23 September, 2020

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Electricity Bill: Hundred Year Old Lesson For The Public Utilities Commission

By Milton Rajaratne

Prof. Milton Rajaratne

Frederick Winslow Taylor is known as the ‘father of scientific management’. Taylor and his management thoughts became popular not only in America (USA) but also in Europe and Japan because of a litigation popularly known as the ‘Eastern Rate Case’.

In 1910, Eastern Rail Road Company of America submitted an application to the Interstate Commerce Commission of America seeking permission for increasing freight rates of the vessels that it operated. The Interstate Commerce Commission of America is an institution similar to the Public Utilities Commission of Sri Lanka (PUCSL) that deals with appeals for rate hikes from governmental and nongovernmental utilities industry.

The proposed rate hike of Eastern Rail Road Company, as was thought by many at that time, would inevitably invite a chain of price increases in many industrial inputs as well as consumer goods which finally could adversely affect the general public. Louis D. Brandeis, an American Lawyer who was known as the “people’s lawyer”, appeared against the move of the rate increase and filed a case against Eastern Rail Road Company on behalf of the general public.

Brandeis argued that Eastern Rail Road Company was seeking rate hike as it had failed in management which is a sole responsibility of the company but not of the general public. He maintained that management failure has caused inefficiencies and as a result the cost of operations has increased and thus it was unfair to grant permission for the company to increase rates. He connected the rate issue to management failure and implied that the cost of management failure need not be born to the general public who are not held responsible for the management affairs of the company. Having the Jury asked him to propose a cure for the management ailment that he claimed that the Eastern Rail Road was suffering from, Brandeis recommended ‘Scientific Management’ (the term he coined after the ‘Shop System’ of Taylor) as the new management system for the Eastern Rail Road to adopt through which the company could overcome its inefficiencies which had compelled it to seek rate increase.

The jury summoned Taylor, as the founder of the new management system, to witness to the lawyer’s claim. Taylor, in his testimony, explained the ins and outs of ‘Scientific Management’ and how it could increase efficiency in business operations. Taylor’s testimony was supported, at the courts, by a few well known business leaders namely J.M. Dodge, H.K. Hathaway, H.R. Towne and Harrington Emerson who already had adopted Taylor’s management system and had become highly cost efficient in their business operations. Emerson explained that, according to his estimates, the Eastern Rail Road could save one million dollars every day if Taylor’s scientific management was founded in it. His appeal promulgated the notion that scientific management was the magic-cure for the efficiency torn industries.

This one hundred year old ‘Eastern Rate Case’ has reincarnated at present in Sri Lanka along with the submission of an application by Ceylon Electricity Board to the Public Utilities Commission of Sri Lanka to increase the electricity tariff at a very high rate. Unlike in the 20th century America, no court cases were heard against the application for rate hike in 21st century Sri Lanka. Yet the Public Utilities Commission approved electricity tariff hike at an alarming rate which then invited numerous agitations and protests from the people. Despite the Opposition Party lawmakers accuse the management failure at Ceylon Electricity Board and appeal to correct its management practices through eliminating wastes and corruptions in order to bring down sky rocketing costs, the pro-government elements had drawn people in thousands to the streets in support of the decision to increase electricity tariff. This pro-tariff-hike parade endorsed the common mismanagement practices of the Electricity Board and empowered it to continue with those management evils.

Disregarding the management blunders of the Electricity Board claimed by the stakeholders and the inefficiencies emanated from them, the Public Utilities Commission approved tariff hike to the satisfaction of the client but to the dissatisfaction of the public. The Public Utilities Commission of Sri Lanka headed by Dr. Jayathissa de Costa did not take any trouble to question the management blunders of the Electricity Board before approving the rate hike. The responsibility of the Public Utilities Commission is to regulate the prices of utilities and the objective of price control on the other hand is to maintain right price and consumption stability. Thus it is a responsibility of the Commission to advise the Electricity Board to correct its management problems. The Commission neither has considered the negative chain reactions of the industrial sector to the tariff hike and erosion of the total consumption which ultimately would shrink the economy. Before long, the next Central Bank Quarterly would undoubtedly report drop in production, consumption, employment and economic growth in response to the electricity tariff hike.

