LHC sets aside Nepra’s tariff calculation method
• Orders govt to provide subsidy to domestic consumers using up to 500 units
• Says companies must share financial burden
LAHORE: In a significant verdict, the Lahore High Court (LHC) on Monday set aside the levy of fuel price adjustment, the quarterly tariff adjustment and change in status of tariff from industrial to commercial by Nepra for the period when its composition was not complete under the law.
The court directed the National Electric Power Regulatory Authority to explore cheap modes of producing electricity and ordered the federal government to provide a maximum subsidy to domestic consumers using up to 500 units per month.
Justice Ali Baqar Najafi judge announced the judgement, reserved on Oct 10, 2022, on petitions filed by hundreds of consumers in August 2022.
The petitioners — domestic, industrial and commercial — had challenged the recovery of the fuel price adjustment and other levies for the month of July on the ground that Nepra was not competent to do so for being not fully constituted as required under Section 3 of its Act.
Justice Najafi directed Nepra to inform the consumers about the charges on a monthly basis and that the fuel price adjustment shall not go beyond seven days and the quarterly tariff adjustment shall not go beyond the statutory period.
The judge asked Nepra not to charge exorbitant tariffs beyond the paying capacity of domestic consumers.
He directed the regulator to fix the responsibility of overcharging on the basis of line losses and the less efficient power plants and the financial burden will also be shared by the companies under a rational proportion.
He directed the regulator to explore cheap modes of producing electricity and evolve mechanisms for its quick availability, besides ensuring a smooth supply of electricity based on demand.
The judge restrained the authority from unilaterally changing the type of tariff from industrial to commercial without hearing the consumers.
Justice Najafi asked the government not to demand extraordinary taxes having no nexus with the consumption of energy, which may be recovered through other modes.
“Explore the solar, hydel, nuclear and wind sources of producing electricity. Arrange for cheap purchase of sources of electricity from other countries,” the judge advised the government in his 81-page verdict.
Justice Najafi observed that Nepra must keep in mind while deciding about the tariff that interaction between the consumer and the producer should not be excited by the fiduciary relationship for the simple reason that to earn huge profit the performance of the company must increase and not the price be increased.
Therefore, he said, “imposition of various taxes which can be recovered otherwise, amounts to economic strangulation of the consumers”.
“A predatory and soaring price of electricity would be unbearable, therefore, a comprehensive plan must be prepared to address and counter the issues in order to prevent the society from an economic death,” the judge added.
The judge regretted that Nepra, an autonomous organisation, didn’t make serious efforts to improve regulatory infrastructure in the power sector. He said the body remained unsuccessful in developing and pursuing a regulatory framework to guarantee reliable, efficient, and affordable electricity.
He observed that only the institutional capacity of a regulator can ensure that all its regulatory decisions and requirements were met effectively in a timely and correct manner.
“It is possible only when the regulator has a qualified staff, a well-coordinated organisational set-up, sufficient funds, and the powers to take decisions autonomously and balance all stakeholders. But at the same time, the regulator should also be accountable for all its decisions,” the judge maintained.
He held that Nepra had not done anything to stop the circular debt from rising in so many years.
He lamented that increasing costs of generation and sector inefficiencies, anomalies in tariff methods and delays in tariff determination were responsible for the circular debt issue.
The judge noted that tariff structure in Pakistan was not based on regional and consumer-specific long-run marginal costs. Rather it was used as an instrument to achieve political and socioeconomic objectives.
The judge regretted that instead of regulating Discos, the burden was transferred to the consumers.
Published in Dawn, February 7th, 2023