Regulating the power industry in a regime of incomplete information: lessons from the Indian experience

Abstract

Establishment of independent regulatory commissions is the central element of the power sector reform in India. Incomplete information is a major difficulty that Indian regulators face while making decisions. This paper identifies information inadequacy under three broad categories: transaction related, accounting related, and performance related. Problems in each of these categories are analysed both for transmission licencees and distribution licencees. It also discusses the approaches taken by the Indian electricity regulators for decision-making in a world of incomplete information and the steps taken to improve the situation. We argue that the regulatory decision-making under information constraints has greatly affected the finances of the regulated utilities and the privatization process. Finally, we suggest some steps such as a standardized accounting policy and regulatory information system for improving information availability.