EoT adjustments for MYT: PD objects to KE’s Rs100bn claims

ISLAMABAD: The Power Division has raised serious objections to K-Electric’s proposed claims amounting to nearly Rs100 billion under the End of Term (EoT) adjustments for the Multi-Year Tariff (MYT) period 2017–23, arguing that the bulk of the utility’s requests lack merit and do not justify further regulatory consideration.

According to well-informed sources in the Power Planning and Management Company (PPMC), the Power Division, in its detailed comments submitted to the National Electric Power Regulatory Authority (NEPRA), has challenged multiple components of KE’s claims, including return on equity (RoE), regulatory asset base (RAB), depreciation, operations and maintenance (O&M) costs and working capital adjustments.

At the core of the dispute is KE’s request for exchange rate adjustments on its allowed Return on Equity (RoE), which the Power Division maintains is neither automatic nor guaranteed.

READ MORE: MYT 2016-23: KE’s EoT adjustment claims draw serious concerns

The Division emphasized that USD indexation of RoE remains subject to regulatory discretion and is contingent upon performance benchmarks and prudence checks.

Citing NEPRA’s Mid-Term Review (MTR) decision of March 1, 2022, the Power Division noted that the Authority had clearly reserved the right to assess exchange rate fluctuations beyond a ±5 percent threshold and determine their impact at the end of the MYT control period. Therefore, any assumption that USD indexation is a fixed entitlement is fundamentally flawed.

This stance, officials said, has been consistently reinforced in subsequent determinations. In its review decision dated October 20, 2025, NEPRA reiterated that even previously allowed USD-based returns were conditional upon KE achieving regulatory targets, including reduction in transmission and distribution (T&D) losses, improved recoveries, and adherence to performance benchmarks.

The Power Division further pointed out that NEPRA has gradually transitioned towards a PKR-based RoE framework, underscoring the regulator’s intent to move away from dollar-linked returns. “There appears to be no regulatory or prudential basis to allow USD indexation of RoE,” sources quoted the Division as saying, adding that even the previously granted indexation may need to be revisited and rationalized.

BQPS-III Project Under Scrutiny

A significant portion of the Power Division’s objections relates to the Bin Qasim Power Station-III (BQPS-III), a major KE project initially proposed in 2017. KE had sought approval for the project as two 450 MW combined-cycle units, with NEPRA benchmarking the cost at $0.694 million per MW. This resulted in an approved project cost of $730.51 million (approximately Rs84.4 billion at the time), including associated works.

Although the plant was originally scheduled for commissioning between 2018 and 2019, it faced substantial delays and ultimately achieved Commercial Operation Date (COD) in May 2023.

The Power Division argued that despite these delays, KE continued to recover Return on Regulatory Asset Base (RoRB) starting from FY2018, even though the underlying assets were neither fully deployed nor operational. This, it said, violates core regulatory principles of prudence and cost causation, which require that returns be allowed only on assets that are actually invested, capitalized, and in service.

As a result, the Division estimates that KE has over-recovered approximately Rs26.5 billion under this head and has urged NEPRA to reassess the allowed RAB and RoRB, recommending downward tariff adjustments to protect consumer interests.

Double Recovery Through IDC

The issue of Interest During Construction (IDC) has also been flagged as a case of potential double recovery. According to the Power Division, NEPRA had already included Rs6.2 billion as IDC within the approved project cost of Rs72 billion for BQPS-III.

Since this amount became part of the Regulatory Asset Base, KE also earned returns on it through RoRB, effectively resulting in dual compensation—first through capitalization and then through returns.

The Division requested NEPRA to review and adjust the IDC component to eliminate duplication and ensure fairness and transparency in tariff determination.

Depreciation and O&M Costs Questioned

Another major contention relates to depreciation charges claimed by KE. Despite the BQPS-III plant becoming operational only in May 2023, depreciation amounting to approximately Rs10.9 billion was allowed for the period FY2020 to FY2023.

The Power Division argued that depreciation should only be permitted on assets that are capitalized and operational. Allowing such charges during the construction phase, it said, is inconsistent with regulatory norms and has resulted in undue financial gains for KE. Accordingly, the Division has proposed a downward tariff adjustment of around Rs10.3 billion.

Similarly, O&M expenses claimed by KE for the same period have been challenged. The Division noted that full O&M costs were allowed even when the plant was under construction and not operational.

“Allowing O&M expenses during the pre-COD period is inconsistent with the principles of prudence, efficiency, and cost causation,” the Power Division maintained, estimating an over-recovery of approximately Rs13.5 billion under this head. It has called for a detailed review and rationalization of these expenses.

Copyright Business Recorder, 2026