Govt proposes new electricity distribution licensees to use existing networks; pay wheeling charges
AI Summary
The Consultative Committee of the Power Ministry is discussing amendments to the Electricity Act that would allow new distribution licensees to use existing networks for electricity supply, thereby reducing infrastructure duplication and promoting competition. While the government aims to enhance consumer choice and service quality, there is significant opposition from various stakeholders who fear that this could undermine public distribution companies and lead to financial strain on state utilities. The Ministry has promised to develop a fair implementation framework to address these concerns.
In a significant development related to amendments to the Electricity Act, the Consultative Committee of the Power Ministry met on Thursday to deliberate on the government’s proposal allowing new distribution licensees to supply electricity using existing networks paying regulated wheeling charges.
The Consultative Committee, chaired by Power Minister Manohar Lal, deliberated on the proposed framework for parallel distribution licensing, which the Ministry emphasised is aimed at promoting consumer choice, improving service quality and ensuring efficient utilisation of electricity distribution infrastructure.
Currently, more than one distribution licensee can operate in the same area. However, each licensee has to establish their own distribution network.
According to the Ministry this results in duplication of poles, lines and substations, thereby increasing capital expenditure and discouraging fresh investment, which ultimately leads to inefficient utilisation of resources.
The Ministry’s proposed framework, which seeks to enable competition in electricity supply without requiring duplication of the physical distribution network was discussed in detail.
“Under the proposal, existing distribution licensees will continue to own, operate and maintain their networks. New distribution licensees will be able to use the existing network by paying regulated wheeling charges while retaining the option to develop their own network wherever permitted by the concerned State Electricity Regulatory Commission,” the Ministry said.
The issue of many distribution licensees operating in a single service area is a contentious one with states, power sector employees and central trade unions strongly opposing it including several amendments proposed by the government in the draft Electricity Act, 2025.
Their main contention is that the Bill allows multiple distribution licensees in the same area using the same public-funded network, enabling private firms to cherry-pick high-paying consumers while public Discoms serve low-revenue rural and domestic consumers.
In October 2025, the Electricity Employees’ Federation of India (EEFI) claimed that Section 43 (4) empowers regulatory commissions to allow consumers with a demand above 1 megawatt to shift to private suppliers, thereby reducing the revenue of public Discoms and further narrowing the scope of cross-subsidy. At the same time, the state utilities need to maintain the contract demand of those high-end consumers as back-up, putting a further financial burden on state Discoms.
The Ministry, during the deliberations at the Consultative Committee meeting assured that a detailed implementation framework would be developed by the State Electricity Regulatory Commissions (SERCs) to ensure fairness, transparency and non-discriminatory access to the network. The proposal also fully protects the interests of incumbent distribution licensees and their employees.
Further, all distribution licensees will continue to be bound by the universal service obligation under the Electricity Act and the regulatory framework will prevent selective supply only to profitable consumers, the Ministry assured.
The Minister emphasised that consumers will have the freedom to choose their electricity supplier, similar to the choices available today in sectors such as telecommunications and aviation.
Increased competition is expected to encourage better consumer service, improved reliability, greater innovation and operational efficiency, while ensuring optimal utilisation of existing infrastructure and avoiding unnecessary expenditure, Manohar Lal added.
The Minister pointed out that the concept is not new to India and has been successfully implemented in Mumbai for several years, where consumers have exercised supplier choice while distribution network continues to be developed in a coordinated manner under the supervision of the SERC.
Original Article
Published on Hindu BusinessLine