67

CHAPTER III
PROFILING POWER SECTOR IN PUNJAB
As stated in chapter one the main objective of the study is to examine
the technical and financial performance of power sector in Punjab. It is
proposed to assess the outcomes of restructuring process initiated in the
power sector. Therefore, it is imperative to present an overview of the power
scenario in Punjab and high light key reform measures initiated as a part of
restructuring process in the state.
In this Chapter, main features and the profile of the power supply
system in Punjab are presented. It also highlights the power sector reforms
undertaken in Punjab as a part of overall power sector reforms in the
country. The Chapter is divided into two sections. Section III.1 provides an
overall profile of the power sector in the state of Punjab. Key economic
parameters such as growth in the installed generating capacity, consumer
profile such as number of consumers and their relative shares in
consumption have been highlighted. Section III.2 highlights the key steps
undertaken in the reforms process. An overview of the different institutions
created during the reform process has been provided.

68

III.1 Electricity Generation System:

The state has developed a large generating capacity in order to boost its
economic development. Currently (on March 30, 2011), the total installed
generating capacity dedicated to the state is estimated to be 7035 MW.
Consequently, per capita availability of power has increased substantially. The
per capita consumption of power was 1663 Kwh for the FY 2009-10, which is
one of the largest in the country. A profile of the installed generation capacity is
presented in the Table 3.1. The dedicated capacity to the state mainly includes
thermal and hydropower.
Table 3.1: Generation Capacity Available to Punjab
Source of Power

(as on 30.06.2011)
Installed Capacity
(MW)

A.

State Owned
i) Hydropower Capacity
ii) Thermal Power Capacity
Total state owned (i+ii)
B
Central Power Undertakings
(NTPC and NHPC)
C
Share in BBMB operated plants
D
Cogeneration (including private)
Total (A+B+C+D)
Source: (i) PSPCL, Basic Statistics, (www.pspcl.in)

1000
2620
3620
1973
1258
184
7035

It is shown in the Table 3.1. Apart from the power plants owned by the
state, it sources power from the central power undertakings such as National
Thermal Power Corporation (NTPC), National Hydro Power Corporation

69

(NHPC) and Nuclear Power Corporation. All the thermal power stations owned
by the state are based on the coal as a source of fuel. The state does not have
any potential for the production of coal within the state territory. So, it has to
import the coal from other states such as Jharkhand, Chhattisgarh, Madhya
Pradesh, etc. Apart from the hydropower capacity owned by the state; it has a
dedicated share in the plants maintained and operated by Bhakra Beas
Management Board (BBMB). The plant wise details on the installed generation
capacity are given in the Table 3.2.
Table 3.2: Plant Wise Details of the Installed Capacity (in MW)

HYDROPOER

Capacity Type
Capacity Details
Installed Capacity
A. Hydropower Project
Shanan PHs
4X 15+1X50=110.00
110.00
Upper Bari Doab Canal, 3X15+3X15.45 =91.35
91.35
Pathankot
Mukerian
6X15+6X19.5=207.00
207.00
Anandpur Sahib
4X33.5=134.00
134.00
Ranjit Sagar Dam
4X150=600.00
452.40
Nadampur Micro
2X0.4=0.80
0.80
Daudhar Micro
3X0.5=1.50
1.50
Rohti Micro
2X0.4=0.80
0.80
Thuhi Micro
2X0.4=0.80
0.80
GGSSTP ROPAR(micro)
2x0.85
1.70
Sub total A. (Hydro)
1000.35
B. Thermal Power
GNDTP, BATHINDA
4X110 =440.00
440.00
GGSSTP, ROPAR
6X210 =1260.00
1260.00
GHTP,Lehra Mohabat
2x210+2x250=920.00
920.00
Sub total B. (Thermal)
2620.00
Grand Total (A+B)
3620.35
Source, website of PSPCL (visited on 04.08.2012)
Thermal

70

Another important issue is hydro-thermal mix in the generation capacity.

