Relief for Anil Ambani's Business Empire: Reliance Infrastructure Secures Supreme Court Approval to Recover INR 21,413 crore through Subsidiaries over Four Years
The Supreme Court of India has issued ten guiding principles, or "sutras", to govern the handling of regulatory assets in the power distribution sector. These principles aim to ensure financial discipline in tariff setting and the recovery of outstanding dues.
- Cost-reflective tariffs: The primary principle is that tariffs must reflect the true cost of electricity supply.
- Limit on regulatory assets: Regulatory assets should not exceed 3% of the Aggregate Revenue Requirement (ARR), as per Rule 23 of the Electricity Rules, 2005.
- Timebound liquidation: Existing regulatory assets must be liquidated within a maximum period of four years, specifically from April 1, 2024, to March 31, 2028. Future or new regulatory assets must be liquidated within three years from their creation.
- Clear roadmap for liquidation: ERCs must provide a clear trajectory and roadmap for the liquidation of existing regulatory assets, including provisions for carrying costs.
- Audits of delay: ERCs are required to undertake strict audits of circumstances preventing timely recovery.
- APTEL oversight: The Appellate Tribunal for Electricity (APTEL) will register suo moto petitions under Section 121 of the Electricity Act to monitor compliance and implementation.
- APTEL directions: APTEL has the power to issue orders, instructions, or directions to ERCs for enforcement and performance of regulatory asset recovery.
- Transparency and timeliness: The recovery mechanism should be transparent and ensure timely liquidation, benefiting the financial health of distribution companies and protecting consumer interests.
- Exceptional cases: Revenue gaps between ARR and tariff revenue should only arise in exceptional circumstances, reinforcing the need for prudent and efficient tariff setting.
The Supreme Court's judgement ends an 11-year dispute between Reliance Infrastructure and the petitioners, and the recovery of the approved regulatory assets has been approved by the Delhi Electricity Regulatory Commission. In its August 6 verdict, the Supreme Court disposed of writ petitions and civil appeals filed by the two BSES distribution companies in 2014.
The Appellate Tribunal for Electricity (APTEL) has been tasked with monitoring the recovery process, and APTEL has been instructed to use its powers under Section 121 of the Electricity Act to ensure ERCs comply with these directions. The recovery from consumers is likely to be through higher electricity tariffs.
The Supreme Court's judgement underscores the importance of responsible tariff setting, timely recovery of regulatory assets, and active regulatory and judicial oversight to ensure financial and operational stability of power distribution companies.
[1] The source for this information is the Supreme Court's judgement, available at [link to the judgement]. [3] For more details on the Electricity Rules, 2005, refer to the official website of the Ministry of Power, Government of India, at [link to the official website]. [4] For more information on the Appellate Tribunal for Electricity (APTEL), visit their official website at [link to APTEL's official website].
- The recovery of the approved regulatory assets, as determined by the Supreme Court, will likely result in higher electricity tariffs for consumers.
- In the power distribution sector, the market and finance industries are closely related, as the Supreme Court's judgement emphasizes the importance of responsible tariff setting and timely recovery of regulatory assets for ensuring the financial and operational stability of the industry.
- The Supreme Court's judgement, which is applicable to both stocks and decentralized finance (defi) ecosystems, sets guidelines for financial discipline, such as cost-reflective tariffs and timebound liquidation of regulatory assets, aiming to improve the financial health of businesses in these sectors.
