NEPRA okays Rs3.84/kWh tariff for KE

ISLAMABAD:

The National Electric Power Regulatory Authority (Nepra) has approved a distribution tariff of Rs3.84 per kWh for K-Electric for the fiscal years 2023–24 through 2029–30.

K-Electric had requested a transmission tariff of Rs2.99 per kWh along with the Rs3.84 per kWh distribution tariff.

These decisions were made following detailed public hearings, technical evaluations, and feedback from a broad range of stakeholders, including industry representatives, consumer groups, and public forums. The authority had earlier issued its decision for KE's generation tariff in October 2024.

The tariff determinations do not directly impact end-consumer rates, which are governed under the uniform tariff policy notified by the federal government.

K-Electric had submitted tariff petitions for generation, distribution, transmission, and supply businesses following the expiry of its previous Multi-Year Tariff (MYT) in June 2023. The new MYT spans seven years and is designed to provide long-term financial clarity essential for capital investment and operational stability.

The power utility proposed a distribution tariff for FY 2023–24, covering components such as return on rate base (RoRB), operations and maintenance (O&M), amortization, and working capital.

NEPRA evaluated several critical factors, including KE's request for a USD-pegged return on equity (RoE) at 16.67%, indexing mechanisms for losses and capital costs, and one-time adjustments tied to the previous MYT period (2017–23). The RoE of 14% has been allowed in principle with indexation.

Industry representatives called for shorter control periods with performance-linked penalties.

NEPRA did not allow KE's request to adjust distribution loss targets based on changes in its sales mix across voltage levels. The regulator maintained that performance benchmarks must be uniform across the sector, and KE's approved loss targets would remain unchanged despite its argument that shifting sales mix dynamics warrant reconsideration.

Accordingly, annual loss reduction targets were fixed and must be achieved without upward revisions, reinforcing accountability and performance discipline.

In terms of capital structure, NEPRA maintained a notional 70:30 debt-to-equity ratio for both tariffs, consistent with sectoral benchmarks and regulatory norms, despite KE's actual ratio differing.

The authority has allowed KE to recover the cost of foreign debt based on 3-month LIBOR or SOFR plus a 4.5% spread, including applicable hedging costs, and to claim exchange rate variations on both interest and principal for unhedged loans.

KE's actual recovery performance will be closely monitored throughout the control period to ensure service integrity.

The regulator allowed a 12% RoE for its transmission segment, recognizing the utility's investment requirements and risk exposure.

Stakeholders echoed concerns, particularly around the inclusion of taxes as pass-through items and system inefficiencies.

KE's request to actualize the cost of debt, including hedging premiums, was accepted in principle by NEPRA, with actual costs to be verified at the time of adjustment.