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Home News Power Sector News Power utilities bat for regulatory certainty, rise in return on equity

Power utilities bat for regulatory certainty, rise in return on equity

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CERCIn its submission to the Central Electricity Regulatory Commission (CERC) on the draft tariff regulations for 2014-19, NTPC has made a strong case to retain incentives linked to plant availability factor (the capacity available to generate power), arguing otherwise, its investment of Rs 1,04,000 crore in 14,121 Mw of capacity being developed would be at risk.

The draft regulations recommend incentives to power plants be based on plant load factor, or the power actually produced for a buyer. The company, which earned a profit of Rs 19,554.07 crore in the quarter ended December, said the shift to tax recovery based on actual parameters – actual profit before tax and the actual tax paid – was inconsistent with a normative approach.

Also, projects planned for the coming years, according to various power purchase agreements (which require an investment of around Rs 4,80,000 crore) will be adversely affected, it said. According to NTPC, if benefits meant for developers under section 80IA of the Income tax Act are provided to beneficiaries, it will defeat the purpose of the Act to attract investments in the power sector. Adani Power pressed for regulatory certainty and said uncertainty in the regulatory approach might hit investor confidence. According to Adani Power, the tariff policy emphasised on predictability and consistency in regulatory approach. It stresses the need to continue the current norm of pre-tax return on equity (RoE).

Power Grid Corporation and various power producers, including NTPC, Adani Power and Lanco, said the RoE should be raised to 18 per cent, against CERC's proposal to retain it at 15.5 per cent.

NTPC earns RoE of over 24% from incentives, operational efficiency and tax benefits. This is expected to go down.

Furthermore, PowerGrid Corporation, which has proposed an investment of Rs 1 lakh crore in the 12th plan, argued that returns have been considered commensurate to the movement of SBI PLR/G-Sec rates in previous Regulations for 2009-14.

The draft suggests to scrap tax arbitration. Generation utilities are now allowed to charge the applicable tax rate from buyers even if they actually pay lower tax on account of depreciation, exemptions or incentives.

In the new dispensation, companies will only charge the tax they have actually paid. Further, the draft also recommends changing the incentive structure from PAF (plant availability factor) to PLF (plant load factor). Under the existing regulations, a power plant gets incentives if it just notifies its availability for generating power for any willing buyer. In the new regulations, incentives will be given on the power actually produced for a buyer.

Source- Business standard


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