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Public hearing of CERC tariff regulations FY19-24
Industry representation on draft tariff norms
We attended the public hearing of the draft tariff regulations for FY19-24, organized by the Central Electricity Regulatory Commission (CERC). Various industry participants, including DISCOMs, public and private sector generators, grid operator and consumer groups participated in the hearing. Key highlights of the representations made:
Reducing regulated equity of plants after their useful life (Modified GFA approach):
* These plants have a low fixed cost and are running efficiently as they are well maintained. The modified GFA approach will impact maintenance of these plants, increase the risk of even a small variation in operating norms and will leave little incentive to keep the plants running. ~13GW of capacity is more than 25 years old.
* RoE on FGD should be allowed for existing plants, instead of just debt returns. Moreover, there is inconsistency as RoE on FGD cost is allowed for new constructions.
* Station heat rate (SHR) allowance for 200MW unit size is lower than the actuals of these units. The norms should be relaxed.
* Peak and off-peak recovery of fixed charges: There is no issue with the mechanism. Quarterly settlement of fixed charges, instead of an annual settlement earlier, is also fine.
* O&M allowance: It does not factor in the recent increase in cost due to GST and wage revision. Moreover, annual inflation allowance of ~3% should be increased to at least ~5%.
* Relax availability norms for new plants: New plants (like Mauda I & II, Solapur, Vindyanchal-V) are unable to achieve the normative availability of 83-85% due to initial stabilization and machine issues. The norms should be relaxed for new plants.
* There should be no monthly capping of fixed charge at 1/12th of the annual fixed charge. In the earlier norms, there was a flexibility to set-off under-recovery in a month over the remaining months of the year.
Private power producers
* O&M allowance should be increased to factor in the cost increase due to FGDs.
* Inventory days for non-pithead plants should not be reduced to 20 days; imported coal-based plants have an inventory at ports and during transit, for which 20 days is low.
* Private IPPs were generally against peak and non-peak availability. Unlike PSUs, private IPPs have issues with linkage availability and quantity.
* Water issues should be considered as an uncontrolled factor in declaring availability.
* RoE on additional capitalization should continue to be allowed, instead of proposed debt returns.
* Interest during construction (represents ~40% of the project cost), should not be excluded, while calculating the normative O&M allowance for new plants.
* O&M allowance for new plants should be increased to ~3-5% instead of the proposed 2.5%.
* The normative PAF factor has increased for some plants in the draft regulations. It would impact the incentive income of these plants, and hence should be reversed.
* Sugen gas plant was commissioned after 1st April 2009, hence SHR should be 5% higher than design energy (which is 1,850) instead of the proposed SHR Of 1,760.
* Additional RoE of 0.5% for early completion should be retained. It will incentivize early completion, which is increasingly becoming a requirement as renewable energy capacities are increasing.
* Additional capitalization after cut-off date should be allowed.
* Variable pay should not be excluded while calculating O&M allowance. Variable pay is ~20% of the employee cost.
* The draft norms propose penalty on the transmission line to reimburse the cost of the generating station, in case of a delay in commissioning of the transmission line, while the linked generating station gets commissioned in time. However, there should be no penalty if an alternate line is provided.
Private transmission companies
* O&M allowance should be increased. They are based on Power Grid’s actual cost, which have economies of scale.
* Increase in normative availability of incentive income for HVDC lines should be on a prospective basis. Investment decisions on HVDC lines were made on incentive income as per old norms.
* There should be no unlimited penalty for a mismatch between commissioning of a transmission line and the generation station, as it would increase the cost of funding from banks for such projects.
* Like competitively bid projects, nominated projects given to Power Grid should also have a strict timeline.
* Almost all DISCOMs are asking (a) for a cut in RoE to 12-14%, (b) to reduce debt: equity to 80:20, (c) to give no relief to GCV (proposed 85kCal), (d) for no increase in auxiliary consumption allowance, and (e) for land acquisition to be treated as a controllable factor.
* RoE for transmission projects should be lower as risk is low.
* Working capital incentive should be based on actuals
* Working capital interest allowance should be lower than proposed bank rate + 350bp.
* There should be right to cancel a PPA if the commissioning is delayed beyond schedule.
* Benefit sharing should be in 2:1 ratio instead of proposed 1:1.
* Retain salvage value at 10% instead of 5% for depreciation calculation.
* Favor three-part tariff (as was proposed in the consultation paper).
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