Briefing on The Procedure Principles of Awarding Distribution
Briefing on The Procedure & Principles of Awarding Distribution Tariffs NATIONAL ELECTRIC POWER REGULATORY AUTHORY (NEPRA) 1
Restructuring of WAPDA NTDC 1 POWER WING GENCOs 5 DISCOs 12 One Hydel Four Thermal GENERATION Thermal Power Stations TRANSMISSION Grid Station / Trans. Lines Operation & Maintenance DISTRIBUTION Area Electricity Boards TRANSFORMING THESE ORGANIZATIONAL COMPONENTS INTO INDEPENDENT CORPORATISED ENTITIES 2
Generation Cost Chain of Cost Components Fuel Suppliers Refineries/ Gas Cos. Public Sector GENCOs Thermal / Hydel / Nuclear Private Sector IPPs Trans. Cost & Loss Adj. Transmission / CPPA LESCO GEPCO MEPCO FESCO PESCO HESCO QESCO KESC Dist. Cost & Loss Adj. IESCO CONSUMERS Residential/ Commercial/ Industrial/ Agriculture/ Others 3
Transfer Price Mechanism The generation cost is transferred to the DISCOs according to the Transfer Price Mechanism (TPM) as prescribed by the Authority. NTDC shall charge the DISCOs formed consequent to the unbundling of WAPDA (termed as XWDISCOs) and KESC, a transfer charge for procuring power from approved generating companies (termed as CPGENCOs) and its delivery to DISCOs for a billing period as under: XTC Where: XTC XCTC XETC XCTC = XCTC + XETC = = Transfer charge to XWDISCOs & KESC Capacity Transfer Charge to XWDISCOs & KESC Energy Transfer Charge to XWDISCOs & KESC Cp. Gen. Cap + USCF XWD 4
Transfer Price Mechanism …continued Where: (i) CPGen. Cap = the summation of the capacity cost in respect of all CPGencos in Rs for a billing period minus the amount of liquidated damages received during the month. (ii) XWD = the sum of the maximum demand of the XWDISCOs & KESC in k. W recorded during a billing period at all the delivery metering points at which power is received by the XWDISCOs & KESC. (iii) USCF = the fixed charge part of the use of system charges in Rs per k. W per month. XETC = Cp. Gen. E (Rs) XWUs (k. Wh) 5
Transfer Price Mechanism Where: the (i) CPGen. E of summation = the k. Wh) approved for each of the CPGen. COs times the energy in k. Wh procured from the respective CPGENCO during the billing period. (ii) XWUs = the summation of the energy units (k. Wh) recorded at the delivery metering point of all the XWDISCOs & KESC during a billing period. 6
COMPONENTS OF DETERMINATION OF TARIFF FOR GENERATION PROJECT Energy Charge Fuel Variable O&M Capacity Charge Fixed O&M Local Foreign Return on Equity during Construction Insurance Withholding Tax Debt Repayment Principal Amount Interest Payment
TYPICAL COMPOSITION OF TARIFF Consumer-end Tariff = Generation Costs + Transmission Costs + Distribution & Prior Year Adjust. Costs (around) (85% of sale rate) (around) (2% of sale rate) (around) (13% of sale rate) Break-up of Generation Cost (GC) Generation Cost = Capacity Purchase Price (CPP) + Energy Purchase Price (EPP) (around) (21% of GC) (around) (79% of GC) Energy Purchase Price (EPP) = + Fuel Cost Variable O&M (around) (97% of EPP) (around) (3% of EPP) 8
TARIFF DETERMINATION PROCEDURES • The Company/ Licensee files a petition for determination of its tariff according to NEPRA Tariff Standard Procedure Rules 1998; • The Authority on the basis of information decides whether prima facie case exists for admission of the tariff petition; • In case Authority admits the petition for consideration it gives notice to all the stakeholders through advertisement in the national newspapers inviting them for intervention to participate in the tariff proceedings through personal participation or through written comments; 9
TARIFF DETERMINATION PROCEDURES o After public hearing, based on the evidence provided by the petitioner and the stakeholders, the Authority after due diligence determines the tariff and recommends to the Federal Government for notification in the official gazette; o Generation and Transmission Tariff are determined on cost plus basis. 10
PRINCIPLES OF TARIFF DETERMINATION Tariffs to be determined, modified or revised, interalia, on the basis of Procedures prescribed under Rule 17(3) of the NEPRA Tariff Standards & Procedure Rules, 1998. • tariffs should allow licensees the recovery of any and all costs prudently incurred to meet the demonstrated needs of their customers n tariffs should reflect marginal cost principles to the extent feasible, keeping in view the financial stability of the sector n the tariff regime should clearly identify inter-class and interregion subsidies 11
PRINCIPLES OF TARIFF DETERMINATION • tariffs should, to the extent feasible, reflect the full cost of service to consumer groups with similar service requirements; • tariffs should take into account Government subsidies or the need for adjustment to finance rural electrification in accordance with the policies of the Government; 12
PRINCIPLES OF TARIFF DETERMINATION • tariffs may be set below the level of cost of providing the service to consumers consuming electric power below the consumption levels determined for the purpose from time to time by the Authority, as long as such tariffs are financially sustainable; • tariffs should seek to provide stability and predict-ability for customers; and • tariffs should be comprehensible, free of misinterpretation and shall state explicitly each component thereof. 13
NOTIFICATION OF DETERMINED TARIFFS • The tariff so determined is forwarded to the Federal Government pursuant to the Section 31(4) of the NEPRA Act for notification in the Official Gazette. • Federal Government in pursuant to Section 31(4) of NEPRA Act read with Rule 16(12) of Tariff Rules – 1998 may file reconsideration request with reference to determination / decision of the Authority. • Whereupon the Authority within 15 days shall decide upon the matter and intimated to the Federal Government for Notification in the official gazette. 14
COMPONENTS OF DETERMINATION OF TARIFF FOR DISTRIBUTION COMPANIES ü Power Purchase Price ü Return on Rate Base (Return on Assets) ü Depreciation ü Other income ü PYA ü Distribution Margin Back - O&M - Salaries, wages and other benefits - Repair & Maintenance - Traveling Allowance - Vehicle maintenance - Other/miscellaneous expenses 15
Reasons for Different Consumer-End Tariff for Different DISCOs The tariff of all the Distribution Companies (DISCOs) cannot be the same due to following reasons: • Different consumer-mix • Different transmission and distribution losses • Pilferage/theft • Network constraints (old/obsolete networks) • Law & Order situation 16
FUEL CHARGES ADJUSTMENT MECHANISM • As per Regulation of Generation, Transmission and Distribution of Electric Power (Amendment) Act, 2011: “…the Authority may, on a monthly basis and not later than a period of seven days, make adjustment in the approved tariff on account of any variation in the fuel charges and policy guidelines as the Federal Government may issue and, notify the tariff so adjusted in the official gazette. ” • NEPRA, while determining monthly FCA, does not consider any other electricity cost factors and makes the adjustment strictly to the extent of variation in fuel price and energy mix. • FCA is determined by the Authority for every month separately and it does not have cumulative effect on subsequent months tariff. 17
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THANK YOU. 23
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