Accountability helps regulate the regulators

In our last article, we had argued the case for empowering the regulator. An autonomous regulator must, however, be accountable for his actions. It is only regulatory accountability that would make independent regulation acceptable to all stakeholders, especially the government. Clearly, the regulator must be subject to public policy as laid down by the government. And the Supreme Court has more than once held that what is public policy is best left to the government to decide. The exercise of regulatory discretion is also constrained by the government's right to issue policy directives to the regulator, a right contained in all regulatory legislation. Thus, the apprehension that ministerial control over the regulator has been diluted in the new set up is not correct. Nevertheless, in a parliamentary democracy the minister in charge is ultimately responsible for all the decisions and actions that impact on the sector that he oversees. And it is the government through Parliament that has transferred its various powers to the regulators. The regulators should, therefore, recognise this ultimate responsibility of the ministers, and consult with him or at least keep him informed (as in the UK) without compromising regulatory independence. The larger issue is how to make the regulator accountable to Parliament. In Britain, for example, procedure for Parliamentary oversight over regulatory activities has been established over the years. The parliamentary select committee oversees the regulatory activities, conducts inquiries involving into the regulated industry, and calls for witnesses from regulated entities, the regulator, and consumer groups. The oral hearings are made public. Although the committee has no formal powers to issue directives to a regulator or a regulated entity, its observations are given sufficient importance: the regulator has to prepare a formal response to their observations. In case the regulator does not agree with the views of the committee, the reasons for not doing so have to be recorded. In short, the relationship provides for parliamentary supremacy without undermining regulatory autonomy. The procedure for parliamentary oversight over the regulator has yet to be established in India. The standing committee on energy recently reviewed the working of the CERC and questioned its decision on availability-based tariff; the committee further directed the government to review the entire gamut of the CERC's work. While the committee's right to comment on the working of the CERC cannot be questioned, it would have been appropriate for the committee to have heard the CERC before passing comments on its working. It is important for parliamentary committees and regulators to understand and respect each other's work. The legislative provisions for audit of accounts and expenses of regulatory authorities by the C&AG is yet another measure to ensure regulatory accountability. And here again, the C&AG's role should be carefully defined so that his scrutiny does not extend into substantive decisions of the regulators. Transparency in decision-making is another effective mechanism to ensure accountability. Fortunately, the need for transparency in decision making has been recognised and mandated by the legislation in the telecom and electricity sectors. In the port sector, TAMP on its own has adopted this process even though there is no legislative requirement. Regulators in India either hold quasi-judicial hearings as in the electricity sector or go through a process of consultation, as in the telecom and port sectors. Both the quasi-judicial and consultative processes ensure that the stakeholders are provided with every opportunity to be heard. Apart from ensuring transparency in decision-making, this provides a forum to vet the quality of data, and reduces the cost of regulatory compliance. Further, steps to enhance transparency could include measures to make the thinking of regulators known to the stakeholders. Regulators, for instance, could make their draft regulatory orders public, obtain the views of stakeholders on the draft, and then pass final orders. Such a procedure would considerably enhance the quality of regulatory decisions, make them more acceptable, and reduce the costs of compliance. That regulatory decisions can be contested on appeal is another measure to ensure regulators do not misuse their powers. All regulatory legislation in India provides for appeals against regulatory decisions to the high courts as in the electricity sector, or to a special tribunal, as in the telecom sector. Many of the regulatory decisions have in fact been challenged in the courts. The appeals filed by NTPC/PGCIL against the CERC's tariff orders, and the reference filed before the TDSAT against TRAI's recommendation on limited mobility are some examples. These appeals go to remind the regulators that their decisions are not necessarily final and, therefore, cannot be arbitrary. Regulators have also to be consistent. They must take care to see that their decisions stand the test of `legitimate expectation' both in a procedural and substantive sense, and the concept of `promissory estoppel'. After all, one of the objectives of regulatory reforms is to attract private investment. And private investment will be forthcoming only if the investors have confidence in the continuity of regulatory principles and tariff policies over time. The regulated utilities also need to know that regulatory approaches towards efficiency improvements and cost reduction are not one shot exercises but would be continued over time. The measures discussed above are some formal steps to ensure regulatory accountability but these alone are not enough. In the ultimate analysis, the regulators must realise that it is only by demonstrating to the stakeholders that their actions are consistent, in the public interest and intended to promote developments of the sector that they can establish their legitimacy and credibility. Accountability is, therefore, not a procedural or accounting issue; it is a core issue in sound regulation.