The financial performance and accounting practices of discoms have been causes for concern for the sector. The government has been implementing various regulatory and policy measures to address these issues. In line with this, the Ministry of Power recently introduced the Electricity Distribution (Accounts and Additional Disclosure) Rules, 2024, which are expected to enhance the transparency and financial accountability of power discoms in the country.
First, the rules mandate that only revenue and income recognised as recoverable in the tariff order will be considered as revenue in financial statements. Any speculative earnings outside the tariff order will not be considered. This is expected to enhance fiscal transparency in accounting and prevent misreporting, and curb the practice of creating regulatory assets treated as future revenue.
Second, the rules mandate a minimum provisioning requirement for discoms on their trade receivables from different categories of consumers. This will safeguard them against long-term financial defaults by mandating provisions for receivables and enforcing the reporting of trade receivable days.
Third, the rules mandate that discoms make additional disclosures, including supplementary disclosures to financial statements, power purchase and energy accounting details, statements of the average cost of supply-average revenue realised gap, statements of aggregate technical and commercial losses, and performance summaries of specified entities.
Net, net, standardised financial accounting and enhanced disclosures by discoms will improve transparency regarding their financial performance and the factors influencing electricity tariffs. However, there is a need for clarity on the implementation of rules, especially around the treatment of existing regulatory assets expected to recover from future tariff hikes. Moreover, as demonstrated by numerous past policy and regulatory initiatives, effective on-ground implementation is crucial for achieving successful outcomes.