POWER PSUs like NTPC, Damodar Valley Corporation and Powergrid are in a shock as the Central Electricity Regulatory Commission (CERC) finalises tariff determination regulations for the period 2014-19. To provide all stakeholders an
opportunity to present their comments on its draft regulations, the regulator recently held a two-day long public hearing.
The norms proposed by the regulator are seen by some industry experts as too stringent for power PSUs, especially NTPC, which generates almost entire electricity from thermal power projects. That was the reason NTPC?s share tanked at stock exchanges on December 10 after the CERC put the draft document on its website. NHPC and Powergrid stocks also faced sell-off pressure, but the fall in price was not as sharp as in the case of NTPC. On the other hand, power distribution companies stand to benefit if the CERC adopts the draft regulations without changes.
In the draft regulations, the CERC has proposed to shift from plant availability factor (PAF) to plant load factor (PLF) as the basis for payment of generation incentives to plants. While PAF means declared capacity availability for generation, PLF stands for actual electricity generation by a plant. At a time when coal shortage for power generation remains a serious issue, linking incentive payment to PLF could make things difficult for NTPC. Recovery of fixed charges payable to generators, though, will remain linked to PAF.
The regulator has also proposed calculating a 16% return on equity (RoE) for power projects on a post-tax basis, as was the case in CERC?s 2004-09 tariff regulations. That means discoms will reimburse generators whatever tax paid by them, not the normative corporation tax.
Since the power sector is enjoying tax-holidays, they pay the minimum alternate tax of 20% instead of the corporate tax of 33%. Still they get reimbursement from discoms at the rate of 33%. If the CERC goes ahead with the draft regulations, generators will get a reimbursement of 20% MAT from discoms.
The regulator has also tightened the station heat rate and the auxiliary power consumptions norms for generating stations. Since the efficiency of power plants on these parameters comes down with time, old plants could face trouble. Like NTPC, DVC too could find the going tough if the proposed guidelines are implemented by the CERC. However, hydropower generators like NHPC and central transmission utility Powergrid are unlikely to be impacted much by the new norms, according to industry analysts.
In its presentation before the CERC, NTPC has pitched for retaining PAF as the basis for incentive payment. It has argued that PLF is beyond the generator?s control and achieving high PLF (beyond 85%) would not be possible due to factors like fuel shortage and deteriorating quality of coal. The thermal power generators has pitched for keeping PAF at 70% for plants commissioned beyond March 2009 in keeping with the domestic coal quantity in fuel supply agreements.
Further, NTPC has suggested that the CERC continue with the pre-tax based RoE calculation as it helps improve generators? cash flows. That in turn enables generators to bargain lower interest rates with project lenders and reduce electricity tariff. NTPC argued that if the CERC goes ahead with the proposed post-tax return calculations for RoE, its investments of about R1 lakh crore, of which R36,822 crore has already been made, will be jeopardised.
Sali Garg, director-corporate, India Ratings, said, ?The key point of contention in the proposed guidelines is the change in basis for paying incentives from PLF to PAF while the basis for disincentives remains PAF. Though different basis are proposed for incentives and disincentives, however, this is not without merit. Recovery of 100% fixed cost is allowed based on PAF and thus disincentives are also based on PAF. As of now incentives over and above full fixed cost recovery were allowed just based on availability, which is now proposed to be based on actual generation.
?Thus, discoms and consumers will pay incentives only if there is actual generation. This will reduce generators? profits but benefit their consumers. But on the positive side for generators, water charges are now proposed as a pass through. This was not allowed under the existing guidelines and will benefit the generators.?
?The CERC has shown the way by tightening the operation norms for power plants and introducing the much-awaited principle of sharing of efficiency gains. We hope that truing up in totality would bring much-needed transparency. Further, interest earned on fund received from consumers to create internal resources of utilities, but currently remaining unutilised, would reduce tariff?, said Manish Garg, a tariff consultant who presented comments of UP and Uttarakhand discoms at the CERC?s recent public hearing.
