Govt to further open power distribution, allow multiple discoms per area

New Delhi: The government is set to introduce an amendment bill in the upcoming budget session of Parliament to further open the power distribution sector, enforce financial discipline, and reduce the subsidy burden on states, Union power minister Manohar Lal said on Monday.

In the draft bill to amend the Electricity Act, 2003, released in October, the government had proposed a slew of reforms, including giving more teeth to state electricity regulatory commissions to fix tariffs on their own, bypassing state distribution companies (discoms) and ending cross-subsidies.

The development gains significance, as the financial stress on discoms is still very high. Discoms are laden with over ₹7 trillion debt, of which about ₹2.74 trillion is "unsustainable", according to the group of ministers for financial viability of discoms. The proposed reforms are also important, as the power distribution sector would play a key role in India's energy transition journey.

Speaking to reporters on Monday, the minister said: "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 of Parliament will commence on 28 January, and run till 2 April.

On Sunday, the ministry said that for the financial year 2025 (FY25), the power discoms reported a cumulative net profit of ₹2,701 crore, compared to a loss of ₹25,553 crore in FY24. This is a significant turnaround for India's power distribution sector that has been making losses for years.

While several stakeholders, including industries, consumers and states have submitted their feedback on the bill, more comments are coming, said an official in the know of the developments.

"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 said.

Through this draft bill, the ministry revived its plans to open up India's power distribution sector, and is looking at allowing multiple discoms to cater to a single area through the existing distribution infrastructure. This will allow private firms to enter electricity distribution, a sector dominated by state-run companies.

Sambitosh Mohapatra, partner and leader for climate and energy at PwC India, said that the distribution sector requires good governance, resources including both 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 said.

The Electricity Act currently permits parallel licensees to supply electricity in the same supply area, but with their own network, which can potentially lead to duplication of distribution networks. Currently, only one discom operates in some areas.

"To address this issue, the proposed amendment explicitly mandates non-discriminatory open access to the existing distribution network. This ensures that multiple suppliers can efficiently utilize the existing infrastructure, eliminating redundancy and reducing overall infrastructure costs," the ministry said in the draft bill.

Currently, power distribution companies propose power tariffs to the commission for a fiscal year. The ministry noted delays in revision by the discoms while proposing to give power to the regulator to revise tariffs.

"Non-determination of tariffs before the beginning of the financial year has been resulting in mounting distribution sector losses. Currently, the Act does not explicitly authorize the Appropriate Commissions to determine tariffs on a suo moto basis before the financial year begins. The proposed amendment empowers the Appropriate Commissions to act suo moto, ensuring timely tariff determination, enhancing accountability," the ministry had said in the draft bill.

Amid concerns of a potential increase in tariffs for farmers and impact on operations of state-run discoms due to the proposed Electricity (Amendment) Bill 2025, the power ministry later on 30 October said the changes would only bring in "fair competition" and reduce the cost of power supply. It said the new bill will not erode the autonomy of states, and would in fact preserve federal balance.

Addressing the inauguration of a Centre of Excellence for Regulatory Affairs in the Power Sector at IIT Delhi, the minister called for rationalization of norms and deregulation in the power sector in line with the government's plans to improve the ease of doing business.