The Central Electricity Regulatory Commission (CERC) has called for a public hearing where Discoms and Gencos will share their views on the change in law events expected to be triggered by the GST rate rationalisation, which came into effect on September 22.
The government, through the rationalisation, raised the GST rate from 5 per cent to 18 per cent on coal procurement and abolished the compensation cess of ₹400 per tonne.
The regulator called the hearing as it intends to issue uniform directions to Gencos, Discoms and other affected parties for a consistent treatment of the change in law events.
In its suo motu order on Wednesday, the regulator explained that power purchase agreements (PPAs) provide for the grant of relief in the form of tariff adjustment either to the Genco or Discom on account of a Change in Law. In terms of the said PPAs, the Commission is required to determine the impact of various events of Change in Law on tariff and also to grant appropriate relief.
“The abolition of the Compensation cess and the increase in the GST rate on coal have a necessary impact on the cost of coal to be procured by the Gencos. We therefore, by this order, take suo motu cognisance of the statutory changes involving the increase in GST rate on coal and the abolition of Compensation cess with effect from September 22, 2025,” the CERC order said.
Change in law
In its March 2018 order, the CERC had held that the introduction of GST and GST Compensation cess are change in law events and the impact of the same was directed to be worked out by the parties.
The statutory changes brought about by the notifications on September 17, 2025, squarely falls within the ambit of a change in law event, applicable to all PPAs (irrespective of the original cut-off date; as applicable to individual Gencos/ Discoms) having a composite scheme and covered under Section 63 of the (Electricity) Act, except in case of the generating companies having captive coal mines,” the regulator said in the suo motu order.
“It is therefore necessary to issue a uniform regulatory direction for a consistent treatment of the change in law events (due to notifications dated September 17, 2025) and to facilitate the settlement of dues on account of such change in law events, across the PPAs regulated by this commission, including the tariff framework, with effect from September 22, 2025,” it said.
Accordingly, the regulator has proposed initiating suo motu proceedings and hearing the parties on these counts, for which a public notice has been issued. Meanwhile, the parties are directed to file their written submissions within 10 days from the date of this order, it added.
Coal prices
Ratings agency ICRA in a note on September 4 said ICRA in a note explained that power utilities typically consume coal at a gross calorific value of 3,500-3,800 kcal/ kg at a notified pre-GST price of ₹800-900 per tonne (plus sizing, royalty, and other charges).
“The removal of compensation cess despite an increase in the GST rate is expected to reduce the cost of power generation for coal-based power producers by around 15 paise per unit,” it anticipated.
Besides, given the fact that around 70 per cent of the generation at an all-India level is from the coal-based capacity, this is expected to result in a reduction in the cost of supply for the Discoms by around 12 paise per unit, it added.
Crisil Intelligence pointed out that for grades G2-G5, a marginal increase is expected in the delivered price, but they are not commonly used in the country. For grades G6-G17, a moderate decline is likely due to the removal of the cess component.
“The delivered price of G11 thermal coal, which is used by the power sector, is expected to decline to ₹2,895-2,905 per tonne from the current ₹3,140-3,150 per tonne. The fall in coal prices will also help reduce electricity cost for the end consumer to some extent,” it added.
