The state-owned power generator NTPC claims it stands to lose R14,500 crore in the five years between FY15 and FY19 because of the new tariff regulations that the electricity regulator has put in place. While one wouldn?t want to disregard the power generator?s numbers, an estimate put out by rating agency Crisil puts the fall in aggregate annual profits, for a clutch of 13 utilities rated by it, at close to R1,500 crore or roughly 7% of the profits that these companies earned in FY13. However, the regulator has as much of a responsibility towards consumers as it has towards power producers and to that extent must take decisions that benefit both. In that regard, the Central Electricity Regulatory Commission (CERC) has done well to take away from generators profits that are not strictly being earned from efficiencies, and the new rules are far from draconian even if they do lower the RoE for an NTPC by about 400 basis points. The regulator?s point, that all expenditure relating to generation and supply of electricity have been pencilled in and a reasonable rate of return added?15.5% on the RoE?so that the utility?s revenues and cash flows are not likely to be adversely affected, is well taken. Indeed, since the recovery of fixed costs is related to availability, utilities will be able to service their debt; moreover, given cash flows will be stable, their credit rating will not suffer.
About 15 years ago, CERC had ruled that the incentives would kick in at a plant load factor (PLF) of over 80%. At the time, NTPC was raking it in because, although its plants were operating at a PLF of 80%, the incentive structure allowed it extra payments for a PLF of anything over 62.7%. This time around, CERC has switched the basis for the incentives from the plant availability factor (PAF) to the PLF, at 50 paise per kWh after it hits 85%, while fixed costs can be recovered if the PAF exceeds 83%. The idea is to reduce the load on buyers because often, thanks to the lack of fuel supplies, the PAF is over 85% but since the plant is idle, the PLF is well below 85%. The change may hurt NTPC badly taking away some R600 crore from it, but spare a thought for buyers who, despite not getting the power, were forced to pay NTPC this amount anyway. With power deficits collapsing, it is time the regulator looked out for consumers.
