Draft norms 'fair' but open to change: CERC

Terming the power draft regulations put out by it recently as "fair", Central Electricity Regulatory Commission (CERC) Chairman Gireesh Pradhan said the rationale behind the draft was to tighten operational norms for power companies.

Responding to analysts’ and power companies’ concern regarding the proposed change in the incentive model from an availability to load factor, he said regulatory procedure involved soliciting feedback from industry before deciding on the final version of the guidelines. Also read: NTPC plummets on draft power norms; 10% earnings hit seen
In an apparent move to get power companies to produce more, the draft norms for the five-year period starting fiscal year 2014 released recently had proposed shifting incentives for power producers from coal availability to actual generation, among other changes.
Analysts said under the new incentive model, low offtake by state electricity boards in a weak economic environment could unduly impact the earnings of power generators such as NTPC.
In an interview, NTPC Chairman Arup Roy Choudhury had said the firm would talk to the regulator and communicate its feedback about concerns it has but added there were several positives in the draft as well. Also read: Expect changes in final power norms: NTPC
NTPC shares gained 2.5% today after falling over 10% on Tuesday in an immediate reaction to the release of the draft norms. Here is the verbatim transcript of an interview with him. Q: Can you tell us the rational behind shifting the incentives from plant availability factor (PAF) to plant load factor (PLF). Why did you have to do it and will you be open to changing it back?
A: The whole rational behind the draft has been to see that there is some amount of regulatory certainty as well as tightening of some of the operational norms.
In the draft, we have tried to be extremely reasonable and fair and passed on every fixed cost that the utility would incur. At the same time we have tried to tighten some of operational norms and one of the areas where the incentive would be given on the declaration of availability, has been shifted to the actual generation and incentive on the actual generation. Q: Would you be open to changing it back to availability?
A: These are the draft regulations and they go through a regulatory procedure where we put them out in the public domain, there could be suggestions, comments and other remarks on this. We would also hold public hearing because that is the regulatory procedure.
A public hearing will be held for two days where we would listen to what stakeholders have to say. So the draft regulations go through a process of discussion, debate, suggestions, etc, and then are finalised. Q: When will this public hearing will take place?
A: We have scheduled two days for a public hearing in January, but we will continue to receive comments based on the draft that has been put out in the public domain. Q: Because of these draft regulations almost every operating parameter has been tightened except the minimum RoE, which is around 16 percent. What is the rational that the CERC has of limiting the RoEs in a sector which is already so starved of funds at this point?
A: The return on equity regime is as exactly as it was; there is no change in the RoE regime that was there. The operational parameters also have been tightened in terms of station heat rate and the specific oil consumption.
These are some areas of operational efficiency but the return on equity regime, which was there in the earlier control period, remains the same. Q: When we spoke to the NTPC chairman, his argument was that PLF is not in their hands -- if state electricity boards (SEBs) do not oblige and buy -- so PAF is a fairer way to give incentives to the company. You do not buy that?
A: In our draft we have not bought that and the actual generation should be entitled to an incentive. When you are giving an incentive, it should be on the actual generation and that is the feeling that the commission has. Q: The other argument the chairman made is that if you lower the normative station heat rate then it leads to lower gains from fuel efficiency. He said in the past the CERC bought the argument and raised the normative station heat rate in the previous draft?
A: We have tried to improve the efficiency and this is a step in terms of improving efficiency. I think it’s in everybody’s interest that the efficiency of generating plant needs to improve. So, this is in that light. Q: If there are any relaxations in this particular draft, on what parameters do you think the relaxations would come in?
A: As far as we are concerned, the draft that was prepared was done with a certain logic and rationale. Changes would depend on what rationale and logic is placed before us. We would definitely tend to go into any arguments, comments and suggestions based on a logical and technical base.