Commenting on the latest Tariff petitions filed by the distribution utilities in 11 major states, ICRA says the overall progress of the tariff petitions has been less than satisfactory with utilities in only 15 states (out of overall 29 states) having filed tariff petitions so far. In ICRA’s view, this is against the requirement of filing by November 30, 2014 as per terms of the tariff regulations, so that tariff orders could be issued by SERCs within 120 days i.e. by the end of March 2015. While discoms in states such as Bihar, Haryana, Madhya Pradesh and Uttarakhand have proposed tariff revision in the range of 15% to 26%, those in other states such as Andhra Pradesh, Gujarat, Maharashtra and Telangana have proposed modest tariff revision in the range of 3% to 8%. However, discoms in the states of Chhattisgarh, Punjab and Odisha have not proposed any tariff revision and have left the treatment of the revenue gap to the discretion of the respective State Electricity Regulatory Commissions (SERCs).
As per ICRA analysis, the revenue gap projected by the distribution utilities for FY 2015-16 is quite significant in most of the states and the reasons for the same include a) increase in cost of power procurement and other O&M expenses as proposed for FY2016 and b) impact of additional cost estimate arising from final true-up of cost incurred in the previous periods (FY12-14) based on the availability of audited accounts. As per ICRA estimates, the aggregate unrecovered revenue gap projected (including the gap arising out of true-up for the past period) as per tariff petitions filed by the distribution utilities in 11 states is estimated at Rs. 253 billion, of which 86% is attributed to the utilities in the states of Andhra Pradesh, Bihar, Haryana, Punjab, Odisha and Telangana. Even assuming the amortization period of 5 year for unrecovered revenue gap, additional tariff hike required to recover such revenue gap varies from 2% to 9% (i.e. tariff hike of 9 paise per unit to 52 paise per unit) across these utilities, which is over & above the tariff hike being sought by the utilities. Overall, the cost reflective nature of tariff determination as well as time-bound recovery of the regulatory assets by SERCs would be critically important especially for the utilities .
With respect to 2014-15, tariff orders have been issued for utilities in 24 states as on date which is a fairly reasonable progress in terms of tariff determination process by SERCs. However, it may be noted that tariff revisions in many states have been delayed (partly due to FY 2014-15 being an election year) and overall tariff hikes have been modest at 6% on all India basis. ICRA further notes that tariff determination for FY 2014-15 by SERCs for the distribution utilities especially in the states of Tamil Nadu and Rajasthan has delayed by about 9-11 month period, and such a delay is a major deviation in compliance of the terms in financial restructuring scheme which has been implemented by these utilities. Since the tariff revision is effective from the date of issue of tariff order, delays in issuance of tariff order are likely to result into the unrecovered revenue gap for the utilities in both the states which is estimated at about Rs. 77 billion (corresponds to about 11% of revenue requirement as approved by SERCs). Further, concerns also continue on account of significantly high regulatory asset (RA) position for utilities in both the states (Utility in Tamil Nadu: Rs. 282 billion and Three Utilities in Rajasthan: Rs. 353 billion) as estimated as on March 2015 and even assuming amortization period of 5 year, additional tariff hike required to recover RA remains high i.e. at 15% and 23% for utilities in Tamil Nadu and Rajasthan respectively. Also, the extent of regulatory asset or unrecovered revenue gap could go up further due to absence of implementation of FPPCA in both the states as well as delays in final true-up of the past periods due to unavailability of audited accounts (as in case of Tamil Nadu, final true-up has been done till FY 2011 only).
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