Electricity Act 2003: Transforming the Power Sector in India

Electricity is on the concurrent list of India’s constitution. As a result, both the Union Parliament and the State Legislatures in India govern on subjects connected to electricity, with the Union Parliament’s laws taking precedence over the State Legislature’s legislation.

The Electricity Act 2003 is a single piece of law that covers the country’s essential areas of electricity and establishes a roadmap for the sector’s consistent development. The act laws relate to the generation, transmission, distribution, trading, and electricity usage.

The Central Electricity Authority was established under the Indian Electricity Act 2003 to promote efficient and ecologically friendly practices.

Background of Electricity Act 2003

The Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948, and the Electricity Regulatory Commission Act, 1998 governed the Indian electricity sector before the Electricity Act, 2003.

State Electricity Boards in individual states were primarily responsible for generation, distribution, and transmission. Cross-subsidies had reached an unsustainable level due to the politico-economic scenario, and the Electricity Regulatory Commissions Act was implemented in 1998 to separate state governments from tariff determination.

So, the Electrical Act of 2003 was designed to further modernise the electricity sector through private sector engagement and competition.

Acts governing Electrical Sector before the Electricity act 2003

Before the enactment of the electricity act, 2003 the following acts governed the supply of electricity in India:

The Indian Electricity Act, 1910

It was the first act that was created as the basic framework for electricity supply in India. According to this act, private licensees needed to contribute to the company’s growth. It also developed a legal framework for installing cables, wires and other electrical-related works for the electricity supply in India.

The Electricity (Supply) Act,1948

The Electricity (Supply) Act of 1948 made the creation of State Electricity Boards (SEBs) mandatory. It further made the State Electricity Boards responsible for arranging electricity supply in all the states. It aimed to expand electricity rapidly, which was previously limited to cities and compelled states to fund expansion through five-year plans.

However, over some time, the performances of the state electricity boards got worse due to various factors, which include:

  1. Fixing tariffs by the state governments and not by the State Electricity Boards.
  2. Cross-subsidies reached such an unsustainable limit.
  3. A new act, Electricity Regulatory Commissions Act, 1998, came into existence which constituted Central and State electricity regulatory commissions under the Central Act.

The state of Orissa pioneered the reforms in 1995, which resulted in the deregulation of State Electricity Boards into corporations in charge of generation, transmission, and distribution.

Applicability of the Indian Electricity Act 2003

  • Lok Sabha and Rajya Sabha passed the bill on April 9th and May 5th, 2003, respectively.
  • The act obtained the President’s Assent on the 26th of May, 2003.
  • On June 10, 2003, the aforementioned Bill became the Electricity Act, 2003.
  • There are 18 parts, 185 sections, and 1 schedule.
  • It applies to entire India, including the state of Jammu and Kashmir.

Purpose of the Electricity Act 2003

The purposes of the Electricity Act 2003 are as follows:

  • To harmonise the laws governing electricity generation, transmission, distribution, trade, and use.
  • To take steps to promote the growth of the electrical sector.
  • To encourage competition in the industry.
  • To protect consumers’ interests.
  • To rationalise tariffs for electricity.
  • To establish electrical regulatory commissions and an Appellate Tribunal
  • To ensure that all places have access to electricity.
  • To reduce cross-subsidization levels.

Features of the Electricity Act 2003

The following are the features of the Electricity Act 2003:

  • The act provided for depriving the license in electricity generation except for the hydro and nuclear electric generation.
  • As stated in Section 38 of the electricity act 2003, a transmission utility ensures at the central and state levels that the transmission network is constructed in a structured and organised manner to satisfy the electrical sector’s needs.
  • A provision is made for private transmission licensees.
  • In transmission, there would be no restrictions. Generation businesses would be free to hire distribution licensees, and they would be able to hire generating companies.
  • The state electricity regulatory commissions may permit open access to distribution.
  • Stand-alone generator and distribution systems would get authorised in rural and remote places.
  • The act decentralised distribution management through Panchayats, Users Associations, and Cooperatives would get authorised in rural regions.
  • Trading is recognised as a distinct activity, with Regulatory Commissions having the authority to set trading margin ceilings.
  • The price of electricity would not be regulated if there is a direct business interaction between a customer and a generating company or a trader, and only the transmission and wheeling charges of electricity would get governed.
  • In the Electricity Act 2003, there is a clause for a transfer program in which a firm can transfer its assets, and state governments can create State Electricity Boards. The state governments have the two options:
    • To distribute licenses under the new scheme of things, and
    • The State Transmission Utility would hold generation assets.
  • Employees’ working circumstances would not be substandard.
  • An Appellate Tribunal is established that hears appeals against Central Electricity Regulatory Commission and State Electricity Regulatory Commission decisions to expedite the resolution of such cases.
  • Electricity theft provisions are primarily concerned with revenue.

Indian Electricity Rules 1956

The major IE rules according to Indian Electricity Rules 1956 are as follows:

  • Rule 32: To identify earthing, neutral conductor, switch and cut out
  • Rule 51: Installation of medium, high and extra-high voltage
  • Rule 61: Installation of voltage above 125V equipment
  • Rule 62: Installation of medium voltage equipment
  • Rule 67: Earthing
  • Rule 69: Pole type substation
  • Rule 88: Each conductor earthed at a proper distance, i.e., guarding
  • Rule 80: The gap between the Power line and Communication Line should be 2-6 feet
  • Rule 90: In over headline, all-metal support, the fitting should be earthed
  • Rule 92: Protection against lightning strokes

Responsibilities of the Central Electricity Authority of India (CEA)

The responsibilities of the Central Electricity Authority of India include policy suggestions, monitoring the performance of the electrical sector, guiding the Ministry of Power on technical matters, data management and distribution in the power industry, etc.

According to section 73 (b) of the Electricity Act 2003, CEA is responsible for developing technical standards for building electrical plants, electric lines, and grid connectivity. However, a generating business may grow, operate, and retain generating stations if it conforms with the technical requirements relating to grid connectivity as specified in clause (b) of section 73 of the Electricity Act 2003.

As a result, generating stations are not required to follow the CEA technical criteria for building electric plants and lines.

Similarly, except for the Grid Code/Grid Requirements for the operations and maintenance of transmission lines defined by CEA under clause 73 (d) of this Act, transmission/distribution licensees are not required to apply mandatory requirements for building electric lines.

These CEA guidelines are frequently conservative, compromising optimal design features/cost/utility, and do not provide complete clarity in selecting electric plants and lines’ system/subsystem functionality.


India has established a new statute called the Electricity Act 2003, which took effect on June 10, 2003, to replace some of the country’s older laws.

The new act consolidates existing legislation and strives to give for measures that promote the country’s power industry development. The act aimed to solve some of the challenges that hindered reform in the country, and as a result, thus giving the electricity industry fresh optimism.

FAQs on Electricity Act 2003

What does Section 9 of the electricity act 2003 state?

Captive Generation

Section 16 of the electricity act 2003 deals with?

Conditions for license

Which section deals with the duties of generating companies?

Section 10

Which section deals with the duties of distribution licensees and open access?

Section 42

What is the objective of the electricity act 2003?

The electricity act 2003 deals with the distribution, generation, transmission and trading in power.

About Author

A law aspirant and a final year student at Lloyd Law College.

I always had an inclination towards corporate and commercial laws because of their impressive and organized work structure with everyday challenges.

I am a dedicated person who is able to express honest opinions and keep patience in stressful situations.