National Electric Power Regulatory Authority Registrar Office eke No: NEPRAVR/TRF-1OQIMEPCO /J2 786 ‘August 27, 2015 Subject: Petition for Determination of Consumer-end Tariff for FY 2015-16 to 2019-20 under Multi-Year Tariff Regime in respect of Multan Electric Power Co. Ltd. Please find enclosed herewith the subject tariff petition submitted by MEPCO, vide letter dated 25.08.2015. received on 26.08.2015 for determination of consumer end tariff for FY 2015-16 to 2019-20 under Multi-Year Tariff Regime. 2. The subject tariff petition is required to be examined to check submission of documents / information required under Rule 3(2) & (8) of NEPRA Tariff (Standards & Procedure) Rules 1999 (“Tariff Rules”) as well as NEPRA Guidelines for Determination of Consumer End Tariff (Methodology and Process) 2015 (“Tariff Guidelines”) notified vide SRO 34(1)/2015 dated 16.01.2015 which, interalia, contain the Minimum Filing Requirements (Part 3 read with Part 5, 7 and 8 of the Guidelines and the Forms for minimum filing requirements attached with Guidelines) to be provided by distribution licensees alongwith petition filed for determination of consumer end tariff ‘The Senior Advisor (Tariff-1), Senior Advisor (Tech) and Legal Advisor (LLP) are requested to provide ir comments that whether the provided information / documents by MEPCO are complete as per the -ments of Tariff Rules and the Guidelines for admission or highlight / mention the shortcomings. if any, which ‘may cause non-admission of the subject petition. 4 In view that this is the first petition to be processed under the newly formulated Tariff Guidelines, therefore, all concerned are requested to offer their comprehensive and clear comments with regard to admission of the case or otherwise, 5. The deficient information in the petition, if any, shall be classified that itis required under a specific requirement of Tariff Rules and /or the Tariff Guidelines or an additional information is required under Rule 4(2) of the Tariff Rules and para 12 under Part 3 of the Tariff Guidelines 6. The requisite comments may kindly be provided by 31.08.2015 for further necessary ore matter, please. 1 {ftikhar“Ali Khan) Deputy Registrar “le, SA (Tech) 7) (Along with hard copies of venemeeee 2” SAE i Tull package received) im 3. LACLP) 4. Regulatory Economist 3. SES to Registrar 7°" 6. Mr. Zainullah Shah, 0.5 (to update status) 7. Me. Rizwan Ali Piracha (to scan te petition) ce: 1. Chairman 2. Vice Chairman / Member (CA) 3. Member (Tariff) 4. Member (M&E) 5. Member (Licensing) 27/71MEPC@® } MULTAN ELECTRIC POWER COMPANY LIMITED MULTIYEAR TARIFF PETITION F.Y. 2015-16 through F.Y. 2019-20 24™ August 2015MULTAN ELECTRIC POWER COMPANY LTD (WAPDA) NANCE DEPARTMENT omc wvamno LU ate Ww! Ea ere SUBJECT: DEDUCTION CERTIFICA A statment shoving te aoaucion mae to you Toit Paton Fe} 2 Fr The year 2075 Tole gen opt T Payment tern No snoacorun | Lo | tncome Tax | 20% Gt | vide cheque | Not Amon Fat No, & date aiaass ots 71747503 Tae 0 7 aswsr01s Ta oe Tings be OACheaue Assi lade inarogee Corporate Accounts ‘3 (Payments), MEPC® MULTAN ELECTRIC POWER COMPANY LIMITED Phone #: 061-9220085 P..X #: 061-9210380 Finance Department 'MEPCO Complex, Fax :061-9220116 Ext. #: 2058 " Khanewal Road, Multan No. /romyss/tarit) S928 Dated: 2 ¢/ /08/2015 The Registrar, National Electric Power Regulatory Authority, NEPRA Tower, Atta Turk Avenue, Sector G- 5/1, Islamabad. Subject: MULTIYEAR TARIFF PETITION FOR F.Y, 2015-16 THROUGH F.Y. 2019-20 ~ (MEPCO (LICENSE # 06/01/2002) We are enclosing Multiyear Tariff Petition for the F.Y. 2015-16 through F.Y. 2019-20, MEPCO is also enclosing Distribution Integrated Investment Plan (Di!P) prepared under the guidelines of the Authority, It is therefore, requested to admit attached petition for determination of consumer end tariff of the company for the financial years 2015-16 — 2019-20. ) It may please be acknowledged. Engr. asi Chief Executive Officer DA/ 1. Affidavit in original (one page) 2. Tariff Petition (/ Pages) 3.4 4 Famal, (67-Fap>? 