National Electric Power Regulatory Authority Islamic Rebublic of Pakistan

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1 National Electric Power Regulatory Authority Islamic Rebublic of Pakistan 2nd Floor, OPF Building, G-512, Islamabad Ph: , , Fax: No. NEPRA/TRF-220/MEPCO-2012/ April 29, 2013 Subject: Determination of the Authority in the matter of Petition filed by Multan Electric Power Company Ltd. for Determination of its Consumer end Tariff Pertaining to the FY [Case # NEPRA/TRF-220/MEPC0-2012] - Intimation of Determination of Tariff pursuant to Section 31(4) of the Regulation of Generation, Transmission and Distribution of Electric Power Act (XL of 1997) Dear Sir, Please find enclosed herewith the subject Determination of the Authority along with Annexure-I, II, III, IV, V & VI (65 pages) in Case No. NEPRA/TRF-220/MEPC The Determination is being intimated to the Federal Government for the purpose of notification of the approved tariff in the official gazette pursuant to Section 31(4) of the Regulation of Generation, Transmission and Distribution of Electric Power Act (XL of 1997) and Rule 16(11) of the National Electric Power Regulatory Authority (Tariff Standards and Procedure) Rules, Please note that only the Order of the Authority at para 31 of the Determination along with Annexure-I (Fuel Price Adjustment Mechanism), Annex-III (Schedule of Electricity Tariffs), Annex-IV (Fuel Cost Component, Variable O&M, CpGenCap & USCF) and Annex-V (Terms and Conditions) needs to be notified in the official Gazette. Enclosure: As above 4 Li ( Syed Safeer Hussain ) Secretary Ministry of Water & Power `A' Block, Pak Secretariat Islamabad CC: 1. Secretary, Cabinet Division, Cabinet Secretariat, Islamabad. 2. Secretary, Ministry of Finance, Islamabad.

2 No. NEPRA/TRF-220/MEPCO-2012 NATIONAL ELECTRIC POWER REGULATORY AUTHORITY (NEPRA) PETITION NO: NEPRA/TRF-220/MEPC TARIFF DETERMINATION FOR MULTAN ELECTRIC POWER COMPANY (MEPCO) DETERMINED UNDER NEPRA TARIFF (STANDARDS AND PROCEDURE) RULES PERTAINING TO THE FY ISLAMABAD April 23, 2013

3 No. NEPRA/TRF-220/MEPCO-2012 DETERMINATION OF THE AUTHORITY IN THE MATTER OF PETITION FILED BY MULTAN ELECTRIC POWER COMPANY LIMITED (MEPCO) FOR DETERMINATION OF ITS CONSUMER END TARIFF PERTAINING TO THE FY CASE NO. NEPRA/TRF/220/MEPC PETITIONER Multan Electric Power Company Limited (MEPCO), MEPCO Headquarter, Khanewal Road, Multan. INTERVENERS 1. Pakistan Cotton Ginners Association, Multan 2. Masood Spinning Mills, Multan 3. Ahmad Hassan Textile Mills, Multan 4. Chamber of Small Traders Multan 5. Multan Chamber of Commerce & Industry 6. Roomi Cotton Ginning Industries (Pvt) Ltd., 7. All Pakistan Anjuman Tajran COMMENTATOR 1. Rao Iftikhar Ahmed REPRESENTATION 1. Ch. Guftar Ahmad, Chief Executive Officer, MEPCO 2. Syed Mushtaq Hussain Bukhari, Finance Director, MEPCO 3. Mr. Anjum Naveed Arain, G.M. Customer Services 4. Mr. Malik Imtiaz Ahmad, Manager Commercial 5. Mr. jahangir Bhutta, Manager Finance (CP&C) 2

4 No. NEPRA/TRF-220/MEPC Abbreviations CpGenCap CPPA DISCO DM FY GOP MoWP GWh KV kw kwh MW NEPRA O&M PEPCO PPP PYA RAB RORB SRO T&D TOU USCF The summation of the capacity cost in respect of all CpGencos for a billing period minus the amount of liquidated damages received during the months Central Power Purchasing Agency Distribution Company Distribution Margin Financial Year Government of Pakistan Ministry of Water and Power Giga Watt Hours Kilo Volt Kilo Watt Kilo Watt Hour Mega Watt National Electric Power Regulatory Authority Operation and Maintenance Pakistan Electric Power Company Power Purchase Price Prior Year Adjustment Regulatory Asset Base Return on Rate Base Statutory Regulatory Order Transmission and Distribution Time of Use The fixed charge part of the Use of System Charges in Rs./kW/Month 3

5 No. NEPRA/TRF-220/MEPCO-2012 The Authority, in exercise of the powers conferred on it under Section 7(3) (a) read with Section 31 of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997, Tariff (Standards and Procedure) Rules, 1998 and all other powers enabling it in this behalf, and after taking into consideration all the submissions made by the parties, issues raised, evidence/record produced during hearings, and all other relevant material, hereby issues this determination. 2-0)3 (Khawaja Muhammad Naeem) Member cy-( X(r( abibullah Khiji) Member 01/1 e N.. (Maj (Rtd) Haroon Rashid Member Lkixik/17 (Shaukat Ali Kundi) Vice Chairman 25: oef. /3 4

6 No NEPRA/TRF-220/MEPCO BACKGROUND: 1.1 Multan Electric Power Company Limited (MEPCO), hereinafter, called "the Petitioner" being Distribution Licensee of NEPRA filed tariff Petition for the determination of its consumer end tariff pertaining to the FY The grounds and basis of the Petition are described as under: 1.2 GROUNDS OF PETITION: The Petitioner submitted that its tariff consists of two components i.e. pass through cost and distribution margin. The major portion of pass through cost is power purchase price which the company has to pay to ensure continuous flow of power in its distribution system. In addition, the Petitioner must earn sufficient distribution margin and adequate stream of cash flow to maintain its system, discharge its financial commitments, and invest on the augmentation and expansion of the network and a reasonable return to sponsor on its investments. The Petitioner submitted that the following factors necessitate filing of fresh tariff petition. Increase in the cost of Power Purchased; Increase in O&M cost; Low tariff rate due to unrealistic line losses; Prior Period Adjustment. Delayed Tariff determination/notification. Delayed and irregular determination of FPA. Nonpayment of UOSC by other DISCOs. 2. RELIEF SOUGHT: 2.1 The Petitioner has sought the following relief: Determination of Consumer-End Tariff as submitted; Acceptance of Revenue Requirement as computed by the company. Ensure recovery of required revenue by timely determination. Assurance of adequate O&M; Acceptance of Investment Plan; Introduction of separate tariff for Seasonal Industries; Bifurcation of Al tariff into Residential and Non-Residential; Application of Fixed Minimum Charges for A2(C) & D (Agriculture Tariff) and rationalization of Minimum Charges and Fixed Minimum C arges; Any other relief which the Authority may deem proper. 5

7 No. NEPRA/7'RF-220/MEPC PROCEEDINGS: 3.1 In terms of rule 4 of the Tariff Standards and Procedure Rules 1998 (hereinafter referred to as "Rules"), the Petition was admitted by the Authority on 30th August, In compliance of the provisions of sub-rules (5) & (6) of the Rule 4, notices of admission and hearing were sent to the parties which were considered to be affected or interested. An advertisement in this regard was also published in the leading national newspapers with the title and brief description of the petition on September 11, FILING OF OBJECTIONS/ COMMENTS: 4.1 Comments/replies and filing of intervention request, if any, was desired from the interested person/ party within 7 days of the publication of notice of admission i.e. September 11, In response thereof, following intervention requests were filed ; 1. Pakistan Cotton Ginners Association, Multan 2. Masood Spinning Mills, Multan 3. Ahmad Hassan Textile Mills, Multan 4. Chamber of Small Traders Multan 5. Multan Chamber of Commerce & Industry 6. Roomi Cotton Ginning Industries (Pvt) Ltd., 7. All Pakistan Anjuman Tajran 4.2 In addition to aforementioned comments were received from Rao Iftikhar Ahmed. 4.2 Pakistan Cotton Ginners Association (PCGA): Relief sought by PCGA is as under: i. The Petitioner has proposed amendment in Clause 3 of Seasonal Industrial Tariff "F". PCGA strongly protest for all required amendments by the petitioner as this long disputed matter was resolved in tariff determination for the FY 2003 and implemented in The Intervener while referring the said determination has also acknowledged that 40% of the fixed charges are being recovered from the consumers through fixed charges. This clearly indicates that the consumers are not obliged to pay fixed charges during load shedding. Further, the BT cotton has come in field whose period is spread over 10 months, therefore cotton ginning is not seasonal 6

8 No. NEPRA/TRF-220/MEPCO-2012 industry but a permanent industry. The Authority must not allow any type of amendment in terms and conditions of seasonal industrial tariff. ii. Regarding increase in fixed charges pertaining to B2 & B-3 tariff, it is stated that electricity supplied during cotton season is maximum 8-10 hrs and this supply is not continuous as well. iii. iv. The requested increase in rates of B2 & B3 tariff must be disallowed as these rates are already very high than Power purchase price and O&M costs of the Petitioner. Regarding proposal of Petitioner, to introduce new special seasonal tariff for cotton ginning industry; it is stated that this industry is also located in other DISCOs i.e. LESCO, FESCO and HESCO and there is no such proposal from other DISCOs. v. In the Petitioner's area, there are mostly ginning, oil and ice factories. The Petitioner applies 25% seasonal charges on ginning and oil mills in winter and the same rate is applied to Ice factories in summer. It was requested to reduce seasonal charges up to 10%. Further, these charges may be applied on variable charges and not on fixed charges. 4.3 Masood Spinning Mills, Multan: i. The T&D losses for B-2 and B-3 consumers are 16% and 7 % respectively, thus, the increase in the rates for B-3 tariff should be lower by 9% as compared to B-2 tariff. ii. The demand for increase in fixed charges from Rs.400/KW Rs.500/KW may be disallowed because in 2008, the Authority has decided that 40% of capacity charges are to be charged as fixed charges and 60% as variable charges. iii. In case the Petitioner's proposed tariff is approved then the rate of electricity would be Rs.16/KWh. Their competitor mills are using their own sui gas for generations and are getting electricity at the rate of Rs.5.3/KWh. In this way many mills will close and workers would be jobless therefore the increase in B-3 consumer tariff may be disallowed. 4.4 Ahmad Hassan Textile Mills, Multan The concerns of Ms. Ahmad Hassan Textile Mills, Multan, are as under ; i. We are B-4 Consumer, the line losses of B-4 consumers is only 3.5% whereas line losses of B-2 consumers is about 1 %, therefore, tariff for B-4 may be fixed less than 12.5% in comparison of B-2 tariff., At-- 7

