Draft Electricity Distribution (Accounting aspects of Specified Items & Additional Disclosure) Rules, 2023


The Ministry of Power (MoP) has issued the draft Electricity Distribution (Accounting aspects of Specified Items & Additional Disclosure) Rules, 2023. These draft rules were published on 1st September, 2023.

These Rules shall be applicable to “Specified Entity” or “SE”.

The term “Specified Entity or SE” has been defined to mean the Distribution Licensee excluding:
i. Indian Railways;
ii. Military Engineering Services;
iii. Municipal Corporations;
iv. Ports;
v. Captive Power Plants;
vi. Transport Undertakings;
vii. Damodar Valley Corporation;
viii. Entity engaged in distribution of power in Special Economic Zones; or
ix. Any other entity exempted in this regard by the Central Government.

These draft rules are designed to ensure uniformity and accountability among electricity companies in recognizing and managing these critical financial elements.

Measurement of Regulatory Deferral Account Balances

Under the newly introduced rules, electricity SEs that currently recognize regulatory deferral account balances in compliance with applicable Accounting Standards and the Guidance Note on Accounting for Rate Regulated Activities in their financial statements must adhere to specific directions regarding the measurement of these balances.

On initial recognition and at the end of each subsequent reporting period, SEs are required to measure a Regulatory Asset or Regulatory Liability at the best estimate of the amount expected to be recovered, refunded, or adjusted as future cash flows under the regulatory framework. These estimates are to be determined by the management of the entity, taking into consideration several factors, including formal approvals from regulators specifically authorizing cost recovery in rates, previous formal approvals for similar costs (precedents), and written approval from regulators (even if not formal) for future recovery in rates.

Impairment of Regulatory Deferral Account Balances

To ensure the accuracy of estimates, SEs are also mandated to review the expected amounts to be recovered, refunded, or adjusted at least at the end of each financial year. Any differences between these expectations and previous estimates must be accounted for as changes in accounting estimates, following relevant requirements of the applicable Accounting Standard.

Disclosure Requirements

SEs are obligated to disclose the basis on which regulatory deferral account balances are initially measured and subsequently reevaluated. This includes how these balances are assessed for recoverability and how impairment losses are allocated. These disclosures aim to provide stakeholders with a comprehensive understanding of the financial health and operations of the entity.

Provisioning of Trade Receivables

The regulations also introduce a graded approach to provisioning of trade receivables, outlining specific provisioning percentages based on the age of receivables. This approach, which extends to FY 2026 and onwards, allows for more accurate provisioning and management of outstanding payments.

Additional Disclosure Statements (ADS)

Furthermore, the regulations require SEs to prepare Additional Disclosure Statements (ADS) for each financial year. These statements cover various aspects of financial reporting, including supplementary disclosures to financial statements, power purchase and energy accounting details, ACS-ARR gap, AT&C loss, and a performance summary of the SE. The ADS will form an integral part of the financial statements and will be presented under the “Additional Disclosure Statements pursuant to Electricity Distribution (Accounting aspects of Specified Items & Additional Disclosure) Rules, 2023.”

Statement of Compliance

Each ADS must include a statement of compliance at the beginning, confirming that the statements are prepared and presented in the prescribed form and manner, in accordance with the methodologies and principles specified in the rules.

Any comments on these draft rules shall be sent to the Ministry of Power by 8th September, 2023. These comments can also be emailed to jamiruddin.ansari@gov.in.

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