Initially, the relative share hydropower was higher in the total generation
capacity. However, the same ratio of fuel-mix could not be maintained over the
time. Since the development of hydropower is limited by its potential in the
state, the dependency on the thermal power stations has increased over the
time. Consequently, the relative share of thermal power has increased
significantly.
As it is shown in the Table 3.3, the relative share of thermal power in the
total capacity owned by the state has increased from 42% in 1990-91 to 72% in
2010-11. It may be noted that state is also taking steps to increase installed
renewable power in the states. As per directions given in the National
Electricity Policy (2005), the state has to ensure 10% of its power procurement
from the renewable energy sources.
Table 3.3: Thermal-Hydro Mix in Installed Capacity Owned by the
State
(Capacity in MW as on 30.06.2011)
Source (Fuel Type)
1990-91
1998-99
2010-11
Thermal

1280 (42)

2130 (54)

2620 (72)

Hydro

1769 (58)

1799 (46)

1000 (28)

Total State Capacity

3049 (100)

3929 (100)

3620 (100)

Source: Central Electricity Authority, Monthly Reports (various issues)

71

The total energy generation from the thermal and hydro sources is
detailed in the Table 3.4.
Table 3.4: Power Generation from Hydro and Thermal Sources
(Million Units)

Year
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
LSGR*
1990-91 to 2008-09

Thermal
5939 (41)
5934 (40)
7105(45)
8854 (54)
8439 (49)
8232 (49)
9778(53)
10274 (57)
10914(52)
13831 (61)
14457 (64)
14669(64)
13650 (61)
14236 (59)
14384 (66)
14834 (59)
15435 (64)
16457(65)
18066(67)
6.06%

Hydro
8679 (59)
8742 (60)
8613(55)
7468 (46)
8736(51)
8667(51)
8677(47)
7626(43)
9966(48)
8732(39)
7977(36)
8334(36)
8691(39)
9812 (41)
7293 (34)
10414(41)
8673(36)
9044(35)
8785(33)
0.35%

Total
14618 (100)
14677 (100)
15718 (100)
16322 (100)
17175 (100)
16899 (100)
18455 (100)
17900 (100)
20880 (100)
22563 (100)
22434 (100)
23003 (100)
22341 (100)
24048 (100)
21678 (100)
25248 (100)
24107 (100)
25501 (100)
26851 (100)
3.43%

Source: Centre for Monitoring of India Economy (CMIE) and Power Finance
Corporation Report, 2010
* LSGR: Least Square Growth Rate
The figures in brackets represent the relative share of the fuel source in the respective
years

Thermal power generation has increased over time at a much higher

growth rate than the hydro power. This was because of relatively more
capacity additions at the thermal power stations. It is shown in the Table 3.4
that the relative share of thermal power generation has increased from 41%

72

in 1990-91 to 67% in 2008-09. At the same time, the share of hydropower

generation has declined from 59% to 33% during this period. Overall growth
rate (Least Square Growth Rate) of power generation was 3.43 per cent per
annum from the FY 1990-91 to FY 2008-09. Growth in the thermal power
generation which was reported to be 6.06% for this time period was the main
factor responsible for this overall growth of generation of power. The
growth rate for hydro generation was just 0.35% that reflected a slow
growth.
It may be noted that hydropower stations include power generated
from the plants operated by Bhakra Beas Management Board (BBMB),
which is the utility shared by the states of Punjab, Haryana, Himachal
Pradesh and Rajasthan. The average power purchase cost is determined by
estimating the energy available and cost of power purchased from various
internal as well external sources. The relative shares of electricity available
from various sources as approved by the Punjab State Electricity Regulatory
Commission (PSERC) are presented in the Table 3.5
The Table 3.5 brings out that thermal power plants were the major
source of electricity supply in the state. The share of hydropower including
the energy received from BBMB sources was estimated to be 19% of the
total power generated. The commission also approved 16544 MU to be

