The Karnataka Electricity Regulatory Commission (KERC) has notified the Karnataka Electricity Regulatory Commission (Roadmap for Reducing Cross-Subsidy and Cross-Subsidy Surcharge) Regulations, 2026.

The framework establishes a roadmap to reduce cross-subsidies and the cross-subsidy surcharge (CSS) in electricity tariffs while maintaining tariff levels within the ±20% band of the average cost of supply (ACoS), in line with statutory requirements and the Tariff Policy.

Background

The Electricity Act, 2003, requires state electricity regulatory commissions to progressively reduce cross-subsidies among tariff categories. The Commission has historically reduced cross-subsidies through periodic tariff orders and determined uniform tariffs across government-owned distribution companies in Karnataka.

Over more than 24 years, the Commission significantly reduced cross-subsidies, particularly for industrial and commercial consumers, bringing them within the 20% threshold prescribed in the Tariff Policy. However, it had not issued specific regulations providing a formal roadmap and relied on tariff orders to manage reductions.

Tariff Data

Under the regulations, KERC has specified category-wise reduction trajectories for segments where cross-subsidy levels remain significantly outside the prescribed band.

For electric vehicle charging stations under the LT-6c category, where the cross-subsidy level stands at -48.83% in the financial year (FY) 2027-28, the Commission directed that the level be reduced to below -20% over six financial years beginning FY 2028-29, with annual reductions of 5%.

For lift irrigation, private consumers under the HT-3 category, where the cross-subsidy level is -78.98% in FY 2027-28, the reduction must be brought below -20% over six financial years from FY 2028-29, with annual reductions of 10%.

The Commission also stated that cross-subsidy levels for consumer categories must generally remain within a ±20% band of the average cost of supply, and that CSS will continue to be calculated in accordance with the methodology prescribed in the Tariff Policy issued by the Government of India from time to time.

Commission’s Analysis

In the tariff order 2025 issued under the KERC Multi-Year Transmission, Distribution and Retail Supply Tariff Regulations, 2024, the Commission determined tariffs for FY 2025-26, FY 2026-27, and FY 2027-28, and assessed cross-subsidy levels across categories.

It was observed that most categories already fall within the ±20% band, except EV charging stations, lift irrigation, and private consumers. The Commission noted that it had largely achieved the statutory objective of reducing cross-subsidies within the prescribed band, limiting the scope for further structural redesign.

However, in compliance with the High Court’s direction, it proceeded to notify a formal mechanism.

Last December, the Commission had published the draft regulations and invited stakeholder comments.

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