The Electricity Act, 2003 (“Act”) was a historic transformation in India’s energy sector. The Act was introduced to ensure transparent subsidies, promote competition, protect consumer interests and rationalise tariffs. However, as India’s industrial base expanded, the rising demand for electricity placed unprecedented stress on the existing electricity ecosystem. At the same time, the distribution system responsible for delivering electricity to households, industries and farms remains the weakest link in the entire value chain. Public distribution companies (“DISCOMs”) continue to suffer financial losses exceeding ₹6.9 trillion, despite two decades of reforms and repeated bailout packages.

In response to these challenges, the Ministry of Power released the Draft Electricity (Amendment) Bill, 2025 (“Bill”), with the objective of resolving these challenges. The Bill brings structural reforms aiming to accelerate the clean energy transition, enhance competition, improve the financial viability, and strengthen regulatory oversight of the sector.

Proposed amendments

A.     Distribution network sharing

Under the current regulatory framework, several distribution licensees are permitted to operate within the same geographical area, but on the condition that each of them develops its own infrastructure. This has made competition impossible since duplication of poles, substations, transformers, and wires is not financially feasible to the distributor. The capital involved in the establishment of new infrastructure becomes an obstacle to the prospective private players.

This Bill addresses structural weakness by authorising electricity suppliers to compete using a shared distribution network. The current local DISCOM will open access to all the suppliers that may want to serve consumers within its territory under the suggested system. These suppliers would, in turn, be expected to pay charges for using the infrastructure.

This reform solves one of the most persistent bottlenecks in the electricity sector and is significant for multiple reasons. First, it democratises access to the grid and opens the door to true competition in electricity supply. Second, as suppliers will now have to compete for consumers rather than relying on a guaranteed captive market which would enhance service quality and customer experience. Last, from the perspective of the consumer, this amendment proposal offers “choice, something the power sector has never truly delivered.

The proposed model is similar to that followed by the telecom sector. In the telecom sector, several operators provide services to customers while using shared tower infrastructure. Users have the option to choose among multiple service providers, even though the physical infrastructure is common. The amendment brings a similar concept in electricity sector.

B.     Cost-Reflective Tariffs

Tariff revision means changing electricity rates so that they accurately reflect the actual cost of supplying power. When tariffs fail to keep pace with rising costs, whether due to fuel price increases, transmission charges fluctuations, or operational expenses, DISCOMs are forced to sell electricity at a loss. Across millions of users, such under-recovery quickly adds up to financial deficits, which are recorded as “regulatory assets”. The Hon’ble Supreme Court in the case of BSES Rajdhani Power Limited v. Union of India highlighted this issue and suggested cost reflective tariff.

The Bill proposes to make electricity tariffs cost-reflective, which will ensure that DISCOMs recover the actual cost of supplying power. It also empowers SERC to revise tariffs Suo moto even if a DISCOM fails to file a tariff petition on time. Currently, DISCOMs and state governments often delay tariff filings because of political reasons, which leads to years of suppressed tariffs and increased financial losses. The Bill mandates that tariff orders be issued before the start of each financial year, which will create a predictable and timely tariff-setting cycle.

This proposal will positively impact the electricity sector in the following ways: first, these changes are expected to reduce the accumulation of regulatory assets; second, they will help in strengthening the financial health of distressed DISCOMs; and last, limiting political interference in the process of tariff determination will make electricity pricing more transparent and rule-based.

C.     Redefining Renewable Purchase Obligations

In the present regulatory framework, compliance with RPO targets is highly inconsistent, as a majority of states generally fall short of their renewable energy purchase target without bearing any consequence for these lapses.

The Draft Bill addresses this structural gap by replacing the term “renewable energy” with a more comprehensive term, “non-fossil energy sources. This taxonomy includes both traditional renewable fuels like biomass, hydro, solar, wind and technologies that are considered important for long-term energy security, such as green hydrogen-based electricity, nuclear power and waste-to-energy systems.

It proposes mandatory uniform national non-fossil energy consumption targets for all states. Unlike the existing framework, it prescribes a specific penalty system between ₹0.35 and ₹0.45 per kWh for any shortfall in meeting such obligations.

D.    Recognition of Energy Storage Systems

The current Electricity framework does not give legal recognition to energy storage systems (“ESS”) such as battery storage systems and pumped hydro storage. This lack of legal recognition has created uncertainty in the regulation of the storage project licensing and other ancillary issues, such as payment determination. In many cases, these storage systems are treated as consumers when they draw electricity for charging, and as generators when they release stored energy back into the grid, resulting in the levying of double charges.

The Draft Bill addresses this legal lacuna by recognising ESS as a part of the power system. This would place ESS units legally at par with conventional components like generation, transmission, and distribution. ESS stabilises the grid by harnessing excess production of renewable energy at the time of peak production and releasing it back into the grid as demand grows or when renewable power supply becomes unavailable.

The legal formalisation of ESS will have the following implications: first, it would facilitate the extensive penetration of renewable energy; second, it would increase grid stability and reliability as it would reduce the risk of outages and frequency disruptions; third, the recognition would resolve the issue of imposing double charges; and last, a consistent regulatory system would attract investment in large-scale battery storage and hybrid renewable-plus-storage projects.

