The Electricity Act 2003 rests on two promises, and they have had opposite fortunes. The first promise was that nobody would need the state’s permission to generate power: a generating company could build and run a station without a licence, and a factory could build a plant for its own use and carry the power to the point of consumption. The second promise was that a consumer of any size worth speaking of would be able to buy electricity from someone other than the local distribution licensee, using the licensee’s own wires on payment of regulated charges. The first promise kept itself, because it required nothing further from anyone once the statute was enacted. The second promise required a number, the surcharge, to be fixed year after year by a regulator who also had to keep the incumbent distributor solvent, and a right whose price is set by the institution it is exercised against behaves very differently from a right that operates on its own. Understanding the Electricity Act 2003 means understanding why those two promises diverged, and the divergence is the clearest instance in Indian commercial regulation of a pattern this series has met repeatedly: a right conditional on a figure set by the duty holder or its regulator is a right the holder controls.

The Act is a consolidating and reforming statute at once. It repealed and replaced three earlier enactments, the Indian Electricity Act of 1910, the Electricity (Supply) Act of 1948 and the Electricity Regulatory Commissions Act of 1998, and it redrew the structure those statutes had built. In place of the vertically integrated State Electricity Board, which generated, transmitted and sold power within a state and answered to the state government, the Act put unbundled companies, licensed activities, independent regulatory commissions in the Centre and in each state, a national and regional grid operated through load despatch centres, and a specialised appellate tribunal. In place of generation as a licensed privilege, it put generation as an activity open to any entrant who could meet technical standards for connecting to the grid. In place of the single buyer model, under which the Board bought all power and sold all power, it put trading as a licensed activity and open access as a statutory entitlement. The architecture was deliberately competitive at the edges and regulated at the core: wires, which are a natural monopoly, stayed licensed and price controlled, while generation and purchase, which are not, were opened.

That design choice is the key to reading every provision that follows. Wherever the Act wanted competition, it removed a permission. Wherever it retained a monopoly, it interposed a commission between the monopolist and the consumer. Wherever it created a right against the monopolist, it had to decide who would price the exercise of that right, and it answered that question in favour of the commission. Almost every disappointment recorded against the Act since 2003 is a disappointment about one of those pricing decisions, and almost every success is a success of a provision that needed no pricing decision at all.

The Electricity Act 2003 on paper: number, assent and commencement

The Act is Act 36 of 2003. It received the assent of the President on 26 May 2003 and was published in the Gazette on 2 June 2003. Its long title states its objects in terms that map closely onto its operative parts: to consolidate the laws relating to generation, transmission, distribution, trading and use of electricity, to take measures conducive to the development of the electricity industry, to promote competition, to protect the interests of consumers, to secure supply of electricity to all areas, to rationalise tariff, to ensure transparent policies regarding subsidies, to promote efficient and environmentally benign policies, to constitute the Central Electricity Authority and the regulatory commissions, and to establish an Appellate Tribunal. Few long titles in Indian legislation describe their statute as faithfully, and a reader who holds the list in mind can predict the structure of the Act part by part.

Commencement was staged in form and swift in practice. Section 1 left the appointed day to notification, with power to appoint different dates for different provisions, and the main notification, S.O. 669(E) dated 10 June 2003, brought sections 1 to 120 and 122 to 185 into force on 10 June 2003. The Act is therefore spoken of, accurately, as having come into force on 10 June 2003, and the bulk of its machinery dates from that day. Two amending Acts followed in its early life, one in 2003 itself and a more substantial one in 2007, and the amendment of 2007 matters to several provisions taken up below: it recast the rural electrification duty as a joint responsibility, wrote a deadline into the open access obligation for larger consumers, spared captive power carried to its own destination from the cross subsidy surcharge, and tightened the provisions on theft. The Act extends to the whole of India, and electricity is a concurrent subject, Entry 38 in the Concurrent List of the Seventh Schedule, so both Parliament and a state legislature may legislate on it, and where a state law and a central law collide the rules of repugnancy decide, which is the ground covered by the article on Article 254 and repugnancy. The concurrency is not a formality in this field. It explains why the Act builds a state commission rather than a single national regulator, why tariff for the retail consumer is a state subject in practice, and why the pace of the Act’s central reform, open access, has differed so sharply from state to state.

What the Act swept away, and what it preserved

The three repealed statutes are the subject of the companion pillar on the earlier regime, and they are noticed here only at the level the repeal itself requires. The Act of 1910 was a licensing statute of the colonial period, built around the grant of licences to supply defined areas. The Act of 1948 created the State Electricity Boards and the grid system and made the Board the near universal generator, transmitter and seller. The Act of 1998 created regulatory commissions, first at the Centre and then in the states, and began the separation of regulation from operation without disturbing the Board’s integrated structure. Section 185 of the 2003 Act repealed all three, with savings of the standard kind: things done under the repealed laws were deemed done under the corresponding provisions of the new Act, licences granted under the old regime continued on their terms until they expired or were dealt with under the new scheme, and the commissions already constituted under the Act of 1998 were carried over as commissions under the new Act. The predecessor regime, its Boards, its licensing practice and its reform decade are owned by the article on electricity laws before 2003, and nothing in this pillar depends on retelling them.

What the repeal preserved is as instructive as what it destroyed. The licence survived, but its territory shrank: after 2003 a licence is needed to transmit, to distribute and to trade, and not to generate. The Board survived in most states as a set of successor companies, because the Act provided the machinery of transfer schemes rather than abolition, and the personnel, assets and liabilities of the Boards moved into generation companies, transmission companies and distribution companies owned, in most states, by the same state government that had owned the Board. The commission survived and grew: what the Act of 1998 had sketched, the Act of 2003 completed, giving the commissions licensing, tariff, adjudicatory and standard setting functions across the whole sector. And the consumer’s position was restated from the beginning, in duties owed by licensees, standards of performance fixed by commissions, and a ladder of grievance forums that runs from the licensee’s own forum to an ombudsman appointed by the commission.

The field this pillar sits in

Electricity law does not stand alone, and the Act assumes its neighbours. Land for a generating station or a transmission line is acquired under the land acquisition framework; environmental clearance for a plant runs under the environment protection regime, and the Act’s own commitment to environmentally benign policies and to generation from renewable sources, written into its tariff principles and into the state commission’s functions, is the point at which the guide to the Environment Protection Act 1986 meets this statute. Competition questions in the sector run on two tracks, because the commissions regulate conduct within the sector while the Competition Commission polices markets across the economy, and the boundary between a sectoral regulator and a general competition authority is drawn at the sentence taken up by the article on the Competition Commission and antitrust enforcement. The whole field, of which this Act is the centrepiece, is mapped in the guide to infrastructure laws in India, and this pillar confines itself to the statute itself: what it permits, what it licenses, what it charges for, and where its promises have held.

Generation set free: Sections 6 to 10

The headline change of the Act is in Section 7, and it is short enough to state in one sentence. A generating company may establish, operate and maintain a generating station without obtaining a licence under the Act, if it complies with the technical standards relating to connectivity with the grid specified by the Central Electricity Authority. That is the whole of the permission structure for generation after 2003. There is no application, no grant, no area, no term and no renewal. The conditions that remain are conditions of a different kind: the plant must meet the technical standards for connecting to the grid, it must obtain the clearances that other laws impose on any large industrial project, and a hydroelectric scheme must pass one further statutory gate described below. The contrast with the repealed regime is total. Under the Act of 1948 as it operated for most of its life, generation was the Board’s business, private generation required sanction and licence, and capacity addition was an act of planning. After Section 7, capacity addition became an act of investment, and the generation sector that resulted, with private developers building thermal, hydro, wind and solar capacity at a pace the Board era never approached, is the Act’s most visible achievement.

The freedom is deliberately not a freedom from regulation of conduct. A generating company carries duties under Section 10, to operate and maintain its stations in accordance with the Act and the grid standards, and to supply electricity to licensees, traders and other buyers under the arrangements the Act contemplates. The appropriate government retains a power under Section 11, in extraordinary circumstances, to direct a generating company to operate and maintain a station in accordance with its directions, a reserve power for emergencies rather than a planning instrument. And the Central Electricity Authority, the technical body the Act constitutes in Part IX, specifies the standards that delicensed generation must meet: standards for construction, for connectivity, for operation, for safety and for the grid. The pattern is the Act’s signature. Entry is free; behaviour on the network is specified; the specification is technical rather than discretionary, so compliance can be known in advance and cannot be withheld as a favour.

What extra gate must a hydro generating station pass?

A hydro scheme above the capital cost threshold notified by the Central Government needs the concurrence of the Central Electricity Authority under Section 8. The Authority considers, among other matters, whether the scheme provides for dam safety and for the optimal utilisation of the water resources of the region, and whether it prejudices the interests of other states and regions.

The hydro exception deserves its reasoning, because it looks like a survival of the licensing mentality and is not. A river is a shared and rivalrous resource in a way that a coal linkage or a gas supply is not, a dam is a structure whose failure is catastrophic, and a hydro scheme fixes the use of a stretch of river for generations. The concurrence requirement is therefore addressed to the two things a market entrant cannot be left to decide alone: the safety of the structure and the allocation of the water. Thermal, wind and solar generation carry no equivalent gate, and the difference tracks the externality rather than any preference for control.

Section 9 deals with the captive generating plant, and it is the provision through which Indian industry responded most energetically to the Act. A person may construct, maintain or operate a captive generating plant and dedicated transmission lines, and a captive plant is one set up to generate electricity primarily for the use of its owner, with the precise ownership and consumption tests, built around a minimum shareholding by the captive users and a minimum share of the plant’s output consumed by them, supplied by the Electricity Rules of 2005 rather than by the Act itself. The right that matters commercially is the second limb of the section: electricity from a captive plant may be carried to the destination of its use through the grid, subject to the availability of transmission capacity as determined by the transmission utility, and the amendment of 2007 confirmed that power carried from a captive plant to the place of its own use does not bear the cross subsidy surcharge that open access otherwise attracts. Captive generation therefore offered industry a route around two things at once, the unreliability of licensee supply that had driven factories to diesel sets for decades, and, where the plant and the load were in the same hands, the cross subsidised tariff structure. The scale of captive capacity built after 2003 is the market’s verdict on how industrial consumers priced the incumbent’s service.

Section 6, the rural electrification duty, belongs to the same opening part of the Act and states the obligation in the grammar of endeavour rather than entitlement. The appropriate government is to endeavour to supply electricity to all areas, including villages and hamlets, and the amendment of 2007 recast the duty as a joint responsibility of the Central Government and the state governments, to be discharged alongside the national policies the Act requires the Centre to formulate on electricity and on rural electrification, including the use of stand alone systems and renewable sources for villages that the grid reaches late or at prohibitive cost. No individual villager can sue on Section 6, and the Act does not pretend otherwise. Its legal significance lies elsewhere: it fixes the direction of the policies, plans and subsidy decisions that the operative parts of the Act then execute, and it explains why the distribution licensee’s universal supply obligation, which is enforceable, is framed as a licence duty rather than as a market outcome.

Who needs a licence and who does not

The licensing map is the artifact by which the whole Act can be remembered, and it resolves the confusion that persists in much writing about the sector, where generation is still described as licensed and open access as a licence. A licence under the Act is granted by the appropriate commission, the Central Commission for inter state activity and the state commission within a state, under Section 14, on application and after the procedure the Act prescribes. Three activities require it. Transmission requires it, because the wires are a monopoly and the licensee’s duties of non discriminatory access and system building are the price of the monopoly. Distribution requires it, because the distribution licensee holds an area of supply and a universal service obligation. Trading requires it, because a trader buys and sells a commodity whose delivery system it does not own and whose failures fall on others. Generation does not require it, for the reasons Section 7 embodies. Captive generation does not require it. And the consumer who takes open access requires no licence at all: open access is a right exercised against licensees, not a licensed activity, and what the consumer pays are regulated charges, not a licence fee.

