Report R2.3 Research in Power Sector Regulation Seminar Leader: V. Ranganathan, IIM, Bangalore (ranga[at]iimb.ernet.in) One of the important developments in the business scenario of India is the shifting of some of the important sectors from the direct government control to regulated environment (quasi government control or quasi market control). Such a shift throws several challenges to the corporate world and the academic world. The economics of regulation has two aspects. Traditional theory provides guiding principles. These define the goal of economic efficiency and provide rules for achieving it. The Second deals with the relations between various institutional arrangements, market structures, systems of incentives, laws and administrative procedures. In India, the power sector regulation is in a very nascent stage, but the power sector problems are not new. Some of the questions facing us are as follows: * Is regulation an answer to the present problems of the sector? * What form of regulation is feasible? Cost-based or Performance-based? * Is it possible to ensure independence of the regulator? * How to address the information asymmetry between the regulator and the regulated enterprises? * Is there a need for regulating the regulator? The above questions lead the researcher to fundamental issues regarding the nature and effectiveness of regulation. At a deeper level they point to the "governability" of any system given the varied interests of agents and stakeholders in them. The report under discussion was a study of one of the key components of power sector reforms viz. reducing transmission and distribution losses. Information asymmetry between the regulator and the licensee was a crucial problem in this area. Since uniform methods of reporting losses are yet to evolve, the key agents have the freedom of misreporting figures to suit their motives. Thus the chief challenge to the "governability" of such complex systems is the distributed nature of the knowledge involved. Various stakeholders possess disconnected pieces of information making coordination and control by a central authority extremely difficult. Can alternate models of governance, compatible with such distributed knowledge environments emerge from research? The spirited discussion between representatives of various stakeholders of Orissa's power sector, who were present in the seminar, highlighted the complexity of issues involved in power sector regulation. What is the role of researchers in such multi-actor contexts? The Indian market scenario is vastly different from more mature economies where the mere publication of information by the regulator can spur market forces. The need for developing models that can work in such complex environments can only be satisfied by better coordination between theorists and practitioners. Reference Ranganathan, V. (2004). How to reduce T&D losses: Study for 12th Finance Commission [Draft Final Report]. Indian Institute of Management, Bangalore.
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