New Electricity Act, 2003

By Ravi Mahender Reddy, N.L.U., Jodhpur


Power is today a basic human need. It is the critical infrastructure on which modern economic activity is fully dependent. Only 55% households in India have access to electricity. Most of those who have access do not get uninterrupted reliable supply. The industry in India has among the highest tariffs in the world and is not assured of the quality of supply. In this era of globalisation, it is essential that electricity of good quality is provided at reasonable rates for economic activity so that competitiveness increases. Being internationally competitive is now essential for achieving the vision of 8% GDP growth per annum, employment generation and poverty alleviation.

In recent years the financial health of SEBs has been deteriorating. There is a big gap between unit cost of supply and revenue and the annual losses of SEBs have been increasing and have reached unsustainable levels (over Rs. 33,000 crores).

The Hon'ble Prime Minister and Chief Ministers have set before the nation the goal of electrifying all our villages by 2007 and all our households by 2012. Access is yet to be provided to about 80,000 villages. Uninterrupted and reliable supply of electricity for 24 hours a day needs to become a reality for the whole country including rural areas. Enough generating capacity need to be created to outgrow the situation of energy and peaking shortages and make the country free of power cuts with some spare generating capacity so that the system is also reliable. The sector is to be made financially healthy so that the state government finances are not burdened by the losses of this sector. The sector should be able to attract funds from the capital markets without government support. The consumer is paramount and he should be served well with good quality electricity at reasonable rates.

It is in this context that the Electricity Bill, 2003 seeks to bring about a qualitative

transformation of the electricity sector through a new paradigm. The Electricity Bill was introduced in Lok Sabha in August, 2001 and subsequently referred to the Standing Committee on Energy for examination and report. The Committee submitted its report on 19.12.2002.

The Standing Committee examined various provisions of the Bill in consultation with the stakeholders and made some valuable suggestions for improvement. The Government considered the recommendations of the Standing Committee and accepted most of them (more than 85%). Some of the recommendations are meant for consideration at the stage of formulating the policies, rules and regulations.

Lok Sabha has passed the Bill on 9th April, 2003 and by Rajya Sabha on 5th May, 2003.

The Bill seeks to create liberal framework of development for the power sector by distancing Government from regulation. It replaces the three existing legislations, namely, Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948 and the Electricity Regulatory Commissions Act, 1998. The objectives of the Bill are "to consolidate the laws relating to generation, transmission, distribution, trading and use of electricity and generally for taking measures conducive to development of electricity industry, promoting competition therein, protecting interest of consumers and supply of electricity to all areas, rationalization of electricity tariff, ensuring transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, constitution of Central Electricity Authority, Regulatory Commissions and establishment of Appellate Tribunal and for matters connected therewith or incidental thereto."

The Bill strikes a balance, which takes into account the complex ground realities of the power sector in India with its intractable problems.


The salient features of the Bill are:

  1. The Central Government to prepare a National Electricity Policy in consultation with State Governments. (Clause 3)
  2. Thrust to complete the rural electrification and provide for management of rural distribution by Panchayats, Cooperative Societies, non-Government organisations, franchisees etc.(Clauses 4, 5 & 6)
  3. Provision for licence free generation and distribution in the rural areas. (Clause 14)
  4. Generation being delicensed and captive generation being freely permitted. Hydro projects would, however, need clearance from the Central Electricity Authority. (Clauses 7, 8 & 9)
  5. Transmission Utility at the Central as well as State level, to be a Government company – with responsibility for planned and coordinated development of transmission network. (Clauses 38 & 39)
  6. Provision for private licensees in transmission and entry in distribution through an independent network, (Clause 14)
  7. Open access in transmission from the outset. (Clauses 38-40)
  8. Open access in distribution to be introduced in phases with surcharge for current level of cross subsidy to be gradually phased out along with cross subsidies and obligation to supply. SERCs to frame regulations within one year regarding phasing of open access.(Clause 42)
  9. Distribution licensees would be free to undertake generation and generating companies would be free to take up distribution businesses. (Clauses 7, 12)
  10. The State Electricity Regulatory Commission is a mandatory requirement. (Clause 82)
  11. Provision for payment of subsidy through budget. (Clause 65)
  12. Trading, a distinct activity is being recognised with the safeguard of the Regulatory Commissions being authorised to fix ceilings on trading margins, if necessary. (Clauses 12, 79 & 86)
  13. Provision for reorganisation or continuance of SEBs. (Clauses 131 & 172)
  14. Metering of all electricity supplied made mandatory. (Clause 55)
  15. An Appellate Tribunal to hear appeals against the decision of the CERC and SERCs. (Clause 111)
  16. Provisions relating to theft of electricity made more stringent


Constitutional provisions pertaining to electricity


Prior Legislation


Development of laws

Now I will discuss the changes incorporated in the new act of 2003 in comparison to the earlier ERC Act, 1998. Thereafter I will give my views on the essential aspects of the new act. In the end, I will give some suggestions from my side.

Qualitative transformation of the electricity sector through a new paradigm is being achieved by the new electricity act, 2003.


