# BSES Rajdhani Power Ltd. & Anr v. Union of India and Ors

- **Citation:** 2025 INSC 937
- **Court:** Supreme Court of India
- **Decided:** 2025-08-06
- **Bench:** Pamidighantam Sri Narasimha, Sandeep Mehta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bses-rajdhani-power-ltd-anr-v-union-of-india-and-ors-38647
- **Pages:** 66

## Headnote

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
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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.
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BSES Rajdhani Power Ltd. & Anr. v.

## Text

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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.
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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 determination
for electricity utilities is an intangible asset that is created by the
Regulatory Commissions in recognition of an uncovered revenue
gap or revenue shortfall when a distribution licensee could not
fully recover the costs reasonably incurred by it through revenue
from tariff - This portion of the revenue requirement is not included
while determining the tariff for the particular year - Rather, the
distribution company is entitled to receive or recover such revenue
in the future, over a period of time. [Para 5]
1.2 It is generally created when the projected revenue based on
the determined tariff is significantly lower than the revenue required
by the distribution company to recover reasonably-incurred costs
as well as for return on investment - Another situation requiring
the creation of a regulatory asset is at the time of truing up, if
the actual revenue realisation from tariffs is much lesser than the
Annual Revenue Requirement (ARR). [Para 6]
1.3 This revenue gap can be recovered through government
subsidies or by increasing the tariff - However, the latter may lead
to a tariff shock to consumers in a given year - Hence, to protect
consumer interests, the Regulatory Commission may choose to
direct recovery of only some portion of the gap while creating a
regulatory asset for the remaining portion, which can be recovered
in the subsequent years. [Para 7]
1.4 The creation and continuation of a regulatory asset is neither
a statutory concept nor a power granted under the Electricity Act -
Rather, it is a measure adopted by the Regulatory Commissions,
which are statutory bodies, in exercise of their powers and functions
under the Act. [Para 8]
1.5 In the context of creation, management and liquidation of a
regulatory asset, the Regulatory Commissions are bound by the
mandate of the Electricity Act, the National Electricity Policy, the
National Tariff Policy, the Electricity Rules, the Tariff Determination
Regulations applicable at the relevant period, and the precedents of
the APTEL - Law governing creation, continuation and liquidation
of regulatory asset, summarized. [Paras 67-67.4]
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Electricity Law - Electricity Act, 2003 - Constitution of India -
Art.39 - Position of regulatory asset in the regulatory regime
for determination of tariff - Duties and accountability of the
regulators- the Regulatory Commissions - Powers of the
Appellate Tribunal for Electricity to avert a regulatory failure:
Held: 1.1 Electricity is a public good - Its generation, transmission,
and distribution are statutorily regulated to ensure access to supply,
on a non-rival and non-exclusive basis - Being a material resource
within Art.39 of the Constitution of India, Part-IV of the Constitution
must inform the generation, transmission, and distribution of
electricity. [Paras 70 I-II]
1.2 The statutory regulators, i.e. the Central and State Regulatory
Commissions alongwith Union and State Governments and other
stakeholders are equally bound by the mandate under Part-IV of the
Constitution for its equitable distribution - This duty is predicated
on the independent, efficient, objective functioning of the electricity
commissions - They must guard themselves against 'regulatory
failure' and in particular 'regulatory capture'- The interpretation
of the powers and function of the Regulatory Commissions have
to be such that there is no regulatory vacuum, in that there is no
unallocated residue of power of regulation. [Para 70 III]
1.3 Tariff determination is a regulatory function and it is the exclusive
province of the Regulatory Commissions - Tariff determination
involves multiple variables requiring the regulators to act with
expertise and also with certain amount of flexibility - Creation
of regulatory asset is a 'measure' that the Commission adopts
for good governance of tariff - It is also a recognition of revenue
recoverable by distribution companies, and as such, it is an
enforceable right, though only through tariff determination for later
years - This 'measure' gives rise to correlative obligations of the
Regulatory Commissions to manage it efficiently and allow easy
liquidation. [Para 70 IV]
1.4 Disproportionate increase and long pending regulatory asset
depict a 'regulatory failure' - It has serious consequences on all
stakeholders and the ultimate burden is only on the consumer -
Laws encompassing the creation, continuation, and liquidation of
a 'regulatory asset' are located in the Act, National Tariff Plan and
Policy, Rules, and Regulations made under the Act, as interpreted
by the APTEL - The combined effect of this legal regime is the
statutory obligation on the regulator(s). [Paras 70 V, VI]
[2025] 8 S.C.R.
