[By Ankur Singh and Mansi Maheshwari]
The authors are students of National Law University, Odisha
INTRODUCTION
The Indian power industry is at a crucial point. On the one hand, it will need to prioritize the ambitious Viksit Bharat @2047 vision of the country, where the non-fossil electricity capacity should increase to 500 GW by 2030. On the other hand, this engine is being strangled by its most maladaptive component: a distribution segment that is being crippled by years of chronic financial stress, with cumulative losses soaring past 6.9 lakh crore. The Ministry of Power has come up with the draft Electricity (Amendment) bill, 2025, within this high-stakes environment. This is by no means a regulatory cosmetic facelift but a rewiring of the sector, on a fundamental level, and in a radically ideological sense of more than 2 decades old, Electricity Act, 2003. The Bill marks a radical break from a historic pattern of political populism and government-imposed deficit that goes on the offensive towards an unfamiliar pattern of market discipline, financial responsibility and consumer choice. The suggested amendments aim at curing the long-term illness of the sector by compelling it to gulp the bitter pill of tariffs that are cost-reflective, competitive markets, and regulatory accountability. Its direction is apparent, but the most vital question is: Is this the correct prescription and does the country have the political will to see the treatment through? This article breaks down the main provisions in the Bill to discuss how it is likely to make the power sector in India finally strong and the way forward.
THE CORE DIAGNOSIS: CURING THE DISCOM MALIGNANCY
The most unquestionable core of the 2025 Bill is its outright attack on the economic unsustainability of Distribution Companies (Discoms). The Explanatory Note puts the problem in a very direct way: “most Discoms are incurring chronic losses since the tariffs charged to them do not reflect the real cost of supply.” That is what has been the original sin of this sector over the decades.
The “Cost-Reflective” Mandate
The main weapon in the Bill is a potentially proposed amendment to Section 61(g), which states that tariffs would be determined based on the cost of supply of electricity. This has been further strengthened by a 2025 Supreme Court ruling in BSES Rajdhani Power Ltd. and Anr. v. Union of India and Ors., wherein the Court articulated ten core principles (“sutras”), including the mandate of cost-reflective tariffs, expressly holding, under Section 61 of the Electricity Act, 2003, that tariffs must reflect the actual cost of supply to ensure the financial viability of the electricity sector. This amendment tries to remove the political populism in the setting of tariffs and place it in a solid economic reality foundation. More importantly, the Bill does not push subsidies out. Rather, it further affirms the (but otherwise overridden) clause in Section 65, “in case a state government would like to offer subsidized power to any consumer group, it must do so through giving advance subsidies to the Discom itself”.
This is a monumental shift. It concludes the shadow-play of promises of free power being made politically, and the financial obligation being crammed on the balance sheets of Discoms, who in turn default in their payment obligations to generators and grid operators. It is mandatory in the state governments under this new regime to explicitly budget their populist promises and fund them immediately. This was a change to be implemented and the sole change that would stop the vicious circle of Discom debt.
Tackling Regulatory Delays
In another effort to seal the loopholes, the Bill empowers State Electricity Regulatory Commissions (SERCs) to set tariffs independently (suo-motu), in case a utility does not file a tariff petition within the stipulated period of time by amending Section 64. It is aimed at having new tariffs effective as of April 1st of every financial year. This clause strikes at the regulatory delays in which, in most cases, utilities, being politically pressured, would just fail to apply to raise tariffs, letting their losses to accumulate indefinitely.
This is the most controversial and necessary section of the Bill of this two-pronged assault on Discom finances. It recognises the issue in question and has a sound, technically-justified resolution that is supported by the law. Nonetheless, it might be met by political opposition by the state governments that have long been utilizing Discoms as an off-balance sheet instrument to make political concessions.
LIBERATE THE MARKET: A NEW DEAL TO INDUSTRY
The second key push of the Bill is to increase the economic competitiveness of India by eliminating the practice of cross-subsidy induced high industrial tariffs. The reasoning is that Indian manufacturing cannot become competitive globally if it is compelled to offset the inefficiencies of the sector, as well as agricultural subsidies.
Ending the Cross-Subsidy Raj
It is not only Section 61(g) that has received an amendment; there is a guillotine clause: cross-subsidies of Manufacturing Enterprises, Railways, and Metro Railways will be completely abolished in five years. This is a radical move. The artificial low tariffs on residential and agricultural tariffs were being borne by Commercial and Industrial (C&I) consumers, who have been paying higher tariffs to keep residential and agricultural tariffs artificially low over decades. This, the Bill claims, has undermined the competitiveness of industry, limited the development of MSMEs and has increased the cost of logistics across the economy as a whole. By removing this burden, the Bill will open up a significant electricity demand and will cause energy-led economic growth.