9 No. NEPRA/TRF-220/MEPCO-2012 ii. MEPCO has demanded increase in fix charges which is not fair as 60% of the capacity charges are being charged in variable charges as per NEPRA determination. iii. If MEPCO demanded tariff is implemented then the Electricity will cost 15.5/kw; whereas the other competitor Mills having own sui gas generation is costing about Rs. 5.3/kw. In this way many mill will close and lacs of workers will be jobless. 4.5 Roomi Cotton Ginning Industries, Multan: Roomi Cotton Ginning Industries made similar submissions as those made by the Pakistan Cotton Ginners Association. 4.6 Multan Chamber of Commerce & Industry (MCCI): MCCI contended the following ; that the industrial tariff in other industrial countries like China, Bangladesh and India is very low; therefore, the industrial tariff in Pakistan should also be kept at par with its neighboring countries. that many industries are using their own captive power plants by using sui gas and their cost is about Rs.5.3/KWh. The industries which are using Petitioner's connections are closing day by day due to huge difference in electricity cost. Hence, the Authority is requested not to increase tariff. that the sales of the Petitioner is decreasing day by day and O&M cost is increasing day by day. The Petitioner should be asked to control its O&M Cost. that the MCCI represents large, small and medium size industries. The most of industrial consumers are on combined feeder and load shedding is made with intervals by which it becomes impossible to run even single shift industry. The Petitioner should arrange for one time regular supply. 4.7 Chamber of Small Traders, Multan Mr. Zafar Iqbal, Chairman Tax Committee of Chamber of Small Traders, submitted the following concerns ; Commercial tariff is very high and unjust with respect to other consumers. The Authority is requested not to allow increase and make tariff equal with other consumer categories.. / 8

10 No. NEPRA/TRF-220/MEPCO-2012 Existing tariff is already high if compared with other provinces likely Baluchistan and KPK. The claimed/proposed increase is up to 21% whereas the GDP growth is 2.5% and the national inflation forecast is below 10% 4.8 All Pakistan Anjuman Tajran All Pakistan Anjuman Tajran submitted the same as Chamber of Small Traders, Multan. 4.9 Commentator Rao Iftikhar Ahmed Rao Iftikhar submitted the following comments; that he is a residential consumer of the Petitioner, hence reserves right to agitate the proposed increase. The proposed increase in electricity tariff has direct relation with theft of electricity. Thus higher electricity rates would result in enhanced electricity theft. According to the Commentator, if certain administrative measures are taken it would reduce the line losses such as: - 5. HEARING Strict energy conservation measures at Petitioner's Offices. To check the misuse of free electricity facility for its employees. To control the official usage of Petitioner's vehicles whereby its private usage and bogus TA/DA claims should be eliminated. To check the steeling of petrol and diesel for the Petitioner's vehicles. To install meters on consumer's premises rather than on electricity polls. 5.1 The pleadings so available on record were examined by the Authority and in order to arrive at a just and informed decision, it was decided to conduct a hearing into the matter on 1st October, Notice of admission/hearing were sent to the concerned parties and published in the leading newspapers on 11th September, As per the schedule, the hearing was conducted on 1st October, 2012 at Multan Chamber of Commerce & Industry, Shahrah-e- Aiwan-e-Tijarat-o-Sanat, Multan. During the hearing, the Petitioner was represented by Mr. 9

11 No. NEPRA/TRF-220/MEPCO-2012 Guftar Ahmad, Chief Executive Office MEPCO along with his financial and technical teams. The Interveners and general public also participated in the hearing. During the hearing the Petitioner's Representative requested to provide them opportunity of another hearing on the subject of O&M and T&D losses as according to their statement they could not fully express their point of view on the matter. The Petitioner through its letter# FDM/Tariff/ dated 12th October, 2012 submitted the same request in writing. Accordingly another consultative meeting on the aforementioned subject was held on 11th December, FRAMING OF ISSUES: 6.1 Following issues were framed to be considered during the hearing and for presenting written as well as oral evidence and arguments:- 1. Future Tariff Methodology for the determination of consumer end tariff pertaining to the FY Whether the contentions raised by the Interveners and Commentator are justified? 3. Whether the Petitioner has complied with the directions of the Authority regarding 100% installation of TOU meters, cost benefit analysis of investments and creation of independent post retirement benefits funds. What are the post TOU financial implications on the Petitioner's revenue? 4. Whether the Petitioner's projected purchase of 12,855 GWh and sales units of 10,734 GWh for the FY , are reasonable? 5. Whether the Petitioner's proposed transmission and distribution losses of 16.5% for the FY are justified? 6. Whether the Petitioner's proposed investments plan of Rs. 8,697 million for the FY is justified keeping in view the prospective benefits? 7. Whether the Petitioner's projected Power Purchase Cost of Rs. 129,077 million for the FY is justified? 8. Whether the Petitioner's projected O&M cost of Rs.9,906 million for the FY based on the actual cost of Rs. 8,825 for the FY is justified? 9. Whether the Petitioner's proposed depreciation charges of Rs. 2,899 million for the FY after accounting for projected addition to fixed assets, is correctly projected? 10. Whether the Petitioner's proposed provision for bad debt amounting to Rs.300 million is justified? 11. Whether the Petitioner's projected Return on Regulatory Asset Base of Rs.4,344 million for the FY is justified? 12. Whether the Petitioner's projected Other Income of Rs.3,796 million for the Y based on the determined income of the FY , is reasonable? TA 10

12 No. NEPRA/TRF-220/MEPCO :Whether the prior year adjustment of Rs.19,850 million as calculated by MEPCO is correct? 14. Whether the financial charges amounting of Rs. 2,500 million claimed by the petitioner is justified? 15. Whether the Petitioner's proposed Revenue Requirement of Rs. 164,781 million at an average sale rate of Rs /KWh for the FY is correct and justified? 16. Whether the Petitioner's request with respect to amendment in Clause 3 of Seasonal tariff "F" is justified? 17. Whether the revision/modification of the fuel charge mechanism requested by Pakistan Steel Melters is justified? 6.2 On the basis of pleadings, evidence/record produced and arguments raised during the hearing, issue-wise findings are given as under: 7. Issue #1. Future Tariff Methodology with respect to the Annual assessment, Quarterly and monthly adjustments for the FY DISCOs current operational and financial cycle emanates over a complete year, whereby; lesser revenue generated in winter is compensated by higher revenue generated in the summer of the same financial year; changes in generation mix resulting in lower PPP in wet seasons (with greater hydel generation) compensating high PPP in winter (with greater generation reliance on RFO); Variation in T&D Losses due to seasonal fluctuation. 7.2 As per the guidelines under Rule 17 of the Tariff Standards and Procedure Rule 1998 the tariff should be predictable. In order to minimize the volatility in consumer-end tariff due to aforementioned reasons, the Authority determines revenue requirement annually. However, certain adjustments; like impact of T&D losses which are not considered at the time of monthly fuel adjustments, variation in capacity transfer price and UoSC, impact of extra or lesser purchases of units to the extent of PPP could be made on quarterly basis. The same rationale and methodology has been adopted while determining the average sale rate of the Petitioner for the FY Thus, following components of tariff would be subject to annual assessment review; Assessment of T&D losses target. Assessment of Sales target. Impact of Consumption mix variance. 11

13 No. NEPRA/TRF-220/MEPCO-2012 Assessment of reference monthly PPP values (including energy (fuel + variable O&M), capacity & transmission charges). Assessment of Distribution Margin, and Assessment of Prior period assessment, if any. Quarterly Adjustments 7.3 On the basis of annual assessment, the consumer end tariff for the FY would be worked out subject to the following quarterly adjustments would be limited to; 1. The adjustments pertaining to the capacity and transmission charges; 2. The impact of T&D losses on all the components of PPP; 3. Impact of extra or lesser purchases of units on account of PPP; and 4. Adjustment of Variable O&M as per actual. Monthly Fuel Adjustments 7.4 As per second provisio to section 31(4) of NEPRA Act, the Authority has to make adjustment in the approved tariff on monthly basis due to variation in fuel charges. Thus, the existing practice with respect to the adjustments on account of variations in fuel cost components of PPP on monthly basis would continue. This adjustment reflects in the consumers' monthly bill as Fuel Adjustment Charge. All the relevant data and information shall be furnished by the Central Power Purchasing Agency for making such an adjustment. In order to meet the ends of natural justice the key information will be published in the major newspapers for public notice for response thereof. For making this adjustment distribution losses shall not be taken into account. The impact on this account shall be worked out on quarterly basis and the schedule of tariff will be revised/modified accordingly. 7.5 The Authority may review these references along with any quarterly adjustment. Since PPP is pass through for all the DISCOs therefore its monthly references would continue irrespective of the financial year, till such time these are revised and accordingly SOT is modified and notified in the official gazette. 8. Issue # 2. Whether the contentions rose by the Interveners and Commentator are justified? 8.1 Since the concerns raised by the Interveners are similar in nature ; therefore instead of discussing it separately; are being addressed collectively hereunder; The contentions with respect to Clause 3 of Seasonal Industrial Tariff "F", raise and Rommi Cotton Ginning Factory, are addressed under the relevant issue. PCGA CO 12

14 e J Decision of the Authority in the matter of Multan Electric Power Company Limited No. NEPRA/TRF-220/MEPC The Authority has carefully examined the request of Intervener for not increasing the fixed charges keeping in view the load shedding scenario prevailing in the country. The Authority while agreeing to the intervener's contention is also of the view that it has to ensure recovery of Petitioner's legitimate costs. In view thereof, the Authority has decided to recover the additional fixed costs through variable charges instead of increasing the fixed charges. The consumer will be accordingly protected against the load shedding, as it will not be liable to pay fixed charges when it is not consuming electricity. The request of intervener for not increasing the tariff of B2 and B3 industrial consumers has been considered. It has been observed that the Intervener in support of its request has not provided any cogent reason or evidence in support of its request in this regard. The Authority is cognizant of the difficulties of consumer; however it also has to strike balance to protect the interest of the consumers as well as the companies. The Authority considers that if the legitimate costs for provision of electricity to the consumers is not allowed to be recovered, the company's operation may be adversely affected, which again will not be in the consumer's interest. The Authority further consider that the Intervener is also aware of fact that there are factors like fuel prices, inflation and rupee devaluation, which are beyond the Petitioner's control. In view thereof the tariff has to be revised/modified to cater for such changes. The Intervener's request of reducing seasonal charges to 10% from 25% is without any basis and rationale. The Intervener's request of setting B3 and B4 rates in a proportion to a certain percentage in comparison with B2 tariff is not exhaustive. The request of setting B3 and B4 tariffs 9% and 12.5% below the B2 tariff is not substantiated with any working, The Intervener has ignored the fact that B3 and B4 industrial consumers are double shift/triple shift consumers as against B2 consumers, which are single shift consumers. The fixed charges are to be recovered according to the usage of each category of consumers. The issue of allocation of cost has been discussed in the previous determinations. The same principle is being maintained in the instant case. The Intervener's contention that it is highly uncompetitive for it to be on Petitioner's network is not valid. It is not mandatory for any consumer to remain on the Petitioner's network and there is no bar on the Intervener to opt for self generation or to purchase from alternative resource. Further, the consumer-end tariff is primarily dependant on the input cost and sources of generation, which is not in Petitioner's control. Most of the electricity in Pakistan is generated from expensive fuels as compared to its regional 13

