KUALA LUMPUR (June 29): Utility giant Tenaga Nasional Bhd (TNB) has obtained the green light from the government via a letter from the Energy Commission to continue the implementation of the Imbalance Cost Pass-Through (ICPT) for July 1 until Dec 31 this year.

In a filing with Bursa Malaysia today, TNB said the letter was received yesterday and the average base tariff remain unchanged at 39.45 sen per kilowatt hour (kWh).

"Due to higher fuel and generation costs for the period of Jan 1 – June 30, 2018, the additional cost of RM698.19 million, or 1.35 sen per kWh ICPT surcharge, will be [passed through] via the ICPT mechanism," it added.

TNB said domestic customers with monthly consumption below 300kWh will not be affected by this ICPT implementation.

However, for domestic customers with monthly consumption above 300kWh, the ICPT surcharge will be funded by Kumpulan Wang Industri Elektrik.

"An ICPT surcharge of 1.35 sen/kWh will be applicable for non-domestic customers," TNB added.

TNB said the impact of ICPT implementation is neutral on it and will not have any affect to its business operations and financial position.

"While the latest development is neutral to TNB's earnings (as TNB is entitled to pass on higher fuel cost to end-users under the ICPT mechanism, eventually), it does show that the government has the political will to raise electricity tariffs, at least for the non-domestic sector," according to a note released by AmInvestment Bank today.

AmInvestment Bank analyst Joshua Ng said the latest development will reduce the perceived regulatory risk and hence risk premium of TNB.

"We maintain our forecasts, with a fair value of RM17.46 based on DCF (discounted cash flow) and 'buy' call," said Ng.

The ICPT is a mechanism approved by the government and implemented by the Energy Commission since Jan 1, 2014, as part of a wider regulatory reform called the Incentive Based Regulation.

The ICPT mechanism allows TNB to reflect changes in fuel and generation costs in consumer's electricity tariff every six months.

"This mechanism is implemented according to Section 26 of Electricity Supply (Amendment) Act 2015," it said.

At 10.40am, TNB rose RM1.20 or 8.79% to RM14.86, with 6.54 million shares traded, giving it a market capitalisation of RM82.79 billion.