New Delhi: With losses of state-run electricity distribution companies (discoms) continuing to rise despite two decades of financial support schemes, the Union government has proposed legal amendments aimed at introducing competition and market discipline in the sector, according to reports.

The Ministry of Power has suggested allowing industries to procure electricity directly from private suppliers and removing the obligation on discoms to supply to all consumers in their respective areas. Under the proposals, “open access” consumers, industries and businesses with consumption above 1 megawatt, may pay premium tariffs during shortages, while ensuring uninterrupted supply.

The reforms are expected to improve revenue flows for discoms by unlocking substantial electricity demand from industries that can access affordable power directly. According to the ministry, the changes will also reduce tariff distortions and support industrial growth. Draft amendments to the Electricity Act, 2003, have been released for consultation.

The proposals further aim to open distribution networks to multiple private companies in the same area. Currently, multiple licensees in the same region must maintain separate networks, resulting in duplicated infrastructure and higher costs. The amendments also seek to empower State Electricity Regulatory Commissions to set tariffs independently, without waiting for proposals from power generation utilities. This is intended to ensure revised tariffs take effect from April 1 each financial year, strengthening financial discipline in the sector.

At present, distribution licensees operate under a Universal Service Obligation (USO), which requires them to supply electricity to all consumers, including those eligible for open access. Loss-making discoms are often forced to procure additional, higher-cost power as demand rises, pushing up tariffs for other consumers. Implementation of the proposed reforms will depend heavily on the concurrence of state governments and regulators.

Open access allows eligible consumers to purchase electricity directly from any supplier and use the local distribution infrastructure for transmission, paying user charges.

Kerala to oppose amendments

Minister for Electricity K Krishnankutty warned that the amendments could undermine public sector companies. “If cross-subsidies are removed, how will the poor and vulnerable receive free electricity? Private companies will target large consumers while using the networks built at public expense. Kerala will oppose these amendments,” he said.