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What is fuel surcharge ?

Central Electricity Act, 2003, Section 62(4), provides for levying fuel surcharge on variations in electricity prices due to fluctuations in fuel prices. The National Tariff Policy stipulates that the uncontrollable fluctuations in electricity prices due to variations in fuel price, inflation and hydro thermal mix are not under the control of the distribution generating companies, so provision should be made for timely collection and the additional burden of this liability should not affect future consumers in any way.

The Central Electricity Regulatory Commission has stipulated that power distribution companies should make available to the generation companies timely the changes in power prices due to fuel price fluctuations, so the distribution companies are required to pay the total power purchase cost to the generation companies in a timely manner. If the distribution companies are unable to collect this amount on time, it adversely affects the financial position of the distribution company and has to borrow to meet the liability, thereby increasing interest expenses and ultimately leading to tariff hike. Therefore, the Appellate Tribunal of Electricity on 11 November 2011 has directed that all State Commissions should incorporate fuel and power purchase adjustment mechanisms.

The Kerala State Regulatory Commission(KSERC) issued Kerala State Regulatory Commission(TERMS AND CONDITIONS FOR DETERMINATION OF TARIFF)-(First Amendment) Regulations-2023, wherein Honorable Commission has amended the regulation 87 of tariff Regulation -2021 and allowed the distribution business/licensee to adjust by recovery or refund the fuel surcharge on monthly basis, at the rate determined by the Licensee subject to the ceiling rate of ten(10) paise per unit(kwh). The commission also ordered that the balance fuel surcharge amount , if any in a month can be carried forward to the next month, subject to the condition that the total rate of fuel surcharge recovery during that month under consideration shall not exceed ten(10) paise per unit and such carry forward shall not exceed a maximum duration of six months.

  As per the Regulations, the fuel surcharge adjustments shall be uniformly applicable to all the consumers in the state , except for the domestic consumers with connected load less than 1000 watts and monthly consumption less than 40 units and to consumers who are availing power at the green tariff, for the quantum of renewable energy procured from the licensee.

Regulation stipulates that the licensee shall, within 25 days after the close of each month , calculate the amount of fuel surcharge to the adjustment from the consumers for the previous month and publish it in the website of the licensee, the detailed calculation with supporting data and the proposed rate of surcharge to be adjusted from/to the consumers through the electricity bill to be issued during the next month  on account of the adjustment of fuel surcharge for the previous month. Regulation stipulates that for consumers under bimonthly billing, the rate of adjustment of fuel surcharge for the bills issued in the month of (n+2), shall be the average of the rates fixed for the month of (n-1) and n.

Costs and revenues of generation, transmission and distribution companies are all subject to impartial regulatory inspections and audits by Central and State Electricity Regulatory Commissions. Tariffs of various generation transmission distribution companies are fixed by the above regulatory commissions. As part of this, electricity distribution companies including KSEB have to prepare the Aggregate Revenue Requirement (ARR) for the specified period in advance and submit it before the State Electricity Regulatory Commission. The ARR will include all the information from which sources power is proposed to be purchased, the expected cost of each, staff costs, administrative costs and general costs, calculated on the basis of general principles and past experience. The Regulatory Commission approves the electricity tariff for the coming years after examining it in detail and listening to the public and consumers.

As per the said Regulation- 87, KSEBL is required to submit the fuel surcharge petition for the respective quarter within 45 days of every quarter before the Commission. The fuel surcharge is imposed at a rate and for a period to be decided by the commission after detailed examination and public hearing on the petition submitted by KSEBL.

In the post-Covid period, energy demand has increased significantly. But there has been no corresponding increase in domestic coal availability. In the first quarter of FY 2022-23, India's increased coal shortage had pushed up power purchase costs to a large extent. For this reason, in order to solve the crisis in the power generation sector and to ensure fuel stock during the monsoon, the Union Ministry of Power had on 28.04.22 instructed all coal-based power plants to use 10% imported expensive coal (10% blending). Later, the Union Ministry of Power directed the Central Electricity Regulatory Commission on 18-5-2022 to issue an order allowing the power generating plants to use up to 30% expensive imported coal without the permission of the beneficiary distribution companies. Subsequently the Central Electricity Regulatory Commission on 26.07.2022 increased the cost of imported coal by up to 20%. An order has also been issued allowing power generation plants to be used till 31.10.2022 without the permission of the beneficiary distribution companies. Later it was revised to 6% and extended till 31-10-2023.

In the thermal power stations where Kerala has to use expensive imported coal and domestically produced coal from other mines, the increase in the fuel cost of the electricity generated there has created an additional burden on the power purchase cost. This additional liability is now charged as fuel surcharge.

In the meantime, taking into account the problems of not being able to collect the fluctuations in fuel prices on time due to delays in the procedures, the Union Ministry of Power issued the Electricity Amendment Act-2022 as per the Gazette Notification dated 29.12.2022. Provision was made. This is charged as a Monthly Fuel Surcharge.

The State Electricity Regulatory Commission has issued the KSERC Terms and Conditions of Tariff Amendment Regulations by amending Rule 87 of the Tariff Regulation as per the rules of the Union Ministry of Power and in the said regulation, it has been stipulated that from April 2023, the changes in the price of electricity due to fluctuations in fuel prices will be passed on to consumers as fuel surcharge on a monthly basis. According to this, the fuel surcharge of 10 paise/unit and 9 paise/unit for April 2023 and May 2023 was charged on the billed consumption of June and July respectively. Thus, adding 9 paise as fuel surcharge for May 2023 and 9 paise as fuel surcharge for the period up to April-December 2022, a total of 18 paise/unit will be charged as fuel surcharge in July-2023 bill.

Table shows the consequent months fuel surcharge

Computed rate for Surcharge for the month of 

Fuel surcharge to be recovered during the month of 

Monthly Fuel surcharge recovered 

Existing Fuel Surcharge(
(applicable period July-December2022))

April 2023

June 2023

10 Paise/unit

9 Paise/unit

May 2023

July 2023

9 Paise/unit

9 Paise/unit

June 2023

August 2023

10 Paise/unit

9 Paise/unit

July 2023

September 2023

10 Paise/unit

9 Paise/unit

August 2023

October 2023

10 Paise/unit

9 Paise/unit

September 2023

November 2023

10 Paise/unit

9 Paise/unit

October 2023 December 2023 10 Paise/unit 9 Paise/unit
November 2023 January 2024 10 Paise/unit 9 Paise/unit
December 2023 February 2024 10 Paise/unit 9 Paise/unit

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