Electricity rates in Gujarat, Maharashtra, Rajasthan, Haryana and Punjab could go up by 30-50 paise a unit if the States adopt the Central Electricity Regulatory Commission’s ruling. The CERC has allowed higher tariffs for 4,620-MW Adani Power and 4,000-MW Tata Power projects at Mundra in Gujarat.

But, with general elections just a few months away, the States may not implement it given the political implications of a price hike. Given the financial health of the State electricity distribution utilities any increase in input cost would need be passed on to the end consumer, who is very price sensitive.

None of the impacted States have revealed their move yet. When contacted, State electricity boards (SEBs) said they were reading the order.

The order, however, is a positive one for the power sector, which has been impacted by the slowdown for the last two years. The February 22 order of CERC saw shares of Tata Power and Adani Power gaining on Dalal Street on Monday. Goldman Sachs termed the CERC order as ‘landmark judgment’ and said that it could set a precedent for other case-II bid-based power plants where unanticipated changes in circumstances have increased the cost of producing power, particularly fuel cost.

Most of the brokerage firms upgraded their view on Tata Power and Adani Power. However, many were cautious on the implementation of the order. For instance, Standard Chartered expects States to appeal to the appellate tribunal.

The increase in rates will allow the two private players to service their debt and reduce burden on the balance sheet. But, any delay in the implementation of this order or a possible stay due to appeals made by SEBs could be a drag on earnings.

Morgan Stanley said the final compensatory tariff order came as surprise as it allowed past losses to be recovered as well, even though the SEBs concerned were against this recommendation.

Adani Power has received long awaited compensatory tariff. The power producer’s power purchase agreement (PPA) with Gujarat for 1,000 MW has been awarded ₹0.85/unit compensation, while Haryana PPA has been awarded ₹0.36/unit compensation, without adjustments.

In the case of Tata Power, the tariff increase amounts to ₹0.52 paise/unit for the year 2013-14. The increase in tariff is ahead of market estimates, which was expecting between 22-30 paise tariff hike. However, it is lower than the 67 paise tariff hike petitioned by Tata Power.

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