15 No. NEPRA/TRF-220/MEPCO-2012 peers. As long as share of RFO and HSD based generation is high, the cost of generation will remain higher and will be reflected in consumer-end tariffs. While assessing O&M costs the Authority only allows prudently incurred costs. On the issue of unscheduled load shedding, any aggrieved person may file complaint duly supported with the evidences, on the subject matter, with the Authority. As and when any such complaint is filed, the same will be considered and decided accordingly. Majority of the commercial consumers use heavy lighting particularly at peak hours. As a result thereof, the plants on expensive fuel have to be operated. Due to aforesaid reason and to discourage inefficient use of electricity, the tariff of commercial consumers is fixed comparatively higher. The Interveners contention with respect to higher commercial tariff of the Petitioner as compared to KP and Baluchistan, is not clear since all the commercial consumers in Pakistan are paying uniform subsidized electricity rate, which is notified by GOP as Schedule II. However, the Authority's determined tariffs ( Schedule I) is different for different companies because it is determined keeping in view the parameters and requirements of a respective DISCO. The analysis of the Intervener that the claimed/proposed increase is up to 21% where as the GDP growth is 2.5% and the national inflation forecast is below 10%, lacks clear understanding as the average tariff comprises of about 85% of generation cost including 70% fuel cost. The fuel cost does not vary with the GDP and national inflation, rather it varies due to variation in international oil prices and exchange rates. 8.2 On the points raised by the Commentator, the following response was given by the Petitioner; It has already replaced the tube light & bulbs with florescent lamps/energy savers in its Offices. In this regard strict monitoring is being done to ensure usage of A.C. in light of instruction of GOP. Electricity up to limitation of entitled units are allowed to serving and retired personnel which is checked and looked with employees' EPF number which is universal and unique. Moreover all DDAs have to verify the eligibility of said facility at the start of p very financial year as per procedure; hence there are least chances of such incidents. 14

16 No. NEPRA/TRF-226YMEPC Transport allocated to the officers is meant for official use. The Petitioner has reduced the fuel limit in austerity measure and monitoring it strictly. In response to fuel theft from PSO pumps, the Petitioner replied that it has its own fuel pumping station which is under vigilance of a designated officer. The new energy meters are installed in the poli-corborated box where the chance of getting burnt due to rain water is a very least. Shifting of meters as proposed on the wall is not agreed and will require huge investment. 8.3 The Authority considers that the administrative concerns raised by the Commentator have been reasonably addressed by the Petitioner. However, the Authority feels that only strong internal control checks guarantee a sustainable efficient environment and achieving those is a continuous process and the Petitioner must continue its efforts to ensure that such checks are well in place and continue to exist. 9. Issue # 3. Whether the Petitioner has complied with the directions of the Authority regarding 100% installation of TOU meters, cost benefit analysis of investments and creation of independent post retirement benefits funds. What are the post TOU _financial implications on the Petitioner's revenue? 9.1 As per the Petitioner it has complied with the directions of the Authority and has completed 100% installation of TOU meters. It was further informed by the Petitioner vide its letter FDM/BS/4837 dated 16th August, 2012 that it has conducted a survey in order to detect consumers having sanctioned load of less than 5 KW, whereby their actual load is more than 5KW. As per the Petitioner, as a result of that it has detected 3,785 such meters. The Petitioner also submitted that it is charging its consumers on the basis of Peak / Off Peak rates after successful installation of TOU meters. During the hearing, the Petitioner, also informed that it has a net positive revenue impact of of Rs. 327 million, post TOU. 9.2 While acknowledging the Petitioner's achievements in this regard, the Authority feels that the consumer awareness with respect to TOU meters and training of its concerned staff has become very crucial. In view thereof, the Petitioner is directed to carry out the training sessions of its concerned staff from the manufacturing companies of TOU meters. The Petitioner, is further directed to continue consumer awareness campaign on the following lines ; 15

17 Sys Decision of the Authority in the matter of Multan Electric Power Company Limited No. NEPRA/TRF-220/MEPC A wide spread print and electronic campaign needs to be launched in order to create awareness and educate the consumers regarding the benefits of TOU meters. Special briefing sessions on TOU metering benefits should be held by the Consumer Services Directorate of the Petitioner with Commercial & Industrial consumer's Associations or their Trade Unions as the case may be. All the concerned staff, meter readers and their supervisors are required to be thoroughly trained in order to ensure that accurate Peak/ Off-Peak meter readings are made. The compliance of the rest of the directions are discussed under the relevant heads of issues. 10. Issue # 4: Whether the Petitioner's projected purchase of 12,855 GWh and sales units of 10,734 GWh for the FY , are reasonable? 10.1 The Petitioner, on the basis of updated figures projected its sales for the FY as 10,734 GWh assuming purchase of 12,855 GWhs. The Petitioner stated that its actual sales during the FY remained around 10,221 GWh with actual purchase of 12,451 GWhs as against the Authority's assessment of 12,879 GWhs. The Petitioner informed that it has assumed 5.05% growth over the actual sales of the FY Although, there is an inbuilt mechanism for adjusting actual variation in sales against the estimated sales, yet in order to avoid unnecessary fluctuations in the consumer-end tariff it is appropriate to make realistic assessment of the purchases and sales. Moreover, it is also important for the assessment of monthly reference fuel charges for making monthly fuel charges adjustment pursuant to Section 31(4) of Regulation of Generation, Transmission and Distribution Act (XL 1997). In view thereof, the Authority has carried out a detailed exercise for estimating station wise generation pertaining to the FY On the basis of 3 year's actual trend of purchase of power and prevailing circular debt issue, it is estimated that in the FY the overall system generation will be about 91,293 GWh. After adjusting for the permissible transmission losses of 2.5%, about 89,011 GWh are expected to be delivered to the distribution companies; the estimated share for the Petitioner from the pool for FY , is accordingly assessed as 12,701 GWh asgainst 12,855 GWh projected by it. After incorporating the T&D losses target for the FY ( discussed below ) the sales target for the same period worked out as 10,796 GWhs. 16

18 No. NEPRA/TRF-220/MEPCO Issue # 5. Whether the Petitioner's requested transmission and distribution losses of for the FY are justified? 11.1 The Petitioner has estimated its T&D losses to the extent of 16.5%.The losses target for the FY as per the Authority's determination was 15.0% against the requested target of 16.5%. The Petitioner's actual T&D losses for the FY , FY and FY remained 18.94%, 18.15% and 17.94% respectively. The Authority assessed the target of 15.00% after incorporating the T&D losses studies and on the basis of efficiency that a DISCO should achieve considering the amount of investments already made it with respect to the upgradation and improvement in its existing system During the hearing the Petitioner argued that the actual result of T&D losses of 17.94% for the FY is primarily due to its high technical loss level. The Petitioner, in the first instance tried to distinct itself from other DISCO and at the same time cited the following reasons for its higher technical loss ; That its technical network, if compared with other DISCOs network, has the highest length of 132 KV, 66 KV, 11 KV & LT lines. For example the average length of a 11- KV Feeder is 68.1 Km, which is substantially higher than any other DISCO; That the sale of electricity per sq Km is also very low in comparison with others DISCOs; That far and few common delivery points are feeding the company, therefore lengthy 132 KV / 66 KV lines being used to supply the energy which is causing heavy transmission losses; That the impact of export to other DISCOs through company's lines is causing around 1.1%, as confirmed by PEPCO committee; That due to heavy village electrification and high number of tube wells, the Petitioner has lay down lengthy lines, which eventually resulting in higher transmission loss The Petitioner submitted that due to aforementioned reasons, it cannot be compared with other DISCOs. It was further submitted that its system constraint is another issue which adversely affects its smooth operations. It was informed that it carried out its own study during FY , which showed technical loss level of 15.59%. Another study showed that if 6,500 tube wells and villages electrification in a year are completed, its line loss technically increases by 0.73%. These studies were presented to the Authority but it was directed that such studies should be carried out through a third party (Consultant). In compliance thereof, M/s Barqaab Consultants studied and analyzed the whole system which showed technical loss at 14.80%. The Authority also recognized 1.1% adverse impact of export of electricity to 17

19 No. NEPRA/TRF-220/MEPCO-2012 other DISCOs. However any relief on this account in targets or support for recovery of Wheeling charges on this account has not been provided. As per the Petitioner target below 16.50% is not achievable under the current circumstances Since all the justifications of the Petitioner with respect to high transmission losses, were of technical nature, the Authority noted with serious concern that the Petitioner was reasonable level of investments under the head of DOP and ELR, then how come the positive results are not coming up. The Petitioner, in response presented the following details ; Year Investment Energy New Energy Net Energy Increase in during year on DOP/ELR/S saving due to Investment (MKWH) V/Elect & T/Wells Lost due to new V/Elect & Saved (MKWH) Tech Loses (%age) TG (Rs in Mill.) (Nos) T/Wells (MKWH) It was explained that the benefits achieved through investments in DOP and ELR were off set by extensive village electrification and tube well connections. The Petitioner was then asked about the status of investments to be carried t during the FY In response thereof, the Petitioner presented the following data; 18

20 No. NEPRA/TRF-220/MEPCO-2012 Investment Status ( ) DOP/ELR STG V/Elect Capital Receipt Total Requested in Tariff Petition Allowed by NEPRA Actual Investment The Authority after careful consideration of the Petitioner's arguments is of the view that it is understandable that village electrification would inevitably result in increasing line losses, yet it is also a matter of fact that the same are predominately carried out through GOP grants. Thus a question arise as how come the Petitioner is not treating quantified impact of enhanced line losses as cost of any village electrification project. Further, the prime objective of Authority's directions with respect to the cost benefit analysis of the investment, is not met. Considering the fact that the Petitioner carries out major village electrifications in its distribution area, it is directed that in future, the quantified impact of increased T&D losses money terms ) due to village electrification must be treated as a cost of the project. Only then the Petitioner would be able to determine exact cost benefit of any particular village electrification project. This approach, if adopted, may also open a new idea of Solar panel based village electrification, so as to avoid any such losses The Authority has also observed that despite the fact that it allowed the Petitioner an amount of Rs. 3,932 million under the head of DOP/ELR, it has managed to execute only 1,758 million. The Authority is cognizant of the fact that it is primarily through ELR & DOP program which would bring its level of technical losses down. This would also contribute to the Petitioner's current and future performance in this regard As regard the Petitioner's claim that the Authority recognized 1.1% adverse impact of export of electricity to other DISCOs by the Petitioner yet any relief on this account in targets or support for recovery of wheeling charges has not been provided, is not considered valid. The Authority in its previous determinations made a principle decision that it would not include 19

