ThesisPDF Available

ELECTRICITY REGULATORY COMMISSION OF NEPAL: A REVIEW OF IT's LEGAL FRAMEWORK.

June 2020

Thesis for: Master By Research in Energy and Infrastructure Law

Authors:

Nepal Electricity Authority (NEA) holds business expertise in the Himalayan state to regulate the electricity market and address the demand and supply of the power that secures its monopolization. Moreover, the government plays a significant role in entire appointment and transfer of the (vital) government offices at the Authority. This might not offer a creative and constructive environment for diverse views to come into play for securing an independent and vibrant decision-making process. This way, there appear some complexities associated with the Authority. There is no methodology to fix tariff. One could not expect remedies from the hydel-agency on account of breach of standards set by regulatory authority itself. So, this is not going to protect and promote the rights of consumers, which is explicitly and authoritatively guaranteed by Article 44 of the Constitution of Nepal that entered into force on September 20, 2015. Also, the Authority lacks any procedure to hire or fire (at its own) to any staffs. The power authority seems helpless without the support of the government. The government of the day is vested with the power to levy funds to the authority. There is no law on paper which binds the government to allocate funds to the Authority exclusively on the basis of its report. Along with this, there appears no mechanism to challenge the decision of the government undertaken for the Authority, or vice-versa, in the Parliamentary Hearing Committee, the legislative wing of the state. However, the judicial remedy is available to the people or the staffs of the authority or the government. The hydel-agency can sue or be sued by any person, be it artificial or natural, for breach of any public duty or law. The aggrieved party can approach the High Court or Supreme Court by invoking the writ jurisdiction of the law Court. At this backdrop, the researcher humbly submits that the Authority could adopt and enact mandatory policies, guidelines or directives or mechanism for realizing its aims and objectives set under various policy documents. The researcher aims to extend the doctrinal study of the Authority at the backdrop of the legal arrangements made in United States, England and India Note: The author received no financial support for the research, authorship, and/or publication of this research.

Role Model of Regulatory Agencies

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Regulatory Agency Standard Evaluation Methods

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Regulatory Agency Standard Evaluation Methods

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Stakeholders and Their Interests in Tariff Restructuring

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FOR EVALUATION OF REGULATORY AGENCY.

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ELECTRICITY REGULATORY COMMISSION OF NEPAL: A REVIEW OF IT’s

LEGAL FRAMEWORK

A DISSERTATION

SUBMITTED FOR THE

PARTIAL FULFILMENT OF THE REQUIREMENTS FOR

THE DEGREE OF

MASTERS BY RESEARCH IN ENERGY AND INFRASTRUCTURE LAW

ANUP DAHAL

SCHOOL OF LAW

KATHMANDU UNIVERSITY

DHULIKHEL, NEPAL

June, 2020

iii

AUTHORIZATION

I hereby declare that I am the author of the thesis.

I authorize Kathmandu University School of Law to lend this thesis to other institutions or

individuals for the purpose of scholarly research. I further authorize Kathmandu University

School of Law to reproduce this thesis by photocopying or any other means, in total or in

part, at the request of other institutions or individuals for the purpose of scholarly research.

___________________________________________

Anup Dahal

June, 2020

PREFACE

This dissertation delves into the study of the regulatory framework envisaged for the Nepal

Electricity Authority.

The paper incorporates five chapters. Chapter I deals with the background, objectives of the

study, literature review, methodology and so on. Chapter II prescribes the challenges and

issues pertinent to the hydropower authority in the country. In this chapter, the researcher

discusses the arrangement of foreign investment, policy matter, protection of rights and

interests of the business sector investing in the power sector. Chapter III sheds light on the

comparative analysis of the position of state-owned power sectors in other countries to

analyze their positions. Chapter IV provides a comparative outlook of a regulatory agency,

Chapter V provides the overall result of the study and Chapter VI provides the conclusion

of this paper.

This way, the research work analyzes the position and legal framework associated with the

Nepal Electricity Authority and suggests the possible ways to remove difficulties and make

a significant improvement.

Anup Dahal

ACKNOWLEDGMENTS

I would like to express my profound gratitude to my respected teacher and supervisor of

this dissertation, Dr. Bipin Adhikari, for his scholarly and insightful supervision, without

which the accomplishment of the present research work would have been impossible. I

would like to thank my respected teacher for his intuitive suggestions, encouragements and

the knowledge he shared with me during my research work.

I also feel proud to acknowledge the able guidance of our esteemed Dean of School of Law,

Kathmandu University, Dr Rishikesh Wagle, and Prof. Dr. h. c. Hans Essman and Dr. Shiva

Kumar Giri. Professor Giri was very kind to review the first draft of my dissertation and

provide many comments.

I acknowledge with pleasure un-parallel infrastructural support that I have received from

the Kathmandu University School of Law. In fact, this work is the outcome of outstanding

support that I have received from the faculty members of the School, in particular Mr.

Shiva Prasad Paudel, Prof. Rob Taylor, Mr. Semanta Dahal, Ms. Reema Khanal, Mr. Kamal

Pokhrel and Mr. Santosh K.C. I find this opportunity to thank the library staffs, including

Chief Librarian Ms. Elina Gurung.

This research work bears testimony to the active encouragement and guidance of a host of

friends, in particular Mr. Hari Ram Upadhayay, Mr. Abhishek Adhikari, Ms. Simran

Khanal, and Mr. Jivesh Jha. It would never have been possible to complete this study

without untiring support from my family. I am greatly indebted to the various writers,

jurists and all others from whose writings and work I have taken help to complete this

dissertation.

vi 
 
 
 
TABLE OF CONTENTS  
CERTIFICATE ..................................................................... Error! Bookmark not defined. 
BOARD OF EXAMINERS .................................................. Error! Bookmark not defined. 
AUTHORIZATION .............................................................................................................. iii 
PREFACE .............................................................................................................................. iv 
ACKNOWLEDGMENTS ...................................................................................................... v 
TABLE OF CONTENTS ....................................................................................................... vi 
LIST OF FIGURES ................................................................................................................ x 
LIST OF TABLES ................................................................................................................. xi 
ABSTRACT .......................................................................................................................... xii 
LIST OF ARBBREVIATION ............................................................................................. xiv 
CHAPTER 1: INTRODUCTION ........................................................................................... 1 
1.1 Background .............................................................................................................. 2 
1.2 Identification of the problem .................................................................................... 4 
1.3 Statement of problem ............................................................................................... 4 
1.4 Objective of the study ............................................................................................... 5 
1.5 Hypothesis ................................................................................................................ 5 
1.6 Significance of the study .......................................................................................... 5 
1.7 Research Methodology ............................................................................................. 5 
1.8. Limitation ..................................................................................................................... 6 
1.9 Literature Review ..................................................................................................... 6 
CHAPTER 2: Regulatory Authority: A revisit to the benchmark principles ......................... 9 
2.1 Independency of regulatory agency ............................................................................ 12 
2.2 Development of Electricity Agencies in Nepal: A brief study ................................... 14 

vii 
 
2.1 First Periodic Plan (1956-1961) ........................................................................... 15 
2.2 Second Periodic Plan (1962-65) .......................................................................... 16 
2.3 Third Periodic Plan (1965-1970) ......................................................................... 16 
2.4 Fourth Periodic Plan (1970-1975) ........................................................................ 16 
2.5 Sixth Periodic Plan (1980-1985) .......................................................................... 16 
2.6 Seventh Periodic Plan (1985-1990) ..................................................................... 16 
2.7 Eighth Periodic Plan (1992-1997) ........................................................................ 17 
2.8. Ninth Periodic Plan (1997-2002) ........................................................................ 17 
2.9 Tenth Periodic Plan (2002-2007) ......................................................................... 17 
2.10 Eleventh Periodic Plan (2007-2010) .................................................................. 17 
2.11 Twelfth Periodic Plan (2011-2014) .................................................................... 17 
2.12 Thirteenth Periodic Plan (2014-2017) ................................................................ 18 
2. 13 Constitution of Nepal ........................................................................................ 18 
2. 14 Fourteen Periodic Plan (2017-2020) ................................................................. 18 
3 Development of Electricity Agencies and the grey areas ........................................... 18 
CHAPTER 3: Challenges before the Electricity Authority and Hydel Agencies ................. 22 
1 Balancing Demand and Supply ................................................................................... 24 
2 Foreign Investment ..................................................................................................... 28 
3 Transparent and independent business is the need of the day ..................................... 30 
4 Policy issues ................................................................................................................ 31 
5 Electricity Tariff Rate ................................................................................................. 32 
6 Power Purchase Agreement (PPA) ............................................................................. 36 
7 Protection of Right and Business Interest ................................................................... 37 
8 Information Asymmetrical .......................................................................................... 38 
9 Environmental ............................................................................................................. 38 
CHAPTER 4 : Regulatory Agencies in foreign: A comparative outlook ............................. 41 
1 Legal Framework: ....................................................................................................... 42 

viii 
 
2 Statutory Power: .......................................................................................................... 43 
3 Property and Contract Rights: ..................................................................................... 44 
4 Role of NERC in Regulation and Policy: ................................................................... 46 
6 Predictability and Flexibility: ...................................................................................... 48 
7 Consumer Right and Obligation: ................................................................................ 48 
8   Proportionality: ......................................................................................................... 49 
9   Regulatory Independency: ........................................................................................ 50 
10  Financing of Regulatory Agencies: .......................................................................... 53 
11 Regulatory Accountability: ....................................................................................... 54 
12 Regulatory Process and Transparency: ..................................................................... 55 
13 Public Participation: .................................................................................................. 56 
14 Review of Regulatory Decision by Appellate body: ................................................ 57 
15 Code of conduct and Ethic: ....................................................................................... 58 
16 Regulatory practices in  US, UK  and India: ............................................................. 58 
16.1 Legal Framework: .................................................................................................. 60 
16.2  Power as per law: .................................................................................................. 61 
16.3 Property and Contract Rights: ................................................................................ 62 
16.4 Clarity of Regulatory Agency Role in Regulation and Policy: .............................. 62 
16.5 Clarity and Comprehensives of Regulatory Decision: ........................................... 63 
16.6  Predictability and Flexibility: ................................................................................ 65 
16.7 Consumer Rights and Obligation: .......................................................................... 65 
16.8   Regulatory Independency: ................................................................................... 66 
16.9 Finance of Regulatory Agencies: ........................................................................... 68 
16.10   Regulatory Accountability: ................................................................................ 69 
16.11 Regulatory Process and Transparency: ................................................................ 71 
16.12 Public participation: ............................................................................................. 71 
16.13   Appellate Review of Regulatory Decision: ....................................................... 72 

ix 
 
16.14   Ethics: ................................................................................................................. 72 
CHAPTER 5: Results ............................................................................................................ 74 
1   Analysis of the domestic frameworks ....................................................................... 74 
2 Challenges before the Regulatory Agency .................................................................. 75 
3 Influence of government is a major challenge ............................................................ 77 
4 An independent regulatory regime: a major challenge ............................................... 81 
5 Electricity Tariffs: A revisit to the international experience ....................................... 83 
6 License provisions in India and Nepal ........................................................................ 86 
7 Rights of consumers .................................................................................................... 87 
8 Accountability in regulation ........................................................................................ 88 
9 Public participation ..................................................................................................... 90 
CHAPTER 6 : Conclusion .................................................................................................... 92 
Reference .......................................................................................................................... 95 
 
 
   

LIST OF FIGURES

Figure 1 Role Model of Regulatory Agencies ...................................................................... 21

Figure 2 Required Electricity for NEA ................................................................................ 25

Figure 3 Transmission line loss ............................................................................................ 26

LIST OF TABLES

Table 1 Standards for Evaluation of Regulatory Agency. ...................................................... 9

Table 2 Fluctuation of Targets in Hydropower Generation in Nepal ................................. 32

Table 3 Electricity Tariff Rate from Paush to Chaitra 2017-2018 ....................................... 34

Table 4 Stakeholders and Their Interests in Tariff Restructuring ....................................... 35

xii

ABSTRACT

Nepal Electricity Authority (NEA) holds business expertise in the Himalayan state to

regulate the electricity market and address the demand and supply of the power that secures

its monopolization. Moreover, the government plays a significant role in entire appointment

and transfer of the (vital) government offices at the Authority. This might not offer a

creative and constructive environment for diverse views to come into play for securing an

independent and vibrant decision-making process. This way, there appear some

complexities associated with the Authority. There is no methodology to fix tariff. One

could not expect remedies from the hydel-agency on account of breach of standards set by

regulatory authority itself. So, this is not going to protect and promote the rights of

consumers, which is explicitly and authoritatively guaranteed by Article 44 of the

Constitution of Nepal that entered into force on September 20, 2015. Also, the Authority

lacks any procedure to hire or fire (at its own) to any staffs. The power authority seems

helpless without the support of the government. The government of the day is vested with

the power to levy funds to the authority. There is no law on paper which binds the

government to allocate funds to the Authority exclusively on the basis of its report. Along

with this, there appears no mechanism to challenge the decision of the government

undertaken for the Authority, or vice-versa, in the Parliamentary Hearing Committee, the

legislative wing of the state. However, the judicial remedy is available to the people or the

staffs of the authority or the government. The hydel-agency can sue or be sued by any

person, be it artificial or natural, for breach of any public duty or law. The aggrieved party

can approach the High Court or Supreme Court by invoking the writ jurisdiction of the law

Court. At this backdrop, the researcher humbly submits that the Authority could adopt and

enact mandatory policies, guidelines or directives or mechanism for realizing its aims and

objectives set under various policy documents. The researcher aims to extend the doctrinal

study of the Authority at the backdrop of the legal arrangements made in United States,

England and India.

xiii

Dedicated to my

Parents

xiv

LIST OF ARBBREVIATION

CERC: Central Electricity Regulatory Commission

DoED: Department of Electricity Development

ETFC : Electricity Tariff Fixation Commission

FERC: Federal Energy Regulatory Commission

FPC: Federal Power Commission

FY: Fiscal Year

GEMA: Gas and Electricity Market Authority

GON: Government of Nepal

GDP: Gross Domestic Product

IPP: Independent Power Producer

IARs: Independent Regulatory Agencies

LCGEP: Least Cost Generation Expansion Plan

MMC: Millennium Challenge Corporation

NEA: Nepal Electricity Authority

NERC: Nepal Electricity Regulatory Commission

OECD: Organization for Economic Co-operation and Development

Ofgem : Office of Gas and Electricity Market

Ofgas: Office of Gas Supply

SERC : State Electricity Regulatory commission

CHAPTER 1: INTRODUCTION

Hydropower has been under the discourse in Nepal’s present and future energy security, as

solar and wind projects are yet to garner much of the attention. The dialogue, discourse and

debate over the hydel power’s share in the Himalayan republic was, is and will be

considerable until the other sources of energy succeeds to replace it either partially or fully.

The available research shows that the country has the capacity of generating

hydroelectricity of 42,133MW.

While hydropower is renewable, its social and environmental impact—from displacement

of thousands of people and adverse impact on the biodiversity as a result of dams to release

of pollutants—proves that the bigger hydel projects are not much similar to solar, wind or

biomass energy as the latter has a little contribution in the pollution of environment. The

role of the state in managing and administering the power sector has been under criticism

for an obvious reason. In our part of the world, “Government regulates goods such as

electricity in the market”

due to which the concerns of the private actors have not been

much addressed and competitive energy market is yet to be ensured.

Still, the government owned hydel authority has played some stellar roles as well. It has

succeeded fair enough to curb the unproductive and unfair trade practices in energy service.

Having said this, the researcher does not pay disregard to the involvement of private sectors

in energy business. The involvement of private entities in power business has unfolded new

beginning in country, like India, to set a milestone and garner competitive market. Thus, a

competitive and transparent regulation of the energy is crucial in combating the

monopolization of capital market. It provides securities to the investors and plays an

instrumental role in the growth of the capital market where the investor participates,

promotes and contributes in the economic development of the country.

Government of Nepal, Water and Energy Commission Secretariat, Electricity Demand Forecast

Report(2015-2040), P.8,2017.available at https://www.moen.gov.np/pdf_files/Electricity-Demand-Forecast-

Report-2014-2040.pdf accessed on 30th July ,2018.

Alvaro Cartea and Carlos Gonzalez Pendraz, How much should we pay for interconnecting electricity

market? A real options approach,Business Economic Series 06, P4.

1.1 Background

On the contrary, the development of hydropower is essential for the economic development

of Nepal.

In the realization of this need, the Government of Nepal has allowed private

investors

to invest in Nepal’s hydro resources under public-private-partnership agreement

model. For instance, Budi Gandaki 600 MW and Kali Gandaki 670 MW

are among the

few hydro projects that saw the investment of private actors. Perhaps this type of

experiences led to offer a competitive energy market in the country. Though we have a

small electricity market,

there is competitive

environment in this sector too—like other

business. So, there is room for competitive market in energy sector as well. Now, all we

need is to adopt and enact strong regulatory frameworks for regulating the hydropower. On

this note, a competitive model is imperative for the development of the electricity market in

the Himalayan Republic.

In this context, the dissertation encompasses as many as five different chapters. The

introductory part seeks to present a brief overview of Nepal’s regulatory authority engaged

in the field of hydropower and introduce the paper. Meanwhile, the second chapter provides

the historical background wherein the researcher endeavors to shade light on the

development of hydel energy sector in Nepal. The subsequent chapters delve to study the

legal frameworks associated with the power sectors. Finally, the paper gives conclusion.

The researcher attempts to draw an assumption that Nepal and other countries could differ

Government of Nepal, National Planning Commission, 15th Predic Plan (2076/77-2080/81), 2076/77-

2080/81, P- 299,available at

https://www.npc.gov.np/images/category/15th_Plan_Approach_Paper2.pdf accessed on 27th March 2019.

Hari Dhungana and Gyany Maskey, Hydropower Policy and Site-Level Contestation under the Political

Transition: Challenges for Ending the Power Cut in Nepal, P-14.Journal of Forest and Natural Resource

Management,2019.

Ministry of Energy, Water Resources and Irrigation, Government of Nepal 10 year Hydropower

development plan,2065,P.7, available at

http://www.moewri.gov.np/images/category/taskforce_report_partI.pdf,accessed on 5th March,2019.

Pradeep Gangol, Why we need an independent Electricity Regulatory Commission hydro highlight, The

Himalayan Times; 27th March 2019.

Ministry of Energy, Water Resources and Irrigation, 20 years Hydropower Development Work 2066,

available at

http://www.moewri.gov.np/images/category/Twenty-Year-Task-Force-Report_merged.pdf,accessed on

March,2019.

constitutionally but not legally when it comes to the arrangement of the hydropower

business.

In this light, it bears relevance to discuss the stages of development of the regulatory

agency. We can find the development of regulatory agency under three stages. They are:

contract enforcement stage (Contract is codified on mutually agreed terms, approved and

conditions, and enforced.); stage of monitoring contracts and its enforcement by separate

entities (Utility service licenses or concession contract are monitored under this stage), and

finally the stage of separate regulatory entry with tariff setting authority stage (Agency will

come into motion at the instance of violation of the guidelines or agreements or

obligations)

. This pattern of development was acknowledged by the United Kingdom in

the development of railways, electricity sector and telecom industries

. Importantly,

regulation in infrastructural industries or government department is also done through

concession contract

This development also witnesses regulatory “cycle” to function on daily regulatory

activities. This cycle consists of making regulations, operating regulations and reviewing

regulations. This way, there exists three phases, from making to reviewing of the

regulations which enables the Authority as well as the state to keep an eye on over the

agencies engaged in production or distribution of energy.

To be specific, making regulation is the process of developing governmental policies into

legislation or other regulatory instruments. This phase is more concerned with enacting the

plans and policies or showcasing the agendas on papers. This cycle encompasses day to day

activities of regulated entities to achieve the regulatory public policy objective. At the end

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, World Bank,P. 94, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 15th December,2018

Ibid

Jon Stern, Competition, Economic Regulation and Affordability in Infrastructure Industries: An Economic

History 1840-1980,Center for Competition and Regulatory Policy, P.4, 2017, available at,

https://www.city.ac.uk/__data/assets/pdf_file/0006/379734/CCRP-Dicussion-Paper-Jon-Stern-History-

November-2017-002.pdf, accessed on 5th March 2019

of the cycle, there is a process of reviewing the regulation and checking whether they meet

their specific objective and improve the policy

or not.

1.2 Identification of the problem

The regulation is synonymous to law.

In absence of competent and good regulation the

investor will face challenges in investing in hydro resources. And, the challenges, such as,

political constraints, financial constraints, transmission line constraints, absence of storage-

type projects, issue of license, regulatory constraints (monopoly in transmission and

distribution of power), institutional constraints, policy constraints, local issue, pricing issue,

etc

could be expected at any given moment. The major regulatory challenge could come

across is the government’s intervention in the market on taxes and subsidies, administrative

controls over rates, entry, and other factors of economy.

So, to combat with these

challenges, an Independent Regulatory Agency (IRA) should be brought into place to

provide an oversight that would ensure that consumers receive reliable and safe supply of

electricity at reasonable prices, with balancing the investor’s interest.

At this backdrop, the dissertation seeks to cull out the answers of these questions: a.)

Whether the provisions of Electricity Regulatory Commission Act is in furtherance of the

Preamble of the legislation?; b.) Whether the provisions of the Act are supplementing and

supplanting the international commitments expressed by Nepal on various international

stages?; c.) Whether the provisions of the Act are progressive in nature and offering room

for private investors to invest in power sector?

1.3 Statement of problem

➢ To analyze whether the provisions of the Electricity Regulatory Commission Act

are in furtherance of the preamble of the Act or not;

OECD,Public Consultation Draft, Principles For The Governance of Regulators,P.21,June,2013

OECD, Measuring Regulatory Performance, Evaluating The Impact of Regulation and Regulatory

Policy,P.8,2012, available at

https://www.oecd.org/gov/regulatory-policy/1_coglianese%20web.pdf accessed on 9th, December,2018.

Kamal R.Dhungel & Pramod Rijal, Investment Prospects and Challenges for Hydropower Development in

Nepal,Pg 42-54, 2012 Samriddhi, The Prosperity Foundation

Richard A Posner, Theories of Economic Regulation, Vol.5, No.2, The Bell Journal of Economics and

Management Science, P.335, 2007.

Ibid 13, Pg 42-54.

➢ To analyze whether the provisions of the Act are in furtherance of international

commitments expressed by Nepal on different international stages or international

standards;

➢ To analyze whether the Act incorporates fair corpus of provisions to allow private

investments in hydel sector

1.4 Objective of the study

➢ To study the ‘Preambular’ object of the Electricity Regulatory Commission Act

➢ To compare certain provisions with the legislations of India, England and United

States

➢ To analyze the grey areas of the problems

➢ To find out the possible solution with some suggestion for the said problems.

1.5 Hypothesis

➢ Whether the provisions of the Electricity Regulatory Commission Act are in

furtherance of the preamble

1.6 Significance of the study

The domestic legislation relating to the hydropower lays down welcome provisions for

advancing the cause of energy policies. Electricity Regulatory Commission Act appears as

special legislation at this venture which sets its sight on providing conducive atmosphere

for the growth and expansion of hydropower in the country. This paper delves to study if

the provisions of the Electricity Regulatory Commission Act are in furtherance of its

preamble or not and whether the provisions hosted by the legislation support international

laws and standards.

1.7 Research Methodology

This study would analyze the provisions of the Electricty Regulatory Commission Act at

the backdrop of international commitments expressed by Nepal on different international

fronts. The researcher aims to extend a study whether the provisions of the Act are

supportive to the preamble or the provisions are progressively comparable to the

international legal arrangements. In order to seek the answers of the research problems, the

researcher adopts doctrinal methods of research. The reseracher has collected, examined

and analyzed the data from the exisiting relevant books and articles which are available in

the library of University and other libraries in Kathmandu. Thus, this research is based on

descriptive and analytical study of existing available materials.

This research would be a doctrinal study which will be based on primary and secondary

sources. The primary sources are limited to official documents, like reports, agreements,

Constitution, Bare Acts, and the likes released by government, international organizations

or other agencies. The secondary sources consist of books, journals, articles, news stories,

research papers and other pertinent literatures available on the internet/websites. To be

specific, the researcher has undertaken a content analysis approach to do justice with the

paper. This way, the researcher has adopted a qualitative (doctrinal) methodology to extend

this study. Its purely a library-based research which aims to entrench the study and answer

the research problems.

1.8. Limitation

This paper has analyzed the current state of NERC act. It only talks about regulatory law

generated through hydropower. This paper doesn’t evaluate the engineering and economic

aspect of regulatory agency.

1.9 Literature Review

Its often said that no development project of the state could remain in isolation. Neither, it

could remain untouched or unaffected by other disciplines. Like other areas, the electricity

regulatory authority is one of the dynamic areas with a multi-disciplinary nature where the

impact of Economics, Law, Science, Mathematics; or Engineering could be easily

observed.

So, the electricity authority or the regulatory agency is therefore required to strike a balance

between the energy sector and other disciplines so as to adjust a fine tuning with demand

and supply. In order to make electricity service reliable and available to all and maintain

balance between the demand and supply, there is a dire need of maintaining transparency in

the business. The regulatory authority has to regulate electricity tariff properly, protect

rights and interest of consumers. After all, the rights of consumers have been expressly

secured under the Constitution of Nepal in Article 44. It means the consumers have the

rights to sue the regulatory Authority at the instance of the violation of their rights or breach

of any public duty. The consumers can invoke the writ jurisdiction of Court under Article

144 before the High Courts and Article 133 before the Supreme Court. This way, “The

architects of the Constitution of Nepal realized that political democracy would be useless in

absence of economic democracy. It is heartening that Nepal has adopted a plethora of

economic, social and cultural rights as fundamental rights with a view to achieve

amelioration of the socio-economic condition of the national population.”

