For private electricity distributors such as Tata Power and Reliance Infrastructure, the problem has reached alarming proportions
While the Centre, along with various state governments and banks, finalises the `150,000-crore restructuring package for short-term loans of various state electricity boards (SEBs), it may be a good idea to look at the dramatic hike in what are incorrectly called regulatory assets — these are not really assets, they are the amount the regulator admits the distribution companies (discoms) need to be paid, but since they cannot be paid, these are classified as regulatory assets.
Tamil Nadu has seen its regulatory asset base swell to nearly `20,000 crore from `7,905 crore in 2010-11. In Haryana, regulatory assets have nearly doubled to `1,300 crore from `724 crore in 2009-10. Regulatory assets in West Bengal have increased to `2,175 crore in fiscal 2013 from `1,569 crore in 2010-11.
These regulatory assets have now reached over `70,000 crore and if even a single paisa is not added to them by way of fresh slippages, just the interest cost adds up to around `9,500 crore each year. Not all regulatory assets are included in short-term loans since in some cases they are yet to be recognised as such; in other cases as in Delhi, the state is not part of the SEB restructuring scheme.
The way that a regulatory asset gets created is simple: If a regulator recognises that a discom needs to be paid `100 but feels this will burden consumers who can pay just `60, `40 gets classified as a ‘regulatory asset’, an outstanding on which 13-14% interest will get paid the next year.
While talking of tariff hikes over the past two years, in its statutory advice to the Delhi government in February the Delhi Electricity Regulatory Commission (DERC) warned: “However, this surcharge has not made any significant dent in reduction of accumulated shortfall as it has mainly contributed towards meeting the carrying cost of the accumulated shortfall.”
While the DERC’s FY13 tariff order puts the regulatory asset for Delhi’s discoms at `6,960 crore, its statutory advice says that this may be as high as `19,505 crore based on the FY12 and FY13 projections by the discoms. While APTEL, the appellate tribunal for the electricity sector, has said the carrying cost of regulatory assets should be paid to utilities every year in order to avoid cash-flow problems — on various occasions in the past, discoms have said they cannot buy more power if their dues are not paid on time — regulatory assets continue to pile up.
Delays in ‘truing up’ add up to the assets — tariffs are always awarded at the beginning of the year on the basis of expected costs but if the costs/revenues are different from those projected, these are fixed by ‘truing up’.
In several cases, to keep initial tariffs low, regulators have been known to assign lower power purchase costs than what discoms project at the beginning of the year. When the ‘truing up’ takes place after a year or two, there is then a sudden swelling in the regulatory asset base. In the case of Tamil Nadu, while the discom has approved regulatory assets of `19,571 crore, it is seeking an additional `20,173 crore, some of which will almost certainly be granted to it when the ‘truing up’ takes place.
What makes matters worse is that this situation has been festering for years. As early as 2011, a report by a high-level panel of the Planning Commission on the financial position of discoms warned that the practice of creating regulatory assets to cover revenue gaps had reached alarming proportions and lambasted state regulators for resorting to such techniques, calling for a halt of the practice altogether.
For private electricity distributors, such as Tata Power and Reliance Infrastructure, the problem has reached alarming proportions, with total regulatory assets of almost `25,000 crore in Mumbai and Delhi. Tata Power has `4,484 crore in regulatory assets in Delhi and about `2,500 crore in Mumbai, according to a company official. RInfra’s distribution company in Mumbai has a cumulative revenue gap of `3,674 crore up to FY12, including carrying costs — the approved regulatory assets so far are to the tune of `2,450 crore. In Delhi, RInfra has a whopping `14,800 crore in regulatory assets according to company officials. While power purchase costs in Delhi have increased 300% in the last 10 years, they say, tariffs have risen 65% over the same period, with most of the hikes only in the past two years, which is why Delhi’s regulatory assets have shot up in recent years.
While the Centre, along with various state governments and banks, finalises the `150,000-crore restructuring package for short-term loans of various state electricity boards (SEBs), it may be a good idea to look at the dramatic hike in what are incorrectly called regulatory assets — these are not really assets, they are the amount the regulator admits the distribution companies (discoms) need to be paid, but since they cannot be paid, these are classified as regulatory assets.
Tamil Nadu has seen its regulatory asset base swell to nearly `20,000 crore from `7,905 crore in 2010-11. In Haryana, regulatory assets have nearly doubled to `1,300 crore from `724 crore in 2009-10. Regulatory assets in West Bengal have increased to `2,175 crore in fiscal 2013 from `1,569 crore in 2010-11.
These regulatory assets have now reached over `70,000 crore and if even a single paisa is not added to them by way of fresh slippages, just the interest cost adds up to around `9,500 crore each year. Not all regulatory assets are included in short-term loans since in some cases they are yet to be recognised as such; in other cases as in Delhi, the state is not part of the SEB restructuring scheme.
The way that a regulatory asset gets created is simple: If a regulator recognises that a discom needs to be paid `100 but feels this will burden consumers who can pay just `60, `40 gets classified as a ‘regulatory asset’, an outstanding on which 13-14% interest will get paid the next year.
While talking of tariff hikes over the past two years, in its statutory advice to the Delhi government in February the Delhi Electricity Regulatory Commission (DERC) warned: “However, this surcharge has not made any significant dent in reduction of accumulated shortfall as it has mainly contributed towards meeting the carrying cost of the accumulated shortfall.”
While the DERC’s FY13 tariff order puts the regulatory asset for Delhi’s discoms at `6,960 crore, its statutory advice says that this may be as high as `19,505 crore based on the FY12 and FY13 projections by the discoms. While APTEL, the appellate tribunal for the electricity sector, has said the carrying cost of regulatory assets should be paid to utilities every year in order to avoid cash-flow problems — on various occasions in the past, discoms have said they cannot buy more power if their dues are not paid on time — regulatory assets continue to pile up.
Delays in ‘truing up’ add up to the assets — tariffs are always awarded at the beginning of the year on the basis of expected costs but if the costs/revenues are different from those projected, these are fixed by ‘truing up’.
In several cases, to keep initial tariffs low, regulators have been known to assign lower power purchase costs than what discoms project at the beginning of the year. When the ‘truing up’ takes place after a year or two, there is then a sudden swelling in the regulatory asset base. In the case of Tamil Nadu, while the discom has approved regulatory assets of `19,571 crore, it is seeking an additional `20,173 crore, some of which will almost certainly be granted to it when the ‘truing up’ takes place.
What makes matters worse is that this situation has been festering for years. As early as 2011, a report by a high-level panel of the Planning Commission on the financial position of discoms warned that the practice of creating regulatory assets to cover revenue gaps had reached alarming proportions and lambasted state regulators for resorting to such techniques, calling for a halt of the practice altogether.
For private electricity distributors, such as Tata Power and Reliance Infrastructure, the problem has reached alarming proportions, with total regulatory assets of almost `25,000 crore in Mumbai and Delhi. Tata Power has `4,484 crore in regulatory assets in Delhi and about `2,500 crore in Mumbai, according to a company official. RInfra’s distribution company in Mumbai has a cumulative revenue gap of `3,674 crore up to FY12, including carrying costs — the approved regulatory assets so far are to the tune of `2,450 crore. In Delhi, RInfra has a whopping `14,800 crore in regulatory assets according to company officials. While power purchase costs in Delhi have increased 300% in the last 10 years, they say, tariffs have risen 65% over the same period, with most of the hikes only in the past two years, which is why Delhi’s regulatory assets have shot up in recent years.
Next Story
