The new norms will be in force for five years - from 1 April, 2014 to 31 March, 2019. They are not applicable to generating stations or inter-state transmission systems where tariffs has been discovered through competitive bidding.
As per the new norms, notified by the Central Electricity Regulatory Commission (CERC) on 21 February, there are key changes with regard to tax and calculation of incentives for thermal power plants.
The changes would be negative for country’s largest power producer NTPC and state-run transmission utility Power Grid, among others. NTPC stock fell 11.43 per cent to close at 117.05 on the BSE, while Power Grid was down 0.40 per cent at Rs 94.75. ‘NTPC would be worst hit due to across-the-board cut in its incentives... 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 on Monday.
The base rate of Return on Equity (RoE) should be ‘grossed up with the effective tax rate of the respective financial year’, according to CERC.
For this purpose, the effective tax rate should be considered on the basis of actual tax paid in the respect of the financial year by the concerned generating company or the transmission licensee.
‘The actual tax income on other income stream (ie 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 regulator noted.
The base rate of RoE would be 15.5 per cent for thermal generating stations, transmission system including communication system and run of the river hydro generating station.
‘We believe that now is the time for regulator to wear its ‘consumer protection’ hat and rationalise power RoEs without cutting core RoEs, which is what it did,’ Bank of America Merrill Lynch said.
Besides, the regulations require thermal plants to calculate incentives based on Plant Load Factor (PLF) rather than Plant Availability Factor (PAF). However, the incentive for every unit of electricity generated has been kept flat at 50 paise/kWh.
PLF is a measure of average capacity utilisation while PAF refers to average of daily declared capacities.
Incentives based on PLF would depend on actual power generation, a scenario that could result in lower income.
Meanwhile, Reliance Power hails CERC’s Sasan unit order
New Delhi: Electricity regulator CERC has asked Reliance Power to submit details by 28 February about its Sasan project wherein the company has claimed to have suffered significantly due to impact of rupee depreciation.
Reacting to the directive, Reliance Power on Monday said it ‘welcomes the order of the CERC recognising that the unprecedented and unforeseen foreign exchange rate variations beyond the control of the company and beyond the normal expectations may need to be considered for quantification and compensation by the procurers appropriately’.
Reliance Power is implementing the 3,960 MW Sasan ultra mega power project in Madhya Pradesh.
The petition is listed for hearing on 17 April.
Reliance Power has been asked to submit information related to ‘bid assumptions (original and revised) for the levelised tariff of Rs 1.19617/kWh containing the different elements including the escalations factored for each of the elements’.
Among others, information about estimated project cost at the time of bid and rebid as well as actual project cost indicating specifically cost of equipment is also to be provided to the regulator.
The company had submitted before the regulator that rupee depreciation is unforeseeable and unprecedented which has adversely impacted the project economics for no fault of it.
CERC has said that considering the extremely competitive rate at which the procurers are getting power from Sasan project, there may be a case for the procurers to share a part of the burden as compensation on account of rupee depreciation in order to make the project viable.
‘The Commission considers it necessary to examine all the issues with reference to the base records of the petitioner in contracting debts for the project before taking a final view on intervening and giving any directions in this regard,’ the order said.
In the statement, the company also said it is grateful to the CERC for ‘specifying a fast track eight week schedule to examine relevant facts before giving any final directions in this regard... in the interest of the project as well as consumers of the procurer states’.
As per the new norms, notified by the Central Electricity Regulatory Commission (CERC) on 21 February, there are key changes with regard to tax and calculation of incentives for thermal power plants.
The changes would be negative for country’s largest power producer NTPC and state-run transmission utility Power Grid, among others. NTPC stock fell 11.43 per cent to close at 117.05 on the BSE, while Power Grid was down 0.40 per cent at Rs 94.75. ‘NTPC would be worst hit due to across-the-board cut in its incentives... 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 on Monday.
The base rate of Return on Equity (RoE) should be ‘grossed up with the effective tax rate of the respective financial year’, according to CERC.
For this purpose, the effective tax rate should be considered on the basis of actual tax paid in the respect of the financial year by the concerned generating company or the transmission licensee.
‘The actual tax income on other income stream (ie 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 regulator noted.
The base rate of RoE would be 15.5 per cent for thermal generating stations, transmission system including communication system and run of the river hydro generating station.
‘We believe that now is the time for regulator to wear its ‘consumer protection’ hat and rationalise power RoEs without cutting core RoEs, which is what it did,’ Bank of America Merrill Lynch said.
Besides, the regulations require thermal plants to calculate incentives based on Plant Load Factor (PLF) rather than Plant Availability Factor (PAF). However, the incentive for every unit of electricity generated has been kept flat at 50 paise/kWh.
PLF is a measure of average capacity utilisation while PAF refers to average of daily declared capacities.
Incentives based on PLF would depend on actual power generation, a scenario that could result in lower income.
Meanwhile, Reliance Power hails CERC’s Sasan unit order
New Delhi: Electricity regulator CERC has asked Reliance Power to submit details by 28 February about its Sasan project wherein the company has claimed to have suffered significantly due to impact of rupee depreciation.
Reacting to the directive, Reliance Power on Monday said it ‘welcomes the order of the CERC recognising that the unprecedented and unforeseen foreign exchange rate variations beyond the control of the company and beyond the normal expectations may need to be considered for quantification and compensation by the procurers appropriately’.
Reliance Power is implementing the 3,960 MW Sasan ultra mega power project in Madhya Pradesh.
The petition is listed for hearing on 17 April.
Reliance Power has been asked to submit information related to ‘bid assumptions (original and revised) for the levelised tariff of Rs 1.19617/kWh containing the different elements including the escalations factored for each of the elements’.
Among others, information about estimated project cost at the time of bid and rebid as well as actual project cost indicating specifically cost of equipment is also to be provided to the regulator.
The company had submitted before the regulator that rupee depreciation is unforeseeable and unprecedented which has adversely impacted the project economics for no fault of it.
CERC has said that considering the extremely competitive rate at which the procurers are getting power from Sasan project, there may be a case for the procurers to share a part of the burden as compensation on account of rupee depreciation in order to make the project viable.
‘The Commission considers it necessary to examine all the issues with reference to the base records of the petitioner in contracting debts for the project before taking a final view on intervening and giving any directions in this regard,’ the order said.
In the statement, the company also said it is grateful to the CERC for ‘specifying a fast track eight week schedule to examine relevant facts before giving any final directions in this regard... in the interest of the project as well as consumers of the procurer states’.