The Draft Electricity (Amendment) Bill, 2025 – An Overview

1. INTRODUCTION

On October 9, 2025, the Ministry of Power released the Draft Electricity (Amendment) Bill, 2025 ("Amendment Bill"), inviting public comments and suggestions.

The Amendment Bill represents the first major overhaul of the Electricity Act, 2003 ("Electricity Act"), in almost two decades and seeks to reform the Indian power sector to make it financially resilient, environmentally sustainable, and capable of supporting globally competitive industries. To achieve these objectives, the Amendment Bill introduces several key measures, including the following:

2. REFORMS IN THE POWER DISTRIBUTION SECTOR

2.1. Cost-Reflective Tariffs and Suo Motu Tariff Determination

Distribution Licensees in India have historically faced financial distress, primarily because the consumer tariffs often fail to reflect the true cost of electricity supply. To address this imbalance, the Amendment Bill proposes to amend Section 61(g) of the Electricity Act to mandatorily require the Appropriate Commission1 to determine cost-reflective tariffs. Further, the Amendment Bill introduces a new proviso to Section 64 of the Electricity Act, empowering the Appropriate Commission to determine tariffs suo motu in cases where distribution licensees delay the filing of tariff petitions.

2.2. Exemption from Universal Service Obligation

The Amendment Bill contemplates the inclusion of an exemption under Section 43 of the Electricity Act, relieving distribution licensees of their universal service obligation—that is, the obligation to supply electricity to all consumers within their area of supply ("USO"). However, under the proposed amendment, the State Regulatory Commission2 ("SERC") will be authorised to designate 1 (one) distribution licensee to act as a supplier of last resort, ensuring continuity of supply at a premium over the cost of supply if other arrangements fail.

The proposed exemption targets commercial and industrial consumers capable of sourcing their own electricity, addressing financial inefficiencies arising from the USO, that requires distribution licensees to contract power for such consumers. As industrial growth increases, additional power demand is typically met by new generation sources, which incur higher fixed costs. This obligation results in higher overall costs and cross-subsidies, increasing tariffs for smaller consumers and reducing industrial competitiveness. The amendment aims to relieve distribution licensees from contracting excess capacity for these consumers, thereby lowering overall system costs and improving the affordability of electricity supply.

2.3. Facilitating Shared Use of Distribution Networks

The Amendment Bill envisages amending Section 14 of the Electricity Act to allow distribution licensees to supply electricity using the network of any other distribution licensee. It further empowers the Appropriate Commission to establish a regulatory framework for managing multiple licensees operating in the same area, ensuring that network expansion and augmentation are carried out efficiently and without duplication of infrastructure.

These changes are complemented by the amendments proposed to Section 42, which impose obligations on distribution licensees to provide other distribution licensees non-discriminatory open access to their networks upon payment of wheeling charges; and to develop and maintain distribution systems without unnecessary duplication, as specified by the Appropriate Commission.

These amendments seek to address the inefficiencies observed in areas with overlapping distribution networks, which often result in wastage of capital and land resources. The proposal is consistent with Section 42(3) of the Electricity Act, which provides that any person located within a distribution licensee's area of supply may obtain electricity from another distribution licensee, and the incumbent distribution licensee is required to act as a common carrier, offering access on a non-discriminatory basis in accordance with regulations issued by the SERC.

2.4. Rationalisation of Cross-Subsidies

Currently, there is substantial cross-subsidies and surcharges imposed on industrial consumers, including manufacturing enterprises, railways, and metro/mono-rail systems, resulting in high manufacturing and logistics costs that undermine industrial competitiveness. To address this challenge, the Amendment Bill introduces a proviso under Section 61(g) mandating the full elimination of cross-subsidies for manufacturing enterprises, railways, and metro-rail systems within 5 (five) years from the enactment of the Amendment Bill.

3. REFORMS FOR IMPROVED EFFICIENCY

3.1. Removal of NOC Requirement for Defense Areas

The Amendment Bill aims to omit the requirement under Sections 15 and 18 of the Electricity Act for obtaining a no-objection certificate from the Central Government for the issuance or amendment of a transmission or distribution license in areas that include, wholly or partially, any building or place occupied by the central government for defence purposes. This amendment aims to streamline the licensing process and reduce administrative delays.

3.2. Establishment of Electric Line Authority

The Amendment Bill seeks to amend Section 164 of the Electricity Act to establish the Electric Line Authority. Following the enactment of the Telecommunications Act, 2023 ("Telecommunications Act"), which repealed the Indian Telegraph Act, 1885 ("Telegraph Act"), the transitional provisions under the Telecommunications Act provided that the Telegraph Act will continue to apply to the laying of transmission lines under Section 164 of the Electricity Act, as if it had not been repealed, until the said Section 164 is amended. Accordingly, the Amendment Bill envisages transferring the powers of the Telegraph Authority under the repealed Telegraph Act to the newly constituted Electric Line Authority under Section 164 of the Electricity Act.

3.3. Timelines for Proceedings before the Appropriate Commission

The Amendment Bill provides for the addition of Section 92(6) to the Electricity Act, which mandates that all proceedings before the Appropriate Commission be decided expeditiously, with an effort to dispose of cases within 120 (one hundred twenty) days. In the event of a delay, the Appropriate Commission is required to record the reasons for such delay. Currently, no statutory time limits exist for adjudicatory proceedings. With rising renewable energy penetration and an increasing number of developers, case loads have grown significantly. Introducing clear timelines is expected to accelerate dispute resolution, enhance investor confidence, and promote transparency in decision-making.

