ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) on Thursday notified a Rs25.30 per unit revised incremental consumption package (ICP) for industry and agriculture to encourage higher consumption.
The order comes despite dissenting notes from two of its four members on Friday, when the authority made the announcement, and protest from industrial consumers.
The revised ICP replaces the previous rate of Rs22.98 per unit, which was introduced in December last year for six months to encourage industrial and agricultural consumers to consume more electricity at a marginal cost of Rs22.98 on additional consumption, instead of their normal rate that stood at Rs34.50 per unit last month.
In a statutory regulatory order (SRO) issued in the Gazette of Pakistan, Nepra said it notified the authority’s decision dated Nov 6, along with dissent notes from Nepra members Amina Ahmed and Maqsood Anwar Khan; as well as an additional note and casting vote of Nepra Chairman Waseem Mukhtar in the matter of the “semi-annual review of the ICP for industrial and agricultural electricity consumers of XWDiscos and K-Electric”.
The decision, opposed by the industrial sector, is likely to have a negative impact on all electricity consumers, including those served by K-Electric and other distribution companies (Discos).
Industrial consumers complained that the Rs25.30 per unit revised ICP — against the actual marginal cost of Rs31.83 or Rs29.65 per unit calculated by Nepra —resulted in higher monthly fuel cost adjustments (FCAs) and burdened all consumer categories across the country.
This was despite the fact that the ICP announced in December last year on the prime minister’s instructions was based on the commitment that any additional costs arising from the package would remain ring-fenced, and that the difference between consumer-end tariff and ICP would not be shifted to any other consumer category except the ICP beneficiaries, the consumers said.
Nepra members’ observations
In the determination issued on the ICP last Friday, all four members of the regulator unanimously held the Power Division and its subordinate entities responsible for failing to fulfil their legal obligations within the prescribed timelines, pushing Nepra into an unprecedented deadlock and potentially increasing costs for electricity consumers across the country.
Nepra chairman Mukhtar fully endorsed the written arguments and positions taken by the dissenting members, but subsequently exercised his special casting vote to approve the revised rate of Rs25.30 per unit. The authority was divided 2-2 on the matter.
Member (Tariff and Finance) Amina Ahmed and Member (Development) Maqsood Anwar, in a joint dissenting note, had maintained that even the proposed revised rate of Rs25.30 per unit was a “random number” unsupported by evidence. They said that Nepra’s own institutional calculations put the marginal cost at Rs31.83 per unit.
“The revised incremental rate of Rs25.30 per unit proposed by the Ministry of Energy (MoE), and allowed by the honourable chairman and Member (Law), is based on the generation mix apparently assumed at the design stage of the package, with updated fuel prices,” the two members observed.
They called for the immediate suspension of the ICP until authentic data became available.
The dissenting members argued that compliance with the federal cabinet’s decision and Nepra’s own directives required a reassessment of the existing rate of Rs22.98 per unit to determine whether it should be retained, revised or suspended. However, this exercise had not been carried out, resulting in the continuation of the package at a rate below the actual cost of supplying incremental electricity.
“The resulting misalignment has had implications for consumers in two ways. First, to the extent incremental consumption increased the system’s average fuel cost, the resulting impact was recovered from all consumers through the FCA mechanism. Second, because incremental units are excluded from quarterly tariff adjustments, the exclusion of such units increases the quarterly adjustment borne by consumers not availing the package,” they said.
They questioned how a package based on the principle of cost-reflectivity could continue without a validated cost-reflective rate, arguing that since the alternative rate had no credible link with the actual marginal cost, continuation of the package was no longer justified.
They said other consumers should not be made to bear the cost of a review that the MoE was required to submit five months ago but had yet to provide.
In his casting vote, Mukhtar observed that the dissenting members’ conclusions “need serious consideration”. However, he said suspending the package at this stage would not be appropriate and that the MoE should be given another opportunity to provide the information repeatedly sought by the regulator, including in its latest determination.
All four members agreed that the Power Division was required to submit revised calculations six months ago but had failed to do so, despite repeated reminders from Nepra. They also regretted that the ministry had not responded adequately to the questions and queries raised by the regulator.
“The marginal price, in proper form, was not provided to the regulator by either the Independent System and Market Operator (ISMO) or the Power Planning and Monitoring Company (PPMC), which were duty-bound to do so. Since the ISP is a flagship project of the ministry, it should give due consideration to the observations of Nepra and the lack of inter-agency coordination among the entities working under the ministry,” the members observed.
The determination also sets deadlines for the relevant entities to provide the required information. The four members warned that failure to meet these deadlines could lead to an adverse outcome in the review of the programme, including its suspension or termination.
“Furthermore, any entity that fails to provide the required information within the stipulated timeline shall lead to initiation of legal proceedings under the applicable legal framework,” they stated.
Explaining his decision, the chairman said: “I hereby exercise, in due and faithful discharge of the functions of the authority, my second and casting vote envisaged and entrusted to me under the Nepra Act in favour of the first opinion, thereby breaking the deadlock in relation to the aforesaid issues. Accordingly, the first opinion constitutes the order of the authority.”
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