E.    Universal Service Obligation

Section 42(1) read with Section 43(1) of the Act obligates DISCOMs to supply electricity to consumers in their area, irrespective of their consumption size or profitability. Large consumers like industries often choose the most favourable short-term prices. However, local DISCOM units must have the required infrastructure to supply these consumers, particularly during times when supply fails. Such irregularity results in unpredictable demand curves and subjects DISCOMs to the risk of losses.

The Draft Bill addresses this problem by proposing to exempt large consumers from the USO. It introduces the new concept of a “Supplier of Last Resort” (“SoLR”)’. These SoLRs will be separate entities with the role of ensuring supply during emergencies or when a consumer’s chosen supplier fails. This will be provided at a higher rate, ensuring that the financial risk shifts away from DISCOMs, which reduces the burden caused by frequent switching.

Structural Consistency with the Existing Legal Framework

The Draft Bill, 2025 must also be examined in light of the institutional structure created under the Act. Several of the proposed reforms appear to refine or operationalise principles already embedded in the Act but which have faced practical limitations in implementation.

For instance, the proposal allowing multiple suppliers to operate over a shared distribution network must be read alongside Section 14, which already permits multiple distribution licensees in the same geographical area. In practice, however, this statutory possibility has remained largely theoretical because each licensee is required to develop independent distribution infrastructure, making market entry economically prohibitive. By enabling suppliers to utilise an existing distribution network, the Draft Bill effectively restructures the licensing framework under Section 14 by separating the supply function from the network infrastructure, thereby making the competitive structure originally contemplated by the Act more viable.

Similarly, the reform relating to distribution network sharing complements the open access regime under Section 42 of the Act. Although Section 42 introduced the principle that consumers may procure electricity from suppliers other than the local DISCOM, its implementation has been constrained by high cross-subsidy surcharges and operational barriers. The proposed framework, when viewed alongside the liberalisation introduced under the Green Energy Open Access Rules, 2022, indicates a gradual policy shift toward strengthening retail competition and consumer choice in electricity procurement.

The proposal introducing the SoLR also represents a structural modification of the universal service obligation imposed on distribution licensees under Section 43. While Section 43 ensures that every consumer has the right to demand electricity supply, the existing framework places the financial burden of this obligation solely on DISCOMs. By shifting emergency supply responsibilities to a designated SoLR, the Draft Bill attempts to preserve the consumer protection objective of Section 43 while redistributing the associated financial risk within the electricity market.

Further, the emphasis on cost-reflective tariffs under the Draft Bill reflects a policy direction that has long been articulated in the National Tariff Policy, which encourages tariff rationalisation and reduction of politically driven tariff suppression. The Bill’s provision enabling regulators to revise tariffs suo motu reinforces the regulatory mandate of electricity commissions and may strengthen the autonomy of sectoral regulators such as the Central Electricity Regulatory Commission and the various State Electricity Regulatory Commissions in ensuring financial discipline in the sector.

Viewed in this light, the Draft Bill does not radically depart from the legislative philosophy of the Electricity Act. Instead, it appears to deepen the competitive and regulatory architecture originally envisaged by the Act by addressing structural and implementation gaps that have emerged over the past two decades.

Suggestions for successful implementation

It is important to prevent ‘cherry-picking’ by private suppliers, which poses a serious risk to public DISCOMs and vulnerable consumers. Policymakers can counter this by imposing Universal Service Obligations on all suppliers. This would put the obligation on them to serve not only profitable industrial customers, but also less lucrative rural or low-income consumers. Rural service quotas could be mandated, and suppliers should be required to offer at least one affordable cost plan for low- income consumers.

The government should initiate a phased transition framework with financial and operational incentives for the discoms.  Incentives like capacity-building grants, transitional support funds and performance-linked incentives can encourage discoms to adopt competitive network models instead of being reluctant. The main focus should be on framing clear guidelines on different aspects of this model, such as network access, cost-sharing, and dispute resolution, which leaves the least scope of uncertainty. There are high chances that without clear regulations, competition may lead to conflicts and operational inefficiencies rather than benefits.

Achieving uniform RPO targets may also be an issue of concern to financially strained discoms, since they may not possess sufficient string finances to achieve these targets. To avoid the undue penalty of these distressed discoms, the government can provide cheap financing and limited exemptions against such troubled discoms at least in the short-term.

The targeted interventions with the equity, fairness, and robust regulatory framework will contribute to the effectiveness of the Bill proposal implementation. It will also make sure that an introduction to a modern, competitive, and clean electricity system will be beneficial to all the stakeholders.

Conclusion

The introduction of the Draft Bill is aimed at changing the power sector in India to match the global standards. It brings competition in the power distribution process through the multiple suppliers operating in the same location. This would spur superior services and offer options to the consumers.

Another similar Electricity (Amendment) Bill was introduced in the Parliament in August 2022, but was referred to the Parliamentary Standing Committee on Energy for further deliberation. The newest draft, published in October 2025, is expanded and more developed and takes into consideration the feedback of the states and stakeholders. Its effective performance lies in a strong implementation and the political goodwill to reconcile between subsidy reform and the needs of industrial growth. When properly enforced, the same can transform the power sector of India into a booster of industrial competitiveness, economic growth and integration of global supply chains.

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Kartik Shukla, 5th Year Student at National Law University Odisha