Freeing the “Golden Goose”
In line with this, there is a new provision in Section 43 which would enable the State Commissions to waive the Universal Service Obligation (USO) of Discoms on consumers with a demand exceeding 1 Megawatt. Even now, when a big industry would wish to purchase cheap power in the open market, the Discom must construct and maintain capacity for them, which is done frequently through contracting new and costly power. The inherent costs of this unutilized capacity are then transferred to all other consumers, including residential ones. This responsibility is relieved by the new amendment of the Discom. It is a successful way of directing the large consumers (the golden geese of the C&I category) to the market to obtain their own supply. This opens them up as market players. To avoid anarchy, the Bill offers an important safety net, the SERC will authorize one of the distribution licensees as a “supplier of last resort” who will provide power (at a premium) in case the private arrangements of a large consumer go wrong. The amendment to the Section 14 permits distribution to be supplied by multiple licensees of the distribution through their system of distribution or a shared system. This is the much needed and practical reform that allows retail competition without the wasteful duplication of infrastructure (i.e., a set of poles and wires being in the same street These economic reforms which are pro-business, are a definite victory in economic growth. Nevertheless, they pose a huge political dilemma. Should the industrial cross-subsidies be removed and at the same time the agricultural/residential tariffs be turned into cost-reflective, the ensuing tariff shock to the average citizens may turn out to be disastrous. The Bill is hopeful that the long-term advantage in the gain of industrial growth, creation of jobs and reduced logistics costs will justify the short-term political suffering.
DRIVING THE GREEN TRANSITION
The 2025 Bill is more than a document aimed at financial recovery, but it is a future-oriented document that will give the structures of a green-energy future.
New Markets, New Money
The Bill appreciates that the 2000 GW RE target cannot be achieved through the bankrupt Discoms signing of long-term Power Purchase Agreements (PPAs). In order to get the enormous influx of private capital to invest, it makes changes to Section 66 to expressly authorize the Central Electricity Regulatory Commission (CERC) to initiate and control new market platforms and items, such as Non-Transferable Specific Delivery (NTSD) contracts in difference. It is a contemporary, market-based process, being effective in the UK, to de-risk and incentivize investment in new renewable capacity.
Putting “Teeth” in RE Mandates
The Bill proposes two major steps in implementing the green transition:
Alignment: Section 86 1(e) is amended to oblige SERCs to articulate non-fossil purchase obligations which will not be below the percentage established by the Central Government. This removes the uncertainty among the state and central targets and creates a unified and enforceable national requirement.
Penalties: In Section 142, there is a new sub-section which introduces the monetary penalty to be paid by the entities failing to meet non-fossil energy obligations. The penalty rate (35-45 paisa/kWh) is fixed at a rate which is not too low to ensure that the penalty is above the average market price of Renewable Energy Certificate (RECs). This is an ingenious plan that will guarantee that entities will be motivated to purchase green power and not simply pay a reduced fine.
Lastly, the Bill formally defines the concept of an Energy Storage System (ESS), which can now be a legally and regulatory recognized entity, which is a vital step to incorporating variable renewable energy sources.
NEW COMMAND STRUCTURE: REGULATORY REFORM
The Bill rightly delineated that strong rules demand strong referees. Much of the reform is devoted to Regulatory Strengthening.
Accountability and Speed
The Bill is aimed at increasing the accountability of regulators by introducing “wilful violation” or “gross negligence” as additional reasons to remove the members of CERC and SERCs in the performance of their functions by amending Section 90. This comes out right in reaction to the regulatory bodies disregarding their own statutory mandates which had been pointed out by the Supreme Court.
In order to fight paralyzing delays, the Bill proposes to improve adjudicatory matters disposition by introducing a 120-day timeline by amending Section 92 and, to tackle the huge backlog of cases (2,628 cases, as of September 2024) in the court, it boosts the authority of the Appellate Tribunal for Electricity (APTEL) in question by increasing the number from three to “not more than seven members” by amending Section 112.
A New “Electricity Council”
The establishment of an Electricity Council, through a new sub-section to Section 166, perhaps is the most important institutional change. This body, chaired by the Union Minister of Power and consisting of all the state electricity ministers, is meant to help the adoption of consensus on reforms and coordinate their implementation. The regulatory speed and accountability moves are undoubtedly good. The Electricity Council is however, a two-sided sword. Although its declared purpose is cooperative federalism, it might equally be seen as a strong centralizing instrument. Considering that Electricity is a concurrent subject, such a high-level council, guided by the Centre can be a place where the Union government will exercise considerable pressure on state governments to align itself to its reform agenda.
CONCLUSION: THE RIGHT DIRECTION, IF THE WILL HOLDS
The Draft Electricity (Amendment) Bill, 2025, is a courageous, thorough, and logically consistent bill. It is a definite move in the right direction. It rightly points to the twin cancers that the Indian power sector has been living with decades; financial unsustainability caused by political meddling, and the misplaced market which makes industry handicapped and competition suffocating. The philosophy of the Bill is an obvious and justified denial of the status quo. It is an ardent supporter of market pressures in preference to political populism and financial conservatism. It methodically removes competition impediments (shared networks), empowers large consumers (USO exemption) and de-risks the green transition (new market mechanisms), and puts a full stop to all stakeholders (Discoms, regulators, and state governments).
Its real trial shall be political. It is a direct appeal to the comfortable and dysfunctional status quo, where states have gotten away with providing free power without having to pay. It will be a stage of the new-proposed Electricity Council, in which this tragic struggle between economic reform and political populism will be waged. The Indian power sector has needed a shock therapy and the 2025 Bill was that. The secondary major question will be whether the cure is legally justifiable to be performed, enforced and maintained, regardless of the varying political appetites.