Gujarat:

Cumulative Large-scale Solar Installations: 1,382 MW

Under Development: 531 MW

All four of Gujarat power utilities- Dakshin Gujarat Vij Company Limited (DGVCL), Uttar Gujarat Vij Company Limited (UGVCL), Paschim Gujarat Vij Company Limited (PGVCL) and Madhya Gujarat Vij Company Limited (MGVCL) have received the highest rating ‘A+,’ for the sixth consecutive year.

They have consistently performed the best among DISCOMs due to the following: profitable operations aided by cost reflective tariffs, healthy cash collections and adequate subsidy support from the state government, comfortable cost coverage ratio and capital structure, and healthy cash collections from the consumers. This was also aided by satisfactory AT&C loss levels which remained at 9 percent for UGVCL in FY 2017, and an operational Fuel & Power Purchase Cost Adjustment (FPPCA) framework that allowed the increase in cost to be recovered from consumers quarterly, and the timely submission of audited accounts by September 2017.

Still, there are areas for improvement. For example, subsidy dues receivable from state government built-up from ?7.277 billion (~$0.11 billion) as of March 31, 2010 to ?46.64 billion (~$0.68 billion) as on March 31, 2017, due to lower budgetary allocation than actual subsidy claims. On an annual basis, the actual subsidy received has always been 100 percent of the budgetary allocation and in FY 2016-17, GUVNL stopped accounting for the unpaid subsidy. However, the budgetary allocation has been lower than the actual claim, leading to an increase in outstanding subsidies.

To maintain their rating, they need to continue to maintain low levels of AT&C losses, as well as a high collection efficiency, improve subsidy collection levels and clear the pending subsidy claims from the government of Gujarat through a higher budget provision going forward, and leverage benefits available under UDAY.

Karnataka:

Cumulative Large-scale Solar Installations: 5,206 MW

Under Development: 2,091 MW

Overall, the ratings of Karnataka DISCOMs have deteriorated from the last year. Only the Bangalore Electricity Supply Company Limited has received rating ‘A’ this year. Last year, three of its utilities- Bangalore Electricity Supply Company Limited, Mangalore Electricity Supply Company Limited, and Chamundeshwari Electricity Supply Corporation Ltd. had received rating ‘A.’ Gulbarga Electricity Supply Company Limited is the only Karnataka DISCOM to improve its rating from ‘B’ to ‘B+’.

Regulatory clarity and the presence of a multi-year tariff regime along with regular tariff filings and tariff order issuances are some of the key strengths of Karnataka DISCOMs. They also have a near 100 percent record of compliance for renewable purchase obligations (RPO).

Karnataka’s DISCOMs mainly suffer in financial parameters such as cost coverage ratio, increase in power purchase cost, high AT&C losses, low cost efficiency, and growing dependence on subsidy support.

The report instructs Karnataka’s DISCOMs to improve its cost coverage by bringing down the actual costs in line with the levels allowed by KERC, especially power purchase costs, and to focus on loss reduction efforts in areas having higher loss levels and improving collection efficiency, and recover the outstanding dues including pending subsidy.

Telangana:

Cumulative Large-scale Solar Installations: 3,348 MW

Under Development: 114 MW

Both the DISCOMs in Telangana – Southern Power Distribution Company of Telangana Limited (TSSPDCL) and the Northern Power Distribution Company of Telangana Limited (TSNPDCL) maintained their rating ‘B+’ this year.

This can be attributed to relatively low AT&C loss, timely receipt of tariff subsidy from the state government, and a tariff order issued for FY 2018.

The reasons they could not improve their rating from last year was due to low collection efficiency, high power purchase cost, non-filing of tariff petition for FY 2019 within specified timeline, low cost coverage ratio, and high payable days.

In case they want to improve their ratings in the next edition, they will have to make improvements in collection efficiency, rationalize power purchase cost, reduce the collection period and payable days, and improve cost coverage through suitable tariff revision and cost rationalization.

