Come 2014 and it would pay to have a good balance sheet in the power sector.An ‘approach paper’ of the Central Electricity Regulatory Commission (CERC) seeks to promote companies with good balance sheets. This may help companies like NTPC and Power Grid, according to analysts.Cost of debt is a big issue for power companies – the sector runs on cost-plus returns. The CERC has expressed concern over variation in cost of debt among different companies.The CERC has also sought comments from stakeholders on its suggestions on ‘terms and conditions of tariff regulations’ for the five-year period starting April 1, 2014.“The CERC is likely to increase focus on efficiency e.g. more normative parameters for development and operation phases such as benchmarking of capital cost and construction period and a more dynamic incentive mechanism .. we think that the regulator is trying to make investments in power sector more attractive and may also reward efficient companies which have good balance sheets,”wrote Pankaj Sharma of UBS Investment Research in a report. The new rules, according to the UBS report, may be bad for companies like Adani Power that have stretched balance sheets.Barclays in its report on the new guidelines has said that the CERC is likely to link return on equity (RoE) to market-linked returns. This it may do by capturing the variation in risk premium over tariff period by linking risk premium with the beta factor of the power sector, using CAPM (capital asset pricing model) for calculating RoE.The CERC has also underlined that the power sector suffers from fuel shortages – meaning, any returns for power companies may be affected by fuel availability.According to analysts, the regulator is also looking at standardising the construction period for power projects. There could be an incentive for faster commissioning of projects and a penalty for delays.“This could be good for companies like Adani Power, Power Grid, Tata Power and bad for NTPC, Reliance Power, JSPL,” according to the UBS report.

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