73

purchased from Outside sources such as Central Power Undertakings such as

NTPC, NHPC etc.
Table 3.5: Overall Power Availability in Punjab
(Million Units, 2012-13)
Sr. No
Station
Energy
Percentage Share
Available
of total
1.
Thermal Station
18229
43%
2.
Hydel Stations
3902
9%
3.=1+2
Availability from owned
22131
sources
52%
4.
Sourced from BBMB
4210
10%
5.=2+4
Total Hydro
8112
19%
6.
Outside purchase (other
16544
than BBMB)
39%
7.=3+4+6 Total Availability
42885
100%
Source: Tariff Order Passed by PSERC for the FY 2012-13 (Pg 67)
Therefore, about 49% (including BBMB) of the total energy was
approved from the outside sources. The out of state purchase included
energy from various sources such as thermal, hydro, nuclear etc. It implies
that the cost of power purchased from outside plants was beyond the control
of power utilities of Punjab. The cost of power purchased from these sources
was worked out as per rates approved by Central Electricity Regulatory
Commission (CERC).
The power availability in Punjab has increased significantly. In
comparison to many other states, per capita consumption of power in Punjab
has increased rapidly. Currently, the per capita consumption of power in

74

Punjab is one of the highest in the country. Per capita consumption of power
in various states is given in Figure 3.1.

Figure 3.1: Per capita Consumption of

eletricity in 2009-10 (Khw)
1663

Punjab

1559

Gujarat

1491

Haryana

838

Orissa

779

All India Average

751

Jharkhand

515

West Bengal

387

Uttar Pradesh
Bihar

118

Source: Press Information Bureau, Government of India (www.pib.nic.in)

As shown in the Figure 3.1 per capital availability in Punjab was

highest among the selected states. The Per capita consumption of electricity
was reported to be 1663 Kwh in Punjab against the national average of 779
Khw in the FY 2009-10. The per capita consumption of some other states
such as Gujarat, Haryana, etc. is also higher than the national average.
However, per capita availability in Punjab is highest in the country.
Moreover, the availability in Punjab is about two times of the national
average. Therefore, it shows that Punjab is on the higher side of the per
capita consumption of power.

75

However, despite the improve growth in per capita consumption of

electricity, the state continue as power deficit state. Due to rapid
industrialization and mechanization of agricultural activities sector, the
demand for power has increased. Consequently, the state still remains as
power deficit state. In the recent times, the shortage of power in the state has
increased rapidly. The demand supply scenario in the state is given in the
Table 3.6 as projected by Central Electricity Authority (CEA).
Table 3.6: Electricity Demand and Supply Scenario in Punjab
Year

Energy

Peak Demand

Available

Demand

Deficit

Demand

Demand

Deficit

(MU)

(MU)

(%)

Met (MW)

(MW)

(%)

2001-02

27577

28780

4.2

4936

5420

8.9

2002-03

28313

30082

5.9

5455

5849

6.7

2003-04

30520

31420

2.9

5622

5922

5.1

2004-05

30383

33393

9.0

5559

7122

21.9

2005-06

32591

35682

8.7

6158

7731

20.3

2006-07

34839

38641

9.8

6558

8971

26.9

2007-08

38795

42372

8.4

7340

8672

15.4

2008-09

37238

41635

10.6

7309

8690

15.9

2009-10

39408

45731

13.8

7407

9786

24.3

Source: Central Electricity Authority, Monthly Reports (various issues)

It is shown in the Table 3.6 that since 2001-02, the gap between
demand and supply has increased rapidly. In 2001-02, the energy and peak
demand deficits were reported as 4.2% and 8.9 % which increased to 13.4%
and 24.3% respectively in 2009-10. The widening demand-supply gap is due

