NEPRA approves seven-year tariff plan for K-Electric, lowers ROE to 14% for distribution

The National Electric Power Regulatory Authority (NEPRA) has approved a seven-year control period for K-Electric’s distribution and transmission tariffs, spanning fiscal years 2024 to 2030.

For distribution, NEPRA set K-Electric’s return on equity (ROE) at 14%, amounting to PKR 7.4 billion (EPS: PKR 0.27) for FY24, lower than the company’s requested 16.67%.

The tariff, which may be subject to revision, could lose its USD indexation, according to BMA Capital report.

NEPRA approved the actualization of units billed, contingent on allowed transmission and distribution (T&D) losses.

NEPRA emphasized that actualization could incentivize load shedding in low-recovery areas but stated that K-Electric must ensure adequate supply per regulations.

The regulator rejected K-Electric’s request to adjust its distribution loss target but noted the matter could be revisited.

NEPRA maintained a 70:30 debt-to-equity ratio in line with the previous Multi-Year Tariff (MYT) period from FY17-23.

Local loan costs were set at 3M KIBOR plus a 2% capped spread, while foreign loans were benchmarked at SOFR/LIBOR plus a 4.5% spread and hedging costs. For unhedged loans, K-Electric can claim cost fluctuations due to exchange rate volatility.

Operations and maintenance (O&M) expenses will be indexed to December’s National Consumer Price Index (NCPI), with only 30% of increases factored from the third year onward. Half of all O&M savings will be passed on to consumers.

K-Electric’s regulatory asset base (RAB) was calculated at PKR 83 billion, with an assumed weighted average cost of capital (WACC) of 26.03%, generating a return of PKR 21.6 billion.

The approved capital expenditure for FY24 stands at PKR 43 billion, while estimated revenue requirements for the distribution segment total PKR 50.3 billion.

Regarding unrecovered costs from FY17-23, NEPRA ruled that K-Electric could seek recovery through quarterly tariff adjustments, contingent on government approval.

Similarly, the regulator approved a seven-year transmission tariff control period, setting K-Electric’s ROE at 12%—down from the requested 15%—amounting to PKR 10.3 billion (EPS: PKR 0.37) for FY24. NEPRA upheld the 70:30 debt-to-equity ratio and allowed cost recovery for exchange rate fluctuations.

Approved O&M expenditures for transmission stand at PKR 6.7 billion, with full consumer pass-through of savings if audited costs fall below the approved figure.

NEPRA set K-Electric’s unaudited RAB at PKR 149 billion, with an average of PKR 140 billion for FY24. Based on an estimated WACC of 24.5%, the company’s return on RAB sums to PKR 34.4 billion.

All taxes, including corporate tax, Workers Welfare Fund (WWF), and Workers Profit Participation Fund (WWPF), will be treated as pass-through items.