1. 1 Briefing on The Procedure & Principles of Awarding Distribution Tariffs NATIONAL ELECTRIC POWER REGULATORY AUTHORY (NEPRA)

2. TRANSMISSION N T D C 1 POWER WING GENERATION DISTRIBUTION Grid Station / Trans. Lines Operation & Maintenance Thermal Power Stations GENCOs 5 DISCOs 12 Area Electricity Boards TRANSFORMING THESE ORGANIZATIONAL COMPONENTS INTO INDEPENDENT CORPORATISED ENTITIES Restructuring of WAPDA 2 One Hydel Four Thermal

3. 3 Fuel Suppliers Refineries/ Gas Cos. Public Sector GENCOs Thermal / Hydel / Nuclear Private Sector IPPs Transmission / CPPA IESCO LESCOGEPCOMEPCO FESCOPESCOHESCOQESCO KESC CONSUMERS Residential/ Commercial/ Industrial/ Agriculture/ Others Generation Cost Trans. Cost & Loss Adj. Dist. Cost & Loss Adj. Chain of Cost Components

4. 4 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= XCTC + XETC Where: XTC =Transfer charge to XWDISCOs & KESC XCTC=Capacity Transfer Charge to XWDISCOs & KESC XETC =Energy Transfer Charge to XWDISCOs & KESC XCTC=CpGenCap + USCF XWD

5. 5 Transfer Price Mechanism …continued Where: (i) CPGenCap=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 kW 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 kW per month. XETC= CpGenE (Rs) XWUs (kWh)

6. 6 Transfer Price Mechanism Where: (i) CPGenE=the summation of the variable charge rate (Rs per kWh) approved for each of the CPGenCOs times the energy in kWh procured from the respective CPGENCO during the billing period. (ii) XWUs =the summation of the energy units (kWh) recorded at the delivery metering point of all the XWDISCOs & KESC during a billing period.

7. COMPONENTS OF DETERMINATION OF TARIFF FOR GENERATION PROJECT Energy Charge -Fuel -Variable O&M Capacity Charge -Fixed O&M -Local -Foreign -Return on Equity -Return on Equity during Construction -Insurance -Withholding Tax -Debt Repayment -Principal Amount -Interest Payment

8. 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) +(CPP) Energy Purchase Price (EPP) (around) (21% of GC) (around) (79% of GC) Fuel CostVariable O&M (around) (97% of EPP) (around) (3% of EPP) TYPICAL COMPOSITION OF TARIFF 8 + Energy Purchase Price (EPP) =

9. 9 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; TARIFF DETERMINATION PROCEDURES

10. 10 oAfter 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; oGeneration and Transmission Tariff are determined on cost plus basis. TARIFF DETERMINATION PROCEDURES

11. 11 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 tariffs should reflect marginal cost principles to the extent feasible, keeping in view the financial stability of the sector the tariff regime should clearly identify inter-class and inter- region subsidies PRINCIPLES OF TARIFF DETERMINATION

12. 12 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; PRINCIPLES OF TARIFF DETERMINATION

13. 13 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. PRINCIPLES OF TARIFF DETERMINATION

14. 14 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. NOTIFICATION OF DETERMINED TARIFFS

15. 15 Power Purchase Price Return on Rate Base (Return on Assets) Depreciation Other income PYA Distribution Margin -O&M -Salaries, wages and other benefits -Repair & Maintenance -Traveling Allowance -Vehicle maintenance -Other/miscellaneous expenses COMPONENTS OF DETERMINATION OF TARIFF FOR DISTRIBUTION COMPANIES Back

16. 16 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

17. 17 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. FUEL CHARGES ADJUSTMENT MECHANISM

18. 18 FUEL CHARGES ADJUSTMENT MECHANISM The Fuel Charges Adjustment is determined in accordance with following mechanism notified in the official gazette: –Fuel Charges variation = Actual Fuel Cost Component - Reference Fuel Cost Component Where: –Actual fuel cost component is the pool price on which the DISCOs are being charged by CPPA in a particular month; and –Reference fuel cost component is the pool price for the same month projected for the purpose of tariff determination on the basis of assumed fuel prices and generation mix; 18

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21. 21 ADJUSTMENT OF OTHER TARIFF COMPONENTS The remaining components of PPP i.e. capacity charge, transmission charges and adjustment of T&D losses are determined as a pass through cost : –PPP( other than fuel) component variation = Actual Cost Component (adjusted on assessed T&D losses target) – Reference Cost Component (adjusted on assessed T&D losses target) –PYA caters for the timing difference between the date of notification and the control period. 21

22. 22 FUTURE PROSPECTS The Authority as per GOP’s policy decision is shifting the DISCOs tariff regime from single year to multiyears. The Authority is also carving out the distribution area of DISCOs for housing societies and high rising buildings and giving them a status of independent DISCOs. 22

23. 23 THANK YOU.