DISCOMs are Distribution Companies, which are institutions responsible for the final stage of the power sector: delivering electricity to end consumers like homes and industries. They function as the interface between the power grid and the consumer, maintaining local distribution networks, ensuring reliable supply, and collecting bill payments.
The concept originated from the unbundling of the monolithic State Electricity Boards (SEBs), a process mandated by the Electricity Act, 2003. This restructuring separated the functions of generation (GENCOs), transmission (TRANSCOs), and distribution (DISCOMs) to address the financial and operational inefficiencies of the SEBs. Under the Act, DISCOMs are statutorily obliged by Section 42 to develop and maintain efficient distribution systems. They operate by procuring power from generators, often through Power Purchase Agreements (PPAs), and selling it to consumers.
The financial health of DISCOMs is primarily measured by the gap between the Average Cost of Supply (ACS) and the Average Revenue Realised (ARR), and by Aggregate Technical and Commercial (AT&C) losses. Electricity is a Concurrent List subject, meaning most DISCOMs are state-owned and regulated by State Electricity Regulatory Commissions (SERCs).
A major recent change occurred in December 2022 with the amendment of Rule 14 of the Electricity Rules, 2005, which allows DISCOMs to automatically pass through changes in fuel and power purchase costs to consumers monthly. This, along with the Revamped Distribution Sector Scheme (RDSS), contributed to the distribution sector reporting a rare consolidated profit after tax of ₹2,701 crore in FY25. The Electricity (Amendment) Bill, 2026 is also slated to be tabled to further promote efficiency and competition.