3.4. Approval Framework for Transmission Systems

The Amendment Bill contemplates adding a proviso to Section 25 of the Electricity Act, empowering the Appropriate Government3 to prescribe the manner of approval and implementation of both Inter-State Transmission Systems ("ISTS") and Intra-State Transmission Systems (ITS). The Amendment Bill provides an explicit legal basis for the delegation of powers to the Appropriate Government, with respect to ISTS/ITS, with an aim to enhance flexibility and efficiency with respect to approval and implementation of transmission projects.

3.5. Eligibility Criteria for Captive Generating Plant

A proviso is proposed to be inserted under Section 9(1) of the Electricity Act, empowering the Appropriate Government to prescribe the 'eligibility criteria' for captive generating plants and their users. However, since Rule 3 of the Electricity Rules, 2005 already sets-out the eligibility criteria for captive generating plant, the intent of the proviso appears to be aimed at expressly empowering the Appropriate Government to prescribe the procedure for verification, rather than providing for additional eligibility criteria. In this regard, it may be noted that in February 2025, the CEA issued the procedure to verify captive status of plants where the users are in more than one State. Similarly, various SERCs are notifying the procedure for verification of captive status of CGPs in their respective states (applicable where the user/users are all located in the same state). Accordingly, the proviso may need to be reworded for the sake of clarity and to avoid interpretation issues.

3.6. Constitution of Electricity Council

The Amendment Bill intends to incorporate a new Section 166(1A) into the Electricity Act to constitute an Electricity Council. The Electricity Council is envisaged as a high-level institutional mechanism to advise the central and state governments on policy matters, facilitate consensus on power sector reforms, and coordinate their implementation. This initiative aims to strengthen cooperative federalism, ensure policy alignment across jurisdictions, and support the effective achievement of the objectives of the Electricity Act.

4. RENEWABLE ENERGY AND ENVIRONMENTAL MEASURES

4.1. Minimum Renewable Purchase Mandate

Section 86(1)(e) of the Electricity Act requires the SERCs to specify the portion of total electricity consumption in a distribution licensee's area that must be procured from non-fossil fuel sources. The Amendment Bill seeks to ensure that the percentage specified by the SERC is not less than the percentage prescribed by the central government.

4.2. Penalties for Non-Compliance with Renewable Obligations

Further, the Amendment Bill proposes to insert Section 142(2) to provide for penalties for non-compliance with Section 86(1)(e), stipulating that, without prejudice to any other penalty under the Electricity Act, a defaulting person shall be liable to pay a penalty ranging from ₹ 0.35 to ₹ 0.45 per kilowatt-hour.

5. MARKET DEVELOPMENT AND EMERGING TECHNOLOGIES

The Amendment Bill contemplates amending Section 66 of the Electricity Act to obligate and empower the Appropriate Commission to introduce and regulate market platforms, intermediaries, and market products, including non-transferable specific delivery contracts for differences. This aids the development of the power market and gives explicit recognition to spot contracts, derivative contracts and virtual power purchase agreements. Currently, most electricity generation capacity is developed through long-term agreements between distribution licensees and generating companies. However, given the financial constraints of predominantly state-run distribution licensees and their limited capacity to support large-scale generation expansion, particularly in non-fossil fuel sources, the introduction of market-based mechanisms is essential to accelerate capacity addition and ensure reliable support for a rapidly growing economy.

6. OTHER PROPOSED AMENDMENTS

6.1. Defining Energy Storage Systems

The Amendment Bill, for the first time, introduces a definition of "Energy Storage Systems" under Section 2(26a) and correspondingly amends the definition of "power system" to include such energy storage systems. These amendments signify the growing statutory recognition of energy storage as an integral component of India's power ecosystem.

6.2. Strengthening Standards

The Amendment Bill also inserts a proviso to Section 51, requiring that standards of performance prescribed by Appropriate Commissions under Section 57 meet or exceed the minimum standards set by the central government.

6.3. Streamlining Adjudicatory Processes

The Amendment Bill further seeks to streamline adjudicatory processes by reducing the pre-deposit for appeals under Section 127(2) from one-half to one-third of the assessed amount and limiting the assessment look-back period under Section 126(5) to 12 months.

6.4. Enhanced Regulatory Accountability

Additionally, the Amendment Bill amends Section 90 of the Electricity Act to explicitly include violations of the Electricity Act, its rules, and gross negligence as grounds for removal of the members of the Appropriate Commission, while Section 112(1) is sought to be amended to increase the permissible number of members of the Appellate Tribunal for Electricity from 3 (three) to 7 (seven).

6.5. Expanded Powers of CEA and Central Government

Furthermore, the Amendment Bill seeks to modify the powers of the Central Electricity Authority under Section 73 of the Electricity Act, to specify cybersecurity requirements for the power system, excluding systems outside integrated grid operations. Lastly, the Amendment Bill seeks to amend Section 176(1) to expand the Central Government's rule-making authority, permitting it to make rules "for the purposes of this Act" rather than merely "for carrying out the provisions of this Act", thereby facilitating proactive policy alignment and addressing emerging challenges in the power sector.

7. CMS INDUSLAW VIEW

The Amendment Bill marks a significant step towards strengthening India's power sector. Distribution sector reforms, including the mandate for cost-reflective tariffs, the proposed exemption from USOs vis-à-vis commercial and industrial consumers, and the provision allowing shared use of distribution infrastructure between distribution licensees, are all expected to ease the financial distress of distribution licensees.

Strengthening the power markets and streamlining regulatory processes—including the establishment of the Electric Line Authority, setting timelines for proceedings before the Appropriate Commission, and the constitution of the Electricity Council are expected to enhance investor confidence and reflect a proactive commitment to reform India's electricity sector.

However, certain clarifications are needed. For example, the proviso to Section 9(1), empowering the Appropriate Government to prescribe eligibility criteria for captive generating plants, appears to overlap with existing rules under the Electricity Rules, 2005, creating potential ambiguity.

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