MoP announces additional actions to boost financial health of discoms

The Indian government has implemented additional measures to improve the financial stability of distribution companies (discoms). These measures focus on streamlining accounting, reporting, billing, and subsidy payment processes by states to the discoms. The goal is to establish a sustainable framework for the sector, as improper accounting and delayed subsidy payments have contributed to the financial distress of the discoms. The Ministry of Power notified these rules on July 26, 2023.

Under the new rules, distribution licensees are required to submit quarterly reports within thirty days of the quarter’s end. State Commissions will examine and issue these reports within thirty days of submission. The reports will cover aspects such as subsidy demands based on energy consumption by subsidised categories, the subsidy announced by state governments, and the actual payment of subsidy as per Section 65 of the Act.

To ensure sustainability, the reduction of Aggregate Technical and Commercial (AT&C) losses will be defined with specific goals. The AT&C loss reduction trajectory will be approved by the state commissions for tariff determination, in line with the trajectory agreed upon by the state governments and approved by the central government.

The recovery of full costs incurred by the distribution licensee will be considered while approving the tariff, including power procurement costs and costs for developing and maintaining the distribution system. Gains or losses resulting from deviations in the approved AT&C loss reduction trajectory will be shared between the distribution licensee and consumers. In addition, the guidelines for the operations and maintenance of the distribution system will be issued by the Central Electricity Authority.

A reasonable Return on Equity (RoE) is essential for attracting investment in the sector. The RoE set by the state commissions will align with the RoE specified by the Central Electricity Regulatory Commission in its tariff regulations, considering the risks involved in the distribution business.