The responsibility of the Public Utilities Commission has been elaborated in its Vision, Mission and Objectives. The Vision reads as “to create an environment for all inhabitants of Sri Lanka and the contributors to its development, to have access to essential infrastructure and utility services in the most economical manner within the boundaries of the sustainable development agenda of the country.” And the Mission is “to regulate all the utilities within the purview of the Public Utilities Commission of Sri Lanka to ensure safe, reliable and responsibly priced infrastructure services for existing as well as future consumers in the most equitable and sustainable manner.” The main objectives aim at “protecting interests of all consumers, promoting efficiency in both the operations of and capital investment in public utilities industries and promoting an efficient allocation of resources in public utilities industries.” The generously granted electricity rate hike by the Public Utilities Commission challenges its own vision, mission and objectives. Thus the purpose of existence of the Public Utilities Commission is lost!

Average consumers are not aware of the Eastern Rate case, Scientific Management or the Public Utilities Commission. Neither do they know Frederick Taylor or Jayathissa de Costa. But what they know is that their monthly electricity bill has doubled without increase in their electricity consumption and thus sizeable portion of their income has been siphoned off from their pockets for no responsibility they have assumed. Through granting approval for a massive tariff hike, the Public Utilities Commission has tolerated the mismanagement of the Electricity Board to persist. The inefficient public sector utility industries in the country can follow the mode of the Electricity Board and appeal for rate increases in the future. Is the Public Utilities Commission to blindly grant approval for their appeals too without proper assessment of management practices?

We anticipate that the Eastern Rate Case of 1910 in America would serve as precedence to the rate issues of Sri Lanka and that the public sector utility industries and the Public Utilities Commission would take a step back and learn from the hundred year old management of Taylor and from the ‘Easter Rate Case’!

*Writer is the Professor of Management, University of Peradeniya

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Latest comments

  • 0
    0

    People are yet to feel the full impact of the rate increase which will affect all manufacturing and retail companies in Sri Lanka. People will have less money to spend, margins will reduce and there will be a spiraling effect on the economy.

    There are differing views emerging from COPE about the state sector. The state sector has become a huge white elephant and burden on the people. For the regime it is a goldmine to provide employment for sycophants and politicians. Also these are distributed amongst the numerous ministers who loot and play with the finances of these institutions. They are a source of funds and resources for their various campaigns. The employees of state institutions are even called upon to participate in demonstrations on behalf of the Govt. The recent revelation that 25% of GDP is spent on ministers indicates the level of mismanagement in the govt.

    The rather obvious solution of restructuring and privatising these institutions is what the govt will not do since it has vowed not to do so. It is the boast of these political nuts, that they have not privatised industries. Sri Lankan was taken over because the management refused to provide a plane for the President. Since then it has become a white elephant being run by an O’level qualified relation of the President.

    So the problem is not only the Management, it is more the political interference in the affairs of these institutions. After all the 100 odd ministers must have something to do and institutions to play about with.

  • 0
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    Hey dont you know we have all dumb ignorant imcompetent fools in all sectors of SriLanka.

    • 0
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      Jim Hardy

      “Hey dont you know we have all dumb ignorant imcompetent fools in all sectors of SriLanka.”

      Yes we have known this for many decades as these institutions are run by stupid Sinhala/Buddhists, I have no problem accepting your comment.

      Being Sinhala/Buddhists is the only qualification these dumb ignorant incompetent fools are required to possess, which would carry you long way, including residency at Temple Trees.

  • 0
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    Thanks for confusing us further…. maybe the shock that we are expecting by the raise of the electricity may disable many of us.

  • 0
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    “There is no such thing as a free lunch.” – Milton Friedman (Not Milton Rajaratne)

    The comparison between the new electricity tariffs in Sri Lanka and New Delhi is given below to show that PUCSL has produced a sensible tariff, under difficult circumstances. Their stern recommendations to CEB should be implemented to reduce the cost of production.

