Reliance Infra JV to Recover ₹28,483 Crore Regulatory Assets by July 2025

The Supreme Court addressed issues raised in the 2014 petitions regarding non-cost reflective tariffs, the unlawful creation of regulatory assets, and the non-liquidation of these assets. After hearing all parties, including State Governments and Electricity Regulatory Commissions, the court reserved its judgment on February 20, 2025, concerning the creation and continuation of regulatory assets by Electricity Regulatory Commissions.

The Supreme Court's directives include:

1. Setting out ten sutras to examine issues related to Regulatory Assets, its position in the regulatory regime for tariff determination, and the duties and accountability of regulators (Electricity Regulatory Commissions or “ERCs”) and the Appellate Tribunal for Electricity (“APTEL”).

1. Issuing nine clear directions to ERCs and APTEL regarding cost-reflective tariff determination, creation and amortization of Regulatory Assets, and regulatory oversight by APTEL to monitor the implementation of these directions:

1. Tariffs must be cost-reflective.

1. Revenue gaps between the approved Aggregate Revenue Requirement (“ARR”) and the estimated annual revenue from approved tariffs may occur in exceptional circumstances.

1. Regulatory Asset should not exceed a reasonable percentage, based on Rule 23 of the Electricity Rules, 2005, which prescribes 3% of the ARR as a guiding principle.

1. If a Regulatory Asset is created, it must be liquidated within three years, guided by Rule 23.

1. Existing Regulatory Assets must be liquidated within four years, starting from April 1, 2024, guided by Rule 23.

1. ERCs must provide a trajectory and roadmap for liquidating existing regulatory assets, including provisions for carrying costs. ERCs must also audit the circumstances in which Discoms continued without recovering Regulatory Assets.

1. ERCs should generally follow principles for creating, continuing, and liquidating regulatory assets, as outlined in paragraph 70 of the Judgment, and abide by APTEL’s directions summarized in paragraph 69.8 of the Judgment.

1. APTEL shall use its powers under Section 121 to issue orders, instructions, or directions to ERCs for performing their duties regarding Regulatory Assets, as per this judgment and APTEL’s orders in O.P. No. 1 of 2011 (dated November 11, 2011) and O.P. Nos. 1 and 2 of 2012 (dated November 14, 2013).

1. APTEL shall register a suo moto petition under Section 121 of the Electricity Act to monitor the implementation of directions (v) and (vi) until the specified period concludes.

As directed in the Judgment, the existing Regulatory Asset must be liquidated within a maximum of 4 years starting from April 1, 2024, taking Rule 23 as the guiding principle. Accordingly, the Regulatory Asset as approved by DERC shall be liquidated/ recovered by March 31, 2028.

Reliance Infrastructure Limited (Reliance Infrastructure) is one of the largest infrastructure companies, developing projects through various Special Purpose Vehicles (SPVs) in several high growth sectors such as Power, Roads and Metro Rail in the Infrastructure space and the Defence sector.

Reliance Infrastructure is a major player in providing Engineering and Construction (E&C) services for developing power, infrastructure, metro and road projects.

Reliance Infrastructure through its SPVs has executed a portfolio of infrastructure projects such as a metro rail project in Mumbai on build, own, operate and transfer (BOOT) basis and road projects on build, operate and transfer (BOT) basis.

Reliance Infrastructure is also a leading utility company having presence in power distribution.

Accordingly, the Regulatory Asset as approved by DERC shall be liquidated/ recovered by March 31, 2028.