4. Bim piienplion ee D Cis Pf) S- Byhy 7 Dhelons (08 Paty) 6° Demand Outi AK. Mig 0 844 9- Iacome TH deche Aum lolly Cole g- Board, beso luli* Base Year, in this application, FY 2014-15, means the year on whieh the amial or multiyear tariff projection is being made. * Tariff Control Period for Multiyear Tariff means a period of assessment unkr™ multiyear tariff regime, i.e. 2015-16 to 2019-20 + Test Year means the first year of tariff control period in multiyear tariff regine i.e. FY2015-16 : LIEF OR DETERMINATION SOUGHT 1, Objectives of the Petition The aim of this petition is to obtain approval for the implementation of eat reflective tariffS to yield MEPCO’s required revenues for the tariff control period i.e. 2016-200 effective July 1, 2015. Additionally, this multi-year tariff petition sets out required revenues ad timetable for rebalancing tariffs in MEPCO’s distribution area according to the mechanisms éeined by the Tariff Guidelines and will ensure to achieve the objectives of the multi-year tariff peition. The implementation of cost reflective tariffs and associated periodic adjwiments will benefit consumers and MEPCO as it will: Enable to improve service quality and reliability Provide adequate funds for the operation, maintenance and expansion ofdistribution network * Ensure the financial sustainability of MEPCO + Ensure tintely recovery of determined revenue requirement i.e. power purchase cost & distribution margin * Provide signals for efficient usage of distribution network and investmeal * Give price signal for efficient use of electricity 7.2. MEPCO’s Distribution Margin NEPRA in its determination dated March 27, 2015 has allowed distribution margin for financial year 2015 @ Rs. 1.10 / kWh sold. The distribution margfir covers MERO’s*O&M costs, depreciation, other income and return on regulatory asset base. The detail ofdistribution margin allowed is as follows: Distribution Margin: The sum of the O&M Cost, Depreciation, RORB reduced by other Income in MEPCO’s distribution margin, Dividing this by the total units to besold yields the average distribution margin (per kWh). Accordingly, the distribution margin for test year 2016 of tariff control period comes at Rs. 25617 Million or Rs. 2.13 / kWh sold, TheDi stribution Margin is discussed in detail in financial assumption attached as Annex 1 to this tarifpetition,The following formula in accordance with the NEPRA Tariff Guidelines 2015 has been used to calculate the Distribution Margin: DMp = RBp * RORBp + Dp + By + ty + ORCy Where: DMp is the eligible distribution company's Distribution Margin RBp is the eligible distribution company's rate base RORBp is the eligible distribution company's cost of capital Dp is the eligible distribution company's depreciation expense Ep is the eligible distribution company's expenses including bitnot limited to operation, maintenance and human resources T pis the eligible distribution company's federal and provincidltaxes (allowed as pass through) ORCp is the eligible distribution company's other regulatory ests including other income The O&M component of the Distribution Margin will be indexed with CPI subject to adjustment for efficiency gains (X factor) and accordingly the O&M will be indexelevery year according to the following formula as per NEPRA tariff guidelines: O&Mpey = O&Mpor * [t+ (ACPI - X)] Where: O&M (Rev) = Revised O&M Expense for the Current Year, O&M (Ref) = Reference O&M Expense for the Reference Year ACPI = Change in Consumer Price Index published by Pakistan Bureau of Statistics latest available on 1* July against the CPI as on I* July of the Reference Year in terms of percentage. X= Efficiency factor It is pointed out that MEPCO Pay & Allowance. historically, is linked vith Federal Goverment pay scale and accordingly the major component of operating expenditue is subject period adjustments based on GOP notification hence is difficult to predict. It i, therefore, suggested for the consideration of Authority that except for pay increases the other O&M expensed maybe considered for period adjustment based on CPI, network systeny and establishment of new offices for better services to consumers and annual pay increased be trued up based on notification issued GOP for pay increase, during the tariff control periodFurther, itis pointed out that MEPCO is filing multiyear tariff without consiering the X factor because historically various costs have not been allowed by NEPRA and ME?CO actual expenses are always higher than the allowed expenses due to its system requirements. As per formula given above it is submitted that the reference O&M will bette first year or reference year, O&M approved by the authority and