KERC Notifies 2026 Regulations to Reduce Power Cross-Subsidies in Karnataka

The Karnataka Electricity Regulatory Commission (KERC) has notified the Karnataka Electricity Regulatory Commission (Roadmap for Reducing Cross-Subsidy and Cross Subsidy Surcharge) Regulations, 2026, setting out a framework to progressively align electricity tariffs with the cost of supply in the state.

The regulations apply to all electricity consumers and open-access users in Karnataka and aim to maintain tariff levels within the band prescribed under the Electricity Act, 2003 and the National Tariff Policy 2016.

High Court Directive Triggered Regulations

The new framework follows directions from the High Court of Karnataka, which in its December 20, 2024 order in the case Renew Wind Energy (Karnataka) Private Limited vs Union of India and Others directed the regulator to frame specific regulations for the progressive reduction of cross-subsidies and associated surcharges.

Under the Electricity Act and tariff policy guidelines, state regulators are required to gradually reduce cross-subsidies so that tariffs reflect the actual cost of electricity supply.

KERC noted that over the past 24 years, it has already made significant progress toward this objective, bringing most industrial and commercial consumer categories within the prescribed ±20 percent band of the average cost of supply.

Key Provisions of the Regulations

The regulations establish the methodology for determining cross-subsidies and outline how they will be progressively reduced or maintained.

Cross-subsidy has been defined as the difference between the Average Cost of Supply (ACS)—calculated by dividing the utility’s Annual Revenue Requirement by total electricity sales—and the Average Tariff, which reflects revenue realized from a specific consumer category relative to its sales.

The commission reiterated that the goal is to ensure both cross-subsidizing categories (those paying more than the cost of supply) and cross-subsidized categories (those paying less) remain within the ±20 percent range of the average cost of supply.

However, the rule will not apply to temporary power supply connections, given their varied usage patterns and high sanctioned loads.

The methodology for calculating the Cross Subsidy Surcharge (CSS)—levied on open-access consumers—will continue to follow the framework prescribed in the central government’s tariff policy.

Targeted Reduction for Two Consumer Categories

While most consumer categories already fall within the prescribed band, KERC has identified two outlier segments where tariffs remain significantly below the cost of supply.

The commission has directed a phased reduction in cross-subsidy for these categories starting FY2028-29:

Commission’s Observations

In its order, KERC stated that the scope for a broader reduction roadmap is limited, since most tariff categories in Karnataka already comply with the ±20 percent requirement.

The commission also indicated that as cross-subsidies for subsidized consumer groups are reduced, it may gradually readjust tariffs for those categories currently paying higher-than-cost tariffs to maintain balance within the system.

Further, the regulator retained the authority to modify cross-subsidy levels by up to five percent, if required to address special circumstances or ensure regulatory fairness, provided the levels remain within the ±20 percent band.

Public Consultation

The final regulations were issued following a public hearing held on February 3, 2026, during which stakeholders submitted written and oral suggestions before the commission finalized the framework.

The move is expected to bring Karnataka’s tariff structure further in line with national policy requirements while providing a structured pathway for rationalizing electricity cross-subsidies in the coming years.