The Ministry of Power has issued the Electricity Distribution (Accounts and Additional Disclosure) Rules, 2024, to enhance transparency in financial disclosures and bolster regulatory compliance for power distribution companies (DISCOMs).

The rules aim to enable DISCOMs to clearly demarcate revenue, receivables, and subsidies for better financial clarity. This will also allow investors, regulators, and the public to assess distribution entities’ fiscal health better.

The rules ensure that entities are financially safeguarded against long-term defaults by mandating provisions for receivables and enforcing the reporting of trade receivable days.

The Average Power Supply (ACS), average Revenue Realized (ARR) gap, and Aggregate Technical and Commercial (AT&C) loss metrics will play critical roles in policy formulation and monitoring, as these data points directly impact tariffs and financial sustainability.

The 2024 rules mandate that all DISCOMs—excluding government departments, boards, and corporations that are deemed licensees under section 14 of the Electricity Act—adopt a new reporting structure.

The rules emphasize accountability through comprehensive financial statements and additional disclosure requirements, aligning with Sections 129 and 176 of the Companies Act, 2013.

The rules outline that entities must recognize only the revenue approved within tariff orders. This means anticipated earnings outside these orders are no longer recognized in financial statements, ensuring speculative income does not distort fiscal transparency. Subsidies from state governments under the tariff subsidies program must be recorded and reported separately per guidelines.

Aimed at strengthening transparency, the new standards introduce several disclosure requirements:

• Supplementary financial disclosures: Details on power sales, rebates, consumer tariffs, and government subsidies must be distinctly outlined.
• Energy accounting: Power purchase data, including long-term, medium-term, and short-term transactions, and losses incurred in transmission are mandated to be reported.
• Cost of supply vs. revenue gap: Entities must calculate and disclose the ACS cost against the ARR, helping regulators and stakeholders gauge efficiency and financial health.
• AT&C losses: Reporting on technical and commercial losses offers a granular view into inefficiencies, enabling corrective measures where necessary.

The minimum provisioning requirement for DISCOMs on their trade receivables from all categories of consumers in the financial statements is as follows:

The management of each DISCOM must submit a compliance statement confirming adherence to these enhanced disclosure norms, establishing accountability, and preventing discrepancies in reporting.

These regulations could pave the way for a more transparent, accountable, and efficient power distribution sector.

Last April, the Ministry proposed draft provisions in the Electricity (Amendment) Rules, 2023, for subsidy accounting and payment and a framework to ensure the financial sustainability of DISCOMs.

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