“Falsehood flies; truth comes limping after it,” wrote Jonathan Swift in the early 18th century. The reports and reviews of the proposed amendment to the Electricity Act, 2003, after five earlier failed attempts, make his words seem apt today. Over the past several years, the Union government has introduced versions of the Electricity (Amendment) Bill multiple times – 2014, 2018, then drafts in 2020 and 2021, and another Bill in 2022 – but none have been enacted so far.The statement accompanying the latest amendment Bill (2025) speaks of “ease of doing business” and “ease of living” in the same sentence. It says, “The amendments propose uniform national standards of service to improve supply quality and accountability. Consumer-friendly measures include capping assessment for unauthorised use to one year, and reducing appeal pre-deposit requirements.”Strangely, media reports analyse the amendment in terms of ease of doing business and scarcely mention ease of living. Yet the logic of ease of doing business rests on ease of living – businesses cannot thrive unless people have stable, affordable electricity. In other words, affordable and reliable electricity for households underpins productivity and small-enterprise activity. This dimension is largely absent from public discussion.In this context, commentators invoke “actual cost recovery”, assuming that the input costs of generation, transmission and distribution are determined strictly by the framework of the Act. The premise is that if discoms are allowed to recover their full costs through tariff, financial viability will follow. However, what goes unquestioned is that the Act mandates not only recovery of the actual cost of electricity but also reasonable cost to consumers under Section 61(d).Despite this balancing mandate, the 16th Finance Commission has stated that free supply of electricity is a cause of losses to the Tamil Nadu electricity distribution company, TNPDCL.Since Tamil Nadu is being cited as an example of losses due to free supply, let us examine the state to test that claim – not just for Tamil Nadu but to understand the national electricity scenario. Tamil Nadu extended electricity to all its villages nearly 55 years ago. It now has one of the largest grid loads in the country and around 20,000 megawatts of renewable capacity, along with thermal coal, gas, hydro and nuclear generation capacities.Tamil Nadu also caters to a large number of industrial and agricultural consumers, which include numerous Micro, Small and Medium Enterprises, making a total consumer base of 33.8 million across categories. Yet it has accumulated losses of Rs 1.186 trillion, the highest in the country.The amendment relies heavily on the Supreme Court judgement in BSES Rajdhani Power and Another vs Union of India and Others to argue in favour of market-based reforms in the sector. However, it overlooks the observation in paragraph 10(i) of that judgement: “Since electricity is a material resource, the state has a public interest in ensuring that its ownership and control are so distributed as best to subserve the common good.”Also read: The Social Realities of India’s Electrification, in One MapThe judgement, when it classifies electricity as a material resource of the state, echoes the text and spirit of Article 39(b) of the Constitution of India. Accordingly, both the judgement and Article 39(b), a Directive Principle of State Policy, declare that social needs must take precedence over business interests.Tamil Nadu provides 100 free units of electricity every two months to all domestic consumers, of which it has broadly two kinds: 23.4 million domestic service connections and 9.5 lakh hut connections in panchayat areas, each of the latter limited to a single 40-watt light.Of the 23.4 million households, 7 million use only 42.6 units out of the 100 free units. That is, the consumption in this tier is not just modest but below the entitlement to free electricity units. In the next slab, another 5.4 million households use about 62 units beyond the free quota and pay Rs 161 at a subsidised rate, or roughly Rs 80.5 per month. With the electricity consumption already at subsistence level, if this free supply were to be taken away, and the actual cost of Rs 8.60 per unit imposed, many among these 12.4 (7 plus 5.4) million households might forego electricity altogether.Now let us come to another set of consumers, the 9.5 lakh hut dwellers who survive with just 40 watts of lighting. Around 53% of them can access this material resource of the state because of free electricity. In effect, this minimal free supply constitutes their share in a public resource that the constitution requires to be distributed for the common good.Tamil Nadu is considered a developed state. It stands to reason that in many other states, access to electricity for basic living may be even more constrained.Nationally, ease of living is often measured through the proxy of per capita consumption, reported at 1,460 units. Yet this average