KSERC proposes removing cap on automatic fuel surcharge recovery

The Kerala State Electricity Regulatory Commission (KSERC) has issued a draft amendment to its tariff regulations proposing the removal of the existing ceiling on automatic recovery of fuel surcharge by distribution licensees.

The draft regulation, titled Kerala State Electricity Regulatory Commission Terms and Conditions for Determination of Tariff Third Amendment Regulations, 2025, has been published under the Electricity Procedure for Previous Publication Rules, 2005.

Under the proposal, KSERC seeks to amend Regulation 87 of the Kerala State Electricity Regulatory Commission Terms and Conditions for Determination of Tariff Regulations, 2021. The draft provides for the omission of provisos under sub-regulation three and the deletion of sub-regulations seven and eight of Regulation 87. These provisions currently restrict the automatic monthly recovery of fuel surcharge.

If notified, the amendment would remove the 10 paise per unit ceiling on automatic fuel surcharge recovery that was introduced through the First Amendment Regulations in 2023.

In the explanatory note accompanying the draft, the Commission stated that the existing cap has prevented full pass-through of variations in power purchase cost to consumers. According to KSERC, this outcome is inconsistent with Rule 14 of the Electricity Amendment Rules, 2022, which provides for the timely and automatic recovery of such costs by distribution licensees.

The Commission noted that during the period from June 2023 to November 2025, the fuel surcharge calculated under the regulations often exceeded the prescribed ceiling. This resulted in unrecovered costs and widening revenue gaps for the distribution licensee.

KSERC also cited changes in market and policy conditions to support the proposed amendment. It referred to increased domestic coal availability due to government measures, with coal imports declining from 264.53 MT in FY 2023–24 to 243.62 MT in FY 2024–25. The Commission further highlighted recent decisions of the Goods and Services Tax Council, including the removal of the Compensation Cess and an increase in GST on coal to 18 per cent, which are expected to reduce generation costs by around 17 to 18 paise per kWh for thermal power stations.

In addition, KSERC stated that it has been directed by the State Government under Section 108 of the Electricity Act, 2003, to align its regulations with the Electricity Amendment Rules, 2022, to enable automatic and complete recovery of power purchase cost variations.

The Commission has invited objections and suggestions on the draft regulations up to December 23, 2025. An online public hearing is scheduled on the same date. Stakeholders intending to participate are required to register on the Commission website by December 20, 2025. The amended regulations will take effect from the date of their publication in the Kerala State Gazette.

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