In pursuance of Clause 56 vi of Ministry of Power Notification dated 1912005 as amended from time to time

## Report on Amendment to Tariff Determination Guidelines for Power Procurement by Distribution Licensees **1. Executive Summary:** This report analyzes an amendment to the Ministry of Power's guidelines for tariff determination by bidding process for power procurement by distribution licensees. The amendment, issued by the Central Electricity Regulatory Commission (CERC), corrects an error in the calculation of the escalation rate for domestic coal. The original calculation incorrectly used the coal price index for the period September 2020 to August 2021, instead of December 2020 to August 2021, following a revision of coal prices by Coal India Ltd. This amendment substitutes the incorrect escalation rate with a corrected rate of 0.92, impacting payments to power producers for domestic coal used between October 1, 2021, and March 31, 2022. **2. Introduction:** This report provides an analysis of the CERC's amendment regarding the determination of tariffs for power procurement by distribution licensees, based solely on the provided policy text published in the Gazette of India. The report aims to inform stakeholders about the nature of the amendment and its potential implications. **3. Policy Overview:** * **Original Policy:** This amendment pertains to the Ministry of Power Notification dated 19.1.2005, as amended, which provides guidelines for the determination of tariff by bidding process for procurement of power by distribution licensees. CERC notification dated 27.10.2021, which the amendment addresses. * **Core Objective(s):** The underlying objective, inferred from the text, is to ensure accurate and fair tariff determination for power purchased by distribution licensees, particularly regarding fuel cost adjustments, which are important in long-term Power Purchase Agreements (PPAs). The text emphasizes accuracy in calculating escalation rates for domestic coal, a significant input cost in power generation. **4. Background and Rationale:** The amendment addresses an error in calculating the escalation rate for domestic coal used in power generation. Following Coal India Ltd.'s revision of coal prices effective December 1, 2020, CERC revised its Coal Price Index accordingly. However, when calculating the escalation rate for domestic coal to be applied to payments between October 1, 2021, and March 31, 2022, the revised coal price index was incorrectly applied to the period from September 2020 to August 2021 instead of December 2020 to August 2021. This amendment rectifies this error to ensure correct payment. **5. Key Provisions / Changes:** * **Specific Part Changed:** The amendment alters the escalation rate for domestic coal specified in Sr. No. 1 of the table within the CERC notification dated October 27, 2021. * **New Rule/Provision:** The amendment substitutes the previous, incorrect escalation rate for domestic coal with a fixed annual escalation rate of **0.92**. * **Difference/Effect of the Change:** The change corrects an error in the calculation. This ensures that power producers using domestic coal are paid based on the correct escalation rate, which reflects the actual changes in coal prices following Coal India Ltd.'s price revision. The impact will be on the payments for coal used from October 1, 2021, to March 31, 2022. The text implies that without this change, the payments would be inaccurate. **6. Target Audience and Stakeholders:** The primary stakeholders affected by this amendment are: * **Distribution Licensees:** These entities procure power and are responsible for paying generators based on the determined tariffs. * **Power Generating Companies:** Specifically, those using domestic coal and selling power to distribution licensees under agreements subject to the referenced tariff guidelines. * **Central Electricity Regulatory Commission (CERC):** The agency responsible for ensuring fair and accurate tariff determination and regulatory oversight. * **Coal India Limited (CIL):** Since their price revisions triggered the recalculation. **7. Implementation Aspects (Inferred):** * **Responsible Agency:** The Central Electricity Regulatory Commission (CERC) is responsible for implementing the amended guidelines. * **Timeline:** The corrected escalation rate applies to the period from October 1, 2021, to March 31, 2022. The notification is dated December 22, 2021. * **Procedure:** Distribution licensees are expected to recalculate payments to power generators for domestic coal used during the specified period, using the corrected escalation rate of 0.92. **8. Expected Outcomes / Impact of Changes:** The intended outcome of this amendment is to correct payments to power producers using domestic coal during the defined period. By using the corrected escalation rate, the amendment aims to ensure accurate and fair compensation, preventing either overpayment or underpayment due to the initial calculation error. It ensures adherence to the Ministry of Power's guidelines and maintains the integrity of the tariff determination process. **9. Conclusion:** The CERC's amendment is a necessary correction to ensure accurate tariff determination for power procurement by distribution licensees. By addressing the error in the calculation of the escalation rate for domestic coal, the amendment promotes fairness and transparency in the power sector, impacting both distribution licensees and power generators. The correction, though seemingly minor, has a real financial impact for the parties involved, given the scale of power procurement.

Key Entities Referenced