• NSO insists it never requested a tariff hike
• Rs. 117.3 b generation cost forecast under dispute
• Dec. generation costs forecast to surge by 34%
• Rs. 36.3 b for coal, Rs. 28.5 b for furnace oil generation
• Minister questions PUCSL’s decision to proceed with tariff consultation

A dispute has emerged between the Public Utilities Commission of Sri Lanka (PUCSL) and the National System Operator (NSO) over a proposed electricity tariff increase for the final quarter of 2026, with the regulator’s financial assessment projecting a Rs. 4.4 billion revenue shortfall while the NSO maintains that no tariff revision is necessary and that the electricity sector will break even.

The disagreement has raised questions over the financial projections used by the PUCSL to justify a proposed tariff adjustment, particularly after the NSO disputed reports that it had requested an increase and maintained that favourable rainfall conditions would offset the anticipated deficit.

Speaking to The Sunday Morning, NSO Chairman Dr. Pradeep Perera categorically denied that the company had requested a tariff increase, explaining that the financial information submitted to the PUCSL consisted solely of electricity generation cost estimates.

He stressed that under the new electricity sector legislation, the NSO was not responsible for requesting electricity tariff increases, with its role limited to submitting the necessary cost and generation forecasts for the regulator’s assessment.

He explained that the original cost estimates were prepared using rainfall patterns and weather forecasts available during the preceding three months. However, subsequent rainfall significantly improved the country’s hydropower generation outlook, reducing the anticipated financial pressure on the electricity sector. 

Dr. Perera maintained that the additional hydropower generation would be sufficient to offset the projected shortfall, enabling the electricity sector to reach a break-even position without increasing consumer tariffs. 

The NSO Chairman’s clarification comes despite the PUCSL’s consultation document for the fourth-quarter electricity tariff review identifying a projected revenue deficit of Rs. 4.4 billion based on financial submissions from electricity sector licensees. 

According to the document, the total forecast cost of electricity supply for October–December stands at Rs. 157.3 billion, while anticipated revenue from electricity sales amounts to Rs. 154 billion. 

The resulting operating revenue shortfall of Rs. 3.3 billion increases to Rs. 4.4 billion when a further Rs. 1.1 billion deficit carried forward from the second quarter of 2026 is included. 

The consultation document states that the licensees’ submissions indicated the need for a 2.88% increase in electricity sales revenue to address the projected deficit. 

However, following its preliminary assessment, the PUCSL reduced the estimated required tariff increase to 1.46%, after excluding certain generation capacity costs and revising expenditure estimates associated with substandard coal used during the second quarter. 

While the PUCSL’s calculations indicate a revenue gap requiring recovery through electricity tariffs, the NSO’s position is that the improved generation outlook has effectively eliminated the need for such an adjustment. 

The disagreement also centres on whether the original financial submissions represented a formal request for a tariff increase or merely the cost forecasts that the NSO was required to provide under the new regulatory framework. 

The PUCSL’s own consultation document describes the figures as forecasts submitted by electricity sector licensees and identifies the required revenue increase based on those submissions. 

Meanwhile, Minister of Energy Anura Karunathilaka also questioned the PUCSL’s decision to proceed with a public consultation on electricity tariffs despite the NSO having communicated that no increase was necessary. 

Addressing Parliament on Thursday (5), the Minister maintained that available financial data and generation forecasts did not justify another electricity tariff increase during 2026. 

He criticised the regulator’s decision to conduct the public hearing, describing it as an unnecessary expenditure of public funds when the electricity sector institutions had already indicated that tariffs could remain unchanged.

The Minister also questioned whether the decision to proceed with the consultation had been taken by the commission’s members or its officials. 

He said the NSO had informed the PUCSL through a letter dated 6 October that its projected generation costs had declined from Rs. 129 billion to Rs. 125 billion, removing the need for a tariff revision. 

Nevertheless, the PUCSL proceeded with its stakeholder consultation on Thursday (5), under the provisions of the Sri Lanka Electricity Act No.36 of 2024, as amended, and the PUCSL Act No.35 of 2002. 

The commission’s published consultation material identifies the submitted bulk supply costs, generation forecasts, and revenue requirements as the basis for its quarterly tariff review.  

The NSO also reiterated during the consultation that it did not consider a tariff increase necessary, citing current reservoir storage levels and forecasts of favourable rainfall. 

According to the PUCSL consultation document, the NSO’s initial forecasts placed total electricity generation costs for the quarter at approximately Rs. 117.3 billion. 

Coal-fired electricity generation was projected to cost Rs. 36.3 billion, while furnace oil-based generation was estimated at Rs. 28.5 billion. 

The initial generation forecast also anticipated a sharp increase in electricity generation expenditure during December, primarily due to an expected decline in hydropower and other renewable energy generation. 

The NSO had forecast generation energy costs of Rs. 98.3 billion for the quarter, with December’s expenditure expected to be approximately 34% higher than that of the preceding two months. 

However, Dr. Perera maintained that subsequent improvements in rainfall had changed the generation outlook, reducing the need for more expensive thermal power generation and the resulting financial burden. 

The PUCSL’s preliminary assessment also highlighted several other expenditure concerns, including generation capacity payments, fuel pricing arrangements, and additional costs submitted by electricity sector institutions. 

The regulator excluded Rs. 1.1 billion in additional costs submitted by Electricity Distribution Lanka Ltd. relating to the Supporting Electricity Supply Reliability Improvement Project, on the basis that the expenditure concerned capital work in progress. 

It also removed an increase in generation capacity costs attributed to Electricity Generation Lanka and revised the estimated additional costs associated with substandard coal usage during the second quarter. 

These adjustments reduced the estimated tariff increase from 2.88% to 1.46%. 

The conflicting positions have raised questions over whether the PUCSL’s preliminary financial assessment adequately reflects the latest generation conditions and whether the projected Rs. 4.4 billion deficit will materialise. 

Under the existing tariff methodology, revenue surpluses or deficits arising from bulk electricity supply operations are adjusted two quarters later, meaning any unrecovered costs could potentially be considered during future tariff reviews. 

However, the NSO maintains that the anticipated improvement in hydropower generation will enable the electricity sector to cover its costs without requiring additional revenue from consumers.