Information asymmetry between the regulator and the regulated

Abstract

Exploring the Dimensions of Information Asymmetry between the Regulator, KERC and the Regulated, BESCOM The study was taken to understand the existing methods of estimating T&D losses, given the constraint that there is no reliable and accurate data available for the same. The study will look into the role of the regulator and suggest appropriate management systems to reduce the information asymmetry between the regulator and the distribution companies. 2.0 Background One of the key features of the power reforms that started in the 1990s was the impetus given to reduction of the T&D losses. Though transmission losses due to technical reasons are part of the T&D losses, the major part of the losses occur due to non-technical losses in the distribution stage. T&D loss figures as high as 40% are not uncommon. In order to reduce these losses some of the SEBs resorted to unbundling of the power sector and in some cases privatization of the distribution of power. The idea behind the privatization move being that the new discoms would be more efficient and hence better equipped to bring down the T&D losses. But unbundling and privatization have not exactly resulted in a panacea for the problem. While the private discoms indeed have strong incentives to bring down the T&D losses (their own revenue goes up), they appear to be more than reluctant to report the reduction in T&D losses. In the case of state owned distribution companies they have a strong incentive to under report the loss figures. Cases of active collusion between the SEB officials and the illegal consumers have been suspected. It works to their advantage that there is enough scope for manipulation of their revenue figures by changing the mix of the industry, commercial and domestic consumers. We must appreciate that either way the power generator loses. Hence, the crux of the problem here is the information asymmetry that exists between the generator and the distributor. This in turn is due to the non-availability of reliable and consistent data to analyze the transmission and distribution losses of a power network in India. 3.0 Methodology The methodology to do the project is two fold. First, we need to understand how exactly the discoms are able to do the manipulation, if at all they do. For this, we concentrated on the information that is publicly available through in the form of tariff order filings and public hearings of the regulator in this matter. In addition to this, we did some primary research by taking to a senior official from BESCOM and a consultant who had an intimate knowledge of the power sector reforms. Having done the analysis, we came up with suitable management mechanisms that would encourage the discoms to both reduce the T&D losses as well as report the exact figures.