Regulating Utilities: A Legislative Framework

The Draft Regulatory Reform Bill which was prepared by the Planning Commission in 2009 but is yet to be finalised hopes to introduce a common legislative framework and institutional architecture for public utility regulatory commissions in various infrastructure sectors. This article argues that the bill does not take into account the constitutionally mandated separation of powers and the principles of federalism. It suggests the need for a statutory macro-regulatory coordination body that respects these principles. It further examines the role of the institutional framework in ensuring the independence and effectiveness of regulators.

<_12.1_Runhead-LEFT_S>COMMENTARY <_12.1_Runhead-LEFT_S>COMMENTARY 27 28 Economic & Political Weekly 
EPW
 may 12, 2012 vol xlviI no 19
may 12, 2012 vol xlviI no 19 
EPW
 Economic & Political Weekly
<_06.1_Head_Serif_Bla>Regulating Utilities <_06.4_Head_Serif_Bol>A Legislative Framework <_01_Body_9.2_11> <_08_Byline>Adithya Krishna Chintapanti <_07.1_Intro_Serif>The Draft Regulatory Reform Bill which was prepared by the Planning Commission in 2009 but is yet to be finalised hopes to introduce a common legislative framework and institutional architecture for public utility regulatory commissions in various infrastructure sectors. This article argues that the bill does not take into account the constitutionally mandated separation of powers and the principles of federalism. It suggests the need for a statutory macro-regulatory coordination body that respects these principles. It further examines the role of the institutional framework in ensuring the independence and effectiveness of regulators. <_01_Body_9.2_11_drop>Developing country governments are tending increasingly to withdraw from being the sole providers of public utility services such as electricity, telephony, etc. Instead they are allowing private participation in these sectors. India is no exception to this global phenomenon. In this situation, regulation of the operations of all players (including state-owned enterprises) becomes essential to preventing market failures, to ensuring a level playing field and safeguarding consumer interests. <_01_Body_9.2_11>The entry of multiple operators under the regulatory framework necessarily implies the vesting of executive powers in the regulator. The executive, both political and bureaucratic, may be reluctant to give up these powers and ready to usurp them again, given an opportunity. In this context, regulatory design and the positioning of the regulator vis-à-vis the executive, legislature and judiciary become crucial for continued and efficient functioning of regulatory agencies. <_01_Body_9.2_11>Given this scenario, adopting an appropriate regulatory institutional framework may mitigate the rigours and uncertainties arising out of sectoral liberalisation. Therefore, the regulation and evolution of a national regulatory institutional framework for public utility industries must be analysed from a public policy viewpoint with developmental priorities in mind (Minogue and Cariño 2006: 4) and should be set in the context of establishing “new public institutions” (Eberhard 2007: 6). This article attempts to explore the role of the institutional framework in ensuring the independence and effectiveness of the regulator. <_03_Crosshead_9.2_11>Current Architecture <_01_Body_9.2_11_no_i>A cursory glance at the legislation regulating the telecom, insurance and electricity sectors – the Telecom Regulatory Authority of India Act 1997 (TRAI 1997), the Insurance Regulatory and Development Authority Act 1999 (IRDA 1999) and the Electricity Act 2003 (EA 2003) – brings to light the following features of regulatory architecture prevalent in India:1 <_01_Body_9.2_11_no_i>(i) The concerned regulatory authority (hereinafter RA) has been given adequate autonomy to lay down regulation for the sector.2 The statutory requirement of hiring technically competent personnel facilitates efficient regulation and technocratic decision-making.3 The regulator has adequate powers to call for information and conduct investigations,4 coupled with the power to levy penalties for non-compliance. This makes the RAs effective institutions. <_01_Body_9.2_11_no_i>(ii) The requirement to table regulations before the legislature, as and when formulated, ensures accountability to Parliament.5 The concerned RA is also required to periodically furnish reports in the format stipulated by the central government. Additionally, the RA is required to submit annual reports to the government detailing its functioning and activities undertaken, which are tabled before Parliament/state legislature as the case may be.6 <_01_Body_9.2_11_no_i>(iii) The requirement to comply with the policy directions of the central government ensures that regulatory decision-making takes place in accordance with the broader policy formulated by the executive. This is intended to avoid or minimise policy inconsistencies.7 <_01_Body_9.2_11_no_i>(iv) Legislative predetermination of funding for the RA helps independent decision-making.8 The provision for judicial review of the RA acts as a check on any possible arbitrariness. <_01_Body_9.2_11_no_i>(v) The relationship between the RA and the executive, legislature and judiciary is clearly