Central Electricity Regulatory Commission (CERC), has came up with a new methodology for setting coal index for power sector, meant for computing the tariff for procurement of power by the distribution licensees through competitive bidding.
Background: Earlier, the price index for domestic coal was computed using the methodology developed by the commission in July 2009, which considered average price of non-coking coal applicable for both power and non-power sector.
However, the stakeholders argued that the increase in price of non-coking coal applicable for power sector is different from the increase in price of non-coking coal applicable for other sector. Subsequently, it was noted that WPI based on average price is not reflective of actual increase in the price of non-coking coal applicable for power sector.
Considering the submissions made by the stakeholders and views expressed during the public hearing, the Commission decided the following principles for determining the methodology for compilation of the coal price index:
(i) Price Index: Laspeyres Index has been considered for formulating the coal price index.
(ii) Base Year: The year 2017-18 has been set as the base year for coal index.
(iii) Grades of Coal: The Commission opted to consider G7 to G14 grades of non-coking coal for compilation of the coal price index, keeping in view the grades used by all power producers through competitive bidding.
(iv) Price of non-coking coal: Run of mine (ROM) price of non-coking coal applicable for power sector for WCL and all other subsidiaries of CIL, as notified by CIL was considered for coal price index.
(v) Base Year Price: Base year price was settled as the geometric mean of monthly prices of non-coking coal of the base year.
(vi) Base Year Weights: Weights were decided based on the value of non-coking coal dispatched to power sector.
Based on recommendations of the Technical Advisory Committee, the coal price index was compiled in the following two stages:
(i) In the first stage, the grade-wise indices (i.e. elementary price index) are calculated using ‘Jevons Index formula’, basing on the weighted geometric mean of price relatives (i.e. the price change).
(ii) In the second stage, these elementary price indices are aggregated using weighted arithmetic mean to obtain coal price indices using Laspeyre’s index formula, which has a fixed base-year weighting diagram operative through the entire life span of the series.
CERC stated that coal price index from Sep’18 to Aug’19 would be considered as the base period for calculating the subsequent indices, which would in turn be used as reference for computing the escalation rate in domestic coal for determining the power tariff.
It was decided to revise the base year every 3 years; accordingly the coal price index will be updated periodically.
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