On this note, the electricity regulatory authority seems to adopt measures to control

electricity market in order to either downgrade private actors or minimize the conflicts of

interest. Market rules of supply and demand will play a major role in the economic

investment. If the public and private entities would stand on the same page and adopt fair

play in action in entire invest system, the hydel-industry could become an attractive and

competitive market. The power industry would attract investors and the investors would

come forward for the investment, expecting for maximum rate of return. More so, the

demand for electricity results in the increment of investment and further advancement in

supply. It directly and indirectly regulates electricity enterprises decisions and action which

use different technologies, grid electrification, off grid electrification and others.

Regulatory system will prevent negative impacts on the enterprises. The outcomes matter

more than the mere adopt of the regulation.

Importantly, the more benefit the regulatory

authority would earn, the more it will spend on its maintenance.

The researcher has attempted to cover the relevant issues of the regulator. Further, this

study also takes into consideration the practices adopted in countries like USA, UK, and

India. The study has analyzed the structure of electricity regulatory commission. Some

framework has been provided by OECD to achieve good governance through regulatory

principle

, regulatory policies and governance.

Oxford Hand Book of Regulation by Robert Baldwin, Martin Cave, & Martin Lodge has

also made recommendations and the same made by World Bank hand book for evaluation

Time to champion economic, social and cultural rights available at:

http://english.lokaantar.com/governance/12592/, Accessed on September 30, 2019.

Reiche, Kilian; Tenenbaum, Bernard; Torres de Mästle, Clemencia, Electrification and Regulation:

Principles and a Model Law,

OECD (2013), Public Consultation Draft, Principles For The Governance of Regulators,

OECD (2012), Recommendations and Guidelines on Regulatory Policy, available at

http://www.oecd.org/regreform/regulatory-policy/recommendations-guidelines.htm,accessed on 10th

December, 2018

of regulatory agency through regulatory governance and regulatory substance.

Literature

from World Bank also provides regulatory enforcement practices in safeguarding health

and safety, protecting the environment, securing stable state revenues and delivering other

public goals.

Literature from the working paper series of Centre for completion and

regulatory policy

contains basic principle for regulating electricity

which has been

discussed in second chapter of this dissertation. This ways, IRA could be created to protect

the interest of consumers. It could curb the scourge of over-privatization and abuse, misuse

or overuse of funds. This could also put the undesired political interference at arm’s

length.

In order to realize this goal, the first and foremost condition is that the said agency

should be independent as independent agencies could only spearhead a vibrant and

competitive mobilization of resources and proper investment. The scholars claim that the

regulatory agency is yet to become an independent and its decisions are politically

motivated. The Chairman of the regulatory agency who can be re-designated on an annual

basis by the head of the state often gets influenced by the government of the day on

important issues and composes his course of action to serve the interests of the incumbent

government.

Thus, an independent regulatory agency deserves to be free from politics or

intervention of the executive. Its imperative to limit the political influence in the entire

decision-making process.

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, World Bank, P. 7, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 2nd December,2018.

Regulatory Enforcement and Inspection, OECD Best Practice Principles for Improving Regulatory

Enforcement and Inspections, OECD,P.9, 2014, available at

https://read.oecd-ilibrary.org/governance/regulatory-enforcement-and-inspections_9789264208117-

en#page12,accessed on 9th December,2018

Jon Stern, Competition, economic regulation and affordability in infrastructure industries: An economic

history 1840-1980, City University of London, available at

https://www.city.ac.uk/__data/assets/pdf_file/0006/379734/CCRP-Dicussion-Paper-Jon-Stern-History-

November-2017-002.pdf, accessed on 9th December 2018.

Reiche, Kilian,Tenenbaum, Bernard, Torres de Mästle, Clemencia; Electrification and Regulation:

Principles and a Model Law, World Bank,2006.

Rajesh Kumar PhD, Economic of Regulation A case Study of Haryana Electricity Regulatory Commission,

Department of Economics Maharshi Dayanand University, Rohtak Harayana. P.29-30, 2004,

Alan. B. Morrison, How Independent are independent Regulatory Agencies, Duke Law Journal,1998

Ibid P.1

CHAPTER 2: Regulatory Authority: A revisit to the benchmark

principles

There appears certain benchmark principle

along with standards for implementing

regulatory agencies’ decisions.

The independent recommendations so made ought to be

acknowledged by the concerned Minister. S/he has to respect the recommendations coming

from a specialized institution shouldered with the responsibility to sketch sound and vibrant

recommendations for the effective administration of power authority.

Yet, the

recommendations don’t necessarily bind the Minister. While making decisions, there are

certain key regulatory principles which the regulatory entities

have to follow. They

include: independence; accountability; transparency and public participation; predictability;

requisite powers; clarity of roles; completeness and clarity in rules; proportionality;

institutional characteristics and integrity.

These principles should be acknowledged in every course of action for ensuring an

effective working of the regulatory authority.

This will certainly help the regulatory

authority to achieve the aims and objectives. There are as many as 15 major standards

(Table-1) that could be helpful for achieving goals set under different policy documents of

the regulatory agencies

TABLE 1 STANDARDS FOR EVALUATION OF REGULATORY AGENCY.

S.N.

Standards

Operational Methodology

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, World Bank, P.50, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 2nd December,2018.

Ibid, P.18,

Martín Rodríguez Pardina Julieta Schiro, Taking Stock of Economic Regulation of Power Utilities in The

Developing World, World Bank, P.5,2018, available at

http://documents.worldbank.org/curated/en/732921527773002514/Taking-stock-of-economic-regulation-of-

power-utilities-in-the-developing-world-a-literature-review,accessed on 9th December,2018.

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, World Bank, P. 7, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 2nd December,2018.

Ibid, P. 63

Jon Stern, The Oxford Handbook of Regulation, Oxford University Press, P 169,2010.

Legal Framework

Jurisdictional authority, powers, duties, responsibilities and

procedures are created in law.

Legal power

One has to make decision in the line with statutory mandates.

For instance; allocating tariffs for the benefit of consumer;

spending funds in pursuance of budgetary authorization;

making administrative decisions or enforcing whole or any of

them; laying down standards and rules to prevent abuse of

monopoly; delegation of power and function to other

regulatory body and others.

Property and

contractual rights

Protected under entitlement or law and contract. The laws

governing the contract or property-related matters should not

be exhaustive in nature.

Clarity of roles in

regulation and

policy

The terms of reference (TOR) are crystal clear.

Clarity and

comprehensiveness

of regulatory

decisions

The major decision (tariff reviews, compliance with service

quality, and approvals for investment or market surveillance)

should be composed in the line with the statutes decrees or

guidelines.

Predictability and

flexibility

Reasonable, feasible and consistent with previous decision

bearing similar nature.

Rights and

obligations of

consumer

The rights of consumer or would-be consumers should be

protected and promoted by ensuring quality service, and

remedies should be awarded in case of breach of his/her rights.

Proportionality

The rights, duties and liabilities of consumer ought to be

proportionate in nature. It seeks to ensure efficiency, fairness

and intervention in case of unfair trade practice. The economic

and social equilibrium could be maintained with the protection

of the rights of consumer.

Regulatory

independence

The agency should be created as per the mandate of legislation.

The agency so constituted should have the power to make

regulatory decision; generate or seek revenue; offer different

forms of compensation or career opportunity schemes to the

staff; provide training and capacity building opportunities to

staffs; hiring and firing rights; set up rules, regulations or code

of conduct or promulgate any policies that ensure the

development of corporation or ensure honesty and fairness in

entire decision making process.

10.

Financing of

regulatory

agencies

There must not be room for abuse of funds. The allocation of

funds under what conditions or instances has to be envisaged

under the law. The law has to be competent enough to save the

treasury of the regulatory authority from abuse, misuse or

overuse of the resources.

11.

Regulatory

accountability

The legislative committee, ministries concerned and regulatory

experts, should conduct periodic hearing on the matter relating

to the regulatory agency’s decision making process. The

transparency or degree of neutrality and credibility should be

maintained during the disposal of designated function and

responsibilities.

12.

Regulatory process

and transparency

The decision regarding suing the parties on account of abuse of

funds or improper purpose collateral should not be taken unless

regulator has a reason to believe that the course of action

chosen by contracting agency is against the agreed terms and

condition. The procedures regarding the admissibility of

evidence should be expressly laid down. Moreover, the

summary of those documents or discussion should be made

public.

13.

Public

participation

There should be an opportunity for all affected parties to

participate or have their say in the process and decision

making.

14.

Appellate review

of regulatory

decisions

A specialized appellate tribunal could be constituted as per the

mandate of law to check the legality of the decisions of

regulatory agencies.

15.

Ethics

The agencies should have a code of conduct in order to avoid

favouritism, conflict of interest at arm’s length.

2.1 Independency of regulatory agency

However, these standards may not guarantee a complete independence of regulatory

agency. Regulatory agency looks at both, external governance (roles, relationship, and

responsibility between ministry, regulator and governing body) and internal governance

(organizational structures, standards of behavior and roles and responsibilities, compliance

and accountability measures, financial reporting and others)

to achieve agency’s

objective. It works to solve the problem through functional expertise

and also uses

strategy, such as command & control, incentives measure, market harnessing, disclosure,

direct action and design solution, rights and liabilities laws, public compensation etc while

making decision to achieve the relevant objective.

Its decision must be fair neutral and devoid of any bias or conflict of interest. The

regulatory agency is required to work in close coordination with the funding or service

delivery function of ministry. But, it is not practical to create an IRA at the initial stage,

because there is a presence of alternative advisory regulatory agency which provides

recommendations to the concerned Minister.

For Instance, the NEA is required to consult

the Ministry of Water Resources in matter connected with policies and other agencies of the

Government of Nepal.

Regulatory agency needs to maintain close links with the funding or service delivery

functions of the Ministry. Financial autonomy, internal protocols and reporting

arrangements, may achieve some of the benefits of more robust, external arrangements.

The above benchmark principles are universal but the process for applying it will depend on

OECD (2013), Principles For The Governance of Regulators, Public Consultation Draft.

Macolm K. Sparrow, Effective Regulation, John F .Kennedy School of Government, Harvard

University,18th May 2000, available at

https://www.iosco.org/library/annual_conferences/pdf/ac25-13.pdf, accessed on 3rd December,2018.

Robert Baldwin, Martin Cave,& Martin Lodge, Understanding Regulation, Oxford University, P.19, 2012.

Martín Rodríguez Pardina, Julieta Schiro, Taking Stock of Economic Regulation of Power Utilities In The

Developing World, World Bank, P.10,2018,available at,

http://documents.worldbank.org/curated/en/732921527773002514/Taking-stock-of-economic-regulation-of-

power-utilities-in-the-developing-world-a-literature-review,accessed on 9th December,2018.

Section 36, Nepal Electricity Act 1984

Robert Baldwin, Martin Cave,& Martin Lodge, Understanding Regulation, Oxford University, P. 18,2012.

the context of each regulatory scheme.

If the regulatory agency is unable to implement its

policies or is incompatible to the established and accepted legal or cultural norms, then, a

country has to adopt intermediate regulatory options that could be the need of the day.

It needs transitional regulatory system

to go beyond specific traditional arrangement. For

instance, in Ukraine, transitional concession contract is used to avoid political choices on

prices and ownership.

Transitional regulatory system also depends on the governing

condition of a country and the commercialization of utilities.

The country needs to make

commitments to create higher governance and achieve greater and effective regulatory

arrangement with autonomous regulatory agencies. This will also explore opportunities or

increase the private investment.

Meanwhile, all these evaluations can be done through two dimension; governance

regulatory and substance regulatory. Governance regulatory refers to, “how” decisions are

made on legal design of regulatory system. On the other hand, substance regulatory refers

to, on “what” content decisions are made by regulatory agency under the governing body.

Evaluation of regulatory agency more focuses on Meta principles

of a good regulatory

governance such as credibility, legitimacy and transparency. It seeks to assess specific

elements of the regulatory system on how institutional and legal characteristic affect the

decision or outcome. It should focus on consequences arising from regulatory action. It

should also focus on the overall policy and institutional competence for healthy and

competitive market for better regulation which can boost a country’s economic status.

Countries like India

and Australia

are also making strategies to ensure better regulations.

Ibid ,P. 19.

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 78, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 2nd December,2018.

Ibid P. 81,

Ibid P.83

Ibid P.88,

Ibid P.20

Ibid P. 55

World Economic Forum, How Better Regulation Can Boost Growth, 2018 available at,

https://www.weforum.org/agenda/2014/12/how-better-regulation-can-boost-growth/ accessed on 27th

November,2018.

Better regulation for long term interest of consumers, available at

It is to be noted here that better institution and quality of governance, quality of regulation

and governance are correlated to give result in a favorable or better economic outcome.

Similarly, for better regulation, reform can be made. Firstly, by rejecting reliance on output

measures and persevere in search for more meaningful impact measures. Secondly, by

adopting problem solving approach to identify important problems, or assess the risks

associated with it or prioritize the problems at instant; and thirdly, by investing in

collaborative partnerships through collaborative agenda setting, effective intervention,

engaging multiple parties and optimal leveraging of scarce public resources.

This way, the challenges lie on the implementation of policies. Challenge for the

government is to enforce rules and regulations for the effective compliance of regulatory

agencies and for effective functioning of society which ensure trust in regulatory business.

Thus, the government should formulate enforcement strategies that provide correct

incentives for regulated subjects and appropriate guidelines for enforcement staff, and

minimizes both, costs and effort.

On the other hand, enforcement and inspections can be done through evidence-based

enforcement, selectivity, risk, focus and proportionality, responsive regulation, long term

vision, coordination and consolidation, transparent governance, information integration,

clear and fair process, compliance promotion and professionalism.

2.2 Development of Electricity Agencies in Nepal: A brief study

In 1935, Udyog Parishad (Development Board) was established under the mandate of

Development Board Act 1956, as a development agency. The Government of Nepal (GoN),

https://www.aer.gov.au/news-release/better-regulation-%E2%80%93-for-the-long-term-interests-of-

consumers,accessed on date,27th November,2018.

World Bank (2010), Better Regulation for Growth, P.3, available at

http://openknowledge.worldbank.org/bitstream/handle/10986/27880/556350WP0Box0310Governance01PUB

LIC1.pdf?sequence=1&isAllowed=y,accessed on 26th November,2018.

Macolm K. Sparrow, Effective Regulation, John F .Kennedy School of Government, Harvard

University,18th May 2000, available at

https://www.iosco.org/library/annual_conferences/pdf/ac25-13.pdf, accessed on 3rd December,2018.

OECD (2014), Regulatory Enforcement and Inspection, OECD Best Practice Principles for Improving

Regulatory Enforcement and Inspections, OECD Publishing, available at

https://read.oecd-ilibrary.org/governance/regulatory-enforcement-and-inspections_9789264208117-

en#page12,accessed on 9th December,2018.

Ibid P..15

was shouldered with the power to ask the Board to execute any development plans or

development works. In doing so, the Act had conferred ample power on the executive to

give effect to any development works. This way, the legislature had delegated its powers on

executive and paved the ways for the enactment of delegated legislations to implement the

provisions of this Act.

The provisions on record suggest that the Board members are appointed by the GoN.

The

GoN was also obliged to provide funds to this board or allow the board to receive the funds

so provided by the international agency.

The said Act also incorporates the mechanisms

for dispute settlement through arbitration. So, the recourse to Court was considered as the

last resort.

However, the legislation incorporates a few provisions which seek to limit the intervention

of Court at a few instances. For instance, the Court was disentitled to settle disputes arising

out of agreement or the matter regarding its implementation.

This legislation, in one or

some other way, initiated a chapter in economic development. Before the commencement

of the First Plan, the total power generation in Nepal was estimated at 6,280 KW, out of

which hydro power stood at 2,077 KW and the remaining of 4, 203 KW emerged from the

diesel plants.

The periodic development of electricity agencies could be studied as:

2.2.1 First Periodic Plan (1956-1961)

The cost of power unit of 30 K.W to 40 K.W was estimated at NRs. 50,000 and double or

triple the amount for a hundred units. This caused problems in developing the hydro power

due to the expensive price markings. So, a Special Power Board was established under

Development Board Act. This board has to ensure coordination and decision on policy

matters. The board focuses on economic maximization by operating power efficiently; the

Section3(3) of Development Board Act,1956.

Section 5(1) b of Development Board Act, 1956.

Section 9 of Development Board Act, 1956.

Mukesh Raj Kafle (2007), Electric Power in Nepal :History, Experiences & Possibilities,P2 IEEE, available

at https://ieeexplore.ieee.org/document/4510261, accessed on 3rd March,2019.

role of private enterprise in the electricity field is looked after and given order for the

development of electricity.

2.2.2 Second Periodic Plan (1962-65)

It focused on electricity development to run industries in an efficient and self-sufficient

way.

2.2.3 Third Periodic Plan (1965-1970)

Its purpose was to establish a Central Power Authority to prepare a long-term master plan

for the production and distribution of power. It also supervises the power generating units

in the eastern section.

But, despite of these issues the major concern was the non-

autonomous nature of the Authority. Thus, to make reform and develop electricity, an

autonomous institution was created which was named as Nepal Electricity Authority.

2.2.4 Fourth Periodic Plan (1970-1975)

Its objective was to increase investment in electricity projects. It puts effort to balance the

per capita income by increasing electricity production and building necessary base for a

long-term development.

2.2.5 Sixth Periodic Plan (1980-1985)

It focused on implementation of energy policies with priorities given to multipurpose power

project, to meet the short term and midterm power needed. Its objective was to create a

surplus whose exploration can augment foreign exchange earnings.

2.2.6 Seventh Periodic Plan (1985-1990)

Its objective was to install additional megawatt for the purpose of obtaining the installed

capacity of 263 MW (megawatts) and fulfilling the growing demand of various sectors and

further development of small hydropower sectors.

Government of Nepal, National Planning Commission, First Periodic Plans, P.28, Available at

http://www.npc.gov.np/images/category/FirrstPlan_Eng.pdf accessed on Oct 2.2018.

Government of Nepal, National Planning Commission,Third Periodic Plans, P.64, aavailable at

http://www.npc.gov.np/images/category/Thirs_ENG.pdf accessed on Oct 2,2018.

2.2.7 Eighth Periodic Plan (1992-1997)

Eighth periodic plan aimed to make appropriate changes with the interrelationship among

the Ministry of Water Resources, the Water and Energy Commission and Nepal Electricity

Authority through effective implementation of the principle of institutional pluralisation.

2.2.8. Ninth Periodic Plan (1997-2002)

It focused on institutional reform through plans and supervisions of the electricity project

run by public and private sector which strengthened Electricity Development Centre.

also aimed for timely reforms in management, in-service training to personnel,

improvements in provision of physical facilities, implementation of computerized billing

system, leakage of electricity control, conservation of electricity, and publicity for the use

of required machineries, carried out by Nepal Electricity Authority.

2.2.9 Tenth Periodic Plan (2002-2007)

Its vision was to reform policy to attract the private sector on electricity development by

promoting investment as per the amendment of the provision of the existing laws. Its

objective is to develop hydroelectricity as an exportable item.

2.2.10 Eleventh Periodic Plan (2007-2010)

Its objective was to create domestic and foreign investment in hydropower and ensure

reliable quality and easily accessible electricity services. It aimed to arrange existing

legislative provisions and laws for establishing Nepal Electricity Regulation for electricity

generation, transmission and distribution. It established mechanisms to make decisions on

tariff rates in transparent order for continuous supply of electricity at reasonable price. It

acquires the license for generation and distribution of electricity.

2.2.11 Twelfth Periodic Plan (2011-2014)

It aimed to bring new Electricity Act and National Electricity Regulation Commission into

force. Investment plan had to be prepared for the development of large and medium

Government of Nepal, National Planning Commission, Eight Periodic Plans, P.179, Available at

https://www.npc.gov.np/images/category/eighth_eng.pdf,accessed on Oct 2, 2018.

Government of Nepal, National Planning Commission,Ninth Periodic Plans, P.63 , available at

https://www.npc.gov.np/images/category/ninth_eng_2.pdfaccessed on Oct 3, 2018.

Ibid Pg 464

Government of Nepal, National Planning Commission, Tenth Periodic Plans, P.293, available at

https://www.npc.gov.np/images/category/10th_eng.pdf, accessed on Oct 3, 2018.

projects, like Pancheshwar Multipurpose Project and Saptakoshi Multipurpose Project.

Security had to be guaranteed for construction of project. It also envisaged to manage the

pricing process of electricity by justifying the power supply at reasonable price.

2.2.12 Thirteenth Periodic Plan (2014-2017)

It aim to invest transmission line through the Public Private Partnership Policy and prepared

to access the area. Also, it aimed to invest in municipal and larger hydropower projects and

provide local communities with share investments. For instance, National Prior Budi

Gandhaki reservoir hydro project, 600 MW, Upper Tama Koshi 456 MW, West-seti

Hydropower Project 750 MW, Tanahu Hydropower Project with 140 MW, etc were in

national priorities for construction.

2.2. 13 Constitution of Nepal

The constitution of Nepal which entered into force on Sept 20,2015 also incorporate fair

corpus of provision for proper use of energy in an affordable and easy manner by

generating and developing renewable energies.

Also, the highest law of the land secures

the rights of consumers as fundamental rights under Article 44.

2.2. 14 Fourteen Periodic Plan (2017-2020)

It had aimed to establish Electricity Generation Company, Electricity Transmission

Company, and Electricity Distribution Company for electricity trade. For the transmission

line, it aimed to study the inter transmission line, giving priority to construction work.

Similarly, with a view to effectively develop the hydropower, it has taken into

consideration the problems of climate change so as to effectively develop the hydropower.

The Government had endorsed score of planning and policies to amend necessary laws for

expediency and administrative convenience. This has also lead academic institution to

embark on the strong paten of power related to studies and research.

2.3 Development of Electricity Agencies and the grey areas

With the establishment of electricity development board, the GoN has been allocating funds

for electricity development through the Development Board. There is a well settled rule that

Article 51(g)(3), Constitution of Nepal 2015.

the disputes are to be resolved through arbitration so that the minimum recourse to courts

could be made and the litigation could be taken as the last resort.

As the development process increases, the role of private enterprise also increases.

Afterwards, the development board would have to consider the concern of the private

investor also. But it couldn’t make decision in an autonomous way. Thus, Nepal Electricity

Authority (NEA) was brought into existence with a view to expedite the cause of energy

and power service. It focuses on investment and implementation of energy law and policy.

With the increase of electricity demand, the investment should also be increased in a

proportionate manner. Thus, the GoN’s plan to bring reformations in existing plans and

hold supervision of electricity projects was an imperative which ultimately led to the

creation of Electricity Development Centre.

It [the Centre] plays role of a regulator. The functions which were carried out by the NEA

were shifted on the Centre. So, the Centre, earlier NEA, seeks to suggest approaches for

bringing the reformation in management, provide in-service training to personnel, combat

against the leakage control, or electricity conservation.

It is also to be taken into consideration that the demand of energy increases with increase of

population in any country. As the population increases, the demand of electricity also rises.

Thus, the GoN’s was under necessity to float lofty plans to attract domestic and foreign

investment. Also, there was need to bring reformations in existing laws and policies.

Certain mechanisms were adopted which played stellar roles. Those mechanisms include:

plans to make decision on tariff rate, provisions regarding license for power generation and

distribution of electricity. So, with the adoption of these mechanisms, two large and

medium projects, like Pancheshwar and Saptakoshi Multipurpose Project came into being

and they were the instrumentality of the state.

Ultimately, the government was required to make provisions relating to pricing of

electricity. Government aimed to bring new electricity Act and National Electricity

Regulation Commission to regulate the electricity market. But, this project failed to meet its

visions. In 2014-2017, the projects, like Budi Gandhaki reservoir hydroproject with the

capacity of generating 600 MW, Upper Tama Koshi with 456 MW, West-seti Hydropower

Project with 750 MW, Tanahu Hydropower Project were enlisted under priority in

construction. Moreover, the transmission lines were set up. The government then started

investing on transmission lines. New construction came across but there was still challenge

for DoED to regulate the market. This way, the government planned to bring Electricity

Regulatory Commission that will administer the establishment of electricity companies for

trade.

Regulatory agency is separate from legislature, judiciary and executive government.

The

model is designed for the newly established regulatory agency for its effectiveness,

transparency and independency so as to help the governance to enforce the regulations. The

regulator could operate the market without coming under the influence of the government.

It should act as an independent referee at the time of any conflicts and secure the optimum

interests of stakeholders while regulating the electricity market.

The regulatory model explained under Figure 1 seeks to explain the working of the

regulatory agency which should be independent from political influence. The regulatory

agency has the power to grant license and take decisions on tariff fixations. It would be

icing on the cake if the financial independency could be ensured in regulatory regime. The

appeals could lie before the High Court at the instance of any dispute. Still, an independent

tribunal could be constituted for resolving the disputes relating to the working of the

regulators. Moreover, the regulatory agency should be transparent in its working. It has to

maintain transparency while signing the power purchase agreement, or at the instance of

appointment or removal of the Chairperson and other members. However, the removal is

subject to legal provisions or the decision of Court of law. The members so appointed have

to meet the essential qualifications.