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BSES Rajdhani Power Ltd. & Anr. v. Union of India and Ors.
1.5 Ineffective and inefficient functioning of the Regulatory
Commissions, coupled with acting under dictation can lead
to regulatory failure - The commissions are accountable for
their decisions, and they are subject to judicial review - Apart
from examining the legality and propriety of the orders of the
Commissions in appeal, the APTEL has extraordinary powers
u/s.121 to issue orders, instructions or directions for effective
enforcement of the regulatory regime - This is one of the
most important powers allocated to APTEL by the Parliament.
[Paras 70 VII, VIII]
1.6 The limits of creation, continuation and liquidation of the
regulatory asset have been affirmed, the obligations of the
Regulatory Commissions have been recognised and it is directed
that they will be accountable and subject to such orders, instructions
or directions as the APTEL may issue in this regard u/s.121 - The
regulatory regime under the Act is a complete code enunciating
rights, prescribing obligations, and laying down the mechanism
for course correction. [Paras 70 IX, X]
Electricity Law - Electricity Act, 2003 - ss.62, 61, 79, 86, 6;
Preamble of the Electricity Act - Tariff determination is governed
by the Act, which entrusts this function to independent
Regulatory Commissions - Multiple stakeholders, the Central
Government, the State Governments, Regulatory Commissions,
the Appellate Tribunal, statutory policy makers, and the utilities
collaborate to ensure that the purpose of the Act is subserved
and, in this endeavour, the Regulatory Commissions share the
social justice obligations of the State - Tariff fixation takes into
account multiple variables and requires flexibility - Regulatory
asset is a measure adopted during tariff fixation that recognises
right of recovery. [Paras 63.1-65.1]
Electricity Law - Electricity Act, 2003 - ss.121, 111, 125 -
Accountability of the Regulatory Commissions:
Held: A Regulatory Commission must perform its functions as per
the provisions of the Electricity Act, the National Electricity Policy,
the National Tariff Policy, the relevant rules and regulations made
under the Act, and the APTEL's directions. [Para 68]
Electricity Law - Electricity Act, 2003 - Factors leading to an
unmanageable regulatory asset, and consequent 'regulatory
failure', enumerated. [Paras 66-66.1]
1880
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Electricity Act, 2003 - ss.110, 11, 121 - Powers of APTEL -
Significance of s.121 in the context of the facts of the present
writ petitions and civil appeals, explained - Performance of
DERC, a classic case of 'regulatory failure':
Held: Regulatory Commissions must call for ARR, ensure that
tariffs are determined, and that truing up is conducted in a timely
manner, by exercising suo motu powers if necessary - In case of
non-compliance with these directions, the APTEL has the power and
duty to call for an explanation, ensure accountability, and monitor
compliance by the Regulatory Commissions - Similarly, the APTEL
must exercise its powers u/s.121 to ensure that the legal principles
on regulatory asset laid down by us in paragraph 67.3 hereinabove
are complied with by the Regulatory Commissions, and it must
monitor the same - In case of non-compliance, the APTEL must
issue such orders, directions, or instructions to the Commissions
as may be necessary to hold them accountable [Paras 69-69.9]
Electricity Law - Electricity Act, 2003 - Salient features -
Discussed. [Para 32]
Words and Phrases - Electricity Law - Revenue Assets -
Meaning of - Discussed:
Held: 'Revenue assets' are costs incurred by power distribution
companies that are recognised as recoverable from consumers
in future tariffs but are not immediately recovered in the current
bills. [Para 65]
Case Law Cited
Tata Power Co. Ltd. v. Reliance Energy Ltd. [2009] 9 SCR 625 :
(2009) 16 SCC 659; BSES Rajdhani Power Ltd. v. Delhi Electricity
Regulatory Commission [2022] 14 SCR 790 : (2023) 4 SCC 788;
PTC India Ltd. v. Central Electricity Regulatory Commission [2010]
3 SCR 609 : (2010) 4 SCC 603; Hindustan Zinc Ltd. v. Rajasthan
Electricity Regulatory Commission [2015] 7 SCR 1104 : (2015)
12 SCC 611; West Bengal Electricity Regulatory Commission v.
CESC Ltd. (2002) 8 SCC 715; Kerala State Electricity Board Ltd. v.
Jhabua Power Ltd. [2024] 9 SCR 971 : 2024 SCC OnLine SC
2819; Tata Power Co. Ltd. v. Maharashtra Electricity Regulatory
Commission [2022] 19 SCR 620 : (2023) 11 SCC 1; K.C. Ninan v.