Activity	Licence required	Granted by	Conditions that attach	Charge payable
Generation by a generating company	No licence under Section 7	No granting authority	Compliance with the Central Electricity Authority’s technical standards for grid connectivity; concurrence of that Authority for a hydro scheme above the notified cost threshold	No licence fee; grid and scheduling charges as regulated
Captive generation for own use	No licence under Section 9	No granting authority	The plant must meet the ownership and consumption tests for captive status under the Electricity Rules of 2005; carriage through the grid depends on available transmission capacity	No cross subsidy surcharge on power carried to the destination of its own use; wheeling and transmission charges as regulated
Transmission	Yes, under Section 14	The Central Commission for inter state transmission, the state commission within a state	Duties to build and maintain an efficient system and to provide non discriminatory open access under Sections 38 to 40	Tariff determined by the appropriate commission
Distribution	Yes, under Section 14	The state commission	The universal duty to supply on application, standards of performance, metering and the other duties of Part VI	Retail tariff determined by the state commission
Trading	Yes, under Section 14	The Central Commission for inter state trading, the state commission within a state	Technical and creditworthiness requirements specified by the commission; trading margin subject to regulation	Trading margin as regulated by the appropriate commission
Supply taken through open access by a consumer	No licence; open access is a right under Section 42	No granting authority; the state commission phases and regulates it	Eligibility by load and phase as the state commission provides; the consumer remains liable for the regulated charges of the route	Wheeling charge, cross subsidy surcharge and additional surcharge as determined by the state commission
Wheeling of captive power to the owner’s place of use	No licence	No granting authority	Captive status maintained; transmission capacity available	Wheeling and transmission charges; no cross subsidy surcharge

Two features of the table repay attention. The first is that every row in which a licence is required is a row in which a commission stands behind the licensee with power over its prices, which is why the Act can afford to license those activities: the licence is not the control, the tariff order is. The second is that the rows without a licence are the rows where the Act’s reforms actually happened at scale. Generation capacity was added, and captive plants were built, in volumes that transformed the sector within a decade of commencement, and both rows are the ones in which no official had to say yes to anything beyond technical compliance.

The wires and the men who run them: transmission and load despatch

Between the generator and the consumer stand the wires, and the Act organises them in two layers. The first layer is ownership and operation of the transmission system. Section 38 constitutes the Central Transmission Utility, the government company notified for the purpose, charged with inter state transmission and with the planning and coordination of the inter state system. Section 39 does the same for the State Transmission Utility within a state, and imposes a structural discipline the Board era lacked: the State Transmission Utility may not trade in electricity, because the owner of the wires must have no commercial interest in what flows over them. Section 40 states the duties of every transmission licensee, to build, maintain and operate an efficient, coordinated and economical transmission system and to provide non discriminatory open access to its system to any licensee or generating company on payment of the transmission charges. The transmission licensee is thus a common carrier in statutory form, and open access in transmission, unlike open access in distribution, was never seriously resisted, because a transmission utility that is barred from trading and paid a regulated tariff on its assets loses nothing when a third party’s power crosses its lines.

The second layer is operation of the grid in real time, and it belongs to the load despatch centres. Section 26 provides for a National Load Despatch Centre for scheduling and dispatch among regions, Sections 27 and 28 for Regional Load Despatch Centres and their functions, and Sections 31 to 33 for the State Load Despatch Centre in each state, which Section 32 charges with the economic and secure operation of the state grid and with scheduling in accordance with the contracts of the licensees and generators within the state. The centres are the Act’s answer to a question the Board era had answered badly, with frequency excursions and regional failures as routine events: who decides, minute by minute, which station generates and which load is served when the two do not match. The answer is a hierarchy of dispatch institutions working to a grid code specified by the Central Commission and state codes specified by the state commissions, with directions that licensees and generating companies are bound to comply with, and with the despatch function kept institutionally apart from the trading function for the same reason the transmission utility is.

Who runs the grid from minute to minute?

The load despatch centres do. The National Load Despatch Centre sits above the Regional Load Despatch Centres, and a State Load Despatch Centre operates each state grid, scheduling generation and load under the grid code, issuing directions that licensees and generating companies must obey, and keeping the system’s frequency and security within the standards the commissions specify.

The grid code point is worth dwelling on, because it shows the Act regulating by standard rather than by permission in its most technical province. A generator’s freedom under Section 7 is a freedom to enter, not a freedom to destabilise, and the discipline that makes entry safe is a published code: the conditions for connection, the operating procedures, the scheduling and despatch code and the consequences of deviation, settled in a deviation charge that prices indiscipline instead of prohibiting it. The later history of grid discipline in India, including the tightening of deviation settlement and the avoidance, after the great northern grid failures of 2012, of any comparable collapse, ran through those instruments rather than through any return to licensing, which is some evidence that the Act chose its regulatory technique well in the part of the sector where engineering leaves no room for argument.

The distribution licensee: a licensed monopoly with duties

Distribution is where the Act meets the citizen, and Part VI of the Act, running from Section 42 to Section 59, is written accordingly: it is a charter of duties owed by a monopolist to a captive public, enforced by a commission. The licensee holds an area of supply under its licence. Within that area it must develop and maintain an efficient, coordinated and economical distribution system, and it must supply electricity in accordance with the Act. The duties that follow are stated as obligations, not aspirations, and each has a remedy attached somewhere in the scheme.

The first duty is the duty to supply. Section 43 obliges a distribution licensee, on an application by the owner or occupier of premises, to give supply of electricity to those premises within one month after receipt of the application, with a proviso for cases in which supply requires the extension of distribution mains or the commissioning of new substations, where the period is the one the state commission specifies. A licensee that fails without reasonable excuse commits an offence and is liable to a penalty extending to one thousand rupees for each day of continuing default. Section 44 softens the duty only where the licensee is prevented by cyclones, floods, storms or other circumstances beyond its control. The one month rule is the provision ordinary consumers actually invoke, and its importance is easily missed by readers who come to the Act for its market design: for a household or a small business, the Act is not about choice of supplier at all, it is about a connection that must be given, on a timetable, by a supplier who cannot refuse.

Around the duty to supply the Act builds the terms of the relationship. Section 45 governs the price: the charges for electricity supplied are fixed in accordance with the tariff determined by the commission, must be displayed and published as the section requires, and may recover specified items such as the expenses of installations the consumer’s connection requires. Section 47 permits a security deposit, Section 48 an additional security where the deposit proves inadequate, and Section 46 permits recovery of expenses reasonably incurred in providing electric lines and plant for a supply. Section 50 requires the state commission to issue an Electricity Supply Code dealing with the recovery of charges, the intervals of billing, disconnection, restoration, tampering and the other recurring incidents of supply, so that the small print of the consumer’s position is set by the regulator and published, rather than invented bill by bill by the licensee.

Can two distribution licensees serve the same area?

Yes. Section 14 permits the appropriate commission to grant a licence to two or more persons for distributing electricity through their own distribution systems within the same area. What the Act did not do was let the second licensee use the first licensee’s wires, which is why parallel distribution stayed rare.

That proviso is one of the Act’s quiet structural facts, and it returns in the amendment debate. A second distribution licence was always available, and in a handful of places, most visibly in Mumbai, more than one licensee did serve overlapping territory. But each needed its own network, and duplicating a wire network across a city is an investment few entrants will make to compete for a regulated return, so the formal possibility of competing distributors produced almost no competition in distribution. The Electricity (Amendment) Bill of 2022 attacked exactly this point, by proposing that licensees in the same area share the incumbent’s network, and the resistance it met is taken up below with the other amendment attempts.

When may a licensee disconnect a consumer, and on what notice?

Section 56 permits disconnection where a consumer neglects to pay a charge for electricity or another sum due under the Act, but only after notice of not less than fifteen clear days, and not if the consumer deposits the amount due under protest pending disposal of a dispute about the bill.

Disconnection is therefore a licensed remedy on conditions, not a licensee’s prerogative, and a supply cut off without the notice, or in the face of a deposit under protest, is a disconnection the Act does not authorise and the grievance forums will order restored.

Section 55 addresses the meter, and it is the provision on which honest billing depends. No licensee may supply electricity, after the expiry of two years from the appointed day, except through installation of a correct meter in accordance with the regulations made by the Central Electricity Authority, and where a consumer refuses access for metering or disputes the meter, the section supplies the machinery of testing and reference. The metering duty sounds like housekeeping and is in fact foundational, because every other number in the sector, consumption, loss, subsidy and theft, is a number produced by meters, and a distribution system that cannot measure itself cannot be regulated, billed or reformed. The long and incomplete campaign for universal metering, and later for prepaid and smart metering, is a campaign to make Section 55’s assumption true in fact.

Standards of performance complete the charter. Section 57 requires the state commission to specify standards of performance for licensees, the circumstances in which a licensee is liable to pay compensation to a person affected by its failure to meet them, and the manner of determining that compensation, and a licensee that fails to meet a standard is liable to pay the compensation so determined in addition to any penalty elsewhere in the Act. Sections 42(5) to 42(8) build the grievance ladder: every distribution licensee must establish a forum for redressal of consumer grievances in accordance with the commission’s guidelines, a consumer aggrieved by the forum’s inaction or order may approach the Electricity Ombudsman appointed by the state commission, and the ombudsman must settle the grievance within the time and manner the commission specifies, with the consumer’s remedies under other laws, including the consumer protection framework, expressly preserved. The ladder matters because it converts the duties of Part VI from text into outcomes at a cost a single consumer can bear, and a reader assessing the Act from the consumer’s side should weigh the forums it created as heavily as the markets it designed. This article states the law as enacted and amended; it is general information about a statute, not advice on any individual dispute about a bill, a connection or a prosecution.

Open access: the right that was priced

Section 42 contains, inside the distribution licensee’s duties, the provision on which the Act’s second promise depends. The state commission is to introduce open access in distribution in phases and on conditions it determines, guided by the national policies. A consumer taking open access pays a surcharge, fixed by the state commission, to meet the requirements of cross subsidy attaching to the departing load, and the Act directs that the surcharge and the cross subsidies themselves be progressively reduced. The consumer also pays a wheeling charge for the use of the distribution system. And under Section 42(4), where the state commission permits a consumer or class of consumers to receive supply from a person other than the distribution licensee of the area, an additional surcharge may be levied, to meet the fixed cost of the distribution licensee arising out of its obligation to supply, the stranded cost of capacity the licensee contracted for and the departing consumer no longer helps to pay. Section 42(3) adds a specific protection for the incumbent’s investment in its own right: a distribution licensee must give open access on its system, but where the system needs augmentation to carry the open access load, the person seeking access may be required to bear or arrange the augmentation.

The threshold question, who may use the right, was answered by stages. The Act left the phasing to the state commissions, and the amendment of 2007 wrote in a floor: the state commission was required, not later than five years from the commencement of that amendment, to provide open access to all consumers who required a supply with a maximum power to be made available at any time exceeding one megawatt. In practice the one megawatt line became the operative boundary of the reform across most states, and it is a revealing boundary: it confined statutory choice to industrial and large commercial consumers, the very consumers whose tariffs carried the cross subsidy, and left the household and the small shop inside the monopoly for the indefinite future. Open access in transmission, by contrast, was provided for directly in Sections 38 to 40 and functioned from early in the Act’s life, and the difference between the two halves of the same concept is the difference between a right exercised against a neutral carrier and a right exercised against an interested seller.

