Mumbai's FAC Trap: How Fuel Riders Strip Rate-Case Scrutiny and Hand 95 Paise Per Unit to BEST

The Times of India reported that MERC has approved a fuel adjustment charge (FAC) raising BEST's residential electricity rates by up to 95 paise per unit (about $0.11 USD), with bills rising by approximately Rs 165 (about $2 USD) for mid-tier consumers and Rs 450 (about $5 USD) for high-consumption households.^[1] This is not a rate-case order. It is a pass-through mechanism, and it names a structural asymmetry that serves the utility at ratepayers' expense.

Here is how the FAC works: BEST claims its power-procurement costs have risen. Rather than wait for a general rate case, where operating costs, capital additions, and returns are examined together, MERC allows BEST to recover the fuel-cost delta outside of any contested proceeding. The utility files a claim, the commission approves it, and the charge lands on your bill. No intervenor testimony. No cross-examination on whether BEST shopped for cheaper power, negotiated better contracts, or managed demand. The mechanism assumes the cost increase is real and necessary; the only question is how much gets passed through.^[7]

The ratchet is deeper: BEST built or contracted for generation infrastructure, gas plants, purchase agreements, supply contracts, and earns a return on that capital under base rates. When fuel costs spike, those costs are recovered via the FAC, outside base rates. BEST collects the capex return either way. Ratepayers bear 100% of the commodity-price volatility. The utility has no incentive to hedge, to invest in efficiency, or to reduce demand; higher fuel bills mean higher FAC revenue. Each FAC approval also shrinks the share of the bill that a commission actually contests in a general rate case, eroding the only discipline in rate-of-return regulation: regulatory lag.

MERC also approved similar FAC increases for Maharashtra State Electricity Distribution Company (MSEDCL), which serves Mulund, Thane, and the rest of Maharashtra, raising rates by 20 to 55 paise per unit, with typical monthly bills climbing by Rs 105 (about $1 USD) for 300-unit consumers and Rs 250 (about $3 USD) for 500-unit consumers.^[4] The pattern is identical: cost pass-through with minimal scrutiny, risk migration to ratepayers, and preservation of utility returns on the infrastructure that created the cost shock.

The alternative is consolidation: fold FAC true-ups into a multi-year tariff framework with forward-looking test years, earnings tests, and mandatory rebates if the utility exceeds allowed returns. Bind FAC approval to evidence of prudent procurement, demand-side management, and competitive contracting. If BEST's fuel costs are genuinely rising, that case belongs in a general rate proceeding where intervenors can examine capital decisions, operations, and the utility's own hedging strategy. Until then, every FAC approval is a ratchet that moves risk downstream and erases the rate case as a contestable forum.