NEW DELHI – The upcoming Budget Session of Parliament, beginning February 1, 2026, is set to witness the introduction of the landmark Electricity Amendment Bill, 2026. A central feature of this bill is the implementation of cost-reflective tariffs, a move aimed at ending the decades-long cycle of debt and losses for India’s Power Distribution Companies (DISCOMs).

The announcement was made by Union Minister for Power, Manohar Lal Khattar, during the inaugural annual conference of the All-India Power Distribution Companies Association (AIDA), titled ‘EDICON 2026’, held in New Delhi on January 21.

Understanding Cost-Reflective Tariffs

A cost-reflective tariff is a pricing model where the electricity rate charged to a consumer category fully covers the utility's average cost of generating, transmitting, and distributing that power.

Currently, many DISCOMs charge certain categories (like agriculture and low-income households) far less than the cost of supply, leading to a widening ACS-ARR gap (Average Cost of Supply vs. Average Revenue Realized).

Key Provisions of the Proposed Reform

The reform strategy, outlined in the Draft National Electricity Policy (NEP) 2026 and the upcoming Bill, includes several structural changes:

• Elimination of Regulatory Assets: State Commissions must ensure tariffs reflect actual costs without creating "regulatory assets" (unrecovered dues).
• Automatic Annual Revisions: Tariffs will be linked to an index for automatic updates if a State Commission fails to pass a timely tariff order.
• Cross-Subsidy Rationalization: While subsidies for the needy will remain, they must be paid upfront by state governments. High cross-subsidies currently paid by industries will be phased out within five years to improve global competitiveness.
• Shared Networks: Multiple DISCOMs may be allowed to operate in the same area using a shared distribution network, fostering competition and efficiency.

Financial Turnaround: From Losses to Profits

Minister Khattar highlighted that the distribution sector is already showing signs of transformation. For the first time in years, DISCOMs collectively recorded a Profit After Tax (PAT) of ₹2,701 crore in FY 2024-25, a sharp contrast to the ₹25,553 crore loss in FY 2023-24.