Adani group's power distribution company grapples with regulatory issues

It is less than a year since Adani Group bought Reliance Group’s power distribution business in Mumbai. The new firm has had its hands full with a petition filed from its competitor, a legacy issue of pending renewable purchase obligations (RPOs) and lack of long-term power supply arrangements.

In August 2018, Reliance Infrastructure (the Anil Ambani group) sold its Mumbai distribution business to Adani Transmission for Rs 12,700 crore. The distribution asset is housed under a subsidiary called Adani Electricity Mumbai (AEML).

CARE Ratings in a note on AEML said its long-term rating for the company continues to remain constrained, as Adani Group is new to the power distribution business, among other factors.

The group is experiencing the nuances of a regulated power distribution business for the first time. Since January, the state electricity regulator (MERC) has passed four different orders pertaining to AEML. Two of these are on petitions from AEML for some modifications. For instance, in February, the company had petitioned for a levy of Rs 750 as a charges for a second and each subsequent dishonored cheque presented as bill payment. The current levy is Rs 250. “There have been concerns around repeated defaults on cheque payments in the past. MERC asked us to take up this issue for revision of Schedule of Charges in our multi-year tariff appeal,” said an AEML spokesperson in an e-mail response. “The commission also directed us to suspend cheque payment facility of the next six months and also initiate legal action against willful defaulters.”

In March, the company sought approval for a deviation from Standard Bidding Guidelines (SBG) in their document for long-term procurement of solar power through competitive bidding. “AEML will proceed with the procurement as per MERC approval,” said the AEML spokesperson, without sharing details on why the company sought a deviation. Part of the MERC approval in April included procuring through a single-stage bidding process while AEML requested for a two-stage one. MERC, however, allowed AEML to procure 350 Mw of solar power, with a over-allotment option of an additional 350 Mw.

The power distributor is also struggling with legacy issues over non-fulfillment of RPOs. In an April 4 order, MERC directed AEML to get the required purchase of solar, non-solar and mini-micro power and/or renewable energy certificates by the end of March 2020, to fully meet its standalone and cumulative shortfall. “The pending RPOs are a legacy issue they have received with the asset purchase,” said an analyst, who did not wish to be identified. The firm was seeking cumulative fulfilment of RPOs for the FY17-20 period and allow any shortfall to be carried forward to FY21 on. “We have filed a review before MERC in this matter and will prepare the procurement plan in line with their decision,” the AEML spokesperson said. 

Tata Power, its competitor, had petitioned the MERC that AEML is engaged in the process of migrating of consumers in a manner which would defeat the intent and purpose of the governing framework regarding such a switchover. Their application for a stay on the MERC order was not granted, the AEML spokesperson said. 

Analysts with CARE Ratings also list dependence on short-term power as a key rating weakness. 

“Both units of Vidarbha Industries Power (a subsidiary) have been shut down since December and January due to lack of coal, resulting in higher reliance of AEML on short-term power purchases from various alternative sources,” they said. Of the 1,300 Mw normal demand this business has, 600 Mw is sourced from Vidarbha Industries.