In pursuance of Clause 5 6 vi of Ministry of Power MOP Notification on Guidelines for Determination of Tariff by Bidding Process for Procurement

## Report on Notification Regarding Escalation Rates for Power Procurement **1. Executive Summary:** This report analyzes a notification issued by the Central Electricity Regulatory Commission (CERC) on July 25, 2022, concerning the amendment of guidelines for long-term power procurement from thermal power stations. The notification specifically addresses the escalation rates applicable for payments related to imported coal and its transportation and handling. This amendment aims to refine the tariff determination process by providing updated monthly escalation rates, thereby impacting distribution licensees and thermal power station operators. The key finding is the establishment of specific escalation rates for imported coal, transportation, and inland handling, applicable for July 2022. **2. Introduction:** The purpose of this report is to provide an informative overview of a notification issued by the CERC regarding amendments to guidelines for long-term power procurement. This analysis is based solely on the provided policy text. **3. Policy Overview:** This notification is an amendment to the "Guidelines for Determination of Tariff by Bidding Process for Procurement of Power by Distribution Licensees dated 19.01.2005" and is further refined by MOP resolutions dated 11.07.2022. The core objective of the amendment, as inferred from the text, is to revise and update the escalation rates used in the payment process for power procured from thermal power stations, specifically concerning costs associated with imported coal. **4. Background and Rationale:** This amendment likely addresses the need to adjust tariff calculations to reflect current market conditions, particularly fluctuations in the price of imported coal and associated transportation costs. The original guidelines presumably lacked the specificity or up-to-date information needed to accurately account for these variable costs, necessitating this amendment to ensure fair compensation to power generators while remaining transparent for distribution licensees. **5. Key Provisions / Changes:** This notification introduces specific changes to the escalation rates used for payment in power purchase agreements. * **Specific Part of Original Policy Changed:** The original guidelines for tariff determination are being amended by specifying new escalation rates. * **New Rule/Provision:** The CERC notifies the following monthly escalation rates applicable for July 2022: * Escalation rate for imported coal: 1.79 * Escalation rate for transportation of imported coal: 22.09 * Escalation rate for inland handling of imported coal: 1.95 * **Difference/Effect of the Change:** This change introduces specific, updated escalation rates for imported coal-related costs. This should lead to a more accurate and timely reflection of these costs in power procurement payments, potentially affecting the profitability of thermal power plants and the prices paid by distribution licensees. **6. Target Audience and Stakeholders:** Based on the text, the primary target audience and stakeholders directly affected by these changes are: * Distribution Licensees: They will be using these new escalation rates when making payments for power procured under existing agreements. * Thermal Power Stations: Particularly those utilizing imported coal, as their revenue streams will be directly affected by the updated escalation rates. * Central Electricity Regulatory Commission (CERC): Which is responsible for implementing and enforcing these regulations. * Ministry of Power (MOP): Which provides guidance to CERC in this regulation. **7. Implementation Aspects (Inferred):** * **Responsible Agency/Bodies:** The CERC is the primary body responsible for implementing these changes. Distribution licensees are also responsible for incorporating these rates into their payment calculations. * **Timelines or Procedures:** The notification specifies that these rates are applicable for July 2022. Further timelines are not given in the provided text, however, these rates appear to be monthly, and therefore it is implied that these rates could be updated on a monthly basis. * The procedure to incorporate these rates will involve distribution licensees updating their financial models and payment calculations based on the specified escalation rates. **8. Expected Outcomes / Impact of Changes:** The likely intended outcome of these specific changes is to provide a more accurate and transparent mechanism for compensating thermal power stations for the costs associated with imported coal. The potential impact of the amendment is: * Increased accuracy in tariff calculations, better reflecting current market conditions. * Potentially reduced disputes between distribution licensees and thermal power generators regarding fuel cost adjustments. * Increased financial stability for thermal power stations utilizing imported coal, ensuring a more predictable revenue stream (provided that the escalation rates are reflective of market prices). **9. Conclusion:** The CERC's notification regarding escalation rates for power procurement represents a refinement to existing guidelines for tariff determination. By providing specific monthly escalation rates for imported coal, transportation, and handling, this amendment aims to improve the accuracy and transparency of payments made to thermal power stations by distribution licensees. This ultimately contributes to a more stable and predictable environment for power generation and distribution, but the impact depends heavily on how well these rates reflect actual market conditions.

Key Entities Referenced