NEW DELHI: Power companies may not be able to avail themselves of benefits on assets which have completed their useful life. Draft amendment to the National Tariff Policy 2016 proposes electricity generation, distribution and transmission firms mandatorily pass on benefits of low cost of depreciated assets to consumers with tariff reduction.
Depreciation is a major component of cost-plus tariff, besides return on equity (RoE) and interest cost. It becomes a cash flow to the investor by enabling recovery of capital investment.
As per regulatory accounting, initial 70% portion of depreciation is intended for repayment of principal amount of loan. Hence, according to industry experts, payment of depreciation beyond 70% implies repayment of equity to the investor. Many regulators currently allow RoE on original equity to power companies. This encourages power companies not to retire old assets. If return on equity is continued on old assets and new are continuously added, tariff increases more, experts said.
“Benefit of reduced tariff after the assets have been fully depreciated shall remain available to the consumer,” the draft read. The amendment aims at enforcing the provision in a strict manner.
“The government has given justice to the consumers by making it mandatory to pass on the benefit of depreciation as reduced tariff,” said Ravinder, former chairman, Central Electricity Act.
“Now, the CERC (Central Electricity Regulatory Commission) and SERCs (State Electricity Regulatory Commissions) must amend and align their tariff with new policy.”
Industry experts termed the tariff policy draft consumer-friendly, except for the proposal to exempt power plants of all central public sector units from mandatory tariff-based competitive bidding.
“The proposed revisions are encouraging, for they are designed to improve quality of supply and avoid loading consumers with systemic inefficiencies,” said Kameswara Rao, partner, GRID, PwC.
“The requirement that discoms must contract firm PPAs (power purchase agreements) means consumers, especially outside the main urban centres, can look forward to a more reliable power supply. It also gives hope to distressed generating assets that are awaiting utilities to sign the PPAs,” he said.
Ravinder said the draft proposes that all state electricity regulators adopt the renewable purchase obligations trajectory issued by the central government. “This will boost the demand of renewable energy in line with the trend worldwide to save the climate,” he said.
Source: economictimes.indiatimes
