New Delhi: Electricity tariffs are rising in several states this fiscal year (FY27) as distribution companies, or discoms, are pushed to recover more of the cost of supplying power, after years of under-recovery left utilities carrying large deferred costs.
However, even as about nine states and Union territories have increased their tariffs for FY27, states headed for elections have held their line due to political considerations. Punjab and Himachal Pradesh, which are due to go for polls next year, have lowered tariffs by up to ₹1.5 and 1 paise, respectively, tariff orders from the respective state electricity regulatory commissions (Sercs) showed.
Another 13 states, including poll-bound Uttar Pradesh and Uttarakhand, have kept tariffs unchanged despite rising costs. Assembly elections in these two northern states are due in 2027.
Among those that have raised tariffs are Chhattisgarh, Jharkhand and Jammu & Kashmir, which have allowed hikes of more than 6%, while Madhya Pradesh and Goa have approved average increases of about 4%. Sikkim has raised tariffs by 17-50% across consumer categories.
The moves follow an August 2025 Supreme Court directive asking states to move towards cost-reflective electricity tariffs and prepare time-bound plans to clear ‘regulatory assets’, which represent costs that discoms have been unable to recover from consumer tariffs and have instead deferred.
“Usually, tariff revision has been a political consideration—when elections come, the state government will say not to increase tariffs, and that is complied with,” said Jayant Deo, former chief executive officer (CEO) of the Indian Energy Exchange. “Several states have high regulatory assets, including Tamil Nadu, which has regulatory assets worth around ₹90,000 crore, but it is not reflected in the tariffs.”
In some states, though, regulators have sought to limit the impact on consumers through longer-term tariff plans. Maharashtra’s Serc, for instance, approved a multi-year tariff order in March that will lower electricity bills for residential consumers by 4-26% over the next five years.
Delhi has also not raised base tariffs, but consumers are facing higher effective charges through fuel and power-purchase adjustments. Since 10 June, discoms have been allowed to recover power purchase adjustment charges (PPAC)—amounting to 16-17.94% of electricity bills—from consumers. Both Maharashtra and Delhi are not bound for the hustings anytime soon.
The pressure to raise tariffs comes even as the financial health of state discoms has improved. The gap between the average cost of supply (ACS) and the average revenue realised (ARR), a key indicator of whether utilities are recovering their costs from consumers, narrowed sharply to ₹0.06 per unit in FY25 from ₹0.78 a unit in FY21, according to data released by the Union power ministry in March.
Alongside, aggregate technical and commercial (AT&C) losses—including electricity lost through the distribution network as well as commercial losses such as power theft and billing inefficiencies—fell to 15.04% in FY25 from 21.91% in FY21.
The tariff increases also come against a backdrop of potentially higher power procurement costs (PPC). Power purchase accounts for about 70-75% of a discom’s cost structure and remains its largest expense, according to rating agency Icra.
Both the cost of power and the tariff broadly have two components. The first is the fixed or capacity charge, which a discom has to pay to a generating company for keeping the contracted generating capacity available, whether or not the discom actually draws the full contracted power. The second is the variable or energy charge, which is linked to the actual electricity supplied and mainly reflects the cost of fuel and energy generated.
Tariff determination involves determining how much it costs a discom to supply electricity and how much revenue it needs to recover that cost from consumers.
A discom has several major financial obligations, including payments under PPAs, RPOs, and the cost of operating and maintaining its distribution network. The ARR is similar to a budget. It estimates the discom’s expected expenditure and revenue for the coming year and forms the basis for determining consumer tariffs.
Gireesh Kumar Kadam, senior vice-president and group head—corporate ratings, at Icra, said lower power purchase costs and falling AT&C losses had helped improve discom finances in recent years. The median approved power purchase cost for 13 major state discoms fell to ₹4.90 per unit in FY26 from ₹5.70 in FY23, according to Icra.
“However, going forward, PPCs may increase due to high power purchase agreement (PPA) costs for new thermal assets, and elevated tariffs under innovative renewable energy schemes tendered over the past couple of years to meet the demand curve of discoms, compared to the cheap renewable PPAs signed earlier,” Kadam said.
Raj Pratap Singh, former chairman of the Uttar Pradesh Electricity Regulatory Commission, said SERCs determine retail electricity tariffs based on the distribution tariff regulations applicable in their respective states.
“Many states contracted large amounts of power through PPAs when higher electricity demand and consumption were expected in the future. However, the rapid growth of renewable energy and increasing RPO (renewable purchase obligation) requirements reduced the utilization of some conventional generating stations. Their fixed costs therefore could not be fully recovered through energy sales and effectively became a stranded cost. As electricity demand subsequently increases, the same contracted capacity can be utilized more fully,” Singh said.
Pankaj Batra, former chairman of the Central Electricity Authority, noted that most state discoms have started charging fixed charges. “Most of the state discoms have started charging fixed charges. It is in line with the bulk procurement of power by discoms. Fuel charge is also levied, which is a variable amount. Fixed charge is based on generation capacity, while fuel charge or surcharge is decided as per the cost of the coal or other fuel and is usually decided at the start of the year,” he said.
The tariff increases could also have a modest impact on inflation, particularly as electricity accounts for 4% of the consumer price index. Retail inflation rose to a 19-month high of 4.45% in July.