The surcharge arithmetic explains the outcome without any need to posit bad faith. Cross subsidy in Indian electricity pricing is not a marginal feature; it is the load bearing wall of the tariff structure. Agricultural consumers and large parts of the domestic category are supplied at tariffs below the cost of supply, in many cases far below, and the difference is recovered from industrial and commercial consumers, who pay above cost. A distribution licensee that loses its industrial load loses the contribution that finances its below cost obligations, while its own costs barely fall, because it contracted generation capacity, built its network and hired its establishment for the whole load. The cross subsidy surcharge is the departing consumer’s payment toward that contribution, and the additional surcharge is the payment toward the fixed costs left stranded. Set the surcharges at the full measure of those two amounts and open access saves the consumer nothing, so nobody moves. Set them at zero and the remaining consumers, including the subsidised categories and the small consumers who cannot move, bear the whole burden, which no state government will accept and no commission can order without wrecking the licensee it must also keep viable. The Act saw the trap and answered it with a direction rather than a destination: surcharges and cross subsidies were to be progressively reduced, which is a instruction to travel without a map, and the Tariff Policy of 2016 later supplied a benchmark by stating that the cross subsidy surcharge should not exceed twenty per cent of the tariff applicable to the category seeking open access. In states where commissions held surcharges at or near the full avoided contribution, open access remained a right on paper; in the few jurisdictions where the combined charges left a margin against the industrial tariff, open access volumes grew and a genuine market in bilateral and exchange traded power for large consumers formed.

The two cases deserve statement at full strength, because the stance of this series requires it and because both are honestly held.

The distribution licensee’s case, put by the state owned distributors and by the state governments that own them, is that the surcharge is arithmetic and not obstruction. The licensee carries a universal supply obligation, including to consumers supplied below cost as a matter of settled public policy, and it contracted long term capacity, much of it from generating stations built to serve that obligation, on take or pay terms that do not shrink when a consumer leaves. If large consumers exit without paying for the cross subsidy they carried and the fixed costs they strand, the burden does not vanish; it falls on those who remain, who are by construction the consumers least able to bear it and least able to follow the exiters. A surcharge that recovers those amounts is the price of an orderly transition, and the complaint that it makes open access uneconomic is, on this view, a complaint that the industrial tariff was never a real price but a tax, and that removing the tax for the largest payers first is regressive sequencing. The Prayas Energy Group and other long standing critics of the sector’s governance answer from the other side, and their case is that the surcharge as administered defeats the Act. The computation of the surcharge is opaque and varies between states on no transparent principle, it is revised in ways that destroy the ability of a consumer to plan a multi year purchase, charges beyond the two statutory surcharges have been layered onto open access transactions in several states, and the statutory direction that cross subsidy be progressively reduced has not been honoured in most states across two decades, so the transitional device has become the permanent settlement. On that view the reform did not fail because its arithmetic was hard; it failed because the institution asked to set the transitional price had every incentive to set it at the level that made transition unnecessary.

The honest common ground between those positions is narrow and important. Both sides accept that open access at scale is impossible while cross subsidy remains at its present depth, because the surcharge must either recover the subsidy, and kill the transaction, or not recover it, and shift it. Cross subsidy is deep because agricultural and domestic tariffs are low, and agricultural and domestic tariffs are low because no elected government will raise them to cost. The open access question is therefore not, at bottom, a regulatory question that a better commission could answer; it is a political question about who pays for cheap power for farmers and households, which the Act could frame but could not settle. The same arithmetic underlies the opposition to the 2022 Bill’s proposal for competing distributors on a shared network, since a new licensee choosing its consumers would choose the paying ones, and the fund the Bill proposed to balance cross subsidy among licensees is the same problem wearing another form.

One further comparison sharpens the finding. Generation delicensing worked because it was complete on enactment: the day Section 7 commenced, the legal barrier was gone, and no official decision stood between an investor and a plant. Open access was incomplete on enactment by design, because its price term was delegated, and the delegation was made to the one institution, the state commission, which the Act simultaneously charged with the financial viability of the incumbent and with the protection of the subsidised consumer. A commission can hold those obligations together in either of two ways, by advancing open access and managing the consequences, or by pricing open access so that few consequences arise, and the second is always the safer course for the institution itself. The Act’s central lesson is therefore about drafting rather than about electricity: a reform that depends on a number must either fix the number, fix the formula, or fix a date by which the number falls to a stated level, and the Act did none of the three for the charge that decided its second promise.

The commissions: who regulates what

The Act’s institutional centre is a pair of regulatory commissions, one for the Union and one for each state, with provision for a joint commission where states agree or for the union territories. The Central Electricity Regulatory Commission is constituted under Section 76 and its functions are stated in Section 79: to regulate the tariff of generating companies owned or controlled by the Central Government and of other generating companies with a composite scheme for generation and sale across more than one state, to regulate inter state transmission and determine its tariff, to license inter state transmission and trading, to adjudicate disputes in its field, to specify the Grid Code and grid standards, to fix trading margins in inter state trading if considered necessary, and to discharge the price stabilising and market development functions the Act assigns. The State Electricity Regulatory Commission is constituted under Section 82 and its functions are stated in Section 86: to determine the tariff for generation, supply, transmission and wheeling of electricity within the state, to regulate the electricity purchase and procurement process of distribution licensees, to license transmission, distribution and trading within the state, to facilitate intra state transmission and wheeling, to promote cogeneration and generation from renewable sources by suitable measures and by specifying, for purchase of electricity from such sources, a percentage of the total consumption in the area of a distribution licensee, to adjudicate disputes between licensees and generating companies and to refer matters for arbitration, and to specify the State Grid Code and the standards of performance that Part VI makes enforceable. Section 83 permits a Joint Commission for two or more states by agreement, or for a state and union territories, and the joint commissions for groups of smaller states and territories are the working illustration.

Membership and tenure are designed for independence within limits the Act states plainly. The commissions consist of a chairperson and members appointed by the appropriate government on the recommendation of a selection committee, with qualifications in law, economics, commerce, finance, engineering or public administration as the Act prescribes, and with the chairperson of the Central Commission drawn from persons who are or have been judges of the Supreme Court or chief justices of a High Court in the scheme the Act lays down for its judicial member. The governments retain real levers, and the Act does not hide them: the Central Government may issue directions to the Central Commission, and a state government to its state commission, on questions of policy involving public interest under Sections 107 and 108, and such directions bind, though the commission must be heard as far as practicable and the direction must be published. The honest reading of the design is that the commissions are independent in adjudication and tariff determination within the statute, and subordinate in declared policy to the elected government, and much of the litigation and commentary on regulatory independence in the sector is an argument about where that line falls in a given case.

Behind the commissions stands the Central Electricity Authority, constituted under Section 70, the sector’s technical authority. Section 73 assigns it the specification of technical standards for construction, operation and maintenance, the safety requirements for construction, operation and maintenance of electric plants and lines, grid standards, the conditions for installation and operation of meters, and advisory functions to governments and commissions on technical questions. The division of labour is characteristic of the Act: the Authority speaks on how the system must be built and run to be safe and stable, the commissions speak on who may do business, at what price and subject to what service standards, and the load despatch centres speak, through the codes, on how the system is operated hour by hour. A dispute about a tariff belongs to a commission; a dispute about a technical standard belongs in the first instance to the Authority’s specifications; confusing the two is a recurrent source of error in accounts of the sector.

Tariff: determined, adopted, or subsidised

Part VII of the Act, Sections 61 to 66, contains the tariff code, and its first move is to separate the making of a price into three different operations. Section 61 states the principles on which the appropriate commission must specify the terms and conditions for determination of tariff: the generation, transmission, distribution and supply of electricity are to be conducted on commercial principles; competition, efficiency, economical use of resources, good performance and optimum investment are to be encouraged; the tariff is progressively to reflect the cost of supply and to reduce cross subsidies within the period the commission specifies; the interests of consumers are to be safeguarded while the cost of electricity is recovered in a reasonable manner; and the promotion of cogeneration and generation of electricity from renewable sources of energy is to be encouraged by suitable measures for connectivity and by the specification of a percentage of purchase from such sources. Section 61 is the Act’s constitution for pricing, and the tariff orders of two decades are best read as successive commissions working out, state by state, how much of that list can be honoured at once.

Section 62 is the determination power. The appropriate commission determines tariff for the supply of electricity by a generating company to a distribution licensee, for transmission, for wheeling, and for the retail sale of electricity, in accordance with the Act and the terms and conditions specified under Section 61. Section 64 supplies the procedure: an application in the prescribed form, publication of the application, consideration of suggestions and objections, and an order, with the commission expected to decide within the period the section prescribes, so that a tariff order is a public, reasoned, contestable document rather than an administrative price list. The public character of the proceeding is one of the Act’s under used consumer rights. Any consumer may file objections to a proposed tariff, appear and be heard, and the objection record, the licensee’s filings and the commission’s reasoning form a documentary trail that rewards those who keep it in order; researchers and consumer associations that maintain their own protected archives of filings and orders, in the manner described in this account of how journalists use VaultBook to protect sources, are consistently better placed in later proceedings than those who rely on the record being reassembled for them.

Section 63 is the exception that became a pillar. Notwithstanding Section 62, where tariff has been determined through a transparent process of bidding in accordance with the guidelines issued by the Central Government, the appropriate commission shall adopt the tariff so determined. Adoption is not determination. Under Section 62 the commission constructs a price from costs; under Section 63 the market constructs the price and the commission’s duty is to verify the integrity of the process and adopt its result. The standard bidding guidelines issued by the Central Government in January 2005, and the standard bidding documents that followed, turned Section 63 into the principal route by which long term generation capacity was procured in the Act’s second decade, including the ultra mega power projects, because a bid tariff locked into a power purchase agreement gave lenders a revenue stream that a periodically redetermined cost plus tariff could not match for certainty.

The boundary between the two routes produced the largest body of litigation under the Act, on the question whether a commission, faced with a bid tariff that events had made unviable for the generator, could grant a compensatory tariff outside the bid. The Supreme Court answered in Energy Watchdog v Central Electricity Regulatory Commission, decided on 11 April 2017. Indonesian regulatory changes had raised the price of the coal on which two large imported coal projects depended, and the generators sought relief. The Court, in a judgment delivered by Nariman J, held that Section 63 is a self contained route: once a tariff is adopted under it, the commission has no residuary power, whether under its general functions or otherwise, to rewrite the bargain by awarding a compensatory tariff; relief, if any, must be found inside the power purchase agreement itself, in its change in law and force majeure clauses, construed according to their terms, and a change in foreign law was not a change in law within the agreement, nor did the rise in fuel price make performance impossible in the sense the law of contract requires. The guidelines under Section 63 were held to have the force of law, and the commission’s role in adoption, while real, is a check on the transparency and conformity of the process rather than a licence to improve its outcome. The decision settled the sanctity of bid tariffs in Indian electricity law, at the price the generators and their lenders bore, and it remains the leading authority on the difference between a regulated tariff and a contracted one. The companion line of authority, represented by the Supreme Court’s decision in PTC India v Central Electricity Regulatory Commission in 2010, marks the other boundary: the commissions’ regulatory powers are wide within the field the Act occupies, extending, as that case held, to the regulation of trading margins, but they are powers under the Act, to be exercised consistently with its scheme and not as a general jurisdiction over the sector.

Section 65 handles the subsidy, and it does so with an accounting discipline that is easy to overlook. A state government may grant a subsidy to any class of consumers, but the tariff determined by the state commission is not affected by the grant, and the government must pay the amount of the subsidy to the distribution licensee in advance, in the manner the commission directs, as a condition of the licensee being required to charge the subsidised tariff. The design separates three things that the Board era habitually fused: the cost reflective tariff, which the commission determines; the political decision to charge a class of consumers less, which the government takes; and the money, which must move from the government to the licensee before the concession is given effect, so that a subsidy appears in the accounts as a government payment rather than being buried in the licensee’s losses. Where state governments have paid late, in part, or by book adjustment rather than in cash, the discipline of Section 65 has been honoured in form and evaded in substance, and the licensee’s balance sheet has carried the difference; the provision remains the clearest statement in Indian law that cheap power for a favoured class is a fiscal decision with a fiscal price, and not a cost that can be silently assigned to a utility.