Moreover, the regulatory agency should be accountable to the government and protect the

consumer’s interest. There should be public participation in strategic planning of any

electricity project. Regarding DoED, it will be merged with NEA and unbundle into three

different companies. These companies will take suggestion from NERC and Ministry of

Energy. IPPs will purchase and sale-off its power. Nepal, now a federal state, might have

the regulatory agency suiting the federal requirements. Thus, the governments, either in

Centre or at the provinces, are under an obligation to expedite coordination while giving

birth to new projects.

Public Consultation, Draft Principles For The Governance of Regulators, OECD,P.17,2013.

FIGURE 1 ROLE MODEL OF REGULATORY AGENCIES

This model suggests for an effective, transparent and independent regulatory agency with a

view to ensure good governance in regulation and enforce the laws in letter and spirit. It

demands an independent working of the regulator.

Coordination with

provincial level

agencies

CHAPTER 3: Challenges before the Electricity Authority and Hydel

Agencies

The smoother development of electricity has been one of the major concerns of the

government of Nepal. Its development has been taken into high priority by Ministry of

Energy.

The Ministry concerned is required to formulate, implement, monitor and evaluate plans

and policies relating to energy production, management, safety, promotion and

development.

It also co-ordinates between Nepal Electricity Authority and energy related

agencies

such as DoED for electricity development. Previously, Nepal Electricity

Authority (NEA), which was created in 1985, used to regulate the overall power energy

sector by integrating the Department of Electricity constituted under Ministry of Water

Resources, Nepal Electricity Corporation and Development Boards. It serves as a key

institution in this area.

Ever since its establishment, it provides service in power system by maintaining proper

generation, transmission, and distribution of adequate, reliable and affordable service.

Undoubtedly, NEA has played an important role in distribution and proper management of

electricity market.

The experience that NEA has gathered over the last three decades is

going to be very helpful as the country plans its robust economy resting upon the

hydropower sector.

On the other hand, NEA has monopoly in generation, and transmission and distribution of

the electricity. Also, the monopoly of the Authority continues in matter connected to

survey, and standardization and safeguard of the electricity services.

Likewise, the Country has established Department of electricity development (DoED)

under Ministry of energy.

Its function is to ensure transparency regime of regulatory

framework, accommodate, promote and facilitate private sector's participation in power

Section 2A(1) of Government of Nepal Allocation of Business Rules 2064.

Section 2A(11) of Government of Nepal Allocation of Business Rules 2064.

Preamble of Electricity Act 1992.

Preamble of Electricity Act,1992.

About Us, Ministry of Energy Water Resource and irrigation department of electricity development.

available at https://doed.gov.np/about_us.php, access on 22 May 2019.

sector by providing "One Window" service and license to power projects

in small market

of Nepal. With small electricity market,

the NEA is also responsible for the management

and developing

of electricity. It has de-facto monopoly on the distribution of electricity

and network.

As the market is growing and the role of regulatory played by DoEd has

widened, the responsibility of awarding licenses to hydropower projects is also widened.

For instance, the DoED has given license to as many as 29 projects so far

and licenses for

construction of 144 transmission lines

have already been granted. Thus, it was an

imperative to establish a new regulatory regime to regulate electricity market and excel the

concerns of the hydel energy into a new height.

Conversely, the government is also planning to unbundle generation, transmission and

distribution

of electricity by curbing single-hand monopoly of NEA. Thus, NERC has to

play a major role in future to regulate electricity market. But it has to solve following

challenges, which other institution such as NEA, DoeD and Ministry of energy has been

facing:

Ibid

Pradeep Gangol, Why we need an independent Electricity Regulatory Commission hydro highlight, The

Himalayan Times; 27th March 2019.

Preamble of Electricity Act,2049 (1992).

Asian Development Bank, Nepal Energy Sector Assessment, Strategy and Road Map, P.9, 2017, available

at https://www.adb.org/sites/default/files/publication/356466/nepal-energy-assessment-road-map.pdf accessed

on 17th May,2019.

A political Economy Analysis of Electricity Tariff Restructuring in Nepal, Niti Foundation,P-2, available at

https://asiafoundation.org/resources/pdfs/PEAelectricitytariffrestructuringinNepal.pdf,accesses on 7th

July,2019.

Ministry of Energy, Water Resource and Irrigation Department of Electricity Development, available at

http://www.doed.gov.np/application-construction_license_for_generation.php, accessed on 17th May,2019.

Ministry of Energy, Water Resource and Irrigation Department of Electricity Development, available at

http://www.doed.gov.np/transmission_construction_license.php,accessed on 17th May,2019.

14th Perodic Plan 2073/74-2075/76,P.186, available at

http://www.npc.gov.np/images/category/14th-plan-full-document.pdf, accessed on 17th May,2019.

3.1 Balancing Demand and Supply

In demand and supply regime, NEA is facing millions of loss due to lack of proper

planning. In Fiscal Year (FY) 2017-18

, the demand of power increased with the increase

of consumers from 3.26 million to 3.55 million. This way, the NEA saw a significant

increase in number of consumers.

To be specific, the increase of consumers led to the increment of total demands of

electricity from 6,257.73 to 7,057.93 GWh that makes an increment by 12.79%. In order to

fulfil this added demand, NEA has to import (buy) electricity from local IPPs and from

neighbouring country India. However, the story does not end here. The wide increment in

number of consumers has also led to further interdependency. Buying of electricity has also

increased by 19.36 % (40,364.29 Million NRs) than previous year (33,817.27 Million

NRs)

. But, out of the total, NEA contributes just 32.71% of total energy and remaining of

the energy is imported from local IPPs (30.7%) and from India (36.58%).

The diagram

here provides a vivid picture on amount of expense made by NEA in FY 2017-2018:

Nepal Electricity Authority Annual Report, 2017/18,P. 9,2018, available at.

http://www.nea.org.np/admin/assets/uploads/supportive_docs/90599295.pdf

accessed on 3rd Jaunary,2019.

Nepal Electricity Authority Annual Report, 2017/18,P. 10,2018, available at.

http://www.nea.org.np/admin/assets/uploads/supportive_docs/90599295.pdf

accessed on 3rd Jaunary,2019.

Ibid

FIGURE 2 REQUIRED ELECTRICITY FOR NEA

This way, its explicit that a country with the capacity of generating 42,133MW

is still

importing 2,581.80 GWh from India to fulfill the country’s demand. The studies show that

such practice of importing power from India is not a profit-making business. NEA faced

loss of NRs 14,765.25 Million so far. The loss seems to have increased by 5%

, and lack of

proper planning is to be blamed for that.

Thus, there lies a tough challenge for NEA to

overcome loss by adjusting a balance between the supply and demand of electricity.

During supply and demand through transmission line, NEA is facing technical and

commercial losses of around 25%, which needs to be reduced.

This loss is faced by NEA

due to lack of proper economic analysis. However, the price couldn’t be set merely on the

Government of Nepal, Water and Energy Commission Secretariat, Electricity Demand Forecast Report

(2015-2040) P.8, 2017, available at https://www.moen.gov.np/pdf_files/Electricity-Demand-Forecast-Report-

2014-2040.pdf accessed on 3rd January ,2019.

India Ups Price of Electricity Exported to Nepal, Republica, 30th March,2018, available at

https://myrepublica.nagariknetwork.com/news/india-ups-price-of-electricity-exported-to-nepal/ accessed on

2nd January,2019.

Make It transparent, Nepal Energy Forum,2013,available at http://www.nepalenergyforum.com/make-it-

transparent/, accessed on 3rd Jaunary,2019.

Damir Cosic, Rafael Dominguez, Ruth Hill, Ashish Narain, Petal Jean Hackett and Persephone Economou,

Nepal Systematic Country Diagnostic, A New Approach for a Federal Nepal, P.16,2018

Nepal Electricity Authority

Local IPP = NRs 12,395.87

Million (30.7% of 40,364.29)

(1,777.24 GWh increase by

21.97%)

India= NRs 14,765.25 Million

(36.58% of 40,364.29)

(2,581.80 GWh increase by

18.70%)

Electricity = NRs 13,203.1

Million (32.71% of

40,364.29) (7,057.93 GWh

increased by 12.79 %)

basis of cost; it also has to consider the strength and elasticity of demand.

In this regard,

discounted cash flow analysis is one the major methodologies for economic analysis of

project in which investors are using it.

This shows why they invest in a project that might

save some thousands of dollars in electricity compared to a project that would increase

sales; the company’s working capital and consequently the profits.

It also helps to

generate revenue. For Example; In FY2017- 2018

transmission loss statuses are:

FIGURE 3 TRANSMISSION LINE LOSS

If this technical loss is managed, then the country can add huge revenue to its account.

Thus, NEA has a challenge to reduce transmission loss during supply. Alternative method

to overcome this financial loss can be only analyzed through cost benefit analysis. It is a

tool that attempts to assign a monetary value to all non-economic aspects of a decision. The

relation between the implementing cost of a project and the benefit created by it is

determined by the cost benefit analysis.

Stephen C. Little Child,Operational Research and Regulation :Theory and Practice, The Journal of the

operational Research Society,P.3, 2016, available at https://www.jstor.org/stable/3010012.

Fabio Correa Leite & Decio Cicone, Energy- Efficiency Economics as a Resource for Energy Planning.

P.23,2013,available at http://www.scirp.org/journal/ojee accessed on 20th May 2019.

Ibid

Nepal Electricity Authority, Annual Report,2017/18,P. 47, 2018, available at.

http://www.nea.org.np/admin/assets/uploads/supportive_docs/90599295.pdf

accessed on 3rd jaunary,2019.

Fabio Correa Leite & Decio Cicone, Energy- Efficiency Economics as a Resource for Energy Planning.

P.24 ,2013, available at http://www.scirp.org/journal/ojee accessed on 20th May 2019.

Transmission line loss

Total amount of electricity

import 6347849.13 MWh -Total

amount of electricity export

5990500 MWh = Total amount

of electricity line loss 357349.13

MWh

Total income generated by

transmission department is NRs

1, 41, 39,913.26.

In addition to it, due to the absence of transmission line, NEA is facing commercial loss.

DoED has power to issue transmission construction license for 110

projects but of

projects such as Hewa Khola Hydropower Project’s delay in the completion of transmission

line located at Kabeli Corridor.

The other transmission line such as Koshi Corridor

and

Marshyangadi Corridor

are also not timely constructed.

On the other hand, NEA is indebted with a loan of NPR 922.99 million in Power

Transmission Company.

If transmission project has been constructed within the given

time frame, then the country could have exported surplus electricity to India during the

summer season. This would have turned beneficial for Nepal but wish it could have

happened. So, to overcome with this challenge, NEA is in want of making a proper

economic analysis in order to resolve this issue and for that it could strike a balance

between demand and supply of electricity.

In addition to it, electricity supply and demand could be balanced by adopting a grid control

and electricity dispatching system. If balance falls out, problem occurs.

Its obvious that

the demand of electricity would increased with the rapid increase of population and

Lack of Transmission Lines Affecting Power Evacuation, Nepal Energy Forum, 31st

December,2014,available at

http://www.nepalenergyforum.com/lack-of-transmission-lines-affectiing-power-evacuation/, accessed on 2nd

January,2019.

Department of Electricity Development,List of issued Transmission Construction License,

December,24th,2018, available at http://www.doed.gov.np/transmission_construction_license.php accessed on

2nd January, 2019.

Bibek Subedi, Enough power, not enough power lines,Kathmandu Post,30th December 2018, available at

https://kathmandupost.ekantipur.com/news/2018-12-30/power-transmission-lines.html, accesses on 2nd

January, 2019.

Construction of Koshi Corridor Transmission Line Resumes, Himalayan Times, 8th April, 2019 Available at

https://thehimalayantimes.com/business/construction-of-koshi-corridor-transmission-line-resumes/,accessed

on 2nd January, 2019.

Bibek Subedi, Marshyangadi corriodor 220 kV transmission line : Indigenous people demand their say in

power project, Kathmandu Post, 10th August, 2018,available at

https://kathmandupost.com/money/2018/08/10/indigenous-people-demand-their-say-in-power-

project,accessed on 2nd January,2019.

Nepal Electricity Authority Annual Report, 2017/18,P. 161, 2018, available at.

http://www.nea.org.np/admin/assets/uploads/supportive_docs/90599295.pdf

accessed on 3rd jaunary,2019.

Ramesh K. Maskey,Prospects of Storage and Pumped Storage Hydropower for Enhancing Integrated

Nepal Power Systems, Issue no 15, Hydro Nepal Journal,P.37, 2014.

economic expansion.

So, to address this need, the country should have an ample storage-

type project to operate.

3.2 Foreign Investment

Much like other complexities, another challenge before the NEA is in foreign investment

sector. Undoubtedly, foreign investment is a necessary evil to strike a balance between

demand and supply. The government of Nepal is hopeful that the growing demand in future

would lead to grid extensions.

On this note, it is also to be noted here that if the population grows within the grid

connection area, its obvious that there would be hike in number of consumers and

ultimately it would be contribute in the national economy. It is assumed that the national

population will witness an increment by the growth rate of 1.4%. This way, the country is

expected to see the total population from existing 28.06 million to 39.72 million.

Importantly, this will also increase the GDP growth rate by 9.2% per annum with the rise of

demand for energy of 24265.05 GWh by 2025 and 115,294.44 GWh by 2040.

100

In a bid to address this demand, the country requires installation of energy equipment’s

with the capacity 10803 MW and 51330 MW.

101

Moreover, NEA is in need of investments

for upgrading all transformers, feeders and cables because of the unreliability and

complexities

102

associated with the distribution system. Given the economic crisis, Nepal is

A.G.M. Niaz Uddin,Md.Kamal Uddin, Hydropower Dams, Environment and Politics, Vol.2.Journal of

International Affairs, P.1,2018.

Ramesh K. Maskey, Prospects of Storage and Pumped Storage Hydropower for Enhancing Integrated

Nepal Power Systems, Issue no 15,Hydro Nepal Journal,P.37, 2014.

Government of Nepal, Water and Energy Commission Secretariat, Electricity Demand Forecast

Report(2015-2040), P.1, 2017, available at https://www.moen.gov.np/pdf_files/Electricity-Demand-Forecast-

Report-2014-2040.pdf accessed on 3rd January,2019.

100

Ibid P.15,

101

Nepal Electricity Authority,Annual Report,2017/18,P. 17, 2018, available at.

http://www.nea.org.np/admin/assets/uploads/supportive_docs/90599295.pdf

accessed on 3rd Jaunary,2019.

102

Puspa Raj Acharya,We are Focused on Robust Transmission, Distribution System, 2nd October,2018,

available at

https://thehimalayantimes.com/business/we-are-focused-on-robust-transmission-distribution-system/,accessed

on 5th Janary,2019.

not in a position to make investment alone.

103

The World Bank report

104

suggests that

public investment in Nepal is inefficient. The problem does not end here. The FDI policy

with which Nepal wish to march ahead is also not much progressive in nature. It has limited

to exploit the potential for inflow because country truly reaps the benefit of FDI.

105

Thus,

the NEA is shrouded with scores of challenges which is creating hindrance in maintaining

demand and supply without foreign investment.

106

So, the foreign investment in Nepal’s

hydel sector is also a necessary evil.

More so, the role of grid connection transmission lines is an imperative. The government

has established Rastriya Prasaran (National Transmission) Grid Company Limited in order

to build an effective transmission line system and to address the energy crisis of Nepal. The

NEA has 48% of its share in it.

107

Investment in transmission line could also be done

through customer utility bill. But, maintenance and repairing of grid connection is mainly

done by state-owned utility in our context. This utility also needs external funding for

investment including donor and government support. The investors are facing problem in

managing funding due to the delay in concluding the financial and operational modalities.

For instance, Millennium Challenge Corporation (MMC) is investing along with

government of Nepal for $500 million transmission line project due to delay in financial

and operational modalities.

108

103

Government of Nepal 10 year Hydropower development plan, Ministry of Energy, Water Resources and

Irrigation, P.4,2065,

available at http://www.moewri.gov.np/images/category/taskforce_report_partI.pdf accessed on 5th

March,2019.

104

Damir Cosic, Rafael Dominguez, Ruth Hill, Ashish Narain, Petal Jean Hackett and Persephone Economou,

Nepal Systematic Country Diagnostic, A New Approach for a Federal Nepal, World Bank, P.15,2018.

105

Pradeep Gangol, Foreign Direct Investment in Nepal's Hydropower, P.1, Nepal Journals Online, available

at https://www.nepjol.info/index.php/HN/article/download/11256/9126, accessed on 5th March,2019.

106

Government of Nepal 10 year Hydropower development plan, Ministry of Energy, Water Resources and

Irrigation,P.4, 2065,available at,

http://www.moewri.gov.np/images/category/taskforce_report_partI.pdf,accessed on 5th March,2019.

107

Nepal Electricity Authority Annual Report,2017/18,P. 17,2018. available at.

http://www.nea.org.np/admin/assets/uploads/supportive_docs/90599295.pdf

accessed on 3rd Jaunary,2019.

108

Transmission line Project Modalities Yet To Be Fixed, Kathmandu Post 15th September,2018, available at

http://kathmandupost.ekantipur.com/news/2018-09-15/transmission-line-project-modalities-yet-to-be-

fixed.html accessed on 2nd January,2018.

Thus, NERC has to resolve these problems to encourage investment in order to maintain a

balance between supply and demand of electricity. On the other hand, it is also challenging

for NEA to maintain national electricity transmission an independent body.

109

3.3 Transparent and independent business is the need of the day

Like other sectors, Nepal’s energy sector is also not untouched with political or executive’s

influence. This happens to be yet another challenge for the NEA to maintain the body

independent and transparent. Also, there is a lack of coordination among sectorial ministries

and departments. For instance, for any business activities (Generation, Transmission and

Distribution) a developer needs license. NEA has authority to issue license for business

activities to the developer for electricity.

110

However, the authority to issue license for the

survey, generation, transmission & distribution rests with Department of Electricity

Development (DoED).

111

The investor has to submit the application along with all required

documents before DoEd for obtaining license for generation

112

, transmission

113

and

distribution.

114

Notably, DoED is developed under Ministry of Energy.

115

At this backdrop,

there must be proper coordination between DoED, Ministry and NEA, which Nepal

currently lacks.

116

While talking about other challenges, the complexities are associated with selling of license

in higher price. Some who are not actual promoter, and have inadequate financial and

technical knowledge and yet they are holding licensees.

117

Its often found that they are

engaged in selling the licenses, which they acquired, to potential developers at higher

109

20 years Hydropower Development Work 2066, Report, Ministry of Energy, Water Resources and

Irrigation, available at http://www.moewri.gov.np/images/category/Twenty-Year-Task-Force-

Report_merged.pdf,accessed on March,2019.

110

Section 4, Electricity Act 1992.

111

Section 3, Electricity Rule 1993.

112

Section 4, Electricity Rule 1993.

113

Section 5, Electricity Rule 1993.

114

Section 6, Electricity Rule 1993.

115

About Us, Ministry of Energy Water Resource and irrigation department of electricity development.

available at https://doed.gov.np/about_us.php, access on 22 May 2019.

116

Rabindra Adhikari,What we need is a powerful new body to coordinate among government agencies,

Myrepublica, 27th July, 2017, available at https://myrepublica.nagariknetwork.com/news/what-we-need-is-a-

powerful-new-body-to-coordinate-among-government-agencies/, accessed on 22th May 2019.

117

Government to Scarp 600 Survey License Application, Nepal Energy Forum,7th April, available at

http://www.nepalenergyforum.com/govt-to-scrap-600-survey-license-applications/

accessed on 1st January,2019.

prices. This practice has made a huge loss to the country and it ultimately turns a business

of no gain for hydropower.

Meanwhile, there is no transparency in distribution of license. DoED has issued license to

204 companies in the category of 1-25 MW with the capacity of 2083.926 MW. Among

them, 11 companies had expiry of license on 1st January, 2018.

118

As of now, eleven

projects should have gone into construction phase. But, this has not happened so far. This

way, its crystal clear that there is a fault in issuing of license. So, the issuing of license is

neither systematic, nor transparent.

3.4 Policy issues

The major challenges developers are facing is inconsistency in policies relating to

hydropower. The Electricity Act has provides production license for a period of 50 years

119

whereas, hydropower development policy grants license for a span of 35 years.

120

Similarly, the load forecast projections of NEA is also untouched with complexity. NEA’s

System Planning Department is shouldered with responsibility to make this forecast.

Ironically, such forecasts are not given due weight by the Department of Electricity

Development (DOED). In this light, Finance Minister Dr. Yubraj Khatiwada has once said

that NEA forecast doesn’t match with the reality

121

. He is hopeful that Nepal would

generate electricity of 15000 MW at its own in next 10 years. .

Similarly, fluctuating target of hydropower is other challenge. Table 2 deals with

hydropower generation which merits contribution of water Resource strategy,

hydroelectricity development plan (10-year and 20-year both) and Electricity Development

Policy. The GoN has already unveiled its plans to add 17,000 megawatts in about seven

years. But, it is unclear how this will be achieved.

122

This plans appears as a daydream

118

Department of Electricity Development, List of Issued survey licenses (1 to 25 MW), 24th December,2018,

available at

http://www.doed.gov.np/survey_license_for_generation_1-25mw.php accessed on 1st January,2019.

119

Section 5(2), Electricity Act,2049.

120

Hydropower Development Policy,2001, 6.12.11.2(a).

121

Government of Nepal office of Investment Board (2015), available at https://www.ibn.gov.np/nea-s-

energy-demand-forecast-will-be-reviewed-says-npc-vc, accessed on 5th May, 2019.

122

Damir Cosic, Rafael Dominguez, Ruth Hill, Ashish Narain, Petal Jean Hackett and Persephone Economou,

Nepal Systematic Country Diagnostic, A new approach for a Federal Nepal, World Bank,P.19,2018, available

project when it comes to learn that “there is delay in land acquisitions”,

123

and the lack of

proper policy frameworks.

Policy/Plan/Strategy

Target

Remarks

Period

Capacity

(MW)

Water Resources Strategy,2002

2002-2027

22,000

Including 15,000MW for export

10 year Hydroelectricity

Development plan,2009

2009-2020

10,000

Including export of 3,000MW

to 5,000MW

20 year Hydroelectricity

Development plan,2010

210-2029

37,628

Including 3 multipurpose

project (Karnali Chisapani,

Pancheshwar and Saptakoshi)

Electricity Development

Decade,2016

2016-2026

10,000

Later upgraded to 17,000MW in

7 years

TABLE 2 FLUCTUATION OF TARGETS IN HYDROPOWER GENERATION IN NEPAL

124

3.5 Electricity Tariff Rate

Surprisingly, our NEA was reluctant to adjust PPA for developers. The Electricity Tariff

Fixation Commission (ETF) was also not convinced with the idea of adjusting with

consumer tariffs. Then, NEA proposed to revisit consumer tariff schemes.

There also appears political interference, administrative and financial irregularities within

the NEA.

125

It has led to failure of adopting any progressive consumer-friendly Tariffs. In

this way, the NEA is shrouded under black clout which is creating problems to maintain

http://documents.worldbank.org/curated/en/966981520367373513/pdf/123958-SCD-nepal-

CountryDiagnostic-10.pdf,accessed on 13th January,2019.

123

Nepal Investment Board, New Policy can Resolve Most of the Problem in Land Acquisition, available at

https://www.ibn.gov.np/new-policy-can-resolve-most-of-the-problems-in-land-acquisition accessed on 6th

January, 2019.

124

Gaudel, Prakash, Cross Border Electricity Trade opportunities and Challenges for Nepal ,Vidyut, Year 29.

No1, P. 49, 2075, available at

http://www.nea.org.np/admin/assets/uploads/supportive_docs/Final%20Bidhut%20Bhadra%202075.pdf

accessed on 6th January,2019.

125

A political Economy Analysis of Electricity Tariff Restructuring in Nepal, Niti Foundation,P-8, available at

https://asiafoundation.org/resources/pdfs/PEAelectricitytariffrestructuringinNepal.pdf, accesses on 7th

July,2019.

purchase-sell rate in a proportionate manner. In fact, these issues are preventing NEA from

turning into a profitable entity.

126

Similarly, there might be conflict of interest among stakeholders on tariff restructuring

schemes. There must be suitable tariff and market for both international consumers and

domestic consumers.

127

Earlier, the electricity tariff calculation and other charges used to be

fixed by tariff fixation commission.

128

On other hand, Economic Analysis Department of

NEA plays crucial role in adjusting proper electricity tariff and service charge.

129

There is a

huge loss due to mismatch between purchase and selling rate of electricity. To be specific:

a) Average rate for industrial sector user is NRs 9.66 per unit.

b) NEA costs NRs 12.13 per unit for supplying power to industries.

This example demonstrates a clear picture that NEA is facing a loss of NRs 2.47 per unit.

Likewise, NEA board used to forward proposal for hiking tariff before the Electricity

Tariff Fixation Commission (ETFC) and request the body to suggest ways for minimizing

the loss incurred because of inefficient power utility.

130

This way, NERC also plays a

significant role in tariff decisions.

Still, the challenge lies with the government to subsidize electricity (used by industries) by

hiking tariff rate. The adjustment of voltage is also a major concern. There are two types of

rates, one for non-commercial purpose and the other for commercial purpose. The charge

for industrial sector is comparatively lesser than non-commercial ones.

Tariff Rate

126

Niraj Rai, Padmendra Shrestha, & Saumitra Neupane ,Engaging in reforming policies in Nepal: An

Analytical documentation of the Niti Foundation's Experience in Nepal's Hydropower Sector, DFAT-TAF

Partnership, Working Paper Series #5, P.15,2016.

127

Ibid,P.16.

128

Section 17, Electricity Act 1992.

129

Nepal Electricity Authority Annual Report,2017/18,P. 86,2018 available at.

http://www.nea.org.np/admin/assets/uploads/supportive_docs/90599295.pdf

accessed on 3rd Jaunary,2019.

