New Electricity Act for a Progressive Power Sector

By Damitha Kumarasinghe Deputy Director General, Public Utilities Commission of Sri Lanka
Importance of the electricity industry for the country’s economic growth has been increasing over the years. The sector has undergone many developments and transformations during last almost 100 years. Today we are in a very critical juncture as far as the future of this important sector is concerned.

During last few decades many countries around the world, have transformed their electricity sectors in such a way to achieve economic efficiency and social objectives. These changes can be seen not only among the developed countries but also in the developing world including all the countries like, India, Pakistan and Bangladesh surrounding us. This positive progression has been mainly focused on changes from a utility centered industry to a consumer centered industry. These changes are associated with transformation in the industry regulatory and legislative frameworks.

What is regulation?
Regulation of electricity sector can be defined as explicit governmental intervention in to the sector to achieve public policy and social objectives, which the electricity supply industry dominated by the utilities, fails to accomplish on its own.

Therefore, the fundamental question the public should raise, is whether the Sri Lanka electricity sector has achieved public policy and social objectives efficiently. One should always keep in mind that electricity sector means not only Ceylon Electricity Board (CEB), Lanka Electricity Company (LECO) and other private generators but also village electricity schemes, the government and all who are consumers and prospective consumers. All these players, not one or two, need to be heard and allowed to contribute to achieving public policy and social objectives. What is the environment which listens to all the stakeholders and ensures achieving those objectives? The only answer is a properly structured regulatory environment. By the way, regulator is not an unknown animal; it is an arm of the government which keeps an eye on all the players to ensure these objectives are met.

Why and where?
The fundamental justification for governments to intervene in electricity industry oversight is universal even though the mode of implementation defers from country to country. The main justification is that electricity is a strategic sector and essential to the wellbeing of the society. The most accepted mode of governmental intervention (regulation) of the sector is through a regulatory commission. Not only all the developed countries, but also developing countries, like Mongolia (Energy Regulatory Authority), Pakistan (National Electricity Regulatory Commission), Bangladesh (Energy Regulatory Commission), India (Central Electricity Regulatory Commission and State regulatory commissions), Nepal (Tariff Fixation Commission), Bhutan (Electricity Authority) and even poverty stricken countries in Africa like Rwanda (Utilities Regulatory Agency), all have active regulatory commissions in the electricity sector.

Regulation, is it new to Sri Lanka?
Regulatory institutions are not new to Sri Lanka. Most economic sectors in Sri Lanka are regulated through separate regulatory institutions. Central Bank of Sri Lanka is the regulator for financial institutions. The Securities and Exchange Commission, Insurance Board of Sri Lanka, Central Environmental Authority, Telecommunication Regulatory Commission, National Transport Commission are examples of such other regulatory institutions.

Electricity Regulation- Not new
The first legislation on electricity regulation was the Electricity Ordinance No. 5 of 1895. This was enacted to regulate electricity distribution only. At that time there were only a few buildings in Colombo with electricity supply.

As the electricity sector progressed Electricity Ordinance No. 26 of 1906 was enacted to capture the new developments. The purpose of this Ordinance was facilitating and regulating of supply and use of electrical energy for lighting, traction and other purposes.

Then in 1950, the first hydropower project of 25MW in Laxapana was commissioned and the electricity generated was transported from Laxapana to Colombo. This was a big step forward and the existing legislation was not in line with this development. This led to Electricity Act No. 19 of 1950 to regulate the generation, transportation, transformation, distribution, supply and use of electrical energy.

At present the electricity sector regulation is governed by this particular 1950 Act, drafted almost 60 years ago, when the electricity system comprised of only one hydropower plant, two 66KV transmission lines from Laxapana to Kolonnawa and Eriyagama. There were only 17,000 electricity consumers at that time. Even the CEB was not existence at that time. It’s predecessor, Department of Government Electric Undertaking (DGEU) operated the small electricity supply industry at that time.

Why, a new regulatory regime?
Today our electricity system is characterized by more than 2,500 MW of system capacity, over 4.5 million consumer connections, utilities such as CEB and LECO, private thermal generators, many small renewable energy producers and a hydro-thermal generation mix.

Therefore, we desperately need a new regulatory regime that is capable of capturing the complexities and the scale of the present electricity sector. A specialized regulator is required to oversee the electricity industry in order to achieve public policies and social objectives under the present context.

Main functions and responsibilities of a regulatory commission include ensuring consumer protection, proper planning and operation in the system, due regard for environmental impacts, conservation and efficient use of resources and that the CEB or LECO delivers a reliable and continuous supply to the consumers. Also one of the key functions of a regulator is to ensure that the government subsides, incentives and pricing policy are properly translated into an acceptable electricity tariff.

What contained in the New Electricity Bill
The main objective of this proposed Sri Lanka Electricity Bill of 2009 is to provide for the regulation of the generation, transmission, distribution, supply and use of electricity in Sri Lanka. This is a long overdue piece of legislation considering the present context. The drafting of this legislation has been discussed among all the stakeholders for as long as 10 years and all those views have been incorporated.

This proposed Act is drafted in line with the international best practice of clearly separating policy, operation and regulation functions of the electricity sector and assigning these to the relevant organizations. The sector policy formulation is the responsibility of the Ministry of Power and Energy, operations will be carried out by the CEB, LECO and other players in the sector and Public Utilities Commission of Sri Lanka will be entrusted with the regulatory responsibilities.

Public Utilities Commission of Sri Lanka (PUCSL)
Public Utilities Commission of Sri Lanka is a government institution established by an Act of Parliament. It is an institution consisting of five Commissioners with at least one member each, having qualifications and experience in the professions of engineering, law and business management. It will have a small staff comprising of mainly well trained professionals in the disciplines such as engineering, economics, finance, law and business management.

Some of main objectives of the PUCSL (as per PUCSL Act) related to electricity industry are;

a) To protect the interests of the consumers
b) To promote efficiency in both the operations and capital investments
c) To promote efficient allocation of resources
d) To promote safety and service quality
e) To benchmark against international standards
f) To ensure that price controlled entities acting efficiently, do not find it unduly difficult in financing their activities

Therefore, it is mandatory for PUCSL to safeguard the interests of all stakeholders, not only the price controlled utilities such as CEB and LECO but also presently marginalized electricity consumers.

At present there is no institution having a clear mandate on the above objectives in the electricity sector except the Public Utilities Commission of Sri Lanka. Empower PUCSL with the Sri Lanka Electricity Act; everybody in the power sector will win.