Delays at every stage
with reasons, if any, will be reported by the government to the legislature.
 Selection of the members of State ERC s should be by a statutory committee
headed by a serving High Court judge nominated by the state Chief Justice,
Director of one of the IITs, the State Lok Ayukta, the chairman or a member of
the local CAT and a member of the CERC with the State Power Secretary as
convener.
 Normally, retired government officials must not be selected as members, to signal
the independence of the Commission and not more than one vacancy should be
filled by such persons.
 The Selection Committee should record a speaking order justifying their
recommendations. If for some reason government does not accept those names,
reasons must be recorded in writing.
 These documents should be placed in the public domain and reported to the
appropriate legislature.

The age limit for the appointment should be with reference to the date of
appointment rather than the date of superannuation. It should be 57 for the
members and 60 for the Chairman. In either case, there should be an assured
tenure of 5 years.
 The procedure for the removal of members should ensure prevention of political
considerations.
 There will be no second term for any member of the ERC.
 No member of a selection committee for any regulatory commission shall seek
appointment as chairman or a member of any of the regulatory commissions.
 The procedures for selecting members of the CERC will be similar to those
suggested for the SERCs, headed by a serving Supreme Court judge nominated by
the CJI.
 The oath of Chairmen of some ERCs must be administered by the Governor and
of CERC, by the President.
 To provide financial autonomy to the ERCs, a separate fund should be instituted
to finance the expenditure of the ERC, raised through the levy of a cess on
electricity. The outflows from the fund should be finalized through a discussion
between the chairman of the ERC and the Finance Secretary. This procedure will
be adopted for any funding from external source for technical assistance to the
ERCs.
 The ERCs should have the authority to fund in-house consumer advocacy,
promotion of consumer organizations and professional consulting support for the
ERC.
 There should be no statutory provision for the government to issue directives to
the ERCs.
 All the regulatory, licensing and other related powers must be incorporated as
inherent powers of the ERCs and not subject to government discretion.
 On all major initiatives for restructuring the electricity industry in the Centre or
the State the concerned ERC should be statutorily consulted.
 The primary accountability of the ERCs should be to the Parliament or the
concerned State legislature. The ERCs should place their Annual Reports before
the concerned legislature within the prescribed time limit. It should explicitly
disclose the number of public hearings held, the orders pronounced and their
implementation by the concerned government, the directives issued by the
government either under the statute or otherwise and the views of the ERC
thereon, the administrative and financial constraints imposed by the government
on their functioning, and disclose the decisions, statements or announcements of
the government on matters that are essentially within the domain of the ERC or
such other decisions that tend to preempt the decisions of the ERC.
 .The CAG would audit only the expenditure of the ERC.
recommendations listed above will go a long way in promoting transparency of the
functioning of the ERCs. In addition, the following measures may also be desirable.
 The Annual Report of the ERC should be made public as soon as it has been
presented to the legislature.

All proceedings of the ERCs should be translated into local languages and made
available to the public, if necessary, by suitably pricing them and through
publication on the web.
 All ERC orders should be circulated to the print media, especially in local
languages.
 The SERCs should hold public hearings at district headquarters by rotation.
 The government should formulate a scheme to fund consumer organizations and
provide for their training.
 The ERCs should institute consumer advocates to argue for consumers wherever
needed.
 CERC should take the lead in bringing out a regulatory law digest for the benefit
of the ERCs, lawyers and the public.
 The government should have an open mind for suggestions from the public on the
functioning of the ERCs.
Approach Paper of the Planning Commisison
Since many such independent regulatory bodies have been created or proposed to
be created, the Planning Commission saw a need to bring them under s common
format. As the paper says it wished to deal with the “somewhat haphazard and uneven
approach to regulation across and within the different sectors of the economy
resulting in inadequate and expensive reform”.
It sees regulation as an “effort by the state to address social risk, market failure and
equity concerns through rule based direction of social and individual action”.
