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Home News Power Sector News AG says CERC can alter tariff. Will it?

AG says CERC can alter tariff. Will it?

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CERCThe Attorney General's view that the Central Electricity Regulatory Commission (CERC) has the power to revise or regulate tariffs adopted, based on competitive bidding, should cheer independent power producers (IPPs). Many IPPs are keen to renegotiate the tariffs following the sudden spike in coal prices in major producing countries such as Australia, South Africa and Indonesia.

The AG view is positive for Tata Power, Adani Power and Reliance Power, which are building power plants based on imported coal, Morgan Stanley analysts Parag Gupta and Satyam Thakur wrote in a report dated August 28.

But CERC chairman Pramod Deo refused to read too much into the AG's remark. "Any decision on UMPP (ultra mega power plants) or power stations running on imported coal will be based on the contract signed between generators and procurers," he said.

Deo also refused to give any view on the pleas of Tata Power and Adani Power for imposing force majeure following the hike in Indonesian coal prices. "Any decision on these companies will be based on the dispute resolution mechanism in their contracts with state procurers and I cannot speak more as these are subjudice cases in CERC."

According to him, the AG view is significant only for composite schemes, where a generator sells power to many states. The definition of 'composite scheme' here includes projects that initially identified only one beneficiary state but have subsequently signed power purchase agreements, or PPAs, with other states too.

Analysts said the AG view raises its own set of questions.

If the CERC allows tariff hike for UMPPs, it would raise concerns on the policy of competitive bidding as this would lead us back to a regulated return on equity (ROE) scenario where tariffs are fixed based on evolving cost structures, said Rabindranath Nayak, senior analyst, SBI Cap securities.

"So what will happen to other models of calling bids for tariff, like Case-I bidding and Case-II bidding?" asked Nayak.

Also, will the state electricity boards accept changes to tariffs which were originally fixed under a transparent bidding process, analysts asked.

Indeed, the whole concept of competitive tariff-based model could change if the CERC allowed a cost pass-through here.

Deo refused to comment saying this was a hypothetical question.

What's more, other generation companies like NTPC, L&T, GMR and GVK may initiate litigation if tariff hike is allowed with a retrospective effect

in UMPPs as these companies had lost out by quoting higher escalable tariff (portion of tariff that depends on change in coal cost), said Nayak.

Source- DNA


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