July-September 2016 to January-March 2019: Nepra increases KE's tariff by 38 percent

National Electric Power Regulatory Authority (Nepra) has increased K-Electric's (KE's) tariff by 38 per cent or Rs 4.87 per unit to Rs 17.69 from Rs 12.82 per unit across the board for 11 quarters from Jul-Sep 2016 to Jan-Mar 2019 under quarterly adjustment formula.

According to National Electric Power Regulatory Authority (Nepra) reconsideration request in the matter of K-Electric, MYT 2017 for the period from FY 2016-17 to FY 2022-23 (07 years) was decided by the Authority on July 05, 2018, whereby an average sale rate of Rs 12.8172/kWh was approved.

K-Electric challenged the decisions of the Authority in the Sindh High Court (SHC), whereby the SHC granted stay order regarding notification of the determined tariff. K-Electric afterwards, withdrew its petition from the SHC after which the MYT 2017 of K-Electric was notified on May 22, 2019.

As per the mechanism provided in the MYT 2017 determination, the Authority has to review and revise the approved tariff on monthly, quarterly and annual basis in accordance with the prescribed adjustments mechanism.

The impact of monthly variations in K-Electric own generation's fuel cost component as well power purchase price to the extent of targeted T&D losses has to be adjusted on quarterly basis.

In addition, the monthly variations in the variable O&M and fixed costs of the PPP, as allowed by the Authority, are required to be adjusted on quarterly basis. The actual payments in respect of WWF, WPPF, etc, to the IPPs being passed through are to be adjusted on yearly basis upon production of verifiable documentary evidence.

The allowed O&M cost component of K-Electric are subject to CPI-X indexation annually. The entire allowed tariff components are subject to adjustment with allowed level of losses on annual basis. The hearing was accordingly held on August 21, 2019 at Hotel Movenpick, Karachi, and NEPRA Tower, Islamabad, through video link. An advertisement in this regard was published in newspapers on August 08, 2019.

The Authority based on the information, data and record provided by K-Electric has approved the quarterly adjustment claims of K-Electric for the period from Jul-Sep 2016 to Jan-Mar 2019 (total 11 quarters). The revised tariff works out as Rs 17.69/kWh and the impact of total amount being allowed is around Rs 106 billion.

The regulator further stated that major reason for increase are as follows: (i) use of RLNG by K-Electric, having additional impact of Rs 24 billion; (ii) increase in prices of gas from reference price of Rs 400/MMBTU to Rs 629/MMBTU; (iii) increase in price of FO from reference price of Rs 27,000/ MT to around Rs 70,000/MT and; (iv) increase in O&M and capacity cost of IPPs owing to indexation and exchange rate variation.

The Nepra, however, was of the view that government maintains a uniform tariff across the whole country; thus, the increase to the consumers, if any, would be to the extent of maintaining uniformity across the country, and the majority of the increase would be settled at government level.

As per the information provided by K-Electric regarding its actual category wise sales for the FY 2016-17, FY 2017-18 and FY 2018-19, the Authority observed that due to non-application of ToU rates and A-3 tariff, etc, by K-Electric, on the plea of non-notification of MYT 2017, its average sale rate remained higher vis-a-vis the average sale rate allowed by the Authority.

The Authority in the MYT determination dated July 05, 2018 decided that it may review the tariff applicable to each class of consumers for rationalization or modification from time to time as deemed appropriate, in such a manner that the overall rate would remain the same. In view thereof, the category-wise tariff for different consumer categories has been adjusted in such a manner to ensure that the overall average sale rate of K-Electric remains the same as allowed by the Authority during the three years period.

K-Electric in its quarterly adjustment claimed actual write-offs amounting to Rs 6.195 billion (gross) for the FY 2016-17 and Rs 4.545 billion (gross) for the FY 2017-18. The net amount claimed by K-Electric after accounting for the recovery made through write-off component built in the MYT tariff 2017, is Rs 3.86 billion and Rs 1.596 billion for the FY 2016-17 and FY 2017- 18, respectively.

The amount of write-offs recovered through tariff for FY 2016-17 i.e. Rs 2.809 billion has been worked out by KE by multiplying the write-offs component of Rs 0.2130/kWh built in the MYT tariff 2017 with the units billed during FY 2016-17 (based on Nepra's allowed T&D loss target).

Similarly, for the FY 2017-18, the amount of write-offs recovered through tariff i.e. Rs 2.949 billion has been worked out by KE by multiplying the write-offs component of Rs 0.210/kWh (Rs.0.213/kWh adjusted for T&D losses target for the FY 2017-18) with the units billed during FY 2017-18 (based on Nepra allowed T&D loss target). The write-off claim for the FY 2017-18 was subsequently revised by K-Electric to Rs 3.371 billion.