PresentationOn

Power Sector Regulation –Issues, Role of NEPRA

1October 4, 2010

NEPRA CREATION

NEPRA was created through the Act called thegRegulation of Generation, Transmission andDistribution of Electric Power Act, 1997 on 16th

fDecember, 1997 as part of strategic powersector reforms program envisaged byGovernment of Pakistan (GoP)Government of Pakistan (GoP).

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MISSION STATEMENT

To develop and pursue a Regulatoryp p g yFramework for safe, reliable, affordable andefficient market-driven environment forprovision of electric power to the consumers inPakistan; maintaining a balance between theinterests of consumers and service providers inline with the broad economic and social policyobjectives of the Government.

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MANDATE OF NEPRA

The Parliament passed NEPRA Act and the Authority wasset up on 16th December, 1997. Pursuant to Section 7 of theNEPRA A t th d t i t A th it i l dNEPRA Act, the mandate given to Authority includes:

To develop and pursue a Regulatory Frameworkwhich ensures provision of safe reliable efficient andwhich ensures provision of safe, reliable, efficient andaffordable electric power to the electricity consumersof Pakistan.

To facilitate transition from a protected monopolyservice structure to a competitive environment.

To maintain a balance between the interests of theconsumers and investors.

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CONSTITUTION OF THE AUTHORITY

The Authority comprises of a Chairman who isappointed by the Federal Government.

andFour Members who are also appointed by the

GFederal Government on the recommendationsof the Four Provincial Governments.

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ORGANIZATION

The Authority is assisted by a team of 57y yprofessionals including cost accountants,electrical engineers, legal experts, MBAs etc.

d 114 t t ff ki f NEPRAand 114 support staff working for NEPRA

NEPRA is a quasi-judicial body and allNEPRA is a quasi-judicial body and alldecisions are taken by the Authority collectively- decisions are taken by the majority ofy j yAuthority Members present.

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FUNCTIONS OF NEPRAAs per Section 7(1) and (2) of NEPRA Act the AuthorityAs per Section 7(1) and (2) of NEPRA Act, the Authority

shall be exclusively responsible for:Grant Licenses for Generation, Transmission & ,Distribution of electric power;Prescribe procedure and standards for investment

b G ti T i i d Di t ib tiprograms by Generation, Transmission and Distribution Companies;Prescribe and enforce performance standards forPrescribe and enforce performance standards for Generation, Transmission and Distribution Companies;Establish a uniform system of accounts by Generation, Transmission and Distribution Companies;Prescribe fee including fees for grant of licenses and renewal thereof;

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renewal thereof;

FUNCTIONS OF NEPRA Contd…

Prescribe fines for contravention of the provisions of this Act; ;Perform any other function which is incidental or consequential to any of the aforesaid function.

As per Section 7(3) of NEPRA Act, the Authority shall: D t i t iff t h d th t dDetermine tariff, rates, charges and other terms and conditions for supply of electric power services by the Generation, Transmission and Distribution Companies , pand recommend to the Federal Government for notification;

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FUNCTIONS OF NEPRA Contd…

Review organizational affairs of Generation, Transmission and Distribution Companies to avoid any adverse effect on the operation of electric power p pservices and for continuous and efficient supply of such services;Encourage uniform industry standards and code ofEncourage uniform industry standards and code of conduct for Generation, Transmission and Distribution Companies;Tender advice to public sector projects;Submit report to the Federal Government in respect of activities of Generation, Transmission and Distributionactivities of Generation, Transmission and Distribution Companies; and Perform any other function which is incidental or consequential to any of the aforesaid function

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consequential to any of the aforesaid function.

REGULATORY INSTRUMENTS

Regulation of Generation, Transmission and Distribution of Electric Power Act (XL of 1997): to regulate generation, t i i d di t ib ti f l t itransmission and distribution of electric power.

Application Modification Procedure Regulations, 1999: to t d di th f b itti li ti d filistandardize the manner for submitting applications and filing

petitions to NEPRA.

