The increasing losses of state electricity utilities are again starting to affect the evolving contours of federalism in India. The power sector has an important role, not just due to the high levels of government subventions to the sector, but increasingly due to the implications for debt servicing capacities, following the massive expansion in power sector projects that are currently under implementation. The paper, inter alia, uses a framework developed earlier by the authors for decoding and evaluating the “commercial orientation” of distribution utilities, for the purpose of assessing the potential of these losses worsening. The increasing gap between the Average Cost of Supply and Average Revenue Realisation of electricity, specifically pertaining to the industrial segment, is probably the most important driver of the deteriorating losses. This gap is mainly due to the sharply increased cost of procured power outpacing the (relatively modest) increase in revenues as reduction in Aggregate Technical and Commercial losses has lost traction in recent years. The mid-decade improvement in sector performance has not been transformative. In the context of the extant upsurge in investment in the sector, it is pertinent to query whether risk and leverage has been miscalculated—a case of irrational exuberance and sub prime funding?