Ministry of Power Proposes Subsidy Accounting and Payment Framework for DISCOMs

Stakeholders can submit their suggestions by May 11, 2023


The Ministry of Power has proposed draft provisions in the Electricity (Amendment) Rules, 2023, for subsidy accounting and payment and a framework to ensure the financial sustainability of distribution companies (DISCOMs).

The stakeholders can submit their comments and suggestions by May 11, 2023.

As per the proposed regulations, the accounting of the subsidy will be done by DISCOMs as per the standard operating procedures issued by the central government.

The state regulatory commission must release a quarterly report for each distribution licensee within its jurisdiction. The report must include an assessment of whether the DISCOM raised demands for subsidies in the relevant quarter.

It must also provide accurate accounts of the energy consumed by the subsidized and consumer categories, the per unit subsidy declared by the state government, the actual payment of subsidy, and the discrepancy between the subsidy due and paid.

The quarterly report by the state regulator will be prepared within 45 days from the end date of the respective quarter.

A second new clause specifies that the state commissions must adopt a loss reduction trajectory for tariff determination that aligns with the trajectory the relevant state governments agree upon. The trajectory must also be approved by the union government under a national program.

The state commission will determine the trajectory for the collection and billing efficiency of the DISCOMs.

The costs associated with power procurement by the DISCOMs to ensure a continuous supply of electricity to consumers will be considered as long as the procurement is conducted transparently and the appropriate commission has determined the tariff. Similarly, all costs incurred by the distribution licensee for creating, developing, and maintaining distribution system assets will be passed through.

The pass-through of costs for assets created by the distribution licensee will be subject to certain conditions.

These include adherence to the capital expenditure rollout plan approved by the state commissions, competitive and transparent procurement of assets, and proper recording of assets in the fixed asset register with geo-tagging details available on the DISCOMs’ website.

Any gains or losses resulting from deviation from the approved AT&C loss reduction trajectory will be determined based on the Average Power Purchase Cost. Two-thirds of the gains will be passed on to consumers through tariffs, while the distribution licensee will retain the remainder. In case of losses, the distribution licensee will bear half, and the other half will be passed on to consumers through tariffs.

The state commission will allow a reasonable return on equity, which will be determined based on the prevailing cost of capital and an overall risk assessment. The return on equity for distribution will be aligned with that specified by the central commission for generation and transmission in its tariff regulations for the relevant period. However, appropriate modifications will be made to account for the unique risks associated with the distribution business.

Recently, the Ministry of Power invited comments from the stakeholders on the draft Electricity (Rights of Consumers) Amendment Rules, 2023. The proposed rules seek to bring transparency and give more control to consumers when dealing with DISCOMs.

Earlier in January this year, the Ministry of Power made changes to the Electricity Rules, 2005. According to the notification, the surcharge that open access consumers must pay, as determined by the state commissions, should not exceed 20% of the average cost of supply of power.

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