Average Cost of Supply–Average Revenue Realised Gap

The average cost of supply, average revenue realised (ACS-ARR) gap shows whether an electricity distribution company, or DISCOM, recovers its supply costs through its revenue. Expressed in rupees per kilowatt-hour (₹/kWh), it is the difference between average supply cost and average revenue, calculated on a consistent energy and accounting basis.

How to interpret the gap

The calculation is ACS-ARR gap = average cost of supply minus average revenue realised. It measures the extent of cost recovery, rather than simply the tariff charged to consumers.

• A positive gap indicates that revenue falls short of supply costs, creating financial pressure on the DISCOM.
• A zero gap indicates average cost recovery on the stated accounting basis; a negative gap indicates that average revenue exceeds average cost.
• Average supply cost reflects expenditure such as power purchases, network operation and maintenance, employee costs and financing costs.
• Average revenue depends on electricity-sale revenue and the treatment of subsidies and other revenue in the reported measure.

What it reveals about financial health

A persistent positive gap signals financial unsustainability unless the shortfall is covered through additional support or corrective measures. It can weaken the DISCOM’s capacity to pay suppliers, service debt and maintain its network.

• The gap can arise from high procurement costs, inefficient operations, inadequate tariffs, electricity losses or weak revenue collection.
• The AT&C loss indicator measures aggregate technical and commercial losses; the ACS-ARR gap measures monetary cost recovery, so the two are related but not interchangeable.
• The treatment of subsidies matters: revenue recognised in accounts may differ from cash actually received, so a smaller reported gap need not eliminate payment difficulties.
• The gap should therefore be read alongside collection efficiency, subsidy receipts, outstanding supplier dues and debt.

How the gap can be reduced

Closing the gap requires both cost control and revenue improvement, rather than tariff increases alone.

• Better procurement planning, network maintenance and loss reduction can lower the cost of supplying electricity.
• Accurate metering, timely billing and stronger collection can improve revenue recovery.
• Cost-reflective tariffs, combined with transparent and timely government subsidies for supported consumers, can reconcile financial viability with affordability.
• A durable reduction improves the DISCOM’s ability to maintain reliable supply and finance network investment.