Power Regulator’s Norms Will Provide Relief To Utilities, Brokerages Say

Central Electricity Regulatory Commission's tariff norms for the five-year period between financial year 2019 and 2024 will provide relief to power utilities, according to brokerages.

India's power regulator's norms—a benchmark for state regulators to frame their respective state tariffs—will be applicable on thermal, hydroelectric generation and transmission projects.

The tone of the regulations, according to IIFL analyst Harshvardhan Dole, appears to be dovish and accommodative which is a significant relief to utilities. IIFL said it expects stocks like NTPC Ltd., NHPC Ltd. and Power Grid Corporation Of India Ltd. to react positively to the new norms.

Agrees, Amish Shah, analyst at Bank of America Merrill Lynch, adding that CERC has become more lenient on the norms proposed in the draft.

CERC has maintained the benchmark return on equity rates applicable for the thermal, hydro and transmission utilities at 15.5 percent, 16.5 percent and 15.5 percent, respectively. In its draft, the regulator had made a strong push to disincentivise power projects older than 25 years by curtailing the regulated equity eligible for earning the assured RoE of 15.5 percent. The regulator, however, has done away with such proposal in the final regulation.

“The new norms bring a sigh of relief for generating stations as they are not only less stringent vis-a-vis the draft norms, but also RoE-accretive,” Swarnim Maheshwari, equity research analyst at Edelweiss said. The final norms remove the overhang from NTPC, the brokerage said.

The order is sentiment positive as it puts to rest concerns on an assured RoE cut, Citi analyst Venkatesh Balasubramaniam said. “This is the third-consecutive five-year tariff regulation period when the regulators have not tinkered with RoE.”

CLSA analyst Bharat Parekh called the regulations a “positive surprise” and a big departure from its draft. “Apart from maintaining the RoE for NTPC, the coal-loss pass-through, the carve-out of security expenses, higher special allowances and O&M expenses were key in neutralising the tightening of norms,” he said.