Kerala State Electricity Board [2023] 9 SCR 637 : (2023) 14 SCC
431; Transmission Corporation of Andhra Pradesh Ltd. v. Sai
[2025] 8 S.C.R.
1881
BSES Rajdhani Power Ltd. & Anr. v. Union of India and Ors.
Renewable Power (P) Ltd. [2010] 8 SCR 636 : (2011) 11 SCC 34;
Vijay Rajmohan v. CBI [2022] 19 SCR 563 : (2023) 1 SCC 329;
SEBI v. Mega Corporation [2022] 2 SCR 546 : (2023) 12 SCC
802; Lifecare Innovations Pvt. Ltd. v. Union of India 2025 INSC
269 : [2025] 2 SCR 727; 7 Gulf Goans Hotels Co. Ltd v. Union of
India [2014] 10 SCR 536 : (2014) 10 SCC 673; Bennett Coleman
& Co. v. Union of India [1973] 2 SCR 757 : (1972) 2 SCC 788; In
Re: T.N. Godavarman Thirumulpad v. Union of India, 2024 INSC
78 : [2024] 1 SCR 1194 - referred to.
Tamil Nadu Electricity Consumers' Association v. Tamil Nadu
Electricity Board, Appeal Nos. 192 and 206 of 2010, APTEL
order dated 28.07.2011 - referred to.
List of Acts
Electricity Act, 2003; Delhi Electricity Reform Act, 2000 and the Delhi
Electricity Reform (Transfer Scheme) Rules, 2001; DERC (Terms
and Conditions for Determination of Wheeling Tariff and Retail
Supply Tariff) Regulations, 2007; DERC (Terms and Conditions
for Determination of Wheeling Tariff and Retail Supply Tariff)
Regulations, 2011; Electricity (Amendment) Rules, 2024; Electricity
Rules, 2005; CERC (Unscheduled Interchange charges and related
matters) (Amendment) Regulations, 2010; Electricity (Late Payment
Surcharge) Rules, 2022; Indian Electricity Act, 1910; Electricity
(Supply) Act, 1948; Electricity Regulatory Commissions Act, 1998;
Delhi Electricity Reforms Act, 2000; DERC (Terms and Conditions
for Determination of Tariff) Regulations, 2017; Constitution of India.
List of Keywords
Regulatory asset; Electricity; Tariff; Tariff determination; Tariff for
retail supply of electricity; Creation, continuation and liquidation
of the regulatory asset; Electricity is a public good; Increase in
quantum of regulatory asset; Liquidation of regulatory asset; BSES
Rajdhani Power Ltd., BSES Yamuna Power Ltd., and Tata Power
Delhi Distribution Limited; Distribution companies; DISCOMS;
National Tariff Policy, 2006; National Electricity Policy; National
Tariff Policy; Electricity Rules; Tariff Determination Regulations;
National Electricity Policy, 2005; National Tariff Policy, 2016;
Bridging revenue gap; Revenue assets; Regulatory Commissions;
Generation, transmission, and distribution of electricity; Statutory
regulators; Equitable distribution; Regulatory failure; Regulatory
1882
[2025] 8 S.C.R.
Supreme Court Reports
capture; Regulatory function; Power distribution companies;
Rights and liabilities of the stakeholders; Regulatory duties; Good
governance of the electricity sector; Intangible asset; Uncovered
revenue gap or revenue shortfall; Distribution licensee; Distribution
company; Bulk procurement and bulk supply of power; Deficit
Recovery Surcharge; Fuel price adjustment charge; Power
Purchase Adjustment Charge; Draft RERC (Terms and Conditions
for Determination of Tariff) Regulations, 2025; National Electricity
Plan.
Case Arising From
ORIGINAL/CIVIL APPELLATE JURISDICTION: Writ Petition (C)
104 of 2014
Under Article 32 of The Constitution of India
With
Civil Appeal No(s). 4010 and 4013 of 2014, Writ Petition (C) No.
