In pursuance of Clause 5 6 vi of Ministry of Power MOP Notification on Guidelines for Determination of Tariff by Bidding Process for Procurement of Power by Distribution Licensees dated 19 01 2005 as amended from time to time, MOP communication to the Central Electricity Regulatory Commission

## Policy Analysis Report: Notification Regarding Escalation Rates for Power Procurement **1. Executive Summary:** This report analyzes a notification issued by the Central Electricity Regulatory Commission (CERC) regarding monthly escalation rates for power procurement by Distribution Licensees. The notification, dated September 23, 2022, outlines specific escalation rates for imported coal, its transportation, and inland handling. The core purpose is to provide updated escalation rates for the purpose of payment in power purchase agreements. This analysis focuses on the implications of these specific rate changes for stakeholders involved in power generation and distribution. **2. Introduction:** The purpose of this report is to provide an informative analysis of a notification from the Central Electricity Regulatory Commission (CERC) concerning escalation rates for power procurement. The report is based solely on the text provided and aims to clarify the notification's content and potential implications for the affected industry. **3. Policy Overview:** This notification amends existing guidelines for long-term procurement of electricity, referencing the Ministry of Power (MOP) Notification on Guidelines for Determination of Tariff by Bidding Process for Procurement of Power by Distribution Licensees dated 19.01.2005 as amended from time to time, MOP communication to the Central Electricity Regulatory Commission CERC dated 13.04.2022, and MOP Resolution dated 11.07.2022. * **Core Objective(s) as inferred from the provided text:** To establish and notify specific monthly escalation rates applicable for September 2022 for imported coal, its transportation, and inland handling for the purpose of payment in power purchase agreements. This aims to provide clarity and predictability in the cost of power procurement for Distribution Licensees. **4. Background and Rationale:** This notification is an amendment. The need for this specific amendment likely stems from fluctuating market conditions and changes in the cost of imported coal and its associated logistics. Without periodic updates to the escalation rates, power purchase agreements (PPAs) would not accurately reflect the prevailing costs, potentially leading to financial strain for either the power generators or the distribution companies. The amendment ensures that the cost of power accurately reflects market realities. **5. Key Provisions / Changes:** This notification introduces specific changes to the determination of costs in existing guidelines, specifically regarding escalation rates. * **What specific part of the original policy is being changed:** The component regarding calculating the tariff/payment by distribution licensees for power procured from power plants using imported coal, focusing on the fuel cost component. * **What the new rule/provision is:** The notification provides the specific *monthly* escalation rates for September 2022. These are: * Escalation rate for imported coal: 4.22 * Escalation rate for transportation of imported coal: 23.05 * Escalation rate for inland handling of imported coal: 0.22 * **Explain the difference or the effect of this specific change:** These rates are applied to existing formulas within the PPAs to adjust the payment made to power generators. Without these updated rates, the payments made would be based on outdated cost assumptions, potentially leading to under- or over-compensation of power generators based on the real costs that were incurred in September 2022. These values will be used in existing PPA calculations. **6. Target Audience and Stakeholders:** Based on the text, the primary target audience and stakeholders are: * **Distribution Licensees:** These entities are directly affected as they are responsible for procuring power and making payments according to the escalated rates. * **Thermal Power Stations:** Particularly those set up on Design, Build, Finance, Own and Operate (DBFOO) basis and sourcing fuel as provided under Model Bidding Documents including allocation of coal under SHAKTI Scheme. These power generators will receive payments adjusted by the specified escalation rates. * **Central Electricity Regulatory Commission (CERC):** Responsible for implementing and overseeing the application of these escalation rates. * **Ministry of Power (MOP):** Initiated and guided the policy through notifications and resolutions. **7. Implementation Aspects (Inferred):** * **Responsible agency/bodies mentioned:** The Central Electricity Regulatory Commission (CERC) is the key body responsible for notifying and overseeing the implementation of these rates. Distribution licensees are responsible for applying these rates in their payments. * **Any timelines or procedures specified in the text:** The escalation rates are applicable for the month of September 2022. It can be inferred that there will be further notifications for subsequent months, though this is not explicitly stated. * **(Amendment Specific):** Implementation involves distribution licensees incorporating the provided September 2022 values into their existing PPA payment calculation formulas. **8. Expected Outcomes / Impact of Changes:** The likely intended outcome of these specific changes is to ensure fair compensation for power generators, reflecting the actual costs of imported coal and its logistics during September 2022. This should contribute to the financial stability of power generators and ensure the continued supply of electricity to consumers. The significantly high escalation rate for the transportation of imported coal (23.05) suggests a major volatility in Transportation pricing that month and highlights the exposure Distribution Licensees have to fluctuating transportation costs in their procurement. **9. Conclusion:** The CERC notification regarding monthly escalation rates for power procurement is a necessary adjustment to existing guidelines to reflect the fluctuating costs of imported coal. The specified rates for September 2022 provide clarity and predictability for Distribution Licensees and power generators alike, promoting financial stability within the power sector. Regular updates to these rates are crucial for maintaining the accuracy and fairness of power purchase agreements in a dynamic market.

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