Electricity blackouts impose substantial economic costs on firms and households. This paper advances a new explanation for their continued prevalence in India, the world’s third-largest power sector. Using novel data on India’s wholesale electricity sector, we demonstrate that utilities satisfy less electricity demand when wholesale procurement costs are high. As a result, supply-side misallocation of output across power plants can decrease the quantity of electricity supplied to end-users. We provide evidence that a substantial share of the supply-side misallocation in India arises from discretionary power plant outages—-outages called by suppliers for economic rather than technical reasons. Reducing supply-side misallocation by returning plants on discretionary outage to service significantly lowers procurement costs, resulting in increases in the quantity of electricity purchased by utilities sufficient to eliminate roughly 70% of reported shortfalls between quantity demanded and supplied.