Appeals: the Appellate Tribunal and the Supreme Court

Section 110 establishes the Appellate Tribunal for Electricity, and Section 111 gives it its jurisdiction: any person aggrieved by an order made by an adjudicating officer or by the appropriate commission under the Act may prefer an appeal to the Appellate Tribunal within forty five days of the order, with power in the Tribunal to condone delay for sufficient cause. The Tribunal’s bench is judicial and technical in composition, its chairperson being a person who is or has been a judge of the Supreme Court or the chief justice of a High Court, and it exercises the powers of a civil court for the purposes the Act specifies while remaining a specialised appellate forum rather than a second regulator. From the Tribunal, Section 125 provides a further appeal to the Supreme Court within sixty days, on one or more of the grounds specified in Section 100 of the Code of Civil Procedure, which is to say on a substantial question of law. The two tier structure has shaped the jurisprudence of the sector: tariff and licensing questions are fought first before the Tribunal, which has built a substantial body of precedent on the commissions’ powers, and reach the Supreme Court only as questions of law, which is why the great electricity cases, Energy Watchdog among them, are framed as contests about the construction of the Act rather than about the merits of a price.

The limits of the appellate route are as significant as its existence. The Tribunal hears appeals from commissions and adjudicating officers; it is not a forum of first instance for grievances against a licensee, which travel the ladder of Section 42, nor a supervisor of the Central Electricity Authority’s technical specifications, which are challenged, if at all, by the ordinary constitutional remedies. And the commissions’ own adjudicatory jurisdiction, to decide disputes between licensees and generating companies and to refer others to arbitration, has been read as excluding the ordinary civil courts within its field, so that the choice of forum in an electricity dispute is a question of law with a right and a wrong answer, and a party that begins in the wrong forum loses time it rarely recovers.

Enforcement: unauthorised use is not theft

Part XIV of the Act, Sections 135 to 152, contains the offences, and the distinction at its centre is the one most often blurred in practice. Unauthorised use of electricity, dealt with by Section 126, is a civil wrong remedied by assessment. It covers the use of electricity through a tampered meter, by a means not authorised by the licensee, for a purpose other than the purpose for which supply was given, for premises other than those for which it was given, or by a person whose supply stands disconnected. Where an inspecting officer concludes that unauthorised use has taken place, the assessing officer serves a provisional assessment and, after hearing the person, passes a final assessment at twice the tariff rate applicable to the category, for the period of the unauthorised use or, where that period cannot be ascertained, for a period limited to twelve months immediately preceding the inspection. The assessed amount is recoverable as a civil liability, an appeal lies to the appellate authority the Act specifies on deposit of part of the assessed sum, and no prosecution is involved. The design is deliberate: most unauthorised use is a billing problem, and the Act answers it with a bill, calculated punitively at double the tariff, rather than with a criminal record.

Theft of electricity, under Section 135, is a different thing in kind. A person who dishonestly taps, makes or causes a connection with overhead, underground or underwater lines or cables, tampers with a meter or installs a device that interferes with accurate registration, damages or destroys a meter, uses electricity through a tampered meter, or uses electricity for a purpose other than that for which its use was authorised, so as to abstract or consume or use electricity, commits theft. The offence is punishable with imprisonment for a term which may extend to three years, or with fine, or with both, and the amending Act of 2007 sharpened the provision, prescribing enhanced punishment for second and subsequent convictions and for theft involving loads above a stated threshold, and treating the existence of an artificial means of abstraction as raising a presumption, in the circumstances the section states, that the abstraction was dishonest and effected by the consumer. Theft is triable by the Special Courts that Part XV, Sections 153 onwards, requires state governments to constitute for the speedy trial of offences under the Act, and the offence is compoundable under Section 152 on payment of the compounding charges the appropriate government specifies, compounding having the effect of an acquittal for that offence. Abetment is punishable under Section 150, interference with meters and works under Section 138, and maliciously extinguishing a public lamp and negligently breaking or damaging works have their own provisions in the same Part.

The conflation of the two routes is the commonest practical error under the Act, and it cuts both ways. A consumer accused of theft for what is, in substance, an unauthorised use dispute faces the coercive machinery of the criminal law for a liability the Act intends to be assessed civilly; a licensee that answers systematic abstraction with assessment alone converts a crime into a tariff. The courts have accordingly insisted on the elements that separate them: dishonest abstraction and tampering directed at defeating measurement belong to Section 135, use outside the authority given, without the dishonest interference the theft provision describes, belongs to Section 126, and an assessment under Section 126 is not a finding of theft and cannot be used as one. The distinction also governs the money: the Section 126 assessment is measured by consumption at double tariff, while theft carries its own consequences in prosecution, compounding charges and, on conviction, the penalties the section prescribes, and the two computations answer different questions.

The unbundling machinery: what happened to the Boards

The Act did not abolish the State Electricity Boards by proclamation. Part XIII, Sections 131 to 134, supplied machinery instead. Section 131 empowered the state government, by a transfer scheme, to vest the property, interests, rights and liabilities of the Board in the state government in the first instance and then to transfer them onward to generation, transmission and distribution companies, with the scheme settling the terms of transfer, the valuation and the treatment of obligations. Section 133 made corresponding provision for personnel, transferring the officers and employees of the Board to the successor entities on terms the scheme specified, with protections against less favourable service conditions. The result, across most states in the years after 2003, was the standard unbundled structure: a state generation company, a state transmission company doubling as the State Transmission Utility, and one or more distribution companies, each incorporated, each holding its assets and its licence under the new Act, and each still owned, in the great majority of states, by the state government.

The significance of the machinery is that it made reform a property transaction rather than a political confrontation. The Board as a legal person disappeared in state after state without any single moment at which its workforce, pensioners, creditors and consumers had to be answered for in one statute, because the scheme answered for each in its schedule. It also explains the limits of the reform. Unbundling changed the structure of the industry and the clarity of its accounts, separating the cost of generation, transmission and distribution in a way the integrated Board had concealed, and it created the entities to which licences, tariff orders and standards of performance could attach. It did not change the ownership, and a state government that owns the generator, the transmitter and the distributor, appoints the commission’s members and sets the subsidy policy sits on every side of the Act’s table at once, which is the standing condition of Indian electricity governance and the background against which both the successes and the failures recorded in this article occurred.

The amendment attempts: 2014, 2020 and 2022

Three attempts to amend the Act frame its unfinished business, and all three are unenacted, a status that writing about the sector frequently misstates and that this article states precisely. A Bill to amend the Act was introduced in the Lok Sabha in 2014, directed principally at separating the carriage and content businesses in distribution, at strengthening the regulatory framework and at renewable obligations, and it lapsed. A further amendment Bill was circulated as a draft in 2020, proposing among other things a national renewable energy policy framework, direct benefit transfer of subsidies and changes to the appointment and payment security arrangements in the sector, and it was not introduced. The Electricity (Amendment) Bill of 2022 was introduced in the Lok Sabha on 8 August 2022 by the Minister of Power, R. K. Singh, and was referred on the same day to the departmental Standing Committee on Energy, before which it remained under examination, unenacted. A Bill referred to a standing committee has passed no stage of enactment; it is a proposal under scrutiny, and on the dissolution of the House a pending Bill of this kind lapses.

The 2022 Bill’s principal proposals show where its drafters located the Act’s failures. It proposed to permit more than one distribution licensee in the same area of supply using the existing distribution network, converting the shared wires into a common carrier and thereby attacking the obstacle, identified in the discussion of Section 14 above, that had kept the Act’s own permission for parallel licensees from producing competition. It proposed to strengthen the renewable purchase obligation by attaching penalties to default, to reinforce the Appellate Tribunal by enlarging its benches and strengthening its enforcement, and to support the payment security and cross subsidy arrangements with a fund mechanism for balancing cross subsidy among competing licensees. The opposition it met, from state governments guarding a concurrent subject, from employee federations of the state utilities, and from critics who argued that competing licensees would select profitable consumers and strand the rest with the incumbent, is the open access argument restated at the level of the whole distribution business, and it prevailed to the extent of keeping the Bill in committee. The Act therefore stands as amended in 2007 in all essentials relevant here, and every account that describes multiple distribution licensees on a shared network, or penalties for default in the renewable obligation, as Indian law is describing a Bill and not the statute.

Assessment: a reform in two halves

The verdict the evidence supports is the one the brief for this pillar proposed, and twenty years of operation have strengthened rather than weakened it. The Electricity Act 2003 abolished the licence for generation, and generation flourished: capacity was added by private and public developers alike, a market in power purchase and trading formed, bid tariffs under Section 63 financed projects on the strength of contracted revenue, and the question whether generation needs a licence, which the Act answered in 2003, is still asked by entrants who have absorbed the older assumption. The same Act created open access in distribution, and open access languished: confined in practice to consumers above one megawatt, priced by a surcharge and an additional surcharge fixed by commissions with a conflicting duty, entangled in further charges in several states, and exercised at scale in only a few jurisdictions. The difference between the two halves is not effort, sincerity or competence. It is that the first reform was a deletion and the second was a delegation. A deletion executes itself. A delegation executes at the discretion of the delegate, and the delegate’s incentives, fixed by the same statute that created the right, pointed the other way.

For the reader who uses the sector rather than studies it, the Act’s practical content can be carried in a short set of propositions, each of which the sections above establish. Generation needs no licence; captive generation needs no licence and bears no cross subsidy surcharge for its own carriage. Wires are licensed and their owners are common carriers. Supply must be given on application within a month, on the commission’s tariff, through a meter, to standards the commission sets, with a grievance ladder behind them. A large consumer may buy elsewhere, and the price of doing so is a set of regulated charges whose size, not whose existence, decides the matter. A bid tariff, once adopted, is a contract and not an opening offer. A subsidy is a payment the government owes the licensee in advance, not a favour the licensee absorbs. Unauthorised use is assessed; theft is prosecuted; the two are not the same. And the amendments that would change any of this are Bills, not law.

The technical constitution: the Central Electricity Authority and the national policies

The commissions dominate accounts of the Act because they make the decisions that are litigated, but the sector’s technical constitution belongs to another institution, and a pillar that omits it misdescribes where much of the law lives. The Central Electricity Authority is constituted under Section 70 of the Act, as a body chaired by a chairperson with members drawn from the disciplines the sector requires, and it is the successor, in a line that runs through the repealed Act of 1948, of the statutory technical authority that had advised on and concurred in power development since the middle of the twentieth century. Section 73 states its functions, and they divide into three kinds. The first is specification: the Authority specifies the technical standards for construction of electric plants, electric lines and connectivity to the grid, the safety requirements for construction, operation and maintenance, the grid standards for operation and maintenance of transmission lines, and the conditions and standards for the installation and operation of meters. The second is concurrence and advice: the Authority concurs in hydroelectric schemes under Section 8, advises the Central Government on the national electricity policy and on technical questions, and advises commissions and governments within its competence. The third is information: the Authority collects and publishes the statistics of the sector, and its annual and monthly reporting is the factual substrate on which tariff proceedings, policy and scholarship in this field all depend.

The division between the Authority and the commissions is the division between the physics of the system and the economics of the system, and the Act keeps the two apart with some care. A standard for the construction of a transmission line, a requirement for the protection systems that must trip a fault before it cascades, a specification for the accuracy class of a meter: these are questions on which there is a technically right answer, ascertainable by engineers, and the Act gives them to engineers. A tariff, a licence condition, a surcharge: these are questions on which interests conflict and someone must decide after hearing the sides, and the Act gives them to commissions sitting in public and giving reasons. Trouble in the sector has repeatedly come from confusing the two jurisdictions, from commissions drawn into engineering judgments they are not staffed to make and from technical standards used, in substance, as instruments of commercial exclusion. The Act’s own allocation is sound, and departures from it are a reliable diagnostic of a proceeding going wrong.

