Nepra walks back Rs42bn penalties on National Transmission and Dispatch Company
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ISLAMABAD: In a major U-turn, the National Electric Power Regulatory Authority (Nepra) on Tuesday withdrew Rs42 billion in penalties imposed on the National Transmission and Dispatch Company (NTDC) for alleged violations of the economic merit order (EMO) in the utilisation of power plants.
The NTDC had been pleading for years that deductions of about Rs42bn from its dues were hampering the completion of nationally important infrastructure projects. The regulator, meanwhile, had been penalising the company over delays in removing system constraints and had deducted amounts from NTDC’s Use of System Charges payable by distribution companies.
The matter was later taken to the Islamabad High Court (IHC), which initially stayed the deduction of NTDC dues as directed by Nepra and then referred the issue back to the regulator for a decision on merit.
On re-examination, and based on NTDC’s viewpoint, Nepra concluded that its earlier decision was not fully supported by the legal and regulatory framework. It therefore reversed the decision that had remained in force for over three years, during which NTDC’s dues of Rs41.44bn remained withheld.
“The Authority is of the considered view that continuation of the practice of withholding financial impact based on EMO violation does not fully align with the intent of the regulatory framework,” Nepra said in its decision.
It said it was cognisant of avoidable costs borne by consumers due to delayed removal of constraints, but considered that these issues were more appropriately addressed through targeted enforcement, performance monitoring and compliance mechanisms, rather than through continued withholding of financial impact in fuel cost adjustment (FCA) proceedings.
Nepra therefore decided that “the practice of provisionally withholding the amount from NTDC’s Use of System Charges payable by Discos on account of EMO deviation at the FCA stage shall be discontinued”. The mode and mechanism for the release of the withheld amount will be decided separately.
While reversing its decision, Nepra has now taken the stance that “the concept of economic dispatch is generally interpreted in a very skewed manner. The Nepra Act and the initial framework, i.e. the National Electric Power Regulatory Authority Licensing (Generation) Rules, 1999 (“Generation Rules”), do account for prioritising the lowest-cost generation sources; however, at the same time highlight an interplay between economic efficiency and system security”.
It went on to justify the U-turn by saying that the Nepra Act did not explicitly define “economic dispatch” but acknowledged its existence and outlined specific considerations related to its implementation.
“The Act recognises that even when economic dispatch is the guiding principle, generating companies might be required to deviate from it to support system stability or meet specific operational requirements. In such cases, they are entitled to compensation from the NTDC (in cases of voltage support, etc). This highlights the practical implications of economic dispatch and its potential conflict with system security needs,” it added.
It argued that it was a given fact that economic efficiency and system security are not always aligned. “Therefore, the legal regime recognises that deviations from economic dispatch can be necessary to ensure system reliability,” it said.
Nepra had decided earlier that the financial impact arising from the underutilisation of efficient power plants shall not be allowed in the monthly FCA unless the NTDC submits the contractual or operational limitations associated with each plant that result in its underutilisation or partial loading, even during periods of high demand. The NTDC made no tangible progress towards the removal of system constraints.
It then directed the Central Power Purchasing Agency (CPPA) — a sister company of the NTDC — to deduct the FCA against EMO from the NTDC’s Use of System Charges payable by Discos.
These deductions were made for 36 months, commencing September 2019, when the first financial impact was withheld, and thereafter the regular practice of withholding such amounts began in August 2020 and continued till October 2023.
The NTDC had been pleading before Nepra and then before the IHC that the continuation of such deductions had materially impaired its financial position and liquidity, which had adversely affected key financial indicators and created a risk of breach of loan covenants.
It said that, being an infrastructure-based national transmission utility and a strategic asset of the country, it cannot sustain disproportionately large EMO-related deductions from its approved revenue requirement, which jeopardise the timely execution of critical national transmission system projects.
Meanwhile, Nepra also notified about 10 paise per unit additional FCA to be charged to all electricity consumers, including those of K-Electric, during the current billing month.
