Energy Laws

[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