Andhra Pradesh:

Cumulative Large-scale Solar Installations: 2,625 MW

Under Development: 1,140 MW

Andhra Pradesh’s two DISCOMs – The Eastern Power Distribution Company of Andhra Pradesh Limited (APEPDCL) and The Southern Power Distribution Company of Andhra Pradesh Limited (APSPDCL) have also maintained their ratings from last year, ‘A’ and ‘B+’ respectively.

The reasons for their consistent performance are low level of AT&C losses (especially for APEPDCL which moderated at 7.8 percent), healthy billing efficiency at 94.82 percent in FY 2017 for APEPDCL and 93. 58 percent for APSPDCL, timely receipt of tariff subsidy from the state government, and tariff order issued for FY 2018.

They could not register an improvement due to low cost coverage ratio (0.91x for APEPDCL and 0.82x for APSPDCL), high payables period, and non-approval of true-up claims.  APSPDCL also suffered due to a high power purchase cost at ?4.59 per unit in FY 2017.

If they maintain their billing efficiency and improve their collection efficiency, rationalize power purchase cost, improve cost coverage through suitable tariff increase and curtailment of losses, it could lead to a better rating in the next audit.

Rajasthan:

Cumulative Large-scale Solar Installations: 2,316 MW

Under Development: 1,546 MW

Out of the three Rajasthan utilities, Ajmer Vidyut Vitran Nigam Limited (AVVNL) and Jaipur Vidyut Vitran Nigam Limited (JVVNL) have improved their rating from ‘C+’ to ‘B’. With Jodhpur Vidyut Vitran Nigam Limited (JdVVNL) which has been able to maintain its ‘B’ rating from last year, all the three DISCOMs in the state have the same rating: ‘B.’

All three DISCOMs have improved their AT&C loss level with AVVNL having the best record among these three at 25.11 percent in FY 2017. Government of Rajasthan has also taken over 75 percent of the debt as of September 2015 under UDAY. Apart from these, decline in interest cost and no defaults to banks and financial institutions in FY 2017 and timely filing of tariff petition have helped them improve or maintain their ratings.

The same issues ail these three DISCOMs. They all have low billing efficiency in the range of 75 to 80 percent. Collection efficiency for JVVNL is low at 94.53 percent in FY 2017. Power purchase cost is also high as AVVNL bought power at the rate of ? 4.59/unit in FY 2017. Low cost coverage ratio in FY 2017 and significant delays in issuance of tariff order for FY 2018 and true-up order for FY 2016 are also a matter of concern.

To further improve their ratings, these utilities should reduce AT&C loss, improve their collection efficiency and cost coverage through suitable tariff increase and curtailment of losses, bring efficiency in billing, and facilitate timely issuance of tariff order by RERC.

Tamil Nadu:

Cumulative Large-scale Solar Installations: 2,187 MW

Under Development: 1,982 MW

Tamil Nadu Generation & Distribution Corporation (TANGEDCO) is the only DISCOM in the state. It has retained its ‘B’ rating.

TANGEDCO was able to repeat its performance because of improvement in cost coverage following the reduction in the average cost of power due to commissioning of various generating stations, continuing support from state government in the form of funds infusion, equity, and advance release of subsidy, and signing of the UDAY program which resulted in government takeover of liabilities that helped TANGEDCO in large interest savings.

Some of the major concerns for TANGEDCO are: the increased dependence on tariff subsidy from the state government, a high financial risk profile on a standalone basis arising from cash losses, poor capital structure, and debt protection measures, lack of power sector reform, slippages in regulatory timelines with regards to filing of tariff petitions, closure of annual accounts, and the continuing serious audit qualifications and default during FY 2017 etc.

To improve its rating for the next audit, TANGEDCO needs to fix its moderately high AT&C loss levels and billing efficiency (82 percent), timely file its tariff petitions, improve cost coverage by bringing down the cost of generation, and effectively implement UDAY.

