⚖️ What are called Regulatory Assets in the Power Sector?

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Regulatory Assets (RAs) are deferred costs recorded by power distribution companies (DISCOMs) when their average cost of electricity supply (ACS) exceeds the revenue they collect (ARR) through tariffs. Instead of immediately increasing consumer tariffs to cover this gap, State Electricity Regulatory Commissions (SERCs) allow DISCOMs to recover the shortfall in the future—thus creating a regulatory asset.

🧾 How It Works (Example)

  • Average Cost of Supply (ACS): ₹7.20/unit
  • Approved Tariff (ARR): ₹7.00/unit
  • Revenue Gap: ₹0.20/unit
  • Units Sold: 10 billion
  • Regulatory Asset Created: ₹2,000 crore

This ₹2,000 crore becomes a regulatory asset, to be recovered later through future tariff hikes, often with interest.

📉 Why Are they Created?

  • Non-cost reflective tariffs: Tariffs kept low for political or social reasons.
  • Delayed subsidies: State governments delay payments for subsidized consumers.
  • Fuel price shocks: Sudden increases in coal or gas prices.
  • Operational inefficiencies: High transmission and distribution losses.

⚠️ Impacts

On DISCOMs:

  • Short-term relief but long-term financial stress.
  • Accumulation of debt and cash flow issues.
  • Delays in payments to power generators.

On Consumers:

  • Avoids immediate tariff hikes, but leads to steeper increases later.
  • Interest on deferred costs increases the burden over time.

🏛️ Supreme Court Intervention (2025)

  • Directed SERCs and DISCOMs to:
    • Clear existing regulatory assets within 4 years.
    • Limit new regulatory assets to 3% of ARR.
    • Ensure transparent recovery roadmaps.
    • Conduct audits for non-compliant DISCOMs

🔗 Further Reading

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