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Briefing on

The Procedure & Principles of Awarding Distribution Tariffs

NATIONAL ELECTRIC POWER REGULATORY AUTHORY (NEPRA)

TRANSMISSION

N T D C1

POWER WING

GENERATION DISTRIBUTION

Grid Station / Trans. LinesOperation & Maintenance

Thermal PowerStations

GENCOs5

DISCOs12

Area Electricity Boards

TRANSFORMING THESE ORGANIZATIONAL COMPONENTSINTO INDEPENDENT CORPORATISED ENTITIES

Restructuring of WAPDA

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One HydelFour Thermal

3

Fuel Suppliers Refineries/ Gas Cos.

Public Sector GENCOs Thermal / Hydel / Nuclear

Private SectorIPPs

Transmission / CPPA

IESCO LESCO GEPCO MEPCO FESCO PESCO HESCO QESCO KESC

CONSUMERSResidential/ Commercial/ Industrial/ Agriculture/ Others

Gen

era

tion

Cost

Tra

ns.

Cost

&Loss A

dj.

Dis

t. C

ost

&

Loss A

dj.

Chain of Cost Components

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Transfer Price Mechanism

The generation cost is transferred to the DISCOs according to the Transfer Price Mechanism (TPM) as prescribed by the Authority.

NTDC shall charge the DISCOs formed consequent to the unbundling of WAPDA (termed as XWDISCOs) and KESC, a transfer charge for procuring power from approved generating companies (termed as CPGENCOs) and its delivery to DISCOs for a billing period as under:

XTC = XCTC + XETC

Where:

XTC = Transfer charge to XWDISCOs & KESC

XCTC = Capacity Transfer Charge to XWDISCOs & KESC

XETC = Energy Transfer Charge to XWDISCOs & KESC

XCTC = CpGenCap + USCF

XWD

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Transfer Price Mechanism …continued

Where:

(i) CPGenCap = the summation of the capacity cost in respect of all CPGencos in Rs for a billing period minus the amount of liquidated damages received during the month.

(ii) XWD = the sum of the maximum demand of the XWDISCOs & KESC in kW recorded during a billing period at all the delivery metering points at which power is received by the XWDISCOs & KESC.

(iii) USCF = the fixed charge part of the use of system charges in Rs per kW per month.

XETC = CpGenE (Rs)

XWUs (kWh)

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Transfer Price Mechanism

Where:

(i) CPGenE = the summation of the variable charge rate (Rs per kWh) approved for each of the CPGenCOs times the energy in kWh procured from the respective CPGENCO during the billing period.

(ii) XWUs = the summation of the energy units (kWh) recorded at the delivery metering point of all the XWDISCOs & KESC during a billing period.

COMPONENTS OF DETERMINATION OF TARIFF FOR GENERATION PROJECT

Energy Charge- Fuel- Variable O&M

Capacity Charge- Fixed O&M

- Local- Foreign

- Return on Equity- Return on Equity during Construction- Insurance- Withholding Tax- Debt Repayment

- Principal Amount- Interest Payment

Consumer-end Tariff = Generation Costs + Transmission Costs +

Distribution & Prior Year Adjust.

Costs

(around)(85% of sale rate)

(around)(2% of sale rate)

(around)(13% of sale rate)

Break-up of Generation Cost (GC)

Generation Cost = Capacity Purchase Price (CPP) + Energy Purchase Price (EPP)

(around)(21% of GC)

(around)(79% of GC)

Fuel Cost Variable O&M

(around)(97% of EPP)

(around)(3% of EPP)

TYPICAL COMPOSITION OF TARIFF

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+Energy Purchase Price (EPP) =

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• The Company/ Licensee files a petition for determination of its tariff according to NEPRA Tariff Standard Procedure Rules -1998;

• The Authority on the basis of information decides whether prima facie case exists for admission of the tariff petition;

• In case Authority admits the petition for consideration it gives notice to all the stakeholders through advertisement in the national newspapers inviting them for intervention to participate in the tariff proceedings through personal participation or through written comments;

TARIFF DETERMINATION PROCEDURES

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o After public hearing, based on the evidence provided by the petitioner and the stakeholders, the Authority after due diligence determines the tariff and recommends to the Federal Government for notification in the official gazette;

o Generation and Transmission Tariff are determined on cost plus basis.

TARIFF DETERMINATION PROCEDURES

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Tariffs to be determined, modified or revised, interalia, on the basis of Procedures prescribed under Rule 17(3) of the NEPRA Tariff Standards & Procedure Rules, 1998.

•tariffs should allow licensees the recovery of any and all costs prudently incurred to meet the demonstrated needs of their customers

tariffs should reflect marginal cost principles to the extent feasible, keeping in view the financial stability of the sector

the tariff regime should clearly identify inter-class and inter-region subsidies

PRINCIPLES OF TARIFF DETERMINATION

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• tariffs should, to the extent feasible, reflect the full cost of service to consumer groups with similar service requirements;

• tariffs should take into account Government subsidies or the need for adjustment to finance rural electrification in accordance with the policies of the Government;

PRINCIPLES OF TARIFF DETERMINATION

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• tariffs may be set below the level of cost of providing the service to consumers consuming electric power below the consumption levels determined for the purpose from time to time by the Authority, as long as such tariffs are financially sustainable;

• tariffs should seek to provide stability and predict-ability for customers; and

• tariffs should be comprehensible, free of misinterpretation and shall state explicitly each component thereof.