The changes are stated below:

1. National Electricity Policy and Plan (S. 3- 6)

  1. Policy (including tariff) for optimal utilization of resources by Government of India from time to time in consultation with State Governments and Central Electricity Act
  2. CEA to prepare Plan in accordance with the policy and notify once in 5 years after obtaining Government of India approval and revising, if necessary, as per Government of India directions
  3. Government of India to formulate in consultation with State Goverments and SERCs policy for electrification and local distribution in rural areas
  4. Actions on part of State Governments and ERCs to conform to this policy and plan
  5. Generation delicensed; but should comply with technical standards notified by CEA
  6. In case of HE stations (depending on establishment of capital cost) concurrence of CEA required
  7. CPP will include those set up by "association of persons" also.
  8. ERC may grant license for 2 or more persons for distribution of electricity those their own system within the same area
  9. Requirements of capital adequacy, creditworthiness or code of conduct of the licensee to be governed by regulations of Government of India (S.14)
  10. Licensing period specified (25 years unless revoked)
  11. Sale of utilities of licensees: where no sales take place, licenses to abide by directions of ERC (S.22)

2. Transmission (S.25- 41)

  1. REBs replaced by RPC
  2. Role of RPC is diluted (S.29). SLDC to perform the functions of RPC (S.32)
  3. Any dispute regarding extent of surplus transmission capacity available with a licensee to be adjudicated by appropriate ERC
  4. CTU not to engage in generation or trading
  5. Open access to CTU’s system for any licensee or GENCO on payment of transmission charges. To consumers (when OA is provided by SERC) with additional surcharge to be decided by CERC
  6. Similar provision/terms for STU

3. Distribution (S. 42- 60)

  1. Time to provide supply in case of extension of dist. mains (draft 6 m) and unelectrifed hamlets (addition) to be decided by ERC
  2. Safety rules and inspection provisions to be specified by CEA in consultation with State Governments
  3. No supply except through " correct meters" after 2 years from the appointed date (notified by GoI)

4. Tariffs (S. 61- 66)

  1. SERCs to determine tariffs for supply of electricity by a GENCO to distribution companies, transmission, wheeling, retail
  2. In case of distribution in one area by 2 or more licensee, ERC may only fix maximum ceiling (for promoting competition)
  3. ERC may also adopt tariff through "bidding determined through "transparent process as per GoI guidelines

5. Open Access (S. 42)

  1. SERC to introduce OA in such phases and subject to such conditions as may be specified by ERC within one year of the appointed date (42)
  2. OA may be allowed before cross subsidies are eliminated but on payment of surcharge
  3. Surcharge and cross subsidy to be progressively reduced
  4. Surcharge not leviable in case of CPP for carrying power to the destination of its use
  5. OA not applicable to consumers in area supplied by a local authority

6. Functions of SERC (S.86)

  1. Promote co-generation, renewable by providing suitable measures for grid connectivity and sale and also specify purchase from these source as percent of total consumption in the district areas
  2. Specify and enforce standards with respect to quality, continuity and reliability of services by licensees
  3. State grid code to be consistent with central code
  4. Fix trading margin for intra state trading
  5. To be guided by National Policy and Plan in market development and other functions

7. Functions of CERC include

  1. Fix trading margin for inter-state trading
  2. Specify grid code having regard to grid standards specified by CEA
  3. Specify and enforce standards with respect to quality, continuity and reliability of services by licensees
  4. To be guided by National Policy and Plan

8. Regulatory Commissions (76- 97)

  1. Chairperson and Members may be allowed to opt for the revised terms and conditions on recommendations of selection committee
  2. ERCs shall advise govt.
  3. GOI may also constitute Joint Commission if authorized by the State
  4. Selection committee for CERC: chairperson of CEA or of CERC
  5. SERC mandated to specify share of RE in purchase (earlier: "if considered necessary")
  6. 5-year term (65 years) for all. Not eligible for re-appointment in the same ERC in same capacity
  7. 2 year restriction for employment in Govt. removed
  8. Commercial employment includes employment in organizations, which have been a party to the proceedings before the ERC.


  9. Powers to make rules and regulations


  1. Requirement of capital adequacy, credit worthiness or code of conduct for grant of license to two or more persons for electricity distribution
  2. Specify authority to whom appeal shall be filed against assessing officer (of SG, SEB or licensee) designated by SG for investigation and enforcement
  3. Specify process and functions of Inspectors



  1. Period within which X- subsidies to be reduced and eliminated



  1. Reduction and elimination of surcharge and x-subsidies
  2. Payment of additional charges on wheeling where supply is provided by one other than the licensee
  3. Time and manner of settlement of grievances
  4. Time limit for extension of supply


10. Appellate Tribunal (S.127)

  1. Appellate tribunal is to be established by Government of India to hear appeals against the orders of ERCs or adjudicating officer
  2. 3 member Tribunal,
  3. 3 year term,
  4. Eligible for reappointment,
  5. 70 years Chairperson (67 for others)
  6. GOI to provide staff to tribunal as it may deem fit
  7. Appellate authority for decisions of assessing officer to be specified by SERC (S.126)


11. Anti-theft Laws (S. 135- 139)

Provisions to penalize for the following offences:

  1. Theft of electricity,
  2. Theft of electric lines and materials,
  3. Receiving stolen property,
  4. Interference with meters or works of licensee,
  5. Negligent waste of electricity or injuring works.


12. Constitution of special courts (Part XV)

The State Governments have the power to constitute as many special courts as possible to try offences related to electricity.




  1. Impact of multiple licenses:

  1. Transmission (constitution of RLDC and SLDC)

  1. Impact of open access

  1. No provision for pending appeals
  2. Only recommendatory anti-theft laws
  3. Only recommendation of the constitution of special courts
  4. Consumer interests only protected for name-sake