Draft power policy proposes monthly adjustment in electricity tariffs for changes in fuel, power purchase costs

New Delhi [India], August 10 (ANI): The Draft National Electricity Policy, 2026 proposes that changes in power purchase costs, including fuel costs, be passed on to electricity consumers through an automatic monthly adjustment mechanism, the government told the Rajya Sabha on Monday.
In a written reply, Minister of State for Power Shripad Naik said the draft policy proposes an automatic monthly Fuel and Power Purchase Cost Adjustment (FPPCA) mechanism to reflect variations in the cost incurred by electricity distribution companies in procuring power.
At the same time, the proposed policy envisages creating a suitable stabilisation fund to moderate the impact of fluctuations in power purchase costs on consumers.
The proposal is part of the Draft National Electricity Policy, 2026 and should not be construed as a new nationwide tariff system that has already come into force.
The draft policy also proposes that electricity tariffs should progressively recover fixed costs through demand or fixed charges so that tariff structures better reflect the cost of supplying electricity while encouraging efficient consumption.
It further proposes that State Electricity Regulatory Commissions ensure tariffs progressively reflect the prudent cost of electricity supply without creating regulatory assets.
The policy also calls for timely annual tariff revisions and proposes suitable indexation-based mechanisms, where appropriate, in cases where tariff orders are not issued within stipulated timelines. The measures are aimed at maintaining the financial sustainability of electricity distribution companies.
Currently, retail electricity tariffs are determined by the respective State Electricity Regulatory Commissions under the Electricity Act, 2003. The commissions take into account costs related to power procurement, transmission, wheeling and supply, while state governments can provide subsidies to different categories of consumers, including households.
The government clarified that the impact of changes in fuel prices or electricity demand on consumer tariffs is assessed by state regulators under applicable tariff regulations, including the FPPCA mechanism, and recovery through tariffs is subject to regulatory scrutiny.
The draft policy also proposes reliable, affordable and quality 24x7 electricity supply and strengthening consumer grievance redressal through online complaint registration, tracking and disposal mechanisms.
The government said average electricity supply in rural areas has increased to 22.6 hours in FY26 from 12.5 hours in FY14, while average urban supply increased to 23.4 hours from 22.1 hours during the same period. (ANI)