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					</table><p>The Appellate Tribunal for Electricity (<a href="https://aptel.gov.in/en" target="_blank" rel="noopener">APTEL</a>) has set aside the Delhi Electricity Regulatory Commission&#8217;s (DERC) decision to appoint the Comptroller and Auditor General (CAG) to audit Delhi&#8217;s power distribution companies (DISCOMs), holding that the move violated statutory provisions under the CAG Act.</p>
<p>The Tribunal also rejected DERC&#8217;s request to delay the liquidation of regulatory assets and directed that recovery begin within three weeks.</p>
<p><strong>Background</strong></p>
<p>The order was issued in a suo motu proceeding under Section 121 of the Electricity Act, through which APTEL is monitoring compliance with the Supreme Court&#8217;s August 2025 <a href="https://www.mercomindia.com/supreme-court-orders-pay-dues-discoms-four-years" target="_blank" rel="noopener">judgment</a> on regulatory assets.</p>
<p>In that judgment, the apex court had flagged the buildup of regulatory assets as a sign of regulatory failure. It directed commissions to conduct a strict, intensive audit of DISCOMs and to ensure that these assets are liquidated within a defined timeline.</p>
<p>Following this, DERC initiated steps to have the Delhi DISCOMs audited by the CAG and sought the Lieutenant Governor of Delhi&#8217;s approval. At the same time, it sought an extension to defer the commencement of regulatory asset liquidation, citing the need to complete the true-up for the 2023–24 financial year.</p>
<p><strong>Tribunal&#8217;s Analysis</strong></p>
<p>APTEL held that the Supreme Court&#8217;s direction to conduct an audit did not mandate that the CAG carry out the exercise. It rejected DERC&#8217;s interpretation that a CAG audit was implied, noting that the apex court had not specified any particular auditing authority. It emphasized that regulatory commissions are free to appoint other auditors, including chartered accountants, to undertake such audits.</p>
<p>It found that DERC&#8217;s move to entrust the audit to the CAG did not comply with Section 20 of the CAG Act, which governs audits of bodies not otherwise under the CAG&#8217;s jurisdiction. It was observed that there was no material on record to demonstrate that the public-interest requirement had been properly assessed before approval was granted. It also noted that the DISCOMs were not allowed to be heard before the decision.</p>
<p>Holding that statutory safeguards had been bypassed, APTEL quashed the approval for the CAG audit and directed DERC to appoint a chartered accountant within one week to complete the audit within three months.</p>
<p>Regarding regulatory asset liquidation, the Tribunal found no justification for delaying the process. It observed that the quantum of regulatory assets, estimated at approximately ₹385.52 billion (~$4.14 billion), was already known and that their recovery was not contingent on the completion of the true-up exercise.</p>
<p>APTEL noted that continued delays would increase the burden on consumers and criticized DERC for failing to adhere to previously committed timelines. It directed the Commission to commence the liquidation process within three weeks, while allowing time until June 30, 2026, to issue the pending true-up order.</p>
<p>The Tribunal also reiterated that its supervisory jurisdiction under Section 121 empowers it to intervene where regulatory commissions fail to comply with statutory provisions, even while implementing Supreme Court directions.</p>
<p>Subscribe to Mercom&#8217;s real-time <a href="https://mercomindia.com/product/mercoms-renewable-energy-regulatory-updates/" target="_blank" rel="noopener">Regulatory Updates</a> to ensure you don&#8217;t miss any critical updates from the renewable industry.</p>