Above both institutions sits the policy layer, and Section 3 is its source. The Central Government is required, from time to time and in consultation with the state governments and the Central Electricity Authority, to prepare and notify a National Electricity Policy and a Tariff Policy, for the development of the power system based on optimal utilisation of resources such as coal, natural gas, nuclear substances, hydro and renewable sources of energy. Section 4 requires a national policy on rural electrification and on stand alone systems, and Section 5 requires the formulation of policy on stand alone systems and on the operating of rural distribution through panchayat institutions, cooperative societies, non governmental organisations and franchisees. The National Electricity Policy was notified in February 2005 and the Tariff Policy in January 2006, with the Tariff Policy substantially revised in January 2016. These instruments are not legislation, and they bind in the manner policy binds: the commissions must be guided by them in the fields the Act specifies, most visibly in tariff determination under Section 61, and a commission that departs from a stated policy position must expect to explain itself on appeal. The surcharge benchmark noticed earlier, that the cross subsidy surcharge should not exceed twenty per cent of the tariff of the category seeking open access, is a Tariff Policy statement of 2016 rather than a statutory rule, and its career illustrates the layer’s character exactly: widely cited, unevenly obeyed, and enforceable only through the reasoning of commissions and the appellate scrutiny of the Tribunal.

The policies also record the Act’s social settlement in its most concrete form. The National Electricity Policy set the goal of access to electricity for all households and of a minimum lifeline consumption, and the rural electrification programmes that followed, run as centrally sponsored schemes outside the Act’s own text, operated within the legal space the Act created: a licensee with a duty to supply, a government with a duty to endeavour and a subsidy to fund, and a commission to fix the tariff against which the subsidy is paid. A reader who asks where, in law, the electrification of the Indian village between 2003 and the declaration of universal household electrification rests will find the answer distributed across exactly those provisions, which is why Section 6’s grammar of endeavour, noticed earlier, is not the weakness it appears: the enforceable duties were deliberately placed on the licensee and the commission, and the political duty on the governments, and each was given the instrument suited to it.

Tariff in practice: the annual contest the Act designed

A tariff order is the point at which every abstraction in the Act becomes a number in a household budget and a factory’s cost sheet, and the procedure of Part VII deserves a fuller account than the statement of Sections 61 to 64 alone provides. The cycle begins with the licensee. A distribution licensee files its aggregate revenue requirement, the computation of what it will cost, in the coming period, to buy power, operate and maintain its network, service its capital and earn the return the commission’s regulations allow, together with its tariff proposal, the schedule of charges by which it proposes to recover that requirement from the categories of consumers. A generating company and a transmission licensee file correspondingly for their segments. The commission examines the filing, tests the claimed costs against its own norms and the licensee’s audited past, publishes the application, invites suggestions and objections, hears the licensee and the objectors, and issues a reasoned order determining the tariff and recording what it has allowed and disallowed and why.

Three features of that cycle carry the Act’s theory of regulation. The first is that the proceeding is public and the record is open. The consumer who objects to a proposed increase, the industry association that files a cost study, the energy group that audits the licensee’s loss claims: each participates by right, and the commission must answer the objections in its order, which converts tariff making from an executive act into a forensic one. The second is the true up. Because a tariff is fixed in advance on estimates, the commission revisits the period after it closes and trues up the difference between the costs projected and the costs prudently incurred, carrying the surplus or deficit into a later period, and the discipline of the true up, vigorously or laxly applied, is the real history of cost control in the sector. The third is the appeal. A tariff order is appealable to the Appellate Tribunal, and the Tribunal’s tariff jurisprudence, on such recurring questions as the treatment of arrears, the carrying cost of regulatory assets and the limits of a commission’s power to reopen a determined tariff, is where the principles of Section 61 have acquired their operative meaning.

Cross subsidy appears in this cycle not as an abstraction but as a table. The commission computes the average cost of supply, sets the tariff of each category as a percentage of that cost, and publishes the result: industrial and commercial categories above one hundred per cent, domestic categories around or below it, agricultural supply, where it is metered or charged at all, far below. The National Electricity Policy and the Tariff Policy both recorded the objective that tariffs should move toward the cost of supply for each category, within a band, and Section 61 directs that cross subsidies be reduced progressively. The record across two decades is that the band narrowed slowly in some states and barely at all in others, and that the political economy described in the open access discussion governs here as well: a commission that raises agricultural or domestic tariffs toward cost acts against the declared preference of the government that appointed it and that may direct it on policy under Section 108, and commissions have, in the main, declined to spend their authority that way. The Act’s tariff code is therefore best understood as a machine for making the subsidy visible, priced and publicly defended, year after year, rather than as a machine for abolishing it, and judged as the first of those it has worked: no Indian government can any longer pretend that the power supplied below cost to one class is not paid for by another, because a public order says, in figures, by whom and how much.

The generating side of the tariff system has its own practice, shaped by Section 63. Under the cost plus route, a generating company’s tariff is determined on its capital cost, its normative operating parameters and an allowed return, and the proceeding is an audit. Under the bidding route, the price is discovered in competition and embodied in a power purchase agreement, typically for twenty five years, with the tariff structured into capacity and energy charges and with escalable and non escalable components that allocate fuel and exchange risks between generator and buyer according to the bid documents. The litigation that Energy Watchdog closed arose because that allocation, made when imported coal was cheap, placed a risk on the generators that events made severe; the judgment’s insistence that the allocation stands is the foundation on which the financing of bid based generation rests, and a commission tempted to relieve a party from a bad bargain knows that the Supreme Court will treat the attempt as outside its powers. The two routes coexist, and the choice between them, cost plus determination for the regulated core and bidding for new procurement, is itself one of the durable settlements the Act produced.

The market layer: trading, exchanges and open access in transmission

Between the regulated core and the final consumer the Act built a market layer, and its instruments deserve separate notice because they are the part of the design that grew fastest after the generation reform. Trading is the purchase of electricity for resale, and the Act made it a licensed activity for a practical reason: a trader stands between generators and buyers, takes title to power it does not generate and cannot store, and its failure mid contract leaves both sides exposed, so the commissions license traders on technical and creditworthiness requirements and regulate their margin. The margin question reached the Supreme Court in PTC India, noticed earlier, and the Court’s answer, sustaining the Central Commission’s power to regulate the trading margin as part of its regulatory jurisdiction, confirmed that the market layer operates inside the Act’s regulation and not in a space the Act forgot to occupy. Trading volumes grew from a marginal share of generation in the Act’s first years to a substantial short term market, and the traders’ presence changed the position of every other actor: a state utility short of power in a peak week, a generator with surplus capacity, an open access consumer seeking a price better than the licensee’s tariff, each gained a counterparty the Board era did not offer.

The power exchanges are the market layer’s most visible institution. An exchange provides a platform on which generators, licensees, traders and eligible consumers buy and sell electricity for delivery in defined blocks, most prominently on the day ahead, at prices discovered by anonymous auction for each interval of the day. The exchanges operate under the Central Commission’s regulations for the power market, and their legal foundation in the Act is the combination of the trading licence, the open access provisions in transmission and the commission’s power under Section 66 to take measures for the development of the market in electricity, a section easily passed over in a reading of Part VII and in practice one of the Act’s most fruitful grants of power. The exchange price performs a function no tariff order can: it reveals, quarter hour by quarter hour, what power is worth at the margin in each region, and that signal disciplines everything around it, exposing the true cost of a licensee’s procurement decisions, giving captive and open access consumers a benchmark against which to test the surcharges they are asked to pay, and allowing renewable generators, whose output follows weather rather than demand, to sell into a market that prices their variability instead of refusing it.

Open access in transmission is the legal rail on which this market runs, and its career contrasts instructively with the distribution half of the same concept. The transmission utilities are common carriers by statute, barred from trading in the state utility’s case and paid a regulated tariff on their assets, so a third party’s power crossing their network costs them nothing and the access was granted, through the Central Commission’s open access regulations for inter state transmission, on published terms with published charges: a transmission charge for the networks used, an operating and scheduling charge for the load despatch centres, and the discipline of the grid code for everyone connected. The inter state open access regime accordingly became routine administration rather than contested reform, and the volume of power scheduled under it, for bilateral trades, exchange transactions and captive carriage alike, is the quiet success against which the distribution experience should be measured. The difference was never the wording of the right, which is the same concept in both places. It was the interest of the gatekeeper, and transmission is the control case that proves the point the distribution case suggests.

Renewables enter the market layer through two doors the Act opened. The first is the purchase obligation: the state commission specifies the percentage of consumption that distribution licensees must meet from renewable sources, and a market in renewable energy certificates grew up under the commissions’ regulations to let obligated entities in renewable poor states buy the attribute from generators in renewable rich ones. The second is the physical character of renewable generation itself, which the grid code and the market rules had to learn to absorb: forecasting and scheduling regimes for wind and solar, deviation charges calibrated to weather driven variability, and must run status in the merit order for sources whose marginal cost is nil. The Act’s text on renewables is short, a clause in the long title, a factor in Section 61 and a function in Section 86, and the structure built on it is large, which is a reminder that the Act was drafted as a framework statute and that much of the operative law of the sector is, by its design, in the regulations of its commissions and the specifications of its Authority.

The licensee under discipline: suspension, franchisees and the supply code in action

The duties of Part VI have a sanction structure behind them that a full account of the distribution licensee must include, because a duty without a consequence is a request. The Act arms the state commission at three levels. At the level of the individual failure, there are the penalties the Act attaches to specific defaults, the daily penalty for failure to supply under Section 43 among them, and the compensation payable to affected persons for breach of the standards of performance under Section 57. At the level of the licensee’s conduct generally, the commission may issue directions, inquire into a licensee’s affairs through the investigating authority the Act provides for, and impose the penalties the Act prescribes for contravention of its orders and directions. And at the level of the licence itself, Section 24 empowers the appropriate commission, where a distribution licensee has wilfully and persistently defaulted in complying with its conditions or has failed to supply as the Act requires, to suspend the licence and appoint an administrator to run the utility, and to provide for the sale of the utility in the circumstances the section states. Suspension and sale have been used sparingly, as befits a remedy that displaces the supplier of an essential service, but their existence shapes the negotiation between every commission and every licensee: the incumbent operates under a licence that can, in law, be taken away, and the rarity of the remedy’s use measures political reluctance rather than legal doubt.

The franchisee is the Act’s other instrument for disciplining distribution from within. The definition in Section 2 contemplates a person authorised by a distribution licensee to distribute electricity on its behalf in a part of its area, and the licensing provision permits the licensee to engage such a franchisee without the franchisee holding a licence of its own, the licensee remaining responsible for the discharge of its duties. The input based distribution franchise, under which a private operator takes over the supply business of a defined area, invests in its network and billing, and is paid from the revenue it collects against an agreed trajectory of loss reduction, became the standard experiment in distribution reform in the years after the Act, with the franchise awarded for the Bhiwandi circle in Maharashtra in 2007 the most studied instance. The franchise device is instructive for the same reason open access is: it works on the licensee’s commercial incentives without requiring the state to sell the utility or the commission to set a contested price, and its mixed record, strong gains in loss reduction in some circles and contested outcomes in others, tracks the quality of the baseline data and the bargain struck rather than the legality of the device, which the Act settled completely.