105 of 2014 and Writ Petition (C) No. 1005 of 2021
Appearances for Parties
Advs. for the Petitioners:
Abhishek Manu Singhvi, Kapil Sibal, Buddy A. Ranganadhan,
Sr. Advs., Shri Venkatesh, Ms. Kanika Chugh, Asutosh Kumar
Srivastava, Shryeshth Ramesh Sharma, Bharat Gangadhar, Nihal
Bhardwaj, Kartikay Trivedi, Aashwyn Singh, Abhishek Nangia,
Aadarsh Singh, Nitin Saluja, Amit Kapur, Pukhrambam Ramesh
Kumar, Anupam Varma, Rahul Kinra, Aditya Ajay, Ms. Isnain
Muzamil, Girdhar Gopal Khattar, Sanjay Nair S, Ms. Manisha
Singh, Ms. Shefali Tripathi, Aditya Gupta, Karun Sharma, Ms.
Rajkumari Divyasana, Amit Kapur, Anupam Varma, Rahul Kinra,
Aditya Gupta, Aditya Ajay, Sanjay Nair S., Ms. Isnain Muzamil,
Ms. Manisha Singh, Girdhar Gopal Khattar, Mrs. Shefali Tripathi,
Sanjay Nair S, Ms. Manish Singh, Ms. Shefali Tripathi, Avinash
Das, Sidharth Sethi.
Advs. for the Respondent:
R. Venkataramani, Attorney General for India, K M Nataraj, A.S.G.,
Lokesh Sinhal, Sr. A.A.G., S. Wasim A. Qadri, Nikhil Nayyar,
Mrs. Shirin Khajuria, Sr. Advs., Gurmeet Singh Makker, Piyush
Beriwal, Shyam Gopal, Ms. Shradha Deshmukh, Ms. Chinmayee
Chandra, Rajat Nair, K. V. Mohan, Satya Mitra, Vivek Singh, Ritik
[2025] 8 S.C.R.
1883
BSES Rajdhani Power Ltd. & Anr. v. Union of India and Ors.
Dwivedi, Siddhartha Chowdhury, Anand Ganesan, Ms. Swapna
Seshadri, Pramod Dayal, Nikunj Dayal, Utkarsh Singh, Lakshmi
Raman Singh, Tamim Qadri, Chitvan Singhal, Saeed Qadri,
Shraveen Kumar Verma, Saahil Gupta, B. Krishna Prasad, Ms.
Prerna Singh, Guntur Pramod Kumar, Samarth Krishan Luthra,
Dhruv Yadav, Ms. Pritha Srikumar Iyer, Naveen Hegde, Kshitij
Maheshwari, Abhyudaya Shishodia, Saumya Sinha, Ms. Saumya
Sinha, Abhishek Vikas, Adarsh Tripathi, Vikram Singh Baid, Ajitesh
Garg, Veevak Goel, B. K. Satija, Ms. Pallavi Langar, Vishnu
Sharma, Sujeet Kumar Chaubey, Ravi Sharma, Aryan Chanda,
Ms. Bhavana Duhoon, Ms. Swati Tiwari, Naveen Kumar, Ms.
Stuti Bisht, Nitesh Bhandari, Maitreya, Shourajeet Chakravarty,
Ms. Aprajita Bhardwaj, Prabhat Kumar Rai, Aditya Goyal, Ujjawal
Kumar Rai, Ms. Esha Kumar, Ms. Nidhi Singh, Utkarsh Chandra,
Ms. K. Enatoli Sema, Amit Kumar Singh, Ms. Chubalemla Chang,
Prang Newmai, Harshad V. Hameed, Dileep Poolakkot, Ms. Ashly
Harshad, Nitin Gaur, Anshuman Ashok, Anshuman Ashok, Sagar
Parashar, Anshul Singh, Shashank Shekhar Singh, Abhinav Singh,
Aaditya Aniruddha Pande, Siddharth Dharmadhikari, Sourav
Singh, Mayank Sapra, Ms. Lalima Das, Karan Sharma, Ms.
Baani Khanna, Sameer Abhyankar, Mrs. Ayushi Bansal, Rahul
Kumar, Ms. Yashika Sharma, Krishna Rastogi, Aakash Thakur,
M/s. Ag Veritas Law, Gaichangpou Gangmei, Arjun D. Singh,
Ms. Nisha Pandey, Yimyanger Longkumer, Maitreya Mahaley,
J. Prasad, Kunal Chatterji, Ms. Maitrayee Banerjee, Rohit
Bansal, Pashupathi Nath Razdan, Astik Gupta, Ms. Mandakini
Ghosh, Nikilesh Ramachandran, Ms. Suparna Srivastava, Ms.
