The Nepal Electricity Authority (NEA) has launched an e-vehicle charging station as a pilot project which is quite interesting. One, it fosters the use of clean energy. Two, there is a guarantee of clean energy use. Three, it is an ambitious project that could indirectly enhance energy efficiency. Then, how could it possibly concern any regulator? Well, here we go! Regulation! 

The establishment of e-vehicle charging stations seems pretty straightforward on the surface. One could reap the benefits of clean energy use while reducing emissions and keeping the environment clean, and maybe even mitigating climate change. However, there are concerns bigger than that when it is viewed from a regulatory perspective. And these regulatory dilemmas exist even in the developed countries like the US where there is an ongoing debate on how regulators could go about regulating e-vehicle charging stations. In Nepal, it would not be any different.

Cross-subsidising concerns

The Nepali electricity market is still a monopoly under the NEA and continues to be a vertically integrated entity. Despite the fact that there are several actors at the generation level, the electricity market at large operates as a monopoly. In this regard, the introduction of charging stations under the NEA, with or without the involvement of private parties, would raise concerns regarding who should pay for the station and how the cost would be distributed among different customer classes.

Article 17 of the Electricity Act 1992 provides for a tariff fixation committee which would set the rate based on several criteria listed and would also be able to classify different customer classes. In general, the basic customer classes are domestic, industrial and commercial. This distinction is generally based on demand, volume or energy consumption. Pursuant to the Electricity Tariff Fixation Rules 1994, there are some pre-set criteria which are taken note of while setting the price of electricity. The rule provides room for tariff fixation and additional charges depending on the need of the time and other justifiable conditions.

Likewise, Article 18 of the Electricity Act provides that any entity that is involved at the distribution level and is not connected to the national grid is free to set its own tariff and other charges for the electricity so distributed. A charging station, in its present form, has no clear structure in Nepal. Nonetheless, there are several possibilities. One, this charging station could be operated as a project under the NEA without the creation of any separate legal entity. This would then subject the electricity rate to the regular tariff imposed by the NEA. 

Nevertheless, who would pay for the entire cost of the project? Would there be cross-subsidisation among customer classes to keep the station operating? The answer to the question would most probably be yes. The reason is that the utility would transfer the cost of such facilities to its customers because the charges collected at the charging stations would not cover their capital and operating costs—the two most important elements of tariff determination and fixation. Not all customers connected to the grid would be using the charging station, but they would still be bearing the cost of such a facility as fixed costs in their electricity bills. This might be desirable to some customers while it would be undesirable to low-income groups and vulnerable customers.

The introduction of charging stations would incur additional costs to the utility as it would be required to generate and purchase more electricity, thereby requiring it to invest more in power plants which could be recovered through the use of a ‘tariff rider’ pursuant to the Electricity Tariff Fixation Rules. Furthermore, it could be a tool for demand-side management as it would shift the pattern of electricity use at the household level. Consumers will charge their vehicles at these facilities during off-peak hours and shift their non-critical electricity usage load instead of increasing consumption during peak hours, thereby reducing their overall power bill. Additionally, the idea of using hydroelectricity strengthens the renewable energy portfolio, thereby contributing to energy efficiency.

Free-market principles or consumer protection?

When a private investor dives into this venture, a separate legal entity would be created. If these investors generate their own electricity and sell it through the charging stations, there would be a need to regulate them. This is because these investors are allowed to set their own tariff if they generate their own electricity and do not use the grid. This would create a market where multiple charging stations could set their own prices, thereby making it anti-competitive to the regulated utility. 

Further, the basic aim of any regulation is to protect the public interest. Since private investors would want to recuperate their costs and maximise their profit, their tariff rate is likely to be higher than the regulated rate. This would be contrary to the idea of protecting customers mainly in services like electricity which is a universal service. Therefore, it becomes imperative to regulate such a business to protect customers and ensure a competitive market. 

Nonetheless, one could argue that a private entity entering this business would not be a natural monopoly as long as its generation and sales of electricity are limited to minimal retail. Thus, imposing such regulatory requirements on such an entity would be cost-intensive to it and threaten its position in the market. This ultimately would be against the principle of a free market where parties are free to set the price of their services based on demand and supply and where the market is the ultimate determinant of prices. Therefore, as novel as the idea of e-vehicle charging stations sounds, in an emerging economy like Nepal, there are qualms associated with their functioning which requires a proper regulatory assessment.

Lamsal is an advocate at the Nepal Bar Council