Automatic Power Tariff Hike Proposal Sparks Heated Debate Across India
The Union Ministry of Power's recently published draft National Electricity Policy (NEP) for 2026 has ignited a fierce controversy with its proposal to implement automatic annual increases in electricity bills, even in cases where state regulators fail to issue timely tariff orders. This significant development has created a sharp divide between officials advocating for financial stability in the power sector and consumer rights activists warning of potential overreach and unchecked price hikes.
The Controversial Provision Explained
Buried within Clause 2 under Section 4 on 'Financial Viability and Competitiveness' of the draft policy published on January 20, the provision states clearly: "From FY 2026-27, tariffs must be linked to a suitable index for automatic annual revision which operates if no tariff order is passed by the State Commission."
In practical terms, this means that if any State Electricity Regulatory Commission (SERC) misses its deadline to issue a new tariff order, electricity tariffs would automatically increase based on an inflation-linked index. While the exact formula remains undefined, potential indices could include the Wholesale Price Index (WPI) or Consumer Price Index (CPI). The ministry has invited comments and suggestions from stakeholders within a 30-day window, making this provision a focal point of discussion.
Official Justification: A Necessary Financial Backstop
Government officials and regulatory sources argue that this "enabling provision" serves as a crucial financial safety mechanism. A source from the Uttar Pradesh Electricity Regulatory Commission (UPERC) explained that the primary intent is to prevent power utilities from suffering severe financial losses during regulatory delays.
"The idea is to allow an automatic increase for a defined period until the Commission makes its final decision," the source emphasized, adding that "it is not a blank cheque" for unlimited hikes. The mechanism would only function as a temporary bridge when the regulatory process exceeds the mandated 120-day window for tariff determination.
Importantly, officials clarified that the automatic increase would be subject to utilities filing their tariff proposals on time. If a utility fails to submit its proposal within the required timeframe, the automatic hikes would cease. This condition aims to maintain accountability while providing financial stability to distribution companies (discoms) whose collective debts exceed Rs 7 lakh crore nationwide.
Consumer Advocates: A Dangerous Overreach
Consumer rights organizations have responded with strong opposition to the proposed automatic tariff mechanism. Avadhesh Kumar Verma, chairman of the Uttar Pradesh Rajya Vidyut Upbhokta Parishad and a member of the Central Electricity Regulatory Commission's advisory committee, has termed the provision "legally untenable" and potentially unconstitutional.
"It strips SERCs of their core statutory duty," Verma argued. "The revised policy proposes automatic cost recovery without express Commission approval, which fundamentally undermines the regulatory process."
He pointed specifically to Sections 61, 62, and 86 of the Electricity Act, 2003, which vest exclusive tariff-setting authority with the state commissions. Verma contends that no policy document can override these statutory provisions to make tariffs self-executing without proper regulatory oversight.
Broader Implications for India's Power Sector
The debate surrounding this automatic tariff clause reflects deeper tensions within India's electricity sector reform efforts. Proponents view indexation as a practical tool for ensuring financial stability in an industry plagued by mounting debts and operational inefficiencies. They argue that predictable, automatic adjustments could help distribution companies maintain financial health while continuing to provide reliable power supply.
However, consumer protection groups warn that the provision could seriously undermine due process and regulatory accountability. They express concerns that automatic hikes might:
- Reduce transparency in tariff determination processes
- Weaken consumer representation in regulatory proceedings
- Potentially lead to unchecked price increases without proper justification
- Create a precedent for bypassing established regulatory frameworks
As stakeholders prepare their submissions during the consultation period, this automatic tariff provision has emerged as one of the most contentious elements of the draft National Electricity Policy 2026. The outcome of this debate will significantly influence how India balances the competing priorities of financial viability for power utilities and consumer protection for millions of electricity users across the country.