    Sri Lanka – new tariff in LKR 20.04.13

    0 – 30 5.50
    31 – 60 7.35
    61 – 90 12.00

    New Electricity Tariff New Delhi at Exchange rate IRS = LKR 2.34
    Cost/unit – Rs. (LKR) (Mainly coal power)

    0 – 200 8.66
    201 – 400 13.24
    401> 15.6

    All the recommendations of PUCSL are important, but the most important is to restrict CEB to generating the large scale hydro power plants, transmission and the distribution of power through a subsidiary and LECO and new entrants to the field. The conflicts of interest must be investigated.

    Bids should be called for the supply of coal power to meet the optimum percentage of the thermal power purchased annually. The Norocholai Power Plant should be leased to the Chinese company that constructed it for a period of at least 30 years. They should sell the power to CEB under a Power Purchase Agreement drawn by an international consultant selected by a friendly party such as ADB.

    Consumers cannot subsidize Industrialists & Hoteliers. If necessary, the Industrialists and the Hoteliers should be involved in evaluating bids for a new Coal power plant to supply their requirements at internationally competitive prices, with CEB adding the cost of transmission to the power purchase price.

    The leaders who postponed the construction of the Norocholai power plant because of the protests by the Bishop of Chilaw, supported by smugglers in the area and some misguided environmentalists, are responsible for the plight of the consumers of electricity.

    • 0
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      There are enough ‘Free Lunches’ for those who run errands for the government.

    • 0
      0

      Truth;

      You are still licking xxxx of.

      TELL YOUR BOSSES THE TRUTH.
      DO NOT TRY TO DO THIS , HIDING THAT.

      Chinese and Indians are hounds, who are looking for their markets, to find money and employments to their own people.
      not to do any help to us.

      Ex; all those so called Indian tourists and Chinese are not spending money as other tourists.bring their Chapati and noodles for food.
      some are on business.[prostitution]

      But they will increase the figures as tourists.

      same-as other Investment from India and china.

      but morons like you and your bosses fixing ladders for them and loot Sri lankan people’s and taxpayers money.

      ANY WAY ASK FOR PAY RISE.

  • 0
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    The reasons for the power price hike are overstaffing,wastage and corruption in the CEB, which all know but rarely acknowledge.
    Any effort to reduce these are met with strike threats by engineers & other staff of the CEB.
    Thus,the CEB has becme a monolith feeding on the nation due to corrupt inefficieant management.
    It is high time that management specialists like Milton Rajaratne are appointed to boards of management of state enterprises with gazetted executive powers/functions to save the future of the nation.
    A pruning of the largest cabinet in the world would be a good start and will serve as a good example to all state enterprises which will then have no excuse for wastage.

  • 0
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    You see how low level of this analysis. Is it from Professor? Shame about Sri Lankan profs knowledge. Recheck qualifications and publications of this man. I guess not any single publications in ISI level journals but foreign aids phd. This Phd anyway given even without works.

    • 0
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      Prof.Dr Fedrick,
      Could you please divulge your qualifications & achievements.

  • 0
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    Prof position given by Ruhuna University and Dr given by Rajarata University. No first degree or earned PhD from good top ranking University. Not any single publications in International high end indexed journals. Now I am about to get Senior Prof. title from sri lankan University to further eat poor tax payers money. I am a Sri lankn Professor with publishing my own books by getting from other whites books likewise all SL profs. Sri Lankan Universities are hell of corruption.

    • 0
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      Dear camouflaged professor-Doctor, please reveal your true profile and quote your ISI level research title. Also take the challenge to write an earthshaking article on the ‘electricity bill and scientific management’.

  • 0
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    This comment was removed by a moderator because it didn’t abide by our Comment policy.For more detail see our Comment policy
    https://www.colombotelegraph.com/index.php/comments-policy-2/

  • 0
    0

    A good essay in easily understood language. Shows us how weak our PUC is by abdicating it’s responsibility and duty to the consumer in neglecting to seek out the financial impact of CEBs management inefficiency. Very unprofessional indeed.

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