SC directs liquidation of regulatory assets owed to discoms over a four-year period

The Supreme Court on Wednesday (August 6, 2025) gave States and Union Territories a four-year deadline to liquidate long-pending regulatory assets or dues owed to power distribution companies.

The judgment by a Bench headed by Justice P.S. Narasimha was based on petitions filed by three distribution companies supplying electricity to consumers in the national capital, namely BSES Rajdhani Power Ltd., BSES Yamuna Power Ltd and Tata Power Delhi Distribution Limited.

They had challenged the manner in which the Delhi Electricity Regulatory Commission had determined the tariff for retail supply of electricity over the years, leading to the creation and continuation of a “regulatory asset”, which has led to liabilities burgeoning over decades.

Regulatory assets are costs incurred by power distribution companies recognised as recoverable from consumers in future tariffs, but are not immediately recovered in the current bills.

“Regulatory assets are treated as assets in the balance sheet and are liquidated over a defined period of time through tariff adjustments or government subsidies. The regulatory asset is a cost incurred by the utility that the Regulatory Commission allows to be deferred on the balance sheet instead of being immediately expensed. It enables the distribution company to utilise the ‘recognition’ of a regulatory asset to obtain bridge funds from bankers and the financial institutions,” Justice Narasimha explained.

Justice Narasimha directed the liquidation of the existing, long-pending dues, marked as regulatory assets, in a maximum of four years starting from April 1 last year.

The court said, in future, regulatory assets must be liquidated within a period of three years.

The judgment directed the State Regulatory Commissions to provide the trajectory and roadmap for liquidation of the existing regulatory assets.

“Regulatory Commissions must also undertake a strict and intensive audit of the circumstances in which the distribution companies have continued without recovery of the regulatory asset,” the court ordered.

The Appellate Tribunal of Electricity would register a suo motu case and monitor the liquidation of the regulatory asset till the end of the stipulated period.