Arshiya Sharma, Akshay Amritanshu, Nikunj Gupta, Ms. Pragya
Upadhyay, Ms. Drishti Saraf, Ms. Aakanksha, Pradeep Misra,
Daleep Dhyani, Suraj Singh, Aditya Singh-1, Shashi Bhushan
Kumar, Dinesh Kumar Prasad, Ms. Advaita Bhushan, Darpan Km,
Ms. Amrita Sharma, Rajat Jonathan Shaw, Durgha Prakash, Ms.
Easha Chandhok, Ms. Rashi Bansal, M. T. George, C. K. Rai,
Mrs. Anuradha Roy, Vinay Kumar Gupta, Sahil Chandra, Rutwik
Panda, Ms. Nikhar Berrry, Ms. Anshu Malik, Ms. Nikhar Berry, Ms.
Sunieta Ojha, Ms. Gargi Kumar, Rajeev Kumar Panday, Zoheb
Hossain, Somanadri Goud Katam, Rajat Srivastava, Sirajuddin,
Sriram Krishna, Ms. Anupama Dhurve, B. K. Satija, Subhash
Chandran K.R. Ms. Krishna L.R., Ankit Roy, Chinmoy Sharma, Ms.
Diksha Rai, Piyush Vyas, Purvat Wali, Irfan Hasieb, Krishnajyoti
Deka, Vijay Deora.
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Judgment / Order of the Supreme Court
Judgment
Table of Contents*
1.
Introduction ...................................................................................
4
2.
Concept of a Regulatory Asset .....................................................
7
3.
Facts. .............................................................................................
9
4.
Submissions of Parties ................................................................. 11
5.
Impleadment of the State Commissions and Governments ......... 20
5(i). Affidavits by State Commissions ................................................... 21
5(ii). Affidavits by State Governments ................................................... 25
6.
Law Governing the Electricity Sector Prior to 2003 ..................... 26
7.
Electricity Act, 2003 ...................................................................... 28
8.
Provisions of the Electricity Act relating to determination of Tariff ... 31
9.
Provisions of Act, Policies, Rules, Regulations, and Orders having
a bearing on creation of a Regulatory Asset ................................. 35
9(i). National Electricity Policy, 2005 .................................................... 35
9(ii). National Tariff Policy, 2006 ............................................................ 36
9(iii). DERC Tariff Determination Regulations, 2007 .............................. 37
9(iv). DERC Statutory Advice dated 15.12.2010 .................................... 38
9(v). Ministry of Power's Letter to the APTEL ....................................... 40
9(vi). APTEL's Order dated 11.11.2011 .................................................. 40
9(vii). DERC Tariff Determination Regulations, 2011 ............................ 41
9(viii). DERC's Tariff Order dated 26.08.2011 (FY 2011-12) .................. 42
9(ix). DERC's MYT Order dated 13.07.2012 (FY 2012-15) .................. 43
* Ed. Note: Pagination as per the original Judgment.
[2025] 8 S.C.R.
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9(x). DERC's Statutory Advice dated 01.02.2013 ................................ 43
9(xi). DERC's Tariff Order dated 31.07.2013 (FY 2013-14) ................. 44
9(xii). APTEL's Order dated 14.11.2013 ................................................ 45
9(xiii). APTEL's Order dated 11.03.2014 ............................................... 46
9(xiv). National Tariff Policy, 2016 .......................................................... 47
9(xv). DERC Tariff Determination Regulations, 2017 ............................ 48
9(xvi). Ministry of Power's Affidavit dated 10.08.2022 ........................... 49
9(xvii). Ministry of Power's Affidavit dated 12.12.2022 ........................... 51
9(xviii). Electricity (Amendment) Rules, 2024 introducing Rule 23 ........ 52
9(xix). DERC's Order dated 19.07.2024 (true-up till FY 2020-21) ....... 53
10.
Analysis ......................................................................................... 53
10(i). Electricity is a public good and is regulated under the Act ........ 54
10(ii). Tariff determination is governed by the Act, which entrusts this
function to independent Regulatory Commissions ..................... 54
10(iii). Collaborative effort of the Regulatory Commissions to balance
social justice obligations with efficiency ...................................... 57
10(iv). Tariff fixation takes into account multiple variables and requires
flexibility. Regulatory asset is a measure adopted during tariff
fixation that recognises right of recovery .................................... 58
10(v). Factors leading to an unmanageable regulatory asset, and
consequent 'regulatory failure' .................................................... 59
10(vi). Law that governs creation, continuation and liquidation of
regulatory asset .......................................................................... 62
10(vii). Accountability of the Regulatory Commissions .......................... 67
10(viii). Powers of the APTEL ................................................................. 69
11.
Conclusions ................................................................................... 77
12.