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					</table><p>The Delhi Electricity Regulatory Commission (<a href="https://www.derc.gov.in/" target="_blank" rel="noopener">DERC</a>) has petitioned the Supreme Court to allow it to liquidate its existing regulatory assets over seven years instead of four years, to mitigate the impact of tariff shock to consumers.</p>
<p>The petition follows a Supreme Court direction to all states to <a href="https://www.mercomindia.com/supreme-court-orders-pay-dues-discoms-four-years" target="_blank" rel="noopener">clear</a> the pending dues of ₹1.74 trillion (~$19.72 billion) owed to distribution companies (DISCOMs) within four years. It had also said new dues created after April 1, 2024, must be liquidated within three years.</p>
<p>The court had directed the Appellate Tribunal for Electricity to register a suo motu case under Section 121 of the Electricity Act to monitor the liquidation of regulatory assets nationwide, and issue binding orders and directions to ensure compliance by state commissions.</p>
<p>In an affidavit, DERC submitted that it would be ‘extremely onerous and burdensome’ on the consumers of Delhi if the direction to liquidate these assets were to be implemented in four years.</p>
<p>Moreover, if the liquidation period were to be directed to start retrospectively from April 1, 2024, it would create undue hardship for consumers, as a significant period of almost 18 months has already elapsed. This means that the recovery would have to be compressed within the remaining time, resulting in a huge burden on consumers.</p>
<p>DERC highlighted a discrepancy in its judgment regarding the time period for liquidating the regulatory assets. It said the judgment notes that existing regulatory assets must be liquidated within seven years per amended Rule 23 of the Electricity Rules, 2005.  However, at another place in the order, the period of liquidation is mentioned as four years.</p>
<p>“It is impossible to implement the judgment without the clarifications being sought by the applicant by way of the present application,” it said.</p>
<p>DERC further wanted the Supreme Court to clarify that the assets liquidation exercise must commence from August 6, 2025 (the date on which the judgment was pronounced), instead of April 1, 2024.</p>
<p>The Supreme Court order enforces Rule 23 of the Electricity (Amendment) Rules 2024, which limits regulatory assets to no more than 3% of the approved annual revenue requirement (ARR).</p>
<p>The average cost of supply and ARR gap is a critical metric to evaluate the financial health of DISCOMs, as it directly impacts electricity tariffs.</p>
<p>In the Ministry of Power’s thirteenth annual integrated ratings for 2024, of the 63 DISCOMs and power departments, 21 <a href="https://www.mercomindia.com/gujarat-discoms-continue-to-top-annual-ratings-telangana-lags-behind" target="_blank" rel="noopener">improved</a> their ratings, 29 retained their ratings, and 13 were downgraded. The total number of DISCOMs graded A+ stayed at 11.</p>