21 No. NEPRA7TRF-220/MEPC impact of wheeling charges as part of other income. Thus, compensating the Petitioner in monetary terms, for the energy lost due to import and export of units to other DISCOs. As regard the recovery of the same the Authority directs the Petitioner, to take up the matter to the same committee of PEPCO which included all the stakeholders and report back to the Authority on the matter not later than 30th June, The Petitioner's request of setting T&D losses of 16.50% for the FY , has been evaluated in the light of independent study of losses submitted by the Petitioner. Although the Technical Division of the Authority has concerns over the software used in the said study, yet even if it is considered for the purpose of setting the T&D losses target for the instant petition, it portrays almost the same level as set by the Authority last year. i.e. 15%. If the Petitioner's request of 16.50% is analyzed, it has two components. First is technical loss, which is % as per the study of Independent Consultant and 15.59% as per Petitioner's own study. The other component is 1.1 % which pertains to the export and import of electricity. If the % technical loss is taken then the Petitioner is asking for 0.60% cushion for administrative losses. The Authority has allowed 15% T&D loss target for the last year and compensated separately with respect to 1.1% for the import and export of electricity to other DISCOs. This effectively allowed the Petitioner a target of 16.10% for the FY In view thereof, the Authority has decided to maintain its previous level of T&D losses of 15 % for the FY and directs the Petitioner to record its claim of wheeling charges as per invoices raised by it in this regard. Further, the concerns raised by the technical division of the Authority with respect to the software used for the study of T&D losses, must be addressed not later then 30th June Issue # 6. Whether the Petitioner's proposed investments plan of Rs. 8,697 million for the FY is justified keeping in view the prospective benefits? 12.1 The Petitioner requested Rs.8,697 million to execute its development/ investment plan for the FY as per the following details: R. Million Distribution of Power (DOP) 600 Energy Loss Reduction (ELR) 1,430 Village Electrification 1,500 STG 3,167 Others/ Capital Receipts 2,000 Total 8, During the hearing, the Petitioner informed that it intends to fund the aforementioned 'nvestments through the following sources; 20

22 No. NEPRA/TRF-220/MEPCO-2012 Rs. Million World Bank 1,623 Asian Development Bank 1,374 P.M. Southern Punjab 200 Deposit and Consumer Contribution 3,500 Own sources 2,000 Total:- 8, It was further informed that its system constraints are also contributing higher transmission losses. It was stated that seven 132 KV transmission lines are overloaded and in order to protect these lines, forced load shedding is carried out. 116 power transformers, 5749 distribution transformers and 64, 11KV feeders are running over loading and the Petitioner has to resort to load shedding in order to protect them from getting damaged The Authority while deciding the tariff petition for the FY directed the Petitioner to submit cost benefit analysis of the investments carried out during the FY The Petitioner, pursuant to which submitted details vide its letter # FDM/BS/4837 dated 16th August, The information provided was carefully considered by the Authority and reached to a conclusion that although the provided details mentions savings in terms of GWhs during the FY and FY , yet compliance did not include any quantitative reconciliation statement in terms of actual sales and actual results of T&D losses both in GWhs. For the instant tariff petition, although petition includes some details on the subject of investments yet again, it fails to quantify the perceived benefits of aforementioned investments e.g. correlation between ELR and reduction/maintenance of losses, augmentation and maintenance of transmission lines with STG, DOP with better customer services etc. It appears as if the objective of FORM 27 ( B ) was not clear to the Petitioner. Despite the aforementioned reasons, the Authority cannot ignore the requirement of investments in order to improve the system. It is to be noted that the purpose of the required information is to monitor the effectiveness of these investments. Further, it is also not clear that whether the information provided with respect to the system constraint, has been accounted for by the Petitioner, while requesting the investments for the FY As per the audited accounts of the Petitioner, it carried out fixed capital expenditure of Rs. 6,618 million and Rs. 8,667 million during the FY and FY respectively. ( during the FY , the net actual investments remained around Rs. 8,503 million ). The aforementioned amounts include the impact of consumer contribution to the extent of Rs. 5,251 million and Rs. 4,234 million respectively. Thus, net capital investments carried it during the FY through loans and own resources, works out as Rs. 4,270 million. D ER RF 21

23 No. NEPRA/TRF-220/MEPC Based on the available record, arguments, evidence and the fact that these allowed investments indirectly affect the annual Return on Rate Base ( RORB ) for a DISCO, hence while allowing investments for any control period the Authority has to keep in view the past trend of investment made by the Petitioner along with its funding arrangements and its previous trend of closing CWIP and transferring of useful assets from CWIP to operating assets. Based thereon, it is expected that the Petitioner would be able to undertake the investment of Rs. 8,697 million ( as submitted by the Petitioner ) during the FY ( including the impact of consumer contributions of Rs. 3,500 million). Here it is pertinent to mention that the existing mechanism of determining RORB is self adjusting with respect to the benefits of investments, thus any investments beyond Authority's assessment, carried out by the Petitioner during the FY ( which is desirable ), would be catered for in next year's returns. 13. Issue # 7. Whether the prior year adjustment of Rs.19,850 million as calculated by the Petitioner is correct? 13.1 The Petitioner has requested a prior year adjustment amounting to Rs.19,850/- million for the FY The Petitioner presented calculation and impact of prior year adjustments during hearing. As per the Petitioner, the requested amount included Rs.5,072 million on account of 350 units of residential consumers The Authority after careful consideration has assessed the following Prior Period Adjustment; Rs. Million Notified reference PPP during the FY ,940 Assessed Distribution Margin for the FY ,513 Assessed PYA for the FY ,784 Add ; 1st Qrt's PPP adjustment pertaining to the FY ,605 Add; 2nd Qrt's PPP adjustment pertaining to the FY ,157 Add; 3rd Qrt 's PPP adjustment pertaining to the FY Add; 4th Qrt's PPP adjustment pertaining to the FY (2,798) Less ; Regulated PPP recovery on notified rates during the FY ,308 Less; Regulated DM recovery on notified rates during FY ,398 Less; Regulated PYA recovery on notified rates during FY ,725 Less; Net impact of assessed & actual Other Income for the FY (11) Add; Impact of Consumer Mix Variance for the FY ,700 Total IJnrecovered Costs for the FY ,655 / 22

24 No. NEPRA/TRF-220/MEPC A number of petitions filed against fuel adjustments are still pending adjudication before Lahore High Court. During the course of hearing on 22nd December, 2011, a statement was made by the learned Counsel of Government of Pakistan, Khawaja Tariq Rahim that the respondents will not debit the fuel adjustment charges on domestic consumers consuming up to 350 units per month which have an impact of Rs. 5,072 million. Keeping in view, the statement of the Counsel of Government of Pakistan on the matter, the difference in recovery can not be passed on to other consumers; therefore on the principle of fairness, equity and justice this should be borne by the Owner, which in the instance case is Federal Government of Pakistan. It is also a matter of record that the proceedings in which the above referred statement was made by the learned Counsel for Government has since been concluded vide judgment dated passed by the Honorable Lahore High Court Lahore in case No /11. Regarding the referred statement and the recovery of fuel adjustments from the consumers consuming 350 units, the observations of the Honorable Lahore High Court are as under:- "Learned Counsel for respondent No.2 has made the statement at the preliminary hearing of connected W.P.No.23097/2011 when on the restraining order was modified on his statement that respondents will not debit the fuel adjustment price to the domestic users of 350 Units per month and this court confirmed the restraining order to the extent of 350 Units Per month but now learned counsel shown respondents inability to continue with the said concession, however If this court will suggest in its advisory jurisdiction to Federal Government for allowing concession to users of 350 Units, the Federal Government is ready to consider the same. As the right to get the electricity is the fundamental right of every citizen of Pakistan. Pakistan is democratic Islamic state and a truly Islamic state is therefore is a truly welfare state who is guardian and protector of its citizens in need, hence in the above circumstances it is declared that the respondents are not entitled to recover Fuel adjustment charges from the domestic users of 350 Units per months" In view of aforementioned, the difference of 300 units ( as 50 units life line consumer is already not affected by the monthly FPA ) is not incorporated in the calculation of P A end must be claimed by the Petitioner,separately from the GOP in the form of subsidy. ER RE 23

25 No. NEPRA/TRF-220/MEPCO Issue # 8. Whether the financial charges amounting of Rs. 2,500 million claimed by the Petitioner is justified? 14.1 The Petitioner in its petition and during the hearing submitted that in order to cope up with the circular debt of power sector, Ministry of Finance has arranged a loan of Rs.160 billion, out of which Rs.136 billion has been disbursed by the lending institutions to Power Holding (Pvt.) Ltd. (PHL) for onward payment to CPPA to pay off the obligations towards generation companies and oil companies. Out of this disbursed amount, Rs. 2.5 billion have been allocated to the Petitioner The Authority has observed that almost all the XWDISCOs have requested to include financing cost in the revenue requirement for the FY As per XWDISCOs, the financing cost pertains to the loan procured on the direction of Federal Government to settle the liabilities towards the CPPA on account of the PPP outstanding payments. Some of the DISCOs while justifying the interest pleaded that it is due to the late determination of FPA by NEPRA. The overall loan amount to Rs. 160 billion, out of which 136 billion has been disbursed by the lending institution to the Power Holding (Pvt) Limited for onward payment to CPPA to pay off the obligations towards generation companies and oil companies Upon the scrutiny of the lending documents, it was revealed that the said loan was allocated to DISCOs on the basis of outstanding CPPA receivables, as on 31st December, The supporting documents and evidences in this regard does not substantiate Petitioner's claim of working capital needs as if the said loan was purely procured for the aforesaid reasons then they could have gone for short term financing rather than for a period of 7 years. Further, the pertinent question in this regard is, why XWDISCOs were not pushed enough by the Owner of the Company i.e. GOP, to improve their recoveries and regulatory targets? And last but not the least, it is not clear that whether the amount of loan includes any costs which the Authority has been disallowing in the past? The very arrangement of the loan is also debatable, whereby centrally a loan is procured and then allocated to individual DISCO. Had this been done by individually by each DISCO, the situation would have been much convincing Having said that, this issue highlights DISCO's genuine need for working capital ( short term financing e.g. running finance, local L/Cs etc) Based on the discussion above, the Authority has decided to decline Petitioner's request on the present arrangement of loan but at the same time directs all the XWDISCOs (including Petitioner) to file their genuine working capital requirement needs, which may be considered in future. 24

