Power Sector Reform: Some Lessons for Kerala

Electric power is so vital to both our economic and personal wellbeing that the erstwhile state policy in most of the developing countries, including India, had vested the power industry in the hands of the state as a promotional agency for subsidized supply. However, with the onset of the neo-liberalism in the wake of the fall (of the threat) of socialist alternative, the promotional orientation in the state policy had to give way to efficiency considerations in the sense of a neoclassical market economy. Thus has started the infamous power sector restructuring, the technical term for ultimate privatization. Radical policy changes were legislated in India and so far 13 States have reorganized their power sector; in Orissa, Delhi and Noida in Uttar Pradesh power distribution was entirely privatized. Kerala with a militant trade union presence has so far been dragging her feet, even in the face of the stern legislative requirement, portending an ultimate surrender. In this context the present paper attempts to draw some lessons from actual experiences elsewhere.Power sector; restructuring; privatization; welfare; corruption; Kerala;

Loss of load probability of a power system : Kerala

By virtue of the vital nature of electric power, both to our economic and personal well being, a power system is expected to supply electrical energy as economically as possible, and with a high degree of quality and reliability. The developed countries in general place higher reliability standards on the performance of electricity supply. However, there has been no significant study in the context of the Indian power sector to analyze reliability in terms of loss of load probability; the technical appraisal of the State power systems in general is confined to examining the plant load factor (PLF) as a measure of capacity utilization only. The present study is a modest attempt to evaluate the reliability of the Kerala power system in India in the framework of a theory-informed methodology: following a detailed discussion of the methodology used in this study, the maximum likelihood estimates of availability and forced outage rates as well as loss of load probability measures are calculated for the 10 hydropower plants of Kerala. JEL Classification: C2; Q4. Keywords: Reliability, forced outage, loss of load probability, power sector, Kerala

A contribution to peak load pricing : theory and application

The present paper attempts at a contribution to peak load pricing, in both theory and application. The general result from the traditional theory that charges the off-peak consumers marginal operating costs only and the peak users marginal operating plus marginal capacity costs, since it is the on-peakers who press against capacity, has already been called into question in the literature. It has also been shown that the equity norms are violated in the traditional peak load pricing, whereby off-peak users pay no capacity charges, but are supplied output out of the capacity, ‘bought/hired’ by the on-peakers. Theoretical attempts at modification have proved that the traditional conclusion holds only for homogeneous plant capacity (e.g., in one plant case), and in economic loading of two or more plants, the off-peak price also includes a part of capacity costs. This paper, however, shows that if the off-peak period output is explicitly expressed in terms of capacity utilisation of that period, the result will be an off-peak price including a fraction of the capacity cost in proportion to its significance relative to total utilisation. This would appear as a general case, irrespective of the nature of generation technology, that is, even when there is only one plant. We also give an illustration by estimating marginal costs and peak load prices using time series data on the Kerala power system. Where the data are incapable of yielding the required statistically determined long-run relationship among the variables under study, we propose a simple and viable method of using discrete ratio of increments in lieu of a marginal value. JEL Classification: C22, D40, L94 Key words: Peak, off-peak, pricing, capacity utilisation, marginal costs, Keral

Electricity demand analysis and forecasting : the tradition is questioned!

The present paper seeks to cast scepticism on the validity and value of the results of all earlier studies in India on energy demand analysis and forecasting based on time series regression, on three grounds. (i) As these studies did not care for model adequacy diagnostic checking, indispensably required to verify the empirical validity of the residual whiteness assumptions underlying the very model, their results might be misleading. This criticism in fact applies to all regression analysis in general. (ii) As the time series regression approach of these studies did not account for possible non-stationarity (i.e., unit root integratedness) in the series, their significant results might be just the misleading result of spurious regression. They also failed to benefit from an analytical framework for a meaningful long-run equilibrium and short-run ‘causality’ in a cointegrating space of error correction. (iii) These studies, by adopting a methodology suitable to a developed power system in advanced economies, sought to correlate the less correlatables in the context of an underdeveloped power system in a less developed economy. All explanations of association of electricity consumption in a hopeless situation of chronic shortage and unreliability with its generally accepted ‘causatives’ (as in the developed systems) of population, per capita income, average revenue, etc., all in their aggregate time series, might not hold much water here. Our empirical results prove our secepticism at least in the context of Kerala power system. We find that the cost of dispensing with model adequacy diagnosis before accepting and interpreting the seemingly significant results is very high. We find that all the variables generally recognised for electricity demand analysis are non-stationary, I(1). We find that all the possible combinations of these I(1) variables fail to be explained in a cointegrating space and even their stationary growth rates remain unrelated in the Granger-‘causality’ sense. JEL Classification: C22, C32, C53, L94, Q41. Key words: India, Kerala, demand analysis, forecasting, non-stationarit

Modeling optimal time-differential pricing of electricity under uncertainty : revisiting the welfare foundations

