Govt to states: Allow automatic pass-through of increased power cost to discoms, consumers

• Currently, increase in cost of power generation or procurement of power cannot be automatically passed on as tariff revisions require approval of the state commissions
• All the stakeholders in the value chain of power sector must ensure that there is timely recovery of cost, the Ministry of Power has said

New Delhi: In a letter, the Centre has urged state governments to allow automatic pass-through of increase in fuel and power procurement cost in tariff by their power distribution companies (discoms) to ensure the viability of the power sector. The Centre has said that the increase in tariff may be vetted by regulatory commissions later, but the increase in costs should be allowed to pass through automatically. Currently, increase in cost of power generation or procurement of power cannot be automatically passed on as tariff revisions require approval of the state commissions, which leads to delays, the Ministry of Power said.

'Allow increase in power cost to be passed on to discoms, consumers'

While stating that the power sector has been witnessing issues relating to the availability of fuel, mainly coal and gas, for power plants, due to a sudden spike in international prices of coal and gas, the Ministry of Power said, "Learning from the recent experience and in order to ensure that the power sector does not face any constraints in maintaining assured power supply to meet the demand, all the stakeholders in the value chain of power sector must ensure that there is timely recovery of cost." The government added that increased cost should be allowed to pass through from generating companies to distribution companies and from distribution companies to the consumer.

"For the lack of a robust mechanism of timely automatic pass through of fuel cost and transportation cost, the generating companies face constraints in maintaining stock of fuel during such periods. This results in shortage of supply in the grid which may affect the power supply to the consumer," said the Ministry of Power in the letter. According to data sourced from the Central Electricity Authority (CEA), during the recent coal availability crisis, coal supplies to power generating stations with large outstanding dues was curtailed by coal producing companies, which led to a decline in power generation.

"It (tariff revision mechanism) may be changed to provide for automatic pass through in tariff change in costs on account of change in law or power purchase costs. This will result in less working capital requirements by the discoms, leading to less costs of power for the consumers," the ministry told state governments.

Background

The Power Ministry had notified the Electricity (Timely recovery of costs due to change in law) Rules, 2021 on October 22 to sustain economic viability of the sector, ease financial stress by providing for an automatic pass-through of impact in cost due to change in law automatically by a formula. The ministry had said then that the timely recovery of costs due to change in law is important as investments in the power sector largely depend on payments.

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