NEPRA raises incremental power tariff to Rs25.30 per unit for industrial, agricultural consumers

ISLAMABAD: The National Electric Power Regulatory Authority (NEPRA) has provisionally increased the incremental electricity consumption rate for industrial and agricultural consumers of ex-WAPDA distribution companies (XWDISCOs) and K-Electric from Rs22.98 to Rs25.30 per unit, effective November 2026 billing, while warning that the government’s failure to provide a comprehensive cost assessment could expose non-beneficiary consumers to additional financial burdens.

The decision, issued on November 6, 2026, following a review of the Incremental Consumption Package (ICP), allows the incentive scheme to continue at the revised rate pending a comprehensive technical assessment of the actual marginal cost of electricity supplied to incremental consumers.

However, the Authority was divided over continuation of the package. NEPRA Members Amina Ahmed (Tariff and Finance) and Engineer Maqsood Anwar Khan (Development) dissented, arguing that the package should have been temporarily suspended until the Ministry of Energy (Power Division) submitted a complete and verifiable review establishing a genuinely cost-reflective incremental tariff.

Chairman Waseem Mukhtar, in his additional note, supported continuation of the package for the time being, giving the Ministry another opportunity to provide the information repeatedly sought by the regulator. He subsequently exercised his casting vote in favour of the first opinion, making continuation of the package at Rs25.30 per unit the Authority’s decision.

The decision has been communicated to the Federal Government for notification in the official Gazette under Section 31(7) of the NEPRA Act, 1997.

Under the original package approved by NEPRA on December 9, 2025, eligible industrial and private agricultural consumers, including time-of-use and non-time-of-use consumers, were charged Rs22.98 per kWh on incremental consumption above their reference consumption for December 2023 to November 2024.

The package was approved for three years and was intended to encourage productive electricity consumption, improve utilisation of available generation capacity and prevent industrial consumers from shifting away from grid electricity.

The regulator said the revised rate of Rs25.30 per kWh would apply from the November 2026 billing month and remain effective in subsequent months until a further decision following the comprehensive review.
Since October billing had substantially been completed, NEPRA rejected the Ministry’s proposal to apply the revised rate retrospectively from October 2026.

The Authority also directed that bills already issued for November 2026 before notification of the decision should be adjusted in subsequent billing months in accordance with applicable statutory requirements and the operative directions.

NEPRA clarified that the provisional rate did not constitute a final determination of actual marginal cost attributable to incremental consumption, nor did it establish that Rs25.30 per unit represented the actual cost of serving incremental demand during any historical month.

The review exposed shortcomings in the Ministry of Energy’s submissions, with NEPRA observing that the first mandatory semi-annual review had not been completed despite repeated directions and correspondence.

The Ministry had initially filed the motion for the incremental consumption package on November 6, 2025, which was approved by NEPRA on December 9, 2025 and notified on December 10, 2025.

The original decision required semi-annual reviews to ensure continued cost-revenue alignment and adjustment of the incremental tariff where necessary.

NEPRA, through a letter dated June 16, 2026, asked the Power Division to submit a comprehensive review covering actual marginal cost, cost-revenue alignment and stakeholder concerns.

The Ministry furnished data on July 29, 2026, but the submission did not contain the required marginal cost assessment, detailed workings or recommendations.

The regulator returned the submission on September 2, 2026, as incomplete and directed the Ministry to provide a comprehensive review after meaningful consultation with relevant stakeholders.

Instead of submitting the requisite information, the Ministry, through a communication dated September 9, 2026, requested NEPRA to undertake and conclude the review itself, including holding a public hearing.

NEPRA held the hearing on October 5, 2026, attended by Power Division officials, representatives of the Power Planning and Monitoring Company (PPMC) and other stakeholders.

The Authority subsequently sought detailed workings and recommendations on actual marginal cost, the required tariff revision, its effective date and whether the package should be suspended under prevailing fuel prices and supply conditions.

The Ministry responded on October 15, 2026, but the regulator said the submission again failed to provide the specific analysis and recommendations sought.