Time-of-day (peak-load) pricing of electricity is an indirect form of load management that prices electricity according to differences in the cost of supply by time of day and season of year. It reflects the costs in a more accurate manner than do the traditional block rate structures, as it logically stems from the marginal cost pricing theory, yet is compatible with the historical accounting costs. It has long been argued and advocated that the sale of electricity and other services, in which periodic variations in demand are jointly met by a common plant of fixed capacity, should be at time-differential tariffs. Despite a very rich tradition of modeling, theoretical refinements in peak load pricing have not attracted much attention of late. The present study seeks to model seasonal time-of-day pricing of electricity for two types of power systems – pure hydro and hydro-thermal under four structural welfare assumptions – first-best, second-best, monopoly and constrained monopoly, in conditions of both determinism and uncertainty. Keywords: Time-differential pricing, first best, second best, monopoly, uncertainty JEL Classification: C6, D4, L94, Q4

Liberalisation of rural poverty : the Indian experience

A price rise signifies a fall in purchasing power, if there is no commensurate increase in income. Thus the pertinent question in the face of the phenomenal rise during the 1990s in the prices of the food articles, which account for a major chunk of the total expenditure of the poor, is whether there has been a corresponding increase in the incomes of the poor. The present paper is a modest attempt at analysing the answer to this question. Our focus is on the agricultural workers, for whom wages constitute the principal source of income and the important channel affecting poverty. There is evidence that rural poverty at the all-India level and across several States increased significantly especially during the first 18 months of the reform period. It is argued that the phenomenal administered price inflation of food articles, thanks to liberalisation measures, has had much to do with this situation. We show that the subsidy cuts and the consequent price rises, unless followed by compensating measures, will perforce reduce the consumption level of the vulnerable group of the population; in fact, subsidy cut is found to entail higher costs in compensation to keep their consumption at least at the same level. Moreover, expressing the consumption changes of the poor in terms of the relative compensation for the rich, we find from empirical facts that the poor are left as a losing lot. We also estimate State-specific rural poverty line wage rates for the 1990s and find that by 1998-99, only three States in India, Kerala, Haryana and Himachal Pradesh, had a sufficient real income, that is, a nominal wage rate higher than the rural poverty line wage rate; the agricultural wage rates in all other 13 States could not catch up with even the minimum possible poverty line wage rate JEL Classification: C60, D10, D63, H20, I32, J31. Key words: Liberalisation, agricultural labourers, rural poverty, wages, inflation, subsidy, India

‘One hen’ or ‘a basket of bangles’: women development and micro-credit in Tamil Nadu

Tamil Nadu in India has a glorious tradition of recognizing the importance of empowering women over several centuries. The State fares reasonably well (above the all-India level) in terms of indicators such as female literacy, girls enrollment, female life expectancy, and women’s access to basic amenities. The maternal mortality rates and total fertility rates are also lower than the national average. In terms of political participation, women are faring reasonably well. While the absolute condition of women in Tamil Nadu is better than that in most States, the position of women vis-à-vis men with respect to literacy, education, work force participation, wages, asset-ownership and political participation has not improved. It is recognized that the main obstacles to empowerment has been the low level of educational attainments as well as poverty among women. Taking into account this fact, the Government of Tamil Nadu has framed various policies, designed specific interventions and implemented many programmes to eradicate poverty and to provide education to the vulnerable sections of the society. These different Government-sponsored schemes are implemented through women’s self-help groups. The present paper discusses the experience of Tamil Nadu in women development and micro-credit.Women empowerment, micro-credit, Tamil Nadu, Mahalir Thittam

In Quest of the Distributional Properties of Reliability Rate

Reliability in its broad sense refers to the probability that a component or system is able to perform its intended function satisfactorily during a specified period of time under normal operating conditions. It is estimated as the fraction of time the unit/system is available for operation. For practical purposes, reliability rate is estimated using maximum likelihood estimator (MLE) from sample observations.. No study has gone beyond this to analyze the statistical properties of the MLE of R; the present study is an attempt at such a quest.Reliability, Maximum likelihood estimator, statistical properties

STRENGTHENING INFRASTRUCTURE: POWER SECTOR REFORMS- SOME VIABLE PROPOSALS FOR KERALA

It goes without saying that the problems confronting the State Electricity Boards (SEBs) in India are just internal to them, and hence what the system requires is not any market-oriented restructuring, but an essence-specific reform that can remove the impediments that stand in the way of the SEBs’ improved performance. It is in this light that we propose some viable measures of reform meant for the Kerala power sector, covering all the stages of its functioning. Since the problems haunting the power sector start from the very first stage of capacity expansion planning itself, we suggest, to start with, a simple method of electricity demand projection for Kerala and discuss its implications. Then we discuss in detail some viable measures of reform for the Kerala power sector for its efficient functioning in the execution of expansion plans and operational performance.Power sector reforms, Kerala, inefficiency, demand projection

Reliability and rationing cost in a power system

The present paper attempts to analyse the implications of the relationship between reliability and rationing cost involved in a power supply system in the framework of the standard inventory analysis, instead of the conventional marginalist approach of welfare economics. The study is substantiated by fitting a normal distribution to the daily internal maximum demand of the Kerala power system during 1995-96, and also by estimating, based on the techno-economic parameters of different types of power plants, the rationing costs implied in different reliability target criteria. JEL Classification: C44; L94; Q41. Key words: Reliability, rationing cost, maximum demand, normal distribution, power supply