Supreme Court Ruling on Regulatory Assets: Power Bills to Increase Across India

The Supreme Court has ordered all states and UTs to clear within four years the regulatory assets of power distribution companies, which may increase electricity bills across India. Regulatory assets, or costs incurred by discoms, have accumulated for decades and amount to over Rs 1.5 lakh crore. The court asked state electricity regulatory commissions to submit a time-bound roadmap for recovery of these assets.

The Supreme Court has issued a landmark ruling that mandates all states and Union Territories (UTs) to clear the regulatory assets of power distribution companies (discoms) within four years, potentially leading to an increase in electricity bills across India. This directive, aimed at addressing the accumulation of over Rs 1.5 lakh crore in regulatory assets, comes as a significant step in ensuring the financial health of the power sector.

The ruling, delivered on Wednesday, requires state electricity regulatory commissions to submit a time-bound roadmap for the recovery of these assets, which include costs incurred by discoms but recovered over time. The court has directed the Appellate Tribunal for Electricity (APTEL) to supervise the implementation of its directives and ensure strict audits of the circumstances leading to the accumulation of regulatory assets.

The court’s decision is expected to have a substantial impact on consumers, as regulatory assets are typically recovered through increased tariffs. As of March 31, 2024, the regulatory asset for BSES Rajdhani Power (BRPL) stood at Rs 12,993.53 crore, Rs 8,419.14 crore for BSES Yamuna Power (BYPL), and Rs 5,787.70 crore for Tata Power Delhi Distribution (TPDDL), totaling Rs 27,200.37 crore across these companies in Delhi [1].

The Supreme Court emphasized that regulatory commissions must provide a trajectory and roadmap for the liquidation of these assets, including provisions for dealing with carrying costs. The court also directed that any regulatory asset created must be liquidated within a period of three years, with the goal of ensuring that tariffs are cost-reflective and grounded in transparent regulatory processes.

Advocate Shri Venkatesh, appearing for Tata Power Delhi Distribution, welcomed the judgment, stating that it "decisively unlocks the value chain of electricity regulation while addressing the systemic misuse of the Regulatory Asset mechanism." He noted that for decades, tariff deferments were used as a political and regulatory crutch, distorting the true cost of supply and pushing discoms into unsustainable debt. The court's decision aims to enforce long-ignored statutory discipline under the Electricity Act, restoring financial credibility to discoms and reinforcing the principle of cost-reflective tariffs [1].

Vikram V, Vice President & Co-Group Head of ICRA, also termed the ruling a "positive development for the sector if implemented in the true spirit." He highlighted that the large build-up of regulatory assets was a result of delays in issuing tariff orders and a lack of tariff revisions in line with the cost structure. Going forward, timely pass-through of cost variations to consumers will be crucial to avoid such accumulations and enable discoms to become self-sustaining [1].

The ruling comes on the heels of the government's plans to open up nuclear power generation to private companies, aiming to strengthen India’s clean energy goals under the Viksit Bharat 2047 plan. This move is expected to help scale up capacity and cut project costs, as private participation could bring in more efficient and cost-effective operations [2].

References:
[1] https://economictimes.indiatimes.com/industry/energy/power/sc-delivers-key-ruling-on-discom-regulatory-assets-power-bills-likely-to-go-up-across-india/articleshow/123145395.cms
[2] https://www.business-standard.com/industry/news/india-nuclear-energy-private-sector-entry-viksit-bharat-2047-125080400174_1.html