130

NEA asks to ETFC to Hike Power Tariff,The Himalayan Times,8th August,2017, available at

https://thehimalayantimes.com/business/nepal-electricity-authority-asks-electricity-tarrif-fixation-

commissionto-hike-power-tariff/, accessed on 5th January,2019.

Consumer Category

Demand Charge Rs.

Per KVA/Month

Pick Time

(1700:23:00)

Normal Time

(23:00-5:00)

1.High Voltage (66Kv or above

Industrial)

240

9.30

7.50

2.Medium Voltage (33KV)

a) Industrial

250

10.20

8.40

b) Commercial

315

12.30

10.80

c) Non Commercial

240

13.20

12.00

d) Irrigation

6.30

4.70

e) Water Supply

(i) Community Water Supply

220

7.30

5.50

(ii) Other Water Supply

220

10.20

8.40

f) Transportation

(i) Trolley Bus

230

7.00

5.50

(ii) Other Transportation

255

9.35

8.40

g) Street Light

8.40

4.20

TABLE 3 ELECTRICITY TARIFF RATE FROM PAUSH TO CHAITRA 2017-2018

131

Similarly, the challenge EFCT is also facing challenges in tariff restructuring and adjusting

interest of different group.

132

The challenges could be listed as:

a) DoED has the control over hydropower licensing schemes. Thus, it could favor

investors by increasing PPA rates. This could offer an opportunity for the entire

departments to hike license fees and make higher rate of return for private investors.

b) The labor unions or trade unions affiliated with different political parties seem to

have stood miffed with tariff schemes in the wake of ETFC’s call for reformations

131

Nepal Electricity Authority Annual Report, 2017/18, P. 179, 2018, available at.

http://www.nea.org.np/admin/assets/uploads/supportive_docs/90599295.pdf

accessed on 3rd Jaunary,2019.

132

A political Economy Analysis of Electricity Tariff Restructuring in Nepal, Niti Foundation,P-9, available at

http://asiafoundation.org/resources/pdfs/PEAelectricitytariffrestructuringinNepal.pdf,accesses on 7th

July,2019.

in internal governance and management of NEA itself. ETFC believes that there

could be cut in amenities provided for the employees. For example, there could be

cut in 100 unit free electricity scheme provided to nearly 10,000 employees.

The table provides further clarity on this matter:

Stakeholder

Interest

Independent Power

Producers

The advocates of PPA wish to review PPA rates to address the

inconsistency between foreign and domestic IPPs, and increase the

PPA rate so that developers make an adequate return on their

investment

Consumers/NACEUN

They are concerned with any increase in the consumer-friendly

tariffs. They advocate a new governance regime for community

electrification and argue that social equity must be taken into

consideration while making decisions regarding consumer tariff.

ETFC

Its also concerned with any increment in the consumer tariff

schemes. They advocate for a new governance regime aimed at

community electrification.

NEA

PPA must be increased to attract private investment in the

hydropower sector. The PPA rates should be hiked with the hike in

consumer tariffs-- in order to ensure the agency’s financial

viability. But, ETFC stands indifferent to increase tariffs.

Political parties/actors

They hesitate to increase consumer tariffs, fearing backlash.

Others (bureaucrats

and labour unions)

Bureaucrats seem to have favoured the decision aimed at

increasing the PPA and the license fees paid by developers. But,

the labour unions remained reluctant.

TABLE 4 STAKEHOLDERS AND THEIR INTERESTS IN TARIFF RESTRUCTURING

133

Ibid

3.6 Power Purchase Agreement (PPA)

NEA faces challenges in PPA as well. The Authority witnessed problems in Power

Purchase Agreements in Khimti and Bhotekoshi hydro-power projects and that problem led

to the annual loss of Rs. 200 million. This would not have happened if the issues were made

public and the Authority had initiated public debate for its resolution.

134

Similarly, in Arun-

III project, transmission right was given to SJVN Arun-III Power Development Company in

which Government of Nepal was required to request the company (in writing) to provide

access of transmission line to other user and interconnect with national grid.

135

Another

fault is with the expensive Upper Trishuli-1 project where “sovereign guarantee” is given

by government to pay the developer in USD if NEA is not in a position to make payment.

136

So, the government stands a guarantee there. Similarly, World Bank Report’s state that

Project Development Agreement on power purchase provides aid for private investment is

not developed internationally standard by NEA

137

.On the other hand, NEA has higher PPA

incentivizes increased generation and PPA rate does not reflect generation cost.

138

Furthermore, challenge for NEA was price of energy tariff at the time of power trade

negotiation taking place between NEA and India. But after seven years, this issue was

sorted out. India- Nepal Exchange Committee meeting held with Central Electricity

Authority and State Power Utilities fixed tariff at INR 5.55, 6.00 and 6.45 per KWh at

132KV, 33KV and 11KV respectively. In the absence of this meeting, NEA was bound to

pay energy tariff of 5.5% escalation per annum at all voltage level.

139

134

Make It Transparent, Nepal Energy Forum, 17th April,2013, available at

http://www.nepalenergyforum.com/make-it-transparent/,accessed on 5th January,2019.

135

Clause 10.13.2.Of Project Development Agreement of Arun-3 Hydropower Project, P.44. available at

https://www.ibn.gov.np/uploads/files/Working%20Classification/PDA/Arun-3%20HEP%20PDA%20(GoN-

SAPDC).pdf accessed on 6th January,2019.

136

Govt generous in PDA,PPA with Foreign Developers, Nepal Energy Forum, available at

http://www.nepalenergyforum.com/govt-generous-in-pda-ppa-with-foreign-developers/ accessed on 6th

January,2019.

137

Damir Cosic, Rafael Dominguez, Ruth Hill, Ashish Narain. Petal Jean Hackett and Persephone Economou,

Nepal Systematic Country Diagnostic, A new Approach for a Federal Nepal,P.19,2018,

138

Niraj Rai, Padmendra Shrestha, & Saumitra Neupane, Enganging in reforming policies in Nepal: An

Analytical documentation of the Niti Foundation's Experience in Nepal's Hydropower Sector. Niti

foundation,P19,2016,

139

Nepal Electricity Authority, Annual Report,2017/18,P. 14, 2018,available at.

http://www.nea.org.np/admin/assets/uploads/supportive_docs/90599295.pdf

accessed on 3rd Jaunary,2019.

Recently, energy department of Nepal and India hold a discussion on tariff on electricity

imported from India and power banking and modality of cross border power transmission

line were also among the agenda of discussion.

140

Yet, negotiation on tariff determination

and transmission line is itself a tidy task. Due to lack of proper tariff,

141

negotiation

142

West Seti’s 750-megawatt project is still in pendulum.

3.7 Protection of Right and Business Interest

NEA has monopoly over the transmission, distribution and sale of power to customers.

143

This way, the consumers are not left with the option to choose other electricity supplier.

They are not in a position to exercise their discretionary power. Even power generated by

Independent Power Producer (IPP) is sold through NEA.

144

Thus, this sort of monopoly has

created challenge; and issues such as substitutes, entry barriers, competitors, higher price,

inferior quality and service in electricity market are at floor.

145

On the other hand, the

transmission and distribution of energy by NEA is taken naturally. But, while making this

sort of opinion, the need of competitive market should not be forgotten.

146

Additionally,

there is the challenge to protect the loss and leakage of electricity during distribution which

causes significant impact on the quality and price.

140

NEA Seeks Power Tariff Hike For Industrial Sector, The Himalayan Times, 22th January 2017, available at

https://thehimalayantimes.com/nepal/nepal-electricity-authority-seeks-power-tariff-hike-for-industrial-sector/

accessed on 5th January,2019.

141

Development of West Seti in Limbo as CTGC ups Demands, The Himalayan Times,7th March,2018,

available at

https://thehimalayantimes.com/business/development-west-seti-limbo-ctgc-ups-demands/ accessed on 6th

January,2018.

142

Bikash Subedi,West Seti Hydropower Project in Limbo as Negotiations Drag, Kathmandu Post, 17th

June,2017,available at

http://kathmandupost.ekantipur.com/news/2017-06-17/west-seti-hydropower-project-in-limbo-as-

negotiations-drag-on.html accessed on 6th january,2019.

143

Nepal Electricity Authority, Restructuring of NEA,P.7, 2004 available at

https://sari-energy.org/oldsite/Publications/REP/Utilities/NepalRestructuringPart1.pdf,accessed on 2nd

January,2019.

144

NEA, Nepal Electricity Authority Annual Report,2017/18,P. 10,2018 available at.

http://www.nea.org.np/admin/assets/uploads/supportive_docs/90599295.pdf

accessed on 3rd Jaunary,2019

145

Characteristic of Monopoly Market.

146

Christian von Hirschhausen, Power Utility Re-Regulation in East European and CIS Transformation

Countries(1990-1999), P. 3 available at

https://pdfs.semanticscholar.org/8901/1099f7f3775cf7201a023edf76de0cf15734.pdf;accessed on 6th

January,2019.

Similarly, NEA has challenges in making competition between business units. For instance,

Budhi Gandaki Hydro Project was awarded to China’s Gezhouba Group Corporation

without fulfilling any bidding process or free competition.

147

With this weak competitive structure, there is presence of regulatory barriers that restrict

entry and prevent international competition. Barriers such as foreign ownership limitations,

sector caps, long negative list, restriction on non-equity modes of investment and lengthy

process to hire foreign workers seem to have created hindrance.

148

3.8 Information Asymmetrical

Public and private entities are under an impression that if they would disclose information

relating to the hydropower, the local people might come to seek compensation at the

instance of any fault from their part. Information, which is asymmetrical, will create

misperceptions about the actual cost and benefit of the project.

149

3.9 Environmental

Over and above it all, environmental concern is a must that need to be taken into

consideration while working on any (hydropower) project. The development projects

should be given into effect without causing adverse impact on agricultural lands, wetlands,

and river corridors.

150

The impacts may differ from case to case and thus, identifying its

most significant impacts is a complex job.

151

Neither, an exhaustive list of it could be

prepared.

147

Budhi Gandaki Again Awarded to China Gezhouba Without Free Competition, Nepal Energy Forum,23rd

September,2018, available at

http://www.nepalenergyforum.com/budhi-gandaki-again-awarded-to-china-gezhouba-without-free-

competition/,accessed on 6th January,2019.

148

Damir Cosic, Rafael Dominguez, Ruth Hill, Ashish Narain, Petal Jean Hackett and Persephone

Economou,Nepal Systematic Country Diagnostic, A New Approach for a Federal Nepal,P.16,2018.

149

Niraj Rai, Padmendra Shrestha, & Saumitra Neupane, Enganging in reforming policies in Nepal: An

Analytical documentation of the Niti Foundation's Experience in Nepal's Hydropower Sector, Niti

Foundation, P.24, 2016.

150

Jim Roosi, The Trojan Hourse of Electric Power Transmission Line Sitting Authority.P.1021,2009,

available at http://ssrn.com/abstract=1472102 20th March ,2019.

151

A.G.M. Niaz Uddin,Md.Kamal Uddin, Hydropower Dams, Environment and Politics, Vol.2,Journal of

International Affairs, P.3,2018.

In our context, environmental challenges that are likely to occur are landslides (Kali

Gandaki A

152

and Khimti Khola hydropower project); or the impact on sediments or

biodiversity

153

or fisheries.

154

The hydropower sector seems to have adopted some measures

to combat with environmental pollution. Ministry of Forests and Environment, in

partnership with the International Finance Corporation (IFC), has issued a new Hydropower

EIA Manual.

155

But, this Manual exclusively addresses the risks of particular (specified)

hydropower projects.

156

Similarly, Ministry of Environment and Forest disallows the

creation of transmission line projects at the cost of environmental degradation or chopping

down of trees. For Example, 20 kV Chilime-Trishuli Transmission Line Project, Hetauda-

Dhalkebar-Duhabi transmission line, Solu Corridor, Koshi Corridor, Kali Gandaki Corridor

and Marshyandi Corridor

157

are facing a difficult time as the Ministry is not granting a

green signal to them. The Ministry is much concerned with environmental concerns. In

India, the government does not allow for the implementation of any project if it believes

that such projects could contribute to climate change or environmental hazards.

158

So, from the above discussion, a few things are clear. First, there are basically two major

institutions which play major role in hydropower business and they are NEA and DoED.

152

Landslide Blocks Kali Gabdaki River, SpotlightNepal, 23rd May,2015, available at

https://www.spotlightnepal.com/2015/05/23/landslide-blocks-kali-gandaki-river/,accessed on 2nd

February,2019.

153

John C. Garcia, Hydropower, a Good Alternative for Nepal: Challenges and Approaches, Hydro Nepal

Journal of Water, Energy and Environment, P 2, 2007, available at

https://www.nepjol.info/index.php/HN/article/view/964, accessed on 2nd February,2019.

154

S. Sharma, S. Banjade & R. Bhandari, Impact of Khimti-I Hydropower in Nepal on the Ecological Status of

River and Fishermen's Livelihood, P.1,2007, available at

https://pdfs.semanticscholar.org/3e3d/c9c765b3a2e2d8d05b7273d6611228c105b3.pdf,accessed on 2nd

February,2019.

155

Government of Nepal, Ministry of Forest and Environment, Hydropower Environment Impact Assessment

Manual, July 2018, available at

https://www.ifc.org/wps/wcm/connect/537db79c-0d44-43a3-a493-

6693a55531d6/21092018_Hydropower+EIA+Manual_Final+Layout.pdf?MOD=AJPERES, accessed on 2nd

February,2019.

156

Eugene Simonov, Nepal’s Hydropower Boom Needs Strategic Assessment And Public Oversight, The Third

Pole net 16th January, 2019, available at

https://www.thethirdpole.net/en/2019/01/16/nepals-hydropower-boom-needs-strategic-assessment-and-public-

oversight/.accessed on 2nd February,2019.

157

Bikash Subedi, Lack of Tree Cutting Permits Holds up Power Line Projects, Kathmandu Post, 2nd February,

2019, available at

http://kathmandupost.ekantipur.com/news/2019-02-02/lack-of-tree-cutting-permits-holds-up-power-line-

projects.html, accessed on 2nd February,2019.

158

Ramesh Bhushal, Infrastructure Project Under China, India Ignore The Potential Impact of Climate

Change, Nepali Times, 9th January, 2019, available at

https://www.nepalitimes.com/banner/climate-denial-in-the-himalaya/ accessed on 2nd February,2019.

Second, NEA faces challenges in terms of planning of demand and supply. The faulty

planning is to be held responsible non-production of proper amount of energy in our

country. The country with generating capacity of 42,133 MW does not deserve to import

2,581.80 GWh of energy from India. This import also contributes in technical and

commercial loss that turns around 25%. We have to witness the technical loss of

357349.13 MWh during import and export of electricity. This loss could be minimized if

we succeed to manage this business in a proper way. Similarly, commercial loss is

heightening day by day in absence of transmission lines. For example, Koshi corridor,

Hewa Khola, or Marshyangadi corridors are witnessing significant loss. So, NEA is in need

of proper and timely investment to upgrade all system but our foreign policy regarding the

FDI should be compatible with the national and international needs.

CHAPTER 4 : Regulatory Agencies in foreign: A comparative outlook

In August 2017, Nepali parliament endorsed regulatory agency law, i.e., Nepal Electricity

Regulatory Commission (NERC) Act. This Act was shouldered with the responsibility to

regulate the country's energy sector.

159

The stakeholders were hopeful that the monopolization of NEA over the energy sector

would come to an end with the formation of NERC. But, their wish turned sour like bitter

grapes. The NERC should make decisions to ensure regulatory standard through credibility,

legitimacy and transparency.

160

These regulatory standards are also known as meta-

principle.

161

These standards are acknowledged by different countries’ infrastructure

regulatory system for effectiveness and sustainability.

162

They are the standards that play

crucial role in curbing prejudices in institutional administration and turns like a milestone in

regulatory governance system.

163

So, these standards would certainly help the agency to

achieve regulatory objectives.

It is a standard mechanism to achieve regulatory objective through independence,

accountability, or public participation. This mechanism will also help to evaluate the

standards taken into consideration for the regulation.

164

It bears relevance to shade light on

some standards here.

159

Parliament enacts law to govern power sector, The Kathmandu Post, 13,August,2017, available at

http://kathmandupost.ekantipur.com/printedition/news/2017-08-13/parliament-enacts-law-to-govern-power-

sector.html, accessed on 4th October, 2018 .

160

Prabhat Kishor Dimri & Shivanku Bhatt, Role of Regulatory Mechanism Concerning Energy Sector,

Consumer Protection ,Law and Advocacy, Volume 8,Issue 6,International Journal of Management, P.19,

2017,available at

http://www.iaeme.com/MasterAdmin/UploadFolder/IJM_08_06_003/IJM_08_06_003.pdf, accessed on 29th

December,2018.

161

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 55, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 2nd December,2018, accessed on 6th January,2019.

162

Ibid P.59

163

Robert Baldwin , Martin Cave, & Martin Lodge, The Oxford Handbook of Regulation, P.169,2010.

164

Ibid.

4.1 Legal Framework:

There is a precondition that the regulatory agency should have fully articulated its

jurisdictional authority, powers; duties and responsibilities

165

before entering into

implementation phase of projects. It must follow the principles, practices, procedures and

policies that are considered to be the benchmark.

It should give effect to laws of the land—be it either a primary law or statutory law.

166

This

will create an independent regulatory agency with more permanent and stable executive

decree.

167

The creation of regulatory agency is done through presidential or ministerial

decree.

168

Nepal electricity regulatory commission (NERC) has jurisdiction, authority and power to

regulate the generation, transmission, distribution or trade of electricity.

169

The projects

have to follow the principle and practice, or procedure. Statute is enacted by the legislative

authority of any country and approved by the executive authority. This is an ordinary

practice and Nepal is not an exception. After approval from the Houses, its sent to President

for certification. Once, its certified by the President, its published in gazette and formally

becomes the law. The NERC Act had undergone through these complex phases and

published under Volume 67, on 04th September, 2017. The compliance of law by the

regulatory agency would incline them on a progressive path.

170

165

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 185, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf,2018, accessed on 6th January,2019.

166

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 186, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January, 2019.

167

Ibid.

168

Ibid, P.187.

169

Section 3,Nepal Electricity Regulatory Commission Act 2017.

170

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 187, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January, 2019.

4.2 Statutory Power:

Regulatory agency has the authority to make final decisions within its statutory domain. Its

independent, meaning thereby, its not in warrant of seeking approval from the government

while making any decision.

The independency in decision-making process does not necessarily demand intervention of

the government.

171

The regulatory agency can advise the ministry concerned or

government in regulatory matters.

172

But in many countries, the role of regulator agency has

been underutilized.

173

It must have minimum jurisdiction on setting tariff;

174

making rules;

175

or carrying out

responsibilities such as decision relating to personnel, or spending money within the budget

in order to operate.

176

Also, it obtains information to carry out necessary information;

177

use

accounting standards; adopt procedure to carry out duties

178

; prevent monopoly and

promote competition;

179

protect consumer and prevent discrimination

180

; lastly, it must have

legal powers to resolve dispute.

181

NERC can appoint employees according to the provision made in bylaws but it needs

Government approval.

182

NERC has power to advise the Ministry and make suggestions on

policy-relating matters to make generation, transmission, distribution or trade of electricity

reliable and effective.

183

It has authority to determine tariff rate between purchase-sale rate

between generations, distribution and trade licensee until wholesale market of electricity is

established.

184

NERC has an exclusive jurisdiction to formulate policies on tariff setting.

But, it is yet to lay down any methodologies for determining purchase-sale rate. The

171

Ibid, P.187.

172

Ibid.

173

Ibid,P.188.

174

Ibid.

175

Ibid, P.191.

176

Ibid.

177

Ibid, P.193.

178

Ibid, P.194.

179

Ibid, P.195.

180

Ibid, P.196.

181

Ibid, P.194.

182

Section 31, Nepal Electricity Regulatory Commission Act 2017

183

Section16, Nepal Electricity Regulatory Commission Act 2017.

184

Section 13 (b), Nepal Electricity Regulatory Commission Act 2017.

procedure or the methodology is something which is urgent for the effective

implementation of law. That’s why the certain procedures or methodology must be laid

down in law. Importantly, the provisions relating to procedure or methodology must be

explicitly mentioned under the law.

185

Similarly, in order to operate agency, it must spend money from its own fund. But, the

government of Nepal holds ultimate control over the allocation of budget. The NERC is not

vested with power to claim for the budget as per its need, meaning thereby the government

has the power to exercise its discretionary power at the time of appropriate budgetary

authorization. NERC is entitled to take one percent from its income into its treasury, out of

the annual income generated by the NERC (from the sale of electricity or by the

distribution licensee).

186

Additionally, NERC has no power to carry out responsibilities

such as spending money within its budgetary authorization.

187

It has no power to make

decisions on foreign funds. It needs GoN’s approval for fund from foreign sources.

188

Its

income and expenditure should be in accordance with GoN.

189

It has power to form a

subcommittee in order to perform duties, powers, and functions.

190

NERC also maintains

the internal control system and its income and expenditure audit in a model as followed by

the GoN.

191

NERC has the power to ask for information

192

and make rule for

implementation of regulatory Act. Over and above it all, it has a the power, as conferred by

the statute, to solve dispute on certain matters.

193

4.3 Property and Contract Rights:

Regulatory agency is under an obligation to pay heed to the concerns of the persons or

entities whose interest is directly or indirectly involved. It also needs to be safeguard their

185

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 188, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 2nd December, 2018.

186

Section 33 (1(d)) Nepal Electricity Regulatory Commission Act 2017.

187

Section33(5), Nepal Electricity Regulatory Commission Act 2017.

188

Section 33(2),Nepal Electricity Regulatory Commission Act 2017.

189

Section 34,Nepal Electricity Regulatory Commission Act 2017.

190

Section 36(1),Nepal Electricity Regulatory Commission Act 2017.

191

Section 34, Nepal Electricity Regulatory Commission Act 2017.

192

Section 18(3a),Nepal Electricity Regulatory Commission Act 2017.

193

Section 18,Nepal Electricity Regulatory Commission Act 2017.

concerns.

194

It should also abide by contractual obligations made between the parties. Its

decision and action should not harm the property of the hydel agency.

195

Regulatory agency

shouldn’t make decisions that reduce asset values, such as tariffs below economic cost.

196

shouldn’t take action arbitrarily. While taking any decision, it should inform or release a

proper notice to all the parties whose interest is involved.

197

It should provide reasonable

opportunity to the affected parties so as they could timely plead for recovering their assets

or any other properties.

198

If any contractual dispute arises between regulatory agencies

and/or other parties, it could deal the matter on speedy basis or might treat separately.

199

Regulatory agency could set the points of agreement clearly (before the entities entering

into a contract with the regulatory agency) so that the interests of the parties could be

protected and promoted and the disputes could be resolved without recourse to courts. It

should make an inquiry whether the terms and conditions of the contract are fulfilled or not;

or whether it has reasonable consideration or not.

200

The courts could treat the contractual

disputes arose between the regulatory agencies differently.

201

NERC is self-governing and a body of corporate nature. It may enter into contract or

exercise rights as conferred under law and fulfill responsibilities under the contract.

202

The

persons having interest in contract should not defraud while implementing the

agreements.

203

The law prohibits syndication of electricity tariff rate.

204

Thus, it will not

make decisions that reduce asset values. NERC is a self-governed and a corporate body

having the power to enter into contract.

205

So, it can sue; or be sued at the instance of

breach of contract or public duty. Like other entities, NERC could solve contractual

194

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 197, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January , 2019.

195

Ibid, P.197-200

196

Ibid,P.198.

197

Ibid,P.200.

198

Ibid,P.198.

199

Ibid, P.199.

200

Ibid

201

Ibid.

202

Section 4(5),Electricity Regulatory Commission Act 2017.

203

Section 28, Electricity Regulatory Commission Act 2017.

204

Section14(d),Electricity Regulatory Commission Act 2017.

205

Section 4(5), Electricity Regulatory Commission Act 2017.

disputes through arbitration. If any person who is not satisfied with a decision of NERC

then s/he can file an appeal before the High Court within 35 days of such decision.

206

4.4 Role of NERC in Regulation and Policy:

The enforcement agencies or the agencies created under the law are under a solemn duty to

enforce the laws in letter and spirit. The laws generally provide a clear and comprehensive

detail on responsibilities of agencies, or governmental bodies.

207

Basic regulated sector should be set out in law by legislative or executive branch and

prospectively bind the regulatory agency.

208

Regulatory agency should have discretion to

make subsidiary policy.

209

Sometimes, it is bound by policies that are formally set out in

law, such as concession contract.

210

Government can influence regulatory agency decision

but only in transparent and open manner.

211

However, its not obliged to act on the direction

of government.

212

NERC has clear provision for allocation of responsibilities between agencies. It has power

to fix purchase- sale rate between generation and distribution licensee, which is given to

corporate body

213

until wholesale market of electricity is established. NERC has power to

prepare standards such as operation and maintenance, of electricity services, quality and

safety of national electricity system, operator of electricity system and implement.

214

NERC

has power to make delegated legislations or rules to implement directive guidelines or

code.

215

It has power to inter into contract.

216

There is no room for the government to

influence in NERC decision.

206

Section 18(4), Electricity Regulatory Commission Act 2017.

207

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 78, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January , 2019.

208

Ibid, P.201.

209

Ibid, P.202.

210

Ibid,P 202

211

Ibid.

212

Ibid, P.203

213

Section13(b),Electricity Regulatory Commission Act 2017.

