Energy Commission (EC) has announced the continuation of ICPT mechanism in 1H20. EC has allowed Tenaga to past-through RM376.45m additional fuel cost as well RM1.50/mmBTU hike in piped gas price in 1H20, in the form of additional 2.0sen/kWh to Commercial and Industry users in 1H20 (vs. 2.55sen/kWh in 2H19). Hence, the effective tariff for these users will be lowered to 41.45sen/kWh in 1H20 from 42.00sen/kWh in 2H19. However, effective average tariff remains unchanged for domestic users at 39.45s/kWh (subsidized). Maintain HOLD on Tenaga with unchanged TP of RM13.50 based on DCFE valuation.

NEWSBREAK

Energy Commission (EC) has announced the continuation of the ICPT (Imbalance Cost-Past-Through) mechanism for 1H20 with unchanged average base tariff rate of 39.45s/kWh. Tenaga will pass-through RM376.45m of higher than assumed fuel cost generation in 2H19, due to higher average coal pricing of USD77.35/mt (vs. benchmark of USD75/mt). At the same time, EC has also allowed an increase of RM1.50/mmBTU to RM28.70/mmBTU for piped gas supply to power sector in 1H20. Tenaga will also channel a total revenue adjustment of RM774.0m to Kumpulan Wang Industri Electrik fund (KWIE) to aid in the stabilization of electricity tariff in the future via a gradual build-up of the fund.

Domestic users (above 300kWh/month) will remain being subsidized through KWIE of RM62.95m and will not be affected by the ICPT surcharge. Hence, this category will continue to enjoy the unchanged average tariff at 39.45sen/kW.

Non-domestic users i.e. Commercial and Industry customers will be charged lower ICPT surcharge of 2.00sen/kWh in 1H20 (from 2.55sen/kWh in 2H19) in order to cover fuel cost pass-through of RM313.50m and also the higher piped gas price in 1H20. The effective average tariff rate will be 41.45sen/kWh in 1H20 (from RM42.00sen/kWh).

Source: Hong Leong Investment Bank Research - 16 Dec 2019