Directions ....................................................................................... 80
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1.
Introduction.
1.
We are entertaining these writ petitions1 and civil appeals2 only for
examining a limited question as to the law that governs the creation
of a "regulatory asset" during the process of tariff determination by
the Electricity Regulatory Commissions, its impact on the rights and
liabilities of the stakeholders, the limits within which it can be operated,
and finally the regulatory duties that it invokes for the Regulatory
Commissions. We also clarify that through these proceedings, we
are not determining the rights and liabilities of the parties, which
will anyways be considered in the pending civil appeals against the
orders of the Appellate Tribunal of Electricity3.
2.
In these writ petitions and civil appeals, the three distribution companies
that supply electricity to consumers in the National Capital Territory
of Delhi4, namely BSES Rajdhani Power Ltd.5, BSES Yamuna Power
Ltd.6, and Tata Power Delhi Distribution Limited7, have challenged
the manner in which the Delhi Electricity Regulatory Commission8
has determined the tariff for retail supply of electricity over the years,
leading to the creation and continuation of a "regulatory asset". The
prayers in W.P. (C) Nos. 104 and 105/2014 by BRPL and BYPL9 are
similar, which we may formulate as follows:
i.
To hold and declare that the petitioners are entitled to prudently
incurred cost and allowances in terms of Sections 61 and 62
of the Electricity Act, 200310 and Multi Year Tariff Regulations;
ii.
To direct the DERC to give effect to the deferred cost creating
a regulatory asset in accordance with Para 8.2.2 of the National
Tariff Policy;
1
W.P. (C) No. 104/2014, W.P. (C) No. 105/2014 and W.P. (C) No. 1005/2021 under Article 32 of the
Constitution.
2
C.A. No. 4010/2014 and C.A. No. 4013/2014 against the order dated 11.03.2014 passed by the Appellate
Tribunal for Electricity in I.A Nos. 364-365/2013 in Appeal Nos. 265-266/2013.
3
Hereinafter "APTEL".
4
Hereinafter "NCT of Delhi".
5
Hereinafter "BRPL".
6
Hereinafter "BYPL".
7
Hereinafter "TPDDL".
8
Hereinafter "DERC".
9
Hereinafter collectively referred to as "BSES Discoms".
10
Hereinafter "the Electricity Act".
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BSES Rajdhani Power Ltd. & Anr. v. Union of India and Ors.
iii.
To direct the respondent-generating companies to not disconnect
or discontinue power supply or take any other coercive steps till
this Court determines an appropriate mechanism for adjustment
of dues owed by the distribution companies from the amounts
due and owed to them; and
iv.
To protect their investment and assured return from the licensed
business.
3.
TPDDL has also filed W.P. (C) No. 1005/2021, where it has prayed
for the following reliefs:
i.
To direct DERC to recognise its regulatory asset and formulate
and implement a clear roadmap for the liquidation of the
regulatory asset in a time-bound manner of 3 years;
ii.
In the alternative, to direct DERC to increase the Deficit Recovery
Surcharge to 20% to amortise the regulatory asset as per the
National Tariff Policy;
iii.
To direct DERC to implement various judgments of the APTEL
in appeals against tariff orders by the DERC.
4.
In order to consider these prayers as well as the maintainability of the
writ petitions, which has been contested by the respondents, we will
have to examine the concept of a 'regulatory asset' and its creation
and continuation in the context of the law that may govern it. Further,
we will also examine whether the law creates any statutory duties
and whether failure to fulfil the same gives rise to an enforceable
legal right. For this purpose, we will commence with examining
the Electricity Act, and the rules, regulations, and policies framed
thereunder as well as judicial precedents and necessary practices
for good governance of the electricity sector.
2.
Concept of a Regulatory Asset.
5.
A "regulatory asset" in the context of tariff determination for electricity
utilities is an intangible asset that is created by the Regulatory
Commissions in recognition of an uncovered revenue gap or revenue
shortfall when a distribution licensee could not fully recover the costs
reasonably incurred by it through revenue from tariff.11 This portion of
11
See Tamil Nadu Electricity Consumers' Association v. Tamil Nadu Electricity Board, Appeal Nos. 192 and
206 of 2010, APTEL order dated 28.07.2011.
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the revenue requirement is not included while determining the tariff
for the particular year. Rather, the distribution company is entitled to
receive or recover such revenue in the future, over a period of time.
6.