214

Section 12, Electricity Regulatory Commission Act 2017.

215

Section 43, Electricity Regulatory Commission Act 2017.

216

Section 4,Electricity Regulatory Commission Act 2017.

4.5 Clarity and Comprehensives of NERC Decision:

The key principle and methodologies on regulatory decision (tariff reviews, compliance

with service quality requirement, market surveillance and approval for investment) is being

set out clearly in legal documents .This will lay out complete rules for stakeholders.

217

NERC has no any key principle and methodologies in tariff determination.

218

NERC Act

incorporates the provisions regarding the terms of determining the tariff, operation cost,

depreciation rate, payment of principal and interest, repair and maintenance expenses,

construction, or reconstruction and among others.

219

Investors must be clear on how much

of their money is going to be invested and what are the risked associated with the project.

To measure the risk principle, the methodology must be clearly set out.

220

Thus, to be an

effective regulator, the key principles and the methodologies should be explicitly set out in

statute, decree or guidelines for clarity and comprehensives in decision making.

While determining the tariffs, it is better if agency focus on total revenue than particular

pricing. The methodology adopted for realizing the goals should be just and reasonable, not

discriminatory. Usually, revenue is calculated for 5 years through a stipulated formula RR =

O&M + A&G + T + D + (WACC × RB);

Where, RR denotes revenue requirements, O&M denotes operation and maintenance costs,

A&G denotes administration and general costs, T denotes taxes, D denotes depreciation and

amortization, WACC is the weighted average cost of capital (after taxes) and RB denotes

regulatory asset base (sum of assets book value and working capital).

221

217

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 203-204, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January, 2019.

218

Section13(b),Nepal Electricity Regulatory Commission Act 2017.

219

Section13(a),Nepal Electricity Regulatory Commission Act 2017.

220

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 203, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January, 2019.

221

Machek Ondrej, Regulatory Bench making in Central Europe: Current Practice and Possibilities of

Development for The Energy Sector, University of Economics in Prague, P3, 2011, available at

https://ideas.repec.org/a/ora/journl/v1y2011i1p80-86.html, accessed on 9th January,2019.

4.6 Predictability and Flexibility:

Similarly, regulatory agencies’ decision should be reasonable and feasible, and consistent to

previous decisions.

222

In fact, the legitimate expectation of the people arises with

established practices; law and popular practice. So, a person can knock the door of Court at

the instance of violation of his legitimate expectation.

Similarly, the decisions should be made public. It should not be made arbitrarily. The

changes brought in regulatory practice should be feasible and on gradual basis.

223

If any

person files an application to NERC, it has power to base its decision on the basis of

previous decision.

224

However, in case of conflict of interest, there could be postponement

in decision.

225

It’s decision is recorded in a separate register.

226

After reviewing recorded

decisions, it can decide to implement or not to implement it.

227

There might be questions

regarding its decision to be followed by the market. Regulatory agencies’ decision should

be on the nature of the policies which can be practiced in the market.

228

Any fundamental

change in regulatory agencies’ decision must be implemented on a gradual basis rather than

sudden basis in order to afford time for affected parties to adjust in accordance with the

changes so made.

229

4.7 Consumer Right and Obligation:

The core purpose of regulation is to protect the rights of consumers. It could short or long

term rights. It could maintain standards of quality for consumers, establishing remedies for

222

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 204, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019.

223

Ibid P.205.

224

Section 22, Nepal Electricity Regulatory Commission Act 2017.

225

Section 29 (1),Nepal Electricity Regulatory Commission Act 2017.

226

Section 11(8), Nepal Electricity Regulatory Commission Act 2017.

227

Section 22(3),Nepal Electricity Regulatory Commission Act 2017.

228

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 204, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019.

229

Ibid P.205.

breach of standards.

230

It must have easy access to resolve complaints and set out obligation

for customer to the regulated utility.

231

NERC has role of small consumers to make contribution in long term interest of consumer.

It will determine tariff payable to the consumer.

232

It has power to take necessary measure

for the protection of the interest of the consumer and implement them.

233

There are no

remedies for consumer if NERC herself breaches the standards.

234

There must be remedies

for breach of standards. The remedies may be in the nature of refunds, rebates,

compensatory damages, specific orders to perform.

235

There is no obligation on customer

regarding regulated utility. It exclusively entertains the concerns of the persons having

license.

236

4.8 Proportionality:

Regulation should always keep minimum necessary efficiency and fairness.

237

It should

keep its action well focused and appropriate to address the problem.

238

The newly

established NERC has not made any decisions so far. Thus, it would too early to make a

view of it.

In order to ensure efficiency and fairness of the regulatory agency, there needs to be an

intervention on fraudulent or unfair trade practices in market.

239

It should also intervene on

economic and social cost benefit, where cost is higher.

240

There also needs to be an

230

Ibid P.206-207,

231

Ibid.

232

Section 13(1a), Nepal Electricity Regulatory Commission Act 2017

233

Section 14 (a) , Nepal Electricity Regulatory Commission Act 2017

234

Section 14,Nepal Electricity Regulatory Commission Act 2017.

235

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 207, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019.

236

Section 14, Nepal Electricity Regulatory Commission Act 2017.

237

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 208, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019.

238

Ibid P.213.

239

Ibid P.208.

240

Ibid P.209.

intervention in natural monopoly,

241

where fundamental protection of consumer is

needed.

242

Regulatory agencies should be well focused to develop better targets to address its problem

for alternative measures as well.

243

There could be a policy to not to revoke license for pity

offenses; or other pecuniary remedies

244

or delegation of power for regulating the

responsibilities and review those regularly.

245

NERC has no power to revoke license.

Neither it has the authority to provide remedies to the regulatory entity or nor does it have

the power to grant license. But, it has power to delegate regulatory responsibilities to other

agencies to determine tariff, merger of the licensed persons with each other, sale of plant,

approval for acquisition or take over and power to settle dispute.

246

4.9 Regulatory Independency:

Independence for agency means that it should be free from government constraints or private

sector in exercising its authority, except, the constraints mentioned in the constitution or

other document, for example; concession contract.

These constraints will make a decision within the scope of authority without obtaining any

other approval.

247

To be independent regulatory agency, there must be laws under which it

is created and there should be bylaws or rules to govern its functions.

248

It must have legal

power to delegate decisions to the board of commission.

249

It must have stable source of

revenue for operation, compensation packages and appropriate training.

250

It must

determine conditions of service for agency management.

251

241

Ibid P.210.

242

Ibid P.211.

243

Ibid P.213.

244

Ibid.

245

Ibid, P.215.

246

Section 39, Nepal Electricity Regulatory Commission Act 2017

247

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 215, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019.

248

Ibid.

249

Ibid, P. 216.

250

Ibid, P.217.

251

Ibid, P.219.

NERC is not free from government or private constraints sector in exercising its power.

Chairperson and other members are appointed by Government of Nepal (GON).

252

These

persons are gazette special class positions under government of Nepal.

253

Their appointment

is done on the recommendation of the selection committee.

254

Selection committee consists

of bureaucrats such as secretary as convener, electricity expert as member and gazette first

class officer as a member secretary. This clearly shows that the chairperson and member’s

appointment is done by the GoN.

Moreover, additional employees which NERC needs is also appointed on the approval of

the GoN.

255

However, their appointment is not like civil service which has a long tenure

until the age of retirement or removal or self-resignation. They act on the pleasure of the

government of the day. Their job could end if the new government in power intends to

replace them with a new team.

256

So, if these types of contractual appointments are made at

the pleasure of the government of day, then it would pose threat on the independency of the

Commission.

Similarly, NERC doesn’t have authority over internal administration. For instance, the

power of removing appointed person is also given to the Government of Nepal.

257

It is

better if the person can only be removed for good cause defined in law

258

and not because

of lack of competence or bad conduct.

259

Appointed person should be removed only for

justifiable cause as defined in the law.

260

252

Section 7,Nepal Electricity Regulatory Commission Act 2017.

253

Section 5,Nepal Electricity Regulatory Commission Act 2017.

254

Section 7,Nepal Electricity Regulatory Commission Act 2017.

255

Section 31(1),Nepal Electricity Regulatory Commission Act 2017.

256

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 216, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019.

257

Section 10 (d),Nepal Electricity Regulatory Commission Act 2017.

258

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 68, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019.

259

Section 9(1),Nepal Electricity Regulatory Commission Act 2017.

260

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 221, 2006,available at

The tenure of appointed chairperson from Gazette special class position of GoN

261

usually up to the age of 56-58. The tenure of civil service is up to 58 years.

262

The terms of

office should not be coincident with the terms of government and legislature.

263

The new

commissioner so appointed is the master of his department. It should not be reasonable to

appoint a person on the chair of Commissioner for a shorter span or ask for his mandatory

retirement.

264

Similarly, NERC has no authority to hire and fire its own staff. It should have the power to

establish the administrative structure of the agency and make all relevant decision from hire

personnel for full time; permanent term to establish administrative structure of the

agency.

265

NERC has authority to impose fines if its rules violated by any person. The amounts so

collected through fine is deposited in consolidated fund of GoN.

266

But regulatory Act has a

limit in receiving fund. There must be a stable and well founded formula and revenue

source should be set out in law for regulatory agency activities.

267

On the other hand, the appointment of employees, remuneration and other facilities are

subject to the norms of the GON,

268

which ultimately pose threat on the independency of

the NERC. This role of NERC in decision making doesn’t motivate licensed person to

promote, expand or diversify electricity market.

269

This creates more challenge for NERC

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019.

261

Section 5(a), Electricity Regulatory Commission Act 2017.

262

Section 33(1),Civil Service Act 1993.

263

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 219, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019.

264

Ibid P.220.

265

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 217, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019.

266

Section 19(2),Nepal Electricity Regulatory Commission Act 2017.

267

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 217, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019

268

Section 9(6), Nepal Electricity Regulatory Commission Act 2017.

269

Section 15(C),Nepal Electricity Regulatory Commission Act 2017.

in making independent decision and implementing regulatory decision.

270

It will be better if

NERC can offer staff competitive compensation packages and viable career

opportunities.

271

Thus, the newly established NERC is still not free from the government control. It's certain

decision such as appointment and removal is not within its scope. It has no stable and

reliable source of revenue for competitive compensation package and for viable career

opportunities; it neither has the authority of hiring personnel on a part-time basis nor on full

time basis. Yet, it could hire or fire under the approval or direction of the government.

Regulatory agency must encourage its staff to join or participate in professional research

and educational group in regional and international regulatory organization.

NERC must have permanent staff members to promote institutional capacity. This will also

ensure consistency in regulatory decision. It is better if NERC develop a threshold for

distributing charges, number of staff, weights assigned for report prepared by consultation

of distribution companies, and level of competition. There is requirement of more

regulations in case of weaker the competitive atmosphere.

272

4.10 Financing of Regulatory Agencies:

Regulatory agency should have adequate funding to meet its responsibilities competently

and professionally in a given time frame.

273

It could levy tax from regulated entities. The

fee should not be levied so higher that is beyond the expectation of consumers.

274

The

levied amount should be deposited in a special account and the levy of the fees should not

be based on conditions that it would be based on profit or loss; meaning thereby higher fee

270

Stephen Bird, The Policy Regulatory Nexus In Canada Energy Decision Making, Positive Energy, P.13,

2018,

271

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 217, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019

272

Shaofeng Xu andWenying Chen,The Reform of Electricity Power sector in PR of China. Volume 34, Issue

16, Energy Policy, Research Institute, Tsinghua University, P. 2457, 2006.

273

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 69, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019

274

Ibid P.222.

at the instance of loss or lesser fee at the time of profit.

275

The fund so generated should be

used for sectorial improvements.

276

On the positive note, NERC deserves to have adequate source of income. Basically, it will

collect service fee for granting the approval of grid and distribution code, power purchase

and sale rates, approval for merger of licensed person etc.

277

On the other hand, it has

limitation on financing. It needs approval from GoN to receive funds from foreign

countries. The NERC can keep one percent out of the net income in its treasury.

278

While talking about the powers of NERC, it has the power to determine tariff and regulate

the sale and purchase of electricity.

279

This practice should have a sanction of law.

280

This

levy should be in percentage of the revenue, with special account and earmarked for

exclusive use. It should not have ties with the profit of regulated entities and nor with the

ordinary tax revenues collected by the state.

281

4.11 Regulatory Accountability:

There are two forms of accountability--political and legal. Political accountability involves

reporting to the line of ministry and legislature. Legal accountability is regulatory decision

on formal complaint or appeal

282

NERC has no political accountability. Its decisions cannot be challenged by the legislature

or the legislative wings. Yet, the consumers are entitled to approach the Court to implement

their rights secured under the Constitution or the other relevant laws of the land. The

hearings against the regulatory agency should be transparent, effective, timely, and clear.

275

Ibid, P. 223.

276

Ibid.

277

Section 20, Nepal Electricity Regulatory Commission Act 2017.

278

Section 33(d),Nepal Electricity Regulatory Commission Act 2017.

279

Section 13,Nepal Electricity Regulatory Commission Act 2017.

280

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 222, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019

281

Ibid P.223.

282

OECD, Vijay Vir Singh, Regulatory Management and Reform in India, P. 25,2008.

There should be efficient use of agency, credibility in action etc. by legislative committees

or relevant ministries.

283

There should be periodic audit and submit annual public report on activities of the

NERC.

284

The regulatory agency should focus on result for achieving meaningful result.

The result of the agency should be efficient; effective; quality-based and moreover

responsiveness.

285

4.12 Regulatory Process and Transparency:

The process from which the regulatory decision is made must pass the test of due process,

i.e., it should be just, fair and reasonable. Moreover, the decisions made by the agency

should be implemented in true and material sense.

However, the other parties should be give due notice regarding the hearing which is going

to be made against them.

286

So, the process regarding resolving the complaints should not

be done arbitrarily.

287

The proper notification to the parties is the essential conditions for

fairness and credibility of regulatory process.

288

There should be a provision meet out the

urgent needs in emergency situations. So, there should be a law which allows to take

measures to address the contingencies or emergency situations.

289

NERC decision is

published in Nepal Gazette.

290

And, so is the case with tariff determination.

291

283

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P.70, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019.

284

Ibid,225-230.

285

Paul G.Roness, Kristin Rubecksen, KoenVerhoest,& MuirisMac Carthaigh, Autonomy and Regulation of

State Agencies : Enforcement, Indifference or Compensation? P. 9, 2008, available at

https://pdfs.semanticscholar.org/0f59/32d05f0684b6feecaec69d87e0b7a18d7ff3.pdf accessed on 24th

January,2019.

286

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 230, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019.

287

Ibid P. 231.

288

Ibid

289

Ibid

290

Section 5(3), Nepal Electricity Regulatory Commission Act 2017.

291

Section 13(3), Nepal Electricity Regulatory Commission Act 2017.

4.13 Public Participation:

Public involvement in the regulatory process will provide regulator a broader perspective

and additional insight on the question before him or her.

292

It will also help consumers to

express their views. It is an antidote to regulatory capture by the regulated entities.

293

This will

provide more information to the regulatory agency.

NERC can make provision for public hearing for tariff determination and for the other

subject related to its work as per necessity

294

. There is no role for participation of its own

staff, as well as representatives from various stakeholders for debate and cross examination

during hearing in participation on public hearing.

295

Even as the country has already

embarked on the strong pitch of federalism, the NERC is yet to adopt a federal nature as the

body does not entertain the views of provincial regulatory agency while taking decisions on

tariff.

The methods adopted for reviewing tariffs should be a matter of public concern. The action

of the NERC would have wider ownership, if the concerns of the provinces are also

accommodated. Also, the laws on record does not suggest for the involvement of civil

society institution. If the views of civil society is also accommodated then there could be

minimal chance of conflict of interest.

In a better regulatory regime, there has to be participation of various stakeholders and civil

society members. This approach could have a meaningful guidance in decision making

process. Public participation will provide information to regulatory agency about general

issue and opportunity for consumer to comment before hearing. Thus, agency should take

all the responsibility to facilitate and encourage public participation.

296

If possible, it is

better to established consumer forum for consultation with local government, labor unions,

292

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 237, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019.

293

Ibid, P.238

294

Section 21,Nepal Electricity Regulatory Commission Act 2017.

295

Ibid.

296

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P.73, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019

consumer organization and ministry of energy. This will ignite public debates and

participation which would ultimately unfold a new beginning for the protection of the rights

of consumers. It will also help in regulating power quality, supply service, standard which

power supply enterprise provides to its users. Similarly, during public hearing, regulatory

agency’s report should be published. This will help public to evaluate the performance of

NERC.

4.14 Review of Regulatory Decision by Appellate body:

Different countries have different kind of appellate review process. It might require

multiple levels of appeal.

297

For review of regulatory agencies’ decision, all appeals should

be directed to single or specialized independent appellate tribunal.

If a tribunal is constituted under the law, it will check the legality of the decisions made by

the authority below. The tribunals could finalize the cases on time and in certain cases it

could decide the cases under the finality clause and not allow for further appeals in other

superior judicial body.

298

The regulatory agency has the authority—like the courts—to

adjudicate dispute.

299

If the person is not satisfied with the decision of NERC, s/he may file an appeal before the

High Court.

300

But as per international standard, regulatory agency’s decision should be

affirmed in appeal unless the regulatory Act’s decision was unlawful. It is better to have a

specialized appellate tribunal with authority to review the decisions of agencies.

301

If its

possible, all appeals should be directed to a single expert, whose decision should stand tall

unless there is violation of due process or natural justice. Decision should be done with

specific expertise and technical competence. It must be more predictable and consistent

over long term.

302

297

Ibid, P.235

298

Ibid, P. 238-241.

299

Section 18(3),Nepal Electricity Regulatory Commission 2017.

300

Section 18(4),Nepal Electricity Regulatory Commission 2017.

301

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P.74, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019.

302

Ibid, P. 240.

Specialized court could be created to hear appeals on regulatory agency related issues.

Provision of dispute resolution and specialized arbitration panels should be included. It

helps to provide remedies, if a dispute arises among directors of load dispatch center, grid

operation department, system operation department, grid development department for

different interest.

4.15 Code of conduct and Ethic:

Code of conduct should be applicable to all agency personnel such as to prohibit favoring

one or receiving gifts from parties involved in agency business; prohibit regulatory

personnel from negotiating employment or business opportunities with parties having

business before the agency, prohibit conflicts of interest for all personnel and close family

members, prohibit favoritism and ethical compromises, require regulatory personnel to

disclose financial interest, prohibit agency personnel or family member from deriving

financial benefit in companies related to agency work, etc

303

The NERC is not much serious on maintaining code of conduct. The employees working

with this agency should not disclose any confidential information.

304

This information

should not be made public; neither should it be used to advance the benefit of other, nor

should it secure his benefit or his family members’.

305

Chairperson or any member must be

prohibited in taking any decision which has conflicting interest.

306

NERC Act has

mentioned that all members of NERC must follow professional code.

307

It also has the

provision to formulate code of conduct at its own.

308

4.16 Regulatory practices in US, UK and India:

United States of America (US) has divided two independent regulators to regulate

electricity market. Firstly, US state regulatory commission - which has jurisdiction over

303

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 242-244, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019.

304

Section 28, Nepal Electricity Regulatory Commission,2017.

305

Section 28 (2),Nepal Electricity Regulatory Commission 2017.

306

Section 29,Nepal Electricity Regulatory Commission 2017.

307

Section 30,Nepal Electricity Regulatory Commission 2017.

308

Section 43,Nepal Electricity Regulatory Commission, 2017.

distribution generation and transmission of retail services.

309

Secondly, Federal Energy

Regulatory Commission (FERC) is an independent regulator.

310

Its purpose is to protect the

public and energy customers, ensuring that regulated energy companies are within the

bounds of law.

311

FERC’s role is to ensure coordination of electric system operations. It coordinates with

North American Electric Reliability Corporation for developing mandatory grid reliability

standard.

312

It also coordinates to meet the electricity demand with constant flow of

low/high voltage line. It also coordinates with local electricity grid, which is interconnected

with larger network for reliability and commercial purposes.

313

US has multi-level regulatory agencies both in state and federal level but United Kingdom

(UK) has a vertical regulating pattern. It is regulated through National Power Industry’s

Regulatory Authorities.

314

Country’s electricity regulation has privatized industries. Its

statutory duties and powers are laid under the Office of Gas and Electricity Market

(Ofgem). This office was established by the merger of the office of Electricity Regulation

(OFFER) & Office of Gas Supply (Ofgas). Under Ofgem, Gas and Electricity Market

Authority (GEMA)

315

is an independent body with primary responsibility for regulation of

the energy sector.

316

It ensures all consumers to get a good value and service from the

energy market.

317

This authority is designated as per Electricity Directive.

318

The main

309

Sam J. Ervin, The State of Energy Regulation in the United State, National Association of Regulatory

Utility Commissioners, P.23, available at

http://pubs.naruc.org/pub.cfm?id=538F9979-2354-D714-51EE-34D36131BC2C,accessed on 10th January,

2019.

310

42 U.S. Code § 7171 (a)

311

FERC, Students Corners, What is FERC, available at

https://www.ferc.gov/students/whatisferc.asp?csrt=11140161500098684272 accessed on 19th January,2019.

312

Electricity Explained, How Electricity is Delivered to Consumer, available at

https://www.eia.gov/energyexplained/index.php?page=electricity_delivery accessed on 23rd November, 2018.

313

Ibid 7.

314

Shaofeng Xu and Wenying Chen, The Reform of Electricity Power sector in PR of China, Volume 34,

Issue 16, Energy Policy, Research Institute, Tsinghua University. P. 2457, 2006.

315

Ofgem, Gas and Electricity Market Authority, available at

https://www.ofgem.gov.uk/about-us/who-we-are/gas-and-electricity-markets-authority accessed on 16th

January 2019.

316

Electricity Regulation (2017), United Kingdom, available at:

https://gettingthedealthrough.com/area/12/jurisdiction/22/electricity-regulation-2018-united-kingdom/

accessed on 5th January, 2019.

317

Gas and Electricity Market Authority: available at http://www.ofgem.gov.uk/about-us/who-we-are/gas-and-

electricity-markets-authority,accessed on 16th January 2019.

318

Article 35, Electricity Directive.

principle objective of GEMA is to protect the interest of consumers through the reduction

of electricity supply emission of targeted green houses, security of supply of electricity

319

and to carry out the functions designed by Electricity Directive.

320

It has certain powers and

duties

321

for regulating electricity. Authority is provided through Electricity and Gas

Regulations 2011, Electricity Act 1989, Utilities Act 2000, Competition Act 1998,

Enterprise Act 2002 and the Energy Act 2010.

322

Similarly, India’s regulatory agency is created to identify the gap between demand and

supply of power sector.

323

Two regulatory agencies have been established; Central

Electricity Regulatory Commission (CERC) and State Electricity Regulatory commissions

(SERCs). They were established by parliament in the Forty-ninth Year of the republic of

India, impeding their capacity to respond to rapidly growing demand for energy. CERC is

created to regulate interstate purchase and transmission of power

324

whereas SERC is to

regulate the transmission and distribution of power at state level

325

through Electricity

Regulatory Commission Act 1998. This Act has been replaced by Electricity Act, 2003.

326

The status of electricity regulatory agency in US, UK, and India could be outlined as:

4.16.1 Legal Framework:

In USA, all functions of Federal Power Commission were transferred to FERC.

327

FPC was

replaced by FERC.

328

FERC have duties and powers

329

to regulate electricity industry.

319

Section 3A (1A), Electricity Act 1989.

320

Article 36, Electricity Directive.

321

Section 1, Utilities Act 2000.

322

The UK Statute Law Database, The Energy Act 2010,available at

http://www.legislation.gov.uk/ukpga/2010/27/part/3,accessed on16th January,2019.

323

See The Electricity Regulatory Commissions Act 1998, Statement and objects and Reasons.

324

Section 13(c) Electricity Regulatory Commission Act 1998.

325

Section 22(c) Electricity Regulatory Commission Act 1998.

326

Section 2(58) Electricity Act 2003.

327

42 U.S. Code § 7172 (a) (1).

328

Chester Energy and Policy, DOE Spotlight :Federal Energy Regulatory Commission ,25th January,2018

available at

https://chesterenergyandpolicy.com/2018/01/25/doe-spotlight-federal-energy-regulatory-commission/

accessed on 16th January,2019.

329

49 U.S. Code § 60502.

GEMA was created under Ofgem. It is a government regulator that was created by

government to fulfill European Union obligation

330

and rights

331

of United Kingdom in

relation to energy sources.

Taking about India, It has two levels of regulatory agencies at central level (CERC)

332

and

State level (SERC).

333

These regulatory agencies are created under the law.

334

4.16.2 Power as per law:

FERC member are appointed by the President, with the advice and consent of the

Senate.

335

Agency has the power to determine and approve tariff (rather than by

contract.).

336

Tariff filings can be done through electronic means.

337

It has the power to

establish rate for sale of electricity through organized market if any entity voluntarily make

short term sale of electricity.

338

It has the power to establish procedural and administrative

rule to exercise its function.

339

Whereas in UK, GEMA has the power to appoint Chairman and two other members, under

the hand and seal of the Secretary of State.

340

It has power to modify the tariff cap condition

from time to time

341

and to reselling of electricity from time to time direct that the

maximum prices.

342

India’s CERC

343

and SERC

344

, chairperson and member are appointed by respective

government on the recommendation of concerned selection commission to select the

person. CERC has authority to determine tariff. It determines tariff for generating

330

Section 2(2a),European Communities Act 1972.

331

Section 2(2b),European Communities Act 1972.

