Distribution companies overbilling consumers to cover up losses: Nepra

ISLAMABAD: Concerned over the poor performance of the power sector, the regulator has blamed the distribution companies (Discos) for overbilling consumers to cover up their inefficiencies and high system losses as the government struggles to put in place an improvement roadmap.

In its “State of Industry Report 2019” cleared by the federal cabinet last week, the National Electric Power Regulatory Authority (Nepra) warns that continuation of existing policy of loadshedding in ‘high loss’ areas stifles sales growth and increases energy costs.

“Backtracking from the reform agenda and not following it in letter and spirit would leave the power sector in complete tatters and the negative drag of public sector resulting from poor governance would not only bring the sector down but also result in further slow-down of the overall economy of the country,” Nepra warns.

It notes that sudden dips have occurred during the last two years in percentage losses in the months of November and February. The losses dipped from October and shot up sharply in December. Similarly losses took a dip in January and registered a steep rise in March. Both these trends are difficult to explain except that some adjustments are made by the Discos to show improved results for their loss position.

Regulator deplores KE’s inability to boost its generation capacity

“The overbilling issue therefore still haunts the consumers of electricity,” the regulator says while putting on record that “Discos are still involved in systematic manipulation of the electricity units to manage their distribution losses which are factually higher.”

The report says Discos could not reduce their overall transmission and dispatch losses. Statistics for over past five years showed that only a slight reduction of 0.6 per cent has been achieved in FY2018-19 as compared to the losses of the previous year.

Similarly, no significant improvement in the performance has been noted in the area of overall revenue recovery of Discos as the recovery ratio in FY2018-19 (without subsidy) improved by only 0.18pc over the previous year. These improvements combined translated into savings of around Rs10 billion — insignificant over a portfolio of Rs1.6 trillion. Six better companies — Islamabad, Faisalabad, Gujranwala, Lahore, Peshawar and Hyderabad — went down while Tribal, Multan, Sukkur and Quetta showed little improvement in recoveries.

The report says the energy ministry claimed 15.5pc higher amount in recoveries over the last year’s amount collected. Interestingly though, the units sold had increased by only 2.16pc over the last year while the amount billed was 13.22pc more than the last year. “Further review reveals that incremental amount billed is mainly due to increase in consumer end tariff, whose notification was pending since 2015-16 and subsequently notified in March 2018”. Therefore at the national level, the Discos have shown meager improvement in recoveries and losses and have largely maintained the last year’s level in these areas.

For any improvement, the foremost parameter to focus is energy sold. The report notes that close to 6pc increase per year was achieved for units sold from 2015 to 2017. During FY2017-18, the units sold registered an increase of over 12.5pc but sharply declined to around 2pc during FY2018-19. A healthy growth in energy sold is key to the survival of the power sector as it would help in bringing the capacity costs down which would lead to lowering of overall energy cost.

The regulator confirms that the power sector is under extreme financial pressure due to high cost of electricity supply and poor performance of distribution sector. Coupled with the higher costs are shrinking energy sales which have resulted in higher cost for the end-consumers, further damping energy usage. The vicious circle has to be broken to expect any upturn of the sector. Consequently, the federal government has to grapple with diverging objectives of viability of the entities and affordability of consumers to pay higher tariffs.

The overall receivables of all Discos increased by Rs248.85bn — 50pc higher than the receivables of Rs166.26bn in FY2017-18. As on June 30, 2019 the overall distribution sector receivables stood at Rs1.145trn against Rs896bn at the start of the financial year.

The regulator notes that continuation of the power division with the centralised control of day-to-day operations of public sector entities has led to unacceptable levels of technical and financial performance. “It is disappointing that in spite of regular directions and advisories by the regulator to the licensees and the relevant ministry, public sector entities have not been provided with any degree of control as required under the reform process.”

Nepra also expresses grave concern that lately the fundamental principles of reforms have been disputed by the energy ministry, which have been followed in many countries to successfully bring transparency, quality, competition and lowering of electricity prices. “For instance tinkering with tariff determinations which is the sole domain of Nepra is against transparency and reversing the established regulatory regime,” it notes.

The regulator also laments that the federal government has not approved National Electricity Policy even though it is required to do so under the Nepra Amendment Act, 2018 and follow it up with a number of rules and guidelines for smooth transition from the existing regulatory regime to the new one under the amended law. “Absence of these policies have added to uncertainty in the sector for all stakeholders and since NEPRA is now bound to follow National Electricity Policy, therefore any long term regulatory framework may not be finalized.”

The regulator also expresses dissatisfaction with K-Electric for its inability to increase its generation capacity despite maintaining an integrated system of generation, transmission and distribution and hence continuing to remain dependant on external sources, including import from national grid. “The performance of KE own power plants are un-satisfactory for last year as compared to allowed targets in respect of heat rate/efficiency and auxiliary consumption despite that reasonable O&M costs allowed to KE under multi year tariff.” Major overhauling of units was not carried out on timely basis and the utility underutilised its plants and yet carried excessive loadshedding, the report notes.

It says the utility’s attempts to hide behind supply and gas pressure are untenable since the fuel availability is the KE’s responsibility.

Talking about the National Power Control Centre (NPCC), the regulator notes that it has not been able to clearly establish that all of its operations are based on prudent utility practices. It notes that invariably every month the NPCC operates such power generation plants which are very low in merit order and unilaterally curtails generation from those power plants which are to be operated as “must run” in the system.

Published in Dawn, September 14th, 2020