About deregulation, public policy professionals, and economists touting the advantages of competition started the clamor for it. The argument was that there was no incentive to be efficient under the rate of return 
regulation, and that utilities overbuilt to pad the rate base. Competition would, therefore, foster efficiency, and reduce rates. The by word just a few years ago was that electricity consumers will be able to choose their supplier and service provider just the way they choose their long distance telephone carriers.

Initially, many power-engineering professionals pointed out the myths of this dream. But the tide was too strong for one to stand firm footed - even the engineers were washed away by this engulfing idea. None of our professional societies took a stand either. I believe that 
California's experience is a harbinger of things to come. I do not want to dwell neither on some pitfalls of deregulation nor on market design for it will fill many pages. Suffice it to say that the next bugbear is the transmission system (as opposed to supply shortage in CA) - there is not a convincingly acceptable method (in my opinion) of pricing and attracting investment for transmission after all these years! What is unfortunate is that all the countries in the world want to emulate USA, Britain and Australia. These new players too want to conduct this experiment. There are notable exceptions in which some countries are treading cautiously or 
skeptically. France is a prime example of this. The trouble is that such countries are not vociferous and vocal about their skepticism!

I can go on for hours about deregulation, but my attention is mainly on reliability that Raja raises. Primarily, the assumption about willingness to pay should have many dimensions. Is it willingness to pay collectively as a society or individually as a consumer? If it is the latter, we are implying differentiated reliability of service. In the limit, this also means that there are "cheap switches" which permit switching supply on and
off to certain consumers. The deployments of such "switches" of course are at the sub-transmission/distribution level. Certainly there are 
costs associated with such a scheme. An alternative for cost comparison is that of local generation. This is a fairly common technology in large industries, particularly those that produce fuels as byproducts. Examples
are those of Steel and Petrochemical industries. On a more pervasive level, I have seen small Honda generators in the Commercial street shops of Bangalore when I visited India in 1998. There are costs (direct and environmental) associated with this as well. Local generation and voluntary curtailments permit pruning demand to equal supply (generation), assuming that there is sufficient acceptance or subscription for lower level of continuity of supply. Note, however, that the integrity (reliability) of the major transmission network connecting generation has to be very good, at least as good as the best reliability desired by an end user, even if the continuity of supply can be differentiated among users either by "switches" or by self generation. If either of these schemes ("switches" or local generation) is put in place, the debate about "proper" cost allocation leading to appropriate tariff to different consumers arises. This debate too is rife with diverging philosophies and endless counterproposals. For example, what is a condign share (for consumers at the distribution level) of major transmission and generation component costs?

Another example from North America is that of the nascent E-trade. E Bay,Yahoo etc. have network servers at different locations of the country linked by communication networks. They specify the hardware and communication network to have a failure of no more that one minute per year. This has resulted in a complex network of redundant/backup servers in a fault tolerant mode. Customers who have logged on to their sites will go away to other sites or abort shopping if there are network failures. The actual amount of loss is proprietary and site specific. Some estimate this to be of the order of 50 million dollars a minute! Short-term power interruptions are covered by standby supply. Some Chip manufacturers who need very high quality power supply (no surges, etc.) have installed super-conducting energy storage back ups. It is uneconomic to design the power grid to the high level of reliability and quality for such end uses. It is better left to local backup devices to improve reliability and quality. The reason for citing the above example is that the electric supply reliability must be matched (should not be better) than that of the computer network for E commerce and such applications.

Much has been said in the literature about willingness to pay. It is easier for industrial users to determine this - it is the cost of alternate local generation as a back up. However, for residential, commercial, and farm users, it is difficult to determine this abstract value. I do not 
know if any outage cost survey has been conducted in India. I have expressed skepticism and reservations about such surveys conducted here (see IEE Transactions on Power Systems, "The use of Probability Techniques in Value-Based Planning'" November 1994). The willingness to pay changes after the consumer experiences lack of reliability. Consumers are more than willing to subscribe to interruptible rates or price sensitive rates in order to obtain a lower tariff. But after experiencing interruptions, particularly if it is too frequent, they tend to pay more to obtain 
improved reliability. In the past (even today in some territories), some large
customers enjoyed interruptible rates that were far lower than the usual rates. Yet, they suffered practically no interruptions of supply!  Theargument by the utilities was that there is "interruptibility" though not interruptions themselves. Hence, the utility can plan for less and save money. Others argued that this was a backhanded way to cross subsidize some large customers to attract industries and provide employment as a form of social policy. Recently, after deregulation, those that opted for interruptible rates no longer enjoy such service.

Should electricity rates be an instrument of social policy? I cannot answer this, but I hasten to point out that this was indeed the case even in the western world well into the last quarter of the last century. Now, 
with the free market view taking a strong hold, such social policies has fallen into disrepute. However, even in America, big enterprises such as auto plants are given a "sweet heart deal" by cities and utilities in order to attract them to locate in their particular state/city. It would be naive to think that electricity supply politics is completely devoid of social policy.

Finally, I cannot fail to observe two separate threads in the correspondence at this site. The first one is a lament of permeation of the social attitudes into the electricity industry. Examples are theft (or that some feel it is their right to get electricity free), and lack of enforcement. The second is that of political agenda and lack of political will to solve problems. Against these sad backdrops, it is heartening to note that nobody doubts the lack of technological know how. Clearly, as attested by the letters, the expertise exists in India to solve the problems. But the technocrats are not permitted to solve the problem, is it the issue?

Finally, on the point of competition, it is clear that for free markets to function, demand and supply must be in balance. If there is supply shortage (as in CA) prices will rise. In India, I learn that there is a perennial shortage resulting in blackouts. How can a free market function then? Why is everyone of the opinion that privatizing distribution is a good idea? Is it because the Government is incapable of operating efficiently? Or is it because a private entity can enforce non-theft? Or, is it because America has done it? Is it not better to wait a few years when one expects more supply to be in place? Does anybody know if China is deregulating?

Under privatized distribution, there would still be one company supplying the ultimate customer. I grant that there may be different companies serving different territories. In a given territory, since there is no competition from other companies, where is the incentive to improve efficiency (such as the reduction of losses)? Does one not need a regulator to ensure that the private Distribution Company meets some efficiency 
and customer satisfaction standards? Then, in the name of privatization, is one not introducing re-regulation?
(Opinions expressed in this article are those of the author only)

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