Delhi’s Newly Elected Government Halves Power Prices

New AAP government provides a subsidy on electricity tariffs while distribution companies undergo a full audit for overcharging.
Published: Mon 16 Feb 2015

While Arvind Kejriwal's election may mean lower electricity bills for Delhi’s households, distribution companies brace themselves for a full account audit and exposure to market competition by the Aam Aadmi Party (AAP).

Overcharge investigation

It is expected that Kejriwal’s AAP will pick through the affairs of the distribution arms of Tata Power and Anil Ambani-led Reliance Infrastructure. Last year, Kejriwal took on both Mukesh and Anil Ambani.

AAP led a campaign promising locals in Delhi cheaper water and electricity. The party promised that the audit by the Controller and Auditor General of India (CAG) of the two BSES distribution companies (BSES Yamuna Power Limited (BYPL) and BSES Rajdhani Power Limited (BRPL)) and Tata Power Delhi Distribution Ltd, which was ordered by its government in December 2013 and had been shelved, would be restarted. The audit, which resulted in castigating reports, had caused a stir amongst telecoms, coal and oil exploration industries.

The AAP campaign against the electricity companies overcharging is not just based on flimsy evidence, says AAP’s ideologue Yogendra Yadav. Apparently there is a detailed working by a former electricity regulator in Delhi.

Until the CAG audit of the three power distribution companies is made public, AAP says the Kejriwal government will provide a subsidy to meet its pre-poll promise of cutting tariffs by 50%. Based on the current consumption levels in Delhi, a 50% subsidy would cost Rs503 crore (US$80 million)for those consuming between 0 and 200 units per month and another Rs970 crore (US$156 million) for those consuming between 200 and 400 units. Dehli’s total budget for FY15 was Rs36,800 crore (US$592 million)

It is not yet clear whether the 50% reduction in electricity prices are applicable to smaller consumers.

Distribution companies in financial strife

Distribution companies claim that they are short of funds and they need to recover a total of Rs 27,000 crore (US$434 million) of past costs, i.e."regulatory assets", from a tariff increase.

Last year, BSES had a showdown with NTPC, the country’s largest power generator, as it was unable to pay its bills in time, putting Delhi in danger of a blackout.

Further, the CAG had complained to the Delhi High Court that the distribution companies were not cooperating in the audit. The companies had also questioned the powers and jurisdiction of the CAG to audit a private distribution company.

Providing relief from rising bills

In its manifesto, AAP claims it will ensure that power distribution companies purchase electricity from economical sources and avoid costly and unsustainable power purchase agreements. It reads: "AAP will take measures to provide relief from rising power bills, namely generating cheaper electricity, improving transmission efficiency, fixing billing defects and correcting meter defects."

Industry experts say there is limited scope to reduce tariffs since the distribution companies purchase electricity at higher cost but the absolute majority will enable the new government to open the power distribution segment of Delhi to more players, introducing competition and thereby reducing tariffs.

In any case, tariffs are determined by the regulatory authorities, not the local government unless it subsidises a section of the consumers. The central government has been working for over a year to introduce retail competition in distribution segment by amending the Electricity Act. The proposal includes segregating infrastructure ownership and power supply businesses to give consumers the freedom to switch operators.

Another way of reducing tariffs is tapping into solar power. [Engerati – Solar to Compete With Fossil Fuel Prices in India.]