KSERC’s Third Amendment Removes Fuel Surcharge Ceiling To Reflect Actual Power Costs In Kerala

The Kerala State Electricity Regulatory Commission (KSERC) has formally notified the Third Amendment to the Kerala State Electricity Regulatory Commission (Terms and Conditions for Determination of Tariff) Regulations, 2025. Released on December 24, 2025, this amendment introduces important changes in the way electricity charges are adjusted and recovered from consumers, particularly focusing on the recovery of “uncontrollable” costs such as fuel and power purchase expenses.

The primary change under this amendment involves Regulation 87, which previously set a ceiling of 10 paise per unit for automatic recovery of fuel surcharges. Under the 2023 regulations, any recovery beyond this limit required prior approval from the Commission. However, a review of fuel surcharge requirements between June 2023 and November 2025 showed that this cap often restricted the full recovery of actual cost variations. In many months, the calculated fuel surcharge significantly exceeded the 10-paise ceiling, resulting in under-recovery and affecting the financial neutrality that the national electricity rules aim to maintain. Analysis of the data indicated that although total recovery was limited to 19 paise per unit during some periods, the surcharge exceeded this level only in isolated months, suggesting that the cap was no longer necessary.

The amendment also reflects changes in market conditions. Government initiatives to increase domestic coal availability, reduce import dependence, and rationalize GST on coal have stabilized prices and reduced fuel costs for thermal power stations. Additionally, the State Government advised KSERC to align with Rule 14 of the Electricity (Amendment) Rules, 2022, which mandates the timely and complete pass-through of power purchase cost variations.

In response, the Third Amendment removes the existing ceiling on automatic fuel surcharge recovery by eliminating specific provisos in sub-regulation (3) and entirely omitting sub-regulations (7) and (8). This change ensures that electricity tariffs now accurately reflect the actual costs of power procurement in a transparent and timely manner. The Commission expects that this modification will improve cost recovery, maintain financial neutrality for distribution companies, and provide clarity for consumers regarding tariff adjustments.

Before finalizing these amendments, KSERC published a draft version on December 1, 2025, to invite feedback from stakeholders. Following this, an online public hearing was held on December 23, 2025, where suggestions and objections from various parties were considered. After reviewing the inputs received during the consultation process, the Commission approved the final notification. The new regulations will come into effect on the date they are published in the Official Gazette of the State of Kerala, marking a significant step toward improving tariff management and reflecting real-time variations in power procurement costs.

These amendments are expected to provide a more accurate mechanism for fuel surcharge recovery, allowing the state’s electricity sector to better cope with market fluctuations and ensuring that costs are fairly and transparently passed on to consumers. By removing outdated limits, the Commission has aimed to strengthen the regulatory framework while maintaining alignment with national electricity rules.