CERC proposes region-wise rates to simplify structures

Also recommends market condition-linked return on equity, revision in determination of capital cost

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In a bid to simplify rate structures, the Central Electricity Regulatory Commission (CERC) has proposed these based on regions, instead of based on individual project. In the draft approach paper on “Terms & Conditions of Tariff Regulations for April 1, 2014 to March 31, 2019,” CERC said at present, rates revision is taking place at different stages such as provisional rates, final rate, one-time revision allowed for additional capital expenditure prior to the end of a period and a final rate after tallying with the actual expenditure. However, CERC said, too many revisions will cause regulatory burden on stake holders.

CERC has also sought views from stakeholders on how to ensure fuel procurement by the generator namely e-auction coal or imported coal, at reasonable and competitive prices. Currently, generating stations face uncertainty with the supply of coal and gas and they are either forced to procure fuel from the spot market or to procure imported coal at higher prices.

Former Union power secretary R V Shahi told Business Standard: “It is already 10 years since the Electricity Act, 2003, was implemented and rate policy also completed, the terms and conditions take into account the emerging realities that both gas and coal shortages are likely to continue to be substituted through imports. Therefore, pass-through of additional cost is desirable, while keeping a balance between the interest of consumers and developers. It is necessary that lenders and developers continue to be interested in power sector especially when both these groups have shown declining interests in last three years.”

Moreover,  CERC has mooted the linking return on equity (RoE) to market conditions for arriving at the rate of return. “The option of introduction of market-linked return has been thought to capture inordinate variation of risk premium over a tariff period. An after-tax RoE of 16 per cent for 2001-04 and 14 per cent for 2004-09 was specified. While framing the  2009-14 regulations, a benchmark rate of 15.5 per cent for the entire period was introduced, which was to be grossed up by applicable tax rate. Further, from December 31, 2012, RoE for storage type generating stations, including pumped storage hydro stations and run of river generating stations, with pondage was increased to 16.5 per cent,” said CERC.

It wanted to know from stakeholders whether there is a need to revisit the approach for debt: equity ratio, especially when gradual structuring of the debt market may have lead to higher reliance/availability of debt to corporate. A debt: equity ratio of 70:30 has been adopted for financing new projects commissioning after April 1, 2009, and for additional capitalisation.

Additionally, CERC has proposed an alternative approach for determination of capital cost. At present, the capital cost as on date of commissioning (COD) of new units, generating stations, or transmission system was allowed to be claimed on projected basis subject to the fact that actual COD would occur within six months from the date of filing tariff petition.

However, it was observed that projected capital cost as on COD and subsequent additional capital expenditure up to cut off date may change on account of deferment in commissioning of projects, non placement of orders due to limited vendor responses.