which will be adjused by CPI which has been adjusted by an efficiency factor as determined by the authaily .to arrive at revised O&M for next year. This adjustment has three main issues which need to be addressed by Authority in determination of instant petition, The first issue is that change in CPI or inflation available for adjusinent will be backward looking and in this way petitioner may suffer as the CPV/Inflation will be of last year and Company will be bound to bear O&M with inflation of last yea, which may adversely impact the Company and in this regard it is suggested that any chnge in ACPI allowed and actual may be adjusted through PYA. The second issue is the application of only ACPI for adjustment of O&M, whereas MEPCO is fully owned by GOVT Company and all Company employees’ salaries and pensions are governed according to BPS and Government decisions, whichmay or may not surpass the ACPW/Inflation impact. It is therefore suggested that for Salaries and Pensions all Government and or PEPCO decisions be allowed to MEPCO instead of confining to ACPV/Inflation like other DISCO's The Third and last but not the least issue is the efficiency factor X inthe formula, which needs utmost care so that it does not affect the quality of service and iteaptures the industry efficiency rather than Company specific. The fact that most significant efficiency /cost factor is T&D Losses and incentive for investment to prone capacity expansion should be ensured. 7.3. Power Purchase Price (PPP) As per the tariff methodology prescribed in the NEPRA Tariff Guidelins 2015, the following formula is used to evaluate the power purchase cost: = PPP = PP(EC) * Q(p) + PP(cc) + TC Where: PPP is the Power Purchase Price PP(EC) is the energy charge part of PPP Q(p) is quantity purchased by the company PP(cc) is the capacity charge part of PPP TCs the transmission cost MEPCO pays a Power Purchase Price (in Rs/kWh) for the electricity it pneures from CPPA-G or from other sources on behalf of CPPA-G, which would include the gaeration and transmission charges (regulated by NEPRA). This Power Purchase Price, adjusted fe MEPCO'sdistribution losses, would then be simply added to MEPCO’s overall distribution margin to work out retail tariffs. Thus, the cost of the purchased electricity would be “passed through” to consumers through the retail tariff, without affecting MEPCO’s distribution margin. While passing through the PPP, it is recognized that all distribution companies experience some level of distribution losses, defined as the percentage of the difference between the units received by the company and the units invoiced to the consumers. The PPP should thus be adjusted such that MEPCO would be compensated for some losses, without hindering the incentive to eliminate the total losses PPP = Unadjusted PPP i Where; v Unadjusted PPP is the cost of electricity supply charged by CPPA or any other source at any given time; v Lis the target T & D losses for the year, defined as a percentage of purchased units, in accordance with a schedule established for the control period. For the tariff control period, the following target of Transmission & Distribution losses is proposed for the consideration of the Authority: (Year T&D Losses 2014-15 _ 16.80% 2015-16 16.22% 2016-17 _ 76% 2017-18 [15.60% 2018-19 - 15.60% _ 2019-20 - 14.88% Based on the above formula, the compensation for T&D losses would be automatically adjusted for any changes in the power purchase cost. The schedule of target losses, however, ‘would be maintained for the whole of the tariff control period regardless of the actual T&D losses incurred by MEPCO. Thus, if MEPCO were not able to meet the target loss reduction, it would be penalized by not being able to recover the cost of extra units lost from the retail tariffs. If, on the other hand, MEPCO’s actual loss reduction outperformed the target level, it would be able to gain extra revenues from the loss adjustments to the PPP. The working of the power purchase cost for the Tariff Control Period would. be piojected and approved by NEPRA based on the information provided by CPPA-G, NTDC & DISCOs with regards to generation plan (including existing plants and future plants), target of transmission and distribution losses aud assumptions based on fuel prices, dollar devaluation and“Yocal and international CPI ete. The main