76

to low investment in the generation segment at the state as well central

levels. Another important reason for this was the rapidly increasing demand
for electricity across various sectors. In the FY 2009-10, the energy as well
as peak shortages were reported at the highest levels, i. e. 13.8% and 24.3%
respectively.
It may be noted that the Punjab State Electricity Board (PSEB) and
the successor utility (PSPCL) made the demand projections on the basis of
power availability in the state. No estimates were made about the actual peak
and energy demand. It was assumed whatsoever power is available would be
consumed in the state across various sectors. Therefore, given that the
demand for electricity is increasing at a very high growth rate, there is an
urgent need to boost the capacity addition programmes. For this purpose, the
government may also promote private investment in the generation sector so
that installed capacity is increased adequately.

77

Sale of Energy to Consumers

The electricity distribution company of Punjab is selling energy to various
consumers which are grouped into various categories such as domestic,
commercial, agricultural, industrial and other consumers. The sale of power
to various consumer categories is given in the Table 3.7
Table 3.7: Consumption of Energy by Various Consumer Categories
(Million Khw)
Year

Domestic

Commercial

Agriculture

Industry

Total*

1980-81

497

139

1850

2355

5197

1990-91

1621

326

5096

4471

12654

2000-01

4224

911

5534

7898

20220

2010-11

7187

2111

10505

10996

32698

ACGR**

10%

10%

6%

5%

7%

* Total Sale also includes sale to other states, Indian Railways etc.
** Annual Compound Growth Rate for the period 1980-81 to 2009-10
Source: Energy (March 2012), Centre for monitoring Indian Economy
As it is shown in the Table 3.7, the overall growth in sale was reported
as 7% during the period from 1980-81 to 2010-11. While the consumption of
domestic and commercial categories have increased at a growth rate of 10%.
Another important issue is the changes in the relative shares of consumption
made by various consumer categories. The consumption pattern giving

78

details on the relative shares of various consumer categories is presented in

Table 3.8.
Table 3.8: Relative Shares in Total Consumption of Electricity
Year

Domestic

Commercial

Agriculture

Industry

Total*

1980-81

10%

3%

36%

45%

100%

1990-91

13%

3%

40%

35%

100%

2000-01

21%

5%

27%

39%

100%

2010-11

22%

6%

32%

34%

100%

* Total Sale also includes sale to other states, Indian Railways etc.

Table 3.8 shows that the relative shares of domestic as well as

commercial consumer categories have increased more rapidly than that of
other consumer categories. The relative share of domestic consumers has
increased from 10% in 1980-81 to 22% in 2010-11. Similarly, the relative
share of commercial consumers has increased from 3% in 1980-81 to 6% in
2009-10. For both of these categories, the increase in the relative shares is
almost double of the level in 1980-81. The relative share of agriculture
sector is showing more fluctuations in the relative shares. It was about one
third of the total consumption of power in the state in the FY 2010-11.
Moreover, the relative share of the industrial category has decreased from
45% in 1980-81 to 34% in 2009-10. The pattern of relative shares in total

79

consumption of power across various consumer categories depends upon the

overall structural changes in the economy. Another important reason is the
poor metering of the power supply to agriculture sector. Most of the
electricity supply to agriculture sector was un-metered. Therefore, the data
on consumption and their relative shares were not very reliable.

III.2 Power Sector Reforms in Punjab

The Punjab State Electricity Board (PSEB) was constituted as an
integrated power utility under the Electricity (Supply) Act 1948. It continued
discharging the generation, transmission and distribution functions until the
reforms initiative were undertaken in the state. Like many other SEBs, the
technical and financial performance of PSEB was not very much satisfactory
in the pre-reforms period. Moreover, the provision of free power supply
made available to farm sector further deteriorated the financial health of
PSEB. Poor operational performance one of the major internal factors
responsible for initiating power sector reforms. Another important reason
was the role played by various international agencies such as World Bank
started motivating various states to initiate power sector restructuring. Orissa
was the first state which initiated the power sector restructuring in the
distribution segment. Orissa State Electricity Board (OSEB) was unbundled

80

into separate generation, transmission and distribution companies in 1996.

