CERC rejects NTPC plea to revisit tariff norms

New Delhi: India’s apex power sector regulator Central Electricity Regulatory Commission (CERC) on 30 June rejected state-run NTPC Ltd’s representation to revisit electricity tariff norms applicable during financial years 2015-19.

NTPC, India’s largest power producer, had approached the Delhi high court to appeal CERC’s February order that revised the incentive structure for state-run power generation companies. The court had asked CERC to consider NTPC’s representation.

CERC’s February order said incentives would be based on the plant load factor (PLF) metric and not plant availability factor (PAF), as before.

PAF measures the generation capacity that is available, whereas PLF is based on the actual power that is generated by a plant. Effectively, CERC has linked future financial incentives with the purchase of power by distribution companies. Since these utilities are strapped for funds, PLF is often lower than PAF—implying that NTPC would be entitled to fewer financial incentives.

While an NTPC spokesperson declined to comment, a CERC official, requesting anonymity, confirmed the regulator’s stand and said: “The norms will not be revisited.”

Power distribution companies owned by state governments owe a staggering Rs.2 trillion to lenders. This has reduced their ability to buy power. Lower demand for power translates to a lower PLF. NTPC’s core business is generation and sale of electricity to state electricity boards.

“In FY14, NTPC’s coal-based power plants had an average PLF of 81.5% (83.1% in FY13), with 10 of its 17 coal-based plants having PLFs of less than 85%. None of NTPC’s seven gas-based plants have PLFs over 85%. The plant availability rates were much higher at 91.8% (87.6%) for the coal-based plants and 95.2% (93.1%) for the gas based plants,” Fitch Ratings said in a 18 June statement.

Mint reported on 25 February about CERC’s multi-year tariff regulations affecting those companies that employ the business model based on an assured return on equity (RoE) and are applicable during financial years 2015-19.

Utilities such as NTPC have an assured RoE of 15.5%. These guidelines, which took effect on 1 April, will also impact other central sector utilities such as Power Grid Corp. of India Ltd, NHPC Ltd and SJVN Ltd.

Shares of NTPC fell 1.27% to Rs.147.75 on Monday on BSE. The exchange’s benchmark Sensex fell 0.07% to 25,006.98 points.

The CERC order had also linked the recovery of tax from the customers of power producers on the basis of actual payment of tax. In the earlier regime, if a company managed to save on tax because of smart tax planning, it was allowed to retain such gains.

CERC also brought down the heat rate—the heat energy required to produce one unit of power—by 2%, altering the incentive structure drastically. This would reduce the volume of coal purchased per unit. Earlier, NTPC could burn more coal to generate one unit and this was allowed by the regulator to be claimed from electricity buyers.

At the same time, the regulator also reduced auxiliary consumption of power from 21.5% to 12.5%. Auxiliary consumption is energy consumed by the power generation company and is included as compensation in the tariff.

Not only will the power producer have to invest in more efficient energy use technology, it will also reduce the carbon footprint and thereby make it relatively less harmful for the environment.

“Fitch anticipates that the changes in the new tariff block compared to the previous structure are likely to affect NTPC’s profitability by 8-11% compared to Fitch’s earlier estimates. The new tariff block has maintained the return on equity at 15.5%; however, the lower tax grossing rate and the linkage of incentives to plant load factor will act as negatives,” Fitch said.