Actual Regulation Faced by DISCO

Regulated by NEPRA and indirectly by the Federal Government*. All

assets owned by the Federal Govt. Appointment of BoD/CEO.
Mix of cost of Service/RoR regulation and part of RPI-X in the shape
of periodic adjustments.
Regulated by Federal Government. Provinces only involved in
enforcing instructions and deciding on disputes regarding meeting
billing collection, Sec 38.
Provinces can determine Distribution tariff, Sec 7(4). Legal anomaly*.
Mostly Heavy Handed regulation in tariff, but light handed in some
aspect such as performance standards.
Actual Superior
Public
Courts
Regulation Reps
Government
Regulator
Assets Owner
Share Holders

Un-Electrified
PEPCO Area
Residents
Others

Gencos

Transco

Lenders/IFIs

Share holders,
DISCO
Investors
Management
Consumer
 License
• Distribution License, defining exclusive territory.
• Exceptions made in territory for MES, Housing Colonies &
Small Power Producers (SPPs), already selling, distributing.
• Transmission license to NTDC, defining territories,
Transmission Voltage Levels and future Power Structure.
• Generation License to Small Power producers.
• Non discriminatory access or use of system mandatory
through the Transmission and Distribution License.
 Distribution License, Contentious Issues
• DISCOs, under PEPCO, reluctant to accept “regulatory regime”
resisted acceptance of Distribution License, refused to pay fees.
• Initial Issues
Carving exceptions in exclusive territory. Housing colonies, MES
Generation License/permission to SPPs for sale.
License fee rates too high.
• Recent Issues
Distribution license to Bahria Town Housing Scheme.
 Actual Regulatory Dispensation, Tariff
• First Tariff determination for WAPDA power wing in 1999.
proceedings according to TS&P Rules 1998.
• Uniform tariff for all DISCOs except KESC.
• Life line rates, differentiated rates and multi year tariff.
• Transfer Price for DISCOs established.
• Fixed rates for Irrigation and FATA consumers abolished.
• Time of day metering introduced.
• Historical Losses accepted, with targets for reduction.
 Tariff
Initial contentious issues
• Cost of Service not adequately compensated.
• Efficiency targets unrealistic for Losses and recovery.
• Time to convert to Time of Day, unrealistic.
• Difficulty in implementation of Irrigation and FATA Tariff
 Tariff Later Issues
• Cost of Service no compensated for fuel price increase.
• NEPRA determines Cost based rates for each DISCO. Results in
different rates for same categories across DISCOs.
• Government notifies uniform tariff for all DISCOs as (Schedule
2), different than NEPRA determined rates (Schedule 1).
• All DISCOs made to charge the lowest tariff amongst DISCO.
• Commitment to provide subsidy for difference between
NEPRA determined rates and applicable consumer rates.
NEPRA Actual Tariff DispensationGoP notifies uniform
determines tariff as schedule 2
DISCO requests
rates for different than
NEPRA for cost
each DISCO determined by
based tariff.
and sends to NEPRA as schedule
GoP for DISCO directed by 1. Difference to be
Notification. GoP to charge paid as subsidy to
schedule 1 only. every DISCO.

Implication: cost of DISCOs no covered even for Power purchase.