Moreover, it also privatized the electricity distribution business in the state.
Then, some other states such as Haryana, Andhra Pradesh etc., started power
sector restructuring process. Most of the states only unbundled the SEBs but
did not privatize the distribution business. In the same process, the
Government of Punjab also started taking steps in order to initiate the power
reforms process at the state level. It constituted an Expert Group to suggest a
suitable roadmap for power sector reforms process. In the next section some
of the main findings made by Expert Groups have been highlighted.
Report of the Expert Group on Power Reforms
Constitution of the expert group on power sector reforms was the first
step in order to undertake the power sector restructuring at the state level.
The government of Punjab constituted an expert group in the chairmanship
of Sh. Gajendra Haldea comprising ten members in 2002. The main
objective of the task assigned to the Expert Group was to suggest a suitable
restructuring strategy for the power sector. Overall, the Expert Group was
required to focus on the following restructuring measures:
Industrial structure (of power sector)
Legal and Regulatory Issues
Financial matters

81

Capacity Addition Programmes

Role and Participation of stakeholders
Need and Means for Generating Public Awareness
The Expert Group reviewed the overall power scenario in Punjab and
draw some lessons from the experience of other state which were already
initiating the power sector reforms. The main findings and recommendations
made by the Expert Group are summarized below1:
Technical and financial Performance: The level of transmission and
distribution (T&D) losses were very high in the state. The reported losses
were more than 27% of the total electricity available in the state (Page 18).
The Group observed that the T&D losses of PSEB were higher because of
the theft of power at large scale. It stated that some of the power theft was
taking place with the connivance of distribution staff of the Punjab State
Electricity Board. (Page 10 of the report).
Irrational Tariff Structure: It was concluded that the existing electricity
tariff in Punjab was significantly lower than the cost of supplying power.
The electricity tariff applicable to household and agricultural consumers was
highly subsidized (the relationship between cost of supply and revenue is
examined in the next chapter). Consequently, the revenue gap increased
1

Report of the Expert Group on Power Sector Reforms in Punjab (Chairman-Sh. Gajendra Haldea),
Submitted to Government of Punjab, March 2003.

82

considerably. Moreover, the subsidy paid by the state government was not
adequate to bridge the revue gap of the PSEB on account of power supply to
agriculture sector. Consequently, the commercial losses (including the
subsidy received from the government) increased from Rs. 392 Crore in
1998-99 to Rs. 1316 crore in 2001-02. (Page 30, Annexure 1)
Unbundling and open access: The group suggested that unbundling of the
PSEB is a must to promote competition in the power sector. It was suggested
that after the separation of transmission business from the other segments, it
is possible to promote competition in the power sector. However, open
access to the transmission and distribution network is the essential
requirement for promoting competition in the sector. It was suggested that
the open access would be helpful in promoting competition in the wholesale
as well as retail electricity markets. (page 37)
Transparent and accountable regulatory mechanism: The group
remarked that the regulatory mechanism should be independent of
government to depoliticize the decision-making process in the power sector.
It was suggested that the regulatory decision-making process should be
transparent and open to public for participation. The Regulatory
Commission

should

make

decisions

on

various

issues

involving

stakeholders. Various institutions such as Panchayats, rural cooperatives,

83

consumers associations, employees of the Board, etc. may play crucial in the
process of establishing a credible and efficient regulatory mechanism (Page
100).
Unbundling of Punjab State Electricity Board
The expert group also made some state specific suggestions to speed
up the reforms process in the power sector. However, most of the
recommendations made by group could not be implemented because of two
reasons. One, by the time the report was presented for discussion, the
Electricity Act 2003 was enacted by the Government of India. Secondly,
there was an internal oppose to the whole restructuring process being
initiated in Punjab. As per MoU signed by the Government of Punjab, the
Punjab State Electricity Board (PSEB) was to be unbundled under the
provisions of the Electricity Act 2003. Some of the stakeholders such as the
employee unions of PSEB had been opposing unbundling of the Board.
Therefore, the PSEB could not be unbundled in the early stage as it was
done by Orissa in 1996 and Haryana in 1998. Ultimately, the state
government had to unbundle the PSEB into separate generation,
transmission and distribution companies on 16.04.2010. The major
milestones of power sector reforms in Punjab are given in Box 3.1.

