Power ministry fires salvo at DERC for not revising tariffs

NEW DELHI: The power ministry has fired a salvo at the Delhi Electricity Regulatory Commission over ballooning ‘regulatory assets’ — or deferred tariff hikes — as widening gap between cost of electricity procurement and tariff widens revenue gap of the capital’s discoms (distribution companies).
In a letter to APTEL (Appellate Tribunal for Electricity), the ministry on February 20 sought probe against the lone member of the regulatory body for not raising tariffs in line with rising costs and made a case of his removal on grounds of disregarding provisions of the Electricity Act 2003, orders of statutory bodies and superior courts.
Member (technical) A K Ambasht is the only office-bearer of the three-member regulatory body since chairperson, Justice (retd) Shabihul Hasnain, retired as chairman on January 9. Member (legal) had superannuated earlier and the position is still vacant.
The ministry asked APTEL to initiate a probe against the “acts of omission and commission” by the lone commission member and his removal for “proved (sic!) misbehaviour” under Section 90 (2) (f) of the Electricity Act of 2003.
The ministry pointed out that the Electricity Act says regulatory commissions have to ensure tariffs progressively reflect costs and reduce cross-subsidies within a specified period. The Tariff Policy 2016 also provides a maximum of 20% variation in the retail tariff with respect to the discoms’ average cost of supply.
“Contrary to the above statutory provisions, the DERC has allowed the regulatory assets to increase to Rs 8,955 crore as per the tariff order issued for FY 2021-22 instead of liquidating the same. Till date, the commission has not come up with a trajectory to liquidate these regulatory assets,” the ministry letter said.
Power tariffs have not been revised in Delhi since 2014. Though power purchase costs have increased by around 300%, retail tariff has increased by only around 90%. Power tariffs in Delhi are not even keeping pace with rising inflation.
The ministry had on November 11 warned state tariff regulators against creating a pile of regulatory assets. “It is observed that large regulatory assets have been created by some commissions, without specifying the mandatory trajectory for recovery of such regulatory assets. This is in contravention of the law,” the ministry wrote to the state tariff regulators.
Regulatory assets are generated when state regulators accept that tariffs do not cover a discom’s power procurement cost but do not raise rates to the desired level or defers the hike for later, mostly under pressure from state governments that appoint them. The revenue gap between the cost of procuring and the tariff for supplied power, which widens due to systemic inefficiencies, is then booked by discoms as receivables and classified as regulatory asset.
Regulatory assets make discom books look good on paper. But in reality, they create cash-flow problems for discoms, forcing them to borrow funds to cover the revenue deficit. The additional borrowing, coupled with the interest, adds to the burden of discoms.