Regulatory assets provision to be removed in next power tariff policy

Topics Power Sector | UDAY | Power Tariff

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The Centre is set to introduce a unique amendment in the upcoming National Tariff Policy. This is expected to improve the income of discoms and prevent states from taking populist measures of low electricity tariff. 

The Ministry of Power could remove the provision of regulatory assets from power tariff orders passed by State Electricity Regulatory Commissions (SERCs) for discoms.

Regulatory assets are discom expenses that are recoverable in power tariff hikes but SERCs do not take them into consideration while calculating electricity tariffs.  According to an estimate by the ministry of power, discoms lose Rs 22,000 crore annually due to the creation of regulatory assets. 

Sources who were part of the brainstorming session held by the ministry of power said R K Singh, minister of state for power and new and renewable energy, was of the view that the next tariff policy would ensure that the provision of regulatory assets was removed from tariff norms. 

Central agencies, states, and private companies participated in the session.  According to the latest tariff orders till the end of FY19, the future regulatory assets, outstanding and approved by the SERCs, amounted to about Rs 76,963 crore, a report of India Ratings said in May.  It further said 97 per cent of the outstanding regulatory assets were due to state distribution companies, while the rest were for private and independent power producers. 

Senior officials said populist measures taken by SERCs to keep tariffs low for consumers or free for a section of consumers had led to regulatory assets piling up. 

“Coupled with an increasing cost of power and the cost of providing new connections and improving supply under several Central schemes, discoms’ income has deteriorated,” an official said.  The ministry of power recently blamed SERCs for not ordering regular tariff revisions. The secretary, ministry of power, said the discoms could not be blamed for rising debts and dues, because SERCs did not approve regular tariff hikes. 

Discoms have missed timely tariff revisions for three fiscal years during the Ujjwal Discom Assurance Yojana (UDAY), which is discom reform. 

The Electricity Act, 2003, mandates discoms to file annual revenue returns before the fiscal year closes. Regular tariff revision is also one of the 50-odd reform steps discoms committed to undertake in their UDAY deal with the Centre and their respective states.

In their submission for tariff approval for FY20, Andhra Pradesh, Gujarat, and Karnataka have sought no increase in tariffs. 

Jharkhand has received approval from the SERC to keep tariffs the same as last year, when it increased them by 98 per cent for domestic consumers and reduced them by 11.7 per cent for industry. Bihar, which increased power tariffs by 55 per cent in FY18, sought an increase in the current fiscal year too. But the SERC in its final order denied it, keeping the tariffs the same as last year.
  • Regulatory assets are recoverable expenditure of the discom through the tariff levied on the consumer but are deferred and kept separate by the SERC. It is not passed not on to the consumer to ensure low power rates
  • The total regulatory assets currently stand at Rs 76,963 crore
  • Centre has blamed SERC for deteriorating financial health of discoms as they disallow tariff hike for sake of populist measures
  • Discoms have been missed timely tariff revision for three fiscal years during discom reform UDAY

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