CERC's 2014-19 tariff order hits NTPC stock

Stocks of state-run generator NTPC sank Monday after the Central Electricity Regulatory Commission released final regulations for tariff determination for 2014-15 to 2018-19, cutting incentives and tightening operating norms for power stations.

The new guidelines would dent earnings of companies like NTPC Ltd. by up to 15 percent through rationalisation of the Return on Equity (RoE) principle.

Tax on income will be computed with reference to the actual income tax paid on pro-rata basis with respect to RoE. Currently, tax on RoE is computed at the normal tax rate applicable to the generator.

The base rate of Return on Equity (RoE) should be "grossed up with the effective tax rate of the respective financial year", the CERC noted.

The base rate of RoE would be 15.5 percent for thermal generating stations, transmission systems and run-of-the- river hydro generating stations.

NTPC stocks fell 11.43 percent Monday to close at Rs.117.05 a share on the BSE, and Power Grid was down 0.40 percent at Rs.94.75 from its previous close Friday.

The key changes made by the CERC include shift in the incentive regime from the plant availability factor (PAF) to the plant load factor (PLF). Incentives based on PLF would depend on actual power generation, that could result in lower incomes.

PLF is a measure of average capacity utilisation while PAF indicates the average of daily declared capacities.

The new norms, to be effective for five years from April 1, are not applicable to generating stations or inter-state transmission systems where tariffs have been arrived at through competitive bidding.