New Delhi: The regulatory assets of distribution companies (discoms) – largely booked as receivables for tariff losses – have risen cumulatively to Rs 88,720. Ten million As of June 30, available government data underscore the fact that utilities’ financial woes are deeper than what they owe to state governments.
Industry players said this is just the tip of the iceberg as government data logs the amount recognized by state regulators. The actual amount may exceed Rs 1 lakh crore as the claims are tied in legal knots at the appellate level or in the High Courts. For example, Delhi’s tariff regulator has recognized regulatory assets of Rs 8,954 crore for three discoms operating in the national capital, according to government data. But officials said the assets would be much higher if the orders of the appellate body and courts are added.
Regulatory assets arise when state regulators recognize that the tariffs do not cover the power purchase cost of a discom but do not raise rates to the desired level, mostly under pressure from the state governments that employ them. The revenue gap between the cost of electricity purchase and supply, which increases due to systemic inefficiencies, is then classified as a regulatory asset.
This makes the discom books look good on paper. But in fact, a NITI Aayog-Rocky Mountain Institute India report last year said, “Regulatory assets create cash-flow problems for discoms, forcing them to borrow money to cover revenue deficits.” Additional borrowing, coupled with interest, adds to the burden of the discoms”.
Consumers also pay the price as regulators often allow political pressure to impose a surcharge to cover their failure to allow costs to reflect that.
Regulatory assets are part of the “freebie culture” – including non-payment of subsidies on time and unpaid bills of government bodies, which stood at Rs 1.39 lakh crore as on March 31 – PM Narendra Modi In July, it was said that this was primarily responsible for the poor financial health of the discoms.
Industry executives described regulatory assets as passing on current liability to future generations and could lead to a tariff shock. “The appellate tribunal had earlier ruled that regulatory assets should be recovered in three years. However, the quantum of assets may inflict a major tariff shock,” the NITI-RMI report said.
Industry players said this is just the tip of the iceberg as government data logs the amount recognized by state regulators. The actual amount may exceed Rs 1 lakh crore as the claims are tied in legal knots at the appellate level or in the High Courts. For example, Delhi’s tariff regulator has recognized regulatory assets of Rs 8,954 crore for three discoms operating in the national capital, according to government data. But officials said the assets would be much higher if the orders of the appellate body and courts are added.
Regulatory assets arise when state regulators recognize that the tariffs do not cover the power purchase cost of a discom but do not raise rates to the desired level, mostly under pressure from the state governments that employ them. The revenue gap between the cost of electricity purchase and supply, which increases due to systemic inefficiencies, is then classified as a regulatory asset.
This makes the discom books look good on paper. But in fact, a NITI Aayog-Rocky Mountain Institute India report last year said, “Regulatory assets create cash-flow problems for discoms, forcing them to borrow money to cover revenue deficits.” Additional borrowing, coupled with interest, adds to the burden of the discoms”.
Consumers also pay the price as regulators often allow political pressure to impose a surcharge to cover their failure to allow costs to reflect that.
Regulatory assets are part of the “freebie culture” – including non-payment of subsidies on time and unpaid bills of government bodies, which stood at Rs 1.39 lakh crore as on March 31 – PM Narendra Modi In July, it was said that this was primarily responsible for the poor financial health of the discoms.
Industry executives described regulatory assets as passing on current liability to future generations and could lead to a tariff shock. “The appellate tribunal had earlier ruled that regulatory assets should be recovered in three years. However, the quantum of assets may inflict a major tariff shock,” the NITI-RMI report said.