Utility ratings unaffected by final CERC tariff norms

CRISIL-rated utilities governed under the Central Electricity Regulatory Commission (CERC) tariff regulations will remain unaffected by the tariff norms for the block period 2014-15 to 2018-19 announced on February 21, 2014. The CERC retained the post-tax return on equity of 15.5% and continued with availability-based fixed-cost recovery, which includes debt-servicing.

Among the major changes between the draft and final regulations, the most noteworthy is the reduction of normative plant availability factor for fixed-cost recovery to 83% from 85%. This bodes well for fuel-starved thermal power plants. As for the normative line availability factor for fixed-cost recovery for transmission utilities, the extant regulations set for 2009-10 to 2013-14 continue.

As noted in CRISIL’s release of December 16, 2013, the draft tariff regulations are aimed at tightening operating norms and imposing stricter incentive structures. While CRISIL had expected the implementation of these measures to trim profitability of utilities, the core characteristics of availability-based fixed-cost recovery, pass-through of fuel cost and normative operating costs have been left unchanged. These are important in the context of systemic fuel shortage faced by thermal power plants and will continue to support the credit rating of CRISIL-rated utilities governed by the CERC tariff regulations.