Licensing Generation R les 2000 to streamline the processLicensing Generation Rules, 2000: to streamline the process for becoming a licensee under NEPRA Act.

Tariff Standards Procedure Rules 1998 & Fees PertainingTariff Standards Procedure Rules, 1998 & Fees Pertaining to Tariff Standards & Procedure Regulations, 2002: to highlight the procedure of tariff determination and standards to b d d

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be adopted.

REGULATORY INSTRUMENTS Contd…

National Electric Power Regulatory Authority Licensing (Distribution) Rules, 1999 & Eligibility Criteria for Consumers of (Distribution) Companies 2003: to regulate the process of acquiring(Distribution) Companies, 2003: to regulate the process of acquiring licenses by distribution companies.

Interim Power Procurement (Procedures and Standards)Interim Power Procurement (Procedures and Standards) Regulation, 2005: to streamline the manner for acquiring permission for sale of power to transmission and distribution companies.

Performance Standards (Distribution) Rules, 2005: to provide standards of performance for distribution companies.

P f St d d (T i i ) R l 2005 t idPerformance Standards (Transmission) Rules, 2005: to provide the standards of Performance for transmission companies.

NEPRA Uniform System of Accounts Rules 2009

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NEPRA Uniform System of Accounts Rules, 2009.

GRANT OF LICENSES

Under Section 7 (2) (a) of the Regulation of Generation, T i i d Di t ib ti f El t i P A t (XLTransmission and Distribution of Electric Power Act (XL of 1997) NEPRA is exclusively responsible to grant Licenses for Generation, Transmission and Distribution of Electric Power.

Discharging its responsibilities under Act NEPRA hasDischarging its responsibilities under Act, NEPRA has issued Licenses to Generation, Transmission and Distribution Companies.

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YEAR-WISE DETAIL OF LICENCES GRANTED

Year

Generation Transmission Distribution

TotalPublic Sector

Private Sector NTDC KESC

Ex-WAPDA KESC SPP

(Dist ) CPPSector Sector DISCOs (Dist.)

2001 - 9 - - 1 - - - 102002 4 5 1 - 7 - - - 172003 1 11 - - - 1 - - 132004 1 16 - - - - - - 172005 2 9 - - - - - - 112006 1 10 - - - - 7 - 182007 - 10 - - - - - - 102008 - 17 - - - - 2 - 192009 - 15 - - - - - 1 162010 - 15 - 1 - - - - 16Grand 9 117 1 1 8 1 9 1 147

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Total

TARIFF DETERMINATION

NEPRA determines tariffs for the three sectors namely

U d S ti 7 (3) ( ) f th R l ti f G ti

NEPRA determines tariffs for the three sectors namelyGeneration, Transmission and Distribution:

Under Section 7 (3) (a) of the Regulation of Generation, Transmission and Distribution of Electric Power Act (XL of 1997) NEPRA is exclusively responsible to determine tariff, rates, charges and other terms and conditions for supply of electric power services by the Generation, Transmission and Distribution Companies and precommend to the Federal Government for notification.

Di h i i ibili i d A NEPRA hDischarging its responsibilities under Act, NEPRA has to determine/approve Tariff in respect of Generation, Transmission and Distribution Companies.

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Currently NEPRA’s determinations include:

TARIFF DETERMINATION Contd…

Currently NEPRA s determinations include:Quarterly determination in respect of 9 Distribution Companies including KESC.Monthly Fuel Price Adjustment in respect of 9 Distribution Companies including KESC.Generation Tariff determinations in respect of Public Sector pGeneration Companies, IPPs, WAPDA Hydel etc.Tariff determination in respect of NTDC.Fortnightly Fuel Price Adjustments in respect of GENCOsFortnightly Fuel Price Adjustments in respect of GENCOs, IPPs etc.Adjustment of determined generation tariff of IPP at COD.

During 2009-10, the Authority made 311 determinations/adjustment regarding tariff of generation and distribution companies. These included 41 tariff determinations, 3 decisions on review motions and 267 t iff dj t t i t f F l P i CPI COD t d

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267 tariff adjustments in respect of Fuel Price, CPI, COD, tax and quarterly indexation.

