NEPRA announces integrated multi year tariff for K-Electric

NEPRA announces integrated multi year tariff for K-Electric
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ISLAMABAD: (APP): National Electric Power Regulatory Authority (NEPRA) has announced integrated multiyear tariff of K-Electric Limited (KE) for the period of seven years (2016-2023).

The determined tariff is structured to be balanced, transparent and in the interest of the consumers as well as KE, a press release Monday said.

The authority has rebased the tariff and reduced it from existing tariff of Rs 15.57kW/h to Rs 12.07 kW/h against the claim of KE for Rs 16.23 kW/h.

To ensure transparency and objectivity and keeping in mind the comments of the interveners and commentators, tariff and cost has been segmented into three components of generation, distribution and transmission.

The KE has been made bound to invest an amount of Rs 237.6 billion; generation Rs 48.1billion, distribution Rs 69.4 billion, transmission Rs 115.7 billion and others Rs 4.2 billion over the control period of seven years.

The KE has been further made accountable and be subject to a midterm review to ensure that proposed investments have been carried out. T&D target losses have been reduced and target for FY 2016-17 have been fixed at 20.40%.

The consumers have been given immediate benefit of reduction of 9.6 % losses from 30.0% already built in the existing tariff.

The consumer end tariff will now be adjusted with the yearly targeted T&D losses in accordance with provisions and adjustment mechanism framework provided in the determination.

The authority being mindful of the interest of the KE has ensured a reasonable return to KE on its existing asset base as well as adequate cash flows to carry out the proposed investments.

Keeping in mind the interest of the consumers, the authority has disallowed KE from collecting bank collection charges from the consumers through monthly billing and has also directed the KE to pay interest on security deposits to the consumers through their bills.

The KE has been restrained from charging meter rent from all the consumers whether existing or new.

The KE is also directed to start billing immediately on TOU rates to consumers having installed TOU meters. The TOU meters should be provided to all existing consumers having sanctioned load of 5kW and more by December 31, 2017.

In future, new consumers having the said sanctioned load of 5 KW or more the said meter shall be provided with TOU metering facility.

The new connection charges shall be determined by the authority in separate proceedings and till then KE is directed to ensure that new connection charges levied to the prospective consumers are comparable with the other DISCOs.

The KE is the only vertically integrated utility in Pakistan and is principally engaged in the generation, transmission and distribution of electrical energy to over 2.4 million consumers.

The authority allowed a multiyear tariff to KE in 2002. After privatization of KE in 2005, multiyear tariff was set to expire in 2012.

Consequently, on signing of amended implementation agreement by new management of KE with Ministry of Water and Power, KE filed a tariff petition in 2009 for certain amendments in tariff.

While deciding on the proposed amendments, the authority extended the multiyear tariff to next seven years till June 2016 in line with the tariff control period provided in the amended implementation agreement.

After expiry of abovementioned tariff, KE submitted a petition on 31 March 2016 for an integrated multiyear tariff for a period of ten years.

In its petition KE requested the authority to continue the existing multiyear tariff till 2026 with the increase of Rs 0.66/kWh in respect of its O&M costs.

After taking into account the extensive input and feedback received from interveners and commentators and conducting public hearings, the authority approved the tariff determination for 7 years (2016-2023).

The authority observed in the tariff determination that previously multiyear tariff awarded to KE was a performance based tariff. The KE was not allowed a pre-determined fixed return on its existing and future investments unlike the tariff allowed under cost plus regime.

KE was required to earn profit by bringing in efficiency through investment from its own resources in its generation, transmission and distribution system.

For this reason KE was guaranteed that no downward revision would be made till expiry of the control period of tariff. Previous tariff was awarded to KE, in view of circumstances prevailing at that time, inefficient generation plants, T&D losses hovering at a level of round 40%. Therefore, KE was allowed a number of incentives for optimization through its own investment.

The authority observed that previously KE was given targets for T&D losses based on the premise that KE will make investments in its transmission and distribution business to reduce losses.

However, KE focused it investment in its generation business and lack of investment in the transmission and distribution resulted in deterioration of the system over the time, consequently increasing the technical losses.

Considering the change in ground realities, the authority deemed it appropriate to reassess the tariff based on heat rate, T&D losses and investment to make it more cost reflective so that neither the utility nor the consumers bear any unnecessary burden.

To this end each generation facility has been assessed individually in terms of heat rate and auxiliary consumption instead of cumulative assessment of the entire generation fleet. In case of new generation facility is added, benefit of its efficiency in form of relief will be shared with the consumers.

For this reason among others, the authority has decided not to continue the existing multiyear tariff rather to rebase the same by taking into account the efficiencies achieved by KE over time and at the same time allowing KE a reasonable return on its existing and future proposed investments.

The tariff determination takes into account the interests of the consumers and a deliberate effort has been made by the authority to resolve all the outstanding issues without compromising the ability of KE to provide service in its territory in accordance with the performance standards set forth in the NEPRA Act, 1997, rules and regulations.

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