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It said escalation rates for different escalable sub-components for computing energy charge for plants based on imported coal shall be notified on a monthly basis

The Central Electricity Regulatory Commission (CERC) on Monday underlined the need for a correction factor in the transition to a monthly escalation from six-monthly escalation rates for imported coal users in the existing power purchase agreements (PPAs). The commission, in a Suo Motu order on methodology for computing escalation rates for imported coal for payment on a monthly basis, said that it will address the correction factor separately. CERC had floated a staff paper on the same last month for stakeholder comments. As the proposal in the staff paper was limited to the methodology for computing monthly escalation rates, the suggestion of changeover rate or correction factor for transition to monthly escalation rates within PPAs is beyond the scope of the present order, CERC said. “However, at the same time, the Commission recognises that there is a need to specify the changeover rate or correction factor, as without the same, the parties to the PPAs may not be in a position to switch over from six monthly escalation rates to monthly escalation rates. The Commission, therefore, may address the issue separately,” it added. The escalation rates for imported coal for payment on a monthly basis will be applicable from April 2022.

Correction factor

Commenting on submissions, CERC said that most of the stakeholders raised issues on implementation of monthly escalation rates, particularly for existing PPAs. Adani Power (Mundra) Ltd (APMuL) and Tata Power Company (TPCL) suggested allowing a one-time escalation for transition to monthly escalation rates. APMuL said that monthly escalation index can be used for existing PPAs also with mutual agreement. Therefore, to take care of such requirements, it is necessary to notify a correction factor for existing PPAs from the present six monthly escalation index to monthly. While, TPCL was of the view that to capture the escalation in imported coal price without any gap period, it is requested to allow one-time escalation for generators opting for monthly escalation rates, when they transition from March 2022 to April 2022. This would address the lag between actual price paid and billing price, which will be beneficial for Discoms as well. On the other hand, Gujarat Urja Vikas Nigam raised concerns on the adoption of monthly escalation rates for the existing PPAs and submitted that any modification in escalation methodology should not be made applicable to the existing PPAs.

Methodology

CERC in its order said escalation rates for different escalable sub-components for computing energy charge for plants based on imported coal shall be notified on a monthly basis. These sub-components are escalation rates for imported coal, its transportation and its inland handling. “The data on price/ price indices and its composition used for computing escalation rates being notified on six monthly-basis shall be used for computing the escalation rates notified on monthly basis,” it added. In the existing PPAs, where the generating company and the procurer mutually agree, they may use the monthly escalation rate, CERC order said.

Published on June 06, 2022