In pursuance of Clause 56 vi of Ministry of Powers Notification on Guidelines for Determination of Tariff

## Report on Notification Regarding Escalation Rates for Power Procurement **1. Executive Summary:** This report analyzes a notification from the Central Electricity Regulatory Commission (CERC) regarding monthly escalation rates for power procurement by distribution licensees. The notification, dated June 27, 2022, establishes escalation rates for imported coal and its transportation and handling. This amendment is likely intended to address fluctuations in the cost of imported coal impacting power procurement agreements. The key findings are the specific escalation rates prescribed and their applicability to Power Purchase Agreements (PPAs) under existing guidelines. **2. Introduction:** This report provides an overview and analysis of a notification issued by the Central Electricity Regulatory Commission (CERC) concerning monthly escalation rates for power procurement. The analysis is based solely on the text provided. The purpose of this report is to inform the affected industry about the details of this notification and its potential implications. **3. Policy Overview:** * This notification acts as an *amendment* to the "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" issued by the Ministry of Power. * **Core Objective(s):** The objective, as inferred from the text, is to specify the monthly escalation rates for imported coal used in power generation, enabling adjustments to tariffs in Power Purchase Agreements (PPAs) to reflect changing fuel costs. **4. Background and Rationale:** This notification amends existing guidelines. The likely reason for this specific amendment is to address the volatility in the cost of imported coal and its impact on power generation costs. By providing a mechanism for adjusting tariffs based on a specified escalation rate, the amendment aims to mitigate the financial risk to power producers and distribution licensees due to fluctuating coal prices, facilitating smoother power procurement processes. The amendment seems designed to ensure that power producers can recover increased costs related to imported coal. **5. Key Provisions / Changes:** This notification introduces specific *changes* to the existing guidelines. * **What specific part of the original policy is being changed (if discernible from the text):** The original policy's tariff determination process is being supplemented with specific, pre-defined monthly escalation rates for imported coal. The guideline dictates HOW the escalation rates need to be applied to existing PPA's under the existing guidelines. * **What the *new* rule/provision *is*, based *only* on the amendment text:** The new provision specifies the following monthly escalation rates for June 2022: * Escalation rate for imported coal: 10.64 * Escalation rate for transportation of imported coal: 6.80 * Escalation rate for inland handling of imported coal: 1.87 * **Explain the *difference* or the *effect* of this specific change:** The effect of this change is that the power procurement costs under the PPA will be adjusted based on these rates, providing a structured and transparent mechanism for accounting for changes in imported coal costs. This reduces the risk for Power Producers and impacts tariff structures. **6. Target Audience and Stakeholders:** Based on the text, the target audience and stakeholders directly affected by these changes are: * Distribution Licensees * Power Producers utilizing imported coal * The Central Electricity Regulatory Commission (CERC) * Ministry of Power (MOP) * Consumers (indirectly, as the tariff adjustments may eventually affect electricity prices). **7. Implementation Aspects (Inferred):** * **Responsible agency/bodies mentioned:** * Central Electricity Regulatory Commission (CERC) is responsible for notifying the escalation rates. * Ministry of Power (MOP) provides guidance and communication to CERC. * **Any timelines or procedures specified *in the text*:** The notification specifies the *monthly* escalation rates applicable for June 2022. This suggests that these rates will be reviewed and potentially updated periodically. The procedure for applying these rates is likely defined in the original "Guidelines for Determination of Tariff," as referenced in the text. * **(If Amendment):** Implementation will involve incorporating these specific escalation rates into existing Power Purchase Agreements (PPAs) that fall under the scope of the original guidelines. It necessitates recalculating payment amounts based on the defined percentages for imported coal, transportation, and handling. **8. Expected Outcomes / Impact of Changes:** The likely intended outcome of these specific changes introduced by the amendment text is to: * Provide a clear and predictable mechanism for adjusting power procurement costs based on fluctuations in imported coal prices. * Reduce the risk to power producers from unforeseen cost escalations, ensuring a more stable supply of power. * Ensure fairer cost recovery for imported coal utilized in power generation. * Facilitate smoother execution of PPAs that are exposed to imported coal price volatility. **9. Conclusion:** The CERC notification provides specific monthly escalation rates for imported coal, transportation, and handling, acting as an amendment to existing guidelines for power procurement. This change provides a transparent and structured mechanism for adjusting power tariffs based on imported coal costs. The implementation of this notification should lead to more stability in power procurement processes and fairer risk distribution among involved stakeholders, namely power producers and distribution licensees. This is a significant change for the industry, influencing financial planning and risk management for those involved in power generation using imported coal.

Key Entities Referenced