Alok Tripathi
February 28th, 2014

CERC shifts to plant availability factor under ’14-19 tariff norms

Despite strong opposition from NTPC, power sector regulator has shifted the incentive structure to plant load factor from plant availability factor

Shares of NTPC Ltd hit a five-year low, as the Central Electricity Regulatory Commission further tightened its noose on operating norms for power generation companies in its 2014-19 (Apr-Mar) tariff structure.

India’s largest power generation company’s shares closed at Rs 116.90 on the NSE, down 11.7% while Power Grid was down 0.40 per cent at Rs 94.75.

CERC, in its final guidelines for tariff fixation released Saturday, has shifted the incentive structure to plant load factor from plant availability factor in the previous norm for the period 2009-2014 (Apr-Mar). The regulator also maintained the base return on equity on transmission systems at 15.5%, which is much lower than 18-20% sought by companies.

In its draft regulations released in December, the commission had suggested an incentive linked to plant load factor of a power unit, which was strongly opposed by the industry, especially by the biggest player NTPC. Plant availability factor in relation to a generating station for any period means the average of the daily declared capacities for all the days during the period.

On the other hand, plant load factor for a thermal generating station or unit for a given period refers to the total sent out energy corresponding to scheduled generation during the period.

NTPC had argued saying PLF was beyond a power company’s control and had requested the regulator to go back to the incentive linked to PAF. The commission has also brought down the PAF threshold for availing the incentive to 83% from 85% earlier.

“NTPC would be worst hit due to across-the-board cut in its incentive grossing up of tax on actual tax paid v/s applicable tax rate to hit NTPC,” global brokerage firm Bank of America Merrill Lynch said in a report.

“Provided that in view of shortage of coal and uncertainty of assured coal supply on sustained basis experienced by the generating stations, the NAPAF (Normative Plant Availability Factor) for recovery of fixed charges shall be 83% till the same is reviewed,” the regulator said.

Incentives based on PLF would depend on actual power generation, a scenario that could result in lower income.  However, in a move that would be a major disadvantage for NTPC, the commission has retained its decision to remove the tax arbitrage that existed when companies like NTPC charged a higher tax rate from its customers leading to a tax arbitrage for NTPC alone at around 5 bln rupees a year.

Norms for 2009-14 allowed utilities to retain tax benefits applicable to power projects by recovering higher tax from beneficiaries than the actual income tax paid. However, the new norms limit the recovery of tax to the actual tax paid by utilities.

“…the effective tax rate shall be considered on the basis of actual tax paid in the respect of the financial year…The actual tax income on other income stream (i.e., income of non-generation or non-transmission business, as the case may be) shall not be considered for the calculation of ‘effective tax rate’,” the commission noted.

Opposing the move in the draft regulation, NTPC had argued saying its new projects planned in the coming years as per their power purchase agreements signed with different beneficiaries requiring investment of around 4.80 trln rupees would be adversely affected.

Other key regulations include a ‘special allowance’ for coal and lignite based power plants that could be availed and following which the revision of capital cost would not be allowed and applicable operational cost shall not be relaxed.

“In case of coal-based/lignite fired thermal generating station, the generating company, instead of availing R&M may opt to avail a “special allowance…as compensation for meeting the requirement of expenses including renovation and modernisation beyond the useful life of the generating station or a unit thereof, and in such an event, revision of the capital cost shall not be allowed and the applicable operational norms shall not be relaxed but the special allowance shall be included in the annual fixed cost,” the regulator said.

It added the special allowance would be 750,000 rupees per megawatt a year for 2014-15 (Apr-Mar) and would be escalated at 6.35% every year during the tariff period till Mar 2019.

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