The Central Electricity Regulatory Commission (CERC) has come out with a new draft of its proposed power tariff rules. It has rationalized tax retention rules, tariff calculations and other matters which could lead to lowering of power tariffs and also increase the efficiency of power generation units.
Many are wondering if there is any link between the recent electoral success of the Aam Aadmi Party (AAP), whose leader Arvind Kejriwal has long agitated for lower electricity rates, and the release of this new draft.
The CERC has kept private players which opted for tariff-based bidding, out of the ambit of the new rules. It will largely impact state-owned power generation units, such as National Thermal Power Corporation, NTPC.
Indeed, the possible negative impact of the rules on its earnings saw the NTPC share price fall by 11 per cent on Tuesday (December 10).
The major fear is that these new rules might lead to more indiscipline by the distribution companies, especially in power purchases.
The new rules want tariff linked to plant load factor (PLF) and not the plant availability factor, PAF. This means, power generators can set tariffs only based on the volume of power they generate, not on the declared capacity. Until now power generation companies, even when they ran out of coal and could not generate the required power, could still reap benefits. But under the new rules this will not be possible.
Under the existing tariff rules, power generators have the upper hand. They can declare their capacity after the checking their buyers' requirements 24 hours in advance, and schedule the power accordingly. If buyers back track at any time, refusing to buy the power had promised to, they have to pay the fixed cost of the tariff, even if the power is not generated.
The new rules are being interpreted to suggest that this penalty cost need not be paid. Buyers, mainly discoms, can freely renege on promises to buy power leading to chaos in the grids. Most state discoms are in debt, so they are very likely to do so if they found cheaper options in the spot market.
Another of NTPC's fears is that its market capital could take a beating if the discoms do not draw power. If cleared, these new rules will be applicable for five years from April 2014.
But there is still time for the power generators to make their case. The final rules are expected by January end.
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