Revised Fuel Surcharge Formula in Kerala Power Sector; a new “regulatory asset surcharge” also gets approval

The surcharge levied on electricity bills in Kerala will undergo major changes from 2027-28 with significant implications for consumers.

The fuel surcharge will be calculated not only on the basis of the long-term power purchase agreements of the distribution licensee (in the case of Kerala, primarily the Kerala State Electricity Board (KSEB)), as is the case now, but on the basis of the total power procured from all sources including long-term, medium-term and short-term purchases.

As part of the decision to liquidate the regulatory assets of distribution license holders including KSEB by March 31, a new regulatory asset surcharge (RA surcharge) will be collected from electricity invoices for a period of four years.

Tariff regulations

The measures are part of the Kerala State Electricity Regulatory Commission’s multi-year tariff regulations for a five-year “control period” from 2027-28 onwards. It will enter into force on April 1, 2027.

Under regulations published on Saturday (October 17, 2026), the existing thermal fuel surcharge formula has been replaced by the Fuel and Power Cost Adjustment Surcharge (FPPAS) mechanism.

At present, only KSEB’s purchases under long-term contracts from Central Sources (ČGS) and Independent Power Producers (IPPs) are calculated to derive a monthly mark-up on bills to compensate for the additional expenditure on purchases.

FPPAS will consider purchases from all sources, including long-term, medium-term and short-term energy purchases, which means the amount to be recovered under the monthly automatic recovery mechanism would be higher.

Amid power shortages

The changes come at a time when Keralam is fighting hard to stave off power shortages. Commission officials, however, noted that the measures are needed to ensure compliance with the Centre’s (amended) Electricity Rules 2022. The rules allow discounters like KSEB to automatically pass on changes in fuel and power purchase costs to consumers, subject to a “true-up” (reconciliation process) by the commission.

The FPPAS will apply to all consumers except domestic consumers with a connected load of 1,000 watts and below and those with a monthly consumption of less than 40 units.

RA surcharge

KSEB’s regulatory assets for liquidation would be around ₹5,000 crore. In case of utility consumers, RA surcharge will be charged in 2027-28, 2028-29, 2029-30 and 2030-31. The RA surcharge will be charged as a percentage of the tariff invoice (the sum of the consumption price and the energy price) charged by the licensee for all consumers billed on a consumption basis.

For all other consumers, the RA surcharge will be a combination of the ‘rate per kW per month’ and a percentage of the energy charges. This will also be the first instance of collecting RA surcharge from KSEB consumers.

Published – 19 October 2026 06:00 IST