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P D Sudhakar, Chairman, Delhi Electricity Regulatory Commission (DERC)

15 Jul 2011

The revision of tariff for electricity in Delhi raises the temperature and turns into a burning issue. InfralineEnergy's Chhavi Tyagi spoke to Sudhakar, to find out why the discoms are asking for more, when only last year the Delhi Electricity Regulatory Commission thought it fit to slash the electricity rates. While the Delhi Electricity Regulatory Commission goes through the motions of arriving at a new tariff, the power discoms of Delhi are leaving no stone unturned in their quest for a higher tariff.

Sudhakar joined the Commission in April as Chairman and in a career span of 34 years has held several assignments in the Government of India including being the Special Secretary in the Department of Power and later in the Departments of Planning and Finance in the State Government of Uttar Pradesh.

Edited excerpts

It was only in May last year that DERC wanted to cut down the tariff by 20 to 25 percent, now discoms have come out with a statement claiming that they can't sustain their business beyond May. How can the situation get so appalling in such a short period?

It is not my place to comment on the matter of the last year's tariff. The issue is in the High Court with a decision pending on it. However, for the year 2011-12, we have already initiated the tariff setting procedure for the Delhi discoms. The petitions by the discoms have already been received and these have been put on the public domain for the purpose of inviting comments from the public. Once the comments are received, we will hold a public hearing and then announce a new tariff. This is the present status of the tariff process for the year 2011-12.

The procedure for announcing a new tariff is a long drawn one with several steps. It is initiated when the discoms file in their petitions with the Regulatory Commission along with their financial details like accounts, expenditure, losses and interests. The petition also includes the discoms' suggestions and demands for the tariff requirement. This is an annual process.

"Auditing is not followed as a separate process in DERC. However, all the companies operating in the power sector function under Companies Act and prepare their accounts according to the rules and regulations therein."

The next step involves putting the petitions on public domain for consultation and debate.. In addition to that, a public meeting is also held to seek comments from the public. After taking all this into consideration, we conclude as to what the new tariff should be. In between, there are a few things, which do not fall under the DERC's control like the cost of the power purchased by the discom. Things like these, we have to factor in before deciding the final tariff. All these steps are taken before the final tariff order is passed.

Does DERC audit the costs which are submitted by the discoms while filing their petitions?
We have our in-house experts to take care of the auditing and as and when required, we also take services of others on this. We have separate divisions with people working from various sectors, whose expertise is needed for this particular analysis. Everything is looked into and duly examined.
Is there any auditing process wherein the accuracy of the data submitted by the discoms is exclusively looked into?
Auditing is not followed as a separate process in DERC. However, all the companies operating in the power sector function under the Companies Act and prepare their accounts according to the rules and regulations therein. Auditing is prescribed under the Companies Act and therefore, I am sure the discoms take care of it themselves.
What are the initiatives taken by DERC to encourage energy efficiency and conservation in Delhi?

There are a few initiatives which the commission is exploring on a large scale. At present, there are three programmes, which are being explored - Consumer Awareness Mission, Consumer Grievance Redressal and Energy Conservation and Energy Efficiency.

"It is very important for a common man to understand the procedure of tariff formulation as their participation would result in the improvement of the system."

There was an urgent need of a programme like Consumer Awareness Mission, since it is hard for a layman to understand the complexities of the tariff setting procedures. This lack of knowledge, generally, makes the consumer feel cheated. Further, the processes that come out are not transparent. In order to address this, we have started a media campaign to make the consumer understand the process and thus, make him more aware. The media campaign includes printing of bulletins in the national newspapers highlighting the several components of the tariff. It is very important for a common man to understand the procedure of tariff formulation as their participation would result in the improvement of the system.

Under the same programme, we published another bulletin on AT&C losses and how these losses have been brought down in Delhi by the discoms. Since the process involved here have a very complicated terminology which the consumer finds very hard to understand, we issue such bulletins to make the consumer understand the system in a less complicated language. In order to push Consumer Grievance Redressal System, we published another bulletin providing details of the system listing its contact numbers, how can it be approached, the problems which can be resolved there. There are consumers who do not know who to approach in case of a billing problem or metering issues or if they need a new connection. Many of them approach the Commission for such issues not knowing that we are not the appropriate forum for it.

Apart from these awareness creation measures, we also propose to hold interactive sessions with Resident Welfare Associations (RWAs) in different areas of the city. We plan to invite the concerned stakeholders like discoms, MCD, NDMC, transmission officials, other experts, etc., as well to these sessions. These interactive sessions will take care of the consumers' queries and doubts.