There are several situations and factors leading to the creation of such
a regulatory asset. It is generally created when the projected revenue
based on the determined tariff is significantly lower than the revenue
required by the distribution company to recover reasonably-incurred
costs as well as for return on investment. When it is not feasible to
recover this gap either by increasing tariffs or through other means
such as government subsidy during that year, a regulatory asset
equivalent to the uncovered expenses is created. Another situation
requiring the creation of a regulatory asset is at the time of truing
up, if the actual revenue realisation from tariffs is much lesser than
the Annual Revenue Requirement12.
7.
This revenue gap can be recovered through government subsidies or
by increasing the tariff. However, the latter may lead to a tariff shock
to consumers in a given year. Hence, to protect consumer interests,
the Regulatory Commission may choose to direct recovery of only
some portion of the gap while creating a regulatory asset for the
remaining portion, which can be recovered in the subsequent years.
At the same time, the financial health and commercial viability of the
distribution company must be ensured by the Regulatory Commission.
Hence, the Regulatory Commission must ensure that if a regulatory
asset is created, the same is recovered in a time-bound manner.
8.
The creation and continuation of a regulatory asset is neither a
statutory concept nor a power granted under the Electricity Act.
Rather, it is a measure adopted by the Regulatory Commissions,
which are statutory bodies, in exercise of their powers and functions
under the Act. It is hence guided by the legal regime of the Electricity
Act and the rules, regulations, and policies framed thereunder, along
with their interpretation in various judicial precedents.
3.
Facts.
9.
Initially, the Delhi Vidyut Board was responsible for generation,
transmission and distribution of electricity in NCT of Delhi. With the
12
Hereinafter "ARR".
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BSES Rajdhani Power Ltd. & Anr. v. Union of India and Ors.
Delhi Electricity Reform Act, 2000 and the Delhi Electricity Reform
(Transfer Scheme) Rules, 2001, these functions were unbundled
and different entities were made responsible for each function. Until
2007, the Delhi Transco Limited13 was solely responsible for bulk
procurement and bulk supply of power in Delhi, and all distribution
companies were required to purchase power from it. After 31.03.2007,
the responsibility for power purchase in Delhi was transferred to the
distribution companies.
10. DERC adopted the Multi Year Tariff14 framework in generation,
transmission, and distribution businesses so as to bring certainty
regarding tariff and its annual basis during each control period.
11. A regulatory asset was first created by the DERC in the tariff order
dated 09.06.2004 for North Delhi Power Limited15 and orders dated
11.06.2004 for BRPL and BYPL. In these orders, the DERC introduced
the regulatory asset as a mechanism to bridge the revenue gap in
the tariff order for FY 2004-05, and it amounted to a total of Rs. 696
crores across BRPL, BYPL, NDPL and DTL.
12. Over the years, various orders of the DERC determining ARR
for each year, MYT orders, and truing-up orders demonstrate an
increase in the quantum of the regulatory asset across all three
distribution companies before us. The DERC also provided for
carrying costs on the regulatory asset to each distribution company,
which further contributed to its ballooning. We are informed that
as on 31.03.2024, the regulatory asset including carrying costs is
Rs. 12,993.53 crores for BRPL, Rs. 8419.14 crores for BYPL, and
Rs. 5,787.70 crores for TPDDL, totally amounting to Rs. 27,200.37
crores across all three distribution companies. During this time,
the DERC has taken note of this increase and introduced various
measures like increasing tariffs, Deficit Recovery Surcharge16, fuel
price adjustment charge and Power Purchase Adjustment Charge17.
These measures are byproducts of the regulatory asset and are
intended for its liquidation.
13
Hereinafter "DTL".
14
Hereinafter "MYT".
15
Hereinafter "NDPL", which is now TPDDL.
16
Hereinafter "DRS".
17
Hereinafter "PPAC".
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13. After setting out the submissions of the parties as well as views of
various State Commissions and State Governments, we will examine
framework within which the regulatory asset is created, continued, and
liquidated. We will refer to the relevant provisions of the Electricity
Act, National Tariff Policies, the Electricity Rules, DERC's Tariff
Determination Regulations, and introduction of various measures by
the DERC, either as mitigative or alleviative to deal with the problem.
Following this, we will determine the status of the regulatory asset
and the consequential directions that may be passed in these writ
petitions and civil appeals.
4.
Submissions of Parties.
