According to official sources, regulatory assets in Maharashtra went up 390% to Rs 12,382 crore since the Uday launch and Uttar Pradesh saw a rise of 25% to Rs 33,000 crore in this period.
With the government planning to improve finances of the state-owned power distribution companies (discoms) to equip them for supplying 24×7 electricity, the power ministry has written to the Appellate Tribunal For Electricity (Aptel), asking it to direct the state electricity regulators not to create any further ‘regulatory assets’— a jargon for recoverable discom expenses which regulators acknowledge as pass-through costs, but are not immediately built into tariffs.
These ‘regulatory assets’ currently stand at around Rs 1.35 lakh crore and about half of these were created since the launch of the Uday scheme in FY16. According to official sources, regulatory assets in Maharashtra went up 390% to Rs 12,382 crore since the Uday launch and Uttar Pradesh saw a rise of 25% to Rs 33,000 crore in this period.
In its letter to the Aptel, power secretary Ajay Kumar Bhalla invoked a 2011 order where Aptel had mandated that “regulatory asset should not be created as a matter of course, except where it is justifiable, in accordance with the tariff policy and the regulations”.
The power ministry’s correspondence to Aptel, reviewed by FE, said state regulators are “bound by these orders” which are “still valid as it was never challenged before the Supreme Court and the order has attained finality”.
In a meeting held here earlier this month to prepare a “five year vision document”, power minister RK Singh conveyed his intention to prohibit further creation of regulatory assets. According to an official estimate, discoms lose Rs 22,000-crore revenue annually as regulators allow inadequate tariff hikes.
As FE recently reported, during the run-up to the Lok Sabha elections, electricity regulators of most major states either delayed or announced meagre tariff hikes for FY20, despite financial losses of discoms rising 44% annually to Rs 21,658 crore at the end of FY19.
According to an Icra report, while the median tariff hike at the all-India level was 8% in FY15, it fell to 4% in FY16 and FY17, 3% in FY18 and 1% in FY19. While every state regulator was to pass orders on FY20 tariffs by April 1, only 15 states have done this, and this excludes big states such as Uttar Pradesh, Maharashtra, Rajasthan and Tamil Nadu.
The current tariff policy says the facility of regulatory assets “should be done only as a very rare exception in case of natural calamity or force majeure conditions” and no such assets should be created under business as usual conditions. “Recovery of outstanding regulatory assets along with carrying cost of regulatory assets should be time-bound and within a period not exceeding seven years,” it added.