The Ministry of Power (MoP) has notified Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021, and asked states to allow distribution companies (DISCOMs) to pass on the increase in power purchase costs to power tariffs that regulatory commissions could evaluate.

The Ministry said some states already had a formula for fuel surcharge adjustment to pass on any increase in cost to power tariffs. However, this was not an automatic pass-through and required approval by state regulatory commissions, leading to delays.

The existing mechanism should be changed to provide automatic pass-through in tariff change based on a change in law or power purchase costs in line with the formula laid down by the state regulatory commission.

Generating companies that intend to adjust and recover costs due to a change in law should give a three-week notice about the proposed impact on tariff. They also need to furnish details of the calculation within thirty days of the change in law coming into effect to an appropriate commission for adjusting the extent of impact in the monthly tariff.

Accordingly, DISCOMs will pass through the change in costs as per the formula whenever the change in cost occurs due to a change in law or power purchase costs. DISCOMs can adopt the formula mentioned in the Electricity Rules, 2021 until state regulatory commissions do not provide a suitable formula.

The Ministry said that the state commissions should verify and confirm the pass-through of the tariff within 60 days. This can lead to lesser working capital requirements for DISCOMs and consequently less power cost for consumers.

State governments could subsidize consumer tariffs by advance payments to DISCOMs.

MoP said that the power sector was facing issues related to the availability of fuel, primarily coal and gas, for power plants. There was a sudden increase in coal and gas prices in international markets recently.

The Ministry said that all stakeholders in the power sector value chain should ensure timely recovery of the cost to maintain an assured power supply. This includes the costs passing through by generating companies to DISCOMS and from DISCOMs to consumers.

Generating companies faced constraints in maintaining fuel stock due to the lack of a robust mechanism of timely automatic pass-through of fuel and transportation costs. Consequently, there was a shortage of power supply into the grid that may affect the electricity supply to consumers.

Similarly, DISCOMs faced revenue constraints as the corresponding pass-through of costs was not done regularly in retail tariff. DISCOMs can ensure payment on time to power generators and coal companies if there is a timely collection of revenue from consumers. This can help in maintaining the availability of electricity supply to meet the expected increase in power demand.

Last month, the Ministry issued a draft proposal for amending the Electricity Act, 2021, to ensure that DISCOMs provide round-the-clock uninterrupted power supply to all consumers and prevent the need for the use of diesel generators.

Mercom had earlier reported that the Ministry directed DISCOMs to undertake energy accounting periodically to develop a comprehensive energy accounting system to quantify distribution losses.