Further communications were issued on October 16, while a meeting with PPMC and the Independent System and Market Operator (ISMO) was held on October 19 to discuss the methodology and data required to calculate marginal cost.

The Ministry furnished another submission on October 23, including its recommendation for an upward revision.

NEPRA said the Ministry’s proposed rate of Rs25.30 per unit was based on updating fuel prices in the generation mix originally assumed when the package was designed.

PPMC, representing the Power Division, had proposed a generation mix incorporating 50 per cent spot RLNG cargoes and 50 per cent contracted Qatar RLNG, recommending an interim rate of Rs25.30 per kWh from October 2026.

The Authority, however, observed that the original generation mix could not automatically be treated as representative of actual marginal generation under changed fuel availability, dispatch economics and system operating conditions.

It noted that PLEXOS modelling undertaken at the time of the original package approval was based on expected system conditions, fuel arrangements and generation availability.

Subsequent changes in fuel markets, contracted fuel availability, spot RLNG utilisation and dispatch patterns meant that the original assumptions required fresh validation.

NEPRA stressed that a proper assessment should distinguish generation and costs arising with incremental consumption from those that would have occurred in the absence of the package.

For this purpose, ISMO supplied hourly generation and dispatch data incorporating operational tags under the Market Commercial Code.

In the absence of hourly consumption data specifically identifying incremental consumption by package beneficiaries, monthly incremental units were converted into average hourly demand, assumed to be distributed uniformly throughout each month.

The estimated incremental demand was adjusted for transmission and distribution losses and mapped against hourly generation profiles and marginal costs of dispatched generating units.

The resulting analysis indicated that estimated marginal costs at the consumer-end level exceeded the approved Rs22.98 per unit in several months, particularly April and May 2026.

The notional estimated marginal price at the consumer end was Rs29.65 per unit for the review period, while the reported monthly estimates reached Rs42.01 per unit in April and Rs49.65 per unit in May.

However, NEPRA cautioned that these estimates were not a final determination of actual marginal cost attributable to incremental consumption.

The hourly generation-cost data had shown variances against corresponding fuel cost adjustment (FCA) workings, while subsequent RLNG price adjustments approved through FCAs had not been incorporated.

The Authority observed that further PLEXOS-based dispatch modelling, using actual generation requirements and fuel availability both with and without incremental consumption, was necessary to establish the true cost.

The regulator also examined concerns that continuation of the package at a rate below actual marginal cost could transfer part of the cost of incremental consumption to consumers not availing the scheme.

Under the original decision, positive FCAs apply to incremental consumption, whereas quarterly tariff adjustments (QTAs), debt service surcharge (DSS) and negative FCAs do not apply to such consumption.

The original mechanism also provides that if actual marginal cost exceeds the approved incremental rate, the difference is borne by all consumers until the Authority revises the rate.

NEPRA acknowledged that, due to the delayed review and non-provision of requisite data, the difference between actual marginal cost and the package rate had been paid by all consumers through FCA.

It further observed that exclusion of incremental units from quarterly tariff adjustments increases the adjustment burden borne by consumers not availing the package.

Several stakeholders, including industrial representatives, argued that the first review should have been completed by June 2026 and that any upward revision should apply from that period.

They requested that the differential already borne by non-beneficiary consumers be recovered from package beneficiaries or credited back through subsequent FCA/QTA adjustments.

Stakeholders also raised concerns about increasing fuel prices, uncertainty in RLNG supplies, captive-to-grid migration and the possibility that some consumption receiving the package benefit did not represent genuinely new demand.

Some stakeholders proposed suspension of the package or introduction of a more targeted incentive for consumption during daytime and solar hours.

NEPRA, however, held that the source of incremental demand, including captive-to-grid migration, did not by itself negate the package’s objectives of increasing grid sales and improving utilisation of available capacity.

The Authority said data available on record indicated that benefits had been availed by several thousand consumers across eligible categories, rather than being confined to a limited number of beneficiaries.