conceals deep disparities. Industrial and commercial demand inflates the consumption, while millions of low-income households consume only minimal quantities. So does the average statistic truly reflect the lived reality of Indian society?When the Finance Commission expresses concern about free electricity, it overlooks the “freebies” extended to generators – production-linked incentives, accelerated depreciation, viability gap funding, concessions on excise duties and tax holidays. These too are funded from the public exchequer, largely benefiting the affluent.Another common critique is that discom inefficiency causes heavy losses. Yet TNPDCL reports aggregate technical and commercial losses of 9.51%, well below the national average of 15.04%. Its billing and collection efficiency stands at 98.8%, compared to the national average of 87.59%, according to the Power Finance Corporation’s 2025 rating of discoms.The billing and collection efficiency of TNPDCL is not a recent phenomenon. From the inception of the State Electricity Board in 1957, its performance has remained strong. Until 2000, the Tamil Nadu Electricity Board (TNEB), then the SEB, earned an average annual profit of about Rs 300 crore. It began to incur losses after private power was introduced into the grid as a matter of policy compulsion.Also read: Diving Into the Privatisation Push in India’s Power SectorThese private generators claimed fixed charges amounting to nearly 24% of total capital cost annually, along with high fuel charges. Their costs were nearly four times the generation cost of TNEB. After 2000, TNEB never recovered, as it became mandatory to meet demand by purchasing private power.Another explanation offered for discom losses is that the actual cost of supply (ACS) is not fully recovered through tariff. This is measured as the gap between ACS and average cost of realisation, ACR. For instance, on September 10, 2022, TNPDCL hiked retail tariffs by 37%. Prior to the revision, annual losses stood at Rs 24,576 crore and the average realisation was Rs 5.72 per unit.After the revision, the average realisation rose to Rs 7.85 per unit, yet losses increased to Rs 26,499 crore. In 2023-24, with realisation at Rs 7.67 per unit, losses still remained high, at Rs 24,050 crore. The tariff hike had little impact on losses. Retail tariff and losses appear weakly correlated. The source of losses lies elsewhere.Policymakers have defaulted to the conventional solution of privatising discoms without identifying the structural causes for their losses. One major source of losses arises from the open access regime, a policy compulsion under the Electricity Act, 2003, which requires discoms to open their networks to private players.In Tamil Nadu, around 16,000 megawatts of private generation flows through the TNEB grid. These generators enjoy concessions that ordinary consumers would find difficult to imagine. First, wind generation of about 12,000 megawatts is permitted to be “banked” in the TNEB network for up to 12 months, allowing generators to draw back equivalent energy later. That is, when they generate power, they do not have to sell it immediately. They can claim equivalent energy later. This practice, termed “banking”, is technically contentious, as electricity cannot literally be stored in transmission lines.The Appellate Tribunal for Electricity once likened the “banking” practice to a savings bank account, but if electricity could truly be stored in the grid for any amount of time, there would be no need for battery storage systems or pumped storage plants. Put simply, the grid must balance supply and demand for electricity in real time. Hence, what really happens is that the discom absorbs the wind power generated and then supplies equivalent power later, even if it costs more – and bears the costs of managing the grid.TNPDCL has even claimed before the Tamil Nadu Electricity Regulatory Commission that this “banking” arrangement results in an annual loss of around Rs 1,905 crore to it.The Ministry of Power has not only refrained from intervening in this matter but granted statutory backing, through subordinate legislation, to this so-called banking. As a rule-making authority, it bears responsibility to explain the basis of this provision. Section 61 of the Electricity Act, 2003 mandates that state electricity regulatory commissions act subject to the provisions of this Act. And the Act contains no explicit provision for banking. Yet regulatory bodies and subordinate authorities have effectively institutionalised it.Second, the Union government introduced a Green Energy Fund in 2012 by levying a cess of Rs 50 per tonne on coal used for thermal generation. When GST was introduced in 2017, the cess was raised to Rs 400 per tonne, in addition to 5% GST. However, the cess was diverted to compensate states for GST revenue losses.Between 2017 and 2022, collections totalled about Rs 3.7 lakh crore. This levy increases power purchase costs by roughly 30 paise per unit. It remains unclear why