Government streamlines regulations to stabilise DISCOMs finances

The Central Government prescribes rules for subsidy accounting, actual energy consumption, and financial sustainability in the power sector.

The government has introduced a series of measures aimed at bolstering the financial well-being of Discoms (Distribution Companies) by streamlining crucial aspects of their operations. This move comes in response to the pressing need for a comprehensive framework to ensure the sustainability of the power sector. Among the key issues addressed are improper and non-transparent accounting practices, as well as delays in the payment of subsidies announced by the States-factors that have contributed to the financial distress faced by Discoms.

The Ministry of Power recently announced new rules, effective July 26, 2023, that mandate the submission of quarterly reports by distribution licensees within thirty days from the end of each respective quarter. State Commissions will then examine these reports and issue their assessments within another thirty days. The reports will cover various aspects, including the raising demands for subsidies based on energy consumption by the subsidised categories and the actual payment of subsidies under Section 65 of the Act, as announced by the State Government.

The new rules emphasise strict compliance and accountability. Should any discrepancies be found regarding subsidy accounting and billings, the State Commission is empowered to take appropriate action against those responsible for non-compliance in line with the provisions of the Act.

Addressing the pressing issue of Aggregate Technical and Commercial (AT&C) losses, the framework for sustainability outlines a clear path for their reduction. State Commissions will be tasked with approving AT&C loss reduction trajectories for tariff determination, aligning them with the trajectories agreed upon by the respective State Governments and approved by the Central Government under national schemes or programmes.

To ensure the full recovery of costs incurred by the Distribution licensee, the rules state that all prudent costs of power procurement will be taken into account during tariff approval. Similarly, prudent costs associated with the development and maintenance of the distribution system will also be considered, subject to fulfilling prescribed conditions.

Moreover, the rules outline a fair sharing mechanism for gains or losses arising from deviations from the approved AT&C loss reduction trajectory. Both distribution licensees and consumers will share the outcomes, ensuring an equitable distribution of benefits.

For streamlined operation and maintenance of the distribution system, the Central Electricity Authority has been entrusted with issuing guidelines aimed at establishing norms and best practices.

In order to encourage investments in the sector, a reasonable Return on Equity (RoE) is critical. To this end, the State Commission will align its RoE with that specified by the Central Electricity Regulatory Commission (CERC) in its Tariff Regulations for the relevant period, with necessary modifications to account for the risks inherent in distribution business.

These measures are poised to usher in a new era of financial stability for Discoms, ultimately benefiting consumers and contributing to the overall growth of the power sector.