The Electricity Supply Code, which Section 50 requires each state commission to issue, is where these disciplines meet the individual consumer’s file. The Code governs the recovery of dues, the intervals and manner of billing, the procedure for disconnection and restoration, the treatment of defective meters, the security deposit and its interest, and the hundred other recurring incidents of a supply relationship that would otherwise be governed by the licensee’s internal circulars. Its significance is jurisdictional as much as substantive: a grievance about a bill, a deposit or a restoration is a grievance under a published code made by the regulator, and the consumer forum and the ombudsman apply the code rather than the licensee’s practice. Read together, Sections 42 to 59 and the codes and standards made under them amount to a small administrative law of the electricity consumer, and for the overwhelming majority of the Act’s subjects, who will never buy power on an exchange or read a tariff order, that small law is the Act.

Enforcement in the field: inspection, assessment and the Special Courts

The enforcement provisions operate through a sequence that the Act prescribes with care, because it knew the power it was handing to the licensee’s inspection teams. An authorised officer may enter premises, inspect the installation and the meter, and examine the connected load, and where the inspection discloses unauthorised use, Section 126 requires a provisional assessment to be served on the person, who must be given an opportunity to file objections and be heard before the assessing officer passes a final order. The assessment is confined to the period during which the unauthorised use is established to have occurred, and where that period cannot be ascertained it is capped at the twelve months preceding the inspection, and the amount assessed carries the character the Act assigns it: it is not a penalty or a fine but a civil liability for electricity taken, computed at double the tariff as the measure the legislature chose for consumption that defeated honest measurement. An appeal lies under Section 127 to the appellate authority on deposit of half the assessed amount, and the appellate authority’s order is final within the scheme. The courts have policed the sequence strictly, insisting that the provisional assessment, the hearing and the speaking final order are conditions of a valid demand and not courtesies, because the assessing officer is commonly an officer of the licensee itself and the procedure is the consumer’s only protection inside the process.

The criminal route has its own safeguards and its own forum. A prosecution for theft under Section 135 lies before the Special Court constituted under Section 153, a court of a judge of the seniority the Act specifies, established by the state government in consultation with the High Court for areas the government notifies, with the powers the Act confers to try the offence summarily in the manner Part XV prescribes and to determine, in the course of the trial, the civil liability for the electricity stolen, which the Act fixes by reference to the consumption and the tariff and which is recoverable as if it were a decree. Cognizance is controlled: the offence is cognisable and non bailable in the form the amendment of 2007 gave it, and complaint and prosecution run through the officers and licensees the Act authorises, a filter intended to keep the criminal process an instrument of enforcement rather than of debt collection. Compounding under Section 152 closes the circle: the appropriate government or its authorised officer may accept a sum in lieu of prosecution, at the rates notified for the categories of offence, once and not repeatedly for the same consumer, and the payment ends the criminal exposure for that act while leaving the civil liability for the energy taken intact.

The practical jurisprudence of the two routes has settled into propositions that practitioners treat as fixed. The inspection and the panchnama or inspection report are the evidentiary foundation of both routes, and a defective inspection record is fatal to each. The presence of a tampering device or an artificial means is evidence from which dishonesty may be inferred under the presumption Section 135 raises, but the inference is rebuttable and the prosecution must still prove its case. A consumer who has been assessed under Section 126 for a period cannot be prosecuted for theft on the same facts for the same consumption in a manner that visits the same act twice, and the election between routes, once made and concluded, disciplines the licensee as much as the consumer. And the distinction in kind between the routes, civil assessment for unauthorised use and crime for dishonest abstraction, has been affirmed so consistently that a licensee which files a theft complaint on facts that disclose, at their highest, a billing dispute can expect the complaint to be quashed and its conduct examined. These propositions are the working law of electricity enforcement in India, and they are all applications of the single distinction the Act drew in 2003 between using power without authority and stealing it.

The federal working of the Act

The Act is a central statute on a concurrent subject operating through state institutions, and its federal working deserves a section because it explains the map of outcomes the earlier sections recorded. Parliament legislated for the whole country, but it legislated a state commission into the centre of retail electricity, a state transmission utility into the centre of the state grid and a state government into the centre of subsidy, unbundling and enforcement. The Centre kept generation companies of its own, the inter state system, the Central Commission, the Authority and the policy pen. The result is a sector in which the statute is uniform and the outcomes are federal: the same Section 42 produced open access that functions in one jurisdiction and open access that is theoretical in the next, the same Section 61 produced tariff orders of very different rigour, and the same Section 135 produced enforcement regimes of very different temper, because the institutions applying the uniform text answer to different governments and different politics.

Two provisions mark the formal boundary of the arrangement. Sections 107 and 108 empower the Central Government and the state governments respectively to issue directions to their commissions on questions of policy involving public interest, and require the commission, in deciding whether a question is one of policy, to be guided by the government’s view where the Act so provides, with the direction laid before the legislature. The direction power is the elected government’s retained hand on the regulator, and its sparing formal use understates its influence, since a commission that knows a direction may come has reason to accommodate the policy it would state. The second boundary is repugnancy and occupation of the field: state legislation on electricity, of which there is a considerable body, from state reform Acts that preceded the central Act in states such as Orissa, Haryana, Andhra Pradesh, Rajasthan and Delhi to later state enactments on cognate matters, operates within the space the central Act leaves and subject to the doctrine noticed at the concurrency sentence earlier in this article. The pre 2003 state reform Acts are a particularly instructive survival: several states had unbundled and regulated before Parliament acted, the central Act absorbed their commissions and structures into its own scheme through its savings and its deeming provisions, and the states that reformed first are, not coincidentally, among those where the Act’s institutions bedded down fastest.

The joint commissions complete the federal picture at its small end. A state too small to sustain a full commission, or a group of union territories, may be served by a Joint Commission under Section 83, constituted by agreement between the governments concerned or by the Central Government for the territories, and the joint commissions for the north eastern states and for groups of union territories have carried the Act’s framework into jurisdictions whose load would not fill a single district of a large state. The device matters beyond its scale, because it shows the Act solving the standard problem of Indian concurrent legislation, the mismatch between a uniform institutional design and states of vastly different size, by permitting the institution to be shared rather than by diluting the design.

Taken together, the federal working of the Act is the strongest available evidence for the reading this article has pressed throughout. Where the Act’s design required a state institution to act against the interest of the state owned incumbent, outcomes varied with the state; where the design required only that a barrier be absent, outcomes were uniform and national. Generation delicensing is the same fact in Gujarat and in Bihar. Open access is a different fact in each. A statute that distributes its execution among governments will be executed as those governments wish, and the Electricity Act’s uneven second promise is, in the end, the price of building a national market reform on a concurrent subject with state owned incumbents, a price the drafters can be taken to have known and accepted when they chose the state commission, rather than a national regulator, as the instrument of the reform.

Adjudication inside the Act: disputes, penalties and the adjudicating officer

Alongside their licensing and tariff functions, the commissions are courts of a specialised kind, and the Act’s dispute architecture is worth stating as a system. The state commission adjudicates disputes between licensees and generating companies within its field under Section 86, and may refer any dispute for arbitration; the Central Commission does the corresponding work for inter state matters under Section 79. The jurisdiction is exclusive in its field in the sense developed earlier: a dispute that the Act assigns to the commission, about tariff, about the performance of a power purchase agreement’s regulatory incidents, about open access or grid compliance, is not open to be filed as a civil suit, and the appellate route from the commission’s decision runs to the Appellate Tribunal and then, on law, to the Supreme Court. Around that central jurisdiction the Act stations lesser tribunals of its own. The adjudicating officer, appointed by the appropriate commission, inquires into contraventions for which the Act prescribes penalties to be imposed by adjudication, prominently the failure to comply with the directions of the Regional and State Load Despatch Centres under Sections 29 and 33, where the penalty regime is the grid’s disciplinary teeth: a generator or licensee that draws or injects against the dispatch schedule in a manner that endangers the system faces not merely a deviation charge in its bill but a penalty imposed after inquiry by an officer appointed for the purpose, with an appeal to the Tribunal. The assessing officer under Section 126, noticed in the enforcement discussion, is a cousin of the same design, an officer deciding a civil liability inside a prescribed procedure, subject to the appellate authority the Act names.

The design choice running through these provisions is that the Act prefers specialised, speedy, appealable decision making inside the sector to the general courts for everything except crime and constitutional challenge. Its costs are the standard costs of specialisation: forums of uneven capacity between states, a bar and a bench learning a technical subject together, and a tendency for every commercial disappointment in the sector to be dressed as a regulatory dispute to reach the forum perceived as favourable. Its benefits are visible in the body of precedent the Tribunal and the commissions have produced, which has given the sector something the Board era never had, a public jurisprudence of its own, in which the meaning of the Act’s open textured phrases, commercial principles, prudent cost, the requirements of cross subsidy, has been worked out case by case and can be known in advance by anyone entering the field. A statute that creates its own courts creates its own common law, and much of what a practitioner means by electricity law in India is that case law rather than the text of 2003.

One boundary of the adjudicatory scheme has been tested repeatedly and is worth fixing. The commissions’ power to adjudicate is a power over the matters the Act commits to them, and it does not extend to deciding, as a civil court would, every dispute that touches a licensee: a claim that sounds in ordinary contract or tort, unconnected with the commission’s regulatory functions, remains for the ordinary forums, while a claim that requires the commission to construe a tariff, a regulation or a power purchase agreement’s regulatory terms belongs to the commission. The line is litigated because the stakes of forum are real, in speed, in expertise and in the appellate ladder that follows, and the cases drawing it are applications of the general principle, visible across Indian regulatory statutes, that a specialised forum’s exclusivity is measured by the statute that created it and neither expands by convenience nor shrinks by reluctance.

The Act’s silences: storage, the prosumer and the small consumer

A framework statute is also legible by what it did not attempt, and three silences in the Act of 2003 have shaped the sector’s later lawmaking. The first is storage. The Act was drafted for a system in which electricity was generated and consumed in the same instant, and it contains no conception of storing electricity at scale as an activity in its own right: a battery is neither a generating station, nor a transmission asset, nor a load, in the Act’s categories, and pumped hydro fits only as generation. As storage became commercially material, the system accommodated it by interpretation and by subordinate legislation, treating storage variously as part of a generating station, as a load for charging purposes and as a resource the system operator may call on, and the amendment debates have repeatedly proposed to give it a statutory home. The silence is instructive because it was not an oversight in 2003; it was the boundary of the technology the drafters could price, and the Act’s framework character, its reliance on commissions to fill categories by regulation, is what allowed the system to absorb a technology its text never named.

The second silence is the prosumer. The Act imagines the consumer as a taker of supply at the end of the licensee’s wire, and its consumer provisions are all written for that figure. The rooftop solar household, which generates, consumes, exports the surplus and imports at night, fits the text awkwardly: it is a captive generator in miniature, a supplier to the licensee under the net metering regulations the state commissions framed, and a consumer for the balance, all at once, and its legal position is a construction of regulations and orders built on the Act’s general clauses rather than on any provision addressed to it. The Green Energy Open Access Rules framed by the Central Government in 2022, which lowered the open access threshold for renewable energy to one hundred kilowatts and simplified the approval process for such transactions, are the clearest instance of the framework being worked from below to reach consumers the Act’s own phasing never reached, and they operate, significantly, as rules under the Act rather than as amendments to it.

The third silence is the deliberate one, and it is the largest. The Act created no timetable by which the ordinary retail consumer, the household and the small shop, would gain a choice of supplier, and no mechanism by which distribution would cease to be a monopoly for the great majority of connections. Open access was phased by load, and the phasing stopped, in substance, at the large consumer. Whether that restraint was wisdom or failure is the standing argument about the Act. The case for the restraint is the cross subsidy arithmetic stated earlier: retail choice for all, on a shared network with separated carriage and content, requires either the subsidy to be funded from taxation, which no government has chosen, or its recovery through a charge on the network that every supplier’s customer pays, which reproduces the surcharge problem in a new form. The case against is that a reform which stops at the factory gate leaves the citizen as the subject of a monopoly the statute elsewhere treats as a problem to be solved, and that the Act’s consumer charter, however well drafted, is a charter of rights against a supplier the consumer cannot leave. The 2022 Bill chose the second view and proposed the shared network and the balancing fund to answer the first; its fate in committee is the measure of how far the argument has travelled, and the question it poses, who pays for below cost power in a system of competing suppliers, remains the Act’s unfinished question, awaiting a political answer that no drafting technique has yet been able to supply on its own.

