NEPRA's Tariff Determination Raises Transparency Concerns

Investments in the infrastructure of generation, transmission, and distribution by utilities are considered fixed costs as they are not dependent on individual customer energy usage. These costs are typically covered by variable energy charges. Concerns have been raised about the transparency of the process for determining consumer tariffs by the regulator, particularly after a recent tariff determination for DISCOs on June 14, 2024. In this determination, fixed charges were increased to 2,000 Rupees per kW per month for industrial and bulk supply consumers, and per-connection fixed charges were introduced for residential consumers without prior clarification during the hearing process.

Nepra, the regulator, justified the increase in fixed charges under the National Electricity Plan 2023, but the methodology for determining these charges remains unclear. The lack of clarity extends to how fixed charges will be monitored and collected from industrial and bulk supply customers. Similarly, the methodology for assigning fixed charges to residential consumers based on consumption slabs lacks definition.

The recent tariff determination by NEPRA lacks specificity in defining fixed charges and providing a clear methodology for implementing a two-part tariff structure. This lack of clarity raises concerns about transparency in the tariff determination process.

Globally, trends in the utility industry are driving changes in electricity rates, including the need for infrastructure replacement, grid modernization, environmental regulations, and the growth of distributed energy resources like solar PV and battery storage. The increase in fixed charges can shift costs from high-volume to low-volume customers, impacting low-income households and reducing incentives for energy efficiency.

While higher fixed charges can stabilize utility revenues, they may reduce customer incentives for energy efficiency and onsite generation. The increase in fixed charges can disproportionately affect low-volume consumers, leading to equity and social justice concerns. Alternative rate design options, such as Revenue Decoupling, Lost Revenue Recovery Mechanisms, and Performance-Based Regulation, can address these challenges and ensure fairness in utility rate design.

NEPRA, as the regulator, has a responsibility to ensure transparency in pricing grid services in accordance with the Nepra Act. Establishing clear rules and guidelines for tariff determination is essential to maintain transparency and fairness in the process. Engaging in discussions on utility rate design and considering alternative rate design options can help address the challenges posed by higher fixed charges and promote equity in electricity pricing.

Understanding the complexities of utility rate changes is crucial for consumers to advocate for fair pricing and transparency in the electricity sector. NEPRA's role in regulating tariffs and promoting equitable rate structures is vital for ensuring a balanced approach to electricity pricing that considers the needs of all consumers.