Create Independent and Accountable State Electricity Regulators

India has already created a federal electricity-regulatory structure. The Central Electricity Regulatory Commission operates at the national level, while State Electricity Regulatory Commissions regulate important aspects of electricity within states.

The problem is not the absence of regulators. The challenge is ensuring that state regulators are sufficiently independent, technically capable, transparent, and accountable to regulate increasingly complex electricity markets.

This becomes even more important if India moves away from state-owned DISCOM monopolies toward greater private participation and competition. Privatization without effective regulation can simply replace a government monopoly with a private monopoly.

Electricity regulation also faces an inherent tension. Consumers need affordable and reliable electricity. Utilities need enough revenue to maintain networks and invest. Governments may want to subsidize particular groups. Investors need predictable rules.

These objectives should be reconciled transparently rather than through political intervention in day-to-day electricity pricing.

The principle should be:

Government Sets Policy → Independent Regulators Set and Enforce the Rules → Providers Operate and Compete → Consumers Are Protected

India should strengthen its federal model of electricity regulation, giving independent State Electricity Regulatory Commissions primary responsibility for regulating electricity distribution and retail markets within their states, while the Central Electricity Regulatory Commission focuses on interstate transmission, wholesale markets, and matters requiring national coordination.

1. Make State Electricity Regulators Institutionally Independent

Appointments to State Electricity Regulatory Commissions should follow transparent, merit-based processes.

Commissioners should collectively bring expertise in areas such as:

Electricity Markets → Engineering → Economics → Finance → Competition → Consumer Protection

Commissioners should have secure tenure, transparent selection criteria, and strict conflict-of-interest rules.

Regulators should also have sufficient independent professional staff and technical capability to challenge utilities rather than depending heavily on information supplied by the companies they regulate.

2. Clearly Separate Government, Regulator and Operator

State governments should determine broad electricity policy, including social objectives and subsidy priorities.

Independent regulators should determine and enforce market rules, tariffs, service standards and consumer protections.

Utilities and electricity suppliers should operate within those rules.

The distinction should be explicit:

Government → Policy

Regulator → Rules & Oversight

Electricity Providers → Operations

This becomes especially important where governments continue to own electricity companies. The same government should not effectively act as owner, operator, policymaker, and regulator.

3. Make Electricity Tariffs Transparent

Tariff decisions should clearly identify the major components of electricity costs, including power purchases, transmission, distribution, network investment, operating expenses, and losses.

Government subsidies should also be explicitly identified.

If a government chooses to provide subsidized electricity to farmers, low-income households, or another group, that is a legitimate policy decision—but the cost should be transparent rather than hidden within utility finances or shifted unpredictably to other consumers.

Regulators should publish the evidence and assumptions behind major tariff decisions and allow meaningful public participation.

4. Move Toward Performance-Based Regulation

Traditional utility regulation can create incentives for companies to justify additional expenditure rather than necessarily improving outcomes.

State regulators should increasingly link utility revenues and incentives to measurable performance.

Utilities could be evaluated on outcomes such as:

Power Reliability → Outage Duration → Distribution Losses → Billing & Collection → Connection Times → Complaint Resolution → Consumer Satisfaction

Utilities exceeding reasonable performance standards could receive financial incentives, while persistent underperformance could result in penalties or lower permitted returns.

Performance-based regulation is already being explored and implemented by a number of U.S. state utility commissions. NARUC describes it as linking achievement of specified objectives to utility financial performance through measurable incentives, rewards or penalties.

5. Give States Room to Experiment

India’s electricity systems differ substantially from one state to another.

Rather than prescribing a single operating model nationally, states should be able to experiment with different approaches to distribution, retail competition, private participation, tariff structures, renewable integration and performance regulation.

National legislation should establish minimum principles for competition, transparency, consumer protection and regulatory independence while allowing states to determine how best to achieve them.

Successful approaches can then spread across states.

6. Publish Comparable Regulatory and Utility Performance

A national electricity regulatory dashboard should publish standardized indicators for every state.

These could include:

Reliability → Distribution Losses → Cost of Supply → Tariff Gaps → Subsidies → DISCOM Financial Performance → Consumer Complaints → Regulatory Decision Times

This would create competition not only among electricity providers but also among states to improve their electricity systems.

7. Strengthen Consumer Protection

Greater private participation and competition must be accompanied by stronger consumer rights.

State regulators should establish enforceable standards covering outages, voltage quality, billing disputes, new connections, complaint resolution and compensation when utilities fail to meet defined service obligations.

Consumers should also have meaningful representation in major regulatory proceedings.

8. Hold Regulators Accountable Too

Independence should not mean absence of accountability.

Every State Electricity Regulatory Commission should publish an annual performance report covering the timeliness of tariff decisions, enforcement actions, consumer outcomes, utility performance and progress toward state electricity objectives.

Independent periodic reviews could compare regulatory effectiveness across states without allowing governments to interfere in individual regulatory decisions.

United States: Federalism With Strong State Electricity Regulation

The United States provides a useful structural example because electricity regulation is divided between federal and state institutions rather than concentrated in one national regulator.

The Federal Energy Regulatory Commission regulates important areas of interstate electricity transmission and wholesale electricity markets. Retail electricity distribution and the rates consumers pay, however, are generally regulated by state or local authorities.

This creates room for states to adopt different electricity-market structures.

Some states retain vertically integrated utilities. Others have restructured electricity markets. State commissions are also experimenting with different forms of performance-based regulation. NARUC’s September 2026 tracker documents substantial variation in the approaches being taken across U.S. jurisdictions.

Meanwhile, federal regulation provides oversight of interstate transmission and wholesale markets. FERC also oversees market-based wholesale rates and evaluates whether sellers possess or have adequately mitigated market power.

India does not need to copy the U.S. electricity system. India’s electricity sector, subsidy structure and institutional arrangements are different.

But the federal principle is highly relevant:

National Rules Where National Coordination Is Necessary → Strong State Regulators Where Local Conditions Matter → Space for State Experimentation → Transparent Comparison of Outcomes

This approach can allow Maharashtra, Tamil Nadu, Gujarat, Uttar Pradesh or another state to pursue different electricity reforms while remaining within common national principles.

Successful reforms can then be demonstrated through results rather than imposed uniformly from the beginning.

The long-term objective should be an electricity system in which government establishes policy but does not control every operational decision; independent regulators protect consumers and competition; providers are rewarded for performance; and states have room to innovate.

Strong electricity markets require strong regulators. Competition without regulation risks creating private monopolies; regulation without independence risks preserving political control. India needs both competition and independent regulation.