APSERC Finalizes Revenue Requirements for FY 2026-27: Major Cost Disallowances for Arunachal Pradesh Department of Power

The Approved ARR vs. Petitioner Claims

The Arunachal Pradesh State Electricity Regulatory Commission (APSERC) has delivered a significant regulatory blow to the Department of Power (DoP,AP), slashing the utility’s projected financial requirements for the ensuing year, FY 2026-27. In its final determination of the Aggregate Revenue Requirement (ARR), the Commission approved ₹1045.14 Crores, a substantial ₹86.02 Crores reduction from the ₹1131.15 Crores originally sought by the department. This fiscal tightening is driven almost entirely by the Commission’s refusal to accept the utility’s high-cost power procurement projections; the APSERC implemented a massive ₹95.29 Crore reduction in Power Purchase Expenses—the single largest factor in the cost disallowance. These adjustments signal a rigorous oversight phase as the state transitions into the new Multi-Year Tariff (MYT) control period.

Institutional Framework and Regulatory Mandate

The proceedings highlight the unique and somewhat anomalous structural position of the DoP,AP within the Indian energy sector. Functioning under the Ministry of Power, Government of Arunachal Pradesh, the DoP,AP operates as a “Deemed Distribution Licensee” under Section 14 of the Electricity Act, 2003. Unlike corporatized state utilities, it remains a direct government department, a status that fundamentally alters its financial obligations and regulatory filings.

The current petition was filed under Sections 62 and 64 of the Electricity Act, 2003, necessitating a formal determination of the ARR and retail tariffs for the year. This process is governed by the Multi-Year Tariff (MYT) Regulations, 2024, which mandate that even a departmentally-run utility must adhere to transparent commercial accounting and performance benchmarks to ensure operational efficiency.

Financial Breakdown: The “Gap” in Projected vs. Approved Costs

The Commission’s review resulted in significant deviations across several cost centers, with the utility’s power procurement and personnel cost estimates facing the most scrutiny.

Comparative Analysis of ARR Components for FY 2026-27 (₹ in Crores)

Analysis of Disallowed Costs and Non-Claims

The investigative depth of the Commission’s order reveals that the DoP,AP structure effectively “wipes out” several massive financial components typically found in utility ARRs:

• Return on Equity & Interest on Loan: Because the DoP,AP is not an incorporated company, it lacks equity capital and shareholders. All funding is provided as grants by the State Government or Central Government. This rendered claims for both Return on Equity and Interest on Loan as Nil, as there are no repayment or dividend obligations.
• Depreciation: Under strict regulatory logic, assets created via government grants or subsidies are ineligible for depreciation claims. Consequently, the APSERC disallowed all depreciation claims for the FY 2026-27 period.
• O&M Discrepancy: While the net reduction in O&M expenses was ₹12.03 Crores, a closer look reveals a deliberate regulatory shift. The Commission significantly curtailed Employee Expenses, approving only ₹410.24 Crores against the utility’s projection of ₹423.43 Crores—a cut of ₹13.19 Crores. Conversely, the Commission actually increased the allowance for Repair and Maintenance (R&M) to ₹44.35 Crores (a ₹3.75 Crore positive deviation), prioritizing physical asset integrity over personnel costs.

Operational Data and Consumer Projections

The scale of operations for FY 2026-27 reflects a utility in a state of growth, despite the fiscal constraints imposed by the regulator.

• Consumer Base Growth: Analysis of Table 1.2B confirms that the DoP,AP is projecting a growth in its consumer base to a total of 329,638 for FY 2026-27. This is an increase from the 324,794 consumers approved for the previous year in the Tariff Order dated 26-03-2025.
• Power Procurement Dependency: The state continues to rely heavily on the North Eastern Electric Power Corporation (NEEPCO), which remains the primary supplier within the Central Sector. Of the total power received (1663.45 MU), 1315.29 MU is sourced from Central Sector Allocation, while State Generation (including Independent Power Producers) accounts for a mere 192.79 MU. The remaining 155.37 MU is drawn from other sources, including the Indian Energy Exchange (IEX) and banking arrangements.

Regulatory Directives and Implementation Timeline

The APSERC has mandated that the DoP,AP move toward greater accountability through the “Annual Performance Review” and “True Up” procedures stipulated in Regulation 2.6(1) of the MYT Regulations, 2024. These procedures will reconcile the ₹1045.14 Crores approved today against actual expenditures recorded at the end of the fiscal year.

The implementation of this ARR follows the tariff order dated March 26, 2025. To remain in compliance, the DoP,AP must file its next set of applications for annual performance reviews and tariff determinations no later than 120 days before the close of the financial year. Until operational efficiencies improve, the resulting revenue gap will continue to be bridged by revenue grants from the Government of Arunachal Pradesh.

Official Sources and References

• Arunachal Pradesh State Electricity Regulatory Commission (APSERC)
  • Petition for Approval of Aggregate Revenue Requirement and Retail Tariff Proposal for FY 2026-27,.
  • Order on Petition for approval of APR for FY 2025-26, ARR & Tariff for FY 2026-27,.
  • Official Website: www.apserc.nic.in
  • Current Petitions: https://apserc.nic.in/current-petitions.html
  • Current Regulations: https://apserc.nic.in/current-regulation.html
• Department of Power (DoP), Government of Arunachal Pradesh
  • Existing Tariff, Proposed Tariff, and Approved Tariff by the Commission for FY 2026-27.
  • Aggregate Revenue Requirement (ARR) for FY 2026-27 Filings,.
• State Load Despatch Centre (SLDC), Arunachal Pradesh
  • Petition for Business Plan from FY 2025-26 to FY 2029-30,.
  • Official Website: https://arpsldc.in