26 No. NEPRA/TRF-220/MEPCO Issue # 9. Whether the Petitioner's projected O&M cost for the FY is justified? 15.1 The Petitioner initially requested an amount of Rs. 9,906 million on account of Operations and Maintenance (O&M) expenses for FY Subsequently, during the hearing, the request was revised as Rs. 10,928 million.the Petitioner presented the following breakup of the O&M cost ; Rs. Million S. No. Expense Head Audited Audited Requested Salaries, wages and employees cost 5,696 6,994 7,769 2 Travelling Allowance Repair and Maintenance ,052 4 Vehicle Running Miscellaneous Expenses ,042 Total 8,783 9,408 10, Salaries, Wages & Other Benefits: 16.1 The Petitioner, during the hearing submitted that being public sector Company, its employees' salaries are protected under pay scale, hence any increase in salary and long term benefits as approved in finance bill have to be adopted by the Petitioner under the terms of employment i.e. on the basis of protected national pay scales. During the hearing, the Petitioner presented the impact of GOP's recent 20% increase as Rs. 406 million, the impact of annual increment to the tune of Rs. 35 million. In addition to this, the Petitioner also presented the impact of increase in conveyance allowance Rs. 70 million and of the increase in retirement benefits as announced by GOP to the tune of Rs. 518 million for the FY Incorporating all the aforementioned increases the Petitioner requested an amount of Rs. 7,769 million for the FY on account of Salaries, wages & other benefits. In order to make fair assessment of the salaries & wages, the Petitioner's audited accounts for the FY were analyzed. The analysis of the accounts revealed that the salaries, wages and other benefits for FY were Rs. 6,994 million. This amount also included Rs. 2,527 million pertaining to the employee's post retirement benefit From the information provided by the Petitioner, it could be observed that during the FY the salaries & wages increased by Rs.1,298 million; indicating an overall increase of about 23% from the audited figure of FY The Authority is cognizant of the fact that I 25

27 No. NEPRA/TRF-220/MEPCO-2012 one of the reasons for this was the increase in the salaries of Govt. employees announced by GOP. During the hearing, the Petitioner submitted detailed justifications with respect to additional recruitments made from year 2009 and onwards. The rationale provided primarily revolved around comparisons with other DISCOs, PEPCOs approvals and yard stick of the sanctioned strengths already approved by WAPDA. The Authority considers that theses justifications were already discussed and considered by the Authority in its previous determinations. A yard stick for the additional recruitment based on different parameters was also presented. Such parameters were number of connections ( rural and urban), number of consumers, requirement of fixed and variable staff etc. While acknowledging the efforts of the Petitioner in this regard, the Authority still feels that the presented yard stick does not include any international reference. Further, the most important question was not addressed i.e. if Authority allows what has been presented by the Petitioner, how it is going to effect consumer's life and efficiency in the company's operations in terms of sales and profits The Authority has been disallowing new recruitments and asked the Petitioner to justify the need of these posts as most of the new recruits were non-professionals. Irrespective of aforementioned, the Authority considers that the Petitioner's work force is retiring each year and if their replacements are not made, the Petitioner would not be able to work efficiently and effectively. In view thereof the Authority has decided to allow only replacement hiring, whereby an employee is hired in lieu of a retiring employee. In this particular scenario no additional / incremental cost could be incurred by the Petitioner. The Petitioner vide 63/CE/MEPCO/IC dated 14th January, 2013, intimated the Authority that as on 30th June, 2012, the financial impact of additional recruitments carried out during FY and onwards is Rs million. The Authority directs the Petitioner to get the reported figure verified by its Auditor and if it plans to carryout replacement hiring, a certificate from the Auditor of the Petitioner, certifying that the recruitment is done as replacement hiring with no additional/incremental cost impact Considering the overall liquidity position in the power sector and in order to ensure that the Petitioner fulfils its legal liability with respect to the post retirement benefits, the Authority in its determination pertaining to the FY , directed the Petitioner to create a separate fund in this regard before 30th June 2012, which is allowed by IAS Creation of funds would ensure that the Petitioner records its liability more prudently as the funds would be transferred to a separate legal entity. In addition to that these independent funds would generate their own profits, if kept separate from the company's routine operations. The Petitioner, vide its letter # FDM/BS/4837 dated 16th August, 2012, and during the hearing, informed the Authority that it would open an account by 31st August, 2012 and also complete formalities for hiring of Consultant who would frame bye laws and procedures for the fund. But till today no intimation has been received on issue of compliance. In view of GQOW REGGI g- NOMA

28 No. NEPRA/TRF-220/MEPCO-2012 aforementioned, the Authority has decided to take actual payments for the FY , as reference for requested increase pertaining to the FY , instead of provision for post retirement benefits. For future assessments, the amount transferred into the fund would be allowed by the Authority on actual basis until the fund is created and directs the Petitioner to expedite the matter LESCO in its Petition raised the issue of retired WAPDA employees before The Authority in its determination dated 10th January, 2012, decided to hold separate meeting on the subject whereby the arguments of the Petitioner and WAPDA could be heard in the light of available evidences. Pursuant to which a presentation on the subject was given by the Petitioner on 30th May, 2012 and WAPDA's point of view was also heard separately. Subsequently, a final meeting on the subject was held on 22nd January, The following concluding and implementations points were emerged out of a long brain storming session; The matter not only pertains to the Petitioner but also to all the XWDISCOs, and GENCOs. In the light of Business Transfer Agreement ( BTA ) and subsequent Supplementary Business Agreement ( SBTA ), Pension SOPs 2002 and subsequent changes thereafter, the issue solely pertains between WAPDA XWDISCOs and GENCOS. The issue has two components, one is the accumulated effect till 30th June, 2012 and the other is the subsequent ownership of these retired employees as the SBTA is not clear on it. Since aforementioned agreements were signed mutually between WAPDA and Others hence the Authority directs the WAPDA and Other ( including Petitioner ) to come up clearly on the settlement modality of accumulated costs in this regard till 30th June 2012 and a way forward for the future payments of these retired employees not later than 30th June, While assessing the Salaries, wages & other benefits ( including post retirement benefits as discussed in preceding paragraphs ), the GOP's recent announcement of 20% increase as adhoc allowance, increase in post retirement benefits on actual payments, increase in conveyance allowance, 5% annual increment along with its effect on other benefits has been accounted for. Here it is pertinent to mention that the base expense taken excludes the impact of additional recruitments of Rs million as reported by the Petitioner. The GOP's recent increase with respect to the post retirement benefits has been taken on actual payments, in this regard, during the FY Based on the discussion made in the preceding paragraphs, incorporating GOPs recent i -----,_ Tr- 27

29 No. NEPRA/TRF-220/MEPC increases and annual assessments of salaries & wages for the FY of other DISCOs, the Authority has assessed Rs. 5,405 million on account of salaries, wages and other benefits for the FY Maintenance Expenses: 17.1 The Petitioner requested repair and maintenance expenses as Rs.1,052 million for FY which are 10.6% higher as compared to actual expenses of Rs.951 million for FY and 75% more than the Authority's assessment for the FY The Petitioner stated that as a normal practice, the maintenance expenses are 3.5% of the net fixed assets, however its request is far below then that as it do not intend to over burden the consumers The Petitioner during the hearing, submitted breakup of expenditures under repair & maintenance, which related to the maintenance of distribution transformers, meters, grid stations. It was further submitted that the cost has increased due to the price hikes of raw material and extension in its network The Authority is cognizant of the fact that the repair & maintenance cost is not only affected by the inflation but also with the variation in the gross assets in operation due to the addition of new investments and new consumers in the system The Authority is of the view that the requested amount of Rs. 1,052 million is considerably high and needs to be rationalized. Keeping in view the past trend and comparison with other DISCOs, the Authority has assessed Rs.660 million under the head of repairs & maintenance for the FY Traveling Expenses: 18.1 The Petitioner requested an amount of Rs 740 million on account of travelling expenses for the FY The actual cost on this account as per the audited accounts for the FY , is Rs. 406 million. The Petitioner pleaded that it has the largest network in the country, thus its employees have to travel to attend the complaints, maintain the system to ensure the continuous supply and other matters. The actual expense under this head in the last year is Rs. 435/- million. Further, its Board of Directors has approved three new operation sub-divisions, which would also require additional amount under this head This is a matter of record that the GOP enhanced the daily rates both ( special & normal ) for the employees from grade 1-16, by an average of 90%, with effect from 1st July No increase was granted for the employees from grade 17 and above. Again the same has been raised on 17th August, This time it has also been increased for all the employees 28

30 No. NEPRA/TRF-220/MEPCO-2012 starting from Grade 1 22, whereby the major increase in rates is with respect to Grade 17 and above The Petitioner while requesting the Rs. 740 million for the FY , has not substantiated its request with any evidence or details of the actual TA claims designation wise, pertaining to the last year to justify its requested increase under this head Based on the above discussion, comparison with other DISCOs and Petitioner's actual results after the GOP's increase the Authority has decided to allow this cost to the tune of Rs. 507 million for the FY Vehicle Running Expenses: 19.1 The Petitioner requested Rs. 325 million under the head of Vehicle maintenance for the FY The actual cost on this account as per the audited accounts for the FY is Rs.288 million The Petitioner stated that its service area comprises of 13 districts of southern Punjab having largest network and highest number of consumers in the country. The vehicles have to run for attending complaints, maintenance of the system and other related matters of the company. There is continuous upsurge in the prices of the petrol, diesel, mobil oil and spare parts of the vehicles The Authority is cognizant of the fact that the vehicle running cost is not only affected by the increase in fuel prices but also with the variation in the number of vehicles of the Petitioner, which in turn is dependant on the distribution area of the Petitioner. In view of the aforementioned reason, past trend and comparison with other DISCOs, the Authority has decided to allow vehicle running cost to the tune of Rs. 243 million for the FY Other Expenses: 20.1 The Petitioner requested Rs.1,042 million for FY pertaining to the Other Expenses like rent, rates & taxes, power, light and water, bills collection charges, postage, telephone, office supplies, insurance expense, overhead expenses, Auditor's remuneration, NEPRA fee and charges, advertisement & publicity, provision of obsolete stores, miscellaneous expenses etc. The projected expenditure is 35.5% higher than the actual expenditure of Rs.768 million for FY and 57.64% higher than the Authority's assessment of Rs.661 million for FY The Petitioner during hearing informed abou 1 t e impact of collection expenses, office supplies and advertisement and utility expenses 29