The Act in operation: two decades in compressed form

The first years after commencement were years of institutional construction. State after state framed transfer schemes and unbundled its Board; the commissions, some inherited from the Act of 1998 and some newly constituted, issued their first tariff orders, licensing regulations, open access regulations and standards of performance; the Appellate Tribunal was constituted and began to hear the appeals that the commissions’ orders generated; and the Central Government notified the National Electricity Policy in 2005 and the Tariff Policy in 2006 and issued, in January 2005, the competitive bidding guidelines that turned Section 63 into a working procurement system. The ultra mega power project programme was that system’s showpiece: projects of about four thousand megawatts each, developed through special purpose vehicles that assembled land, water, fuel linkage and clearances before the project was bid out on the tariff at which its power would be sold, with the Mundra project in Gujarat and the Sasan project in Madhya Pradesh among the earliest awarded. The programme embodied the Act’s theory in a single device: the state used its powers to remove every obstacle except price, and then let competition set the price, and the tariffs the bidding produced were, for a period, the benchmark of cheap thermal power in India.

The second period was one of stress, and it tested the parts of the Act that depended on judgement rather than on the absence of barriers. Distribution losses and licensee finances deteriorated in many states as procurement costs rose and tariffs lagged; generating capacity added rapidly in the private sector met fuel shortages in coal and gas that no provision of the Act could cure; contracts written for one fuel price met another, and the compensatory tariff litigation began its climb to the Supreme Court. The grid itself supplied the period’s defining event: on 30 July 2012 the northern regional grid collapsed, and on the following day a wider failure took down the northern, eastern and north eastern grids together, in the largest blackout in the sector’s history. The enquiries that followed located the failure in the indiscipline the Act’s instruments existed to prevent, overdrawal by states beyond their schedules in defiance of the load despatch centres and the deviation regime, and the reforms that followed ran through those instruments: tighter deviation settlement, stronger despatch discipline and greater authority for the system operator. The episode is the grid half of the Act’s central lesson in negative form. Where the Act’s mechanism was a price and a code, the failure came from the price being set too low to discipline and the code being enforced too weakly to bind, and the remedy was found inside the Act’s own design rather than by returning to command.

The third period, running through the following decade, was one of consolidation and of the market layer’s growth. Exchange traded and bilateral short term transactions became a routine part of procurement; open access in transmission became ordinary administration; renewable capacity, driven by the purchase obligations, by falling equipment costs and by bid based procurement of wind and solar under the same Section 63 architecture, grew from a marginal source into a central planning fact; and the amendment attempts of 2014, 2020 and 2022 marked the points at which governments sought to reopen the settlements of 2003 and found the politics of distribution waiting for them. Through all three periods the generation reform of Section 7 was never seriously challenged and never needed defence, because a reform that consists of an absent barrier generates no constituency for restoring the barrier and no annual decision at which it can be quietly reversed. The contrast is the Act’s biography in one sentence: the parts of it that worked by removal are permanent, and the parts that worked by delegation are renegotiated every year in every tariff order, surcharge determination and amendment debate in the country.

What delicensing did not free: the gates that remained around a generating station

Section 7 removed the licence, and entrants discovered that a licence had never been the only gate. A generating station still needs land, and land acquisition for a plant and its ash dyke, its coal conveyor and its transmission corridor runs through the land acquisition law and the politics that attend it, which have delayed or defeated more projects than any licensing regime did in the Act’s later years. It needs environmental clearance under the environment protection framework, with public hearing and conditions, and for a thermal station it needs water allocation and a fuel supply, coal through linkage or mine allocation and gas through allocation and contract, each of which is an executive allocation outside the Act and each of which behaved, in the shortage years, as the effective licence the Act had abolished in form. It needs connectivity to the grid, granted through the transmission planning process on the Authority’s standards, and a place in the scheduling and despatch order that the grid code governs. And it needs a buyer whose promise to pay is bankable, which in a sector whose buyers are distribution licensees of strained finances is a commercial judgement about the counterparty rather than a legal permission.

The distinction matters for reading the Act’s achievement accurately. Delicensing abolished the discretionary gate, the gate at which an official decides whether a project may exist. The gates that remained are of other kinds: proprietary gates, over land and fuel, which markets and acquisition law mediate; technical gates, over connectivity and standards, which are published and non discretionary in form; and credit gates, over the buyer’s covenant, which the Act addressed indirectly through the trading market, the exchanges and the payment discipline of its subsidy and tariff provisions. A reform can abolish discretion; it cannot abolish scarcity, physics or credit, and the history of generation after 2003 is the history of entrants clearing the remaining gates at speeds that varied with fuel and finance rather than with permission. The stranded generating assets of the shortage years, plants built on allocations and expectations that failed, are the monument to that distinction: they were not unlicensed, they were unviable, and no amendment to Section 7 could have saved them, because the section had never been their problem.

Section 11, the reserve power of direction in extraordinary circumstances, belongs in this account as the deliberate exception that proves the design. The appropriate government may specify that a generating company shall operate and maintain a station in accordance with its directions, in circumstances the government records as extraordinary, and the direction power is the Act’s acknowledgment that a delicensed system still needs a hand on the wheel when the system itself is threatened. Its sparing place in the scheme, a power to direct operation rather than a power to license entry, is the exact inverse of the repealed regime, under which the state’s hand was on entry and operation alike, and it has been used as sparingly as its drafting suggests it should be.

The distribution balance sheet: the Act’s silent centre

Every thread in this article leads back to one document, the distribution licensee’s balance sheet, and a pillar on the Act should say plainly why. The licensee buys most of its power under long term contracts at prices it does not control, sells at tariffs it does not set, to consumers a share of whom it must supply below cost, over a network whose losses it is blamed for and whose metering decides whether those losses are theft, technical dissipation or unbilled consumption. The gap between its revenue requirement as filed and its tariff as ordered is managed by the devices the tariff discussion described, deferred recovery, regulatory assets, subsidy booked against payment awaited, and the accumulation of those devices is the sector’s true fiscal history. When commentators say the distribution licensee is financially weak, they mean that the Act’s three disciplines, a cost reflective tariff progressively achieved, a subsidy paid in advance, and charges for departing consumers set at the measure of the burden, have each been applied at less than their statutory strength, and the shortfalls have pooled in the one institution that cannot refuse to supply.

That pooling explains the behaviour this article has recorded at each point. The licensee resists open access because each departing consumer deepens the pool. It resists the franchise and the second licensee because each threatens the paying end of its consumer mix. It underinvests in metering and loss reduction where the return on the investment would be a lower tariff base rather than a stronger balance sheet. And the state government that owns it prefers the pool to remain invisible, because the alternative is to fund the subsidy from the budget in the open, under Section 65’s discipline, or to permit the tariff that closes the gap. The Act understood all of this in 2003, which is why its disciplines are written as duties rather than as hopes. That they have been honoured at partial strength for two decades is not a defect of the drafting. It is the record of a political system declining, year by year and state by state, to pay the Act’s price for the Act’s benefits, while keeping the benefits it could obtain for free, in generation, in trading and in the grid, and deferring the one benefit, a financially sound distributor facing its consumers with a real price, that had to be paid for.

How the Act is organised: a reader’s map

For the student and the examinee, and for any reader who intends to use the Act rather than admire it, the statute’s architecture is best carried as a sequence of questions, each answered by a block of sections. The preliminary block, Sections 1 and 2, names the Act, stages its commencement and defines its vocabulary, and the definitions of open access, captive generating plant, licensee, trader and consumer do more work in the case law than many operative provisions. The development block, Sections 3 to 11, states the policies the Centre must frame, the rural electrification duty, and the generation freedom with its hydro exception, its captive provision and its reserve power of direction. The licensing block, Sections 12 to 24, states who needs a licence, how it is granted, transferred and revoked, and what happens to a distribution utility whose licence is suspended. The transmission block, Sections 25 to 41, builds the inter state and intra state systems, the transmission utilities and the load despatch hierarchy. The distribution block, Sections 42 to 59, is the consumer’s charter analysed earlier in this article. The tariff block, Sections 61 to 66, states the principles, the determination power, the bidding exception, the procedure, the subsidy discipline and the market development power. The works and safety provisions follow, governing how licensees execute works on land and the safety regime the Authority polices. The Authority itself is constituted in Sections 70 to 75. The commissions occupy the long block from Section 76 to Section 109, the Tribunal the block from Section 110 to Section 125. Investigation and assessment occupy Sections 126 to 130, reorganisation of the Boards Sections 131 to 134, offences and penalties Sections 135 to 152, and the Special Courts Sections 153 to 157, with the closing provisions carrying the rule and regulation making powers and, at Section 185, the repeals with which this article began.

The map repays memorising for a practical reason. Almost every error in public writing about the sector is an error of location: a proposition about generation answered from the licensing block, a complaint about a bill taken to the Tribunal that has no jurisdiction over it, an assessment for unauthorised use described as a theft prosecution, a policy statement of the Tariff Policy cited as a section of the Act. The reader who knows which block a question lives in knows which institution answers it, by what procedure, subject to which appeal, and that knowledge, rather than any single provision, is the working equipment the Act gives the citizen who reads it whole.

Measurement as law: meters, losses and the number everything depends on

One further provision deserves to be lifted out of the distribution block and read on its own, because the entire Act quietly depends on it. Section 55’s command that supply be given only through a correct meter is the foundation on which three separate structures stand. The first is billing: a tariff, however elegantly determined, is applied to consumption, and consumption that is estimated, unmetered or recorded by a defective meter converts the tariff order into fiction for the consumers concerned, which is why flat rate and unmetered categories have been the persistent scandal of agricultural supply and why the metering of agricultural feeders and pumpsets has been contested for decades as the precondition of honest subsidy accounting. The second structure is loss measurement. A distribution licensee’s losses are computed as the difference between the energy it purchases and the energy it bills, and that single difference, which the sector discusses as aggregate technical and commercial loss, contains within it technical dissipation in conductors and transformers, theft, unbilled supply and billing failure, in proportions that cannot be separated until metering is complete at every level, feeder, distribution transformer and consumer. A commission fixing a loss reduction trajectory, a government estimating its subsidy, a prosecutor proving abstraction, each is working from that difference, and each inherits its uncertainty. The third structure is enforcement itself: Sections 126 and 135 both proceed, in the end, from readings, from the meter’s record of what was taken and the inspection’s record of how, and the case law’s insistence on the integrity of the inspection and the meter’s testing is the legal expression of a physical fact, that in this sector the evidence is a measurement.

The Act’s treatment of measurement also explains one of its longest running implementation stories. The two year transition Section 55 allowed for universal correct metering expired with the task incomplete, and the decades since have seen successive metering programmes, for feeders, for transformers, for agricultural and urban consumers, and in the most recent of them for prepaid smart meters across whole licensee areas, each announced as the completion of the section’s command. The persistence of the programme is not evidence of idleness. Metering a system of the Indian scale, against resistance from those whom accurate measurement exposes, is an industrial undertaking in itself, and the Act’s drafters, who wrote the command in a sentence, can be acquitted of underestimating it only on the ground that every drafter of 2003 did. What the section got right was the ordering: it made measurement a legal duty owed to the consumer and the system alike, so that each successive programme has been the execution of an obligation rather than the launch of a preference, and a licensee that supplies without metering is not behind schedule on a policy but in breach of the Act.

Frequently Asked Questions

Q: What did the Electricity Act 2003 change?

