ISLAMABAD: The National Electric Power Regulatory Authority (NEPRA) has approved a uniform structure of Use of System Charges (UoSC) for bulk power consumers of DISCOs and K-Electric, removing a major regulatory hurdle to open-access electricity trading.
The decision is expected to facilitate the federal government’s plan to auction 400 megawatts of electricity in the first phase under the competitive wheeling framework, instead of the 200MW initially planned.
The move marks an important step towards changing the way electricity is bought and sold in Pakistan, allowing eligible industrial consumers to purchase electricity from suppliers of their choice instead of relying solely on the traditional single-buyer system.
NEPRA announced the determination after considering submissions from the Power Division, Independent System and Market Operator (ISMO), K-Electric and other stakeholders regarding the determination and settlement of UoSC, including inter-DISCO differences, cross-subsidies and transmission and distribution losses.
The Power Division had proposed that any inter-DISCO difference arising from the uniform application of UoSC should not be imposed exclusively on consumers using the wheeling system.
The Power Division had supported a mechanism under which such differences would instead be settled between DISCOs, similar to the existing arrangement for maintaining a uniform tariff for end consumers.
ISMO and K-Electric, however, opposed the proposal, arguing that it could result in different UoSC for open-access consumers compared with similarly placed consumers supplied by suppliers of last resort.
They also maintained that imposing such differential costs on wheeling consumers would not be consistent with the National Electricity Policy 2021 and National Electricity Plan 2023-27.
The Power Division subsequently informed NEPRA that a meeting had been held on August 3 under the chairmanship of the Federal Minister for Energy to clarify the government’s position on the proposed mechanism, including cross-subsidisation and transmission and distribution losses.
The Power Division reiterated that the same and uniform UoSC, including cross-subsidy, should apply to equally placed consumers regardless of their electricity supplier.
It maintained that any inter-DISCO difference resulting from uniform UoSC should instead be settled through an inter-DISCO mechanism similar to the existing system for maintaining a uniform end-consumer tariff.
ISMO later submitted a draft mechanism for settling inter-DISCO UoSC differences.
After examining the submissions, NEPRA held that the main principle should be to ensure that UoSC applicable to open-access consumers remains equal to that applicable to similarly placed consumers supplied by suppliers of last resort.
The regulator concluded that imposing inter-DISCO differences exclusively on wheeling consumers would result in different charges for them and undermine the principles of uniformity and non-discrimination.
NEPRA therefore agreed with the Power Division that such differences should not be passed on exclusively to wheeling consumers.
The regulator also approved uniform transmission and distribution loss factors for open-access consumers.
Based on the transmission and distribution losses of individual DISCOs, NEPRA determined the uniform loss factor at the 11kV level at 8.04 percent, lower than the 8.42 percent claimed by the Power Division.
For consumers connected at 132kV, the regulator approved a uniform loss factor of 1.51 percent, as proposed by the Power Division.
Under the approved structure, variable grid charges for consumers participating in the competitive wheeling auction will range from Rs6.23 to Rs19.62 per unit, depending on the consumer category.
A fixed grid charge of Rs1 per kilowatt per month, based on sanctioned load, will also apply.
The approved variable UoSC has been set at Rs6.23 per unit for B-3 consumers, Rs9.09 for B-4, Rs14.95 for C-3, Rs19.62 for C-2(a), Rs17.74 for C-2(b), Rs19.14 for A-2(c), Rs19.10 for A-3 and Rs6.72 for D-2(b).
The UoSC comprises transmission charges, distribution charges and cross-subsidy.
For B-3 consumers, the Rs6.23 per-unit UoSC comprises Rs1.60 in transmission charges, Rs1.99 in distribution charges and Rs2.63 in cross-subsidy.
For B-4 consumers, the Rs9.09 per-unit charge comprises Rs1.26 in transmission charges, Rs2.78 in distribution charges and Rs5.05 in cross-subsidy.
NEPRA has also approved stranded-cost components for consumers opting for open access without participating in the competitive wheeling auction.
The stranded-cost component has been set at Rs12.94 per unit for consumers connected at 11kV and Rs16.35 per unit for consumers connected at 132kV or 66kV.
With the addition of stranded costs, the total variable UoSC has been determined at Rs19.17 per unit for B-3 consumers, Rs25.45 for B-4, Rs31.30 for C-3, Rs32.56 for C-2(a), Rs30.68 for C-2(b), Rs32.08 for A-2(c), Rs32.04 for A-3 and Rs19.66 for D-2(b).
The federal government had specifically sought uniform application of UoSC to K-Electric, arguing that any resulting financial gap should be addressed through an additional charge rather than a government subsidy.
NEPRA decided that the additional charge would be applied to all consumers, including open-access consumers and consumers supplied by suppliers of last resort, in order to maintain the principle of uniformity.
On the issue of differences arising from uniform transmission and distribution losses, NEPRA noted that although ISMO had proposed a settlement mechanism, the proposal had not yet been fully discussed among all stakeholders.
The regulator further observed that the National Electricity Plan 2023-27 requires NEPRA to prescribe a mechanism for settling inter-DISCO differences arising from the application of uniform UoSC, but does not specifically require a mechanism for energy differences resulting from uniform transmission and distribution losses.
NEPRA therefore decided not to approve any mechanism for such differences at this stage.
The NEPRA decision has now been intimated to the federal government for notification in the official Gazette within 30 calendar days, in accordance with Section 31(7) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997.
If the federal government fails to notify the decision within the prescribed 30-day period, NEPRA will itself notify the decision in the official Gazette under Section 31(7) of the NEPRA Act.
Meanwhile, Federal Minister for Energy Sardar Awais Ahmad Khan Leghari welcomed the NEPRA decision, describing it as a major milestone towards establishing a competitive electricity market in Pakistan.
He said the determination of the Use of System Charge was the final major regulatory step required for the Competitive Trading Bilateral Contract Market (CTBCM), paving the way for its auction.
According to Leghari, the competitive electricity market will move Pakistan beyond the traditional single-buyer system by allowing eligible industrial consumers to purchase electricity directly from suppliers of their choice on a bilateral basis.
He said the benefits of competition would not be limited to industrial consumers, as greater competition in electricity procurement could lead to more efficient power generation, better prices and improved utilisation of existing power plants.
The minister said the competitive market could also reduce inefficiencies across the electricity value chain and encourage the integration of renewable energy and battery storage.
It would also facilitate better utilisation of low-cost domestic energy resources and help reduce the country’s dependence on expensive imported fuels, he added.
Leghari said NEPRA’s decision provides the regulatory framework necessary for direct access, while the CTBCM auction would represent a significant structural change in Pakistan’s electricity market.
He reiterated the Ministry of Energy’s commitment to implementing the competitive electricity market in a transparent and effective manner and providing eligible consumers with greater choice.
The approval of the UoSC structure represents a key step towards opening Pakistan’s electricity market to competition, with the proposed 400MW first-phase auction now moving closer to implementation.