NTPC takes CERC to court over new tariff regime

The new CERC guidelines will come into effect on April 1 and remain in force till March 31, 2019.

Published: March 9, 2014 2:09:00 am
The new norms are aimed at increasing the operational efficiency of power plants, but would reduce profits of the company’s ageing plants. The new norms are aimed at increasing the operational efficiency of power plants, but would reduce profits of the company’s ageing plants.

State-run NTPC has filed a writ petition in the Delhi High Court, seeking a stay on the tariff guidelines recently issued by Central Electricity Regulatory Commission (CERC) for power plants catering to more than one state. Arguing that the regulator lacked consistency in its principles for tariff determination, the company said the new norms would hit its profitability.

The new CERC guidelines will come into effect on April 1 and remain in force till March 31, 2019.

The NTPC stock had tanked to a five-year low on February 24, following the regulator’s final tariff order. The new norms are aimed at increasing the operational efficiency of power plants, but would reduce profits of the company’s ageing plants.

The regulator has removed many incentives for generation and transmission, which it thought added to inefficiency and was unfair to the consumer. Many of NTPC’s older plants have higher cost structure and the new regime would constrain its ability to recover such costs.

A senior CERC official confirmed to this newspaper that NTPC has legally challenged the new tariff regulations. The details of the grounds on which the petition has been filed were not known immediately.

NTPC, which generates its entire electricity from fossil fuels, could be hit hard by the changes made by the CERC in the new regulations.

For example, the CERC has changed basis for payment of generation incentives to developers from  plant availability factor (PAF) to plant load factor (PLF).

While PAF means declared capacity availability for generation, PLF stands for actual electricity generation by a plant.

While NTPC has control over the plant availability factor, the PLF could vary, depending on factors like fuel availability and offtake of electricity by distribution companies.

At a time when coal shortage for power generation remains a serious issue, linking incentive payment to PLF could make things difficult for NTPC.

Recovery of fixed charges payable to generators, though, will remain linked to PAF. Further, the regulator has also tightened station heat rate and auxiliary power consumption norms.

Under the new regulations, distribution companies will reimburse generators whatever tax may be paid by them on applicable 16 per cent return on equity (RoE), instead of the normative corporation tax.

Currently, since the power sector is enjoying tax-holidays, they pay the minimum alternate tax of 20 per cent instead of the corporate tax of 33 per cent. However, the generators get reimbursement from discoms at the rate of 33 per cent. In the new regime, NTPC and other generators would be deprived of this tax arbitrage.

In the public hearing held by the CERC on draft tariff regulations 2014-19 in January, NTPC had pleaded with the regulator not to go ahead with proposed changes.

The regulator did provide some sops, like reduction in threshold PLF for payment of generation incentives from 85 per cent to 83 per cent and relaxation in operational efficiency parameters for ageing 200 MW units and recovery of water charges. However, NTPC remains unhappy with the new regulations.     FE

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