Govt prescribes broad framework for financial sustainability of power sector
Jul 30, 2023
New Delhi [India], July 30 : The government has put in place additional measures to improve the financial health of power distribution companies (discoms) along with streamlining the process of accounting, reporting, billing and the payment of subsidies by states to the discoms.
According to an official release, the measures come in the wake of the need for a framework for the sustainability of the sector and the fact that improper and non-transparent accounting as well as non-payment or delayed payment of subsidies announced by the States is one of the reasons for the financial distress of Discoms.
The Ministry of Power notified rules on July 26 this year.
The Rules mandate that a quarterly report shall be submitted by the distribution licensee within thirty days from the end date of the respective quarter and the State Commission shall examine the report, and issue it within thirty days of submission of the quarterly report.
The report will inter-alia cover the findings regarding the raising of demands for subsidy based on accounts of the energy consumed by the subsidised categories; the subsidy payable to these categories as announced by the State Government and the actual payment of subsidy in accordance with section 65 of the Act.
Provision has been made that if subsidy accounting and the raising of bills for subsidy is not found in accordance with the Act or Rules or Regulations issued there under, the State Commission shall take appropriate action against those responsible for non-compliance as per provisions of the Act.
Under the framework for sustainability, in order to define a definite and reasonable goal for the reduction of Aggregate Technical and Commercial (AT&C) loss, it is prescribed that the AT&C loss reduction trajectory would be approved by the State Commissions for tariff determination in accordance with the trajectory agreed by the respective State Governments and approved by the Central Government under any national scheme or programme, or otherwise. The trajectory for both collection and billing efficiency, for distribution licensee have to be determined by the State Commission, accordingly.
In order to ensure the recovery of full costs incurred by the Distribution licensee in distributing electricity, it has been prescribed that all prudent costs of power procurement, done in a transparent manner, would be taken into account, while approving the tariff.
Similarly, all the prudent costs incurred by the distribution licensee for creating the assets for the development and maintenance of the distribution system would be accounted for subject to the fulfilment of prescribed conditions.
It is also provided that Gains or losses accrued to the distribution licensee due to deviation from the approved AT&C loss reduction trajectory would be shared between the distribution licensee and consumers.
For establishing norms for the operation and maintenance of the distribution system, Central Electricity Authority has been mandated to issue guidelines.
Reasonable Return on Equity (RoE) is one of the major factors required to ensure investment in the sector. The Rule provides that the RoE by the State Commission would be aligned with the RoE specified by the CERC in its Tariff Regulations for the relevant period, with appropriate modification taking into account the risks involved in the distribution business.
