Retail tariffs for the distribution utilities to move upwards: ICRA

In view of CERC’s final order on the compensatory tariff, ICRA expects the retail tariff rate to move upwards in the five states of Gujarat, Haryana, Maharashtra, Punjab and Rajasthan. The impact of additional tariff compensation associated for APL and CGPL is projected to be highest for utilities in Gujarat, says ICRA in the report.

As per ICRA estimates, the average consumer tariff rate charged by the utilities is expected to increase in the range of 0.4% to 1.8% (i.e.. 3 to 10 paisa/unit) for supply from Coastal Gujarat Power Ltd (CGPL) to utilities of aforesaid five states. While in the case of supply by APL alone, the average tariff for the utilities is estimated to increase by average 1.7% (7-10 paisa/unit) in the state of Gujarat and Haryana respectively

Timely tariff revision or implementation of FPPCA framework remain extremely crucial for the distribution utilities, else it could affect their cash flow position which in turn would pose increased counter-party credit risks for the IPPs, says ICRA.

In ICRA’s view, CERC’s move is not only positive for APL and CGPL, but also for the generation sector as a whole. As these IPPs would now be able to claim additional tariff compensation so as to pass on the fuel cost under recovery to the off-taking utilities and also pass on the variation in exchange rate on imported coal cost. ICRA estimates that other imported coal based projects (aggregating capacity of about 7000 MW which are under planning/implementation & having competitively bid based PPAs with fuel price risk exposure) would also be benefited.

ICRA however notes that such projects with competitively bid PPAs still remain exposed to under-recovery in fixed capacity charges, given the steep INR depreciation against USD till date and the fact that fixed capacity charge component in tariff bid is predominantly non-escalable.

The timely implementation of these orders remains to be seen, given that there are possibilities that the state utilities could appeal against the same. Utilities in state of Haryana have already appealed to Appellate Tribunal of Electricity (ATE) against CERC’s earlier order in April 2013 for allowing compensatory framework; while utilities in Punjab have opposed to tariff compensatory framework and utilities in other states such as Rajasthan, Maharashtra and Gujarat have given in-principle consent subject to several conditionality & modifications suggested.