Tamil Nadu Tops States with Highest Discoms’ Regulatory Assets

Fast Summary:

• Tamil Nadu, Uttar Pradesh, and Rajasthan collectively account for a large portion of ₹3 lakh crore worth of regulatory assets (RA) held by power distribution companies in India.
• Regulatory assets arise when power distribution companies are unable to recover costs on time. The Supreme court has mandated all state Electricity regulatory Commissions (SERCs) to liquidate legacy RAs within four years and capped new RA creation at 3% of Annual Revenue requirement (ARR).
• Monitoring and enforcement of this directive will be undertaken by the Appellate Tribunal for Electricity (APTEL).
• Tamil Nadu’s power utilities report an RA value of ₹83,000 crore as of April 2024. The state is restructuring its electricity corporation into three entities:

– Tamil Nadu Power Generation Corporation Limited (TNPGCL)
– Tamil Nadu Green Energy Corporation Limited (TNGECL)
– Tamil Nadu Power Distribution Corporation Limited (TNPDCL)

• Assets and liabilities are being divided: TNPGCL takes on ₹22,110.16 crore; TNGECL,₹1,851.71 crore; TNPDCL, ₹59,038.14 crore.
• To comply with the Supreme Court directive on liquidation, steep tariff hikes may be required across affected states alongside state government participation.
• Issues such as high operating inefficiencies, insufficient tariff adjustments, important debt levels persist in the sector despite some progress in reducing AT&C losses and narrowing the ACS-ARR gap.

indian Opinion Analysis:

The accumulation of substantial regulatory assets highlights a deep-seated fiscal gap within India’s power distribution ecosystem. While states like Tamil Nadu have showcased improvements-such as reducing AT&C losses to below 11%-a broader structural transformation remains critical.

The Supreme Court’s directive ensures accountability but poses challenges for compliance without significant financial strain on both consumers through higher tariffs and governments providing subsidies or support mechanisms. Achieving long-term sustainability would necessitate improving operational efficiencies across discoms nationwide while addressing persisting governance issues.

Tamil Nadu’s restructuring effort demonstrates proactive steps toward reforming its discom structure but also underscores the scale of obstacles faced by other states grappling with weaker technical performance metrics or limited fiscal capacity to absorb reform costs effectively.

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