Decoding the Supreme Court’s Take on Regulatory Assets

The power sector in India runs through three critical stages: generation, transmission, and distribution. While state governments (and in some cases private players) handle distribution, challenges arise when the cost of supply exceeds the revenue collected.

This gap often leads to the creation of regulatory assets—an accounting entry that reflects losses, with the hope that they will be recovered in the future by raising tariffs.

🔹 Why does this happen?

Rising costs of coal, infrastructure, and labour.

Free electricity or bill waivers announced by state governments.

Electricity theft and transmission losses.

🔹 What did the Supreme Court say?

Recently, the Supreme Court criticized the frequent creation of regulatory assets and directed all distribution companies (Discoms) to clear these within four years.

While this move could clean up balance sheets and improve financial health, it may also increase electricity tariffs, placing a heavier burden on consumers.

🔹 The way forward

Rationalize tariffs by aligning prices with actual costs.

Ensure timely government payments to Discoms when subsidies are announced.

Target subsidies better (e.g., support small and marginal farmers rather than blanket free electricity).

Strengthen accountability and transparency within State Electricity Regulatory Commissions.

The Supreme Court’s judgment is a reminder that reforms in India’s power sector must balance financial sustainability with consumer affordability.