84

Box 3.1: Milestones in Power Sector Reforms in Punjab

Sr.
No
1
2
3

4
5
6
7
8
9

Key Development

Date

The Punjab State Electricity Board (PSEB) was a

statutory body formed
Re-organization of the erstwhile State of Punjab
under the Punjab Re-organization Act 1966
PSERC was constituted under the provisions of
Electricity Regulatory Commissions Act,1998
MoU on power sector reforms signed between
Ministry of Power, Govt of India and Govt of Punjab
The Commission passed its first (tetail) tariff order on
the proposal of PSEB
Submission of the Report of the Expert Group on
Power Sector Reforms (Gajendra Haldea Report)
Punjab State Electricity Regulatory Commission
(Conduct of Business) Regulations, 2005
Punjab State Electricity Regulatory Commission
(Forum and Ombudsman) Regulations, 2005.
Unbundling of Punjab State Electricity Board (PSEB)
PSPCL filed its first ARR Petition for FY 2011-12

Feb 01, 1959

May 01, 1967
March 3, 1999
March 30, 2001
Sept 6, 2002
March 06, 2003
March 07, 2005
Aug. 17, 2005
April 16, 2010
Nov 30, 2010

As it is shown in the Box, unbundling of PSEB was postponed up to

April 2010. By this time, PSEB continued discharging the generation,
transmission and distribution functions in a integrated system. The Govt. of
Punjab vide its notification dated 16.4.2010 issued the Punjab Power Sector
Reforms and Transfer Scheme, 2010 and has notified two successor entities
of the erstwhile PSEB. The following two companies have been
incorporated as a part of unbundling of PSEB.
Punjab State Power Corporation Limited (PSPCL)

85

Punjab State Transmission Corporation Limited (PSTCL)

The Punjab State Power Corporation Limited (PSPCL) is one of the
successor entities and is entrusted with the functions of generation,
distribution, wheeling and retail supply of electricity in the state. The other
successor entity, the Punjab State Transmission Corporation Limited
(PSTCL) is assigned with the functions of transmission of electricity in the
state, including functions of State Load Dispatch Centre (SLDC). It may be
noted that the state of Punjab has not done the unbundling of PSEB in the
same order as it was done by most of the states such as Haryana, Rajasthan,
Gujarat, Maharashtra etc. In these states, there was a complete unbundling of
generation, transmission and distribution segments. Further, more than one
distribution companies were created dividing the distribution business
horizontally. However, in Punjab only the transmission company has
separated. The generation and distribution functions are being discharged by
the Punjab State Power Corporation Limited (PSPCL).
Therefore, there was a gap of about one decade between the
establishment of regulatory commission and unbundling of PSEB. The
Government of Punjab established regulatory commission because it was
mandatory under the provisions of The Electricity Regulatory Commission
Act 1998. At the same time, the state government also liked to give a

86

positive signal to potential investors about the reforms initiatives being

implemented.
Establishment of Punjab State Regulatory Commission
The Punjab State Electricity Regulatory Commission (PSERC) was
established on 31.3.1999 under the provisions of the Electricity Regulatory
Commissions Act, 1998, a Central Act which was superseded by the
Electricity Act, 2003. The Commission is assigned various functions, such
as determination of tariff for generation, transmission and wheeling of
electricity, supply to wholesale, bulk or retail consumers etc. Under Section
86 of the Electricity Act 2003 the followings are the functions of SERC i. e.
PSERC.
To determine the tariff for generation, supply, transmission and
wheeling of electricity, wholesale, bulk or retail, at the State level. It
was only provided that once open access has been permitted to a
category of consumers under section 42 of the Electricity Act 2003
(the Act), the State Commission shall determine only the wheeling
charges and surcharge thereon, if any, for the said category of
consumers.
To regulate the purchase of electricity and procurement process to be
followed distribution licensees. It includes short term purchases of

