Ministry Introduces Strict Measures for Subsidy Accounting and Billing for DISCOMs

The amendments mandate DISCOMs to submit quarterly reports with subsidy payment details

August 1, 2023


In a bid to improve the financial stability of the state distribution companies (DISCOMs) and establish a sustainable framework for the power sector, the Ministry of Power has amended the Electricity Rules 2005, introducing measures to streamline accounting, reporting, billing, and subsidy payment by states to the DISCOMs.

The need for these measures arises from improper and non-transparent accounting practices, leading to delayed or non-payment of subsidies announced by the states that have contributed to the financial distress of DISCOMs.

The Ministry of Power had proposed draft provisions in the Electricity (Amendment) Rules, 2023, in April this year, requesting stakeholders to submit their comments and suggestions by May 11, 2023.

Quarterly Reports

As per these newly introduced rules, DISCOMs will now be required to submit quarterly reports within 30 days from the end date of the respective quarter. Subsequently, the state commission will review and issue its findings within 30 days of receiving this report.

The quarterly reports must include details on subsidy demands raised based on the energy consumed by the subsidized categories. Additionally, the reports will encompass information regarding the subsidy amount announced by the state government and the actual payment, all in accordance with section 65 of the Electricity Act.

If the subsidy has not been paid in advance, the state commission will issue an order to implement the tariff without the subsidy.

Provisions have been set in place to ensure compliance with the Act, Rules, and Regulations regarding subsidy accounting and billing. If any discrepancies are found, the state commission will take appropriate action against those responsible for non-compliance, in line with the provisions of the Act.

AT&C Losses

To achieve sustainability goals, a specific and reasonable target for reducing Aggregate Technical and Commercial (AT&C) losses has been defined under the new amendments.

The state commissions will approve the AT&C loss reduction trajectory during tariff determination. The trajectory must align with the one agreed upon by the respective state governments and approved by the central government under any national program or as otherwise specified. Additionally, the state commission will determine the trajectory for both collection and billing efficiency for the DISCOMs.

To ensure that the DISCOMs recover the full costs incurred in distributing electricity, all prudent costs of power procurement conducted transparently will be considered when approving tariffs. Similarly, the prudent costs incurred by the DISCOMs for creating and maintaining assets related to the distribution system will be accounted for, subject to the following conditions:

  • The asset has been developed following the Capital Expenditure (CAPEX) rollout plan for DISCOM, which the respective state commission has approved.
  • The asset has been procured competitively and transparently.
  • The asset is geo-tagged and recorded in the fixed asset register.

Furthermore, any gains or losses resulting from deviations from the approved AT&C loss reduction trajectory will be quantified based on the Average Power Purchase Cost (APPC) and shared between the DISCOMs and consumers. Also, two-thirds of the gains will be passed on to the consumers in tariff, and the DISCOM will retain the rest. The DISCOM will bear two third of the losses, and the consumers will bear the rest.

The Central Electricity Authority has been assigned the responsibility of issuing guidelines to establish norms for the operation and maintenance of the distribution system.

Ensuring a reasonable Return on Equity (RoE) remains crucial for attracting investments in the sector. According to the new amendment, the state commission must align the RoE with the one specified by the Central Electricity Regulatory Commission in its tariff regulations for the relevant period. This alignment will be subject to appropriate modifications, considering the risks associated with the distribution business.

Recently, the Union Minister of New Renewable Energy and Power, R. K. Singh, in a written reply to Lok Sabha, stated that the effective enforcement of the Electricity (LPS and Related Matters) Rules in 2022 has led to a notable enhancement in the recovery of outstanding dues owed to suppliers, which includes generating and transmission companies.

In July 2023, the Ministry of Power changed the methodology to calculate the AT&C losses to improve the collection efficiency of DISCOMs.

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