PRINCIPLES OF TARIFF DETERMINATION

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•The tariff so determined is forwarded to the Federal Government pursuant to the Section 31(4) of the NEPRA Act for notification in the Official Gazette.

•Federal Government in pursuant to Section 31(4) of NEPRA Act read with Rule 16(12) of Tariff Rules – 1998 may file reconsideration request with reference to determination / decision of the Authority.

•Whereupon the Authority within 15 days shall decide upon the matter and intimated to the Federal Government for Notification in the official gazette.

NOTIFICATION OF DETERMINED TARIFFS

1515

Power Purchase Price

Return on Rate Base (Return on Assets)

Depreciation

Other income

PYA

Distribution Margin

- O&M

- Salaries, wages and other benefits

- Repair & Maintenance

- Traveling Allowance

- Vehicle maintenance

- Other/miscellaneous expenses

COMPONENTS OF DETERMINATION OFTARIFF FOR DISTRIBUTION COMPANIES

Back

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Reasons for Different Consumer-End Tariff for Different DISCOs

The tariff of all the Distribution Companies (DISCOs) cannot be the same due to following reasons:

• Different consumer-mix

• Different transmission and distribution losses

• Pilferage/theft

• Network constraints (old/obsolete networks)

• Law & Order situation

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• As per Regulation of Generation, Transmission and Distribution of

Electric Power (Amendment) Act, 2011:

“…the Authority may, on a monthly basis and not later than a

period of seven days, make adjustment in the approved tariff on

account of any variation in the fuel charges and policy guidelines

as the Federal Government may issue and, notify the tariff so

adjusted in the official gazette.”

• NEPRA, while determining monthly FCA, does not consider any

other electricity cost factors and makes the adjustment strictly to the

extent of variation in fuel price and energy mix.

• FCA is determined by the Authority for every month separately and

it does not have cumulative effect on subsequent months tariff.

FUEL CHARGES ADJUSTMENT MECHANISM

Month IESCO LESCO FESCO GEPCO MEPCO PESCO HESCO SEPCO QUESCO KESC

Jan-12 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.04

Feb-12 0.59 0.59 0.59 0.59 0.59 0.59 0.59 0.59 0.59 0.04

Mar-12 1.79 1.79 1.79 1.79 1.79 1.79 1.79 1.79 1.79 1.60

Apr-12 1.98 1.98 1.98 1.98 1.98 1.98 1.98 1.98 1.98 1.15

May-12 1.51 1.51 1.51 1.51 1.51 1.51 1.51 1.51 1.51 0.51

Jun-12 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.17

Jul-12 (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.07)

Aug-12 (0.64) (0.64) (0.64) (0.64) (0.64) (0.64) (0.64) (0.64) (0.64) (0.37)

Sep-12 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 (0.40)

Oct-12 (0.67) (0.67) (0.67) (0.67) (0.67) (0.67) (0.67) (0.67) (0.67) 0.35

Nov-12 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.10

Dec-12 0.82 0.82 0.82 0.82 0.82 0.82 0.82 0.82 0.82 0.02

Jan-13 0.69 0.69 0.69 0.69 0.69 0.69 0.69 0.69 0.69 1.13

Feb-13 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.21 0.38

Mar-13 (1.06) (1.06) (1.06) (1.06) (1.06) (1.06) (1.06) (1.06) (1.06) 1.76

Apr-13 (1.78) (1.78) (1.78) (1.78) (1.78) (1.78) (1.78) (1.78) (1.78) (0.26)

May-13 (0.93) 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 (0.71)

Jun-13 (1.15) (1.15) (1.15) (1.15) (1.15) (1.15) (1.15) (1.15) (1.15) (1.63)

NEPRA's Monthly Fuel Price AdjustmentsIncrease / (Decrease) Rs. / kWh

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Month IESCO LESCO FESCO GEPCO MEPCO PESCO HESCO SEPCO QUESCO KESC

Jul-13 (0.30) (0.30) (0.30) (0.30) (0.30) (0.30) (0.30) (0.30) (0.30) (0.03)

Aug-13 (0.32) (0.32) (0.32) (0.32) (0.32) (0.32) (0.32) (0.32) (0.32) (0.43)

Sep-13 0.32 0.32 0.32 0.32 0.32 0.32 0.32 0.32 0.32 0.39

Oct-13 0.76 0.76 0.76 0.76 0.76 0.76 0.76 0.76 0.76 0.44

Nov-13 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.33 (0.63)

Dec-13 1.01 1.01 1.01 1.01 1.01 1.01 1.01 1.01 1.01 -

Jan-14 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 1.34

Feb-14 (0.27) (0.27) (0.27) (0.27) (0.27) (0.27) (0.27) (0.27) (0.27) 0.25

Mar-14 (1.01) (1.01) (1.01) (1.01) (1.01) (1.01) (1.01) (1.01) (1.01) 0.87

Apr-14 (1.48) (1.48) (1.48) (1.48) (1.48) (1.48) (1.48) (1.48) (1.48)

May-14 (0.82) (0.82) (0.82) (0.82) (0.82) (0.82) (0.82) (0.82) (0.82)

Jun-14 (0.08) (0.08) (0.08) (0.08) (0.08) (0.08) (0.08) (0.08) (0.08)

Jul-14 0.43 0.43 0.43 0.43 0.43 0.43 0.43 0.43 0.43

NEPRA's Monthly Fuel Price AdjustmentsIncrease / (Decrease) Rs. / kWh

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THANK YOU.