Government Proposes Stabilisation Fund to Adjust Fuel and Power Purchase Costs

08 Jan 2025

The Ministry of Power has proposed major reforms to the Fuel and Power Purchase Adjustment Surcharge (FPPAS) system to facilitate the prompt recovery of costs by distribution companies (DISCOMs) and mitigate tariff volatility for consumers. The proposed adjustments involve the establishment of a stabilisation fund and the introduction of a base FPPAS mechanism to address month-to-month fluctuations in power procurement costs.

Major Proposals

The proposed reforms introduce a base FPPAS charge, determined by the weighted average of audited surcharge values from the past three years. This charge will be collected monthly from consumers alongside their electricity bills and deposited into a dedicated Stabilisation Fund. The fund aims to smooth out cost fluctuations, enabling DISCOMs to cover their expenses without transferring sudden price increases directly to consumers.

Under the proposed plan, any excess funds in the Stabilisation Fund beyond the requirement of two months' worth of Fuel and Power Purchase Adjustment Surcharge (FPPAS) would be refunded to consumers. This move aims to standardise cost recovery practices across states, which currently follow varying methods.