SC allows Delhi discoms to recover ₹27,200 crore dues from regulator

In a major relief for Delhi’s power distribution companies (discoms), the Supreme Court on Wednesday allowed them to recover over ₹27,200.37 crore in long-pending dues, known as regulatory assets, from the Delhi Electricity Regulatory Commission (DERC).

A bench of justices P.S. Narasimha and Sandeep Mehta settled the years-long dispute involving BSES Rajdhani Power Ltd (BRPL), BSES Yamuna Power Ltd (BYPL) and Tata Power Delhi Distribution Ltd (TPDDL).

These companies had argued that DERC consistently under-approved tariffs over the years, preventing them from recovering costs they had legitimately incurred while supplying electricity to consumers in the national capital.

The top court ruled that unpaid dues like regulatory assets should not be allowed to grow disproportionately—they must stay within 3% of the annual revenue requirement (ARR), the total approved expenses. Any new dues must be cleared within three years.

The court gave a clear deadline for the existing ₹27,200.37 crore in pending dues: they must be fully recovered within four years, starting 1 April 2024.

As on 31 March 2024, the regulatory asset including carrying costs is ₹12,993.53 crore for BRPL, ₹8,419.14 crore for BYPL and ₹5,787.70 crore for TPDDL.

The court also directed regulators, including DERC, to prepare a recovery plan, account for carrying costs (interest) and conduct a detailed audit explaining the prolonged delay in cost recovery.

It sharply criticized the regulator’s inaction, calling it a case of regulatory failure. “Disproportionate increase and long-pending regulatory asset depict a ‘regulatory failure’. It has serious consequences on all stakeholders, and the ultimate burden is only on the consumer,” the court observed.

The judges further emphasized that electricity tariffs must be cost-reflective, and that revenue gaps should arise only in exceptional circumstances.

Monitoring of compliance

To ensure proper enforcement, the court empowered the Appellate Tribunal for Electricity (APTEL) to monitor the recovery process. APTEL has been asked to invoke its powers under Section 121 of the Electricity Act to issue necessary instructions or directions, and to register a suo motu case to oversee compliance until the end of the recovery period in 2028.

A regulatory asset is a deferred payment that power companies are allowed to recover later when full cost recovery through tariffs is delayed. It’s meant to avoid sudden electricity price hikes for consumers while keeping companies financially stable. But if not cleared in time, it results in long-term financial stress for the discoms.

The DERC argued that the distribution companies did not have an automatic right to recover regulatory assets, as any recovery depends on the regulator’s judgement and must consider the public interest. It said the petitions were not maintainable before the Supreme Court and should have been filed before APTEL. The DERC also stated that it had already taken steps such as tariff revisions and surcharges to reduce the dues, and that recovery must be gradual to avoid tariff shocks. Each tariff order, it said, needs to be assessed on its own facts.

Root of problem

The dispute’s roots trace back to the unbundling of Delhi’s power sector in 2000-01, which handed electricity distribution to private sector players by 2007. In 2004, the DERC introduced regulatory assets as a temporary mechanism to defer cost recovery, starting with ₹696 crore. However, as timely recovery was not allowed, these dues swelled over the years.

BRPL and BYPL approached the Supreme Court in 2014, followed by TPDDL in 2021, seeking formal recognition of regulatory assets and a time-bound recovery mechanism under court supervision.

While the ruling now offers significant financial relief to Delhi’s power companies, improving their cash flow and long-term operations, it also carries implications for consumers. Although it ensures a more stable and reliable power supply, the recovery process may lead to gradual tariff increases over the coming years, as companies begin recovering ₹27,200.37 crore in a phased manner.

For consumers, the Supreme Court’s order is unlikely to cause any immediate spike in electricity bills. Since the court has directed that the ₹27,200 crore in regulatory assets be recovered over four years, the burden will be spread out. However, some moderate increases in bills may occur through mechanisms like surcharges or tariff adjustments.