Nepra disallows inclusion of stranded cost, cross subsidy in wheeling tariff

ISLAMABAD: In a major development, Nepra has refused to include the stranded cost and cross subsidy demanded by DISCOs and CPPA in the wheeling charges, paving way for the country’s industrial sector to thrive with lower cost of electricity.

With the decision, wheeling charges for bulk power consumers will stay at Rs1.50-2 per unit. The decision will strengthen the wheeling regime, which is a pre-requisite for the development of energy market in Pakistan.

Nepra gave its decision in the matter of Wheeling Costs to be included in the tariff determination of DISCOs under the Annual & Multi-Year Tariff Regime (FY 2018-19 & FY 2019-20). The bulk power consumers (PBC) are being provided electricity at Rs14-15 per unit from CPPA (Central Power Purchase Agency) but after Nepra's refusal to include the stranded cost and subsidy in the wheeling charges, any power house can sell its electricity at Rs8-9 per unit to its bulk consumers.

The authority considered that the imposition of stranded cost and cross subsidy as of today would not only discourage the wheeling regime in Pakistan but at the same time would also provide no incentive to DISCOs to improve their performance in terms of reduction in T&D losses, minimise pendency of new connections and increase recoveries. And to promote healthy competition and pressurise DISCOs to improve their performance, the authority decided not to include any charges on account of stranded costs and cross subsidy in the wheeling charges. The authority has also intimated to the federal government for notification in the official gazette in terms of Section 31(7) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997.

The Central Power Purchase Agency (CPPA) has submitted that the Stranded Asset Cost and Cross-Subsidy charges are relevant costs that need to be incorporated into the wheeling charges and if these issues are not properly taken into account in the existing wheeling regime, it would have huge financial implications on the regulated consumers.

The CPPA in its submission had pleaded, saying for lESCO, the impact of avoiding the cross-subsidy is Rs 5.17/kWh to Rs 8.74/kWh for off-Peak consumption and Rs 11.07/kWh to Rs 13.89/kWh for Peak consumption for all large consumers providing cross-subsidy.

Furthermore, at the pool level, the requirement of cross-subsidy is Rs250 billion for the current year and will increase to Rs 371 billion in the FY 2024-25. And mentioning about the Stranded Cost, CPPA had submitted with Nepra in its petition that the resulting financial impact in terms of stranded cost at 11-kV and 132 kV consumers, respectively ranges from Rs 3.79/kwh and Rs 5.66/kwh for IESCO and Rs 8.55/kWh to Rs 14.11/kwh for HESCO.

The CPPA also submitted that if there is reduction in total energy sales by 1pc due to wheeling, the current resulting financial impact on DISCOs, their consumers is Rs 14 billion for the FY 2020-21. However, Nepra rejected the submission of CPPA and DISCOs.