discoms should bear the burden of GST compensation.Third, the Ministry of Power framed rules exempting wind and solar generators from transmission charges when transmitting power through the central transmission network. These charges typically range between 27 and 50 paise per unit, depending on distance. Under the general network access framework, these costs are effectively shifted to discoms. If the Union government intends to promote renewable energy through concessions, it should bear the fiscal cost directly.Section 65 of the Electricity Act requires that if a state government intervenes in tariff, it must compensate through budgetary provision. The same principle should apply to the Union government – if it gives concessions to renewable generators, it should also compensate discoms through budgetary support. Instead, the discoms end up paying higher overall transmission costs. In 2025, TNPDCL paid about 85 paise per unit towards transmission charges.Fourth, while the Ministry of Power emphasises competition to reduce tariffs, its tariff policy simultaneously seeks to make generation investment-attractive. In other words, it talks about market discipline, but attempts to guarantee returns to investors, and this is sought to be done through tariff policy. Generators are allowed to recover 22% to 24% of their capital cost every year as fixed charges. These charges are payable even if electricity is not actually purchased, provided the generator (plant) is available.This system – in which generators have a large revenue stream regardless of how much power they sell – traces back to amendments introduced after the 1991 economic reforms to Section 43A of the (repealed) Electricity Supply Act, 1948. These fixed charges now account for roughly 45% of energy cost. The risks are passed to the discoms while the private generators secure guaranteed returns through power purchase agreements.Further, guidelines under Section 63 (dealing with competitive bidding) have allowed fixed charges to approach fuel cost levels – nearly 50% of unit cost. That is, almost half the per-unit tariff is now fixed cost, not energy actually generated. For example, in 2013, a generator claimed Rs 1.94 per unit as the fixed cost. In current agreements, the fixed cost claims have risen to around Rs 3 per unit. This escalation warrants closer scrutiny for whether it is due to increases in capital and financing costs or simply due to the tariff structure.The Supreme Court judgement mentioned earlier states that “the public policy that governs purchase, sale and distribution of electricity is not based on market forces of demand and supply but by regulation through statute”.In other words, electricity is meant to be governed not by competition alone but by consistent and lawful regulation. The judgement says so clearly:The Electricity Act 2003, the policies and plan(s) formulated under Section 3 of the Act, rules made by the Central and State Governments, and more importantly, the regulations formulated by the Regulatory Commissions, followed by the precedents laid down by the APTEL and this Court form the legal regime, by which tariff is determined, restructured, and reviewed from time to time.Across generation sources, the cost of production today does not generally exceed Rs 4.50 to Rs 4.75 per unit. Yet market prices during peak hours range from Rs 9 to Rs 16 per unit. Emergency real-time purchases have touched Rs 20 per unit. In 2021, the Central Electricity Regulatory Commission capped prices at Rs 10 per unit, but that cap no longer applies. Electricity pricing has increasingly moved beyond regulatory discipline and closer to discretion.There are additional concessions, technically complex but financially significant, that further escalate power purchase costs. These include pseudo-captive status, must-run status for infirm renewable generation, the deviation settlement mechanism and issues arising from harmonics pollution. Each of these shifts additional financial burden onto discoms under evolving open access frameworks that favour private generators.It must be recognised that actual cost of supply is directly proportional to power purchase cost. The elements described above, whether explicit or embedded, contribute to escalating the actual cost of supply well beyond what may be considered reasonable cost to consumers.The Electricity Act, 2003 introduced two structural changes: distancing electricity governance from state governments and mandating open access for private generators. Both developments have had significant financial consequences for consumers and state governments alike.A serious reconsideration of the Electricity Act, 2003 is therefore warranted, including examining whether elements of the Electricity Supply Act, 1948 offered greater public-interest safeguards than what is available now.At present, wealth influences electricity policy, and electricity in turn shapes the lives of the poor.S. Gandhi is president of the Power Engineers Society of Tamil Nadu.