New Delhi: The government is thinking of setting up regional regulators to review the performance of independent state electricity regulatory commissions, as a rising gap between average revenue and costs has worsened the financial position of powerdistribution companies.

The proposal, first mooted by an advisory committee led by former power minister Suresh Prabhu, needs an amendment to the Electricity Act, 2003 and could face resistance from state governments. At present, the Centre can issue advisories to state regulatory commissions, but these are non-binding.

The committee on integrated development of power, coal and renewable energy had recommended the ‘establishment of regional regulators in consultation with states at an appropriate time and a mechanism for review of performance of regulatory commissions through Forum of Regulators, etc’.

“We are studying the recommendation in the wake of the present situation when, in many states, there have not been tariff hikes or adequate tariff hikes or the regulators are allowing creation of regulatory assets,” a government official said.

Delayed tariff hikes cause loss of income and force the distribution companies, or discoms, to borrow heavily, although they are reflected in the balance sheet as ‘regulatory assets’.

“The Act provides for independent power regulators and has assigned them various tasks. Of late, it is being felt that regulators are not performing their duties in an independent manner,” the official said.

The regulators have allowed for deferred tariff hikes, which cumulatively add up to Rs 1.40 lakh crore currently.

Regulatory assets are estimated to have increased by almost Rs 60,000 crore between FY14 and FY18, raising questions over the independent operations of electricity regulatory commissions and power distribution firms.

Tamil Nadu, as an exceptional case, has not increased electricity tariffs for the last five years, while Telangana, invoking a special provision in the Act, issued an order to its distribution companies in March to maintain the same tariff for the current financial year.

According to the power ministry’s Praapti portal, power utilities owe generation companies Rs 41,747 crore, while the overdue amount is Rs 25,525 crore.

After the Ujwal Discom Assurance Yojana (Uday) was put in place, discoms’ billing efficiency has improved to about 85% and collection efficiency to about 97%, while the aggregate technical and commercial losses are below 19%, the government official said.

The gap between average cost of supply and revenue recovery reduced to 17 paise in FY18 from 59 paise, when the Uday scheme came into being in 2015.

The revenue gap, however, widened in the nine months of FY19 to 35 paise from 26 paise in the corresponding period of the previous year, on higher coal and freight charges, lesser subsidy disbursement by states and ineffective tariff hikes by regulators.

Accumulated debt of distribution companies stood at Rs 3.52 lakh crore, old debt was at Rs 2.02 lakh crore and fresh borrowings were at Rs 1.5 lakh crore.