It nevertheless directed the Ministry to devise a mechanism to identify furnace-oil-based captive consumers and take action where misuse of package terms and conditions was established.

In their dissenting note, Members Amina Ahmed and Engineer Maqsood Anwar Khan strongly opposed continuation of the package at Rs25.30 per unit, maintaining that the proposed rate lacked a credible linkage with actual marginal cost.

They said the package was originally designed to be cost-reflective, with Rs22.98 per unit calculated on expected costs of serving incremental consumption and an appropriate contingency margin.

The underlying principle was that beneficiaries should pay a rate equal to or higher than actual marginal cost, ensuring that the package did not impose a financial burden or cross-subsidy on other consumers.

The dissenting members maintained that mandatory semi-annual reviews were an essential safeguard and that the Power Division had failed to comply with its obligation to submit a timely and comprehensive review.

They said NEPRA’s own tariff team, using available information and adjusting for losses, had initially calculated marginal cost at approximately Rs31.83 per unit.

Following incorporation of certain operational and must-purchase tags provided by ISMO, the estimate declined to Rs29.65 per unit.

However, they identified five factors that could have overstated the calculated cost: generation dispatched due to transmission or operational constraints; RLNG generation under must-purchase obligations; subsequent RLNG price revisions approved by the Economic Coordination Committee; the need for PLEXOS runs with and without incremental demand; and discrepancies between hourly operational/fuel-cost information and monthly FCA data.

The dissenting members said complete information addressing these factors had not been provided despite repeated follow-ups.

They also argued that Rs29.65 per unit was higher than the off-peak rate under the normal tariff structure, potentially defeating the package’s incentive objective.

At the same time, they described the Ministry’s proposed Rs25.30 per unit as a rate without a credible connection to actual marginal cost, based on a notional generation mix and updated fuel prices rather than actual system conditions.

In their view, continuation of the package without a validated cost-reflective rate was no longer justified.

They recommended temporary suspension until the Ministry submitted a complete review supported by verifiable historical marginal-cost workings and a proposed incremental rate.

NEPRA has directed the Power Division, in coordination with relevant entities, to submit a comprehensive review covering both the first review period, December 2025 to May 2026, and the second review period, June to November 2026.

The submission is required to include PLEXOS-based modelling incorporating actual generation dispatch, fuel availability, applicable fuel prices and operational constraints, together with comparisons of the system with and without incremental consumption.

The review must also reconcile results with relevant FCA workings, incorporate operational tags under the Market Commercial Code and provide plant-wise operational data for K-Electric, where applicable.

Any data limitations, assumptions and unresolved variances must be expressly identified, with their impact on conclusions explained.

The Ministry is also required to provide reasoned recommendations on the appropriate incremental rate for each review period, continued cost-revenue alignment and whether the package should continue, be revised, suspended, modified or terminated.

NEPRA’s decision contains a direction for submission of available data and comprehensive analysis by November 25, 2026, with the remaining information for November 16-30 to be submitted by December 3, 2026.

The Authority said findings for each review period would be separately assessed, including whether an upward tariff adjustment was required in each review.

The original decision provides for immediate termination if an upward tariff adjustment is required in two consecutive reviews.

In his additional note, Chairman Waseem Mukhtar urged agencies working under the Power Division to comply with the regulator’s directions, describing the lack of inter-agency coordination as unfortunate.

He said the Ministry had repeatedly failed to provide reliable data in the required form despite NEPRA’s letters and directions.

The Chairman maintained that suspension of the package at this stage was not appropriate and that the Ministry should be given another opportunity to submit the required information.

However, he warned that failure to meet the stipulated timelines could result in an adverse outcome in the second review, potentially leading to suspension or termination of the package.

He further cautioned that any entity failing to provide the required information within the prescribed timelines could face legal proceedings under the applicable legal framework.

The Chairman requested that his observations be placed before the Federal Minister and Secretary, Ministry of Energy, Power Division, for consideration and implementation.