It repealed the Indian Electricity Act of 1910, the Electricity (Supply) Act of 1948 and the Electricity Regulatory Commissions Act of 1998, and rebuilt the sector. Generation was delicensed, the State Electricity Boards were unbundled into separate generation, transmission and distribution companies through transfer schemes, regulatory commissions at the Centre and in each state received licensing, tariff and adjudicatory functions, trading became a licensed activity, open access was created in transmission and distribution, and an Appellate Tribunal was established for appeals from the commissions, with a further appeal to the Supreme Court on a question of law.

Q: Does generating electricity require a licence?

No. Section 7 provides that a generating company may establish, operate and maintain a generating station without obtaining a licence under the Act, provided it complies with the technical standards relating to connectivity with the grid specified by the Central Electricity Authority. Licences are required for transmission, distribution and trading, not for generation. One qualification applies to hydroelectric schemes: a scheme above the capital cost threshold notified by the Central Government requires the concurrence of the Central Electricity Authority under Section 8, which examines dam safety and the optimal utilisation of water resources. Captive generation for the owner’s own use likewise requires no licence under Section 9.

Q: How does open access in electricity work?

Open access lets a consumer buy electricity from a generator or trader other than the local distribution licensee and carry it over the licensee’s network. In transmission it operates through the transmission utilities as common carriers. In distribution, Section 42 requires the state commission to introduce open access in phases; the consumer pays a wheeling charge for use of the distribution system, a cross subsidy surcharge to meet the subsidy burden attaching to the departing load, and, where Section 42(4) applies, an additional surcharge toward the licensee’s fixed costs arising from its obligation to supply. The amendment of 2007 required open access within five years for consumers whose maximum power requirement exceeded one megawatt.

Q: Who fixes electricity tariffs?

The regulatory commissions do. The Central Commission determines tariff in its field, principally the generating companies it regulates and inter state transmission, under Sections 62 and 79. The state commission determines tariff for generation, transmission, wheeling and retail supply within the state under Sections 62 and 86, following the principles in Section 61 and the procedure in Section 64, which requires publication of the application and consideration of objections. One exception exists: where a tariff has been determined through a transparent process of bidding under the Central Government’s guidelines, Section 63 requires the commission to adopt that tariff rather than determine one.

Q: What do the electricity regulatory commissions decide?

The Central Commission and the state commissions decide licensing for transmission, distribution and trading within their respective fields, determine tariffs under Section 62, adopt bid tariffs under Section 63, adjudicate disputes between licensees and generating companies, specify the grid codes, fix the standards of performance licensees must meet, phase and price open access in distribution including the surcharges, promote cogeneration and renewable generation, and, in the state commission’s case, specify the percentage of consumption that distribution licensees must purchase from renewable sources. Their orders are appealable to the Appellate Tribunal for Electricity under Section 111, and from there to the Supreme Court under Section 125.

Q: What obligations does a distribution licensee owe consumers?

The licensee owes the duties of Part VI of the Act. It must supply electricity on application within one month under Section 43, subject to the extended period the commission specifies where new works are needed. It must charge only the tariff determined by the commission, supply through a correct meter under Section 55, and disconnect only for default after fifteen clear days of notice under Section 56. It must meet the standards of performance specified by the state commission under Section 57 and pay compensation for failure. It must maintain a forum for redressal of consumer grievances, beyond which the consumer may approach the Electricity Ombudsman appointed by the commission.

Q: How does the Act treat electricity theft?

Theft of electricity is a criminal offence under Section 135. It covers dishonestly tapping lines or cables, tampering with a meter, installing a device that interferes with accurate registration, damaging a meter, or using electricity through a tampered meter or for an unauthorised purpose so as to abstract or consume it. The offence is punishable with imprisonment extending to three years, or fine, or both, with enhanced punishment for repeat convictions and for theft above the load threshold the section prescribes. Theft is triable by the Special Courts constituted under Part XV, and the offence may be compounded under Section 152 on payment of the compounding charges specified, which has the effect of an acquittal.

Q: What happened to the proposed electricity amendment bills?

None of them was enacted. The amendment Bill introduced in the Lok Sabha in 2014, directed mainly at separating the carriage and content businesses in distribution and strengthening the regulatory framework, lapsed. A further amendment Bill circulated as a draft in 2020, dealing among other things with subsidy delivery and payment security, was not introduced. The Electricity (Amendment) Bill of 2022 was introduced in the Lok Sabha on 8 August 2022 by the Minister of Power, R. K. Singh, and referred the same day to the Standing Committee on Energy, where it remained under examination, unenacted. The Act therefore continues in the form given by the amendments of 2003 and 2007.

Q: What is a captive generating plant under the Act?

A captive generating plant is a power plant set up by a person to generate electricity primarily for that person’s own use, a conception that extends to plants set up by cooperative societies and by associations of persons for the use of their members. Section 9 permits any person to construct, maintain or operate such a plant, together with dedicated transmission lines, without a licence. The detailed tests of captive status, built on a minimum shareholding by the captive users and a minimum proportion of the plant’s output consumed by them, are set by the Electricity Rules of 2005. Electricity from a captive plant may be carried through the grid to its destination of use, subject to the availability of transmission capacity.

Q: What is the cross subsidy surcharge and why is it charged?

The cross subsidy surcharge is a charge payable by a consumer who takes supply through open access instead of from the distribution licensee. Indian retail tariffs are cross subsidised: industrial and commercial consumers pay above the cost of supply, and the surplus supports agricultural and domestic consumers supplied below cost. When a paying consumer leaves, the licensee loses that contribution while its obligation to the subsidised consumers remains. Section 42 requires the departing consumer to pay a surcharge, determined by the state commission, to meet the requirements of cross subsidy, and directs that the surcharge and cross subsidies be progressively reduced. Its size, set state by state, is the single largest determinant of whether open access is worth exercising.

Q: What is the additional surcharge under Section 42?

The additional surcharge is a second charge on open access, distinct from the cross subsidy surcharge. Section 42(4) provides that where the state commission permits a consumer or class of consumers to receive supply from a person other than the distribution licensee of the area, an additional surcharge may be levied to meet the fixed cost of the distribution licensee arising out of its obligation to supply. It answers a different loss from the cross subsidy surcharge: the licensee contracted generation capacity and built its network to serve the departing consumer, and those fixed costs remain after the consumer leaves. Like the cross subsidy surcharge, it is determined by the state commission, and the two charges together largely decide the economics of an open access transaction.

Q: How is tariff adopted when electricity is procured through competitive bidding?

Section 63 creates a route separate from determination under Section 62. Where tariff has been determined through a transparent process of bidding in accordance with the guidelines issued by the Central Government, the appropriate commission shall adopt the tariff so determined. The commission verifies that the process was transparent and in accordance with the guidelines, which have the force of law, and then adopts the result; it does not construct the price itself. In Energy Watchdog v Central Electricity Regulatory Commission, decided in 2017, the Supreme Court held that after adoption the commission has no residuary power to award a compensatory tariff outside the power purchase agreement, and that relief for changed circumstances must be found in the agreement’s own clauses.

Q: How does a government subsidy reach electricity consumers under Section 65?

Section 65 separates the subsidy from the tariff. The state commission determines the tariff without regard to any subsidy. If the state government wishes a class of consumers to be charged less, it grants a subsidy to that class, and the Act requires the government to pay the subsidy amount to the distribution licensee in advance, in the manner the state commission directs, as a condition of the direction requiring the licensee to supply at the subsidised rate taking effect. The consumer sees the lower tariff, the licensee is meant to be kept whole by the advance payment, and the cost of the concession appears as a payment by the government rather than as a loss buried in the licensee’s accounts.

Q: What is the difference between unauthorised use of electricity and theft of electricity?

Unauthorised use, under Section 126, is a civil matter: using electricity through a tampered meter, by unauthorised means, for a purpose or premises other than those authorised, or after disconnection. It is remedied by assessment, at twice the applicable tariff for the period of unauthorised use, limited to twelve months where the period cannot be ascertained, with an appeal to the appellate authority. Theft, under Section 135, is a criminal offence requiring dishonest abstraction or consumption, typically by tapping lines or defeating the meter, and it is prosecuted before the Special Courts with imprisonment extending to three years. An assessment under Section 126 is not a finding of theft, and the two proceedings answer different questions.

Q: Where does an appeal lie against an order of a regulatory commission?

An appeal lies to the Appellate Tribunal for Electricity, established under Section 110. Section 111 permits any person aggrieved by an order of an adjudicating officer or of the appropriate commission to appeal within forty five days of the order, and the Tribunal may condone delay for sufficient cause shown. The Tribunal’s chairperson is a person who is or has been a judge of the Supreme Court or the chief justice of a High Court, and its benches combine judicial and technical members. From the Tribunal a further appeal lies to the Supreme Court under Section 125 within sixty days, on a substantial question of law, on the grounds pattern of Section 100 of the Code of Civil Procedure.

Q: What did the Act do to the State Electricity Boards?

It supplied the machinery for their unbundling rather than abolishing them outright. Under Section 131 the state government could frame a transfer scheme vesting the property, interests, rights and liabilities of the Board in the state government and transferring them onward to successor companies for generation, transmission and distribution, and Section 133 made corresponding provision for the transfer of the Board’s officers and employees on protected terms. In most states the Board accordingly disappeared as a legal person and was replaced by a state generation company, a transmission company acting as the State Transmission Utility, and one or more distribution companies, each licensed under the Act and, in most states, still owned by the state government.

Q: What is the renewable purchase obligation under the Act?

The renewable purchase obligation is the requirement that distribution licensees buy a stated share of the electricity they supply from renewable sources. It rests on Section 86(1)(e), which charges the state commission with promoting cogeneration and generation from renewable sources and with specifying, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee. Section 61 carries the same policy into tariff determination, directing commissions to encourage generation from renewable sources by suitable measures for connectivity and sale. Each state commission therefore fixes the percentage for its licensees, and compliance is tracked against the obligation the commission has specified, which is why the obligation’s level differs between states.

Q: Within what time must a distribution licensee supply electricity after an application?

Section 43 requires a distribution licensee, on an application by the owner or occupier of premises, to give supply of electricity to those premises within one month after receipt of the application. Where supply requires the extension of distribution mains or the commissioning of new substations, the supply must be given within the period the state commission specifies for such cases. The duty is enforceable: a licensee that fails to supply within the prescribed period without reasonable excuse is liable to a penalty extending to one thousand rupees for each day the default continues. Section 44 excuses failure only where the licensee is prevented by cyclone, floods, storms or other circumstances beyond its control.

Q: Does trading in electricity require a licence under the Act?

Yes. Trading, defined by the Act as the purchase of electricity for resale, is one of the three activities that require a licence, alongside transmission and distribution. The licence is granted under Section 14 by the Central Commission for inter state trading and by the state commission for trading within a state, and a trader must meet the technical and creditworthiness requirements the granting commission specifies. The commissions may also regulate the trading margin: the Central Commission is expressly empowered by Section 79 to fix the margin for inter state trading if it considers it necessary, a power the Supreme Court sustained in PTC India v Central Electricity Regulatory Commission in 2010 as part of the commission’s regulatory jurisdiction under the Act.

Q: What happens when a distribution licensee fails to meet the standards of performance?

Section 57 requires the state commission to specify standards of performance for distribution licensees and to determine the compensation payable to persons affected by a licensee’s failure to meet them, and the manner in which that compensation is determined and paid. A licensee that fails to meet a specified standard is liable to pay the compensation so determined, and that liability is in addition to any penalty to which the licensee is liable elsewhere under the Act. The standards typically cover matters such as the time for giving a new connection, attending to fuse failures and breakdowns, billing accuracy and the handling of complaints, and the compensation route runs alongside the consumer grievance forum and the Electricity Ombudsman.