87

power and other purchases being made under various Power Purchase
Agreements (PPAs).
To facilitate the intra-state transmission and wheeling of electricity.
To issue licences for the purpose of transmission, distribution and
trading of electricity within the jurisdiction of the state.
To promote congenration and generation of electricity from renewable
sources of energy by providing suitable measures for connectivity
with the grid for the purpose of sale of electricity to any person. The
state commission will also specify a minimum purchase of electricity
from renewable energy.
To adjudicate upon the disputes between the licensees, and generating
companies.
To specify and levy fee for the purposes of this Act for various
purpose.
To specify State Grid Code consistent with the (Central) Grid Code as
specified by Central Electricity Regulatory Commission (CERC)
under the provisions of the Electricity Act 2003.
To specify and enforce standards with respect to quality, continuity
and reliability of service by licensees;

88

To fix the trading margin in the intra-state trading of electricity if the

same is considered as desirable by the Commission.
To advise the state government on various policy matters from time to
time.
It was also mentioned in the Act that the State Commission shall
ensure transparency while exercising its powers and discharging its
functions. In discharging its functions, the State Commission shall be
guided by the National Electricity Policy, National Electricity Plan and
Electricity Tariff Policy issued by Government of India in consultation
with various stakeholders.
Therefore, among the major functions of the PSERC include
regulation of generation, transmission and distribution tariff. It has to make a
balance between the interests of consumers and utilities promoting economic
efficiency in the sector.
Regulation of Electricity Tariff
Regulation of electricity tariff is a major task assigned to PSERC. There
are various methods available for tariff regulation. Performance based
regulation, price cap regulation and rate of return regulation method are the
methods commonly used by utility regulators across various countries. Most
of the Indian states have adopted the rate of return method for the purpose of
tariff regulation. Under this method, Annual revenue requirement is

89

estimated on the basis of expected expenses in the ensuing year and a

reasonable rate of return on the capital invested in the business. Like other
Electricity Regulatory Commissions, PSERC has adopted Rate of Return
(RoR) approach for the regulation of power tariff in the state.
As per requirement, the Punjab State Power Corporation Limited
(PSPCL) is required to make ex-ante proposals of the revenue requirement
and get it approved from the regulator on periodical basis. Theoretically,
there should be no significant difference between the cost approved by the
Commission and the actual cost incurred by the utilities. However, this was
not a reality for most of the times in power sector of Punjab. Many times,
there were significant differences between the actual performance of PSEB
and the targets fixed by the PSERC. Therefore, the Commission had to
initiate true-up exercises almost every year to make adjustments between the
approved amounts and actual performance made by the Company.

Public Participation
The Electricity Act 2003 and National Electricity Policy require that
the regulatory mechanism should be more transparent and accountable.
Therefore, the Punjab State Electricity Regulatory Commission (PSERC)
has followed a transparent decision making process. Before issuing various
orders, the Commission invites various stakeholders to present their view on

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the proposal under consideration. For this purpose, public notices are issued
in the daily newspapers for the wider dissemination of various proposals
such as Annual Revenue Requirement (ARR) and tariff applications. At the
same time, the transmission as well as distribution companies are required to
make available the copies of the proposals for public consultation at
different places in the state. The companies are required to respond in
writing to the queries and comments made by various stakeholders on the
tariff and other proposal. Then, the PSERC holds public hearing providing
an opportunity to various stakeholders to make a oral presentation if desired
by them. It was proved that holding of public hearing was very effective
mechanism in making the process to be more Transparent and Accountable
and Participatory (TAP). It was noted that the consumers used these public
hearing as an important platform to present their views on various aspects of
ARRs and tariff related issues which helped PSERC in the decision-making
process. Various benefits are expected if the decision-making process is
completed ensuring a participatory approach. These benefits include:
All parties which are likely to be affected are provided an opportunity
to present their views on the proposal. This reduces the compliance
cost of regulation.