332

Section 76,Electricity Act 2003,

333

Section 82,Electricity Act 2003,

334

See preamble of Electricity Act 2003,

335

42 U.S. Code § 7171.

336

16 U.S. Code § 824e (e)(2).

337

18 CFR § 154.4.

338

16 U.S. Code § 824e (e)(2).

339

42 U.S. Code § 7171(f).

340

SCHEDULE 1 of Utilities Act 2000.

341

Section 2, Domestic Gas and Electricity (Tariff Cap) Act 2018.

342

Section 44,Utilities of Act 2000.

343

Section 76 (6), Electricity Act 2003.

344

Section 82 (5), Electricity Act 2003.

companies, interstate transmission electricity

345

which is owned or controlled by the central

government.

346

It also talk about methodologies for tariff determination.

347

Whereas, SERC

determine tariff for generation, supply, transmission and wheeling of electricity.

348

It also

regulates power purchase and procurement process of the transmission utilities and

distribution utilities.

349

4.16.3 Property and Contract Rights:

FERC has power to authorize administration and contents of the contract of sale of

electricity.

350

It has the power to adopt all measures to protect property.

351

GEMA is

corporate body

352

, designated as the regulatory authority by the Great Britain in accordance

with Article 35 of EU Electricity Directive.

353

Regulatory authority respects contractual freedom to interrupt supply contracts and long-

term contracts.

354

It also prevents large non household customer from contracting with more

than one supplier.

355

It has the power to acquire or dispose of moveable and immovable

property.

356

India’s central

357

and state commission

358

has perpetual succession and

common seal to acquire, hold and dispose of property and to enter into a contract.

4.16.4 Clarity of Regulatory Agency Role in Regulation and Policy:

In US, the new duration of license is determined by FERC with consideration of project

related to investment.

359

This type of contract is usually for fifty years

360

. Thus, FERC plays

a major role in providing license for hydropower development or any project but has not

345

Section 79,1 (c), Electricity Act 2003.

346

Section 76, (a), Electricity Act 2003.

347

Section 61, (a), Electricity Act 2003

348

Section 86 (1), (a), Electricity Act 2003,

349

Section 86 (1) (b), Electricity Act 2003,

350

16 U.S. Code § 832d.

351

42 U.S. Code § 7259 (b).

352

Section 2, Utilities Act 2000

353

Section 22 (3A), Electricity and Gas (Internal Markets) Regulations 2011.

354

CHAPTER IX, 37 (1 (l)) Electricity Directive.

355

CHAPTER IX ,37,1 (k) Electricity Directive.

356

CHAPTER I, Article 2 Electricity Directive.

357

Section 76 (3), Electricity Act 2003.

358

Section 82 (2), Electricity Act 2003.

359

16 U.S. Code § 823g (a).

360

16 U.S. Code § 799.

clarified the role of three commissioners,

361

who will be appointed from the same political

party in FERC. Administrator of the Energy information has power to established

guidelines to ensure the quality, comparability.

362

In India, central advisory committee advises CERC

363

and state advisory committee

advises SERC

364

regarding the electricity supply and overall standards of performance

utilities. It sets standards for electricity industry in the state including standards relating to

quality, continuity and reliability of services.

365

Moreover, there is advisory committee put in place to advise CERC

366

and SERC

367

formulate proper policies or adopt measures for quality matters, and insist for the

compliance of licensees and protection of consumer rights. Whereas, CERC advises Central

government in the formulation of tariff policy,

368

the Indian regulatory agency is

empowered to adopt and enact rules so required for an effective regulatory regime. Still, the

rules so enacted are subject to parliamentary approval in case of central commission

369

while subject to state legislature in case of State commission.

370

4.16.5 Clarity and Comprehensives of Regulatory Decision:

In US, FERC has the power to enforce rate and charge prices for transmission or sale of

energy

371

by issuing order

372

with regression based (prediction) methodologies.

Methodology is estimated through Energy Information Administration by survey and

collecting various data elements.

373

Then, the ratio of revenue is divided by sales and

361

42 U.S. Code § 7171 (b).

362

42 U.S. Code § 17284 (c).

363

Section 81, Electricity Act 2003.

364

Section 88, Electricity Act 2003.

365

Section 79, 1,(i), Electricity Act 2003.

366

Section 81, Electricity Act 2003.

367

Section 88, Electricity Act 2003.

368

Section 79 (2i), Electricity Act 2003.

369

Section 179, Electricity Act 2003.

370

Section 182, Electricity Act 2003.

371

42 U.S Code § 7172 (a) (1) (B).

372

United States of America Federal Energy Regulatory Commission, Settlement Interval and Shortage Price

in Markets Operated By Regional Transmission Organization and Independent System Operators, 2016,

available at

https://www.ferc.gov/whats-new/comm-meet/2016/061616/E-2.pdf?csrt=9108611863625116740 accessed

on 17th January,2019.

373

U.S. Energy Information Administration, Electricity Monthly Update, Methodology and

Documentation.2019 ,available at

calculated to estimate the price of electricity at state level.

374

Similarly; FERC constitutes a

quorum for business transaction.

375

There is no other requirement. FERC will regulate inter-

state electric transmission line by authorizing the construction.

376

It also authorizes use of

transmission lines,

377

right of way,

378

and co-ordination of federal authorities for

transmission facilities.

379

FERC has clarity in making decisions for interstate electric

transmission lines.

UK regulatory system has two corporate bodies GEMA

380

and Gas & Electricity Consumer

Council

381

which have the responsibility to carry out its decisions. GEMA shall calculate

method for the maximum price at which electricity supplied by the authorised suppliers that

may be resold.

382

India’s CERC has the power to determine tariffs applicable to generating companies and

transmission licensee with specified principles and methodologies.

383

CERC has no power

to collect revenue. SERC has power for calculating the expected revenue from tariff and

charges.

384

Meanwhile, CERC has qualified expert for its function. Appointed member

should have the qualification of engineering, economics, law or management. Yet, they

don’t have any role to play on decision-making process.

385

The stipulated law seems to

have suggested exclusively for the strategies to be adopted for resolving the It has only

mentioned qualifications of a person.

386

The office bearers are appointed by the government

on the recommendation of selection committee.

387

https://www.eia.gov/electricity/monthly/update/methodology.php accessed on 16th January,2019.

374

U.S. Energy Information Administration, Electric Power Monthly, P. 21,2018, available at

https://www.eia.gov/electricity/monthly/current_month/epm.pdf, accessed on 16th January,2019.

375

16 U.S. Code § 792.

376

16 U.S. Code § 824p (b).

377

16 U.S. Code § 824p (b) (2).

378

16 U.S. Code § 824p (e).

379

16 U.S. Code § 824 (h).

380

Section1, Utilities Act 2000.

381

Section2,Utilities Act 2000.

382

Section 73, Utilities Act 2000.

383

Section 61 (a), Electricity Act 2003.

384

Section 181 (zf), Electricity Act 2003

385

Section 77,Electricity Act 2003

386

Section 77 (1), Electricity Act 2003.

387

Section 76(6) and Section 82(5), Electricity Act 2003

4.16.6 Predictability and Flexibility:

In USA, Office of General Counsel (OGC) provides legal counsel to FERC and the staffs

thereof.

388

OGC assists in the development of draft FERC order, rule-making and other

decisions.

Similarly, Office of Administrative Law Judges and Dispute Resolution is put in place to

have a look on the overall evidentiary records which are so contested during the trial. It

assists interested parties in mediation, negotiation, conciliation, arbitration and

facilitation.

389

The decision so made is certified by the commission and copy of proceedings

is recorded. FERC has to review initial decision within 10 days of the decision made by the

dispute resolution authority. Moreover, the decision sop made is affected by the finality

clause which means its decision is not subject to appeal, meaning thereby its decision is

final.

390

However, in case of breach of law, a petition is to be rooted before the FERC.

391

In contrast, GEMA has also the authority to take the decisions. The decision so made is

required to be made public. And, more importantly, the decision should be in speaking

order, which means it should rest on the solid foundation of reason.

392

Competition and

Markets Authority (CMA) may allow for appeals if it has a reason to believe that the

decision made by the authority below has violated the natural justice or fair trial.

393

appeal can also lie in case of misappropriation or misinterpretation of law.

394

India’s

Central and State regulatory has power to review its decisions, directions and orders.

395

4.16.7 Consumer Rights and Obligation:

In US, Electric Consumers Protection Act, 1986 is enacted and adopted to spearhead the

rights of consumers. This Act has also power to determine the terms of license with public

interest. It means it has scope for public interest litigations.

388

Office of the General Counsel (OGC),what we do, available at Office of General Counsel (OGC) provide

legal counsel to FERC and its staff. accessed on 4th April,2019.

389

Lawrence R Greenfield, An Overview of the Federal Energy Regulatory Commission and Federal

Regulation of Public Utilities. P.8,2018, available at https://www.ferc.gov/about/ferc-

does/ferc101.pdf,accessed on 4th April,2019.

390

§385.712.

391

§385.901.

392

Section 49A (2), Electricity Act 1989.

393

11E (4), Electricity Act 1989.

394

11E (4), Electricity Act 1989.

395

Section 94(1)f, Electricity Act 2003.

The said law provisions the term of license: not less than 30 years and not more than 50

years from the date of issue.

396

On the other hand, FERC will also establish methods,

period and manner for providing compensation

397

to protect rights of consumers. FERC has

a role to make election and negotiation of contested projects into the litigation.

398

In contrast, principle objective of GEMA is to protect the interest of existing and future

consumers in relation to electricity distribution and transmission system.

399

It will protect

the consumer’s interest through Gas and Electricity Consumer Council. This council will

help to protect the interest of disabled, pensionable age; low income and rural areas

individuals

400

by collection information. It will collect information of consumer matters in

various areas

401

, investigate it

402

and make its report.

Whereas In India, the regulatory agency will entertain complains from individual

consumer.

403

Commission will pay the compensation amount to the affected parties

whomsoever.

404

Advisory committee is put in place to advise CERC

405

and SERC

406

for the

protection of consumer’s rights and interest. It represents the commission or the consumers

in proceedings of the court.

407

4.16.8 Regulatory Independency:

While talking about regulatory independency, it must be free from government’s

intervention in decision-making process on selection and appointment of regulatory staff and among

others.

396

Section 5 ,The Electric Consumer Protection Act 1986.

397

Section 10(g),The Electric Consumer Protection Act 1986.

398

Section 10,The Electric Consumer Protection Act 1986.

399

Section 3A,Electricity Act 1998.

400

Section 17,Utilities Act 2000.

401

Section18,Utilities Act 2000.

402

Section 23,Utilities Act 2000.

403

Prabhat Kishor Dimri & Shivanku Bhatt, Role of Regulatory Mechanism Concerning Energy Sector,

Consumer Protection ,Law and Advocacy, Volume 8,Issue 6, International Journal of Management, P.

28,2017, available at

http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=8&IType=6, accessed on 29th December,2018.

404

Section 57,Electricity Act 2003.

405

Section 81(iv),Electricity Act 2003.

406

Section 88 (iv),Electricity Act 2003.

407

Section 94(3),Electricity Act 2003

FERC chairman may select and supervise staffs subordinate to him. It may appoint expert

consultants for its service. Their facilities are provided by secretary of Energy.

408

It has the

authority to establish procedural and administrative rule to exercise its function.

409

Regarding removal of appointed person, their removal can only be done by the Presidential

order on the charge of proved misbehavior or violation of law and order

410

or malfeasance

in office.

411

On the other hand, it also gives career opportunities to its members

412

and its chairman has

the power to fix the wages and other services of the staffs it appoints.

413

FERC is self-

funding agency. Congress sets its budget through annual and supplemental appropriations.

However, in case of GEMA, its appointments are subject to the approval of Minister

concerned. The concerned Ministry is empowered to make all the appointments

414

of its

staff through the civil service. The civil service conducts the examinations for the selection

of staffs fulfilling minimum qualifications. The budget allocation is done by the

government and parliament through ordinary state budget. However, the GEMA is not

bound to entertain the recommendations of the government of the day. It is empowered to

pay disregard to such recommendations if its recommendation is aimed at compromising

the independency of the authority.

415

In India, CERC and SERC have the power to delegate powers. It will delegate power in

writing to any member, Secretary, officer of the appropriate commission or any other

person but the delegated authority is subject to certain conditions.

416

The Appropriate body

may appoint consultants required to assist that Commission in the discharge of its functions

on the terms and conditions as may be specified.

417

408

42 U.S. Code § 7171(c).

409

42 U.S. Code § 7171(f).

411

42 U.S Code § 7171 (b) (1).

412

FERC, Why Choose FERC, available at

https://www.ferc.gov/careers/why-ferc.asp?csrt=9108611863625116740,accessed on 21st January,2019.

413

42 U.S Code § 7171 (c).

414

Schedule 1 (5), The Gas and Electricity Market Authority, Utilities Act 2000.

415

See, Schedule 1 (2) (2), The Gas and Electricity Market Authority, Utilities Act 2000.

416

Section 97,Electricity Act 2003

417

Section 91, Electricity Act 2003

Central Commission in case of members of Central Commission and the state government

in case of members of the State Commission may order to remove from office. If s/he has

been adjudged insolvent, or convicted as persons with moral turpitude, or mentally

incapable of acting as a member, or acquired financial or other interest as is likely to affect

prejudicially, or abused his position and proven guilty of misbehavior, s/he will be removed

from the office.

418

In case of any complaint against the office bearers for the abuse of

position or corruption or proved misbehavior, the complaints, as provisioned, should be

lodged before the appellate tribunal on behalf of central government.

419

The proceedings of

the appropriate body cannot be questioned on the ground that it made any appointments to

fulfill the existing vacancies.

420

If the position is vacant, central

421

and state

422

government will fill the vacancy of the

respective regulatory agency. It will fill vacancy within one month from the date of death of

the any officer bearer, or at the instance of his resignation or removal. It will fill the

position within six months before the superannuation or the end of any chairperson or

members with the concurrence of the reference of selection committee.

4.16.9 Finance of Regulatory Agencies:

In order to achieve the agency’s aims and objectives, the FERC requests for the sufficient

funds to energy secretary and to the office of Management and Budget.

423

FERC has the

authority to collect fees and annual charges in any fiscal year on the basis of methods as set

under rules.

424

And, the available data is also taken into consideration for assessment.

425

This way, the financial independency of FERC is secured. The fund and fees collected by

FERC is credited to the general fund of the treasury.

426

The Secretary of Energy and Office

of Management and Budget will authorize FERC in budgetary presentation.

427

418

Section 90,Electricity Act 2003

419

Ibid

420

Section 90, Electricity Act 2003

421

Section 78 (5), Electricity Act 2003.

422

Section 85(2), Electricity Act 2003.

423

42 U.S Code § 7171 (j).

424

42 U.S Code § 7178 (b).

425

42 U.S Code § 7178 (c).

426

42 U.S Code § 7178 (f).

427

42 U.S Code § 7171 (j).

On the other hand, UK’s GEMA has an authority to carry out any activities relating to

finance.

428

It collects the funds for the license application,

429

competitive tender for

transmission license

430

and penalty.

431

The fees so collected is deposited in the consolidated

fund.

In India, Central and State regulatory commission are empowered to prepare its budget

plans for next financial year and forward the receipt and expenditure of the same to the

appropriate government.

432

This clearly shows that the regulatory agency doesn’t have

adequate funding to meet all of its responsibilities. In principle, the regulatory agency

should not rely on the government for its funding

433

as the financial dependency often

makes the organization weak and dependent. Regarding salary and allowance of the both

commission’s chairperson and members, its prescribed by the appropriate Government.

434

The fate of revenues derived from business of transmission licensees are specified by the

appropriate commission.

435

Agency also constitutes a fund, called CERC Fund

436

and

SERC Fund

437

to provide grants and loan through central government. Respective fund

collects all received fees by the respective commission. This fund is also used in other

expenses, like salary, allowances and other remuneration of the chairperson and member/s.

4.16.10 Regulatory Accountability:

FERC should inform about its actions through the committee on Energy and Commerce to

House of Representative and Committee on Energy and Natural Resources of United

States’ Senate.

438

FERC has to submit its annual report for authorization to the secretary of

Energy; President; office of Management and Budget. It should also submit annual report

for authorization to the legislative recommendation or testimony comment and one copy to

428

Section 22, Electricity and Gas Regulation 2011.

429

Section 6(A) (7), Utilities Act 2000.

430

Section 6(D), (9),Utilities Act 2000.

431

Section 59 (10),Utilities Act 2000.

432

Section 106, Electricity Act 2003.

433

Prabhat Kishor Dimri & Shivanku Bhatt, Role of Regulatory Mechanism Concerning Energy sector,

Consumer Protection ,Law and Advocacy, International Journal of Management, Volume 8,Issue 6, P. 26,

2017 ,available at

http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=8&IType=6, accessed on 29th December,2018.

434

Section 89, Electricity Act 2003.

435

Section 41, Electricity Act 2003.

436

Section 99, Electricity Act 2003.

437

Section 103, Electricity Act 2003.

438

Section 16 , Electric Consumer Protection Act 1986.

congress committee.

439

As per the World Bank studies, FERC is accountable to the

parliament and lays down a model for analysis on accountability.

440

UK’s GEMA, at the end of financial year, makes a report to the secretary of state. It

submits a copy to the House of Parliament.

441

In India, rules and regulations are made by the central

442

and state government.

443

These

rules are laid before the respective parliament by CERC and SERC. The Houses--either at

the Centre or State--should submit and publish annual report to respective parliament.

444

While submitting annual report, both regulatory agencies should submit summary of its

activities during previous year.

445

It should submit every year’s interference in the

regulatory matter.

446

In addition to it, Central government

447

and State government

448

appears in supervisory

role to provide direction to respective regulatory agency in matter of policy involving

public interest. If any difficulty arises, then hurdles are removed by the central

government.

449

It shows that India’s regulatory agency is accountable in decision making

process. If the decision will impose unjustified cost on any party, then it will be challenged

before the authority.

450

This shows that the regulatory agencies are bound to dispose off

their functions in the line with the stipulated norms, practices and laws of the land.

439

42 U.S Code § 7171 (j).

440

Luis Andres, Jose Luis Guasch, Makhtar Diop and Sebastian Lopez Azumendi ,Assessing the Governance

of Electricity Regulatory Agencies in the Latin American and Caribbean Region, P.- 7, 2007,

available at

http://documents.worldbank.org/curated/en/171321468046442915/pdf/wps4380.pdf accessed on 2nd

February,2019.

441

Section5 (5) (a),Utilities Act 2000.

442

Section 178, Electricity Act 2003.

443

Section 181, Electricity Act 2003.

444

Section 179 and Section 182, Electricity Act 2003.

445

Section 101 and Section 105, Electricity Act 2003.

446

Rajesh Kumar, Phd,'Economic of Regulation A case Study of Haryana Electricity Regulatory Commission,

Department of Economics Maharshi Dayanand University, Rohtak Harayana, P.-87, 2004.

447

Section 107, Electricity Act 2003.

448

Section 108, Electricity Act 2003.

449

Section 183, Electricity Act 2003.

450

Rajesh Kumar, Phd,'Economic of Regulation A case Study of Haryana Electricity Regulatory Commission,

Department of Economics Maharshi Dayanand University, Rohtak Harayana, P.-35, 2004.

4.16.11 Regulatory Process and Transparency:

FERC will publish notice annually and its record is maintained under Federal register. It

must publish notice, within 15 days prior to the date fixed, during the period of rule-

making.

451

It will specify provisions or executive order or rule or regulation issued pursuant

thereto.

452

If the provisions are found impracticable, unnecessary or contrary to public

interest, regulatory agency can proceed with the adoption of rules without the notice by

incorporating.

453

It will not disclose any record which is contained in a system of records,

unless there is a written request by prior consent.

454

It will organize methods of operation,

statements of policy and interpretation. FERC will publish a copy of its opinions, order in

the nature of opinions, rulemaking and selected procedural orders.

455

GEMA publishes all its notice in the London and Edinburgh Gazettes.

456

Indian regulatory

agency will pursue notice on specified concerned of licensee. It will publish notice for the

purpose of bringing the specified matter to people attention.

457

It has procedure to

determine tariff. It determines though transparent process.

458

All decision of commission

are authenticated by its Secretary or any other officer on the behalf of Chairperson.

459

4.16.12 Public participation:

FERC initiates public participation through the office of public participation.

460

Energy

policy seeks to expedite public participation in the development of coastal impact

assessment plan.

461

In case of India, regulatory bodies invite consumers to participate in the

decision-making process. It can authorize any person to represent the interest of the

consumer in proceeding before it.

462

The representatives from commerce, industry,

transport, agriculture, labour, consumers, non-governmental organizations and

451

18 CFR § 385.1903.

452

18 CFR § 3b (3).

453

18 CFR § 385.1903 (a).

454

18 CFR § 3b.225 (a).

455

18CFR § 388.103.

456

Section 23 (10), Utilities Act 2000.

457

Section 130, Electricity Act 2003.

458

Section 63,Electricity Act 2003.

459

Section 94 (5),Electricity Act 2003.

460

16 U.S. Code § 825q–1

461

Section 384, Energy Policy Act 2005 .

462

Section 94 (3), Electricity Act 2003.

academicians and research bodies are appointed and that forms a comprehensive

commission.

463

4.16.13 Appellate Review of Regulatory Decision:

FERC has the power to conduct hearing with one or more of its member, issue summons,

and examine witnesses. It also has the power to retrieve evidence from any place,

464

except

in case where an Attorney General is dealing with a particular case, otherwise, the attorney

or a solicitor general, designated by chairman of FERC will conduct and plead the suits in

the court.

465

Disputes could be also resolved through arbitration.

466

In UK, the person should submit an application for permission while making an appeal to

competition commission regarding GEMA’s decision. Commission will grant permission

with certain condition on the appealed question.

467

Any person can appeal to appellate tribunal for electricity (APTEL).

468

This appeal will be

verified by the state regulatory agency, except as foresaid, no appeal or revision on the

decision.

469

Tribunal should dispose of the matter within 180 days as far as possible.

470

But

the legislation is silent regarding timeline for disposal of tariff matter or petition before the

commission.

471

4.16.14 Ethics:

Member of FERC should not engage in any other business vocation or employment while

serving under FERC.

472

FERC employee should behave ethically and should not disclose

nonpublic information, not accept gift from any person, company or organization while

doing business. Employee may accept unsolicited gift of $20 or less per source per

463

Section 80 and Section 87, Electricity Act 2003.

464

42 U.S Code § 7171 (g).

465

42 U.S Code § 7171 (i).

466

18 CFR § 385.604.

467

Section173,Energy Act 2004.

468

Section 111, Electricity Act 2003

469

Section 127,Electriciy Act 2003

470

Prabhat Kishor Dimri & Shivanku Bhatt, Role of Regulatory Mechanism Concerning Energy sector,

Consumer Protection ,Law and Advocacy, Volume 8,Issue 6, International Journal of Management, P. 25,

2017 ,available at

http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=8&IType=6, accessed on 29th December,2018.

471

Ibid, P. 30.

472

42 U.S Code § 7171 (b)(1).

occasion, should not accept reimbursement from an outside source for official travel

without Designated Agency Ethics official, should not own stock in a company under

FERC’s regulated interest. Employee should attend ethics related training.

473

India’s

regulatory agencies member should not accept any commercial employment for a period of

two years from the date s/he ceased to hold office.

474

473

Federal Energy Regulatory Commission, Ethic, available at, https://www.ferc.gov/ethics.asp, accessed on

16th January,2019.

474

Section 89, Electricity Act 2003.

CHAPTER 5: Results

5.1 Analysis of the domestic frameworks

Fortunately, Nepal has the hydropower potential of 83,290MW. But it’s unfortunate that we

are generating energy lesser than 1/4th of India’s generating capacity. NEA plays a

significant role in managing and developing hydropower. Authority is operating its service

even it suffers the loss of around NPR 4, 93, 89,004.8/- and as a result of which its being

unable to fulfill the country’s demand due to technical and commercial loss.

The Authority suffers technical loss of NPR 1, 41, 39,913.26/- due to transmission line

issues. NEA also faces commercial loss due to absence of transmission line for selling

electricity.

475

It’s the sole authority in the country entitled to strike a balance between

demand and supply through generation, transmission and distribution. It hasn’t been able to

balance the demand and supply in absence of transmission line.

476

Even for cross border

transmission, it needs 400kV capacity of transmission line.

477

For this, it needs investment

and national economic strategy for cross border electricity trade. It also needs investment

for transmission line. There is also a dire need of upgrading transformers, feeders and

cables for distribution. However, NEA alone cannot make such huge investments. So, the

government of the day should make investment to address these issues. However, the

Authority could partner with the private organizations or companies as well. It could unfold

prospects for the private investments.

So, it could coordinate with the country’s private and public enterprises or agency to

increase investment in power. Given the economic constraints, mere public investment in

475

Lack of Transmission Lines Affecting Power Evacuation, Nepal Energy Forum, 31st

December,2014,available at

http://www.nepalenergyforum.com/lack-of-transmission-lines-affectiing-power-evacuation/, accessed on 2nd

January,2019.

476

Lack of Transmission Lines Affecting Power Evacuation, Nepal Energy Forum, 31st

December,2014,available at

http://www.nepalenergyforum.com/lack-of-transmission-lines-affectiing-power-evacuation/, accessed on 2nd

January,2019.

477

Puspha Raj Acharya,We are focused on robust transmission, distribution system, The Himalayan Times,

2nd October,2018, available at https://thehimalayantimes.com/business/we-are-focused-on-robust-

transmission-distribution-system/, accessed on 2nd January 2019

Nepal is not enough.