NEPRA TARIFF REGIME

NEPRA determines tariffs for the three sectors namelyGeneration, Transmission and Distribution:

Tariff for Generation Companies are determined on rate ofreturn (cost plus basis) in most cases, under long term (25

)to 30 years) PPAs;Tariff of Transmission Company is determined on annualcost plus basis where in addition to the costs certaincost plus basis where, in addition to the costs, certainreturn on equity or assets is allowed;Distribution Companies are mostly given tariffs on costplus basis, whereas multi-year tariffs (Performance Based)have also been determined by NEPRA for FESCO andKESC.

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CRITERIA FOR TARIFF DETERMINATION

Tariffs to be determined, modified or revised on the basisof and in accordance with the following standardsprescribed pursuant to Section 31(2) of the NEPRA Act:prescribed pursuant to Section 31(2) of the NEPRA Act:

to allow licensees the recovery of any and all costsprudently incurred.prudently incurred.

to meet the demonstrated needs of their customers

to enable GENCOs to pay their liabilities for gas andto enable GENCOs to pay their liabilities for gas andfurnace oil.

to ensure viability of the distribution company as agoing concern.

to compensate for increase on account of salariesand wages of its employees and inflation

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and wages of its employees and inflation.

CRITERIA FOR TARIFF DETERMINATION Contd…

to allow a depreciation charge and rate of return onthe capital investment.

to allow rate of return which promotes continuedreasonable investment in equipment and facilities forimproved and efficient servicesimproved and efficient services.

to reflect marginal cost principles to the extentfeasible.

to reflect the full cost of service to consumer groups tothe extent feasible.

to strike a balance to the extent possible, among thetariff standards in order to optimize the benefits to allpersons likely to be affected by the tariff.

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persons likely to be affected by the tariff.

PUBLIC PARTICIPATION IN TARIFF DETERMINATION

During processing of petition for Determination of tariff, NEPRA’s procedure involves:

P bli i f d i i i (Ad i ) (R l 4&5)– Publication of admission notice (Advertisement) (Rule 4&5).– To issue information directions after admission of the

Petitions. – To issue notices of proceedings (Admission/Hearing).– Intervention: Any person who desires to participate in any

proceedings may file an intervention request for leave to intervene along with fees determined for the purpose by the Authority (Rule 6).

– Hearing is conducted wherein petitioner and all concerned stakeholders and public in general is invited to participate. Determination/Decision of the Authority is issued

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– Determination/Decision of the Authority is issued.

CURRENT GAP BETWEEN NEPRA’s DETERMINEDAND GOP’s NOTIFIED CONSUMER-END TARIFF

NEPRA's Currently DeterminedAverage Sale Rate (Rs /kWh) 10 17Average Sale Rate (Rs./kWh) 10.17GOP's Latest NotifiedAverage Sale Rate* (Rs./kWh) 7.12Gap in terms of Rs./KWh 3.05* This may vary with different consumer mix, load factors &

does not include the impact of monthly fuel adjustmentspassed in consumer bills.

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PERFORMANCE STANDARDS

In exercise of the powers conferred by Section 46 of the Regulation of Generation , Transmission and Distribution of l t i P A t 1997 d ith S ti 34 th felectric Power Act, 1997 read with Section 34 thereof,

National Electric Power Regulatory Authority, with the approval of the Federal Government has prescribed and notified:

Performance Standards (Distribution) Rules, 2005 thnotified in 11th January, 2005.

Performance Standards (Transmission) Rules, 2005 notified on 15th November, 2005.,Performance Standards (Generation) Rules, 2009 notified on 17th November, 2009.

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• Performance Standards are designed to encourage safe, efficient and

PERFORMANCE STANDARDS Contd…Performance Standards are designed to encourage safe, efficient andreliable service, including standards for service characteristics such asvoltage and stability as well as scheduled and unscheduled outages.

