Tata Power Challenges DERC Amendments on Deposit Works Financing Before Delhi High Court

Background and Regulatory Framework

In India, distribution licensees are regulated by a cost-plus framework, under the Electricity Act, 2003, which aims to create a balance between consumer protection and financial sustainability of utilities. One of the principles upon which this framework relies is the fact that the utilities have a right to recoup what they have incurred in a prudent measure in the form of tariffs without unduly charge the consumers or the licensees.

Distribution companies contracted by consumers or government departments to undertake infrastructure works in Delhi have traditionally been implemented on a full-deposit basis. This guaranteed tariff neutrality as such works could not affect the Annual Revenue Requirement (ARR) of distribution licensees.

Amendment to regulations being questionable

The Delhi Electricity Regulatory Commission changed its regulations on deposit works in January 2025. The amendment repealed the clauses that used to permit the distribution licensees to recover:

Interest on the performance of works, and recompensation of the interest on the delayed payment by government departments.

With the amendment, the government bodies can make payments in instalments, whereas distribution licensees cannot recover any interest or carrying cost on the amount of capital deployed. However, the private consumers still have to deposit the entire estimated cost in advance before works commence.

Appeal Before the High Court of Delhi

Tata Power Delhi distribution Limited has submitted a writ petition in high court of Delhi, objecting the integrity of the amended regulations.

The petitioner presents that the impugned amendment forces the distribution licencees to fund the government infrastructure projects out of their own balance sheets and without any means of recovering such interest, time value of money, or compensatory charges in form of tariffs.

It is argued that such regulatory framework constructively transforms distribution licensees into interest-free funders of governmental works, which is against the statutory design of the Electricity Act, 2003.

Key Issues Raised

1. Breaking Tariff Neutrality: The petition states that the amendment discredits tariff neutrality where the financing risk is transferred to distribution licensees without the corresponding recovery in ARR, or tariff mechanisms.

2. Regulatory Overreach: The petitioner argues that by imposing financing obligations on the licensees, which intrude on the commercial and financial autonomy of the licensee, the Commission has gone beyond its regulatory mandate.

3. Discriminatory Treatment: Another issue has also been presented on the platform of unequal treatment of the government departments and the private consumers. Although the actual cost will have to be paid entirely by the consumers in the private sector, government entities will enjoy the benefit of paying in instalment without interest, with no rational nexus to the goals of the Act.

4. Both financial and Operational Impact: The amendment is said to cause intense cash-flow pressures to distribution licensees and statutory MSME payment pressures and negatively impact their financial viability.

Sectoral Significance

The petition brings issues to the power sector that are broader in nature especially over:

• the boundary of regulatory power in requiring financing structures,
• the trade-off between the goals of the public infrastructure and the financial sustainability of utilities, and
• the compatibility of such regulatory practices with cost-reflective tariff practices.

Considering the current financial pressure on the distribution firms in India, the regulation policies limiting the recovery of the carrying costs can bear implications on investment, infrastructural development, and efficiency of operation.

Status and Way Forward

The Division Bench of the Delhi High Court has given a notice to the Delhi Government and the Delhi Electricity Regulatory Commission requesting their response within a period of six weeks. The case is set to be heard on 13 April 2026. The decision of the proceedings is likely to shed some light on the extent of regulatory authority over deposit works and liability of the principles of tariff neutrality under the Electricity Act, 2003.