NEWS

• The Supreme Court has told State Electricity Regulatory Commissions (SERCs) and power distribution companies (DISCOMs) to:
  • Clear old regulatory assets in 4 years.
  • Settle new ones within 3 years.
  • Keep regulatory assets below 3% of Annual Revenue Requirement (ARR).
  • Publish clear recovery plans and conduct regular audits.

HIGHLIGHTS

What are Regulatory Assets?

• Regulatory assets = deferred costs.
• They arise when the cost to supply electricity (ACS) is more than the money earned (ARR).
• Example: If it costs ₹7.20/unit to supply but revenue is only ₹7.00/unit → 20 paisa loss per unit.
• Instead of raising tariffs suddenly, the gap is recorded as a “regulatory asset” to be recovered later, often with interest.

Why Do Gaps Happen?

• Tariffs not matching real costs.
• State governments delaying subsidies for farmers or poor households.
• Sudden rise in coal or fuel costs.

Impact on Consumers

• Initially, consumers enjoy stable tariffs.
• Later, they face steeper hikes because deferred costs + interest must be recovered.
• Example: In Delhi, recovery of existing assets could mean ₹5.5/unit extra if done at once.

Impact on DISCOMs

• Cash flow problems → delay in paying power generators.
• Heavy borrowing → rising debt.
• Less money left to modernize grids or adopt renewable energy.
• This creates a vicious cycle of losses.

Way Forward

• Tariffs must reflect real costs, with targeted subsidies for the poor.
• Timely release of subsidies by State governments.
• Automatic adjustment of tariffs when fuel costs change.
• Strict monitoring by regulators to ensure discipline.