Government to Introduce Electricity Act Amendment Bill in Budget Session
Union Power Minister Manohar Lal announced on Monday that the government will introduce an amendment bill to the Electricity Act, 2003 during the upcoming budget session of Parliament. The proposed legislation aims to further open the power distribution sector, enforce financial discipline, and reduce the subsidy burden on states.
Key Reforms in Draft Bill
The draft bill, released in October, proposes several significant reforms. It seeks to empower state electricity regulatory commissions to fix tariffs independently, bypassing state distribution companies. The bill also aims to end cross-subsidies and open up the distribution sector to private players.
Minister Lal told reporters, "In the next budget session, we are bringing amendments to the Electricity Act so that discoms don't face losses and they are made timely payments." The budget session will commence on January 28 and run until April 2.
Addressing Financial Stress in Distribution Sector
The proposed reforms gain importance against the backdrop of continuing financial stress in the power distribution sector. Distribution companies currently carry over ₹7 trillion in debt, with approximately ₹2.74 trillion considered "unsustainable" according to the group of ministers for financial viability of discoms.
Despite this challenging environment, recent data shows some positive developments. For the financial year 2025, power discoms reported a cumulative net profit of ₹2,701 crore, marking a significant turnaround from the loss of ₹25,553 crore recorded in FY24.
Minister Lal acknowledged that some discoms continue to operate at a loss, though he did not specify the exact number of companies still facing financial difficulties.
Opening Distribution to Competition
The draft bill revives plans to open India's power distribution sector to greater competition. It proposes allowing multiple distribution companies to serve a single area using existing infrastructure. This would enable private firms to enter a sector currently dominated by state-run companies.
Currently, the Electricity Act permits parallel licensees to supply electricity in the same area, but they must build their own networks, potentially leading to duplication. The proposed amendment mandates non-discriminatory open access to existing distribution networks, allowing multiple suppliers to utilize current infrastructure efficiently.
Strengthening Regulatory Framework
The bill proposes giving more authority to state electricity regulatory commissions to determine tariffs independently. Currently, distribution companies propose power tariffs to the commission for each fiscal year, but delays in revision have contributed to mounting sector losses.
The ministry noted that the current Act does not explicitly authorize commissions to determine tariffs on their own initiative before the financial year begins. The amendment would empower commissions to act suo moto, ensuring timely tariff determination and enhancing accountability.
Stakeholder Feedback and Implementation
An official familiar with the developments said that while several stakeholders, including industries, consumers, and states, have submitted feedback on the bill, more comments continue to arrive. "We have received feedback and suggestions from several segments of stakeholders. As we are incorporating some of the suggestions, we are also receiving fresh suggestions at the same time," the official stated.
Expert Perspective on Privatization
Sambitosh Mohapatra, partner and leader for climate and energy at PwC India, emphasized that the distribution sector requires good governance, adequate resources including capital and technology, and effective project implementation. "The view is that privatization would bring in the required governance model, capital investment and efficient project implementation skills," he explained.
Addressing Concerns and Future Outlook
Following concerns about potential tariff increases for farmers and impacts on state-run discoms, the power ministry clarified on October 30 that the changes would only bring "fair competition" and reduce the cost of power supply. The ministry asserted that the new bill would not erode state autonomy and would preserve federal balance.
Speaking at the inauguration of a Centre of Excellence for Regulatory Affairs in the Power Sector at IIT Delhi, Minister Lal called for rationalization of norms and deregulation in the power sector. This aligns with the government's broader plans to improve the ease of doing business and support India's energy transition journey.
