DERC, state govt liable for Delhi power woes: Shahi

Deo also agrees that problems in Delhi's power space have been due regulatory failure. He added that post discom privatisation, distribution losses in Delhi slipped to 15 percent and efficiency improved.

Below is the edited transcript of their interview with CNBC-TV18’s Sonia Shenoy and Latha Venkatesh. For the complete interview watch the accompanying videos.

Q: Can an electricity regulator cancel the license of a discom and if so under what conditions?

Shahi: If the situation is bad, power supply is disrupted, there is total lack of clarity on this subject. The licensee is irresponsible because licenses are issued under certain terms and conditions of supply. Strictly speaking under the electricity act 2003, licenses can be suspended, can be cancelled, but there is a whole range of issues to be sorted out, procedures to be followed. It is not that one fine morning the regulator will cancel the license then there will be further disruption. It is not as easy, but technically and legally speaking it can be done and then alternate arrangements will have to be put in place, sufficient notice will have to be given. This is the last resort and not to be used just like that, this distribution licensees been operating and you say that no from tomorrow your license is canceled or suspended.  It can be cancelled, but so many procedures have to be followed.

Q: As a former chair person, as the former chief regulator of the country in the electricity space you know better than anyone else that a large part of the problem is because electricity bills are not paid by a large number of consumers. The electricity companies find it very difficult to stop pilferage of power and non payment. People in Delhi tell us that power bills are not paid with almost cockiness by several consumers. When it is known that the reality is that you cannot collect power tariffs, can you really blame the distribution companies for the losses they make?

Deo: In Delhi it is a very different situation. Delhi is a story of remarkable success after it was privatized. When Delhi Electric Supply Undertaking (DESU) was running the show, there were losses of more than 55 percent and efficiency collection was also very low. Today, efficiency collection is almost 100 percent and the distribution losses have come down below 15 percent comparable to Mumbai, so the power situation has improved. It is not that because the bills are not being paid, here the issue is that there has been a regulatory failure.

Q: But the discom companies have been saying that there is about Rs 20,000 crore of unrecovered dues from consumers?

Deo: Those are the dues which regulator has created; it is called as regulatory assets. It means this is the money which consumers own the discom, but the regulator thought that it will be too much of a burden on the regulator, so it is postponing this payment and that is why it is called regulatory assets.

Regulatory assets also have a carrying cost so if you have Rs 20,000 crore regulatory assets, if you take the appellate tribunal’s judgement then State Bank of India (SBI) Prime Lending Rate (BPLR) rate of 14.5 percent. We are looking at something like almost reaching Rs 3000 crore per year will be the liability and this will just go on building up. This is the real problem here and that is what the regulator in Delhi has referred it to Delhi government and said well this is the situation; this is what has happened and now you solve the problem.

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Q: What happens here on because the discoms have now asked the Delhi government to release about more than Rs 250 crore of pending subsidies to help them pay NTPCs dues but as we understand the government has so far made it clear that they will not make this subsidy payment. In a sense do you feel that they may have to go through with this the Delhi government that is? How do you see the way forward?

Deo: It is very clear that this issue needs to be sorted out because these two BSES companies also have not been able to pay to Delhi transmission companies and generation companies because their cash flow situation is very precarious. Whatever tariff was given to them is not sufficient and they cannot borrow now from banks because banks are not going to give them money unless there is some kind of a financial package and some amortization of these dues is done. Otherwise it is going to be very difficult. From where do you get this money? This is the real issue. It is not that bills have not been paid. If they were to revise tariffs regularly then we would not have such a situation. But in the past, regulators in Delhi decided to take a soft approach.

Q: From what is available in the public space, who would you blame for the Delhi problem, discoms, government or Delhi Electricity Regulatory Commission (DERC)?

Shahi: I would blame the DERC. About six-seven years back, they started the system of regulatory asset. Regulatory asset principle an approach which many of the state regulators have started doing for quite sometime is flawed and unworkable. They do not give sufficient tariff to take care of the cost reflective approach. As a result, you go on postponing the recovery from the customers thinking that some good days will come and you will be able to adjust and those good days never come. This is because cost of coal increases, imported coal cost is even increasing more and whole range of power costs is increasing from the generators. Therefore this flawed approach at least should be abandoned in the future by every state regulator.

In case of Delhi, I would put the blame on DERC which introduced the system and then the Delhi Government, which did not understand the totality of the issue and quickly came to the conclusion of 50 percent reduction in power tariffs even without the audit they have proposed. This created unnecessary desire and aspirations amongst consumers that something big is going to happen. Distribution business has become very, very risky. Nobody would like to touch distribution business. The whole approach of Electricity Act the distribution sectors should be reformed, the sectors should be made commercially viable, because the cutting edge of the industry is distribution. Unless the payments fully are recovered at the distribution end which includes pilferage, collection and as rightly said in case of Delhi these are success stories.

Q: The Aam Aadmi Party (AAP) on its website has a 23 page document where it says that the DERC chairman whom you are referring to in the 2008 period was the one who is pointing out that the discoms actually were making money but were reporting losses. That report says that the next commissioner that is Mr. Singh was actually soft-pedalling, he was the one who was raising tariffs. From what you are saying you are actually blaming Virendra Singh, the previous chairman.

Shahi: I would not like to put names here, but definitely it would be DERC when they started this system of regulatory assets. Regulatory asset for common understanding is nothing but loss, that means cost is X and recovery is Y and if recovery is much less then X minus Y becomes the loss. They started calling that loss regulatory assets to be postponed and it should get recovered after four-five-six years when the cost of power from purchase has been reduced or efficiency will improve tremendously. That has created the whole lot of problem and that has been compounded by the Delhi Government's decision to get into this hasty action.

Q: If the discoms do not get funds to payout NTPC then does the Delhi Chief Minister have the power to go ahead and terminate the licenses of these discoms? What do you think will be the way forward?

Deo: We have a complete statutory framework in the Electricity Act 2003 and there is a procedure laid down and that procedure has to be followed. Government has no role to play. It is a statutory matter and under that statute the framework has to be followed. It is not that in anybody\\'s sweet will that you can terminate license.