31 No. NEPRA/TRF-220/MEPCO In order to make fair assessment of other expenses, the Authority has kept in view the past trend and comparison with other DISCOs. In view thereof, the Authority has assessed Rs.727 million for the FY on the account of other expenses. 21 Issue # 10: Whether the Petitioner's projected Other Income for the FY is reasonable? 21.1 The Petitioner has estimated Other Income of Rs 3,796 million for the FY The other income as per the audited accounts for the FY remained as Rs.3,388 million. ( net of wheeling charges Rs million ). According to the information provided, the other income includes amortization of deferred credit, meter and rental income, late payment surcharge profit on bank deposit, sale of scrap, income from non-utility operations and commission on PTV fees and miscellaneous CPPA on various forums agitated that the Authority has been disallowing markup on delayed payments to IPPs at CPPA level whereas the late payment surcharge recovered from the consumers is adjusted against the Distribution Margin. In CPPA's opinion the consumers have been given double benefit. It was therefore requested to offset the two markups against each other. The request was declined on the grounds that each company is a different legal entity and in the absence of any Sale/ Purchase agreement between CPPA and the DISCO, passing on such cost is legally not sustainable. Notwithstanding the aforementioned legal position, the Authority feels that among other reasons for delayed payments to IPPs one of the reasons is delayed payment of bills by some of the consumers. Considering the CPPA's contention as valid, CPPA was directed to enter into bilateral agreements with the DISCOs no later than 15th March, 2011, but till today no progress has been made so far in this regard The Petitioner in its letter # FDM/BS/4837 dated 16th August, 2012, informed the Authority that previously it signed electricity supply agreement on June 27, 1998 with Pakistan Water & Power Development Authority. Over the period CPPA was formed and incorporated for purchase of Energy from GENCO's & IPPs, and distribute it to DISCOs. The Petitioner on 25th June, 2012, wrote a letter to Managing Director CPPA in this regard, but still the agreement has not been signed and it would continue its efforts to get it signed The Authority has been deducting Other Income from the Distribution Margin of the Petitioner considering it a non regulated Income for a DISCO. Since CPPA has not entered into sale/purchase agreement with the DISCOs therefore in the absence of such agreements the Authority is constrained to continue with previous practice. Accordingly, the Authority considers the Petitioner's request of Rs. 3,796 million ( including late payment surcharge) as 1 30

32 No. NEPRA/TRF-220/MEPCO-2012 reasonable and has decided to accept the proposed figure of Rs.3, 796 million on account of Other Income for the FY Here it is pertinent to mention that the Authority vide letter NEPRA /TRF-100/ dated 15th January, 2013, has sought comments of all the stakeholders on a draft Power Sale Agreement submitted by GEPCO. The Petitioner is directed to submit its comments on the said draft at it earliest and directs the Petitioner to sign the PSA by 30th April, Issue # 11: Whether the Petitioner's proposed provision for bad debt amounting to Rs.300 million is justified? 22.1 The Petitioner has projected Rs. 300 million as Provision for bad debts Considering the documents required for new connection/extension and reduction of load or change of name in terms of Chapter 2.3 (b) & (h) of the Consumer Service Manual, the risk of credit sales transfers to the third party, i.e., Owner of the premises or purchaser of the property. Currently DISCOs are functioning in a monopolized environment and in case of default the connection of the premises, if disconnected, cannot be restored till the outstanding dues are paid. Electricity in today's life is a basic necessity and the consumers cannot afford to live without it and as per referred Chapter of Consumer Service Manual, the risk transfers to the occupant of the premises. In addition to this, at the time of connection, DISCO also collects one months billing from the consumers in the shape of security deposits, which also serves as a deterrence for a consumer to default In view of aforementioned, the Authority considering the previous trend of actual write-offs, has decided to allow actual write offs of debtors on actual basis rather than allowing provision for doubtful debts for future assessments. Thus, for the FY , the actual write offs were Rs. 14 million, thus the Authority has allowed the same on this account for the FY Issue # 12. Whether the Petitioner's request with respect to amendment in Clause 3 of Seasonal tariff "F" is justified? 23.1 The Petitioner has proposed to introduce a separate tariff for seasonal industries. Seasonal Industry works only for part of the year to meet demand for goods or services arising during a particular season of the year like ice factories, cotton & ginning factories, rice & oil mills etc. In the schedule of electricity tariff, seasonal industry is being billed on the basis of 125% of relevant industrial tariff and having the option to convert to the regular tariff and vice versa. By introducing uniform rate of minimum fixed charges for industrial tariff charged in the non operative period, seasonal industries ajre switching to permanent tariff to avoid the additional payment of 25% seasonal charge. 31

33 No. NEPRA/TRF-220/MEPCO The Petitioner contended that the mechanism of billing to the permanent connection was on the basis of 50% of sanctioned load or MDI recorded whichever is higher and due to the very reason most of the seasonal industries are likely to opt seasonal tariff instead of keeping a permanent connection by payment of 25% additional charges to their relevant industrial tariff instead of payment of 50% of sanctioned load during the non operational period. After amendment in billing demand by the NEPRA in Industrial tariff for charging of fixed charges and introducing the nominal charges of the fixed minimum charges, the seasonal consumers have opted the regular, from seasonal tariff to escape from charging of additional 25% rates applicable to seasonal industrial consumer on relevant regular industrial tariff. Due to the introduction of minimum fixed charges at uniform rate of Rs. 2000/- for B-2 tariff charged in the non operative period, seasonal industries are switching to permanent tariff and it is sustaining a loss of additional 25% seasonal charges. It was further stated that the Petitioner has made a study and found loss of approximately Rs. 3 Lac per consumer per year and so far 1600 of consumers have opted regular tariff which are running for less than 9 months, therefore, overall loss comes to Rs. 480 million In view thereof, the Petitioner requested that since seasonal industrial supply does not specify the kind of industries comes under purview of this tariff, like domestic & commercial, therefore kind of seasonal industries may be clarified in the definition:- "Seasonal Industry" for the purpose of this tariff, means, Cotton ginning / Pressing / seeding, Oil Mills, Ice Factories, Kulfi, Sugar Industries, etc which works only for part of the year to meet demand for goods or services arising during a particular season of the year. However, any seasonal industry running in combination with one or more seasonal industries, against one connection, in a manner that the former works in one season while the latter works in the other season(thus running throughout the year) will not be classified as a seasonal industry for the purpose of the application of this tariff." 23.4 In addition to aforementioned, the Petitioner also requested to amend Clause-3 of Special Condition of Supply, effectively adding that in case the consumer does not run his industry, his option for change of tariff will be seized and tariff will be converted to the original sanctioned seasonal tariff by the Petitioner. Another option given was to create a separate tariff for Ice factory, Cotton factory, Rice Mill and oil mill and likewise other seasonal Industries irrespective of period of industrial operation The Authority has carefully considered the arguments of the Petitioner and is of the view that its claim that it has suffering a revenue loss of Rs. 480 million due to the introduction of 32

34 No. NEPRA/TRF-220/MEPCO-2012 nominal minimum fixed charges, is not correct. As while setting the consumer end tariff for the Petitioner, the Authority ensures that the it recovers it assessed revenue requirement. In case if fails to cover on regulated sales, the Authority allows the Petitioner consumption mix variance, to be recovered in the next tariff petition. The Authority considers that the issue of the Petitioner is with respect to the consumer discipline. The Authority in previous determinations has elaborated on the rationale of introduction of minimum fixed charges, which predominately pertains to the ongoing situation of excessive load shedding. Further, the Petitioner, while suggesting the introduction of separate category and amendments in the terms and conditions of the seasonal connection, has not rebutted the Interveners claim, that its industry is no longer a seasonal industry In view of above discussion, the Authority considers that the Petitioner's request is not justifiable and directs it to resubmit its case, in the next petition for determination of tariff substantiating its claim, with detailed working that how it is incurring loss due to the aforementioned change. Further, the working must also consider an analysis with respect to the revenue loss due to the on going scenario of load shedding Lastly, the Petitioner submitted that the consumer of agriculture tariff D-2 having sanctioned load less than 5 KW has to pay the fixed charges on the basis of sanctioned load in kilowatt even if no energy is consumed, whereby for the rest of the agricultural categories these are Rs. 350/month minimum fixed charges, in case no energy is consumed, which is highly contrary when compared with D-2 agriculture consumers. The Petitioner requested the Authority that minimum fixed charges of tube well tariff D-1(a) & D-1(b) should be like wise of tariff B-2 i.e. Rs. 2000/ The Authority considers Petitioner request valid. Since the matter pertains to all the DISCOs, hence the Authority has decided to address the issue along with the tariff petitions for the FY , pertaining to all other DISCOs. 24 Issue # 13. Whether the Petitioner's requested revenue requirement for the FY is correct and justified? 24.1 Annual Revenue Requirement comprises of the following: 1. Power Purchase Price 2. Impact of T&D Losses 3. Distribution Margin i) O&M Expenses/1 33

35 No. NEPRA/TRF-220/MEPCO-2012 ii) Depreciation, RORB and Other Income 4. Prior Year Adjustment 24.2 For the assessment of annual Revenue Requirement, each of the components of average tariff is discussed in detail in the succeeding paragraphs Power Purchase Price (PPP) From all the available sources i.e. hydel, thermal-gas, thermal-oil, nuclear, coal and imports, a total of, 91,293 GWh power is expected to be generated during the FY The estimated/projected source-wise generation and cost of electricity is given in the following table: Description Generation Energy Charges GWh Share Rs. Share Million Hydel 28, % 1, % Coal % % HSD 1, % 39, % Thermal - RFO 31, % 533, % Thermal - Gas 23, % 134, % Nuclear 4, % 5, % Mixed % 6, % Import from Iran % 2, % Wind % % Total 91, % 723, % Capacity Charge 194,233 Total Generation Cost 917, Here it is pertinent to mention that the aforementioned Energy charge includes variable O&M charges. But as per the revised tariff methodology, variable O&M charges would not be made part of monthly fuel adjustment and would be adjusted as part of quarterly adjustment. From the above table it is clear that 35% of total generation is expected on Residual Fuel oil (RFO) but its share in overall energy cost is to be 75%, which means that variation in generation mix and oil prices will have great impact on the cost of generation and will (/ ultimately affect the consumer-end tariff. The RFO prices over the last year have shown an I 34