"Initially, the targets assigned to them were to reduce the losses to 50 percent. From there, it has come down to 17 to 20 percent. This speaks of a very substantial work done by the discoms."

We are still in the planning stages. Since such initiatives have never taken place, it requires a lot of planning and organising. But we have plans to roll it out soon and start with a few areas and then gradually, cover the entire city. Also, we want to further strengthen the Consumer Grievance Redressal system. We recently held a meeting with all the chairmen of the all four consumer forums and had a discussion on the measures that can be taken to make the system more effective and independent.

The discoms of Andhra Pradesh have brought down AT&C losses to 12 percent, but in Delhi, despite the private sector, the overall AT&C losses are still around 20-22 percent, what are the reasons for this?

To start with, the AT&C losses were quite high in Delhi. However, after privatisation, the discoms have worked consistently to bring down these losses. These discoms have defined targets every year for the reduction in the AT&C losses for the past nine years. This loss reduction programme works on incentive basis, which means the more they reduce the more benefits these discoms derive out of the scheme. These discoms, thus, have been working according to the targets assigned to them. Initially, the targets assigned to them were to reduce the losses to 50 percent. From there, it has come down to 17 to 20 percent. This speaks volumes of the work done by the discoms.

"If through means like selling surplus power, the discoms are required to borrow less, it will only work in favour of the consumers while deciding the tariff. Thus, ultimately any revenue or cost is adjusted later and therefore, people who are aware of the mechanism do not complain."

Every year new targets are fixed and the discoms have been consistently meeting these targets. As for comparisons with AP discoms, I cannot comment on that as I am not aware of their incentives or where do they stand. As for Delhi discoms, they have taken the loss percentage well below the targets this year.

In case the discoms have surplus power and they sell it in the short-term market at a higher rate, shouldn't discoms share the benefits with the consumers?

The profit made by the discoms by selling surplus power in the short-term market is actually indirectly shared by them with the consumers. People have a misconception that the revenues earned by the discoms are pocketed by them.

In these private discoms, 49 percent is government's holding; so whatever profit is earned by these discoms, 49 percent of that goes to the Government of Delhi. This is like money paid to the government. The rest of the profit is taken into account for the tariff calculations for the next year under other sources of revenue. Therefore, if the company gets additional funds, the benefit does get passed on to the consumers next year, albeit indirectly. Thus, the revenue earned by the discoms out of selling the surplus power gets invested back into the company.

In case, the financial position of these discoms require them to borrow from the bank, they will have to bear the interest, which would be cost to the company while working out the financial position of the discom for the purpose of deciding the tariff. All such interests and loans are added to the revenue requirement of the discom. If through means like selling surplus power, the discoms borrow less, it only works in favour of the consumers while deciding the tariff. Thus, ultimately any revenue or cost is adjusted later and therefore, people who are aware of the mechanism do not complain.

"Since the day I have joined I have found no interference. There has been no interference. All that happened before I came and I cannot comment on that. I have full freedom to do what I want to do as per my duties and responsibilities."

Another factor is that electricity cannot be stored, so if there is no demand, the utilities will have to sell the surplus power. However, it is not ensured that this unscheduled trading will always get the utilities a higher price. These are some of the things which are part of the system and thus under no one's control.

What do you have to say to the rising cost of the power purchase and the discoms demand to include it in the tariff?
These things will be considered during the tariff determination. I cannot discuss them here.
The reports suggest that the government interferes in the regulator's orders. How much of the interference is there? Does it hinder proper functioning to a great extent?
Since the day I have joined, I have found no interference. There has been no interference. All that happened before I came and I cannot comment on that. I have full freedom to do what I want to do as per my duties and responsibilities.
Do regulators have any role to play in the implementation of the smart grid?
Yes of course. On a pilot project basis, NDPL has already started it and they are soon going to launch it and this is a very good initiative of the energy consumption and energy efficiency and demand side management. This is a totally clean energy, for instance, if you are able to save, say 100 MW, that means 100 MW you have done without creating any additional network or anything. This means that without creating any pollution you have 100 MW, this scheme only results into that.

(InfralineEnergy thanks Shri P D Sudhakar, Chairman, DERC for sharing his valuable insights with our readers. The column 'In Conversation', is a platform to engage experts from various sectors to share their views on the different transformations happening in the Indian energy sector.)