MUSHTAQ GHUMMAN
ISLAMABAD: National Electric Power Regulatory Authority (Nepra ) has increased K-Electric’s average multi-year (seven year) tariff by 5 paisa per unit to Rs 12.8172 per unit from Rs 12.77 per unit on the basis of two accounts i.e. dollar indexation on transmission and real CPI.
This increase has been allowed on a tariff reconsideration petition filed by the federal government on the request of K-Electric.
Giving justification, an official stated that Nepra had allowed dollar indexation on generation and distribution which has been extended to transmission (this incentive is already available to Matiari transmission project). KE has also been allowed actual CPI on the pattern of IPPs by removing flat rate of CPI.
The regulator has turned down all other grounds of power utility for tariff increase i.e. performance and recovery. However, relaxation has been given to KE on future prudent investment, saying that if the utility makes investment, the regulator will look into in mid-term review. K-Electric has been allowed a total investment of Rs 298.915 billion for the seven year tariff control period for its Generation, Transmission and Distribution Systems. A midterm review to the extent of allowed investments only shall be carried out, after completion of three and a half (3.5) years of the tariff control period.
K-Electric has not been allowed the impact of revaluation on its regulatory assets base while working out the depreciation charges and Return on Rate (RoR) base. Other income, excluding the impact of Late Payment charges (LPC), interest on bank deposits and meter rent, has been deducted from the base case assessment. K-Electric will pay interest earned on security deposits to the consumers through electricity bills. K-Electric will not charge bank collection charges from the consumers separately in their bills and has been directed to stop charging meter rent in future from those consumers who pay their cost of meter. In case of any meter replacement, owing to fault of consumers, the matter will be dealt with as per the relevant provisions of the CSM.
In case of under investment /performance by K-Electric, the base rate adjustment component may be adjusted, keeping in view the amount of Investment allowed vis-a-vis actual investment made by K-Electric during the period, after thorough analysis and review by the Authority. For the last three and a half (3.5) years of the tariff control period, adjustment of base rate adjustment component, may be made in the next tariff determination, keeping in view the amount of Investment allowed vis a vis actual investment made by K-Electric during the period, after thorough analysis and review by the Authority.
Any additional investment in the generation sector would be allowed, keeping in view the prudent cost, changing technology and regional and international comparable benchmarks. Therefore, prior approval of new investment in generation segment other than the allowed 450 X 2 MW RLNG plant (BQPS-III) shall have to be obtained from the Authority. The Authority would accordingly decide on the issue and if allowed, would adjust the base rate adjustment component to the extent of that additional investment. Unlike in the past, KE shall not be allowed to retain the generation efficiency gains in this regard.
To the contrary, if the regulatory targets in T & D segment are met with by employing resources efficiently and diligently and hence meeting the regulatory targets at a cost less than the allowed limit, then no revision shall be done in the base rate adjustment component. Thus KE shall be allowed to keep the savings.
In case KE does not carry out committed investment and does not meet the regulatory benchmarks set in transmission and distribution segment then the base rate adjustment component would be revised accordingly to reflect the under investment made by KE.
In case KE wants to bring in more investment to outperform the regulatory targets in Transmission & Distribution (T&D) segments then KE shall be allowed to retain the gains over and above the approved T&D loss target. Hence there shall be no revision in the T&D losses benchmarks and base rate adjustment component, implying that no cost of funds/WACC shall be allowed for that additional investment. Accordingly it would be KE’s own commercial decision for these additional investments.
According to the regulator if KE achieves Authority’s given T&D segments targets with additional investment then that additional investment would not be allowed cost of funds/WACC implying thereby no revision shall be made in the base rate adjustment component.
In case KE does not meet the T&D segments targets and still end up making additional investment then such additional investment would be construed as inefficient for which again no adjustment shall be made in the base rate adjustment component. Thus consumers would be protected from any such decisions with non-attainment of required targets. In case, KE manages to build the BQPS-III power plant at a cost less than the cost allowed by the Authority then KE shall be allowed to retain the savings by not adjusting the base rate component. In case KE abandon’s its plan to set up BQPS-III, then base rate adjustment component will be adjusted downward accordingly.
