LexBSES RAJDHANI POWER LTD. & ANR versus UNION OF INDIA AND ORS
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[2025] 8 S.C.R. 1875 : 2025 INSC 937 BSES Rajdhani Power Ltd. & Anr. v. Union of India and Ors. (Writ Petition (C) No. 104 of 2014) 06 August 2025 [Pamidighantam Sri Narasimha and Sandeep Mehta, JJ.] Issue for Consideration Legal position and status of a regulatory asset; its position in the regulatory regime for determination of tariff; the rights and liabilities of stakeholders; consequences of regulatory failure to manage the regulatory asset as a reasonable measure; the appellate and review powers of the APTEL and this Court to ensure accountability and restitution. Headnotes† Electricity Law – Electricity Act, 2003 – Electricity Rules, 2005 – “Regulatory asset” – Delhi Electricity Regulatory Commission (DERC) adopted Multi Year Tariff framework in generation, transmission, and distribution businesses to bring certainty regarding tariff – A regulatory asset was first created by the DERC in various tariff orders wherein it introduced the regulatory asset as a mechanism to bridge the revenue gap in the tariff order for FY 2004-05 – Over the years, there was an increase in the quantum of the regulatory asset across all three distribution companies before this Court – DERC also provided for carrying costs on the regulatory asset to each distribution company, which further contributed to its ballooning – Various measures were also introduced by DERC for liquidation of regulatory asset – Challenge by the three distribution companies supplying electricity to consumers in the NCT of Delhi, to the manner in which the DERC has determined the tariff for retail supply of electricity over the years, leading to the creation and continuation of a “regulatory asset” – As on 31.03.2024, the regulatory asset including carrying costs totally amounted to Rs. 27,200.37 crores across all three distribution companies – Directions issued: 1876 [2025] 8 S.C.R. Supreme Court Reports Held: 1.1 Tariff shall be cost-reflective – Revenue gap between the approved Annual Revenue Requirement (ARR) and the estimated annual revenue from approved tariff may be in exceptional circumstances – The regulatory asset should not exceed a reasonable percentage, which percentage can be arrived on the basis of r.23 of the Electricity Rules that prescribes 3% of the ARR as the guiding principle. [Paras 71 (i)-(iii)] 1.2 If a regulatory asset is created, it must be liquidated within a period of 3 years, taking r.23 as the guiding principle – The existing regulatory asset must be liquidated in a maximum of 4 years starting from 01.04.2024, taking r.23 as the guiding principle. [Paras 71 (iv)-(v)] 1.3 Regulatory Commissions must provide the trajectory and roadmap for liquidation of the existing regulatory asset, which will include a provision for dealing with carrying costs – They must also undertake strict and intensive audit of the circumstances in which the distribution companies have continued without recovery of the regulatory asset. [Para 71 (vi)] 1.4 Regulatory Commissions shall in general follow the principles governing creation, continuation and liquidation of the regulatory asset, as laid down in paragraph 70 of the present judgment, and also abide by the directions of the APTEL summarised in paragraph 69.8. [Para 71 (vii)] 1.5 APTEL shall invoke its powers u/s.121 and issue such orders, instructions or directions as it may deem fit to the Regulatory Commissions for performance of their duties with respect to regulatory asset as enunciated in this judgment and as per the orders of the APTEL in O.P. No. 1/2011 dtd. 11.11.2011 and O.P. Nos. 1 and 2/2012 dtd. 14.11.2013. [Para 71 (viii)] 1.6 APTEL shall register a suo moto petition u/s.121 of the Act to monitor implementation of directions (v) and (vi) till the conclusion of the period mentioned therein. [Para 71 (ix)] Electricity Law – Electricity Act, 2003 – Concept of a regulatory asset, explained – Principles governing creation, continuation and liquidation of the regulatory asset – In the context of creation, management and liquidation of a regulatory asset, the Regulatory Commissions are bound by the mandate of Electricity Act, National Electricity Policy, National Tariff [2025] 8 S.C.R. 1877 BSES Rajdhani Power Ltd. & Anr. v. Union of India and Ors. Policy, Electricity Rules, the Tariff Determination Regulations applicable at the relevant period, and the precedents of the APTEL: Held: A “regulatory asset” in the context of tariff
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