478

The control over the major transmission line rests with the NEA. It

has power to determine charges. However, with the enactment of NERC Act, the NERC has

been given the role to determine the transmission charges.

479

Thus, NERC has major role

in balancing demand and supply of electricity. The position is similar to US, where FERC

determines the operational and economic need for a transmission line.

480

5.2 Challenges before the Regulatory Agency

Conversely, the other challenge is maintaining purchase and sale of electricity rate. So,

maintaining proportionality between the sale and purchase is a tall task in our context. We

suffer a huge loss due to disproportionate purchase and sell rate. Similarly, the PPA issue is

also one of the headaches. There was the issue of non-transparency in Khimti, Bhotekoshi,

Arun III hydropower projects. And, the issue of non-transparency took zenith at the time of

signing of the projects.

481

On the top, asymmetrical information

482

and environmental

degradation

483

are the major challenges that need to be addressed timely in every project. At

present, NERC has been conferred with the power to determine the price or cost.

484

If the

issue of foreign investment, price rate, or environmental degradation appears, then in that

case, the NERC has the major role to play. It has to compose its functions in such a way

that the rights and interests of consumers are upheld and a competitive market is assured.

Moreover, the objective of the NERC is to strike a balance between demand and supply.

And, it should also simplify the business and adopt measures for the protection of rights of

consumer. To fulfill this objective, NERC must have updated and progressive regulatory

frameworks put in place. It could exercise its jurisdictional authority, power, duties, and

responsibilities; otherwise, the electricity agency might face risks with the adoption of old

478

Damir Cosic, Rafael Dominguez, Ruth Hill, Ashish Narain, Petal Jean Hackett and Persephone Economou,

Nepal Systematic Country Diagnostic, A New Approach for a Federal Nepal, World Bank, P.15,2018.

479

Section, 13 (1e), Nepal Electricity Regulatory Commission 2017.

480

Jim Roosi, The Trojan Hourse of Electric Power Transmission Line Sitting Authority. Vol 39,Lewis and

Clark Law School Environmental Law, P.1021,2009, available at http://ssrn.com/abstract=1472102, 20th

March ,2019.

481

Make It Transparent, Nepal Energy Forum, 17th April,2013, available at

http://www.nepalenergyforum.com/make-it-transparent/,accessed on 5th January,2019.

482

Niraj Rai, Padmendra Shrestha, & Saumitra Neupane, Enganging in reforming policies in Nepal: An

Analytical documentation of the Niti Foundation's Experience in Nepal's Hydropower Sector, Niti

Foundation, P.24, 2016.

483

Jim Roosi, The Trojan Hourse of Electric Power Transmission Line Sitting Authority.P.1021,2009,

available at http://ssrn.com/abstract=1472102 20th March ,2019.

484

Section 13, Nepal Electricity Regulatory Commission Act 2017.

strategies. While fulfilling its objectives, if there occur any risk, then it should be able to

control the risks through the rule-based regulation.

485

It means it should have strategies to

control the contingencies. On the other hand, private investors generally prefer to have an

independent regulatory regime. They fear of the political influence. It’s often seen that

political parties float different agendas, which ultimately serve their interests, that create

instability in the power sector. They don’t necessarily prioritize economic, social, rights of

consumer or environmental interest. These things discourage the long-term investment in

regulatory agency.

486

It’s an uncontested fact that the working of the regulatory agency

would garner public trust if it succeeds to compose its functions independently.

Despite this, it is impractical to create an IRA at the initial stage. The presence of

alternative advisory regulatory agency to advise the ministers could create trouble.

487

Even

if it becomes an independent regulatory agency on paper, the political influence is yet to be

pushed away. Yet, IRA could protect regulatory agencies from blame games by taking the

responsibilities as it has the major role to play in decision making process of the ministry.

488

So, a regulator should play a creative and constructive role to avoid the conflicting interests.

If there is conflict of interests involved, it would pave the ways for the opportunists to play

a significant role which would ultimately turn disastrous for the regulatory agency.

489

For

example, the conflict of interests may rise if policymakers make the ex-post-facto policies

485

Malcolm K Sparrow, Joining the Regulatory Fold ,Policy Essay, Volume 11 , Issue 2, American Society of

Criminology, P. 351, 2012, available at

https://sites.hks.harvard.edu/fs/msparrow/documents--

in%20use/Crime%20Reduction%20through%20a%20Regulatory%20Approach--

Joining%20the%20Regulatory%20Fold--Policy%20Essay--Criminology%20&%20Public%20Policy--

May%202012.pdf accessed on March 1st, 2019

486

Mark A. Jamison, Leader and Independent Regulator,Public Utility Research Center University of Florida.

P.4, 2012, available at http://regulationbodyofknowledge.org/regulatory-process/references/leadership-in-

regulation/, accessed on 15th June,2019

487

Rodriguez Pardina, Martin Augusto and Schiro, Julieta; Taking Stock of Economic Regulation of Power

Utilities In The Developing World, World Bank, P.10,2018, available at,

http://documents.worldbank.org/curated/en/732921527773002514/Taking-stock-of-economic-regulation-of-

power-utilities-in-the-developing-world-a-literature-review,accessed on 9th December,2018.

488

Chris Hanretty & Christel Koop,Shall The Law Set Them Free? The Formal And Actual Independence of

Regulatory Agencies, Wiley Publication, P. 3,2012,available at

https://ueaeprints.uea.ac.uk/39827/4/rego_proofs.pdf, accessed on 15th February,2019

489

Chris Hanretty & Christel Koop,Shall The Law Set Them Free? The Formal And Actual Independence of

Regulatory Agencies, Wiley Publication, P. 5,2012,available at

https://ueaeprints.uea.ac.uk/39827/4/rego_proofs.pdf, accessed on 15th February,2019

having the force of implementation from the date back.

490

Thus, there is a dire need of ensuring

an independent regulatory agency having zero political influence. If its maintained so, it would

create a trustworthy atmosphere and a conducive environment leading to the growth and

prosperity.

491

5.3 Influence of government is a major challenge

The practice of regulatory regime is not a new concept but a road less travelled in Nepal. Its

composing the functions which were previously done by the decisions of the concerned

Ministries.

492

The regulatory regime requires a high skilled technical knowhow. It demands strong

expertise in regulatory fields. It should make decisions in such a way that it does not

compromise the rights and interests of the consumers. More importantly, their decisions or

actions should be consistent with the international standards. There are certain principles

like regulatory independence, financial independence, clarity and comprehensiveness of

regulatory decisions, clarity of role in regulation and policy, protection of consumer’s rights

and obligations and creation of special tribunal to review the regulatory decision.

While talking about the benchmark principles, the first and foremost principle is

maintaining independency of regulatory agency.

493

The degree of independence should be

reflected in the decision-making process. Its independency is further reflected during the

appointment and the removal of NERC Chairperson and board members.

494

If the

appointment’s is made by the government, then the interest groups may try to influence the

government’s decisions. Because, such appointments may involve the interest of various

private companies or consumers.

495

The regulators, who are appointed by the executive

490

Ibid.

491

Ibid.

492

Ashley C.Brown,Jon Stern, Bernard Tenenbaum and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, World Bank,P. 201,2006, available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019

493

Ashley C.Brown,Jon Stern, Bernard Tenenbaum and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, World Bank, P. 201,2006, available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 2nd December,2018

494

Ibid, P.2

495

Jean-Jacques Laffont and Jean Tirole,The Politic of Government Decision Making :The Theory of

Regulatory Capture, The Quarterly Journal of Economic,Vol.106.No. 4,P.1090,1991.

wing of the government, are unlikely to be independent.

496

Thus, the regulatory agency

must be independent from the government’s influence.

Similarly, it must have legal power to hire and fire its own member. It must maintain

distance from the governmental influence so that it could encourages a long-term

prospective and ensure independent decision making.

497

But, it’s a long way to go to

maintain independency till the appointments of NERC Chairperson and members are done

by the government on the recommendation of select committee.

498

This committee

comprises of bureaucrats such as secretary as convener, electricity expert as member

nominated by ministry of energy and gazette first class officer as a member secretary. This

clearly shows that the chairperson and members are appointment on the recommendation of

the incumbent government. NERC has no role of appointment of its own Chairperson and

member. On the other hand, it has no advisory responsibility for the Minister of Energy on

policy matters relating to electricity.

However, in USA, FERC is composed of five members. These members are appointed by

the president with the advice and consent of the senate.

499

It can appoint members having

essential qualifications. It can make decisions on salaries, and place for holding sessions,

etc.

500

Appointments are made in line with the Presidential order where the Secretary has

also a role to play. So, even United States has a long way to go for an independent

regulatory regime. But, World Bank’s report suggests that the United States’ regulatory

agency has maintained independency.

501

496

Sheoli Pargal, Regulation and private sector investment in infrastructure : Evidence from Latin America,

World Bank, P.15, 2003,

497

Anthony Ogus Regulatory Institutions and Structures, Centre on Regulation and Competition Working

Paper, P. 16, 2001, available at https://ageconsearch.umn.edu/record/30704/files/cr010004.pdf, accessed on 1st

March 2019.

498

Section 7, Nepal Electricity Regulatory Commission Act 2017.

499

42 U.S. Code § 7171 (b)

500

16 U.S Code § 792.

501

Luis Andres, José Luis Guasch, Makhtar Diop, and Sebastián Lopez Azumendi, Assessing the Governance

of Electricity Regulatory Agencies in the Latin American and Caribbean Region, World Bank, P. 7,

2017,available at

http://documents.worldbank.org/curated/en/171321468046442915/pdf/wps4380.pdf accessed on 2nd

February,2019

In UK, GEMA consists of one chairman and other two members. The terms of

appointment

502

and remuneration (travelling and other allowances) is determined by the

Secretary of State.

503

Similarly, in case of India, CERC

504

and SERC

505

with the help of

select committee make the same decision. In India, the central

506

and state

507

government

on the recommendation of respective selection committee appoints the chief executive of

the commission

508

or the chairperson and three other members. The members of the

selection committee are bureaucrats. This might result fairness in action as a set of persons

having similar mindset come together for achieving a shared objective.

Yet, the regulatory agency should be free from the government’s intervention.

509

Even the

political institutions could be considered as autonomous bodies only when they can

transform their own interests and values into action without external influence.

510

The

influence of political parties in power or opposition creates huge obstacles and prevents

market reforms.

511

Even if appointments are made in the line with the recommendations of

select committee, there should be autonomy in the level of decision-making competencies

of the agencies.

512

502

See, Schedule 1(1),Utilities Act 2000, available at http://www.legislation.gov.uk/ukpga/2000/27/schedule/1

accessed on 16th January,2019.

503

Schedule 1 (4), The Gas and Electricity Market Authority, Utilities Act 2000.

504

Section 76(6), Electricity Act 2003

505

Section 85 (2), Electricity Act 2003

506

Section 76(6), Electricity Act 2003

507

Section 85 (2), Electricity Act 2003

508

Section 77(4) and Section 84(4), Electricity Act 2003

509

Ashley C.Brown,Jon Stern, Bernard Tenenbaum and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, World Bank, P. 215,2006, available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019.

510

Fabrizio Gilardi, The Independence of Regulatory Authorities, University of Zurich, P.3,2010, available at

https://www.fabriziogilardi.org/resources/papers/gilardi_maggetti_handbook.pdf, 5th February,2019

511

Shaofeng Xu, & Wenying Chen,The Reform of Electricity Power sector in PR of China, Volume 34, Issue

16, Energy policy, Research Institute, Tsinghua University. P. 2464, 2006.

512

Paul G.Roness, Kristin Rubecksen, KoenVerhoest, & Muiris Mac Carthaigh, Autonomy and Regulation of

State Agencies :Enforcement,Indifference or Compensation?, University of Bergen,P. 5, 2008, available at

http://pdfs.semanticscholar.org/0f59/32d05f0684b6feecaec69d87e0b7a18d7ff3.pdf,accessed on 24th

January,2019.

So, the appointments and transfers made on the recommendations of government do not

necessarily ensure independency. Therefore, independence and accountability should be the

benchmark for a fair regulation.

513

On the other hand, appointment of directors or commissioner is much preferable from

diverse professional backgrounds and training; for example, economics, law, engineering,

and accounting.

514

It will fulfill the agency’s responsibilities

515

and NERC has only laid down

the minimum academic qualification. A person must hold the Master’s degree in

economics, commerce, management, accounts, law or engineering and work experience of

at least twenty years for chairperson and fifteen years for other members is essential.

516

FERC

517

and GEMA, there is no any prescribed essential qualification as such.

But, for CERC and SERC, the person should have a work experience and degree in

economics, law, commerce, or finance, or the likes. Even with these specific qualifications,

a person might not have the potentials so required. In this situation, how can a person with

only a academic qualifications can solve the regulatory problems?

In case of India’s Haryana regulatory agency, the normal trend is to appoint the former

bureaucrats in the office. Yet, its not for sure that the appointed persons, who are former

bureaucrats, are competent to hold the office.

518

Thus, to overcome these issues, many

countries prefer to make appointments on the basis of work experience.

519

513

Ibid, P. 25.

514

Ashley C.Brown,Jon Stern, Bernard Tenenbaum and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, World Bank, P. 221,2006, available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 2nd December,2018.

515

Ibid.

516

Section5(a),Nepal Electricity Regulatory Commission 2017.

517

16 U.S. Code § 792.

518

Rajesh Kumar PhD, Economic of Regulation A case Study of Haryana Electricity Regulatory Commission,

,Department of Economics Maharshi Dayanand University, Rohtak Harayana, P. 92, 2004.

519

Electricity Association, ‘Electricity Industry Review , OXERA, Guide to the Economic Regulation of the

Electricity Industry, June 1999.

5.4 An independent regulatory regime: a major challenge

An independent regulatory regime demands the managerial or functional autonomy which

paves the ways for independent decision-making process.

520

Along with this, the persons

selected should only be removed on the specific grounds as defined in the law (that is,

proven, nontrivial, legal or ethical misbehavior, or nonperformance of their duties).

521

In case of Nepal, the GoN formulates a committee to investigate against any allegations

placed on the members of regulatory agency.

522

The persons in office cannot removed

unless otherwise than the recommendations of the investigation committee. In case of

FERC, the President makes decision for removal of members of regulatory agency on the

charge of inefficiency, negligence or malfeasance in office.

523

In India, the member of

selection committee has discretionary power for selection.

524

It also has the power to

remove the persons so appointed.. The Central and State regulatory agency members are

removed by the order of the Central and State regulatory agency

525

, respectively if proven

guilty by the court. The vacant positions are required to be filled-up within one month from

the date of removal.

526

But this has not been followed in spirit. For example, in Rajasthan’s electricity regulatory

agency, the post of Chairman was vacant for two years and in Tamil Nadu, the state

government rejected the panel suggested by the selection committee for the post of

Chairman.

527

Thus, provision might not be needed for independence but in practice there

520

Paul G.Roness, Kristin Rubecksen, KoenVerhoest, &Muiris Mac Carthaigh, Autonomy and Regulation of

State Agencies : Enforcement, Indifference or Compensation ?P. 5, 2008,available at

https://pdfs.semanticscholar.org/0f59/32d05f0684b6feecaec69d87e0b7a18d7ff3.pdf accessed on 24th

January,2019.

521

Ashley C.Brown,Jon Stern, Bernard Tenenbaum and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, World Bank,P. 221,2006, available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 4th April, 2019.

522

Section 9,The Electricity Regulatory Commission 2017.

523

42 U.S. Code § 7171 (b) (1).

524

Rajesh Kumar PhD, Economic of Regulation A case Study of Haryana Electricity Regulatory Commission,

Department of Economics Maharshi Dayanand University, Rohtak Harayana, P. -83,2004.

525

Section 90 (2),Electricity Act 2003

526

Section 78 (5), Electricity Act 2003.

527

CUTS Institute for Regulation and Competition ,Competition and Regulation in India, Leveraging

Economic Growth Trough Better Regulation, P.78,2009, available at

should be independence.

528

NERC should be independent in decision making process. It

could offer attractive and competitive incentives or package to staffs and there should be

proper delegation of powers.

Further, there should be standard principles to evaluate working of regulatory agency. It

should be financially independent. It must have adequate funding to meet all its

responsibilities.

529

The amount of fund collected from purchase, sale of electricity, fine and

donation are the major sources of income for the regulatory agency. The revenue so

collected be held in a special account maintained by the regulatory agency itself.

530

But,

that’s not the case in Nepal. NERC’s has to deposit all funds so collected in the collateral

fund.

531

Regulatory law doesn’t allow to receive more than one percent of the fund from the

net income. This way, agency is dependent on government. Thus, the regulatory Act fails to

create NERC a financial autonomous institution.

In US, FERC has the authority to collect fee and annual charge and the funds so generated

is deposited in the general fund of treasury. Office of Management and Budget authorizes

FERC’s budget. However, in GEMA all the funds are deposited to consolidate fund of UK.

In case of India, CERC and SERC estimate the details of income and expenditure and

submit the receipts to the respective governments.

532

The salaries and other benefits of

staffs are made in accordance with the law prescribed by the government.

However, in case of Chairperson and other member’s salaries, allowances and other

benefits, its determined in accordance of the law as prescribed by central and state

government

533

respectively. Respective government establishes the fund, which is known as

http://www.pradeepsmehta.com/pdf/Competition_and_Regulation_in_India-

2009_Leveraging_Economic_Growth_Through_Better_Regulation.pdf, 29th December,2018.

528

Ibid P.2.

529

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 69, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019

530

Ibid,P.223

531

Section 19(2),Electricity Regulatory Commission Act 2017.

532

Section 106, Electricity Act 2003.

533

Section 91(3),Electricity Act 2003.

Central or State Electricity Regulatory Commission fund. Its used for the grants and

loans.

534

India’s regulatory agency has not incorporated provisions relating to foreign

funding. In addition to it, NERC and CERC have no source of revenue to supervise

personnel staff or participate in professional research. FERC and GEMA have power to

make decision on the issues pertinent to it. FERC is authorized to lay down procedural and

administrative rule to exercise its function. It means the decision on tariff is one of the

important parts of regulatory agency in making competitive market.

5.5 Electricity Tariffs: A revisit to the international experience

The NERC was put in place to adopt policies relating to the investment or tariffs or the

policy matters. It’s a boy corporate. This body determines the purchase-sale rate and

procedure of sales and purchase of electricity.

535

It’s not clearly stated what methods should

be used for the purchase and sale of electricity. On the other hand, there is no methodology

in tariff determination. It has only been stated that the certain consideration during tariff

formation such as the operation cost, depreciation rate, payment of principal and interest,

repair and maintenance expenses, construction, reconstruction, rehabilitation of electricity

infrastructure and power purchase agreement including the annual return for share

investment condition could be taken into consideration.

Over and above all this, the regulator must have the power to deal with (i) Cost and risk

allocation, (ii) determination of assets base, and (iii) cost of capital assumptions.

536

These

issues should be taken into account while determining tariff. Due to the lack of tariff setting

methodology, the regulatory agency might not gain confidence in the eyes of investor.

537

should be incorporated either in law or the concession document in order to provide some

degree of predictability to the investors and consumers.

538

534

Section 99 and Section103,Electricity Act 2003.

535

Section13 1(b), The Electricity Regulatory Commission Act 2017.

536

Ibid.

537

Ashley C.Brown, Jon Stern, Bernard Tenenbaum and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, World Bank, P. 188,2006, available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019.

538

Ibid P.189.

However, in case of FERC and GEMA, there is methodology to determine tariff. It reduces

the conflict between regulatory companies and regulatory agencies. Basically, there are two

types of methodologies while determining tariffs. It could be price capping method or

revenue cap. The Price Cap Regulation with maximum tariff is used in UK to control the

revenue requirement for electricity utilities.

539

The Government believed that the price cap regulation will allow utilities to keep the profit

they received by improving and revealing their efficiency capabilities.

540

A general formula

for Price Cap Method is: P(t) = (1 + RPI – X). P (t – 1)) (2) where, P (t) is the tariff in time,

RPI is the inflation rate, X is the efficiency factor and P (t – 1) denotes tariff level in the

previous period.

India’s CERC and SERC

541

have the power to determine tariffs. The CERC has the power

to determine tariff principles and methodologies which shall be applicable to generating

companies and transmission licensees’.

542

It has power to determine tariff for inter-

State transmission of electricity.

543

During tariff determination, all commission should

undergo through transparent process of bidding in accordance with the guidelines

issued by the Central Government.

544

India’s SERC decides tariff based on cost plus regulation, or incentive regulation. Its not

bound by the recommendations of any regulator.

545

Transparency in agency's price setting

will make subsidy more accountable in the eyes of the consumers.

546

In addition to it,

539

Rajesh Kumar PhD, Economic of Regulation A case Study of Haryana Electricity Regulatory Commission,

Department of Economics Maharshi Dayanand University, Rohtak Harayana, P. -37, 2004.

540

Mark A.Jamison, Regulation :Price Cap and Revenue Cap, Public Utility Research Center, University of

Florida, P.-3 available at

https://bear.warrington.ufl.edu/centers/purc/docs//papers/0527_jamison_regulation_price_cap.pdf, accessed

on 9th Febuary,2019.

541

Section 62, Electricity Act 2003.

542

Section 61, Electricity Act 2003.

543

Section 79(d), Electricity Act 2003.

544

Section 63, Electricity Act 2003.

545

Tooraj Jamash,Manuel Lorca, Pavan Khetrapal & Tripta Thakur, Institutions and Performance of Regulated

Firms : Evidence from Electric Utilities in The Indian State, Departamento de Economia, Universidad de

Oviedo, P.6, 2018, available at

https://www.unioviedo.es/oeg/ESP/esp_2018_03.pdf.

546

Anthony Ogus, Centre on Regulation and Competition, Regulatory Institutions and Structures, Working

Paper, P. 12, 2001, available at https://ageconsearch.umn.edu/record/30704/files/cr010004.pdf, accessed on 1st

March 2019.

India’s Electricity Act, 2003 has given the power to the regulator to fix tariff. But, at the

same time, it allows the state government to provide cross subsidy.

547

It allows cross

subsidy to deserving consumers, this creates difficulty in tariff fixation process.

It is to be noted here that the state governments in India are empowered to intervene in the

tariff-relating issues. For instance, in case of Haryana electricity regulatory agency, state

government interfered in the matters regarding tariff fixation, internal planning, and

purchase of assets and transfers of the employees.

548

Meanwhile, the regulatory agency’s decision is always questioned by the state

governments.

549

Thus, regulatory agency should discharge its function in a free and

transparent manner.

550

However, due to the misuse of power by various governments, there

arises conflict between government and regulator and the tussle starts: who has the

jurisdiction to fix tariffs originally? Whether state or centre?

Yet, the regulatory agency has been conferred with the power to fix tariffs for consumers.

But, the government has not allowed the regulator to determine the tariff at its discretion.

551

Tariff should be calculated with important economic variables such as revenue, quantity

and quality of power, tariff payable and environmental cost.

552

Environmental factors also

determines tariff, where the consumer should pay higher energy charge.

553

Similarly, during

tariff formation, there will be incentive structure for generators which increase operational

and cost efficiency. For cross border electricity trade, there should be National Tariff

Policy.

547

Section 65 of Electricity Act 2003.

548

Rajesh Kumar PhD, Economic of Regulation A case Study of Haryana Electricity Regulatory Commission,

,Department of Economics Maharshi Dayanand University, Rohtak Harayana. P. -64,2004.

549

CUTS Institute for Regulation and Competition, Competition and Regulation in India, Leveraging

Economic Growth Trough Better Regulation, P.79, 2009 available at

http://www.pradeepsmehta.com/pdf/Competition_and_Regulation_in_India-

2009_Leveraging_Economic_Growth_Through_Better_Regulation.pdf, 29th December,2018.

550

Ibid P. 78.

551

CUTS Institute for Regulation and Competition, Competition and Regulation in India, Leveraging

Economic Growth Trough Better Regulation 2009, P.78, 2009, available at

http://www.pradeepsmehta.com/pdf/Competition_and_Regulation_in_India-

2009_Leveraging_Economic_Growth_Through_Better_Regulation.pdf, 29th December,2018.

552

Rajesh Kumar, Economic of Regulation A case Study of Haryana Electricity Regulatory Commission

,Department of Economics Maharshi Dayanand University, Rohtak Harayana, P. 36, 2004.

553

Raj Singh Niranjan, Guide to Electricity law in India, Universal Law Publishing Co.Pvt.Ltd.

In some crucial aspects of tariff setting, they are not in the hand of the power regulatory.

When price coordination between power ministry and others agency is poor and ineffective,

it makes regulator weak and not at the position to regulate price that is increased. The

government should devise a way to eradicate this problem

554

without being influenced by

the political decision. Decision relating to tariffs and investment often come under the

political influence.

555

Vested interest will exert pressure on regulators/government to keep

the low tariffs to utilize subsidized power supply.

556

Meanwhile, SERC often delays in issuing tariff order which adds to financial loss.

557

India’s regulatory agency uses rate of return method for approving tariff to reduce the risk

of the investor and attract adequate amount for investment.

558

5.6 License provisions in India and Nepal

Likewise, the standard principle is proportionality. The regulation should always keep

minimum necessary efficiency and fairness in action.

559

Regulatory agencies should be well

focused and develop better targets to address its problem and open doors for alternative

measures as well.

560

Such as not to revoke license for small offense, use relevant remedies

to regulate entity

561

, or delegate regulatory responsibilities to other agencies and review its

activities regularly.

