Draft Electricity (Amendment) Bill 2025 Proposes Cost-Reflective Tariffs to Reform Power Sector

The draft Electricity (Amendment) Bill 2025 introduces significant reforms aimed at ensuring cost-reflective power tariffs across the country. Regulatory commissions will now be mandated to set electricity prices that fully reflect the actual cost of supply, in line with a Supreme Court directive issued in August 2025. 

Currently, non-cost-reflective tariffs have led to substantial losses for state distribution companies (discoms), as they are unable to pass on part of these costs to consumers. To balance the financial burden, state governments will retain the ability to provide advance subsidies for specific consumer groups, ensuring affordability while improving the financial health of discoms. 

Supporting Industrial Competitiveness

The draft amendment also targets industrial efficiency. Distribution licensees, which currently have a Universal Service Obligation (USO) to supply all consumers, may now be exempt from serving high-demand consumers eligible for open access. This allows industries, railways, and large-scale consumers to procure power directly, reducing procurement costs. 

In cases where alternative arrangements fail, regulators may assign one discom to supply power at a premium above the cost of supply. While this reform could reduce financial risk for discoms, it may also shift high-paying consumers away, potentially raising tariffs for remaining users and reducing incentives for discoms to invest in existing infrastructure.

Phasing Out Cross-Subsidies

The bill proposes to eliminate cross-subsidies for manufacturing units, railways, and metro services within 5 years. This move is expected to lower industrial and transport costs and improve operational efficiency. However, the reduction of cross-subsidies may require targeted state subsidies for other consumer groups and careful tariff planning to ensure equitable distribution.

The draft also provides regulatory certainty for captive power generation, empowering central and state governments to frame rules that support consistent industrial power access.

Clean Energy and Renewable Compliance

To reinforce clean energy goals, the bill introduces monetary penalties for shortfalls in Renewable Purchase Obligation (RPO) compliance. The penalty will exceed the market price of Renewable Energy Certificates (RECs), discouraging entities from paying minimal fines instead of meeting obligations. 

While this strengthens renewable adoption, it may impose financial pressure on entities with limited access to clean energy, requiring regulatory support for fair implementation.

Strengthening Governance and Accountability

The bill also proposes the creation of a national-level Electricity Council to guide central and state governments on electricity policy, aiming to reduce fragmented decision-making. 

Regulatory accountability is enhanced by expanding grounds for removal of CERC and SERC members, including gross negligence and willful violation. Adjudicatory proceedings must be completed within 120 days, and the Appellate Tribunal for Electricity will see an increase in members to address case backlogs.

Read More:India Plans to Open Power Retail Market to Private Companies

Conclusion

The draft Electricity (Amendment) Bill 2025 lays the foundation for a more financially viable, competitive, and sustainable power sector. By mandating cost-reflective tariffs, phasing out cross-subsidies, promoting renewable compliance, and strengthening governance, the bill aims to create a balanced framework for consumers, discoms, and industries alike.

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