Chairperson-CERC interview with ET

Q.1 ET: The power ministry has asked the states to ensure that subsidies to electricity distribution utilities are paid in a timely manner and also the states should consider converting SEB loans to equity, if required. Are the state governments cooperating for the same and what is their take on these proposed reforms?

Dr. Pramod Deo: Recently there was state power ministers’ conference and in the conference, the resolution was passed on this and there was an agreement on it. And when it comes to the implementation, what we had done is that we had a meeting of forum of regulators and in the meeting of that forum of regulators, we have evolved a draft tariff regulation which would be adopted by all the state regulatory commissions. Many of the state regulatory commissions have already provided that unless the subsidy is paid upfront, it will not be reflected in the tariff. Suppose the regulatory commission decides that tariff for agriculture is going to be Re 1 and if the state wants to do pre-power to agriculture, then state has to work out that Re 1 would be given the subsidy to the distribution company and that money has to be paid upfront and if it is not done, then the bills that will be issued would be as Re 1 for the agriculture.

Q.2 ET: Why have merchant power prices collapsed in last 6 months and do you expect merchant power prices to improve in the near term?

Dr. Pramod Deo: This is market driven, there is always a demand and supply. Last year we were very fortunate. We had very good monsoon and because of that you will find that the demand for electricity, especially for water pumping, did not go up. Also, how severe was summer, that is another factor, and third very important thing was that timing of the elections that we had elections in the south, but those elections also came almost towards the end. That is why if you see the annual thing, there is not much increase. In fact the prices went down and that is how the long-term trend would be.

Q.3  ET: Distribution losses are also expected to be at about 1.16 lakh crore by FY14. Do you think such steps taken by the ministry, these estimates on losses will be contained and to a certain extent can be even cut?

Dr. Pramod Deo: That is very important. These are the losses of the distribution companies and that reflects very poorly on their financial health. So one issue we already discussed was this payment of subsidy by the state government on time. So that, I am not sure, loss is there, but more important thing is the timely tariff revision. That is why the tariff regulation guidelines now provide that these state distribution companies will be asked to file their tariff petition giving all the annual revenue requirement by October-November so that the regulatory commissions can come out with tariff and that new tariff will be available which will take care of this gap. The estimation of distribution losses is one of the areas which also pushed down the financials of the distribution companies. What has been decided is that for estimating agriculture consumption, special strategy will be done based on statistical sampling. So that once we know how much agriculture is consuming, we would be able to know what are the distribution losses. And that will help in reduction in distribution losses and that also will help the efficiency of distribution companies and their financial health.