By Somit Dasgupta
The Electricity (Amendment) Bill, 2025, is slated to be introduced in Parliament during the ongoing Budget session. This Bill will address several issues such as improving the financial condition of distribution companies (discoms), bringing about competition in the distribution sector through sharing of wires, elimination of the burden of cross-subsidy in respect of certain identified sectors, reducing mass transit cost, improving competitiveness of our manufacturing sector, promoting captive power generation, enabling renewable capacity addition through the market mechanism, setting minimum standards of service, ensuring cybersecurity, and strengthening regulatory accountability.
Some of the provisions of the Bill that will be introduced are not really new and have been mentioned in other policy documents framed in the past. To give an example, gradual reduction of cross-subsidy is mentioned in the Tariff Policy 2016. Similarly, having multiple distribution licensees is mentioned in the draft National Electricity Policy, 2026. The problem, it seems, is that some states do not agree with the fact that the provisions of the Tariff Policy or National Electricity Policy are mandatory—they are of the view that it is merely advisory.
This is despite the fact that the Supreme Court, while hearing a different matter, had stated that the provisions of the Tariff Policy has the force of law (2017). However, there is a lack of consensus in the legal fraternity over whether this order of the apex court is really a dictum or is it an “obiter dictum”—meaning a reference made in passing, which is not meant to be a part of the operative portion of the judgment. Perhaps, the government thought it to be prudent to amend the Electricity Act, 2003, leaving no room for debate on compliance of what is mentioned in statutory documents such as the Tariff Policy or National Electricity Policy.
Among all the provisions mentioned in the Bill, I would like to concentrate on perhaps the most important item which relates to having more than one distribution licensee in an area. The objective is to promote competition among discoms so that consumers can get the best price. In fact, the government has been mulling over competition in the distribution sector for the past decade. First, it was the segregation of “carriage and content” where there would be several retailers in an area with one company providing the wires to all in a non-discriminatory fashion. A new concept emerged subsequently, where it was thought that the distribution business could be delicensed although no details were provided. Thereafter, yet another idea emerged—that while there would be several distribution companies in an area, the existing discom will allow non-discriminatory use of its distribution wires. This is what has been proposed in the Bill although there are a few issues here.
First, will the existing discoms which are mostly in the public sector allow competition in their jurisdiction? They are most likely to raise objections on technical grounds. A final call, of course, will be taken by the state regulatory commission, but let’s not forget that the discom, the regulator, and the state government are one team. For a private discom to enter the arena would be a herculean task. Besides, there are several matters of detail which will only crystallise once the rules are framed. Some questions which need to be answered include the following. How will the existing power purchase agreements be carved out for the new discom(s)? How will the line losses be shared among the discoms? How will the cost of upgrading the distribution infrastructure be shared, and so on?
The present Bill has made things more complicated by adding two more stipulations. First, the new discoms will not have the universal service obligation (USO) of serving customers who need power in excess of 1 megawatt (Mw). The logic is, buying incremental power is always more expensive and it increases the fixed cost of power purchase which will hurt the small consumers. Second, the Bill says that sectors such as manufacturing, railways, and the metro will pay the average cost of supply after five years from the date in which the Bill comes into force. Thus, they will stop providing revenue for cross-subsidy. If that is the case, why should the existing discoms have such customers in their billing net, especially when the new discoms have no such USO obligation. Thus, we are going to create two sets of discoms with an uneven playing field which is going to be chaotic. The problem does not end here. What will happen in the case where private utilities are functioning like Odisha? They have taken over the business just a few years ago based on open bidding, which takes into account a certain consumer mix for the entire licence period. Are they going to ask for compensation as this can be treated as a “change in law”?
Finally, should we have competition or only privatisation of the distribution sector? The government, it seems, is doing a flip-flop on this issue. Not very long ago (2021), the government said that privatisation is the way forward and went ahead with privatisation of the power sector in the Union Territories. Now, we are back to competition. Going back and forth does not give the right signals. It would be relevant to mention that the pioneer of privatisation of the power sector, that is the United Kingdom, after introducing full retail competition by 1998, has a scenario where about 70% of the power is being sold through vertically integrated utilities and there are six utilities (called the “big six”) which are managing the major part of the business.
There is also available literature which says that competition has not really helped the small consumers. Though it seems that it is too late for a rethink on our part, one cannot stop wondering whether we are heading for a chaos.
The author is Visiting Professor, ICRIER.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.