Service charge

Nepra Approves Transmission Service Charges

Islamabad: National Electric Power Regulatory Authority (Nepra) has approved Transmission Service Charge (TSC) of Rs 0.1584/kWh (O&M component including National Transmission and Despatch Company Ltd – NTDC – local component and utility component) insurance of HVDC Matiari – Lahore Transmission Line) from March 18, 2021 to June 05, 2021 for 800 MW and from June 06, 2021 to September 01, 2021 for a maximum demonstrated capacity of 2200 MW, certified by an independent engineer.

The authority has announced its decision on a tariff revision request from Pak Matiari-Lahore Transmission Line Company (PMLTC). He also rejected the petitioner’s requests, including the extension of the required commercial operation date (RCOD), citing different rules.

The project established under the CPEC ±660 kV HVDC Matiari-Lahore Transmission Line reached its commercial operation date successfully on September 1, 2021 in accordance with the schedule agreed between NTDC and Pak Matiari-Lahore Transmission Line Company (PMLTC).

The Company in the Current Tariff Amendment Application submitted that the Company and NTDC have agreed to extend the RCOD as defined in Article 1 of the Transmission Service Agreement (TSA) on May 14, 2018 from 27 months to 33 months in accordance with the terms and conditions agreed in the Memorandum of Understanding (MoU) of February 18, 2021.

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PMLTC requested the following changes in its rate determination: (i) change the RCOD from March 1, 2021 to September 1, 2021 and allow the same as the pre-COD period; (ii) to authorize TSC on the maximum capacity demonstrated for the pre-COD period (based on low and high power testing); (iii) allow for revenue loss of approximately Rs 14 billion during the pre-COD period (i.e. 1 March 2021 to 1 September 2021) as an exceptional cost element in the cost of the project at the time of COD adjustment; (iv) approve the Payment and Testing Mechanism as set forth in the Transmission Service Addendum and Implementation Addendum; and (v) to allow provisional indexation of the reference tariff components (1.37 rupees/kWh) until the time of the final ad hoc adjustment of the modified modified tariff determination.

The authority held a hearing on June 17, 2021, during which the views of all parties involved were presented.

It reviewed the submissions of the claimant and the documents submitted by the company and NTDC in support of its claim. The authority observed that the faults of the transmission line had been acknowledged by both parties, i.e. NTDC and PMLTC, in documents dated November 30, 2020. Even then, the Certificate of Readiness was issued by Engineer M /s CESI of PMLTC, on 01 December 2020. Subsequently, a low power test was performed on 02 December 2020, which resulted in an online frequency oscillation. Accordingly, a Notice of Dispute was issued by NTDC to PMLTC on December 11, 2020, in which NTDC highlighted certain contractual requirements which were later resolved through a Memorandum of Understanding between the two parties on December 18, 2020. February 2021. The Authority also noticed that NTDCL was unable to provide total capacity of 4400 MW for the test of the high power transmission line.

PPIB said at the hearing that due to the pandemic, performance and contractual obligations were not met on time. As a result, a legal battle started between the companies, i.e. NTDC and PMLTC. In this scenario, the PPIB, MOE, NTDC BoD and PMLTC have agreed to defer/delay the actual COD by six months to make it workable for everyone. In this scenario, the MOU was signed with the mutual consent of both parties on February 18, 2021.

The authority observed that in its original decision, both parties, PMLTC and NTDC, were instructed to ensure the timely completion of their transmission line by fulfilling their contractual responsibilities. However, the breach of contractual obligations under the TSA was acknowledged by both parties through a memorandum of understanding dated February 18, 2021.

It has also considered RCOD extension provisions under the TSA pursuant to Section 6.1, Section 6.5, Section 6.6(c), Section 7.7, Section 8.1(b) or Section 8.3(a)(ii) of the ISA or due to Force Majeure. Major Event. However, no such event occurred.

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Under the Policy Framework for Private Sector Transmission Line Projects, 2015, a security package including TSA and AI has been prepared by the GOP for private investors. Therefore, changes to security packages, i.e. TSA, IA, etc., had to be approved by the CCE.

Accordingly, once the Memorandum of Understanding was signed by both parties, the TSA and AI amendments were approved by the ECC through its March 31, 2021 decision, which is a requirement in under the policy framework and is independent of the regulatory function. The Ministry of Energy (MoE) in its letter dated 02 August 2021 also pointed out that Nepra, as the regulator, may carry out all due diligence as to the amount and basis of payment in order to find a balance between NTDC and PMLTC consumer interests.

The regulator said that in order to protect the end consumer from inefficiency, cost overruns due to delay in completing the project for a given time period, as a matter of principle, it has never allowed RCOD extension with related costs to a licensee, except in cases of Force Majeure Events (FME) declared by the contracting parties, i.e. the electricity generator and the electricity purchaser and approved by the GoP.

The regulator argued that in light of the evidence, PMLTC’s request for the RCOD extension is not justified, therefore, the company is not permitted. However, PMLTC and NTDC are required to fulfill their respective contractual obligation to perform the low power test, high power tests, trial test, etc. within the timeframe agreed between the parties prior to September 1, 2021. PMLTC and NTDC advised that, for the sub-question period, there is no Nepra-approved TSC for use of the transmission line. Accordingly, any TSC authorized for this period was not considered under the relevant question.

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The petitioner requested approval of the payment and testing mechanisms set out in the Rider Agreement and the IA Rider Agreement. However, the Authority, while considering PMLTC’s application, noticed that the testing procedures, schedules, demonstration protocols and payment mechanism must be agreed between the parties (NTDC, PMLTC and IE), therefore Nepra has nothing to do in this perspective.

The petitioner argued that there has been a significant change in the indexing parameters, specifically the devaluation of the rupee/USD 104.40 to the rupee/USD 160.80, changes in the local CPI from 207.30 to 269.27 and the US CPI from 241.38 to 260.47, etc. since the publication of the tariff. determination. PMLTC argued that the consequence of the changes in escalation parameters is substantial and prejudicial to the company’s obligations to its lenders, contractors and shareholders and requested that until such time as the final one-time adjustment to the rate determination at the actual COD is processed and approved by the Authority, provisional indexations are provided at the applicable PKR/USD, US CPI, Local CPI and LIBOR rates in effect for the relevant quarters, as opposed to the rates indicated in the tariff determination.

The MoE, in its letter dated August 02, 2021, stated that there is no mention of pre-COD tariff escalation in either the amended TSA or the ECC summary/decision. Therefore, Nepra may consider the case of indexing tariff payments during the pre-COD period on merit in accordance with Nepra’s tariff determination, regulations and procedure.

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The authority reviewed PMLTC’s request and observed that PMLTC’s position was not supported by NTDC, PPIB and MOE. Given this, the position of indexing before COD is not legitimate in this case.

By decision of the authority, the PMLTC reference tariff becomes applicable after COD. Thus, once the COD is reached and PMLTC submits its request for adjustment/adjustment of the relevant tariff components to Nepra, indexation as such may be considered by the authority at that time.

Pursuant to the provision of section 7 read together with section 31(7) of the Regulation of Electricity Generation, Transmission and Distribution Act 1997, the Authority has approved the service charge (TSC) of Rs 0.1584/kW/h (O&M including local NTDC component and insurance component) for the period from 18 March 2021 to 05 June 2021 for 800 MW and for the period from 06 June 2021 to 01 September 2021 for a maximum demonstrated capacity of 2200 MW, certified by an independent engineer.

Copyright Business Recorder, 2021