In a bid to create a broad framework for financial sustainability of the power sector, the government has put in additional measures to improve financial health of Discoms. This also includes streamlining the process of accounting, reporting, billing and payment of subsidy by States to the Distribution Companies.

The measures come in the wake of improper and non-transparent accounting as well as non-payment or delayed payment of subsidy announced by the States, one of the reasons for financial distress of Discoms. The Ministry of Power notified rules on July 26.

The rules mandate that a quarterly report shall be submitted by the distribution licensee within thirty days from the end date of the respective quarter and the State Commission shall examine and issue it within thirty days of submission of the quarterly report. The report will also inter-alia cover the findings regarding raising of demands for subsidy based on accounts of the energy consumed by the subsidised categories and the subsidy payable to these categories as announced by the State Government and the actual payment of subsidy.

Under the framework for sustainability, it is prescribed that the AT&C loss reduction trajectory would be approved by the State Commissions for tariff determination in accordance with the trajectory agreed by the respective State Governments and approved by the Central Government. This is primarily for helping define a definite and reasonable goal for reduction of Aggregate Technical and Commercial (AT&C) loss under any national scheme or programme. 

It has been prescribed that all prudent costs of power procurement, done in a transparent manner, would be taken into account, while approving the tariff. Similarly, all the prudent costs incurred by the distribution licensee for creating the assets for development and maintenance of the distribution system would be accounted for subject to fulfillment of prescribed conditions.

The Central Electricity Authority has been mandated to issue guidelines for establishing norms for operation and maintenance of the distribution system.

Reasonable Return on Equity (RoE) is one of the major factors required to ensure investment in the sector. The Rule provides that the RoE by the State Commission would be aligned with the RoE specified by the CERC in its Tariff Regulations for the relevant period, with appropriate modification taking into account the risks involved in distribution business.