KERC Proposes Draft Regulations To Gradually Reduce Cross-Subsidies And Align Electricity Tariffs In Karnataka

The Karnataka Electricity Regulatory Commission (KERC) has issued a draft notification, proposing new regulations aimed at reducing cross-subsidies and cross-subsidy surcharges in the state. The draft, titled “Karnataka Electricity Regulatory Commission (Roadmap for Reducing Cross-Subsidy and Cross-Subsidy Surcharge) Regulations, 2025,” is part of the Commission’s efforts to comply with the Electricity Act, 2003, and the National Tariff Policy, which mandate that state commissions progressively align electricity tariffs with the actual cost of supply. This initiative also follows a direction from the High Court of Karnataka in December 2024, asking the Commission to lay down a clear roadmap for cross-subsidy reduction.

Currently, KERC determines uniform tariffs for all government-owned distribution companies in Karnataka. Over the past 24 years, the Commission has successfully reduced cross-subsidies for most consumer categories, bringing them within a plus or minus twenty percent band of the Average Cost of Supply (ACOS). According to data from the Tariff Order-2025, many categories for the financial year 2025-26 are already within this limit. Domestic consumers under the LT-1 category show a minimal cross-subsidy of negative 0.11 percent, industrial consumers in the LT-5 category are at 7.21 percent, and commercial consumers under HT-2b stand at 10.59 percent.

Despite this progress, certain categories continue to show significant deviations, requiring a structured reduction plan. The draft regulations focus specifically on two categories for substantial adjustments over a six-year period starting from the 2028-29 financial year. The first category is EV Charging Stations under LT-6c, which is projected to have a cross-subsidy of negative 48.83 percent by 2027-28. The Commission proposes an annual reduction of five percent for this category to bring it below the negative twenty percent threshold. The second category is Private Lift Irrigation under HT-3, which stands at a significant negative 78.98 percent for 2027-28. This category is planned to undergo an annual reduction of ten percent to align it with the required plus or minus twenty percent band. For all other consumer categories, KERC intends to maintain cross-subsidy levels within the acceptable twenty percent band.

The draft regulations clarify that while the Commission reserves the right to make necessary adjustments, any changes will generally not exceed five percent of the levels prevailing in 2027-28 or 2033-34, depending on the consumer category. It is also specified that the reduction roadmap will not apply to temporary power supply categories. Regarding the Cross Subsidy Surcharge, the Commission will continue to follow the methodology and rates prescribed by the Government of India’s Tariff Policy. Additionally, the draft includes clauses on “Savings” and “Power to Amend,” which ensure that KERC retains the authority to make orders necessary to meet the ends of justice or resolve difficulties in implementing the regulations.

The Commission is now inviting public and stakeholder input on the draft regulations. Interested individuals and organizations have thirty days from the date of the notification’s publication in the official gazette to submit their views, comments, or objections to the Secretary of KERC in Bengaluru. Once finalized, these regulations will come into force upon their publication in the Official Gazette, marking a significant step in Karnataka’s efforts to rationalize electricity tariffs and reduce cross-subsidies in the state.

This approach demonstrates KERC’s commitment to aligning tariffs with actual costs while gradually reducing disparities across consumer categories, ensuring a fairer and more sustainable electricity system for all users.