36 No. NEPRA/TRF-220/MEPCO-2012 increasing trend. During the FY , the average RFO price was projected within a range of Rs. 66,723 per metric ton to Rs. 63,000 per metric ton [excluding Sales Tax] per metric ton, whereby the RFO prices during the CY 2012 have touched a peak of Rs. 78,000 to 79,000 [excluding Sales Tax] per metric ton. The RFO prices in Pakistan are not only affected by the international market but also by the Pak Rupee devaluation. For the FY , RFO prices have been assumed on an average of Rs. 74,167 per metric ton [excluding Sales Tax] after incorporating the possible determinants of RFO prices. Following the previous generation trend, approximately 2.00% generation is expected to be generated on HSD due to the ongoing shortage of gas supply. The aforementioned generation is assumed in the light of ECC decision in the matter of Sapphire, Halmore, Orient and Saif whereby one turbine of these plants would run on HSD throughout the year. For the FY , the HSD prices are being assumed on an average of Rs per liter [excluding Sales Tax]. The gas prices are also revised as per the latest OGRA's notification with a cushion of expected increase The generation cost is transferred to the DISCOS according to the Transfer Price Mechanism (TPM) as prescribed by the Authority in its decision dated 9th May, 2012 and its subsequent notification by GOP through SRO.903(1)/2011, dated 30th September, 2011: 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 CPGENC0s) and its delivery to DISCOS for a billing period as under: XTC Where: XCTC + XETC XTC = Transfer charge to XWDISCOs & KESC XCTC = Capacity Transfer Charge to XWDISCOs & KESC XETC = Energy Transfer Charge to XWDISCOs & KESC XCTC CpGenCap + USCF XWD 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 w14ch power is received by the XWDISCOs & KESC. 35

37 No. NEPRA/TRF-220/MEPCO-2012 (iii) USCF the fixed charge part of the use of system charges in Rs per kw per month. Where: XETC CpGenE (Rs) XWUs (kwh) (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. Energy transfer charge shall be calculated on the basis of units delivered after adjusting target transmission losses of 2.5%. NTDC shall, for the purpose of clarity intimate to all DISCOs the generation part of the Transfer Charge during a billing period by deducting from the Transfer Charge the Transmission Charge or Use of System Charges According to the above mechanism Rs. 31,953 million and Rs. 3,049 million is the share of the Petitioner on account of CpGenCap and USCF respectively for the FY The overall fixed charges comprising of CpGenCap and USCF in the instant case work out as Rs. 3,5001 million, which translate into Rs. 1,029/kW/month or Rs.2.76/kWh The annual PPP for the FY in the instant case works out as Rs. 137,997 million. With the projected purchase of 12,701 GWh for the same period the average PPP turns out to be as Rs / KWh (Annex IV). On the basis of % T&D losses, the PPP per kwh adjusted arrives at as Rs /kwh Considering the timing of the determination the Authority has decided to include quarterly adjustment pertaining to the first two quarters of the FY In the matter of Petitioner the 1st and 2nd quarters PPP adjustment works out as Rs. 312 million and Rs. (158) million respectively. 25 Distribution Margin (DM): 25.1 The Petitioner has requested to allow a Distribution Margin of Rs. 16,873 million for the FY which is inclusive of O&M Cost, Depreciation, RORB and Other income. The t 36

38 No. NEPRA/TRF-220/MEPCO-2012 assessment of O&M Cost and Other Income has been discussed in the preceding paragraphs. The remaining two items depreciation and RORB are being discussed in the following paragraphs; 26. Depreciation: 26.1 The Petitioner has estimated a depreciation charge of Rs 2,899 million for the FY In order to make fair assessment the Authority keeps in view the investment approved by the Authority. After taking into account new investments, the Gross Fixed Assets in Operation for the FY will be Rs.76,324 million. Accordingly the depreciation charge for the FY has been assessed as Rs. 2,464 million After carefully examining the relevant details and information pertaining to the deferred credit and amortization as per the accounts for the FY & FY , the Authority has decided to assess amortization of deferred credit to the tune of Rs. 1,548 million for the FY , thus passing on the benefit to this extent to the consumers. 27 Return on Rate Base (RORB): 27.1 The Petitioner has estimated the RORB as Rs 4,344 million assuming a Weighted Average Cost of Capital (WACC) of 16.31% and average regulatory asset base of Rs.26,634 million in accordance with the following formula: RORB = Rate Base x WACC 27.2 According to Rule 17(3)(iii) of the Tariff Standards and Procedure Rules 1998, tariffs should allow licensee a rate of return which promotes continued reasonable investment in equipment and facilities for improved and efficient service. For reliable supply of electricity the company has to be made viable for which the company should be allowed comparable return of similar business. In the earlier determination the Rate of Return allowed to the investor was the Weighted Average Cost of Capital (WACC) comprising of two components (i) cost of debt & (ii) cost of equity The Authority in its decision pertaining to the FY , decided to use post tax rate of return on which guarantees interest payments and return on the optimum capital structure of 80:20 ( Debt ; Equity ). For the FY , after considering the available record, latest 10 year PIB Bond auction, and current interest rates fluctuations, decided to use the same WACC rate of 10.60% as it used last year. Here it is pertinent to mention that the Authority would reconsider WACC of the Petitioner, once it is felt that the recent KIBOR changes have attained a stabilized position or at least entered into a consolidation phase In the Authority's opinion the Rate of Return should be reasonable enough, sufficient to 37

39 No. NEPRA/TRF-220/MEPCO-2012 enhance the confidence in the financial soundness of the utility company, and should be adequate to maintain and support its credit and enable it to raise money necessary for the proper discharge of its public service. The Authority considers that from the investor's or the company's point of view it is important that there be enough revenue not only for operating expenses but also for the capital cost of the business including the service of its debt. The Authority further considers that return to the equity owner should commensurate with the return on investment of other enterprises having comparable risks. Thus, using Post tax rate of return, the Authority has assessed Rs. 2,365 million as return on rate base as per the following calculations: Description FY Audited Rupees m Million FY Projected Opening fixed assets in operation 62,904 69,416 Assets Transferred during the year 6,512 6,909 Closing Fixed Assets in Operation 69,416 76,325 Less: Accumulated Depreciation 21,542 24,007 Net Fixed Assets in operation 47,874 52,318 + Capital Work in Progress (Closing) 8,476 10,264 Total Fixed Assets 56,350 62,582 Less: Deferred Credit ( including share of 36,180 38,132 deposit works in CWIP ) Total 20,169 24,450 Average Regulatory Assets Base 22,309 Return on Rate 10.60% 2, Based on assessments made in the preceding paragraphs the Revenue Requirement for the FY is assessed as per the following details; 1. Power Purchase Price Rs.137,997 Million CpGenE Rs.102,996 Million CpGenCap Rs. 31,953 Million USCF Rs. 3,049 Million 2. Distribution Margin Rs. 8,589 Million O&M Cost Rs. 7,542 Million Actual write offs Rs. 14 Million Depreciation Rs. 2,464 Million RORB Rs. 2,365 Million Gross DM Rs.12,385 Million 38

40 No. NEPRA/TRF-220/MEPCO-2012 Less: Other Income Rs. 3,796 Million Net DM Rs. 8,589 Million Prior Year Adjustment 1st Qrt PPP Adjustment Rs. 312 Million 2nd Qrt PPP Adjustment Rs. (158)Million Total PPP Adjustment Total Assessed Revenue Requirement Rs. 13,655 Million Rs. 154 Million Rs.160,396 Million 27.6 Based on the targeted sales of 10,796 GWh for the FY , the Petitioner's average sale rate works out Rs /kWh, consisting of Rs.12.78/kWh of adjusted PPP, Rs /kwh of DM, 1st and 2nd quarterly PPP adjustments of Rs. 0.01/KWh and Rs.1.26 of prior year adjustment The assessed revenue requirement of Rs.160,396 would be recovered from the consumers during the FY , through the projected units of 10,766 GWh, as per Annex II. 28 Issue # 14. What are major changes in the amount of receivables depicted by projected financial statements of the Petitioner? 28.1 Although the Authority determines Petitioner's tariff on 100 % recovery basis but since the DISCOs receivables are directly linked to the on going issue of circular debt, the Authority has decided to discuss it in order to highlight the area of potential improvement for the Petitioner and for the sector The Petitioner's audited accounts for the FY , present Rs. 22,906 million as an overall figure of trade debtor as on 30th June, Out of these receivables Rs. 4,814 million worth of receivables are considered doubtful. In view of the fact the Petitioner is operating in a monopolized environment and fact that the risk of credit sales is transferred to the third party, i.e., Owner of the premises or purchaser of the property, one fails to understand the reasons of such hefty doubtful receivables, as on 30th June Considering the aforementioned amount, the Authority has decided to direct the Petitioner to come up with a concrete plan on the issue of recoveries. The Petitioner may consider outsourcing collection of these receivable to a debt collecting agency, which must be paid on only, if they collect something. But in any case, the Petitioner should submit this plan no later than 30th June

41 No. NEPRA/TRF-220/MEPCO Issue # 15. Whether the contentions raised by Steel Melters Association on the issue of FPA are justified? 29.1 Steel Melters Association approached NEPRA on the subject issue. They contended that they sell their goods in a particular month and accordingly pay their electricity bills in the respective months. Once they do that they consider their transaction close for the particular month. The current FPA regime bounds them to pay for a month retrospectively for which their goods were already sold The Authority after hearing the arguments of SMA considers that the issue of retrospective recovery of FPA is highly debatable as the normal electricity bills are also paid retrospectively whereby consumers pay their bills of electricity consumption after a month. Here it is pertinent to mention that the FPA charge is made on the particular month's consumption for that particular connection. Any other option of advance billing, as was discussed in the hearing, may result in overbilling of that particular consumer and Authority cannot support a mechanism which eventually ends up as a tool of harassment for consumers. The only judicious way to recover or refund variation in fuel charges against the monthly fuel references, on the basis of the corresponding month's consumption only. However, as per the tariff methodology in vouge, the Authority may review the monthly reference of fuel price adjustment considering any abnormal changes in fuel prices or generation mix. In view thereof, the Authority has decided to revise the references as discussed under the Issue of PPP. 30 GUIDELINES/ DIRECTIONS: 30.1 While determining the tariff for Petitioner Company for the FY , following guidelines are hereby issued for strict compliance by the Petitioner; 1. To continue with the consumer awareness campaign and training of its staff with respect to TOU. Monitoring Division of NEPRA would constantly monitor this campaign and directs the Petitioner to submit monthly revenue sheets ( FROM -28) in order to assess revenue implications of post TOU meters scenario. 2. To take up the matter of recovery of TOU charges to the same committee of PEPCO which included all the stakeholders and report back to the Authority on the matter not later than 30th June, The cocerns raised by the technical division of the Authority with respect to the softwar usefl for the study of T&D losses, must be addressed not later then 30th June

