CERC's draft tariff rules positive for power generation, transmission firms; energy production cost may decline: Report

Mumbai: Continuation of norms on the return on equity (RoE) and capital structure in the Central Electricity Regulatory Commission's (CERC) draft tariff regulations for 2020-24, is likely to be positive for power generation and transmission companies, ICRA said in a report.The CERC in its order on 14 December, notified the draft regulations for cost-plus-based tariff determination for the next control period commencing in April 2019 up to March 2024 (FY2020-24).These regulations are applicable for power generating companies owned or controlled by the Centre, generating companies supplying power to more than one state under a composite scheme and for inter-state transmission licensees.[caption id="attachment_4247665" align="alignleft" width="380"]

Representational image. PTI.[/caption]"The continuation of RoE at 15.5 percent against expectation of a lower RoE and continuation of the debt-equity ratio at 70:30 against the proposal of 80:20 made in the consultation paper released in May 2018, is a positive development for the generation and transmission utilities," ICRA group head and senior vice president — corporate ratings, Sabyasachi Majumdar said.However, the proposed changes to normative parameters related to working capital and operation and maintenance (O&M) cost is expected to lower the recovery of annual fixed charges by 1.9 percent over the five-year period for a coal-based power project, he said."This along with the revision to normative operating parameters is likely to reduce the average cost of generation by 9 paise per unit over the five-year period," he added.With NTPC's coal-based units contributing 20 percent of the all India electricity generation, a 9 paise reduction in cost of generation would translate in to 2 paise reduction in power procurement cost for discoms at all India level, the ICRA report said.Additionally, it said, the reduction of equity using accumulated depreciation less repayment of loan for projectscompleting useful would reduce the RoE for companies holding thermal power units older than 25-years.Meanwhile, in the draft regulations, CERC has also proposed to link the recovery of capacity charges for thermal power projects with two availability factors on a quarterly basis against a single availability factor on an annual basis under the existing regulations.ICRA expects this will put pressure on the thermal power stations to ensure high availability during the peak period.On the positive note, the auxiliary consumption norms for 300/500/600 MW series have been relaxed by 0.5 percent, which is a positive proposal for the coal-based power plants, it said.All these measures once implemented would be positive for discoms and consumers, given the expected reduction in power procurement cost, the report added.