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Home News Power Sector News New Power Sector Policies - From Crisis to Disaster - Page 5

New Power Sector Policies - From Crisis to Disaster - Page 5

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All experts agree that the average cost of power will first go up by 50 to 75% after privatisation, before ' they can come down. It is clear that with the current level of incomes, it will be impossible for large sections of the people to pay the resulting costs of Rs. 5 or 6 per unit for domestic and Rs. 3.00 - 3.50 per unit for agriculture. A number of countries have privatised their electricity sector and the governments have had to provide subsidies for the poorer sections in response to popular protests. Such subsidies, along with the repayment for the proposed bonds will ensure that the finances of the state government finances sink completely.

We are not raising questions here regarding what happens to electrifying rural areas, which was the raison of d'etre for the formation of the SEBs or the impact of privatisation on low-end consumers, there is little doubt that neither rural electrification nor providing power to low-end consumers will be an objective of the private distribution companies. They have already made clear that their business is to make profits for their shareholders and not fulfil any social objective. Those arguing for reforms are committing a fraud on the people by not clarifying that the Government now does not consider that it has any social obligations in the sector. The privatisation proposals and the electricity bill being introduced is thus a complete re-orientation of the sector away from its earlier objectives.

In a recent article, Montek Singh recently has written that market failure does not automatically means success of government intervention. He of course has no hesitation in arguing its converse that government failure automatically means the success of privatisation. That this is not so is brought out by the Orissa example.

California Crisis

California's attempts at de-regulating the electricity sector was hailed as a model for others of follow-both in the United States and in other parts of the World including India. The Electricity Bill 2000 clearly has the California model in mind, Recently S Gajendra Haldea, the architect of the Bill, expressed his earnest hope that after the current reforms, with the introduction of competition and a "free market" in electricity, power would be traded as easily as soap, Instead, he should listen to the words of the California Governor, Gray Davis, who, in his January 8, 2001 State address, said, "My friends, electricity is not an exotic commodity like pork bellies, to be traded in the chaotic equivalent of a futures market; electricity is a basic necessity of life".

California is currently faced with rolling blackouts, bankrupt utilities and rising electricity bills. The electricity rates for the consumers with the San Diego Gas and Electric utility jumped by as much as 240% in just one month this summer before regulatory action forced a price cap. The other areas escaped as they are operating with a fixed rate till 2001. The US Energy Secretary, Bill Richardson, on November 01, 2002 said"......California's electricity market has become dysfunctional" Five years into the uncharted territory of unbundling, competition, free market in electricity and deregulation, California's Electricity sector Section looks to be going belly-up.

What is the nature of the crisis that engulfed California last summer and now this winter? Simply put, the power generators in California held up supply during peak demand periods, leading to shortages of power. In order to meet the demand, the utilities and the Independent System Operator (responsible for maintaining the power system in California) then had to buy power on occasions at prices 20 times that of last summer. Not only did the electricity prices rise astronomically during peak demand periods, they "refused" to come down during periods of low demand, even on Sundays, the prices last summer were seven times that of 1999. Obviously , those generating power made a killing as California's purchasers paid out an estimated $ 10.9 billion more last summer for their electricity than the summer before4. The division of this amount between the utilities and consumers is the current divide. The 9% increase in the existing fixed rate regime of two utilities- Pacific Gas and Electric ( PG &E) and southern California Edison ( SCE), both threatened with bankruptcy-and other measures voted by the California legislature have been opposed by consumer groups. Further rate increases are likely to follow after PG&E filing recently for bankruptcy under chapter 11

Why did this situation come about this year and not earlier ? The genesis of this lies in the "restructuring" that California instituted under the earlier Republican Governor Pat Wilson in 1996.California's Public Utilities Commission and Legislature put in a system designed to separate electricity generation from transmission and distribution. This meant hiving of the power plants from the three major utilities in California, leaving them with transmission and distribution only. The arguments advanced were that once the generation became independent of utilities, the generators would compete amongst themselves and bring down electricity prices. For enabling such competition, a Power Exchange- on the pattern of a Sock Exchange-was created.


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