Madhya Pradesh:

Cumulative Large-scale Solar Installations: 1,313 MW

Under Development: 960 MW

Madhya Pradesh has three DISCOMs – MP Poorv Kshetra Vidyut Vitaran Company Limited (MPPoKVVCL), MP Madhya Kshetra Vidyut Vitaran Company Limited (MPMKVVCL), and MP Paschim Kshetra Vidyut Vitaran Company Limited (MPPKVVCL). Two of its utilities, MPPKVVCL and MPMKVVCL were able to maintain their rating, ‘B+’ and ‘C+’ respectively. Whereas rating of MPPoKVVCL was downgraded from ‘B’ in 2017 to ‘C+’ in 2018.

MPPKVVCL has improved its AT&C losses to 21.5 percent in FY 2017 from 27.45 percent in FY 2016. Its cost coverage ratio has also improved in FY 2017. There is an increase in collection efficiency, which stands at 95.59 percent in FY 2017, but it is still low. The fuel cost adjustment framework is also operational.

Apart for these, the majority of debt in the form of perpetual loans from state government and timely receipt of subsidies from the state government helped in their moderate performance.

Some of the key areas of concern are – low billing efficiency of 82 percent and consumer metering at 79 percent for MPPKVVCL in FY 2017, high AT&C losses at 35.84 percent and low consumer metering at 82 percent for MPMKVVCL in FY 2017.

MP Poorv Kshetra Vidyut Vitaran Company Limited (MPPoKVVCL) rating has been downgraded due to the deterioration in collection efficiency, which stood at 93.29 percent in FY 2017, down from the 98.02 percent in FY 2016. High AT&C losses,  low billing efficiency in FY 2017, elongated collection period, low level of metering at 76 percent in FY 2017, delay in filing of tariff petition for FY 2019, and a high employee cost at 10.59 percent of revenue in FY 2017 are reasons for its downfall.

To improve their ratings in the future, AT&C losses should be brought down through improvement in billing and collection efficiency. Other ways are the rationalizing of employee cost, timely filing of tariff petition and issuance of true-up order, improving collection period and consumer metering, along with better cost coverage through suitable tariff increase and curtailment of losses.

Maharashtra:

Cumulative Large-scale Solar Installations: 1,311 MW

Under Development: 1,387 MW

Maharashtra State Electricity Distribution Company Limited (MSEDCL) is the only Maharashtra DISCOM and its rating has degraded from ‘A’ in 2017 to ‘B+’ IN 2018.

The reasons for the change in rating are: the deterioration of AT&C losses and cost coverage ratios in FY 2017, delay in receipt of subsidy support from state government, and a significant dependence on subsidy support from the state, which has also seen an increasing trend due to rise in cost of power supply, and the continuing subsidized nature of tariff towards agricultural category.

However, MSEDCL does have some strengths. It demonstrated its ability to improve the T&D loss level by successful implementation of the distribution franchisee model. It also successfully implemented the Fuel Adjustment Cost (FAC) mechanism with a ceiling.

To improve and regain the rating, it must reduce AT&C losses and show improvement in collection efficiency, recover the outstanding dues and ensure healthy collection efficiency, ensure timely payments to power generating companies and the timely receipt of subsidy from state government.

Last year, in its analysis of the fifth annual integrated rating report, Mercom noted that most of the improvement in DISCOMs is attributed to reduction in debt levels due to states joining the UDAY program.

As of March 31, 2018, the tariff cost gap of DISCOMs across India decreased by 48 percent in FY 2017-18, per data provided on the UDAY portal. Most DISCOMs have revised their tariffs after joining the program, and this has substantially helped in its goal achievement.

“DISCOMs still have a lot of work to do. Especially going into an election year, bill collection and increasing power tariffs to reflect true costs will be a challenge. This report primarily gives guidance to DISCOMs. Just because a DISCOM has an ‘A’ rating, it does not mean they are low risk for solar companies,” added Prabhu. “States should not be surprised if solar tariffs go up due deterioration in DISCOM ratings.”