Autonomy of Electricity Regulators: SC Scrutinizes ERCs and 'Regulatory Assets'
UPSC Relevance
Prelims: Indian Economy (Infrastructure - Energy), Indian Polity & Governance (Statutory, regulatory and various quasi-judicial bodies, Electricity Act, 2003).
Mains: GS Paper 2 (Statutory, regulatory and various quasi-judicial bodies), GS Paper 3 (Infrastructure: Energy).
Key Highlights from the News
Supreme Court's Criticism: The Supreme Court expressed "distrust" in the independence and autonomy of Electricity Regulatory Commissions (ERCs).
Role of ERCs: Established under the Electricity Act, 2003, these commissions have specific authority in tariff determination of electricity. Their primary goal is to protect electricity as a "public good" from political interference.
Main Problem: The court found that ERCs are misusing the concept of 'regulatory assets' to avoid tariff hikes. This questions their functional autonomy.
What is a Regulatory Asset? When the difference between a power distribution company's actual costs and the revenue received through tariffs becomes too large, this mechanism temporarily defers a tariff hike to avoid a large burden on consumers (known as a 'tariff shock'). This revenue loss is shown as an asset on the company's balance sheet.
Court's Crucial Verdict:
Existing regulatory assets must be settled within a maximum of seven years from April 1, 2024.
Future ones must be settled within three years.
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