Draft Electricity Amendment Bill 2025: One more try to rewire power sector

With electricity distribution companies (discoms) burdened by losses exceeding Rs 6.9 lakh crore and political parties continuing to dole out power subsidies and freebies, the Centre has unveiled new reforms to make the sector more commercially viable, attract private participation, and ensure affordable and reliable electricity supply for all.

The Union Ministry of Power has recently released the draft Electricity (Amendment) Bill, 2025, which seeks to build a financially sustainable power system while supporting a smooth and equitable energy transition. This is the latest attempt to update the 2003 Act, which was last amended in 2007.

Empowering regulators

The Bill seeks to empower State Electricity Regulatory Commissions to revise tariffs suo motu, even if utilities delay filing petitions. This will end chronic delays in tariff updates that have long weakened discom finances. The Bill mandates that revised tariffs take effect annually from April 1, ensuring timely adjustments based on actual costs.

“The Bill does not say freebies should end,” clarifies a senior power ministry official. “It simply ensures subsidies are funded transparently. The states will directly pay the subsidy amount to discoms to cover the cost of free or concessional electricity, keeping utilities viable without inflating commercial tariffs.”

Currently, political commitments to provide free electricity often lead to under-recoveries, forcing discoms to rely on cross-subsidies or borrowings. The new framework aims to shift the fiscal burden of subsidies squarely onto state budgets.

Phasing out cross-subsidies

The draft bill proposes to phase out cross-subsidies within five years, a move likely to spark debate between the Centre and states. At present, industrial and commercial users are charged up to 30% above supply cost to fund cheaper electricity for households and farmers.

The ministry argues this system distorts pricing and undermines competitiveness. “Cross-subsidy reduces investment appetite in the sector,” says another ministry official. “It’s time tariffs reflected true costs.”

The officials say this will reduce logistics costs, improve efficiency, and strengthen India’s global competitiveness, especially for MSMEs hit by high tariffs.

A 2006 plan to reduce cross-subsidies below 20% by 2022 never materialised. The new Bill seeks to create a predictable, transparent tariff regime.

Opening up distribution

The proposed legislation seeks to allow multiple discoms to operate within the same area using a shared distribution network. Currently, each licensee must maintain separate infrastructure, leading to duplication and high costs. The proposed model would let new entrants use existing networks, increasing competition and ending state-run monopolies.

“The draft Bill allows public sector discoms to continue while permitting private companies to use the same network,” says Shailendra Dubey, chairman of the All-India Power Engineers’ Federation (AIPEF), adding: “This effectively paves the way for privatisation of the entire distribution sector.”

The ministry counters that competition will enhance efficiency, reduce procurement costs, and benefit consumers through lower tariffs.

The Bill also proposes that the state commissions may exempt the distribution licensees from the Universal Service Obligation for consumers eligible for Open Access.

Resistance from states

“India has transformed from a power-deficient to a power-sufficient nation,” says Union Power Minister Manohar Lal Khattar. “A modern, financially viable power sector is critical to achieving Viksit Bharat by 2047.”

The Bill also proposes setting up an Electricity Council, chaired by the Union power minister, to facilitate consultation between the Centre and states.

But the states, especially the ones ruled by the non-NDA parties, have already started opposing the move. Kerala’s electricity minister, K Krishnankutty, has warned that removing cross-subsidies could weaken public utilities and hurt vulnerable consumers dependent on free power.

The AIPEF and several employee unions have also criticised the draft, saying it favours privatisation over strengthening public utilities.

The ministry insists reforms are essential to attract investment, ensure efficient power procurement, and make electricity affordable and sustainable. While the Bill promises lower tariffs, better service, and cleaner energy, its success will depend on cooperation from states and their willingness to loosen their grip on politically sensitive subsidies.