It provides a summary of the situation on the various infrastructure sectors,
which are the ones to which the draft bill applies:
1. ROADS: There is no regulatory authority and the NHAI acts as one.
2. RAILWAYS: The Railways are both operator and regulator.
3. AIRPORTS: The AAI is operator and regulator of airports; and the DGCA along
with the Bureau of Civil Aviation Securit is responsible for safety and technical
aspects.
4. PORTS: There is no recourse, or performance standards, or consumer protection
or competition. TAMP has limited authority n determining tariffs for major ports.
5. ENERGY: There is no energy sector regulator.
6. POWER: ERC’s exist in almost all states and at the centre.
7. OIL & GAS: The Petroleum & Natural Gas Regulatory Board regulates refining,
processing, stotage, transportation, distribution and marketing od petroleum
products.
8. COAL: The Ministry owns the operators, the coal companies, and regulates.
There is now a proposal t create an independent regulator.
9. BROADCASTING: There is presently no regulatory authority for broadcast and
tv.
10. CABLE TV: There is a proposal for regulating carriage and content.
11. TELECOM & INTENET: TRAI is the regulator
12. COMMUNICATION: A Draft is in circulation for creating a sectoral regulator to
promote, facilitate and develop carriage and content of communications
(broadcast, telecom, and multimedia)
13. WATER SUPPLY & SANITATION: There is no regulatory authority.
CENTRAL GROUND WATER AUTHORITY exists for control of ground water,
pollution control and protect environment.
The social sector is lacking in any independent and transparent regulation
and needs to have similar legislation. Higher and professional education are
regulated by the ‘autonomous’ UGC and AICTE; while self-regulatory bodies
with statutory authority regulate others-ICAI, ICWA, ICSI, Medical Council of
India, etc. They are poor at enforcement while licensing through recognition is in
many cases believed to be lacking in standards. Capitation fees are common and
not prevented. Quality in many educational institutions is suspect. A Higher
Education authority is to replace them.
Sports are self-regulated by autonomous associations, though their statutory
situation is unclear. Sports also need the transparency and accountability as
for the infrastructure sectors.
APPROACH PAPER AND DRAFT BILL-mostly converging but some
changes required
The Draft Bill is for regulatory commissions for public utilities, for their
development, determination of tariffs, enforcement of performance standards,
promoting investment and competition, protecting interests of consumers. It
covers only infrastructure. The Bill must be extended to the social
infrastructure.
1. Separation of Powers: The paper makes the good point of the need to separate
at least one off the three powers from regulatory bodies from among
legislative, executive and judiciary. It suggests that adjudication of disputes
might be left with an appellate tribunal as has been done with TRAI ad ERCs
(as with SEBI and the CCI). The Bill has taken this suggestion.
2. Accountability: It proposes that there be legislative oversight directly or
through legislative committees. This is to be achieved through periodic reports
to contain rules, regulations and notifications; summaries of provisional and
final orders, with compliance status; disclosing methodology for inviting
public opinion on important matters; recommendations made to government.
The Bill follows the approach paper. The Bill has this provision. However,
the Bill wants Commissions to submit annual plans to government. This
could compromise their independence.
3. Federal Principle: This is best seen with TRAI (a central regulator for a
central subject) and ERC’s with central and state regulators (concurrent
subject). It suggests a common policy approach between central and state
regulators, uniform enforcement, and a central knowledge bank.
4. Uniform Regulatory Framework: Presently different bodies have varying
scopes and powers. The Bill goes into this in detail by detailing functions.
Selection committees and qualifications of members are specified for some,
not for others; terms vary between 3 to 5 years. This is discussed in 7 below.
The Paper says Appellate Tribunals are there only for power and telecom and
that there must be distinction between two elements in each sectorcompetitive and non-competitive.
5. Objectives: The Paper suggests common objectives: develop the infrastructure
sector; enable competition; protect consumer interests.
