NEPRA has approved K-Electric’s multi-year distribution tariff for the period FY24 to FY30. K-Electric had
proposed a seven-year tariff control period to facilitate long-term investments. However, the regulator has yet to approve the investment plan, and any revisions to it may impact our projected earnings. For FY24, the average distribution tariff has been set at PKR 3.31/KWh, while the Use of System Charge (UoSC) has been determined at PKR 1,348.66/kW/month.
The Authority approved key elements including;
▪ Tariff control period: the Authority has decided to allow a tariff control period of seven (07) years for the distribution tariff to K-Electric from FY24 to FY30.
▪ Debt to equity structure: The Authority has decided to allow a debt to equity ratio of 70:30 for the MYT control period of seven (07) years from FY24 to FY30.
▪ Cost of local debt: The Authority has decided to allow cost of local debt as 3M KIBOR+2.0% spread.
▪ Cost of foreign debt: the Authority has decided to allow cost of debt for foreign financing based on 3M LIBOR or SOFR + 4.5% spread and hedging cost, if applicable.
▪ FY24 Regulatory Asset Base (RAB): For FY24, K-Electric’s average Regulatory Asset Base (RAB) has been set at PKR 83.1bn for calculating the Return on Regulatory Asset Base (RoRB). Based on the approved debt-to-equity ratio of 70:30, this translates to a debt portion of PKR 58.1bn and an equity portion of PKR 24.9bn.
▪ Return on Equity: The Authority has approved a USD-based Return on Equity (RoE) of 14.00% (requested: 16.67%) for K-Electric’s distribution segment, which translates to 29.68% in PKR terms for FY24.
▪ Average Cost of Debt: K-Electric’s average cost of debt for FY24 has been calculated at 24.46% and will apply to 70% of the approved average RAB, subject to adjustment in line with the prescribed mechanism. Accordingly, the total Return on Rate Base Cost of Debt (RoRBCoD) has been determined at PKR 14.2bn for the year.
▪ O&M savings: O&M savings should be shared in the ratio of 50:50 between consumers and KE.
▪ T&D losses: The Authority has allowed K-Electric to adjust for actual units sent out based on approved T&D losses (13.8%), including related cost recoveries for distribution and supply in line with other DISCOs.
▪ Adjustment of distribution loss target due to change in voltage wise sales: The Authority has decided not to permit such adjustments at this stage, in line with the prevailing practice for XWDISCOs.
▪ Use of System Charge: The UoSC has been calculated to be PKR 1,348.66/kW/month (average MDI: 2,684 MW).
While the above points are quite beneficial to the company financial performance in the coming years it will certainly impact the public and commercial sector in the near to medium term.