Supreme Court Flags Alarming Regulatory Asset Build-Up in Delhi Power Sector; Urges Nationwide Policy Overhaul
New Delhi, August 6, 2025 — In a landmark ruling that could reshape India's electricity regulation landscape, the Supreme Court of India has raised red flags over the unchecked creation and continuation of “regulatory assets” by the Delhi Electricity Regulatory Commission (DERC), potentially amounting to over ₹27,000 crores across the National Capital Territory's power distribution companies. The Court, hearing a batch of writ petitions and appeals by Delhi’s three major private distribution companies — BSES Rajdhani Power Ltd. (BRPL), BSES Yamuna Power Ltd. (BYPL), and Tata Power Delhi Distribution Limited (TPDDL) — focused on the legality, sustainability, and impact of regulatory assets, setting the stage for sweeping changes in tariff practices and regulatory accountability nationwide.
8/7/20254 min read
Background and Petitioner Grievances
The power distribution companies challenged the tariff determination practices of DERC, which they argued led to a ballooning “regulatory asset” — a technical accounting method that defers the recovery of certain costs from consumers to future years. While not explicitly provided for in the Electricity Act, this mechanism has long been used by regulators to avoid sudden tariff hikes that could burden consumers. The petitioners contended that DERC’s repeated and prolonged creation of such assets was in violation of statutory and policy guidelines, including those prescribed under the National Tariff Policy.
They sought a declaration that they were entitled to recover prudently incurred costs under Sections 61 and 62 of the Electricity Act, 2003, and pressed for a court-monitored roadmap to liquidate the asset over a fixed time frame. TPDDL requested a hike in the Deficit Recovery Surcharge (DRS) from 8% to 20% to offset the mounting burden.
Regulatory Asset: Concept and Controversy
The Supreme Court delved deep into the concept of regulatory assets, defining them as revenue gaps acknowledged by regulators but deferred from immediate consumer tariffs. While initially created to avoid consumer tariff shocks, this practice has, over time, resulted in massive unrecovered amounts. The Court acknowledged that the DERC had created such an asset as early as 2004 and allowed carrying costs, further inflating the financial liability. As of March 31, 2024, the accumulated regulatory asset, including carrying costs, stood at:
₹12,993.53 crores for BRPL,
₹8,419.14 crores for BYPL,
₹5,787.70 crores for TPDDL —
totaling a staggering ₹27,200.37 crores.
The Court noted that this issue had snowballed due to underestimation of power purchase costs, unrealistic revenue assumptions, inadequate tariff hikes, and failure of the State to provide subsidies upfront as mandated under Section 65 of the Act.
Submissions of Key Stakeholders
Senior advocates Kapil Sibal, Dr. Abhishek Manu Singhvi, and Amit Kapur, appearing for the petitioners, argued that the uncontrolled regulatory asset undermines private sector participation and threatens financial viability. They highlighted violations of Clause 8.2.2 of the National Tariff Policy, which permits such assets only in exceptional circumstances and mandates their liquidation within 3 (or 7) years.
DERC, through senior advocate Nikhil Nayyar, pushed back, arguing that the mechanism had originally been proposed by the distribution companies themselves. While admitting the need for a revised roadmap, DERC defended its actions, citing extraordinary cost escalations in power procurement and efforts made through incremental tariff hikes, DRS levies, and monthly adjustments like Power Purchase Adjustment Charges (PPAC).
The Attorney General of India, R. Venkataramani, appearing for state-run generators like IPGCL, PPCL, and DTL, flagged non-payment issues by BSES companies. He opposed any offsetting of unpaid dues against unrecovered tariffs, emphasizing the sanctity of power purchase agreements and regulatory orders.
The Ministry of Power, represented by Additional Solicitor General K.M. Nataraj, stated that the persistence of regulatory assets contravened the Electricity Act’s mandate for cost-reflective tariffs and stressed the necessity of a time-bound liquidation plan. The Centre referred to Rule 23 of the Electricity (Amendment) Rules, 2024, which caps recovery periods and defines stringent conditions for regulatory asset creation.
The Government of NCT of Delhi, represented by Shadan Farasat and Siddharth Dave, distanced itself from the asset’s build-up, asserting that it had released subsidies on time and was not responsible for revenue shortfalls.
Nationwide Ramifications and Comparative Data
Recognizing the broader implications, the Supreme Court had, in October 2024, ordered the impleadment of all State Governments and State Electricity Regulatory Commissions. Responses revealed a diverse picture:
Commissions in states like Andhra Pradesh, Uttar Pradesh, Assam, and Jharkhand claimed no regulatory asset creation.
Rajasthan reported assets worth ₹47,114 crores till FY 2024-25.
Tamil Nadu’s regulatory asset stood at ₹89,375 crores — over 100% of its ARR.
Kerala, Maharashtra, and Chhattisgarh provided detailed roadmaps for amortisation, with varying compliance to national tariff policies.
The Ministry of Power's affidavit dated August 10, 2022, also slammed the trend of annual regulatory asset rollovers, calling it "irreconcilable with the Act" and urging judicial intervention to force time-bound recovery, preferably by 2027 under the 2016 National Tariff Policy.
Policy and Legal Framework
The Court meticulously reviewed relevant statutory and policy frameworks, including:
The Electricity Act, 2003, which mandates cost-reflective tariff determination by independent regulators.
The National Tariff Policies of 2006 and 2016, which tightly regulate the circumstances and timeline for creating regulatory assets.
APTEL’s directions from 2011 and 2013, which instructed timely tariff revisions and discouraged vc routine deferments.
Rule 23 of the Electricity (Amendment) Rules, 2024, which caps such deferrals to 3% of ARR and mandates amortisation within 3-7 years.
Despite these frameworks, DERC’s own regulations from 2007 and 2011, which had initially followed policy norms, failed to align with the 2016 policy in its 2017 regulations.
Supreme Court's Observation and Indicative Direction
The Court noted with concern the DERC’s failure to adhere to legal mandates and regulatory norms in limiting the accumulation of regulatory assets. It observed that such practice distorts tariff transparency, shifts the burden to future consumers, and undermines public confidence in regulatory institutions.
In light of the Central Government's submission and divergent state practices, the Court hinted at the possibility of issuing comprehensive guidelines applicable nationwide. It also emphasized the need for balancing financial viability of distribution companies with consumer protection and social justice obligations of the State.
While the final verdict and directions were reserved for a later date, the Court's extensive analysis and scathing observations strongly suggest that the era of unrestrained regulatory assets may be drawing to a close.
This judgment is poised to become a cornerstone in Indian electricity law, potentially compelling all State Commissions to review their tariff structures and bringing unprecedented regulatory discipline into a sector long plagued by financial opacity and policy drift.