14. We have heard Mr. Kapil Sibal and Dr. Abhishek Manu Singhvi, learned
senior counsels and Mr. Amit Kapur, learned counsel for the three
distribution companies, who are the petitioners and appellants. On
behalf of the respondents, we have heard Mr. Nikhil Nayyar, learned
senior counsel for the DERC, Mr. R. Venkataramani, learned Attorney
General of India for certain generating and transmission companies,
Mr. K.M. Nataraj, learned ASG for the Ministry of Power, Union of
India, and Mr. Siddharth Dave and Mr. Shadan Farasat, learned
senior counsels for the Government of NCT of Delhi.
15. Mr. Sibal made the following submissions:
i.
Referring to the Statement of Objects and Reasons of the
Electricity Act, he submitted that the statute intends to distance
the government from tariff regulation and determination by
establishing independent regulators, and it aims to encourage
private sector participation in the electricity sector.
ii.
Mr. Sibal then referred us to various provisions of the Electricity
Act, including factors guiding tariff determination under Section
61, tariff determination for retail supply of electricity under
Sections 62 and 64, and advance payment of government
subsidies under Section 65. He also took us through the
mandatory and advisory functions of the State Commission
under Section 86, emphasising that the Commission must be
guided by the policies and plans formulated under the Act in
discharge of its functions.
iii.
He then referred us to the relevant portions of the statutory
advice issued by the DERC to the Government of NCT of Delhi
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BSES Rajdhani Power Ltd. & Anr. v. Union of India and Ors.
by letters dated 15.12.2010 and 01.02.2013, which we will deal
with in more detail at a later stage.
iv.
Referring to Clause 8.2.2 of the National Tariff Policy, 2006,
he submitted that a regulatory asset must be created only
in exceptional circumstances that are clearly defined in the
regulations and that only include natural causes or force
majeure conditions. Further, that the regulatory asset must be
recovered in a time-bound manner in 3 years, and preferably
within the control period. These conditions are also incorporated
in Regulation 5.42 of the DERC (Terms and Conditions for
Determination of Wheeling Tariff and Retail Supply Tariff)
Regulations, 200718 and Regulation 5.40 of the DERC (Terms
and Conditions for Determination of Wheeling Tariff and Retail
Supply Tariff) Regulations, 201119, which we will deal with at
a later stage. Mr. Sibal submitted that these conditions for
creation of a regulatory asset have not been complied with
by the DERC.
v.
He then referred us to the Electricity (Amendment) Rules, 2024
(notified on 10.01.2024) that inserts Rule 23 in the Electricity
Rules, 2005, which stipulates various conditions for creation,
continuation, and recovery of a revenue gap or regulatory
asset.
vi.
To conclude, Mr. Sibal submitted that the creation, continuation,
and expansion of the regulatory asset over the years can be
attributed to the following causes: (i) assumed power purchase
cost for tariff determination is lower than the actual cost; (ii)
assumption of inflated revenue; (iii) tariffs determined by the
DERC are not cost-reflective; (iv) the orders of the APTEL and
this Court regarding tariff fixation are not implemented; (v) the
state government has not paid the subsidy amount in advance
as per Section 65; (vi) payment of Late Payment Surcharge20
@ 18% on late payments to the generating companies; and
(vii) the truing-up exercise is not carried out properly.
18
Hereinafter "Tariff Determination Regulations, 2007".
19
Hereinafter "Tariff Determination Regulations, 2011".
20
 Hereinafter "LPS".
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16. Mr. Amit Kapur, for the BSES Discoms has submitted that currently,
the regulatory asset is about Rs. 26,000 crores (including the carrying
cost payable to date). The continuation of the revenue gap, without
liquidating it in a time-bound manner undermines the very purpose
of the Electricity Act to promote private sector participation and to
provide for cost-reflective tariffs. He submits that there is a creeping
acquisition of private distribution companies due to this.
17. Dr. Singhvi appearing for TPDDL then addressed us and made the
following submissions:
i.
To liquidate the regulatory asset, certain measures may be
taken such as increasing the DRS, increasing tariffs payable
by consumers, and through government support. Further, there
must be a fixed timeline for liquidation as the quantum of the
regulatory asset only increases with the passage of time due
to accumulation of carrying costs.
ii.
While the DERC's roadmap for liquidation submitted before
this Court estimated recovery of the entire regulatory asset by
2022, this has not fructified. In this context, he submitted that
DRS of 8% is wholly inadequate as it is insufficient to even
meet the carrying cost on the regulatory asset.
18. Mr. Nikhil Nayyar, learned senior counsel appearing on behalf of the
DERC then addressed us. He took us through the scheme of the
Electricity Act and its provisions, and also traced the history of the
creation and continuation of a regulatory asset by the DERC.