Supreme Court Sets Rules on Regulatory Asset Recovery

08 Aug 2025 CW Team

The Hon’ble Supreme Court of India has, on 6 August 2025, pronounced its judgment and disposed of the Writ Petitions and Civil Appeals filed in 2014 by BSES Yamuna Power Limited and BSES Rajdhani Power Limited—both material subsidiaries of the company—regarding the recovery of Regulatory Assets.

The petitions challenged non-cost-reflective tariffs, the unlawful creation of Regulatory Assets, and the delay in their liquidation. After extensive hearings involving State Governments and State Electricity Regulatory Commissions, the Court had reserved judgment on 20 February 2025.

In its final ruling, the Court laid out ten principles (‘sutras’) and issued nine binding directions for Electricity Regulatory Commissions (ERCs) and the Appellate Tribunal for Electricity (APTEL), aiming to ensure accountability, transparency, and timely recovery in tariff regulation.

Key directives include:

Tariffs must be cost-reflective as a primary principle.

Regulatory Assets may only be created in exceptional situations, and must not exceed a reasonable percentage—guided by

Rule 23 of the Electricity Rules, 2005, which suggests a cap of 3 per cent of the Aggregate Revenue Requirement (ARR).
Once created, a Regulatory Asset must be liquidated within three years; existing assets must be cleared by 1 April 2028, following a four-year roadmap from 1 April 2024.
ERCs must define a clear recovery roadmap and conduct strict audits of continued non-recovery.
APTEL is tasked with ensuring oversight, issuing directions under Section 121, and registering a suo moto petition to monitor compliance.

In compliance with the ruling, the Regulatory Asset approved by the Delhi Electricity Regulatory Commission (DERC) will be fully liquidated within four years from 1 April 2024, as mandated.

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