The Ministry of Power has asserted that government-owned distribution companies (DISCOM) will continue to operate alongside private licensees in a regulated, level-playing environment.

It said the proposed reforms will be implemented in consultation with the states and will preserve the federal balance.

“The Bill is a progressive reform aimed at strengthening the power distribution sector through financial discipline, healthy competition, and enhanced efficiency,” the Ministry said.

It stated that the Bill promotes healthy competition between government DISCOMs and private licensees under the supervision of the state electricity regulatory commissions (SERC).  “This will mean better service, greater efficiency, and real choice for consumers.  It helps government and private utilities compete on performance, turning monopoly supply into efficient, accountable, and consumer-friendly service.”

Seeking to allay concerns about the cherry-picking of distribution jurisdictions by private licensees, the Ministry stated that each distribution license covers all consumers within the SERC-defined distribution area. Regulators will set cost-reflective tariffs for all distribution licensees as proposed in the Bill.

The Universal Service Obligation (USO) will apply to all licensees, meaning every supplier must serve all consumers in its area without discrimination.

The Bill also allows SERCs to dispense with the USO for large consumers (>1 MW) who are currently eligible for open access.  These large consumers can procure their own power through open access without DISCOM support.

Addressing the question of cost-reflective tariffs for farmers and other consumers, the Ministry stated that competition will reduce the overall cost of electricity supply by improving efficiency and accountability in the supply chain.

In August, the Supreme Court emphasized that Sections 61 and 62 of the Electricity Act impose a clear obligation on regulators to determine tariffs that are cost-reflective and provide a reasonable return to distribution licensees, while ensuring the protection of consumer interests.

The Ministry said shared network usage will eliminate duplication of distribution lines and substations. “Under the monopoly electricity supply model, technical and commercial losses are high and often merged under one head, masking inefficiencies and theft.  When state governments provide subsidized electricity to segments like farmers or domestic consumers, the subsidy burden includes not only the intended social support but also the cost of monopoly operations.”

It added that by enabling shared network usage and facilitating competition, the reforms proposed in the Bill will reduce losses and lower the effective subsidy burden on state governments, without altering the subsidized tariffs paid by consumers.

The Ministry stated that the Bill proposes that SERCs will determine cost-reflective wheeling charges.  All distribution network users, whether public or private, will pay these regulated charges.  The collected charges will then be shared fairly among licensees based on network ownership.

It noted that India already has a successful model of an interstate transmission system operating on shared infrastructure.

The Ministry also asserted that the Bill does not disturb the federal balance or erode the autonomy of the states. Since electricity is a subject of both the Union government and the states, both have the power to legislate. The Bill envisages implementation of reforms through a consultative process between them.

“The proposed Electricity Council will serve as a consultative body to build policy consensus.  At the same time, SERCs will continue to determine tariffs, issue licenses, and regulate intrastate activities,” it said.