Subsidy no provided by GoP in time. Revenue from DISCOs
inadequate to pay Generation Companies, which in turn default on
payment to Fuel suppliers. Circular debt & burden on budget.
 Tariff
Other Issues
• Reduction of Cross subsidization.
• Tariff Design: Fixed charges for Residential consumers.
• DISCO face two part tariff while paying for transfer Price.
• Consumer class wise rates not based on economic
rationale.
• Initial fixation and variation not correlated to Marginal
Cost.
 Tariff, KESC (Private)
• Multi year Tariff (MYT) determination for KESC, 2002.
proceedings according to TS&P Rules 1998. Separate tariff for
KESC consumers.
• KESC loss making company in 2002.
• MYT, requirement of Government, KESC for attracting investors.
• Tariff for a period in which profits in later years could
compensate loss in initial years to allow a reasonable return over
the period .
• KESC could submit a tariff revision petition at time of
privatization.
 NEPRA Performance Standards
• NEPRA prescribed the performance standards rules. (…….)
• Performance indicators, reporting requirements.
• Report being regularly provided to NEPRA.
• Accuracy of Data collection/record maintenance.
• Reliability assessment complicated by inadequate supply.
• Infrastructure enhancement required for reliability.
• Practicability issues.
• Enforcement.
 Enabling Environment for Competition
• NEPRA issued regulations for Power Procurement.
• Balancing and settlement arrangement, rules regulations or
orders no issued.
• Competitive market not established as new GENCOs not allowed
or encouraged to have Bilateral contracts with DISCOs. Investors
not sure whether DISCOs have capability/skills to be able to buy
directly from GENECOs. DISCOs revenue still going to central
Power Purchase. So financial arrangement not in place. DISCOs
cost of service partially compensated.
• Causes! Who is at fault for not providing enabling environment?
 DISCOs’ Interaction with the Government
• Revenue requirement of DISCOs not met as DISCOs not allowed
to charge NEPRA determined rates from consumers.
• GoP commits to compensate DISCOs through timely subsidy, but
rarely provides.
• DISCOs always short of money to cover cost and pay to
NTDC/PEPCO for onward payment to generation companies.
Result………. Circular Debt problem.
• Is DISCO allowed to retain all of its’ revenues to pay for Power?
• Is DISCO management free to make independent decisions?
 Interaction Between NEPRA & DISCO
Operate within the parameters defined by the License and fiercely guard
exclusive jurisdiction/territory.
• Submit tariff revision petitions clearly demonstrating your
need to ensure financial viability & capability to provide the
service standards set.
• Ensure quality, reliability and safety & inform NEPRA if
capability is affected due to other regulated companies.
• Demonstrate sound investment plan and procurement
programs to ensure capability to comply with performance
standards.
• Attain capacity to take advantage to provision to buy directly
GENCOs and sell to BPCs/DISCOs.
 Pre restructuring KESC
WAPDA
Finance
(Power)
IPPs
WAPDA Bulk Power
Thermal
Consumers

WAPDA
Hydro
DISCOs
DISCOs Other
Dispatch

DISCOs
Central

DISCOs Consumers DIST

Transmission 11toto
DISCOs
1to
to88
8
1 to 88
1
WAPDA
Thermal TRAN
Large
Consumers

GEN
Nuclear

Provision of Service
Imports
Financial Flows
 Single Buyer Arrangement KESC

WAPDA Finance
Hydro (Power)
WAPDA Bulk Power
Consumers
IPPs
Thermal
DISCOs
DISCOs Other
Dispatch

DISCOs
Central

DISCOs Consumers DIST

Transmission 11toto
DISCOs
1to
to88
8
1 to 98
1
Thermal
GENCOs
1,2,3&4 NTDC Large IPPs
Consumers TRAN

KAN
Nuclear NUP

GEN
Provision of Service
Imports
Financial Flows
 Single Buyer Arrangement KESC

WAPDA Finance
Hydro (Power)
WAPDA Bulk Power
Consumers
IPPs
Thermal
DISCOs
DISCOs Other
Dispatch

DISCOs
Central

DISCOs Consumers DIST

Transmission 11toto
DISCOs
1to
to88
8
1 to 98
1
Thermal
GENCOs
1,2,3&4 NTDC Large IPPs
Consumers TRAN

KAN
Nuclear NUP

GEN
Provision of Service
Imports
Financial Flows
 Bilateral Contract Model
Financial Flows
Old Provision of Service
IPPs
Bilateral Contracts
WAPDA
Hydro
Ex. WAPDA
DISCOs
Nuclear Bulk Power
Network Operator
Consumers
CPPA Other Dist.
GENCO
System Operator Companies
1 Other
Consumers
GENCO
NTDC
Large
2 Consumers
CONTRACT REGISTRAR
SETTLEMENT
GENCO
3

Contracts Information
New IPPs
GENCOs
 Options for DISCOs Response
• Factors beyond control of DISCOs.
• DISCO is not responsible for load shedding! who is?
• Knock the door of Government?
• Go to Court???
• Accept the Regulatory dispensation and Government
involvement.
• Within the given environment, improve Corporate
Governance.
• Enhance capacity (quality of Human Resource, Skills).
• Reduce Costs. (Energy Loss reduction programms,
Operational efficiency, resource use).