KSERC Proposes Third Amendment To Remove Fuel Surcharge Ceiling And Align Tariff Rules With Central Policy In Kerala

The Kerala State Electricity Regulatory Commission (KSERC) has proposed major changes to the method of calculating electricity tariffs related to fuel and power purchase cost adjustments. On December 1, 2025, the Commission released a notice publishing the draft of the Kerala State Electricity Regulatory Commission (Terms and Conditions for Determination of Tariff) (Third Amendment) Regulations, 2025. The primary objective of this proposed amendment is to remove the existing ceiling on the automatic recovery of fuel surcharge from consumers. According to the Commission, this change will support financial neutrality for the distribution licensee and bring the state regulations in line with the Central Government’s rules.

The draft amendment proposes to delete sub-regulations (3), (7), and (8) under Regulation 87 of the principal Tariff Regulations, 2021. Regulation 87 covers the Fuel Surcharge Formula, which allows the licensee to claim adjustments in electricity tariffs due to uncontrollable factors such as fluctuations in fuel prices and variations in power purchase cost. This provision is backed by Section 62(4) of the Electricity Act, 2003, which permits timely adjustments in tariffs for such changes.

One of the key reasons behind the amendment is compliance with Rule 14 of the Electricity (Amendment) Rules, 2022. These central rules state that power purchase cost variations must be automatically passed through to consumer tariffs on a monthly basis, followed by an annual true-up process. However, in Kerala, automatic recovery of fuel surcharge is currently limited to a ceiling of 10 paise per unit. KSERC observed that this ceiling is preventing the licensee from recovering the actual surcharge requirement in most months, resulting in revenue gaps. Since the automatic surcharge recovery process began in June 2023, the recovery has remained below the actual requirement multiple times, such as in October 2023 and November 2025. The Commission states that this situation undermines the goal of financial neutrality for the distribution company.

KSERC also highlighted that the electricity market conditions have improved and that the need for the protective ceiling has reduced. Recent initiatives by the Ministry of Coal aim to increase domestic coal availability and decrease dependency on imported coal. Domestic coal production is projected to reach 1.5 billion tonnes by FY 2029-30, and coal imports have already fallen significantly. In addition, the 56th GST Council has recommended removing the GST Compensation Cess and increasing the GST rate on coal to 18%. This tax revision is expected to reduce the overall financial burden and potentially lower the cost of power production by around 17 to 18 paise per kWh in thermal power plants.

Considering these changes and the directive from the State Government to align with the Central Rules, KSERC believes the continuation of the ceiling is unnecessary. According to the Commission, deleting the ceiling will allow recovery of fuel surcharge strictly through the approved formula, while protecting consumer interests through transparency measures and the mandatory annual truing-up process.

The draft amendment is now open for public feedback. Stakeholders and affected parties are invited to submit written objections or suggestions to the KSERC Secretary by December 23, 2025. An online public hearing will also take place on the same day for registered participants.