In a major judgment, the Supreme Court has laid down the legal framework concerning the creation and continuation of “regulatory assets” by Electricity Regulatory Commissions, especially in the context of Delhi’s power distribution scenario. The ruling addresses multiple petitions filed by BSES Rajdhani Power Ltd., BSES Yamuna Power Ltd., and Tata Power Delhi Distribution Ltd. against the Delhi Electricity Regulatory Commission (DERC).
A “regulatory asset” is an intangible amount recognised by regulatory commissions to cover revenue shortfalls of distribution companies when they cannot recover full costs through consumer tariffs. Instead of burdening consumers with a sudden tariff hike, the commission allows this gap to be recovered gradually over future years.
“A regulatory asset is a tool used during tariff fixation that recognises a right of future recovery. It’s not a statutory power but an administrative mechanism rooted in regulatory policy.” - Supreme Court
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- Petitions & Appeals: The petitions (W.P. 104/2014, 105/2014, 1005/2021) and civil appeals were filed to seek clarity on tariff determination, enforcement of Appellate Tribunal for Electricity (APTEL) orders, and liquidation of regulatory assets.
- Tariff Shortfalls in Delhi: Delhi DISCOMs faced unrecovered dues as high as ₹27,200 crore by FY 2024 due to rising power purchase costs and delayed tariff hikes.
- Regulatory Failures: The Court acknowledged that missteps by DERC—like undervaluing power costs and deferring tariff hikes—led to ballooning of regulatory assets.
- APTEL Directions Ignored: Orders requiring liquidation within three years under the 2006 Tariff Policy were not followed, despite clear directions from APTEL in 2011 and 2013.
- Statutory Duty: The Court underlined that commissions must follow policies under Section 61 and 62 of the Electricity Act, including rules like Rule 23 of the amended Electricity Rules, 2024, which limit the use of regulatory assets.
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- Ministry of Power: Supported strict enforcement of Clause 8.2.2 of the National Tariff Policy. Emphasized that regulatory assets must be exceptional, time-bound, and preferably liquidated within 3 years (or 7 years under 2016 policy).
- DERC’s Defense: Claimed multiple steps were taken like tariff hikes, surcharge introduction (DRS, PPAC), but external factors like coal cost hikes and underperformance led to asset growth.
- Delhi Government: Denied responsibility for the revenue gap, asserting timely release of subsidies under Section 65 of the Act.
“Tariff determination is not merely a mathematical exercise—it involves balancing consumer interest with distribution viability.” — Supreme Court
- The Court noted the absence of timely truing-up exercises and lack of adherence to National Tariff Policy led to a “regulatory failure.”
- It held that regulatory commissions have a legal duty to follow statutory rules and policies—not discretionary power—to create, manage, and liquidate regulatory assets.
- State Commissions must avoid repetitive use of regulatory assets and ensure timely recovery to protect both consumer rights and investor confidence.
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The Court sought affidavits from various State Commissions and governments. Findings:
- States like Tamil Nadu and Rajasthan have massive pending regulatory assets (₹89,375 crore and ₹47,000+ crore, respectively).
- Others like Odisha, Assam, UP, and MP reported no regulatory assets due to cost-reflective tariffs.
- States like Kerala and Chhattisgarh outlined clear liquidation roadmaps.
- Regulatory commissions must strictly follow Rule 23 of the 2024 Rules.
- Any regulatory asset must be time-bound, limited, and transparently liquidated.
- Central and State governments must ensure policy compliance and not burden future consumers unjustifiably.
This landmark judgment ensures accountability in electricity tariff-setting and limits misuse of regulatory assets. It emphasizes transparency, timely compliance, and balanced decision-making by regulators to protect both distribution companies and consumers.
“The financial health of distribution companies must not come at the cost of future consumer burdens. Regulation must walk the fine line between efficiency and social justice.” — Supreme Court
Case Title: BSES Rajdhani Power Ltd. & Anr. vs. Union of India & Ors.
Citation: 2025 INSC 937
Case Type & Numbers:
- W.P. (C) No. 104/2014
- W.P. (C) No. 105/2014
- W.P. (C) No. 1005/2021
- C.A. No. 4010/2014
- C.A. No. 4013/2014
Petitioners:
- BSES Rajdhani Power Ltd. (BRPL)
- BSES Yamuna Power Ltd. (BYPL)
- Tata Power Delhi Distribution Ltd. (TPDDL)
Respondents:
- Union of India
- Delhi Electricity Regulatory Commission (DERC)
- Ministry of Power
- Govt. of NCT of Delhi
- Generating Cos: IPGCL, PPCL, DTL