defined, preventing any excessive interference by any organ of the state in the activities of the RA. <_01_Body_9.2_11>Perhaps the most important feature of these legislations is that they do not intend to micromanage the sector. The essential flexibility granted by the parent statutes helps the RA formulate and implement appropriate sectoral regulations. This flexibility has allowed formulation of sector-specific regulations after consultations with sectoral players and consumers. Such subordinate legislation, in keeping with the statutory scheme, drives regulatory processes. <_03_Crosshead_9.2_11>The Proposed Bill <_01_Body_9.2_11_no_i>Despite initial successes in establishing RAs and their successful functioning, RAs could not be established for infrastructure sectors like posts, coal, railways, and waterways, etc.9 Opposition from incumbent players – both government and private – along with the usual departmental resistance has effectively prevented RAs from being set up. <_01_Body_9.2_11>The Draft Regulatory Reform Bill of 20** (henceforth the RRB/the proposed bill) intends to usher in legislation to cover all sectors (Planning Commission 2009). The RRB proposes to introduce a common “institutional framework for the regulatory commissions” and “would supplement the existing sector specific laws that set out sectoral objectives” (Planning Commission 2009: 6). Protection of consumer interest is one of the objectives of the bill and the same is reflected in its provisions (ibid).10 The RRB is at a consultative stage, placed in public domain to elicit views and opinions. The following critique is intended to highlight certain features of the RRB, which have a direct bearing on the constitutional scheme and the institutional framework of the existing RAs. <_01_Body_9.2_11/> <_01_Body_9.2_11_no_i>(i) Umbrella Legislation Involving Excessive Legislative Delegation: The RRB intends to empower the government in establishing RAs by notification for the following infrastructure sectors, namely: (1) electricity, (2) telecommunications and internet, (3) broadcasting and cable TV, (4) posts, (5) airports, (6) ports, (7) railways and mass rapid transit system, (8) highways, (9) oil and gas, (10) coal, (11) water supply and sanitation, and (12) waterways. The RRB also empowers the government to merge existing or notified RAs or notified regulatory commissions constituted under applicable laws.11 The government will be enabled to designate any appellate tribunal to hear appeals for decisions by an RA which does not have an appellate tribunal,12 and may merge any existing or notified appellate tribunals constituted under applicable laws for each of the sectors mentioned in the schedule.13 <_01_Body_9.2_11>To propose one omnibus legislation to deal with all sectors without addressing sector-specific regulatory issues is an alarming departure from the present practice of legislating RAs on a sectoral basis.14 Moreover, the RRB allows the government to constitute RAs by notification. It does not, however, offer any guidance in terms of criteria for the establishment of the RAs or appellate tribunals nor any explanation/justification for the need to merge two RAs or appellate tribunals. This provision would make the establishment or non-establishment of an RA or appellate tribunal subject to the executive’s sole discretion. <_01_Body_9.2_11>This is clearly an example of excessive delegation of essential legislative functions to the executive. The doctrine of separation of powers requires that one organ of the department/government should not usurp functions belonging to another. This also implies that no organ can abdicate the powers and responsibilities vested in it by the Constitution. From a legislative point of view, it is the constitutional obligation of the legislature to ensure that it does not delegate/abdicate its essential legislative function. The determination of legislative policy and its formulation and promulgation as defined in binding rules of conduct, is the exclusive prerogative of the legislature. The executive cannot in the exercise of its administrative powers, assume the power to make laws (Basu 1996: 28). <_01_Body_9.2_11/> <_01_Body_9.2_11_no_i>(ii) Centralisation of Institutional Processes: While the RRB proposes a selection committee whose composition, members and qualifications are constituted by statute, it also makes all appointments to the RAs and appellate tribunals contingent upon the approval of the prime minister and concurrence of the president, hence centralising the final outcome. Seeking presidential concurrence for the appointment of statutory authorities is a departure from the existing system. As per the RRB, the prime minister’s prior recommendation and presidential approval is also required for removal of members.15 All policy directions issued by the government, i e, concerned ministry are required to be approved in writing by the concerned minister and the prime minister.16 <_01_Body_9.2_11/> <_01_Body_9.2_11_no_i>(iii) Interfacing Regulation and Competition: The RRB gives primary jurisdiction over competition-related issues in the utility sectors in the schedule to the concerned sectoral RA and makes reference to the Competition Commission of India entirely optional.17

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