Amid indications that electricity tariffs could witness a decline for consumers across the country due to lowering of tax arbitrage, the Central Electricity Regulatory Commission (CERC) on Tuesday announced draft tariff criteria for the power sector for 2014-19 which is likely to impact companies like NTPC Ltd, Sutlej Jal Vidyut Nigam and NHPC.
Power tariffs are all set to take a little dip with lower tax arbitrage. According to this draft, power tariffs will fall as CERC has proposed to remove the tax arbitrage which existed when companies like NTPC charged a higher tax rate from its customers leading to a tax arbitrage for NTPC alone at Rs. 500 crore a year. The new draft regulations will decide the multi-year power tariffs for 2014-19.
CERC has also changed the Operating and Maintenance (O&M) expenses marginally, which according to analysts was set to increase bringing in relief for power generation companies like NTPC.
Another highlight of the draft is the proposed tightening of operating norms for power producing and transmission companies by shifting incentives to the company's plant load factor (PLF) from plant available factor (PAF). This would link incentives to actual power generated and the PLF, that is, the capacity at which the plant is operating. While private companies have been given permission to raise tariffs, the proposed change would affect state-run producers like NTPC, whose existing incentives are linked to their available capacity for the state electricity boards (SEBs).
Thus, even if NTPC's plants could not generate required power for lack of coal, it is still be able to avail of benefits. PLFs of most power generators have fallen below 70 per cent in recent times owing to coal availability issues. CERC has not proposed any changes in norms for the operating and maintenance (O&M) expenses of companies.
The final regulations will be prepared in early 2014 after getting the relevant industry feedback. There is a public hearing on January 15, 2014, then a final notification by March and applicable from April. Immediately after the draft norms by CERC were released, the NTPC stock took a beating on Dalal Street. It closed at 11.26 per cent lower on the BSE at Rs. 136.
In a statement here, NTPC said the draft CERC regulations have just come in public domain and we are studying the same. Prima facia we find positive changes. This paper is under discussion and we are going through with a fine comb before it is finalised. "We expect the regulator which is a statutory body to encourage development of power sector will not dis-incentivise or de-motivate the largest power generating company in the country," it added.
As for the fear of our investors, the company it would like to assure our investors of continued returns and thank them for their support. NTPC generates 27 per cent of electricity in the country with 18 per cent of the installed capacity. "We have been rated as Number one company in the world in terms of capacity utilisation and the revenue that we earn is because of our efficiency, our experience and our strength of specialized manpower and our corporate and financial management. Very stringent regulatory norms will further deteriorate the financial health of the state sector generators," it said.