• Under Performance Standards (Distribution) Rules, 2005 distributioncompanies are required to maintain a prescribed overall systems in term ofcompanies are required to maintain a prescribed overall systems in term ofelectric reliability, voltage and frequency of power supply. The standardsinclude:― Power supply restoration time (Hrs).― Annual number and duration of individual consumer power supply

interruptions.― Voltage range of + 5% and frequency range + 1% from nominal

voltage and frequency of power supply at the consumer supplyvoltage and frequency of power supply at the consumer supplyterminals.

― Time limits for new connections categorized based on size of theload and voltage level.

― Electric safety standards.― Non-discriminatory principles and priorities of load shedding to be

followed by the distribution companies.• Rules are enforced through Licenses under which periodic reporting is

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• Rules are enforced through Licenses under which periodic reporting isrequired by Licensees.

NEPRA pursuant to Section 39 of the Act deals with

CONSUMER INTERESTS

NEPRA pursuant to Section 39 of the Act, deals withcomplaints by any interested person against a licensee forviolation of its rules, regulations and orders.P t t S ti 21(2) (b) f th A t NEPRA h i dPursuant to Section 21(2) (b) of the Act, NEPRA has issuedRegulations for Eligibility Criteria for Consumers for nondiscriminatory provision of distribution services and sale ofl t ielectric power.

Consumer Service Manual in respect of 9 distributioncompanies was approved and circulated to all DISCOs forimplementation.Complaint Handling and Dispute Resolution ProcedureRules, 2009 is under review and will be sent to FederalRules, 2009 is under review and will be sent to FederalGovernment shortly for approval and notification.Since creation of a Consumer Affairs Division in 2002,NEPRA received 5 553 complaints out of which 5 326 were

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NEPRA received 5,553 complaints, out of which 5,326 wereresolved.

COMPLAINTS HANDLING

Year Complaints Received

Complaints Addressedthrough Provincial Offices

of Inspection/DISCOs 2001 76 762002 187 1722003 237 2252003 237 225 2004 354 3252005 1098 10252006 548 5272007 503 5032008 469 4692008 469 4692009 663 6542010 1418 1350

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MAJOR ISSUES CONFRONTING POWER SECTOR

Availability and Efficiency of Existing Power PlantsCircular DebtShift from Low Cost Generation (Hydel)Shift from Low Cost Generation (Hydel) to High Cost Generation (Thermal - RFO)Transmission ConstraintsTransmission ConstraintsHigh Losses in Distribution CompaniesLow Revenue Collection EfficienciesGovernance Issues

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IMPORTANT DISTRIBUTION STATISTICSOF DISCOs DURING 2009-10

CompanyCategory-

wise No. of Electricity Purchased

Electricity Sold

Distribution Losses

% Recovery

Consumers Purchased Sold

PESCO 2947108 12638 8258 37.00 79.39IESCO 2059207 8396 7572 9.80 95.90GEPCO 2454254 6987 6220 10.99 95.74LESCO 3182293 16101 13880 13.70 93.22FESCO 2879188 9329 8317 10 90 97 07FESCO 2879188 9329 8317 10.90 97.07MEPCO 4057491 12225 9915 18.90 94.20HESCO 1511878 8275 5395 34.80 59.76QESCO 490805 5167 4099 20.70 75.55KESC 2051964 7842 9905 34.90 100.00

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INITIATIVES BY NEPRA

• Facilitating Hydropower(Announced multi-stage Tariff Mechanism)

E i I di R• Encouraging Indigenous Resources(17% IRR for Hydel & Local Coal and 16% IRR for Imported Coal)

• Supporting Bagasse-based Cogeneration Projects• Supporting Bagasse-based Cogeneration Projects(17% + 1% = 18% IRR - 1% incentive for power projects achieving COD by 31st March 2014)

• Efficient Communication with Licensees(Standardized Tariff Petition format)

S f di C I t t• Safeguarding Consumer Interests

• Reduction in Fees

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THANK YOU

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