We already talked about the basic framework of the Indian Power Sector. This post throws light on the need for the very act of Electricity in India, i.e. Electricity Act 2003. The act ignited the power sector like never before and sector reforms got the momentum on account of the critical elements of this act. Before we dive in to explore the act, I feel it’s important to understand the need. This article talks about the very need of the Electricity Act 2003.


Before 2003 AD, Indian Power Sector was thriving under the mercy of the state electricity boards and was badly a puppet of politicians to lure vote bank. Unfortunately, by the time the Central Government brought the Electricity Act 2003 (EA 2003) in place, the pathetic treatment to the power sector already caused tremendous damage to the state government exchequer. But, thereafter it played a very pivotal role in aligning the businesses and policies in sync. Hence, to my view – Electricity Act 2003 is a holy act to the Indian Power Sector. It not only guided for the modalities for efficient operation of the state electricity boards (SEBs), also it paved the greater way for a brighter future.


A brief of Indian Power Sector before EA 2003:

  1. 1897-98: First hydro (130 kW) Darjeeling / thermal (1MW) in Calcutta by CESC.
  2. 1910: Indian Electricity Act 1910 enacted by the British Government to regulate supply by the Licensees to the consumers.
  3. 1948: Indian Electricity (Supply) Act 1948’ (ES Act). Formation of State Electricity Boards with full powers to control generation, distribution, and utilization of electricity within their respective states and Central Electricity Authority (CEA) for planning and development of power system.
  4. 1964: Five Regional Electricity Boards (REBs) were formed by the Government of India with the concurrence of State Governments with a view to ensuring integrated grid operation and regional cooperation on power.
  5. 1976: Creation of Central Generating Companies for development of super thermal power stations at coal pitheads and large hydroelectric stations leading to the creation of NTPC, NHPC, NPC, NLC & NEEPCO.
  6. 1991: ES Act 1948 amended to pave the way for the formation of private Generating companies. CEA empowered to fix the norms for determining the tariff of all generating companies. RBI allows 100% foreign investment in power sector without any export obligations.
  7. 1992: First Gazette Notifications on the criteria for fixing the tariff for sale of electricity by the Generating companies to SEBs or any other agency. It took GoI 41 years in amending the age-old act.
  8. 1998: Electricity Regulatory Commission Act 1998 enacted paving the way for the formation of Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions (SERC). Regulatory power of the State governments transferred to SERC. Consequently, Tariff regulatory function of CEA transferred to CERC. But till 2003, hardly India had any SERC.
  9. 1998: Act amended for justifying roles of Central Transmission Utility (CTU) and State Transmission Utilities (STU), but without autonomy, they were handicapped.
  10. 2003: Electricity Act 2003 enacted by the Parliament.


Where did the piecemeal efforts of powering up the Indian Power Sector lead to by 2003?

  • Inefficient bundled utilities were less of economic drivers and more of sunk cost
  • In absence of regulatory framework, political parties used the public resources for their own good
  • The engineers at these electricity utilities remained technologically challenged for a very long time, which in turn resulted in a very poor execution (and failure to a good extent) of big schemes like APDRP and R-APDRP.
  • The SEBs did not have autonomy for investment and loss recovery. State Government was the key decision maker in all the steps. Such bureaucratic environment strengthened corruption and reduced efficiency.
  • As a result,
    • for a very long time our tariff revisions were hardly once in 3-4 years;
    • By the time the most technologically advanced option gets executed, it’s technology get huge up-gradation;
    • Our engineers remain very incompetent as against the schemes introduced by the government;
    • Even smallest but the most critical of the activities like tariff data collection, infrastructure maintenance, etc. were handled poorly
    • As a result, we remained so backward that our engineers were scared to operate on computers (even by 2006-07, when the world was adopting computers greatly)
    • By 1999 only Orissa could demonstrate the operation and modalities of the unbundled utilities


So, what Electricity Act 2003 brought new to Indian Power Sector?

Basically, the act asked the central government and the state governments to adhere to below:

  • Unbundling of the SEBs
  • Constitute a central regulatory commission and state-wise state regulatory commission
  • Constitution of appellate tribunal for electricity to ease out legal hassles amidst so much of civil and criminal cases
  • Annual tariff revision by a proper mechanism not only for Distribution utility but also for individual power plants / Generation utility and individual transmission lines / transmission utilities
  • Justification for cross-subsidy surcharges
  • Allowing non-discriminatory access to public / private infrastructure for all the stakeholders
  • Promotion of competition & so power trading
  • Promotion of infrastructure up-gradation
  • Generation, Transmission, Distribution and Power Trading are to be made a licenced business – which is to be renewed under SERC / CERC framework
  • Central Government was made responsible to float various policies such as
    • Tariff policy
    • Hydro Power policy
    • Mega Power Policies (Hydro and Thermal)
    • Guidelines for competitive bidding for the projects
    • Rural Electrification
  • Promotion of generation and purchase of the renewable energy (Renewable Energy Certificates)
  • Establishment of Load Dispatch Centres for load balancing country-wide grid


We shall introspect the policy further in our next article.