Supreme Court Orders States To Settle Power Discom Dues Within 4 Years
On Wednesday, the Supreme Court directed electricity regulators and State governments to clear all outstanding regulatory dues owed to power distribution companies within a period of four years.
The case stemmed from a series of petitions related to tariff orders issued by the Delhi Electricity Regulatory Commission (DERC) between 2011 and 2014, during which DERC had disallowed the recovery of regulatory assets accumulated in earlier years. In 2014, the Appellate Tribunal for Electricity (APTEL) ruled that DERC’s denial was unjustified and directed the Commission to reconsider the matter. This decision prompted appeals from certain consumer groups, alongside writ petitions challenging the tariff orders on grounds of transparency and legality.
The Bench of Justice PS Narasimha and Justice Sandeep Mehta stated, “we have examined the issue relating to regulatory asset, its position in the regulatory regime for determination of tariff, the duties and accountability of the regulators - the Regulatory Commissions and then powers of the Appellate Tribunal for Electricity to avert a regulatory failure.”
The Bench observed that the continued existence of regulatory assets across various states, despite clear statutory mandates and binding directions, reflected a significant lapse in regulatory supervision by both the State Electricity Commissions and the Appellate Tribunal for Electricity (APTEL).
The Court clarified that regulatory assets may be created in rare circumstances, but their prolonged existence over decades breaches the intent and provisions of the Electricity Act, 2003. These assets represent the unrecovered gap between a DISCOM’s actual expenses and the lower tariff set by the regulator, which are deferred for recovery through future tariffs.
The Court directed that electricity tariffs must reflect actual costs, and regulatory assets should only be created in exceptional cases. Such assets must not exceed 3% of the Annual Revenue Requirement (ARR) and must be cleared within 3 years. Existing regulatory assets must be fully liquidated within 4 years starting from April 1, 2024. Regulatory Commissions must outline clear plans for recovery, including audits and provisions for carrying costs. They must follow principles laid out in the judgment and earlier APTEL orders. APTEL is also directed to monitor compliance through a suo moto petition under Section 121 of the Electricity Act.
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