The midterm review will be at an appropriate time to evaluate the effective realization of the investment plan. However, at the same time, to protect the consumer’s interest, KE shall be required to submit annual investment progress reports. The purpose is to oversee the physical aspect of the investment plan and its correlation with the allowed regulatory targets.
In case K-Electric decides to lease out any of its existing power plants or Units including Unit 3 and 4 of BQPS-I, before expiry of their useful life, the indexed tariff components for the said plant or Unit i.e. O&M, Depreciation and RoRB components shall be adjusted from the tariff prevalent at the time of leasing out of such power plant/ unit. The O&M, depreciation and RoRB components in terms of unit 3 & 4 of BQPS-I included in the tariff to be applicable from July 01, 2016 are Rs.0.0367/kWh, Rs.0.0261/kWh and Rs. 0.0230/kWh respectively.
The heat rates of BQPS-II have been determined on the basis of heat rates guaranteed by the EPC contractor. K-Electric has already been directed to conduct heat rate test of BQPS-II and submit the same to the Authority for approval. The adjustment in heat rates will be made based on the results of the performance (Heat Rate) test.
In view of the addition of steam turbines at KCCP, SGTPS and KGTPS, the numbers in respect of efficiency and auxiliary consumption are worked on provisional basis, based on the given information and supporting documents. K-Electric is directed to conduct heat rate test of KCCP, SGTPS and KGTPS and submit the report to the Authority for approval. The adjustment in heat rates will be made based on the results of the performance (Heat Rate) test.
Regarding BQPS-I, the parameters allowed by the Authority are provisional and the Authority directs K-Electric to arrange performance test (Heat rate test) by an Independent Engineer within a period of six months from the date of notification of the instant tariff determination. For the selection of independent engineer, KE shall broadly follow the procedure specified in NEPRA (Selection of Engineering, Procurement and Construction Contractor by IPPs) Guidelines, 2017. The tests shall be conducted in the presence of NEPRA professionals as observers. The adjustment in heat rates will be made based on the results of the performance (Heat Rate) test.
K-Electric shall arrange heat rate tests by an Independent Engineer within a period of six months from the date of notification of the instant tariff determination. For the selection of independent engineer, KE shall broadly follow the procedure specified in NEPRA (Selection of Engineering, Procurement and Construction Contractor by IPPs) Guidelines, 2017. The tests shall be conducted in the presence of NEPRA professionals as observers. The adjustment in heat rates will be made based on the results of the performance (Heat rate Test).
For the upcoming power plants or replacement of existing power plants/units, KElectric shall perform Capacity and Heat Rate tests in a transparent manner by a reputable Independent Engineer to be selected by broadly following the procedure specified in NEPRA (Selection of Engineering, Procurement and Construction Contractor by IPPs) Guidelines, 2017 in the presence of NEPRA professionals at the time of commissioning for the Authority’s approval. Till approval of performance test results by the Authority, adjustment in the fuel cost component for the upcoming and replaced power plants shall be allowed based on the heat rates as guaranteed by the EPC contractor subject to adjustment. The adjustment in heat rate will be made only if the heat rate in the test is found lower than the heat rates guaranteed by the EPC contractor. Similarly adjustment in capacity will be made only if the actual capacity pursuant to the performance test is found to be higher than the capacity guaranteed by the EPC contractor. The replacement would mean installation of new power plant/ unit (which as per existing fleet includes but not limited to, turbines, engines etc.) in place of existing power plant/ unit with over all higher net thermal efficiencies and performance (heat rate) test.
K-Electric has directed to obtain approval of the Authority for future power acquisition along-with the rates and other terms and conditions for purchase of power from external sources. K-Electric shall not be allowed any adjustment in tariff on account of power purchase cost variation in respect of those power sources for which prior approval of the Authority has not been obtained. For this purpose K-Electric shall submit its request for power acquisition along-with the rationale and relevant documents.
K-Electric has not been allowed any provision on account of the doubtful debts in the tariff, however, bad debts written off @ 1.69% of K-Electric’s assessed sales revenue has been allowed in the base case.
