Sources said that the hike "should not be more than five per cent".
The DERC letter was in response to a government notification to it on May 4 in which the regulator was asked to submit a detailed report on financial position of the distcoms following their demand for a hike in tariff.
"The Commission is of the view that the tariff during previous years has not been cost reflective. The distribution licensees have had to resort to extensive borrowing to sustain their operations," the DERC said in its 'advice'.
In an unusual move, the city Government through the notification had stalled DERC's decision to announce the annual tariff for 2010-11 till it re-examines the demands from distcoms to increase the rates.
The DERC, which was making last minute preparations to announce the new tariff, after receiving the government directive had indicated that it had planned to cut down the tariff by 20 to 25 per cent as distcoms would have a surplus of around Rs 4,000 crore if the existing tariff was not tinkered with.
Then DERC chairman Berjinder Singh had sent a reply to the government notification justifying the commission's intention to cut down the tariff.
But the reply was not signed by two other members of the Commission and citing differences over the issue in DERC, the government had rejected the report.
Sources in the DERC, however, said it was not in a hurry to announce the new tariff and it may take two to three months to announce the new rates.
A top power department official said the DERC advice vindicated government's position that "in fact the distcoms are facing liquidity crunch".
"From the advice, it is evident that our apprehension and DERC's analysis matched," he said, noting that DERC is free to announce the tariff as and when they feel it appropriate but added the tariff must follow the principles of National Tariff Policy.
Asked when the new tariff may be announced, he indicated that it may take a few months as the process of selecting a new DERC chairman is on.
Queried about the possible quantum of hike, he said it was upto the DERC to decide about the increase but noted that "it should not be more than five per cent".
On whether it will require approval from the government to announce the new tariff order, an official in the power regulator said there is no provision in the Delhi Electricity Act which mandates DERC to seek a prior approval from the government to announce the tariff order, which is an annual exercise.
Chief Minister Sheila Dikshit, who looks after power department, had come under attack last month for stalling the tariff order and had then maintained that genuine demands of distcoms must be look into.