DERC Wants 7 Years to Liquidate Regulatory Assets, Petitions Supreme Court


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					</table><p>The <a href="https://www.sci.gov.in/" target="_blank" rel="noopener">Supreme Court of India</a> has directed the states to clear the pending dues of approximately ₹1.74 trillion (~$19.72 billion) owed to distribution companies (DISCOMs) within four years. New dues created after April 1, 2024, must be liquidated within three years.</p>
<p>The Court said the practice of creating dues, termed as ‘regulatory assets’ by electricity regulatory commissions, cannot be allowed to continue unchecked. Such regulatory assets, which represent unrecovered costs of distribution licensees deferred to future tariff periods, must only be created in exceptional circumstances and must be liquidated within a specified time.</p>
<p>The judgment enforces Rule 23 of the Electricity (Amendment) Rules 2024, which limits regulatory assets to no more than 3% of the approved annual revenue requirement.</p>
<p>The Court directed the Appellate Tribunal for Electricity (APTEL) to register a suo motu case under Section 121 of the Electricity Act to monitor the liquidation of regulatory assets nationwide, and issue binding orders and directions to ensure compliance by state commissions.</p>
<p><strong>Background </strong></p>
<p>The case emerged from a long-standing dispute between Delhi’s DISCOMs and the Delhi Electricity Regulatory Commission (DERC) over the issue of under-recovery of revenue due to delayed or insufficient tariff revisions.</p>
<p>The petitioners, BSES Rajdhani Power, BSES Yamuna Power, and Tata Power Delhi Distribution, argued that over multiple years, DERC had failed to allow cost-reflective tariffs despite the audited accounts and annual revenue requirement filings submitted by them. As a result, a large volume of revenue shortfall was carried forward each year in the form of regulatory assets.</p>
<p>According to the petitioners, these regulatory assets had grown to over ₹272 billion (~$3.09 billion) by the financial year 2024 and continued to accumulate carrying costs due to the time value of money. They claimed that such deferment was unsustainable and contrary to the provisions of the Electricity Act, 2003, which mandates regular and transparent tariff determination. The petitioner also relied on past judgments of APTEL, which had ruled that the DISCOMs were entitled to cost-reflective tariffs and recovery of carrying costs.</p>
<p>The respondents included DERC, the Delhi Government, and the Union Ministry of Power. DERC countered the claims by asserting that the regulatory assets had been created at the request of the DISCOMs themselves in the early years following the privatization of distribution. It argued that tariff increases and surcharges had already been granted periodically and that the DISCOMs were exaggerating the impact of under-recovery.</p>
<p>The Delhi government submitted that the DISCOMs had received significant financial assistance through loans and subsidies, and that any claims regarding revenue gaps had to be assessed within the broader regulatory framework. It opposed any attempt to shift the burden of past inefficiencies onto consumers.</p>
<p>The Ministry of Power highlighted the importance of following Rule 23 of the Electricity Rules, 2024, which permits regulatory assets only in extraordinary situations such as natural calamities or force majeure events and mandates liquidation within five years.</p>
<p>Given the broader implications of the dispute, the Court had earlier directed all state electricity regulators and state governments to file affidavits detailing the status of regulatory assets across the country. This revealed significant regional disparities, with states like Tamil Nadu, Kerala, Chhattisgarh, and Rajasthan reporting dues of over ₹1.46 trillion (~$16.64 billion). In contrast, others like Assam, Odisha, and Uttar Pradesh had no such liabilities. These disclosures underscored the systemic nature of the problem and the need for judicial clarity.</p>
<p><strong>Supreme Court’s Analysis </strong></p>
<p>The Supreme Court emphasized that Sections 61 and 62 of the Electricity Act place a clear obligation on the regulators to determine tariffs that are cost-reflective and provide a reasonable return to distribution licensees while ensuring consumer interest.</p>
<p>It rejected the argument that political or financial constraints justify prolonged deferment of revenue recovery. It held that the regulatory commissions cannot avoid their statutory duty by deferring legitimate costs under the guise of consumer protection. It also noted that the creation of regulatory assets without timely liquidation leads to accumulated carrying costs, which ultimately burdens consumers more heavily in the long run and destabilizes the financial health of DISCOMs.</p>
<p>On the issue of consumer interest, the Supreme Court observed that true consumer protection lies in ensuring uninterrupted and quality supply of electricity at fair tariffs, not in artificially suppressing tariffs while endangering the viability of the distribution system. It called for a balance between the right of consumers to affordable power and the right of DISCOMs to recover legitimate costs efficiently.</p>
<p>The Court further examined Rule 23 of the Electricity (Amendment) Rules, 2024, which allows for the creation of regulatory assets only in exceptional circumstances such as natural disasters, war, or other force majeure events. It noted that none of the conditions in Rule 23 had been satisfied in the Delhi case, and that the regulatory asset mechanism had been abused as a routine tool to defer tariff increases.</p>
<p>The apex court also addressed the role of state governments in subsidizing electricity tariffs. It held that any subsidy must be provided transparently, in advance, and through budgetary allocations under Section 65 of the Electricity Act. Regulatory commissions cannot reduce tariffs artificially in anticipation of state subsidies unless those amounts are actually received.</p>
<p>The court had recently ruled that the regulatory commissions must be <a href="https://www.mercomindia.com/unilateral-termination-ppas-against-public-interest-supreme-court">guided</a> by the public interest when approving tariffs for power purchases.</p>
<p>Subscribe to Mercom’s real-time <a href="https://www.mercomindia.com/product/mercoms-renewable-energy-regulatory-updates" target="_blank" rel="noopener">Regulatory Updates</a> to ensure you don’t miss any critical updates from the renewable industry.</p>


Supreme Court Orders States to Pay ₹1.74 Trillion Dues to DISCOMs in Four Years

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