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MOSL: UTILITIES-Draft regulations 2019-24: CERC keeps RoE unchanged; Operating norms tightened marginally

Utilities: Draft regulations 2019-24: CERC keeps RoE unchanged; Operating norms tightened marginally; PWGR is our top pick

 

The Central Electricity Regulatory Commission (CERC) has prepared the draft tariff regulations for the five-year period starting 1 Apr'19. CERC will seek public comments until 15 Jan'19 followed by public hearing on 30-31 Jan'19. The final regulations will be notified thereafter.

Tightens operating norms, but maintains RoE and tariff structure

• Norms have been tightened for recovery of capacity charges, working capital rate has been reset lower, receivable and inventory days are cut, O&M allowance escalation rate is lower, sharing of efficiency gains will increase and certain items of other income will also have to be shared with beneficiaries.
• Assets, after initial term of PPA, will see some write-down of regulated equity.
• But, the big relief is (a) continuity in RoE of 15.5% v/s our expectation of 14% for thermal plants and transmission assets, and (b) no change in the tariff structure, unlike the proposal in the staff paper seeking linking returns to utilization of assets. GCV allowance of 85kCal/kg is given to coal-based plants to account for losses between 'as received' and 'as fired' stage.
• The other positives include increase in auxiliary consumption by 0.5% (for coal-based units >200MW), 0.25% increase in normative station heat rate and exclusion of security expenses from O&M allowance (will be on actuals).