6. Functions: In sectoral regulation, to promote competition, efficiency of
operations and capital employed, achieve rapid growth, enable equity of
access and geographical dispersion of services.
7. Powers: It suggests that all regulators should make regulations, issue licenses,
set performance standards, determine tariffs, have powers to enforce their
regulations, lay down licensing conditions, take punitive measures including
suspension or cancellation of licenses in case of violation. It lays down
detailed provisions for licensing.
8. Selection: The President must appoint members on the recommendation of
the Prime Minister on the recommendations of a High Power Committee;
(Chief Minister and Governor in states). The Bill proposes a selection
Committee consisting of the Cabinet Secretary, a UPSC member, outgoing
Chair or senior member of the regulatory commission and the Secretary of the
concerned Ministry. It lays down a term of 4 years, and no reappointment. It
bans commercial employment in a related area for two years. It deducts
pension or other benefits form salary. These provisions do not match the
approach paper, and certainly not the Prayas group’s recommendations.
The Selection committee proposed is packed with bureaucrats and needs
to be made more representative of the community. A term of 5 yeas with
no reappointment is better. Deducting pension and other benefits from
salary for government servants as is the case today is itself wrong. This is
now extended to all. It debars commercial employment for two years and
will deter people from the sector who have no other expertise, from
applying. With these rules, no one from outside government will apply.
9. Budget and Funds: To be examined by a Parliamentary committee. The
Commission will have independence on number of and compensations to
staff, with discretion to appoint contract staff for three years on market
determined compensation. The Bill supports these suggestions.
10. Audit: The Bill specifically excludes CAG from policy review of regulatory
decisions and orders.The interference by CAG in telecom tariffs as a loss to
government revenues cannot now recur.
11. Policy Directives: They should be general and not specific regarding decisions
and issued with Cabinet approval, only after consultations with Commission
and available to all. The Bill supports this.
12. Investigation and Enforcement: The Bill provides for this on representation
but it must allow Commissions suo moto powers.
13. Relations with CCI: Commission Members might participate in decision
making process of the other; each has the right to intervene; give each body
precise roles in any industry but the Bill has no such provision. The Bill also
says that the Commission must prevent market domination, cartelization, anticompetitive behaviour, and promote orderly growth of the industry. The Bill
is thus clear that it is the Regulatory Commission’s discretion to refer where
necessary, relevant matters to CCI for opinion, investigation, or adjudication
of disputes.
14. Other Regulators; It suggests a single regulator for all utilities in a state while
the Centre should have multi-sector regulation. The Bill has detailed
provisions that go beyond the approach paper.
a) Open Access; It defines it and lays it down specifically in the section on
Functions. down
b) Unfair Trade Practice is defined as per Section 36 a of the MRTP or substitute
thereof. It protects the CCI’s powers.
c) Tariffs: It confines the determination of tariffs for a public utility industry
where competition is restricted or prices are determined by government or its
entity.
d) Mergers: It enables merger of two regulatory commissions or appellate
tribunals. To enable public utility commissions on multi sectoral basis there
should be no number limit.
e) Consumer protection: The Bill has a whole chapter (Part VII) on this subject.
It however does not mention a Consumer Advocate funded by the
Commission.
f) Procedures: Section 26(3)provides specifically that before issuing an Order
the Commission will issue notice it proposed to do so, and state the provisions
and effects. The Draft Orders before finalization for comment are
welcome.
g) National Advisory Committee: The Bill gives a clear role to this NAC in each
Commission. It will consider policy, quality of service, compliance by
licensees, and protection of consumer interest. The annual report to the
legislature will also report on the NAC.
CONCLUSION
The Approach Paper marks a great advance on existing legislation for regulatory
commissions. The Draft Bill is an advance over the present Acts and a good model for
the new commissions to come. Some changes as suggested would make the Bill even
better.