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The additional information supplied by stakeholders at Public

Hearings may be used as an source of complementary information
proposals made by respective companies.
It makes the whole system accountable. It helped the regulator in
monitoring the performance made by the distribution company.
It reduces the chances of filing appeals to the higher authority such as
Appellate Tribunal for Electricity as well as court of law (High Court
or Supreme Court) against the decisions passed by the Commission.
Therefore, it avoids the possible delays in implementing the order.
The Commission held public hearings at various places across the
state so that adequate consumer participation is ensured. For example for the
purpose of tariff order for FY 2012-13, the Commission held public hearings
at Ludhiana, Bathinda Jalandhar, Chandigarh. During the Public hearings,
the stakeholders made various types of comments on the Annual Revenue
Requirement (ARR) and tariff applications for the distribution and retail
supply business. The main comments/objections made by various categories
of consumers during different years are given below: The actual transmission and distribution losses (T&D Losses) are
above 40% in the state. Some of the participants also compared the
energy losses in the state with other states having lesser energy losses.

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Further, it was observed that the transmission losses in Punjab were

still very high. There is an urgent need to reduce the transmission
losses to the acceptable level.
The estimates of agriculture consumption made by PSPCL were not
very much reliable. The assessment of agriculture consumption was
done by the Commission in the financial year 2002-03. Since then, the
commission has been using the same data. In the light of the study
carried out by Punjab Agriculture University, Ludhiana, the
Commission should revise the estimates of agricultural consumption
and direct the distribution company to present reliable estimates of the
agricultural power supply.
The quality of information was not very reliable. This issue was raised
every year by various stakeholders. Consumers submitted that the
information supplied was incomplete and unreliable. The accounts
were not got audited properly. Consequently, the PSERC had to take
true-up exercises in the subsequent years.
The cost of power purchased from some sources is very high. The
average cost of power from the interstate sources was more than Rs. 8
per Kwh. There was a need to reduce the requirements for additional

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power purchase by initiating some load and energy management

programmes.
The employee cost was very high in the state. They advocated that
there should a proper plan to use the available human resources in
improving the operational efficiency.
Overcapitalisation- The companies were overcapitalised. Heavy loan
burden is imposed on the consumers unnecessarily.
Some consumers also raised the issue of subsidy payment by state
government. It was suggested that the state government should give
subsidy to Punjab State Power Corporation Limited (PSPCL) in cash
instead of book transaction as it was usually done on part of the state
government.
Some of the industrial consumers opposed high crosssubsidisation and
requested the Commission for the elimination this unnecessary
burden. The suggested that in a phased manner the cross subsidy need
to be reduced to the level of 20% plus-minus to the cost of supplying
power to consumers.
There was a lack of adequate accountability and responsibility on the
issues related to distribution business such as billing and metering

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aspects. Proper regulations should be laid down so that consumers do

not get any unnecessary harassment.
Therefore, it was observed that the power sector in Punjab has achieved
adequate growth in installing new generation capacity and expanding the
transmission and distribution networks especially in the pre-reforms period.
During the reforms process, the state government has undertaken a numbers
of initiatives such as establishment of independent regulatory commission
and unbundling of Punjab State Electricity Board (PSEB). The overall
objective of power reforms was to improve the operational and financial
performance of power sector in Punjab. In the next chapter, the operational
and financial performance of Punjab power sector has been measured taking
some performance parameters into account.