562

554

Prabhat Kishor Dimri & Shivanku Bhatt, Role of Regulatory Mechanism Concerning Energy sector,

Consumer Protection ,Law and Advocacy Volume 8,Issue 6, International Journal of Management, P. 29

,Nov-Dec 2017 ,available at

http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=8&IType=6, accessed on 29th December,2018.

555

Vijay Vir Singh, Regulatory Management and Reform in India, OECD, P. 20,2008.

556

CUTS Institute for Regulation and Competition,Competition and Regulation in India, Leveraging

Economic Growth Trough Better Regulation, P.76, 2009,available at

http://www.pradeepsmehta.com/pdf/Competition_and_Regulation_in_India-

2009_Leveraging_Economic_Growth_Through_Better_Regulation.pdf, 29th December,2018.

557

Prabhat Kishor Dimri & Shivanku Bhatt, Role of Regulatory Mechanism Concerning Energy Sector,

Consumer Protection ,Law and Advocacy, Volume 8,Issue 6, International Journal of Management, P.

30,Nov-Dec 2017,available at

http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=8&IType=6, accessed on 29th December,2018.

558

Rajesh Kumar PhD, Economic of Regulation A case Study of Haryana Electricity Regulatory Commission,

Department of Economics Maharshi Dayanand University, Rohtak Harayana, P. 37-38,2004.

559

Ashley C. Brown, Jon Stern, Bernard Tenenbaum, and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 208, 2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 6th January,2019

560

Ibid P.213.

561

Ibid.

562

Ibid, P.215.

However, the position is different in Nepal. The NERC has no power to revoke license--

neither it has authority to provide remedies to any entity nor do the authority grant license.

In a bid to achieve NERC’s objective expressed under the preamble, it must have been give

licensing responsibilities. But, the provision for regulating license in electricity sector is

given to NEA. The NEA has been conferred with the power to make survey, or take

decisions relating to generation, transmission or distribution of electricity.

563

NERC must have powers to regulate licensee. Without comprehensive provision to

regulate licensee NERC cannot achieve its objectives. This might create disputes among

NERC, DoED and NEA. There must be a special committee to review the conflict or

interference from other governmental bodies on regulatory agency’s decision, if any, at

provincial level.

5.7 Rights of consumers

Above all this, another major principle involved with the regulatory agency is to protect the

rights of consumers. The attempts should be made to protect the rights of consumers and

provide compensation in case of breach of standards.

But NERC lacks any provision relating to remedies or compensation for breach of

standards (of electricity). It has incorporated only the provisions about the protection of

interest of consumers through necessary measures.

564

In USA, the electric consumer

protection Act provides compensation for the consumers and roots the negotiation of

contested projects to litigation. The position is different in India. The SERC ius shouldered

with the responsibility to pay compensation to the affected parties by granting subsidy.

565

There is an obligation on the SERC to provide electricity to licensee without any cut. But,

the staff/officials of SERC often fail to abide by this statutory obligation. They are failing to

563

Section 3, Electricity Act 1992.

564

Section 14(a),Nepal Electricity Regulatory Commission Act 2017.

565

Section 65,Electricity Act 2003.

provide the electricity connection on time and they often fail to provide electricity to the

consumers within 30 days from the date of connection.

566

Furthermore, SERC is allowed to make preference to consumers as per their use of power

or consumption of energy during specific period or the time of supply or geographical

position.

567

The SERC can also punish the outliers found violating Acts/rules/

regulations.

568

Even though, there are provisions under the Consumer Protection Act, it is

important to analyze how to protect the interest of a user in public owned utilities and

monopolistic structures.

569

5.8 Accountability in regulation

Like other principles, there is yet another crucial factor on which the entire foundation of

regulatory regime rests is accountability. An institution cannot have sustainable future in

absence of accountability. Accountability paves the path for non-arbitrariness and

transparency.

The regulator should base their decision independently. Their decision should not be

clouted under the political influence even in an unfavorable situation.

570

The decisions

merited under the political influence can never serve the cause of a healthy democracy or

regulatory regime. To be accountable, regulatory agency’s decision must be reviewed by

the legislative committee.

571

The working of NERC has major role to play in making the

566

Prabhat Kishor Dimri & Shivanku Bhatt, Role of Regulatory Mechanism Concerning Energy Sector,

Consumer Protection ,Law and Advocacy, Volume 8,Issue 6,International Journal of Management,Nov-Dec

2017,P. 30, 2017,available at

http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=8&IType=6, accessed on 29th December,2018.

567

Section 62 (3), Electricity Act 2003.

568

Prabhat Kishor Dimri & Shivanku Bhatt, Role of Regulatory Mechanism Concerning Energy Sector,

Consumer Protection ,Law and Advocacy, Volume 8,Issue 6 ,International Journal of Management, Nov-Dec

2017,P. 30 ,available at

http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=8&IType=6, accessed on 29th December,2018.

569

CUTS Institute for Regulation and Competition, Competition and Regulation in India, Leveraging

Economic Growth Trough Better Regulation 2009, P.76, 2009, available at

http://www.pradeepsmehta.com/pdf/Competition_and_Regulation_in_India-

2009_Leveraging_Economic_Growth_Through_Better_Regulation.pdf, 29th December,2018.

570

Martin L. Weitzman, Optimal Reward for Economic Regulation, Vol 68, No. 4,American Economic

Review,P.685, 1978, available at

https://scholar.harvard.edu/files/weitzman/files/optimalrevenuefunctions.pdf,accessed on 15th February,2019 .

regulatory system independent, transparent and accountable. NERC’s decision cannot be

challenged by the legislative committee unless the executive body submits its report to

legislative committee for external review.

On the other hand, FERC, GEMA and CERC are accountable to the legislative wing.

GEMA submits the copies of its decisions before the house of parliament.

572

In India, the

rules are made by the Central

573

and State government.

574

However, for a better regulatory

regime, there must be proper coordination between concerned Ministries and departments.

NERC’s prime role is to protect the interest of investors or regulate the firms in accordance

with the law. There should be coordination between regulators and regulating firms or

foreign firms within the country. It helps to remove external influence.

There is also the need of coordinating market economy that helps in forming higher degree

of independence of IRA.

575

The US use coordination to mitigate externalities as much as

possible to know whether the other country’s firms have resulted in negative

externalities.

576

Meanwhile, NERC has not expressly provisioned about coordination

between state and provincial electricity agencies. This sort of complexity might create

dispute in the days to come.

The lawmaking authority at provincial level could contribute well in implementation of

laws. They are more well-versed with the local preferences.

577

For example, in 2011, due

to conflict and planned outage, around 12 hours of power outrage occurred in California,

which affected 2.7 million Americans with more than $18 million loss.

572

Section5 (5) (a),Utilities Act 2000.

573

Section 179, Electricity Act 2003.

574

Section 182, Electricity Act 2003.

575

Chris Hanretty & Christel Koop,Shall The Law Set Them Free? The Formal And Actual Independence of

Regulatory Agencies, Wiley Publication, P. 3, 2012, available at

https://ueaeprints.uea.ac.uk/39827/4/rego_proofs.pdf, accessed on 15th Febuary,2019.

576

Daniel Hemel, Regulatory Consolidation and Cross-Border Coordination: Challenging the Conventional

Wisdom, Volume 28, Yale Journal on Regulation, P. 219,2011, available at,

https://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&art

icle=1321&context=yjreg accessed on 15th Febuary,2019.

577

Anthony Ogus, Centre on Regulation and Competition, Regulatory Institutions and Structures, Working

Paper, P. 14,2001, available at https://ageconsearch.umn.edu/record/30704/files/cr010004.pdf, accessed on 1st

March 2019.

5.9 Public participation

Its often said that the workings of a public institution in a democracy demands public

participation for a meaningful result. Public participation is one of the most important

principles to know the standards of regulatory agency. Public participation provides

regulatory agency more information about current issues.

It seeks to formally challenge information submitted to the regulatory agency.

578

The NERC

provides opportunity for public hearing to determine tariff.

579

But, it does not offer any role

to its own staff or other members. However, in US, the FERC paves the ways for the public

participation on coastal impact assessment plan and others. Likewise, India’s CERC Act

has no provision for public participation.

Yet, it’s the awareness among the people which escalates public participation in a healthier

and smoother way. In India, there is a provision for transparency to its stakeholder and

consumer through public participation. The method adopted during tariff fixation is a

matter of public debate in India.

580

Regulatory agency issues are to be treated separately

from GON and other stakeholders, etc.

581

This helps to measure and achieve good regulation

within the scope and impact of the sectoral performance. Public consultation is one of the

strongest characters of advisory regulatory.

582

For instance, Andhra Pradesh, or Karnataka’s

regulatory agency has appointed consumer’s representatives to ensure adequate public

participation.

583

India’s regulatory regime has also guaranteed provisions for transparency

578

Ashley C. Brown, Jon Stern, Bernard Tenenbaum and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 238,2006,available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 2nd December,2018.

579

Section 13, Nepal Electricity Regulatory Commission 2017.

580

Ashley C.Brown, Jon Stern, Bernard Tenenbaum and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, P. 327,2006, available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 2nd December,2018.

581

Ibid.P 16.

582

Ibid,P.100.

583

CUTS Institute for Regulation and Competition ,Competition and Regulation in India, Leveraging

Economic Growth Trough Better Regulation, P.79, 2009,available at

http://www.pradeepsmehta.com/pdf/Competition_and_Regulation_in_India-

2009_Leveraging_Economic_Growth_Through_Better_Regulation.pdf, 29th December,2018.

to their stakeholders.

584

It has also guaranteed consumers’ participation mechanisms with

the help of Advisory Committees.

585

The public participation in tariff process and during other issue might reduce the chance

appeal in the court against the decision of the regulatory agency. If there is any dispute,

there should be specialized independent appellate forum to resolve the dispute. In case of

breach of obligations, contractual disputes should be rooted to the regulatory agency.

586

case of NERC, the dispute is filed before the High Court.

587

However, in India, the regulatory agency adopts a specialized tribunal which is known as

Appellate Tribunal for Electricity (APTEL).

588

This tribunal hears appeal against the orders

of the adjudicating officer or the Appropriate Commission.

589

In FERC, there is a separate

body to conduct hearing.

590

There is a requirement of approval for appeal.

591

Yet, the

disputes are generally adjudicated through arbitration.

592

In UK, they generally determine

the dispute. If the authority thinks that the arbitrator is necessary to come to a conclusion,

then, the authority will appoint the arbitrator.

593

As Nepal’s judiciary is yet to foil the

interventions from various quarters,

594

it will be better if the NERC has a separate appellate

body for dispute resolution.

584

Vijay Vir Singh, Regulatory Management and Reform in India, OECD, P. 26.2008

585

Ibid , P. 27.

586

Ashley C.Brown,Jon Stern, Bernard Tenenbaum and Defne Gencer, Handbook for Evaluating

Infrastructure Regulatory Systems, World Bank,P.200, 2006, available at

http://siteresources.worldbank.org/EXTENERGY/Resources/3368051156971270190/HandbookForEvaluatin

gInfrastructureRegulation062706.pdf, accessed on 2nd December,2018.

587

Section18(4) Nepal Regulatory Electricity Commission Act 2017.

588

Section111, Electricity Act 2003.

589

Section 110,Electricity Act 2003.

590

42 U.S. Code § 7171 (c).

591

18 CFR § 385.602 (e) (1).

592

18 CFR § 385.604.

593

44 C(2) Electricity Act 1989.

594

Narad Bharadwaj, Travesty of Judicial Independence, The Rising Nepal, available at

http://therisingnepal.org.np/news/18442, accessed on 1st March 2019.

CHAPTER 6 : Conclusion

Addiction always has a price. Despite of the frequent steps taken by the previous

governments as well as the incumbent government, Nepal’s addiction to import of power

from India continues in order to curb load-shedding. Over the years, the Himalayan

republic has witnessed the loss of millions due to import of electricity or the leakage due to

faulty transmission lines. It should be born in mind that there is no such thing as a free

lunch; certainly over-dependencies don’t come without economic instability.

The adequate generation of electricity is the need of hour for Nepal’s economic growth.

The sovereign citizens of Nepal do not generate any original energy in our part of the

world. We could only convert the available universal energy from one form to the other.

Unfortunately, our effort in this process is not much praiseworthy. Neither, we are in a

position to generate energy originally—as we are taught in schools that energy can neither

be created nor be destroyed—nor are we in a place to make our regulatory regime

independent and overcome from dependencies. In fact, our experience suggests that the

energy, we are in need of, is produced in India and imported in Nepal. So, we are neither on

the seat of creation, nor with the steering of destruction.

In contrast, the function of the government agencies working for the betterment of

electricity distribution is also not independent in nature. At times, its seen that the

government agencies, which were formed as autonomous entities, compose their functions

under the influence or direction of the government or political parties at the helm.

At this backdrop, the regulatory agency could look at the external governance and internal

governance to achieve its objectives. At Initial stage, agency might have to undergo through

compromising phases as there are other Ministries as well operating, in one or some other

way, in coordination with the hydel agency. Yet, they have to act under the advice of

Ministry of Finance. Its evaluation can be done on two grounds: “How” the agency

composed its function and under what context.

The researcher humbly submits that his initial assumption (hypothesis) is proved on certain

points. He had thought that the provisions of the Electricity Regulatory Commission Act are

not in furtherance of its preamble and at the end of the day, i.e., when he concludes his

paper, he has a reason to believe that some of the provisions of the Act are not in

consonance with the preamble. Some of the provisions fail to spearhead the objective the

legislation has intended to achieve. The objectives expressed under preamble would have

been spearheaded in letter and spirit had the legislation ensured organizational autonomy

(in hiring and firing of its staffs). NERC is not a financially autonomous institution. It’s

actions are subject to the approval of Ministry of finance as Ministry has the ultimate

control over the budgeting.

There could have plethora of provisions on record which would ensure that NERC is an

independent institution and it does not deserve to be dependent on other wings of the state

or government. There could be express methodology for formulating tariff rates. But, wish

it could be! The power of licensing must be given to NERC to make the energy business

more reliable. There is no any provision for compensation as well. So the rights and interest

of the consumers are largely compromised. We also lack an appellate tribunal for reviewing

the decisions of the regulatory institution. So, there are ample of provisions which suggest

that the regulatory agency for regulating the hydropower in Nepal is not independent. This

way, the researcher has a reason to believe that his hypothesis is thus proved.

Similarly, the regulatory regime in Nepal does not welcome private investment. Nor do we

have ample provisions for FDI. In order to ensure competitive, transparent, and consumer-

friendly environment, an independent regulatory agency is the need of the day which could

welcome private investments. Our regulatory agency cannot even shape its actions to

appoint or terminate the service of staffs. There could be free hand of the agency in case of

approval of foreign fund, tariff methodologies, or protection of rights of consumers. This

approach, if adopted, could help to secure the long-term investment in energy sector.

The NERC was put in place with certain objectives. The rationality of establishing NERC

was to prevent market failures, or to combat with anticompetitive practices and promote

public interest. It was also shouldered with the responsibility to make clear articulation of

policy goals; integrate the regulatory approaches across jurisdictions and act in close

coordination with national, provincial and local governments. It has also an aim to garner

transparency, clarity, participation, and secure public interest. However, we lack

progressive provisions to accommodate the concerns of provincial governments and their

affiliates. The financial independency and the independency from the interventions of the

government also remains as contested ideas and its yet another challenge before our

regulatory regime.

While talking about appointments, the Chairperson of the regulatory commission is

appointed by the head of state in US, UK, or India. His position could vacate as per the law,

not otherwise. Similarly, the role of regulatory agency is to ensure a competitive market

with price adjustment. This can be achieved only when agency has adopted mechanism to

determine price. Sadly enough, these functions cannot be spelled out by the NERC as it

lacks jurisdiction to determine price. Moreover, the NERC has no power to provide license

for generation, transmission and distribution of power. This way, it’s like a tall tree with

hollow trunk.

In addition to it, NERC is not conferred with the power to decide the terms and conditions

of the salaries, wages or other benefits of its staffs. It has to act under the direction of the

government regarding these issues. Its accountability is not with legislative committee.

Yet, the law provisions for public participation while determining tariffs. This could help

the state to curb conflict of interests and frequent recourse to courts.

The admired jurist HLA Hart has rightly said that enactment of law is one thing while its

implementation is the other. The efficiency of the regulatory regime could be judged with

the implementation of laws in force. This researcher humbly submits that the need of hour

is to enforce the existing laws in letter and spirit first. The conflicting provisions or the

provisions in need of amendment or clarity could be amended in the days to come or with

the passage of time. So, there is no reason to be disappointed with a handful number of

laws. They could be amended.

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Full-text available

Apr 2010

This paper provides an overview of the definitions and typology of regulation, the rationale for regulation, and examines the regulatory landscape in India.

Regulation: Price Cap and Revenue Cap

Article

Full-text available

Jan 2007

Mark A. Jamison

Price cap regulation allows the operator to change its price level according to an index that is typically comprised of an inflation measure, I, and a "productivity offset," which is more commonly called the X-factor. Typically with price cap regulation, the regulator groups services into price or service baskets and establishes an I – X index, called a price cap index, for each basket. Establishing price baskets allows the operator to change prices within the basket as the operator sees fit as long as the average percentage change in prices for the services in the basket does not exceed the price cap index for the basket. Revenue cap regulation is similar to price cap regulation in that the regulator establishes an I – X index, which in this case is called a revenue cap index, for service baskets and allows the operator to change prices within the basket so long as the percentage change in revenue does not exceed the revenue cap index. Revenue cap regulation is more appropriate than price cap regulation when costs do not vary appreciably with units of sales.

The Trojan Horse of Electric Power Transmission Line Siting Authority

Article

Full-text available

Feb 2010
Environ Law

Jim Rossi

Reform proposals pending in the U.S. Congress would increase federal and regional power to preempt states in siting transmission lines on order to allow the development of a high-votage transmission grid for renewable resources. This Article recognizes the inadequacy of existing state siting authority over transmission, but takes a skeptical approach to expanding federal siting jurisdiction as a solution to the problem and argues that the over-attention to transmission line siting authority is a bit of a Trojan horse in the climate change debate. Specifically, because it ignores the more difficult issues of how the costs and benefits of transmission are balanced, and how it will be paid for, siting jurisdiction alone will not remove barriers to transmission infrastructure and may present some hidden problems of its own. Legislative focus on enhancing federal authority over transmission lines has confused responsibility for this issue, further delaying federal administrators and regional bodies from taking proactive approaches that they currently possess authority to implement. Further, transmission siting authority reforms can actually undermine climate change goals if it does not consider the full costs and benefits associated with a project. It must also assess how transmission will be priced. Failure to do these things can make transmission siting authority a Trojan horse in the climate change debate - masking fundamental issues that could harm the climate and keeping reformers from focusing on the more serious barriers faced by the large-scale development of renewable resources.

REGULATORY BENCHMARKING IN CENTRAL EUROPE: CURRENT PRACTICE AND POSSIBILITIES OF DEVELOPMENT FOR THE ENERGY SECTOR

Article

Full-text available

Jul 2011

Ondřej Machek

Benchmarking is a technique of performance evaluation in which comparisons are made to benchmarks that represent external performance standards. In the field of regulation of public utilities, benchmarking can be used as an element of performance-based regulation or as a pure regulatory method, called yardstick competition. In the absence of competition, benchmarking can be used to simulate competitive pressures by comparing a regulated firm's performance against an efficient standard. \\\\\\\\r\\\\\\\\nThe aim of this paper is to examine the Central European regulatory benchmarking practices in the energy sector, namely the electricity and natural gas distribution industries, and to analyse the possibilities of further development of regulatory benchmarking in this region. The countries onto which we focus are Czech Republic, Slovakia, Hungary, Poland, Germany, Austria and Switzerland. In the region of Central Europe there are still significant differences between countries, especially in terms of experiences in modern regulation, regulatory methods and practices, level of economic development etc. Differences are considerable especially between Western countries (Germany, Austria and Switzerland) and the countries of former Eastern Bloc (Czech Republic, Slovakia, Hungary and Poland). As a result, the degree of the use of regulatory benchmarking is also very diverse within this region. \\\\\\\\r\\\\\\\\nIn the first part of the paper, we develop basic theoretic concepts of economic regulation. Then we describe the most frequently used regulatory methods - cost-of-service regulation, incentive regulation and yardstick competition - and we deal with common regulatory benchmarking techniques, describe their principles and main challenges. Subsequenty, we provide an overview of regulatory methods and benchmarking practices for each country in the region of interest. In the final part of the paper, we analyse the challenges and possibilities for further development of regulatory benchmarking in the Central Europe. \\\\\\\\r\\\\\\\\nWe have found that except for Switzerland, all Central European regulatory regimes are based on some form of incentive regulation. The most sophisticated methods of benchmarking are used in Germany and Austria. In these countries, benchmarking is used in both electricity and natural gas industries. The Polish regulator is using a benchmarking method in cost efficiency analysis in electricity distribution. In Hungary, a specific method of benchmarking is used. In Switzerland, no benchmarking is used at present. In Czech Republic and Slovakia, some principles of benchmarking are adopted, but not directly to the revenue requirements setting. We summarize that the possibilities for development of regulatory benchmarking in the Central Europe could be extended by reducing market concentration, unbundling large vertically integrated companies, establishing a closer cooperation with the private sector and closer harmonization of regulatory frameworks.

Leadership and the Independent Regulator

Article

Full-text available

Jul 2005

Mark A. Jamison

Being a utility regulator has perils because the independence of the regulator necessarily removes power from politicians, operators, and others. Furthermore, regulators are sometimes scapegoats for unpopular policies and unavoidably become involved in shaping the policies that they are supposed to implement. As a result of such frictions, regulators are sometimes removed from office or marginalized in some way. How can regulators not only survive in such an environment, but also thrive? Jamison describes a leadership concept called adaptive leadership that regulators can use to help their countries adapt to new policies and changing situations, while allowing the regulator to stay in the game. The first leadership skill he discusses is the ability to get on the balcony to see what is really going on with operators, politicians, consumers, and others. Once this perspective is obtained, then the regulator can engage stakeholders in an adaptive process in which people make necessary changes to traditions and expectations, while hanging on to the things that are truly important. Regulators can do this by bringing attention to problems that people want to ignore because they involve difficult tradeoffs, providing certainty and stability when tensions become too high for work to be done, and keeping attention focused on the work and the issues.

Assessing the governance of electricity regulatory agencies in the Latin American and the Caribbean region : a benchmarking analysis

Article

Full-text available

Dec 2007

This paper focuses on an evaluation and benchmarking of the governance of regulatory agencies in the electricity sector in Latin American Countries (LAC). Using a unique database, we develop an index of regulatory governance and rank all the agencies in the LAC countries. The index is an aggregate number of the evaluation of four key governance characteristics: autonomy, transparency, accountability, and regulatory tools, including not only formal aspects of regulation but also indicators related to actual implementation. Based on 18 different indexes, we analyze the positions of agencies with regard to different aspects of their regulatory governance, considering not only performance in each variable but also scores in the different components of each category. This evaluation allows for the identification of particular country shortcomings regarding governance, and indicates needed improvements. Although the region shows an overall good governance design of their regulatory agencies, the implementation of the independent regulator model still faces several challenges. This is particularly evident in political autonomy and in the informal aspects of governance, where the region shows the largest number of countries with the lowest scores. Trinidad and Tobago and Brazil show the best results and Ecuador, Honduras, and Chile the poorest performances. The rest of the countries vary according to the different indexes. We give each governance variable equal weights and positively test the robustness of our approach using Principal Component Analysis.

Joining the Regulatory Fold

Article

May 2012
Criminol Publ Pol

Malcolm K. Sparrow

The independence of regulatory authorities

Article

Dec 2010

This chapter offers a theoretical and empirical assessment of the distinctive feature of regulatory agencies, namely their independence. First, we discuss the formal and informal aspects of regulatory independence, their conceptualization, and their operationalization. Second, we present empirical research explaining the variation of formal independence across countries and sectors. We also point out that formal independence is neither a necessary nor a sufficient condition for regulators' de facto independence from political decision-makers and from the regulated industries. We conclude by highlighting the persistent relevance of regulatory independence for the study of the ongoing processes of re-regulation and agenci-fication.

The reform of electricity power sector in the PR of China

Article

Nov 2006
ENERG POLICY

Deregulation was launched as a concept in the United States more than a decade ago; the European Union Commission has also formally announced that electric deregulation must be completed by the end of 2005. Deregulation or reform has already been a popular topic on the Electricity Power Sector. This paper will discuss the restructuring and regulatory reforms in the PR China's power sector. It begins with a discussion of the characteristics of electricity reform or deregulation in other countries, including the US, the United Kingdom, and so on. It will be followed by the industry structure and regulatory framework that characterized China's power industry during the latter part of the 20th century and the history of China's reform to restructure the power industry to competitive suppliers of generating services in recent years. It discusses the role of the State Power Corporation in the reform and gives a detailed description of the latest electricity reform in the year 2002. The paper concludes with some thoughts regarding future challenges and trends on the reform for China's power sector.

The Politics of Government Decision-Making: A Theory of Regulatory Capture

Article

Feb 1991

The paper develops an agency-theoretic approach to interest-group politics and shows the following: (1) the organizational response to the possibility of regulatory agency politics is to reduce the stakes interest groups have in regulation. (2) The threat of producer protection leads to low-powered incentive schemes for regulated firms. (3) Consumer politics may induce uniform pricing by a multiproduct firm. (4) An interest group has more power when its interest lies in inefficient rather than efficient regulation, where inefficiency is measured by the degree of informational asymmetry between the regulated industry and the political principal (Congress).

ELECTRICITY REGULATORY COMMISSION OF NEPAL: A REVIEW OF IT's LEGAL FRAMEWORK.

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