A dispute has emerged between Sri Lanka’s electricity regulator and the National System Operator (NSO) over a proposed tariff increase for the final quarter of 2026, with the NSO insisting that improved hydropower generation will allow the electricity sector to break even without raising consumer prices.
The Public Utilities Commission of Sri Lanka (PUCSL), however, has identified a projected revenue shortfall of Rs. 4.4 billion in its preliminary assessment, estimating that electricity sales revenue would need to increase by 1.46% to cover the deficit. The disagreement centres on the financial forecasts submitted by electricity sector institutions and whether subsequent improvements in rainfall have substantially changed the original generation cost projections.
NSO Chairman Dr. Pradeep Perera told local media that the operator had never requested an electricity tariff increase. He said the information submitted to the regulator consisted of electricity generation cost estimates required under the new electricity sector legislation, which did not assign the NSO responsibility for requesting tariff revisions.
According to Perera, the original estimates were prepared using rainfall patterns and weather forecasts available during the preceding three months. Subsequent rainfall had significantly improved the hydropower generation outlook, reducing the anticipated requirement for more expensive thermal electricity production. He maintained that the additional hydropower generation would be sufficient to offset the projected financial shortfall.
The PUCSL’s consultation document for October to December 2026 estimates the total cost of electricity supply at Rs. 157.3 billion, against anticipated electricity sales revenue of Rs. 154 billion. This produces an operating revenue shortfall of Rs. 3.3 billion, which rises to Rs. 4.4 billion after including a further Rs. 1.1 billion deficit carried forward from the second quarter.
Submissions from electricity sector licensees indicated that a 2.88% increase in electricity sales revenue would be required to address the projected deficit. However, following its preliminary assessment, the PUCSL reduced the proposed adjustment to 1.46%, excluding certain generation capacity costs and revising expenditure estimates relating to substandard coal used during the second quarter.
Energy Minister Anura Karunathilaka also questioned the regulator’s decision to proceed with a public consultation despite the NSO’s position that no tariff increase was necessary. Speaking in Parliament on Thursday (5), he said available financial information and generation forecasts did not justify another electricity price adjustment during 2026.
The minister criticised the public consultation as an unnecessary expenditure of public funds, given that the relevant electricity sector institutions had indicated that tariffs could remain unchanged. He also questioned whether the decision to proceed had been made by the commission’s members or its officials.
Karunathilaka said the NSO had informed the PUCSL through a letter dated 6 October that projected generation costs had declined from Rs. 129 billion to Rs. 125 billion, removing the need for a tariff revision. Nevertheless, the regulator proceeded with its stakeholder consultation on Thursday under the Sri Lanka Electricity Act No. 36 of 2024, as amended, and the PUCSL Act No. 35 of 2002.
The PUCSL consultation document places the NSO’s initial generation cost forecast for the quarter at approximately Rs. 117.3 billion. Coal-fired generation was estimated to cost Rs. 36.3 billion, while furnace oil-based generation was projected at Rs. 28.5 billion. Total generation energy costs were forecast at Rs. 98.3 billion, with December expenditure expected to be approximately 34% higher than in the preceding two months, mainly because of an anticipated decline in hydropower and other renewable generation.
The regulator also excluded Rs. 1.1 billion in additional expenditure submitted by Electricity Distribution Lanka Ltd. for the Supporting Electricity Supply Reliability Improvement Project, classifying it as capital work in progress. It removed an increase in generation capacity costs attributed to Electricity Generation Lanka and revised the additional expenditure estimates associated with substandard coal.
Under the existing tariff methodology, revenue surpluses or deficits arising from bulk electricity supply operations are adjusted two quarters later, allowing unrecovered costs to be considered in subsequent tariff reviews.
