The National Electric Power Regulatory Authority (NEPRA) has approved uniform Use of System Charges (UoSC) for bulk power consumers of distribution companies and K-Electric, paving the way for open-access electricity trading and a 400MW auction in the first phase.
The decision removes a major regulatory hurdle to the federal government’s plan to introduce competition into Pakistan’s electricity market. The first phase of the auction is now expected to offer 400MW of electricity, double the 200MW capacity initially envisaged under the competitive wheeling framework.
The new system will allow eligible industrial consumers to buy electricity from suppliers of their choice rather than relying entirely on the traditional single-buyer arrangement. Power suppliers and consumers will be able to enter into bilateral contracts under the Competitive Trading Bilateral Contract Market (CTBCM).
NEPRA approved the UoSC structure after reviewing proposals and comments from the Power Division, Independent System and Market Operator (ISMO), K-Electric and other stakeholders.
The regulator examined several issues linked to open access, including inter-DISCO differences, cross-subsidies and transmission and distribution losses.
A major issue before NEPRA was whether any differences between DISCOs arising from the uniform application of UoSC should be recovered directly from consumers using the wheeling system.
The Power Division argued that such differences should not be imposed exclusively on wheeling consumers. It proposed that they should instead be settled through an inter-DISCO mechanism similar to the arrangement used for maintaining a uniform end-consumer tariff.
ISMO and K-Electric opposed the proposal, maintaining that charging such differences to wheeling consumers could result in different charges for open-access consumers compared with similarly placed consumers supplied by suppliers of last resort.
After considering the submissions, NEPRA decided that open-access consumers should face the same UoSC as similarly placed consumers supplied by suppliers of last resort.
The regulator therefore agreed that inter-DISCO differences should not be passed exclusively to wheeling consumers, saying this could undermine uniformity and non-discrimination.
NEPRA also approved uniform transmission and distribution loss factors for open-access consumers. The loss factor at the 11kV level was set at 8.04 percent, against 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.
Under the approved structure, variable UoSC 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 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 charges include transmission charges, distribution charges and 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.
As a result, total variable UoSC, including stranded costs, 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 also sought uniform application of UoSC to K-Electric. It argued that any resulting financial gap should be addressed through an additional charge rather than a government subsidy.
NEPRA decided that the additional charge would apply to all consumers, including open-access consumers and those supplied by suppliers of last resort, in order to maintain uniformity.
However, the regulator did not approve any mechanism at this stage for settling differences arising from uniform transmission and distribution losses, noting that the proposal had not been fully deliberated among stakeholders.
The NEPRA decision has been intimated to the federal government for notification in the official Gazette within 30 calendar days under 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 period, NEPRA will notify the decision itself in the official Gazette under the same provision.
Federal Minister for Energy Sardar Awais Ahmad Khan Leghari welcomed the decision and described it as a major milestone towards establishing a competitive electricity market.
He said determination of the UoSC was the final major regulatory step required for CTBCM and had paved the way for its auction.
Leghari said the competitive market would allow eligible industrial consumers to purchase electricity directly from suppliers of their choice on a bilateral basis.
He said greater competition could result in more efficient power generation, better prices and improved utilisation of existing power plants.
The minister added that the competitive market could also encourage renewable energy and battery storage, improve the use of low-cost domestic energy resources and reduce dependence on expensive imported fuels.
He said the Ministry of Energy was committed to implementing the competitive electricity market in a transparent and effective manner and providing eligible consumers with greater choice.
The NEPRA approval has consequently brought the proposed 400MW first-phase electricity auction closer to implementation and marked a major step towards opening Pakistan’s power market to competition.