factors as mentioned in the guidelines aresummarized below # Forecasts and/or projections of fuel expenses * Variable O&M of generation companies * Forecasted and /or projected Generation Capacity Charge Component of ie power purchase price * The Transmission Charges of NTDC * The quantum of generation is also projected from each generation plant fir each test oo year keeping in view the upcoming generation facilities and ongoing power sector constraints such as circular debts ete. For a multi-year tariff following periodic adjustments as per the NERA Tariff Guidelines 2015, have been proposed for the tariff control period based on tke periodic performance of the distribution companies evident in actual results: For adjustments with regards to the power purchase cost: © Quarterly/Bi-Annual PPP Adjustments the scope of which would be limited to: i, The adjustments pertaining to the capacity and transmission charges. The impact of T&D losses iii, Adjustment of Variable O&M. © Monthly Fuel Adjustments ‘The adjustments on account of variation in fuel cost component of PPP would be done on monthly basis. This adjustment reflects in the consumers’ monthly bill as Fuel Adjustment Charge. ii, In view of any abnormal changes the Authority may review these referens along with any quarterly adjustment. Here itis pertinent to mention that PPP ispass through forall the DISCOs (variable cost) and its monthly references would contiue to exist irrespective of the financial year, unless the new Schedule of Tariff (S01)is notified by the GOP. Under the proposed tariff-setting methodology, the average retail tariff would consist of: (i) the Power Purchase Price (PPP), which would be passed through to the end usersin the retail tariff, and (ii) the average distribution margin, which would be set on the fumula-based methodology. 8. CONSUMER-END TARIFF For the year 2016, MEPCO’s existing tariff will be adjusted to incorponte revenue requirements consisting of cost of power purchased and distribution margin requed and for remaining financial years of tariff contro! period the periodic adjustment as per the mechanism } provided in tariff methodology and guidelines coupled with the changes proposed asebove.9, NON PAYME MEPCO is TOF UO: tua in an area where majur thermal generation of country takes place and NTDC does not evacuate all power directly from these power plants resultally MEPCO ansmission assets are used and for this service MEPCO has been allowed ue of system but regretfully the UoSC claims by MEPCO has not been catered fir by other Companies despite the fact that these are also the licensee of NEPRA. The regilator while allowing 15% target duly supported by studies acknowledges this loss impactof 1.1% and decided that its compensation will be made through these payments but these payments never materialize. MEPCO currently has issued UoSC claims amounting to Rs. 9442(1) for the period from F.Y. 2009-10 to F.Y. 2013-14 (March 2014). It is therefore again equested to resolve this long outstanding issue of MEPCO. 10. INADEQUATE WHEELING CHARGES NEPRA has allowed private to private sale of power where MEPCO willonly act as transporter of power for the power generator. MEPCO raised number of issues inthis regard, however the issue of just and adequate wheeling charge for this transaction weeds to be decided through NEPRA determination and MEPCO did bring this issue upin its tariff review motion but the same has not been addressed in review motion deermination. Therefore. the same is again submitted before regulator so that MEPCO does mt suffer any loss in this regard. 11. The current wheeling charges formula does not cover the losses incurred by power wheeler in wheeling of power as evident from formula already given by NEPRA. WhereasNEPRA has been allowing these losses for general consumers but the same has not been alloved for this arrangement, Furthermore, it has been observed that in countries other than Palistan where this arrangement is allowed, losses in wheeling of power have been allowel to power wheeler. Therefore, it is submitted that technical losses for each level( i.e 1324v and I kv for wheeling of power may also be allowed to save MEPCO from loss in this regard. It is therefore submitted that following formula be applied instead of the curr, as it will safeguard companies against loss of power on wheeling. (0