By Staff Reporter
ISLAMABAD: K-Electric Ltd., the power utility serving Pakistan’s largest city, said a regulatory decision will slash its average tariff by Rs7.6 per kilowatt-hour, creating challenges for the company and its customers amid efforts to stabilise the nation’s strained electricity sector.
The Karachi-based company, in a statement on Tuesday, pegged the revised average tariff at Rs32.37 per kilowatt-hour, down from the previously announced Rs39.97. The move stems from the National Electric Power Regulatory Authority’s ruling on review motions filed by various parties, which Nepra notified on Monday. “With respect to the write-off claims, Nepra has upheld its earlier decision. However, for the other matters, Nepra has significantly altered its prior determinations in a manner that, according to KE, is not sustainable for the company and will have far-reaching consequences for its stakeholders, including consumers,” KE said in a statement.
The decision touches on K-Electric’s multi-year tariff determinations for fiscal years 2024 through 2030, encompassing generation plants, transmission and distribution networks, supply operations, investment plans, loss assessments and prior write-off claims from 2017-2023.
KE said it was “reviewing Nepra’s decisions in detail and will exercise all available remedies as permitted under the applicable laws and regulatory framework.” Nepra’s May 27 determination had initially set KE’s base tariff at Rs39.97 per unit for fiscal 2023-24, nearly 40% above the national average of about Rs28 per unit projected for 2025-26 across the country’s 10 public-sector distribution companies. The gap was bridged via federal subsidies in the budget as tariff differential support.
Multiple parties subsequently sought reviews, prompting Nepra’s latest notification. In the document, Nepra said it had revised the fuel cost reference within the power purchase price for fiscal 2023-24. “The authority understands that with the revision of these fuel cost component references, already determined for the FY 2023-24, all monthly fuel cost adjustments, already determined and applied for the FY 2023-24, would be required to be re determined, and the additional impact would be passed on to the consumers of KE” Nepra said.
Given that fiscal 2023-24 has ended and actual power purchase costs, including variable operation and maintenance as well as capacity charges, are now available, Nepra opted to “actualise such costs […] alongwith the transmission charges, as approved and have been made part of power purchase price references for the FY 2023-24.”
Nepra directed KE to submit revised fuel cost adjustment claims for the period. Power purchase price references for fiscal 2024-25 and 2025-26 “would be determined once KE files its revised annual adjustment/indexation request for these periods,” the notification said.
Stakeholders had flagged concerns over shifting from a longstanding price-cap tariff regime to a revenue-cap model, which they argued enables actualization of units sent out absent performance benchmarks. Nepra responded that “the authority does not see any rationale to change its earlier decision, and hence has decided to maintain its earlier decision in this matter.”
On operation and maintenance costs, KE had argued that basing future allowances on prior-year figures would “disincentivise the utility to bring any efficiency and save costs” and render operations “unviable in period of low inflations.” It also called the 50:50 sharing mechanism for savings, between KE and consumers, “unprecedented,” noting its absence in tariffs for public distributors, the National Transmission and Dispatch Co. and other licensees.
Other parties echoed reservations, highlighting that KE’s costs for fiscal 2023-24 drew from unaudited financials. They pushed for using approved costs from the final year of the prior multi-year tariff, fiscal 2022-23, as the base. Nepra, however, said it “does not see any rationale to change its earlier decision” and upheld it.
Regarding late payment surcharges, KE sought full retention. Nepra noted the utility already receives working capital allowances and compensation for delays via surcharge retention tied to supplemental charges, excluding those from the Central Power Purchasing Agency under a master collection account deal. The approach aligns with public distributors, Nepra said, opting to maintain its prior stance.
Requests to trim the seven-year tariff control period were dismissed, with Nepra citing “no cogent reasons” from petitioners. Objections to the sharing mechanism for other income were also overruled, as Nepra stuck to its earlier decision. “Serious concerns” emerged over upfront recovery loss allowances for KE, which critics said shifts inefficiency burdens to paying consumers or the government via subsidies.
The fiscal 2023-24 impact was estimated at Rs36 billion, potentially topping Rs200 billion over the control period, costs absorbed federally amid uniform national tariffs. Nepra noted the Power Division’s push to privatize other distributors, interpreting its plea against upfront losses as a policy signal for similar treatment post-privatization.
Accordingly, Nepra barred upfront recovery losses for KE to avoid subsidy burdens, setting the tariff on a 100% recovery target. Write-offs, post-criteria fulfillment, are capped annually: 3.50% for fiscal 2023-24 and 2024-25; 3% for 2025-26; 2.50% for 2026-27; 2% for 2027-28; 1.50% for 2028-29; and 1% for 2029-30.
On working capital revisions, Nepra held firm on the amount but tweaked calculation days for current liabilities. It axed a prior 15-day cash and bank balance provision and adjusted for net-metering’s double impact, while rejecting inclusions for recovery lags in fuel adjustments or quarterly tariffs. Requests linked to KE subsidiary K-Solar were denied.
For open access charges in revenue requirements, Nepra clarified: “Any costs arising out on account of open access/ revenue recovered including use of system charges, cross subsidy, marginal price, open access costs or any other cost, shall be adjusted as per the applicable framework and in light of the relevant determinations of the Authority for such costs.”Finally, Nepra upheld its decision on KE’s bid for fuel cost and quarterly adjustments using actual transmission and distribution losses: “Since the matter primarily pertains to the assessment of T&D loss target of KE, therefore, any decision taken by the authority in the investment plan/ assessment of T&D losses decision of KE, would be accordingly considered while making monthly/ quarterly tariff adjustments.”
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