42 No. NEPRA/TRF-220/MEPC ORDER: 4. To expedite the creation of Independent Post retirement benefits funds. 5. To get the reported figure of additional recruitments verified by its Auditor and if it plans to carryout replacement hiring, a certificate from the Auditor of the Petitioner certifying that the recruitment is done as replacement hiring with no additional/incremental cost impact. 6. WAPDA and Others ( including Petitioner ) to come up clearly on the settlement modality of accumulated costs in this regard till 30th June 2012 and a way forward for the future payments of these retired employees not later than 30th June, To submit its comments on draft PSA at its earliest and sign the PSA not later than 30th April, To submit comments on TOU metering for cellular companies ( issue raised by IESCO) not later than 30th April, To submit comments on changing terms and conditions of life line consumers, (as proposed by IESCO) not later than 30th April, To submit their genuine working capital requirement needs. 11. To submit a concrete recovery plan, no later than 30th June, From what has been discussed above, the Authority hereby determines the tariff of the petitioner Company for the Financial Year as under:- I. Multan Electric Power Company (MEPCO) is allowed to charge its consumers such tariff as set out in the schedule of tariff for MEPCO annexed to the determination. II. III. The actual variation in fuel cost component of power purchase price against the reference fuel cost component shall be adjusted on monthly basis without taking into account the T&D losses. The monthly fuel price adjustment shall be based on the actual information submitted by CPPA. MEPCO is allowed to charge the users of its system a "Use of system charge" (UOSC) equal to: i) Where only 132 kv system is involved L) MSC = DM 0.035) PaisalkWh 41

43 No. NEPRA/TRF-220/MEPCO-2012 ii) iii) Where only 11 kv distribution systems is involved. (1 L) UOSC = DM x Paisa / kwh (1 0.05) Where both 132 kv and 11 kv distribution systems are involved. UOSC = DM x (1 L) Paisa I kwh ( ) Where: Distribution Margin for FY , is set at Rs 0.80/kWh. I' will be the overall percentage loss assessment for the year set at 15.00% or FY IV. The residential consumers will be given the benefit of only one previous slab. V. The Order,Annex-I, III &V annexed with determination is intimated to the Federal Gover ent for notification in the official gazette under Section 31(4) of the NEPRA Act. 42

44 Annex-I FUEL PRICE ADJUSTMENT MECHANISM Actual variation in fuel cost component against the reference fuel cost component for the corresponding months will be determined according to the following formula Fuel Price variation = Actual Fuel Cost Component - Reference Fuel Cost Component Where: Fuel Cost Component would include Energy Charge without Variable O&M. Fuel Price variation is the difference between actual and reference fuel cost component Actual fuel cost component is the fuel cost component in the pool price on which the DISCOs will be charged by CPPA in a particular month; and Reference fuel cost component is the fuel cost component for the corresponding month projected for the purpose of tariff determination as per Annex-IV of the determination; The fuel price adjustment determine by the Authority shall be shown separately in the bill of the consumer and the billing impact s all be worked out on the basis of consumption by the consumer in the respective month. i3

45 Annex-II Multan Electric Power Company (MEPCO) Estimated Sales Revenue on the Basis of New Tariff Description Sales GWh Sales Mix Tariff (NEPRA) Fixed Charge Rs./kW/ Month Variable Charge Rs./ kwh Revenue (as per NEPRA) Fixed Charge Variable Charge Rs.Million Rs.Million Total Rs. Million Residential Up to 50 Units % ,484 2,484 For peak load requirement less than 5 kw Units % ,574 30, Units % ,470 27, Units % ,084 8,084 Above 700 Units % ,126 2,126 For peak load requirement 5 kw & above Time of Use (TOU) - Peak % Time of Use (TOU) - Off-Peak % Total Residential 5, % - 71,620 71,620 Commercial - A2 For peak load requirement less than 5 kw % ,692 6,692 For peak load requirement 5 kw & Regular % Time of Use (TOU) - Peak % ,014 1,014 Time of Use (TOU) - Off-Peak % ,605 3,374 4,979 Total Commercial % 1,621 11,126 12,747 Industrial BI % ,308 1,308 Bl Peak % B I Off Peak % ,647 2,647 B % B2 - TOU (Peak) % ,502 2,502 B2 - TOU (Off-peak) % , ,630 11,270 B3 - TOU (Peak) % ,611 2,611 B3 - TOU (Off-peak) % ,046 13,143 14,189 B4 - TOU (Peak) % ,396 1,396 B4 - TOU (Off-peak) % ,092 5,445 Total Industrial 2, % 3,111 39,444 42,555 Single Point Supply for further distribution Cl(a) Supply at 400 Volts-less than 5 kw 0 000% Cl(b) Supply at 400 Volts- 5 kw & above % Time of Use (TOU) - Peak % Time of Use (TOU) - Off-Peak % C2 Supply at 11 kv % Time of Use (TOU) - Peak % Time of Use (TOU) - Off-Peak % ,373 1,481 C3 Supply above 11 kv % Time of Use (TOU) - Peak % Time of Use (TOU) - Off-Peak % Total Single Point Supply % 154 2,487 2,641 Agricultural Tube-wells - Tariff D Scarp % Agricultual Tube-wells % Time of Use (TOU) - Peak % ,362 5,362 Time of Use (TOU) - Off-Peak % ,281 22,975 24,255 Total Agricultural 1, % 1,282 29,132 30,415 Public Lighting - Tariff G % Tariff II - Residential Colonies attached to industries % Tariff I- Railway Traction % h Sub-Total % Total Revenue 10, % ILVIS45)ENN 6, , ,397 4

46 SZIFDULE OF ELECTRICITY TA FOR MULTAN ELECTRIC POWER COMPANY A-1 GENERAL SUPPLY T FIXED Sr. No. TARIFF CATEGORY / PARTICULARS CHARGES Rs/kW/M VARIABLE CHARGES Rs/kWh a) For Sanctioned load less than 5 kw i Up to 50 Units For Consumption exceeding 50 Units ii Units iii Units iv Units v Above 700 Units b) For Sanctioned load 5 kw & above Peak Off-Peak Time Of Use s per theauthority's decision residential consumers will e given the benefits of only one previous 51i Under tariff A-1, there shall be minimum monthly charges at the following rates even if no energy is consumed. a) Single Phase Connections: Rs. 75/- per consumer per month b) Three Phase Connections: Rs. 150/- per consumer per month A-2 GENERAL SUPPLY TARIFF COMM FIXED Sr. No. TARIFF CATEGORY / PARTICULARS CHARGES Rs/kW/M VARIABLE CHARGES Rs/ kwh a) For Sanctioned load less than 5 kw b) For Sanctioned load 5 kw & above Peak Off-Peak c) Time Of Use Under tariff A-2, there shall be minimum monthly charges at the following rates even if no energy is consumed. a) Single Phase Connections; b) Three Phase Connections: Rs. 175/- per consumer per month Rs. 350/- per consumer per month Page 1 of 4 45

47 SCHEDULE OF ELECTRICITY TARIFFS FOR MULTAN ELECTRIC POWER COMPANY (MEPCO) Annex-IIL Sr. No. B INDUSTRIAL SUPPLY TARIFFS TARIFF CATEGORY / PARTICULARS FIXED CHARGES Rs/kW/M VARIABLE CHARGES Rs/ kwh B1 Upto 25 kw (at 400/230 Volts) B2(a) exceeding kw (at 400 Volts) Time Of Use Peak Off-Peak B1 ( b) Up to 25 KW B2(b) exceeding kw (at 400 Volts) B3 For All Loads up to 5000 kw (at 11,33 kv) B4 For All Loads (at 66,132 kv & above) For B1 consumers there shall be a fixed minimum charge of Rs. 350 per month. For B2 consumers there shall be a fixed minimum charge of Rs. 2,000 per month. For B3 consumers there shall be a fixed minimum charge of Rs. 50,000 per month. For B4 consumers there shall be a fixed minimum charge of Rs. 500,000 per month. C - SINGLE-POINT SUPPLY FOR PURCHASE IN BULK BY A AND MIXED LOAD CONSUMERS NOT FALL FIXED Sr. No. TARIFF CATEGORY / PARTICULARS CHARGES Rs/kW/M VARIABLE CHARGES Rs/kWh C -1 For supply at 400/230 Volts a) Sanctioned load less than 5 kw b) Sanctioned load 5 kw & up to 500 kw C -2(a) For supply at 11,33 kv up to and including 5000 kw C -3(a) For supply at 66 kv & above and sanctioned load above 5000 kw Time Of Use Peak Off-Peak C -1(c) For supply at 400/230 Volts 5 kw & up to 500 kw C -2(b) For supply at 11,33 kv up to and including 5000 kw C -3(b) For supply at 66 kv & above and sanctioned load above 5000 kw Page 2 of 4 4-6

48 40E1:YULE OF ELECTRICITY TARIFFS FOR MULTAN ELECTRIC POWER COMPANY (MEPCO Annex-III AGRICULTURE TARIFF Sr. No. TARIFF CATEGORY / PARTICULARS D-1(a) SCARP less than 5 kw D-2 Agricultural Tube Wells FIXED CHARGES Rs/kW/M VARIABLE CHARGES Rs/ kwh Peak Off-Peak D-1(b) SCARP and Agricultural 5 kw & above There shall be minimum monthly charges of Rs.350/- per consumer per month, even if no energy is consumed. Note:- The consumers having sanctioned load less than 5 kw can opt for TOU metering. E - TEMPO RY STJPPiVVARIFFS Sr. No. TARIFF CATEGORY / PARTICULARS E-1(i) E-1(ii) E-2 Residential Supply Commercial Supply Industrial Supply FIXED CHARGES Rs/kW/M VARIABLE CHARGES Rs/kWh For the categories of E-1(i&ii) above, the minimum bill of the consumers shall be Rs. 50/- per day subject to a minimum of Rs.500/- for the entire period of supply, even if no energy is consumed. F - SEASON TRIALS Y TA Note: 125% of relevant industrial tariff Tariff-F consumers will have the option to convert to Regular Tariff and vice versa. This option can be exercised at the time of a new connection or at the beginning of the season. Once exercised, the option remains in force for at least one year. Sr. No. TARIFF CATEGORY / PARTICULARS FIXED CHARGES Rs/kW/M VARIABLE CHARGES Rs/ kwh Street Lighting Under Tariff G, there sh4l be a minimum monthly charge of Rs.500/- per month per kw of lamp c pacity installed. Page 3 of 4